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EXHIBIT 10.1
BRIDGE LOAN AGREEMENT BY AND
BETWEEN
V2K INTERNATIONAL, INC. AND
AMERIVON INVESTMENTS LLC
DATED AS OF JUNE 6, 2008
BRIDGE LOAN AGREEMENT
by and between
V2K International, Inc.
and
Amerivon Investments LLC
Dated as of June 6, 2008
TABLE OF CONTENTS
Page
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1.4
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Certificate
of
Designation
1
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1.9
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Common
Stock
Equivalents
1
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1.11
Company Intellectual
Property
2
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1.12
Consulting
Agreement
2
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1.13
Disclosure
Schedule
2
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1.14
Employee Benefit
Programs
2
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1.17
Hazardous
Material
2
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1.19
Indemnifying
Party
2
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1.23
Registration Rights
Agreement
3
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1.27
Security
Agreement
3
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1.28
Series A Preferred
Stock
3
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1.29
Series B Preferred
Stock
3
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1.30
Series B Preferred Stock
Financing
3
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1.31
Services
Agreement
3
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2.2
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Delivery
by the
Company
4
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-i-
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(d)
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Registration
Rights
Agreement 4
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(e)
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Consulting
Agreement 4
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(h)
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Good
Standing
Certificates 4
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(i)
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Officers’
Certificate 5
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(j)
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Secretaries’
Certificate 5
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3.
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SERIES
B PREFERRED STOCK
FINANCING. 6
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3.1
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Option
to Purchase Series B Preferred
Stock
6
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3.2
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Purchase
of the Series B Preferred
Stock
6
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3.3
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Rights
of the Series B Preferred
Stock
6
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3.4
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Extension
of Note
Maturity
7
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4.
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REPRESENTATIONS
AND WARRANTIES OF THE
COMPANY 7
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4.1
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Organization
and Good
Standing 7
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4.4
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No
Governmental
Consent
8
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4.7
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Financial
Statements
9
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(a)
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Annual
Financial
Statements
9
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(b)
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Interim
Financial
Statements
9
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4.8
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Financial
Projections
9
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4.10
Absence of Undisclosed
Liabilities
10
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4.11
Absence of Certain
Changes
10
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(a)
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Material
Adverse
Change
10
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(c)
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Purchase
or Sale of
Assets
10
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(d)
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Damage
to
Property
10
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-ii-
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(g)
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Officers
and Key
Personnel 11
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(h)
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Payment
of Material Lien or
Liability 11
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(k)
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Accounting
and Other
Practices 11
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(l)
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Loss
of Customer or
Supplier 11
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(m)
Termination of Material
Contract 11
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(n)
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Royalty
Agreements 11
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(o)
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Fixed
Price or Volume
Agreements 11
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(p)
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Material
Transactions 11
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(q)
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Amendment
of Articles or
Bylaws 12
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4.12
Accounts
Receivable 12
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4.15
Transactions with
Affiliates
12
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4.17
Certain Contracts and
Arrangements
13
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4.18
Intellectual
Property
14
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(a)
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The
Company Intellectual
Property
14
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(b)
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Ownership
of Company Intellectual
Property
15
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(c)
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Registration
of Company Intellectual
Property
15
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(d)
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No
Infringement
Action
15
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(f)
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No
Notice of
Infringement
15
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(g)
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No
Employee
Ownership
15
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(h)
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No
Infringement by
Others
15
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(j)
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Confidential
Information
15
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4.21
Permits; Compliance with
Laws
16
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4.22
Employee Benefit
Programs
16
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(a)
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Employee
Benefit
Programs
16
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(b)
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Qualified
Employee Benefit
Programs
17
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4.23
Insurance
Coverage
17
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4.25
Environmental
Matters
18
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4.26
Customers, Distributors, and
Partners
18
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4.28
Warranty and Related
Matters
18
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4.31
Government
Contracts
19
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4.32
Directors and
Officers
19
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-iii-
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4.33
Private Sale of
Securities
20
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5.
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REPRESENTATIONS
AND WARRANTIES OF
AMERIVON
20
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5.1
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Organization
and Good
Standing
20
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5.5
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Short
Sales and Confidentiality Prior to the Date
Hereof 21
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6.
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PRE-CLOSING
COVENANTS 21
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6.1
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Business
in the Ordinary
Course 21
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6.2
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Conditions
Precedent 21
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7.1
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Closing
Conditions of
Amerivon 21
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(a)
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Representations
and Warranties
True 21
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(b)
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Covenants
Performed 21
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(c)
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No
Material Adverse
Changes
21
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(h)
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Certificate
of
Designation
22
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7.2
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Closing
Conditions of the
Company
22
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(a)
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Representations
and Warranties
True
22
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8.
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POST-CLOSING
COVENANTS OF THE
COMPANY
23
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8.1
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Preservation
of
Existence
23
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8.2
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Transfer
of
Assets
23
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8.3
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No
Cash Payments or Other Transfers To
Shareholders
23
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8.4
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Additional
Indebtedness
23
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8.6
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Liens
and
Encumbrances
24
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8.7
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Access
to Books and
Inspection
24
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8.8
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Accountant-Generated
Information
24
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8.10
Change in Nature of
Business
24
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8.12
Reporting
Covenants
24
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(a)
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Annual
Financial
Statements
24
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(b)
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Monthly
Financial
Statements
25
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(c)
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No
Event of
Default
25
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-iv-
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(e)
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Notice
of and Event of
Default
25
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(f)
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Other
Financial
Information 25
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8.13
Maintenance of Company Intellectual
Property 25
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8.14
Performance of Loan
Documents 25
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8.15
After-Acquired Real
Property 25
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8.16
Consulting and Services
Agreements 26
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9.
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POST-CLOSING
COVENANTS OF
AMERIVON 26
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9.1
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Short
Sales and Confidentiality After the Closing
Date 26
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10.1
Survival of Representations and
Warranties 26
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10.2
Indemnification by the
Company 27
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10.3
Indemnification by
Amerivon 27
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10.5
Claim Not Involving a Third
Party 28
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10.6
Claim Involving a Third
Party 28
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11.1
Events of
Default
28
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(b)
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Breach
of
Covenant
28
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(d)
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Representation
Untrue
28
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(e)
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Voluntary
Bankruptcy
29
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(f)
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Involuntary
Bankruptcy
29
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(h)
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Suspension
of
Business
29
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(i)
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Material
Adverse
Change
29
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(j)
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Material
Impairment
29
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(k)
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Destruction
or Damage to the
Collateral
29
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(n)
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Default
of Material
Agreement
29
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(o)
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Material
Misrepresentation
30
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12.
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GENERAL
PROVISIONS
30
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12.4
Successors and
Assigns
31
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12.8
Severability of
Provisions
31
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-v-
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12.11
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No
Third Party Beneficiaries
32
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12.12
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Further
Assurances
32
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12.13
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Relationship
Between the Company and
Amerivon
32
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SIGNATURE
PAGE
34
SCHEDULES
AND
EXHIBITS
35
SCHEDULE
3.2 36
-vi-
BRIDGE LOAN AGREEMENT
This
Bridge Loan Agreement (the “Agreement”) is made
and entered into as of the 6th day of June, 2008, by and
between V2K International, Inc., a Colorado corporation (the
“Company”), and Amerivon Investments LLC, a Nevada
limited liability company
(“Amerivon”).
RECITALS
Amerivon
desires to make a $1.6 million bridge loan to the Company and
the Company desires to borrow such amount from Amerivon, and
the Company desires to give Amerivon the option to purchase up
to $5 million in preferred stock from the Company, all on the
terms and conditions set forth herein.
NOW,
THEREFORE, in consideration of the foregoing, the mutual
promises and covenants set forth herein, and for other good
and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereby agree as
follows:
AGREEMENT
1.
DEFINITIONS . The
following terms when used with initial capital letters shall have
the following defined meanings, unless expressly indicated
otherwise:
1.1
Agreement . This
Bridge Loan Agreement, including all exhibits and schedules
hereto.
1.2
Amerivon . Amerivon
Investments LLC, a Nevada limited liability company.
1.3
Balance Sheet . The
audited, year-end consolidated balance sheets of the Company as at
September 30, 2007.
1.4
Certificate of Designation . The
Certificate of Designation of the Rights, Preferences, and
Privileges of the Series A Preferred Stock and the Series B
Preferred Stock in substantially the form as set forth in
Exhibit
G attached hereto and incorporated herein by this
reference.
1.5
Closing . The
consummation of the purchase and sale of the
Securities.
1.6
Closing Date . The
date of the Closing.
1.7
Collateral . The
collateral pledged pursuant to the Security Agreement.
1.8
Common Stock . The
Company’s common stock, par value $0.001 per
share.
1.9
Common Stock Equivalents . Shares
of Common Stock, any securities of the Company that are
substantially similar to the Common Stock, any securities
convertible into or exercisable or exchangeable for Common
Stock, and any shares of Common Stock that may be
deemed
to
be beneficially owned by Amerivon in accordance with the rules and
regulations of the Securities and Exchange Commission.
1.10
Company . V2K
International, Inc., a Colorado corporation.
1.11
Company Intellectual Property . All
of the items described in Section
4.18(a) , whether or not listed in Schedule 4.18 of the
Disclosure Schedule.
1.12
Consulting Agreement . That
certain Consulting Agreement, dated as of the date hereof, by and
between Amerivon and the Company in substantially the form as set
forth in Exhibit D
attached hereto and incorporated herein by this
reference.
1.13
Disclosure Schedule . The
schedule attached hereto pursuant to Section 4 that
identifies the exceptions and limitations to the representations
and warranties of the Company.
1.14
Employee Benefit Programs . All
employee benefit plans within the meaning of Section 3(3) of ERISA,
fringe benefit, stock option, equity-based compensation, phantom
stock, bonus, or incentive plans, severance pay policies or
agreements, retirement, pension, profit sharing, or deferred
compensation plans or agreements, and all similar plans,
agreements, and arrangements providing monetary and non-monetary
compensation or rights to employees or non-employee
directors.
1.15
ERISA . The
Employee Retirement Income Security Act of 1974, as
amended.
1.16
Event of Default . As
set forth in Section 11.1
.
1.17
Hazardous Material . Any
oil, petroleum, petroleum product, asbestos, toxic substance,
pollutant, contaminant, hazardous waste, hazardous substance, or
hazardous material as defined or set forth in any federal or
applicable state environmental or hazardous material law, rule, or
regulation.
1.18
Indemnified Party . The
party or persons being indemnified pursuant to Section
10 .
1.19
Indemnifying Party . The
party providing indemnification pursuant to Section 10
.
1.20
Liens . All
security interests, encumbrances, mortgages, deeds of trust,
hypothecations, and other liens, including but not limited to
liens of attachment, judgment, and execution.
1.21
Loan Documents. This
Agreement and all of the agreements and documents to be delivered
by the Company pursuant to Section 2.2
other than agreements, documents, and instruments to which the
Company or one or more of its officers is not a party, signatory,
or issuer.
1.22
Note . That
certain Secured Bridge Note, dated as of the Closing
Date, issued by the Company and each Subsidiary to
Amerivon in the original principal amount of One Million Six
Hundred Thousand Dollars ($1,600,000) in substantially the form as
set forth in Exhibit A
attached hereto and incorporated herein by this
reference.
1.23
Registration Rights Agreement . That
certain Registration Rights Agreement, dated as of the Closing
Date, by and between Amerivon and the Company in substantially the
form as set forth in Exhibit C
attached hereto and incorporated herein by this
reference.
1.24
Securities . The
Note and the Shares, and any shares of Common Stock issued on
conversion thereof.
1.25
Securities Act . The
Securities Act of 1933, as amended.
1.26
Securities Laws . The
Securities Act and the rules and regulations promulgated
thereunder, and all applicable state securities laws and the rules
and regulations promulgated thereunder.
1.27
Security Agreement . That
certain Security Agreement, dated as of the Closing Date, by and
among Amerivon, the Company, and each Subsidiary in substantially
the form as set forth in Exhibit B
attached hereto and incorporated herein by this
reference.
1.28
Series A Preferred Stock . The
Company’s Series A Convertible Preferred Stock, par value
$0.001 per share.
1.29
Series B Preferred Stock . The
Company’s Series B Convertible Preferred Stock, par value
$0.001 per share.
1.30
Series B Preferred Stock Financing . The
purchase of shares of Series B Preferred Stock as set forth in
Section
3 .
1.31
Services Agreement . That
certain Services Agreement, dated as of the date hereof, by and
between Amerivon and the Company in substantially the form as set
forth in Exhibit E
attached hereto and incorporated herein by this
reference.
1.32
Shares . The
one million six hundred thousand (1,600,000) shares of
Series A Preferred Stock to be issued to Amerivon pursuant to
Section
2.3 .
1.33
Short Sales . The
same definition as set forth in Rule 200 of Regulation SHO,
promulgated under the Securities Exchange Act of 1934.
1.34
Subsidiaries . Marketing
Source International LLC, a Colorado limited liability company, V2K
Manufacturing, Inc., a Colorado corporation, V2K Technology, Inc.,
a Colorado corporation, and V2K Window Fashions, Inc., a Colorado
corporation, each of which is a
“Subsidiary.”
1.35
Voidable Transfer . Any
incurrence of debt, payment of money, or transfer of property made
to Amerivon by or on behalf of the Company that is declared to be
“voidable” or “avoidable” within the
meaning of any federal or state law relating to creditor’s
rights, including, without limitation, a fraudulent conveyance,
preference, or otherwise voidable or recoverable payment of money
or transfer of property, in whole or in part, for any reason under
the Bankruptcy Code or any other federal or state law.
2.
BRIDGE LOAN .
2.1
Bridge Loan . Subject
to the terms and conditions of this Agreement, subject to
compliance with federal and all applicable state securities laws,
and in reliance upon the Company’s representations,
warranties, and covenants set forth herein, at the Closing Amerivon
shall purchase the Note from the Company and the Subsidiaries, and
the Company and the Subsidiaries shall issue and sell the Note to
Amerivon. The purchase price for the Note shall be One
Million Six Hundred Thousand Dollars
($1,600,000). Amerivon shall pay the purchase price,
less applicable fees and expenses as set forth in Section 2.3 ,
by wire transfer or other form of payment acceptable to the
parties.
2.2
Delivery by the Company . At
or prior to the Closing, the Company shall deliver the following to
Amerivon:
(a)
Note . The
Note duly executed by the Company and each Subsidiary;
(b)
Security Agreement . The
Security Agreement duly executed by the Company and each
Subsidiary;
(c)
Shares . The
certificate for the Shares duly executed by the
Company;
(d)
Registration Rights Agreement . The
Registration Rights Agreement duly executed by the
Company.
(e)
Consulting Agreement . The
Consulting Agreement duly executed by the Company.
(f)
Services Agreement . The
Services Agreement duly executed by the Company;
(g)
Certified Articles . A
copy of the Company’s Articles of Incorporation, as amended,
including but not limited to the Articles of Amendment containing
the Certificate of Designation, certified by the Colorado Secretary
of State, and a copy of the Articles of Incorporation, Articles of
Organization, or similar organizational document for each
Subsidiary, certified by the Secretary of State of the jurisdiction
in which such Subsidiary is incorporated or organized;
(h)
Good Standing Certificates . The
following certificates: (i) a certificate issued by the Colorado
Secretary of State as to the legal existence and good standing of
the Company in Colorado, (ii) a certificate issued by the Secretary
of State (or similar authority) of each jurisdiction in which the
Company has qualified to do business as a foreign corporation (or
is required to be so qualified) as to such foreign qualification
and good standing, (iii) a certificate issued by the Secretary of
State of each jurisdiction in which a Subsidiary is incorporated or
organized as to the legal existence and good standing of such
Subsidiary in such state, and (iv) a certificate issued by the
Secretary of State (or similar authority) of each jurisdiction in
which a Subsidiary has qualified to do business as a foreign
corporation or entity (or is required to be so qualified) as to
such foreign qualification and good standing;
(i)
Officers’ Certificate . A
certificate, dated as of the Closing Date, executed by the
Company’s Chief Executive Officer and Chief Financial
Officer, satisfactory in form and substance to Amerivon and its
legal counsel, certifying that (i) all of the representations and
warranties of the Company set forth in Section 4 are
true and correct as of the Closing Date, (ii) all covenants of the
Company set forth in Section 6 have
been performed, and (iii) all conditions to the obligations of
Amerivon contained in Section 7.1
have been fulfilled.
(j)
Secretaries’ Certificate . A
certificate duly executed by the Secretary of the Company and each
Subsidiary certifying (i) a true and correct copy of the Bylaws or
Operating Agreement of the Company and each Subsidiary, (ii) true
and correct copies of resolutions or consent actions taken by Board
of Directors or managers of the Company and each Subsidiary
authorizing the appropriate officers to execute and deliver the
Loan Documents and all agreements, documents, and instruments
executed by the Company and the Subsidiaries pursuant hereto, and
to consummate the transactions contemplated herein and therein, and
(iii) the names of the officers of the Company and each Subsidiary
authorized to sign the Loan Documents and the other agreements,
documents, and instruments executed by the Company or Subsidiary
pursuant hereto, together with the true signatures of such
officers;
(k)
FIRPTA . A
non-foreign affidavit as provided in Section 1445(b)(2) of the
Internal Revenue Code for the Company and each
Subsidiary;
(l)
Legal Opinion . A
legal opinion from the Company’s legal counsel containing the
opinions as set forth in Exhibit F
attached hereto and incorporated herein by this
reference;
(m)
Fees and Expenses . Amerivon
has received the fees and the expenses as set forth in Section 2.3 ;
and
(n)
Other Documents . All
other documents, instruments, and certificates as Amerivon may
reasonably request or as may be required pursuant to this
Agreement, in each case duly executed and delivered by the
Company.
2.3
Fees and Expenses .
(a)
Fees . The
Company shall issue the Shares to Amerivon as a loan
fee. The Company also shall pay Amerivon Three Hundred
Five Thousand Dollars ($305,000) for consulting fees under the
Consulting Agreement, which amount Amerivon may deduct from the
amount of the purchase price payable to the Company.
(b)
Expenses . The
Company shall reimburse Amerivon for its reasonable actual
out-of-pocket fees and expenses (including legal, due diligence,
accounting, and investment banking fees and expenses) incurred in
connection with the purchase of the Note, in an amount not to
exceed Fifty Thousand Dollars ($50,000). Amerivon
may deduct the actual amount of the expenses from the amount of the
purchase price payable to the Company. For any
out-of-pocket fees and expenses incurred in connection with the
purchase of the Note that are not reimbursed at the closing,
Amerivon shall submit a written statement to the Company and the
Company shall promptly reimburse Amerivon for such fees and
expenses.
2.4
Closing . The
Closing shall occur on June 26, 2008, or on such other date as the
parties may agree.
2.5
Revival . In
the event of any Voidable Transfer and Amerivon is required to
repay or restore any Voidable Transfer or the amount or any portion
thereof, or upon the advice of its counsel is advised to do so,
then, as to any such amount repaid or restored (including all
reasonable costs, expenses and attorneys’ fees of Amerivon
related thereto), the liability of the Company and the Subsidiaries
shall automatically be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been
made.
2.6
Participation . The
Company acknowledges and agrees that Amerivon intends to sell
participation interests in the Securities. The Company
agrees that, on compliance with the Securities Laws, Amerivon may
transfer all or any portion of the Note, the Shares, or the shares
of Common Stock issuable on conversion of the Note or the Shares to
the participants.
3.
SERIES B PREFERRED STOCK FINANCING .
3.1
Option to Purchase Series B Preferred Stock
. The
Company hereby grants Amerivon the option to purchase all or any
portion of five million (5,000,000) shares of Series B Preferred
Stock at the exercise price of One Dollar ($1.00) per
share. Amerivon may exercise the option at any time and
from time to time by giving written notice to the Company on or
prior to six (6) months from the date hereof. Amerivon
may assign all or any portion of the option to affiliated companies
or its co-investment entities.
3.2
Purchase of the Series B Preferred Stock . Amerivon shall
purchase the Series B Preferred Stock pursuant to a purchase
agreement containing terms, conditions, representations,
warranties, and indemnities as are customary in an investment of
this type, with a registration rights agreement providing for two
demand and incidental registration rights, a lock-up agreement
providing that the current management of the Company will not sell
any shares of the Company for a twelve (12)-month period after the
date on which Amerivon purchases all or any portion of the Series B
Preferred Stock, which lock-up will not be applicable to the shares
of Common Stock listed in Schedule 3.2 attached hereto, and such
other terms, conditions, documents, and agreements as Amerivon
may reasonably require. The registration rights agreement will
also require the Company to pay Amerivon liquidated damages of two
percent (2%) of the amount paid by Amerivon in purchasing all or
any portion of the Series B Preferred Stock per each thirty
(30)-day period or part thereof for any registration default, such
damages being paid either in cash or, at the Company’s
option, in shares of Common Stock valued at eighty-five percent
(85%) of the average closing trading price for the ten (10) trading
days immediately preceding the month end for which such penalty is
payable, provided that such shares are fully registered for resale
by Amerivon. On satisfaction of the conditions set forth
in the purchase agreement, the Company and Amerivon shall complete
the purchase and sale of the Series B Preferred Stock within sixty
(60) days after the Company receives the notice from Amerivon for
the purchase and sale of the Series B Preferred Stock.
3.3
Rights of the Series B Preferred Stock . The
Series B Preferred Stock will have the rights, preferences, and
privileges as set forth in the Certificate of
Designation.
3.4
Extension of Note Maturity . If
Amerivon does not notify the Company that it will exercise its
option to purchase all five million (5,000,000) shares of Series B
Preferred Stock within one hundred fifty (150) days of the Closing
Date, then the maturity date of the Note shall be extended for an
additional ninety (90) days.
4.
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY . Subject
to the exceptions and limitations set forth in the Disclosure
Schedule, which identifies exceptions and limitations by
specific section reference, the Company hereby represents and
warrants to Amerivon, as of the date hereof and as of the Closing
Date, as follows (except where the context indicates
otherwise, each reference to the Company in this Section 4
includes each of the Subsidiaries):
4.1
Organization and Good Standing .
(a)
The Company . The
Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado, with the
corporate power to own its properties and carry on its businesses
as they are now being conducted. The Company is
qualified to conduct business in every state in which it is
required to be qualified to conduct business. The
Company has the requisite corporate power and authority to execute,
deliver, and perform this Agreement and the Loan Documents and to
consummate the transactions contemplated herein and
therein. The Company is not in violation of any term of
its Articles of Incorporation or Bylaws. The
Company’s organizational number issued by the Colorado
Secretary of State is 20061109378.
(b)
The Subsidiaries . Each
Subsidiary is a corporation or limited liability company duly
organized, validly existing, and in good standing under the laws of
the state of its incorporation or organization, with the power to
own its properties and carry on its businesses as they are now
being conducted. Each Subsidiary is qualified to conduct
business in every state in which it is required to be qualified to
conduct business. Each Subsidiary has the requisite
power and authority to execute, deliver, and perform the Loan
Documents to which it is a party and to consummate the
transactions contemplated therein. No Subsidiary is in
violation of any term of its organizational
documents. The true and correct name, state of
incorporation or organization, and organizational number issued by
the Secretary of State of the state of incorporation or
organization of each Subsidiary is set forth below.
Name
State
Organizational
Number
Marketing
Source International
LLC Colorado
20071170890
V2K
Manufacturing,
Inc. Colorado 19941105773
V2K
Technology,
Inc. Colorado 20061269371
V2K
Window Fashions,
Inc. Colorado 19961097423
4.2
Authorization . The
execution, delivery, and performance of the Loan Documents and
the consummation of the transaction contemplated herein and therein
have been duly and validly authorized by all necessary action on
the part of the Company and each Subsidiary. The Loan
Documents have been duly and validly executed and delivered by the
Company and each Subsidiary, and constitute the legal, valid,
and binding obligations of the Company and each Subsidiary,
enforceable against the Company and each Subsidiary in accordance
with their respective terms,
subject
to applicable bankruptcy, insolvency, moratorium, and other laws
affecting the enforcement of creditors’ rights
generally.
4.3
No Violation . The
execution and delivery of the Loan Documents does not and the
performance of the Loan Documents and the consummation of the
transactions contemplated herein and therein will not conflict
with, violate, or cause a breach of or default under (or an event
which with notice and/or lapse of time would become a default) the
provisions of the Company’s Articles of Incorporation or
Bylaws, the organizational documents of any Subsidiary, or any
note, indenture, agreement, or other instrument to which the
Company or any Subsidiary is a party or by which its properties are
bound.
4.4
No Governmental Consent . The
execution and delivery of the Loan Documents does not and
performance of the Loan Documents and the consummation of the
transactions contemplated therein and therein will not conflict
with or violate any federal, state, or local law or regulation, any
order, judgment, or decree of any court, administrative agency, or
governmental authority, or any license or permit from any federal,
state, or local governmental authority applicable to the
Company. The execution and delivery of the Loan
Documents does not and performance of the Loan Documents and the
consummation of the transactions contemplated herein and therein
will not require any approval, consent, authorization, or permit
from or any filing with any federal, state, or local governmental
authority.
4.5
Capitalization . The
Company’s authorized capital stock consists of one hundred
million (100,000,000) shares of Common Stock, of which thirty-one
million, four hundred sixty-seven thousand, three hundred
thirty-six (31,467,336) shares are issued and outstanding, and ten
million (10,000,000) shares of preferred stock, of which one
million six hundred thousand (1,600,000) shares have been
designated as Series A Preferred Stock and five million (5,000,000)
shares have been designated as Series B Preferred Stock, and no
shares of any series of preferred stock are issued or
outstanding. All of the issued and outstanding shares
have been duly authorized and validly issued, and are fully paid
and nonassessable. The Company has issued options and
warrants exercisable to purchase thirty-three million, six
hundred sixty-eight thousand, eight hundred sixty (33,668,860)
shares of Common Stock, each of which is listed in Section 4.5 of
the Disclosure Schedule, and except for such options and warrants
listed in Section 4.5 of the Disclosure Schedule, there are no
outstanding options, employee stock options, warrants, convertible
securities, agreements, contracts, calls, or commitments of
any character that would require the Company to issue any capital
stock. There are no preemptive rights, rights of first
refusal, put or call rights or obligations, or anti-dilution rights
with respect to the issuance, sale, or redemption of any capital
stock by the Company. The Shares and all shares of
Common Stock to be issued on conversion of the Shares and the Note
will be duly authorized, validly issued, fully paid, and
nonassessable, and will not be issued in violation of any
preemptive right. The Company has duly and validly
authorized and reserved sufficient shares of Common Stock for
issuance on conversion of the Shares and the Note. The
Company has no obligation to purchase, redeem, or otherwise acquire
any of its capital stock or any interests therein, and has not
redeemed any shares of its capital stock in the past three (3)
years.
4.6
Subsidiaries . Other
than as set forth in Section 4.1(b)
, the Company does not have any other subsidiary and does not own,
directly or indirectly, any voting or equity interest in any
corporation, partnership, limited liability company, joint venture,
company, entity, or any other business enterprise of any
nature.
4.7
Financial Statements . The
Company has delivered to Amerivon and included in Section 4.7 of
the Disclosure Schedule copies of the following financial
statements, all of which have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods indicated and are consistent with the
Company’s books and records, and nothing has come to the
attention of the Company since the date of any of such financial
statements that would indicate that such financial statement was
not true and correct in all material respects as of its applicable
date:
(a)
Annual Financial Statements . The
consolidated balance sheets of the Company as at September 30, 2006
and 2007, as audited by Gordon, Hughes & Bank, LLP,
each of which presents fairly as of its date the financial
condition and assets and liabilities of the Company, together with
consolidated statements of operations, cash flows, and
stockholders’ equity of the Company for the years ended
September 30, 2006 and 2007, which present fairly the results of
operations of the Company for the periods indicated;
and
(b)
Interim Financial Statements . The
consolidated balance sheet of the Company as at March 31, 2008,
which presents fairly as of its date the financial condition and
assets and liabilities of the Company, together with consolidated
interim statements of operations and cash flows of the Company for
the six (6) months ended March 31, 2008, which present fairly the
results of operations of the Company for the period
indicated.
4.8
Financial Projections . The
financial projections that the Company previously provided to
Amerivon represent good faith estimates of the performance of the
Company for the periods stated therein based upon assumptions that
were believed in good faith to be reasonable when made and continue
to be reasonable on the date hereof; provided that the foregoing is
not a guarantee that such projections will be
achieved.
4.9
Tax Returns . The
Company has prepared and timely filed with the appropriate
federal, state, county, or local tax authority all income, excise,
sales, real or personal property, employment, and all other tax
returns required to be filed by it under all applicable laws and
regulations, which returns were true, complete, and correct,
and the Company has paid all taxes, interest, and penalties
required to be paid through the date hereof, whether or not
disputed. The provisions for taxes set forth on the
Balance Sheet are sufficient for the payment of all accrued and
unpaid taxes of the Company (including any penalties or interest
payable in respect of such taxes), whether or not disputed, for the
period ended on the date hereof, and for all fiscal years prior
thereto. All such taxes and other assessments and levies
that the Company was or is required to withhold or collect have
been withheld and collected and have been paid over to the proper
governmental authorities or will be paid when due. The
Company’s income tax returns have not been audited by the
Internal Revenue Service or any taxing authority for all years open
for assessment, and neither the Internal Revenue Service nor any
other taxing authority has notified the Company of any audit or any
tax deficiency for any prior tax year that has not been fully
resolved and paid. The Company has not executed or filed
with the Internal Revenue Service or any other taxing
authority an agreement extending the period for the assessment
or collection of any tax, or an agreement to have the provisions of
former Section 341(f) of the Internal Revenue Code of 1986, as
amended, applied to it. The Company is not a party to
any tax allocation or sharing arrangement. The Company
is not a party to any contract, agreement, plan, or arrangement
covering any of its employees or former employees, that,
individually or collectively, could give rise to the payment of any
amount that would not be
deductible
pursuant to Sections 162 or 280G of the Internal Revenue Code (or
any corresponding provision of state or local tax
law). Except for consolidated income tax returns with
the Subsidiaries, the Company has never been a member of an
affiliated group of corporations filing a combined federal income
tax return. The Company does not have any liability for
any taxes of any other person or entity except for the
Subsidiaries.
4.10
Absence of Undisclosed Liabilities . The
Company does not have any liability or obligation of any nature,
whether accrued, absolute, contingent, asserted, unasserted, known
or unknown, or otherwise, except liabilities or obligations (i)
stated or adequately reserved against in the Balance Sheet, (ii)
arising from commitments incurred in the ordinary course of
business of types and amounts consistent with past experience after
the date of the Balance Sheet, or (iii) that are not material to
the Company.
4.11
Absence of Certain Changes . Since
September 30, 2007, the Company has conducted its business only in
the ordinary course and consistent with past practice, and there
has not been any of the following:
(a)
Material Adverse Change . Any
event, action, omission, or other development that,
individually or in the aggregate, has had or is reasonably expected
to have a material adverse effect on the Company or its business,
results of operations, assets, or financial condition;
(b)
No Liens . Any
Lien or other claim on any of the properties or assets of the
Company, other than purchase money Liens in amounts that do not
exceed Twenty Thousand Dollars ($20,000) and Liens that do not
materially detract from the value or materially interfere with any
present or intended use of such properties or assets;
(c)
Purchase or Sale of Assets . Any
purchase, sale, or other disposition, or any agreement or other
arrangement for the purchase, sale, or other disposition, of any
properties or assets by the Company involving the payment or
receipt of more than Twenty Thousand Dollars ($20,000), other than
the purchase and sale of inventory in the ordinary course of
business consistent with past practice;
(d)
Damage to Property . Any
damage, destruction, or loss, whether or not covered by insurance,
that, individually or in the aggregate, has had or is reasonably
expected to have a material adverse effect on the Company or its
business, results of operations, assets, or financial
condition;
(e)
Capital Stock . Any
change in the authorized, issued, or outstanding capital stock of
the Company; any granting of any stock option or right to purchase
shares of capital stock or any issuance of any security convertible
into shares of capital stock of the Company; any purchase,
redemption, retirement, or other reacquisition of any share of
capital stock by the Company; any agreement to do any of the
foregoing; or any declaration, setting aside, or payment of any
stock dividend or other distribution of the capital stock of the
Company;
(f)
Employee Matters . Any
material labor trouble or any claim of unfair labor practices
involving the Company, any change in excess of Ten Thousand Dollars
($10,000) in the compensation payable or to become payable by the
Company to any of its officers or employees other than normal merit
increases to employees in accordance with their respective usual
practices,
or
any material bonus payment or arrangement made to or with any of
such officers or employees or any establishment or creation of any
employment, deferred compensation, severance arrangement, or
employee benefit plan with respect to such persons or the material
amendment of any of the foregoing;
(g)
Officers and Key Personnel . Any
resignation, termination, or removal of any officer or key person
of the Company, any material loss of personnel of the Company, or
any material change in the terms and conditions of the employment
of the Company’s officers or key persons;
(h)
Payment of Material Lien or Liability . Any
payment or discharge of a material Lien or liability of the Company
that was not shown on the Balance Sheet, other than Liens and
liabilities incurred after the date of the Balance Sheet in the
ordinary course of business consistent with past
practice;
(i)
Guarantee . Any
contingent liability incurred by the Company as guarantor or
otherwise with respect to the obligations of other person or
entity, or any cancellation of any material debt or claim owing to,
or waiver of any material right of, the Company, including any
write-off or compromise of any account receivable in excess of
Twenty Thousand Dollars ($20,000);
(j)
Insider Loans . Any
obligation or liability incurred by the Company to any of its
officers, directors, shareholders, or employees, or any loans or
advances made by the Company to any of its officers,
directors, shareholders, or employees, except normal compensation
and expense allowances payable to officers or employees in the
ordinary course of business consistent with past
practice;
(k)
Accounting and Other Practices . Any
change in the Company’s accounting principles, methods,
practices, or practices, collection policies, pricing policies, or
payment policies;
(l)
Loss of Customer or Supplier . Any
loss, or any known development that could reasonably be expected to
result in a loss, of any significant supplier, customer,
distributor, or account of the Company;
(m)
Termination of Material Contract . Any
amendment or termination of any material contract or agreement to
which the Company is a party or by which it is bound;
(n)
Royalty Agreements . Any
arrangements relating to any royalty or similar payment based on
the revenues, profits, or sales volume of the Company;
(o)
Fixed Price or Volume Agreements . Any
transaction or agreement involving fixed price terms or fixed
volume arrangements;
(p)
Material Transactions . Any
other material transaction entered into by the Company other than
purchases and sales of inventory in the ordinary course of business
consistent with past practice;
(q)
Amendment of Articles or Bylaws . Any
amendment to the Company’s Articles of Incorporation, other
than the Articles of Amendment containing the Certificate of
Designation, or Bylaws; or
(r)
Agreements . Any
agreement or understanding, whether in writing or otherwise, for
the Company to take any of the actions specified in Sections
4.11(a)
through (q)
.
4.12
Accounts Receivable . All
of the accounts and notes receivable of the Company are valid
and enforceable claims, are subject to no set-off or counterclaim
and are fully collectible in the normal course of business, after
deducting the reserve for doubtful accounts stated in the Balance
Sheet, which reserve is in accordance with generally accepted
accounting principles. Since the date of the Balance
Sheet, the Company has collected its accounts receivable in the
ordinary course of its business and in a manner that is consistent
with past practice and has not accelerated any such
collections. The Company does not have any accounts
receivable or notes receivable from any person or entity that is
affiliated with the Company or its directors, officers, employees,
or shareholders. Since September 30, 2007, the Company
has not (i) experienced returns of products previously sold or
distributed to any customer or retailer, (ii) offered credits to
any customer or retailer against future orders of products or
services from any such customer or retailer, or (iii) provided any
products or services to any customer or retailer free of charge,
such that the instances of all returns, credits and other
transactions described by clauses (i), (ii), and (iii) exceeded
Twenty Thousand Dollars ($20,000) in the aggregate.
4.13
Accounts Payable. All
accounts payable and notes payable of the Company arose in bona
fide arm’s length transactions in the ordinary course of
business and no such account payable or note payable is delinquent
in its payment. Since the date of the Balance Sheet, the
Company has paid its accounts payable in the ordinary course of its
business and in a manner that is consistent with past
practice. The Company does not have any account payable
to any person or entity that is affiliated with the Company or its
directors, officers, employees, or shareholders.
4.14
Inventory . All
of the Company’s inventory items are of a quality and
quantity salable in the ordinary course of its business at profit
margins consistent with Company’s past
practices. The values of the inventory stated in the
Balance Sheet reflect the normal inventory valuation policies
of the Company and were determined in accordance with generally
accepted accounting principles consistently
applied. Purchase commitments for raw materials and
parts are not in excess of normal requirements, and none are at
prices materially in excess of then current market
prices. Since the date of the Balance Sheet, no
inventory items, except for sales samples, product
replacement, and disposals, in each case, in an immaterial
amount, have been sold or disposed of except through sales in the
ordinary course of business at profit margins consistent with the
Company’s past practices, and all sales commitments made for
the Company’s products are at prices not less than inventory
values plus selling expenses and said profit margins.
4.15
Transactions with Affiliates . There
are no loans, leases, or other agreements or transactions between
the Company or any Subsidiary on the one hand and any present or
former shareholder, director, officer, or employee of the Company,
or any member of any such officer’s, director’s,
employee’s, or shareholder’s immediate family, or any
person or entity controlled by or controlling such officer,
director, employee, or shareholder or his or her immediate family,
on the other hand. No present or former shareholder,
director, officer, or employee of the Company or any
Subsidiary,
any of their respective spouses or family members, or any person or
entity controlled by or controlling such officer, director,
employee, or shareholder or his or her immediate family, owns
directly or indirectly, on an individual or joint basis, any
interest in, or serves as an officer or director or in another
similar capacity of, any competitor, customer, or supplier of the
Company or any organization that has a material contract or
arrangement with the Company.
4.16
Properties . The
Company has good, valid, and (if applicable) marketable title to
all assets material to its business and to those assets reflected
on the Balance Sheet or acquired by it after the date thereof
(except for (a) properties disposed of since that date in the
ordinary course of business consistent with past practice and not
in violation of this Agreement, and (b) immaterial assets that have
been disposed of in the ordinary course of business consistent with
past practice), free and clear of all Liens and claims of any type
whatsoever, except for (i) Liens not yet due and payable, (ii)
purchase money Liens in amounts that do not exceed Twenty Thousand
Dollars ($20,000), and (iii) Liens that do not materially detract
from the value or materially interfere with any present or intended
use of such properties or assets. All equipment included
in such properties that is necessary to the business of the Company
is in good condition and repair (ordinary wear and tear excepted)
and all leases of real or personal property to which the Company is
a party are fully effective and afford the Company peaceful
and undisturbed possession of the property subject to the
lease. As of the date of this Agreement, the property
and assets of the Company are sufficient for the conduct of
its business as conducted as of the date of this
Agreement.
4.17
Certain Contracts and Arrangements . Except
as set forth in Section 4.17 of the Disclosure Schedule, the
Company is not a party or subject to or bound by:
(a) Any
contract or agreement involving a potential commitment or
payment by the Company in excess of Twenty Thousand
Dollars ($20,000), other than purchase orders or invoices for
the purchase and sale of inventory (but including any contract
or arrangement underlying any of such purchase orders or
invoices);
(b) any
material contract, lease, or agreement that is not cancelable
by the Company without penalty on not less than ninety (90)
days notice;
(c) any
contract containing covenants limiting in any respect the
freedom of the Company to compete in any line of business or
with any other person or entity;
(d) any
contract or agreement relating to the licensing, distribution,
development, purchase, sale, or servicing of any of the
intellectual property of the Company;
(e) any
indenture, mortgage, promissory note, loan agreement,
guaranty. or other agreement or commitment for borrowing or
any pledge or security arrangement;
(f) any
stock redemption or purchase agreement or other agreement
affecting or relating to the capital stock of the
Company, including, without limitation, any agreement with any
shareholder of the Company or any other person or entity that
includes anti-dilution rights, registration rights, voting
arrangements, operating covenants, or similar
provisions;
(g) any
pension, profit sharing, retirement, or stock option
plan;
(h)
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