THE SECURITIES WHICH ARE THE SUBJECT OF THIS EXCHANGE AGREEMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF THE COMPANY'S INTENDED
COMPLIANCE WITH SECTIONS 3(a)(9), 3(b), AND/OR 4(2) OF THE SECURITIES ACT OF
1933, THE PROVISIONS OF REGULATION D UNDER SUCH ACT, AND SIMILAR EXEMPTIONS
UNDER STATE LAW. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY
REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOTE EXCHANGE AGREEMENT
(for shares of Series A Preferred and New Note)
This NOTE EXCHANGE AGREEMENT ("Agreement") is made and entered into as
of the date appearing on the execution page hereof by and between NEBO PRODUCTS,
INC., a Utah corporation (the "Company"), and _______ (the "Buyer").
RECITALS
A. Buyer is a party to a Promissory Note dated ________ between
the Company as Maker and Buyer as Payee, in the original principal amount of
$____ (the "Original Note"), with a current unpaid principal balance of $_____.
B. The Company owes accrued interest to Buyer on the Original
Note through _____, 2002, totaling $_______.
C. Accordingly, total unpaid principal and interest on the
Original Note as of _____, 2002 is $_________.
D. The Company has certain other pending debt obligations and
contingent liabilities which it is attempting to convert into equity interests
in the Company, including obligations similar to the Company's obligation to
Buyer, in the aggregate amount of approximately $1,500,000 (collectively, the
"Company Debts," which figure includes the Original Note to Buyer). The Company
proposes to convert Company Debts into shares of Series A Convertible Preferred
Stock ("Preferred Stock") of the Company.
E The Company does not have the resources at this time to pay Buyer the
full Original Note.
F. The Company believes that it can continue its operations and
marketing activities if the balance sheet and capital structure of the Company
can be substantially reorganized, including replacement of the Original Note and
the Company Debts with capital stock interests in the Company, or a combination
of capital stock interests and new debt obligations of the Company.
G. The Company's sole director has approved a plan of reorganization
pursuant to which the Buyer and certain other creditors of the Company would
exchange all of their Company Debts for Preferred Stock of the Company, or for a
combination of Preferred Stock and new debt obligations of the Company.
H. The Company has authorized the issuance of shares of Preferred Stock
to Buyer and the other holders of Company Debts at the rate of 1 share of
Preferred Stock for each $0.20 in value of the Company Debts to be cancelled and
surrendered by Buyer and the other debt holders.
I. The Company desires to issue to Buyer, and Buyer desires to receive
from the Company, a combination of shares of Preferred Stock and a new
promissory note in exchange for cancellation of the Original Note.
NOW, THEREFORE, in consideration of the mutual representations and
covenants contained herein, it is agreed and understood as follows:
ARTICLE 1
EXCHANGE
1.1 Issuance of Preferred Stock. Subject to the terms of this
Agreement, and in exchange for the consideration set forth in Section 1.2 of
this Agreement, the Company agrees, at the Closing, to (i) issue to Buyer ______
shares of the Company's Series A Convertible Preferred Stock (the "Shares"), and
(ii) issue to Buyer a new promissory note in the form attached to this Agreement
as Exhibit "A" (the "New Note"). The Shares and the New Note are sometimes
referred in this Agreement collectively as the "Securities."
1.2 Release and Termination of Original Note. Subject to the terms of
this Agreement, and in exchange for the consideration set forth in Section 1.1
of this Agreement, Buyer agrees, at the Closing, to terminate the Original Note
and to release, surrender, forgive and relinquish in full the Original Note, any
security interest granted to Buyer in connection therewith, and any and all
other obligations of the Company under the Original Note.
1.3 Closing. The Closing of this Agreement (the "Closing") will take
place at the offices of the Company and may occur at any time on or after the
date hereof in accordance with the provisions of this Section 1.3. The
obligations of the Company under this Agreement are expressly conditioned upon
satisfaction of the following:
2
(a) The agreement of Buyer to convert the Original Note into
shares of Preferred Stock and the New Note of the Company, as evidenced by the
Company's receipt of an executed copy of this Agreement and a Purchaser
Questionnaire; and
(b) The Company reserves the right to execute and close this
Agreement with any, some, or all of the holders of the Company Debts as that
term is defined herein; provided, however, that the Company will not close this
Agreement unless holders of Company Debts aggregating more than $1,000,000 agree
to exchange their Company obligations for shares of Preferred Stock of the
Company. Moreover, the Company also reserves the right to individually negotiate
with a Company creditor, resulting in an exchange agreement with such creditor
on terms more or less favorable than those set forth herein.
ARTICLE 2
COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company covenants, represents and warrants as follows:
2.1 Organization, Standing, Etc. The Company is duly organized, validly
existing, and in good standing under the laws of the State of Utah, and has the
requisite corporate power and authority to conduct the business in which it is
now engaged, to own or hold its properties and assets, and to enter into and
perform this Agreement.
2.2 Capital Stock. As of the date of this Agreement, the authorized
Capital Stock of the Company consists of 100 million shares of Common Stock, no
par value per share, of which 18,797,445 shares are presently issued and
outstanding, and 100 million shares of Series A Convertible Preferred Stock, no
shares of which are outstanding. Assuming conversion of the Company Debts
(including Buyer's Original Note) into shares of Preferred Stock, 6,519,355
additional shares of Preferred Stock will be issued in connection with this
exchange offer.
2.3 Authorization. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, offer,
issuance and delivery of the Shares, and the performance of the Company's
obligations hereunder has been taken, or will have been taken, prior to the
Closing. The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and non-assessable.
2.4 Financial Statements. To the best of the Company's knowledge, the
financial statements of the Company contained in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2001, and in the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002, are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, except that the unaudited financial
3
statements do not reflect normal audit adjustments and other support statements,
schedules, footnotes and other disclosures required by generally accepted
accounting principles. To the best of the Company's knowledge, the Financial
Statements accurately set forth and describe the financial condition and
operating results of the Company as of the dates, and during the periods,
indicated therein. Except to the extent reflected or reserved against or
disclosed herein or in the Financial Statements, the Company, as of the date of
the Financial Statements, had no financial liabilities or obligations of any
kind, whether accrued, absolute or contingent, which under generally accepted
accounting principles should have been so reflected or reserved against or
disclosed.
2.5 Changes. To the best of the Company's knowledge, except as
disclosed in this Agreement, any exhibits hereto or other documents provided to
the Buyer, since the date of the Financial Statements, there has not been:
(a) any change in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Financial Statements,
except changes in the ordinary course of business,
(b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties or
business of the Company,
(c) any waiver by the Company of a materially valuable
right or of a material debt owed to it,
(d) any loans made by the Company to its employees,
officers, or directors other than advances of expenses made in the ordinary
course of business,
(e) any declaration or payment of any dividend or other
distribution of the assets of the Company, or
(f) any other event or condition of any character which has
materially and adversely affected the business, prospects, condition, affairs,
operations, properties or assets of the Company.
ARTICLE 3
COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer covenants, represents and warrants as follows:
3.1 Sole Party in Interest. The Buyer is the sole and true party
in interest, and no other party has any beneficial ownership in the Securities,
whether direct or indirect.
4
3.2 Investment Purpose. The Securities are being acquired solely
for the Buyer's own account, for investment, and are not being acquired with a
view to the resale, distribution, subdivision or fractionalization thereof.
3.3 Knowledge and Experience. The Buyer, either alone or with his
purchaser representative, is experienced in evaluating and making speculative
investments, and has the capacity to protect the Buyer's interests in connection
with the acquisition of the Securities. In addition, the Buyer, either alone or
with his purchaser representatives, has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of the transactions contemplated by the Agreement. The Buyer and such
purchaser representative, if any, have executed the form of Purchaser
Questionnaire and Purchaser Representative's Questionnaire attached hereto.
3.4 Disclosure, Access to Information, etc. Buyer acknowledges
that he has read and analyzed, and retained copies of this Agreement and the
following documents:
(i) the Company's Articles of
Incorporation, as amended to date,
attached to the "Nebo Products
Settlement Agreement Disclosure
Documents to be settled by September
30, 2002 (the "Disclosure
Documents"),
(ii) the Designation of Rights and
Preferences of Series A Convertible
Preferred Stock of the Company,
attached to the Disclosure Documents,
(iii) the Company's Annual Report on Form
10-KSB for the fiscal year ended
December 31, 2001, attached to the
Disclosure Documents,
(iv) the Company's Quarterly Report on
Form 10-QSB for the quarter ended
June 30, 2002, attached to the
Disclosure Documents,
(v) Current Report on Form 8-K dated
September 20, 2002, attached to the
Disclosure Documents,
(vi) Joint Proxy Statement of Naviset
Holdings Corp. and the Company,
attached to the Disclosure Documents,
(vii) Action by Unanimous Written consent
of Board of Directors of the
Company dated September 30, 2002,
(viii) such other documents as have been
requested by Buyer from the
Company, and
5
(ix) copy of the Original Note between the
Company and Buyer.
(x) copy of the New Note to be granted
by the Company to Buyer.
The Buyer has read each of these documents and represents that he fully
understands the material contained therein. The Buyer confirms that all
documents requested by the Buyer have been and remain available for inspection
or copying and that the Buyer has been supplied with all of the additional
information concerning the transactions contemplated by this Agreement that has
been requested. In making the decision to terminate and surrender the Original
Note and any related security interest, the Buyer has relied exclusively upon
information provided by this Agreement, the Exhibits attached hereto, the
Disclosure Documents, or found in the books, records or documents of the Company
and investigations made by the Buyer.
3.5 Manner of Exchange. The offer to acquire the Securities was
directly communicated to the Buyer in such a manner that the Buyer was able to
ask questions of and receive answers from the Company or a person acting on its
behalf concerning the terms and conditions of this transaction. At no time was
the Buyer presented with or solicited by or through any leaflet, public
promotional meeting, television advertisement or any other form of general
advertising.
3.6 Restricted Securities. The Buyer understands that the Securities
have not been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws, in reliance upon certain exemptions from
registration for certain private offerings. The Buyer understands and agrees
that the Securities, or any interest therein, may not be resold or otherwise
disposed of by the Buyer unless the Securities are subsequently registered under
the Act and under appropriate state securities laws or unless the Company
receives an opinion of counsel satisfactory to it that an exemption from
registration is available.
3.7 Certain Risk Factors. The Buyer has been informed and fully
understands that there are substantial risks associated with exchanging the
Original Note for the Securities. Certain of these risks are set forth below.
The Buyer is urged to consult with his own legal, financial, or other advisor
before executing this Agreement.
A. CERTAIN RISKS OF THE EXCHANGE
1. Exchange Risks. In
surrendering his rights under the Original Note, the Buyer will be giving up his
rights as a creditor of the Company. As a creditor, the Buyer is presently
entitled to receive payments from the Company according to the terms of the
Original Note. Such payments were secured by Buyer's security interest in
certain assets of the Company as provided in the Original Note. By executing
this Agreement, Buyer will be surrendering his rights to the security interest .
The Company does not currently have sufficient funds to satisfy the Original
Note. Consequently, if Buyer chooses to exercise his rights under the Original
6
Note, the Buyer would be entitled to pursue his remedies under law, which
include obtaining a judgment against the Company and a lien on its assets. In
the event the Company is liquidated, the Buyer, as a creditor, would be entitled
to payment of monies due him prior to any payments being made to shareholders of
the Company. By exchanging the Original Note for the Securities, Buyer's
interest as a result of the exchange will be that of a holder of Preferred
Stock, with all of the rights and preferences set forth in the Designation of
Rights and Preferences included in the Disclosure Documents. As such, Buyer will
not have any rights as a creditor. In the event the Company were liquidated in
the near future, it is unlikely that the Buyer as a holder of Preferred Stock
would receive any assets after payment of Company creditors. There can be no
assurance that the Securities will have any value to the Buyer or that any
dividends will be paid on the Securities, or that the Securities will be
redeemed by the Company.
2. Other Pending Exchange
Offers; Disparity of Treatment. Pursuant to the transactions contemplated by
this Agreement, not all creditors of the Company will be treated equally. For
example, certain creditors of the Company, such as lending banks, will not be
asked to surrender or exchange any of their interests in the Company, while the
Buyer, by executing this Agreement, will be surrendering the Original Note for
the Securities. Moreover, the Company has reserved the right in this offering of
Preferred Stock to holders of Company Debts to accept Exchange Agreements with
any, some or all of such holders, and to negotiate exchange terms with
individual holders of Company Debts which may be on terms more favorable than
those contained in this Agreement.
3. Conflicts of Interest. The
terms of this Agreement were determined by Xxxxx Xxxxxx, the sole director and
an executive officer of the Company. Xx. Xxxxxx has personally guaranteed
several obligations of the Company. In consideration for these guarantees, the
Company has granted, or intends to grant, to Xx. Xxxxxx a senior security
interest in certain assets of the Company. Thus, the terms of this Agreement
were determined by individuals who are subject to conflicts of interest.
Although these individuals attempted to negotiate the terms in full awareness of
their conflicts of interest and their fiduciary obligations to the Company,
there can be no assurance that the terms of this Agreement, and the transactions
contemplated thereby are in the best interest of the Buyer or shareholders of
the Company generally.
4. Risk of Nonpayment of
Dividends and Redemption of Shares. The Company has never paid any cash
dividends on its capital stock and, at the present time, because of its
financial condition, it is unlikely that it will be able to do so in the near
future. There can be no assurance that the Company will be able to pay dividends
on the Shares. Furthermore, there can be no assurance the Company will have
sufficient funds legally available under applicable provisions of law to redeem
the Shares as may be provided for in the Designation of Rights and Preferences.
5. Disclaimer as to Tax
Consequences. The Company makes no representation as to the tax consequences to
Buyer of Buyer's exchange of the Original Note for the Securities. No opinion of
7
counsel will be sought as to the "tax-free" nature of the transfer, or as to any
other federal, state or local tax consequences of the transfer. Furthermore, it
is not anticipated that a favorable ruling from the Internal Revenue Service as
to the "tax-free" nature of the transfer could be obtained. It is recommended
that the Buyer consult with his own tax advisor concerning the federal, state or
local tax consequences of the transfer, with specific reference to his
particular personal tax consequences.
B. CERTAIN RISKS OF INVESTMENT IN THE COMPANY
1. Substantial Operating
Losses and Deficit. As of June 30, 2002, the Company had a negative net worth of
$1,395,456, according to unaudited financial statements prepared by the Company.
2. Insolvency. At the present
time, the Company is only able to pay a small portion of its current
liabilities, including the Original Note, and there can be no assurance that the
Company will be able to pay on its note obligations in the future.
3. Inadequacy of Funds. The
Company needs to raise additional working capital immediately (in addition to
the exchanges contemplated with the other holders of Company Debts), or it might
be forced to seek protection from creditors in court. Even if funding is
obtained soon, additional funding may be needed by the Company in order for it
to remain in operation. If current Company projections regarding revenues are
not met, additional funding would be needed sooner. There can be no assurance
that the Company will be able to obtain additional funding. If the Company
cannot obtain this additional funding, it is unlikely that the Company will be
able to avoid bankruptcy. Furthermore, there can be no assurance the Company can
generate the volume of sales needed to operate on a profitable basis or that
future equity or debt financing can be obtained on terms favorable or acceptable
to the Company. In the event additional funding is obtained, new investors may
require, as a condition to their investment, that holders of the Securities be
required to subordinate or modify their rights as holders of Preferred Stock.
4. Competition. Many of the
Company's potential and actual competitors are well-established companies, with
financial and marketing resources which far exceed those available to the
Company, and one or more of them may enter the Company's markets in the future.
It should therefore be anticipated that the Company will continue to encounter
competition in marketing its products. The Company expects that it will be
required to expand its existing product line in order to compete effectively in
the future. Failure to do so could have a material and adverse effect upon the
Company.
5. Financial Statements. The
Financial Statements included in the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2002 are unaudited. As a result, there can be no
assurance that the Financial Statements have been prepared in accordance with
generally accepted accounting principles or that they reflect accurately and in
8
all respects the assets, liabilities and current financial condition of the
Company.
6. Investment Illiquid. The
Securities are not registered under the Securities Act of 1933, as amended, or
applicable state securities laws, and may not be resold unless they have been
registered under such laws or an exemption from registration is available.
Moreover, there is no market for the Preferred Stock of the Company and it is
not anticipated that any market will develop.
7. Dependence on Key Personnel.
The Company is dependent on the knowledge and skills of its key employee, Xxxxx
Xxxxxx. The loss of Xx. Xxxxxx could adversely affect the Company's future
efforts. The Company does not have any key man life insurance on its key
employee.
3.8 No Reliance on Oral Representations. The Buyer confirms that
he is not relying on any oral representations or statements made by the Company
or by any other person in acquiring the Securities.
3.9 Stop-Transfer; Restrictive Legend on Securities. The Buyer has been
informed of, and understands and agrees that the Transfer Records of the Company
will contain a "stop-transfer" instruction and that the certificate for the
Securities will bear a legend in substantially the following form:
The Securities represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, or under any state
securities laws and may not be offered, sold or transferred in the
absence of registration or the availability of an exemption from such
registration. No offer, sale or transfer may take place without prior
written approval of the Company being affixed hereto. In the absence of
an effective registration statement, such approval shall be granted
only if the Company has received an opinion of shareholder's counsel at
shareholder's expense satisfactory to the Company to the effect that
such Securities may be lawfully transferred pursuant to an exemption
from registration.
3.10 Binding Agreement; Non-Transferability. The Buyer agrees not to
transfer or assign the obligations or duties contained in this Agreement or any
of the Buyer's interest herein, and that this Agreement shall survive the death
or disability of the Buyer and shall be binding upon heirs, successors, assigns,
executors, administrators, guardians, conservators or personal representatives
of the Buyer.
3.11 Ownership of the Original Note. Buyer is the owner, beneficially
and of record, of the Original Note. At the Closing, Buyer shall transfer and
release the Original Note to Company, free and clear of all liens, encumbrances,
claims or rights of others, or defects in title. No action is pending, and Buyer
has no knowledge of any threatened action which would contest Buyer's ownership
of, or right to release and discharge the Original Note. The Original Note is
9
not the subject of any other contract of sale, option, or similar agreement.
Buyer has full right, power and authority to enter into and perform this
Agreement and to terminate and release the Original Note without obtaining the
consent or approval of any governmental authority or any other person or entity.
3.12 Indemnification. The Buyer hereby agrees to indemnify the Company
and hold the Company harmless from and against any and all liability, damage,
cost or expense incurred on account or arising out of:
(a) Any inaccuracy in the declarations, representations,
and warranties made by the Buyer set forth herein;
(b) The disposition of any of the Securities by the
Buyer, contrary to the declarations, representations
and warranties set forth herein; and
(c) Any action, suit or proceeding based upon (i) the
claim that said declarations, representations, or
warranties were inaccurate or misleading or otherwise
cause for obtaining damages or redress from the
Company or (ii) the disposition of any of the
Securities or any part thereof.
ARTICLE 4
MISCELLANEOUS PROVISIONS
4.1 Effect of Recitals. The recitals contained on page 1 of this
Agreement are an integral part of this Agreement.
4.2 Warranties Survive Closing. All warranties, representations,
indemnities and agreements hereunder shall survive the closing hereunder.
4.3 Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
4.4 Choice of Law. It is the intention of the parties that the laws of
Utah should govern the validity of this Agreement, the construction of its terms
and the interpretation of the rights and duties of the parties.
4.5 Entire Agreement. This Agreement, including all Exhibits
attached hereto and made a part hereof, contains the entire agreement between
the parties relating to the issuance of the Securities.
10
4.6 Notices. All notices, requests, consents, and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first class postage prepaid, registered or certified mail,
(a) If to the Buyer, at the address set forth on the
signature page of this Agreement or at such other
address as the Buyer may specify by written notice to
the Company,
(b) If to the Company, at the address set forth below,
unless the Company shall have specified by written
notice to the Buyer another address:
Nebo Products, Inc.
Attn: Xxxxx Xxxxxx, President
______________________________
______________________________
and such other notices and communications shall for all purposes of this
Agreement be treated as being effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of their receipt or 72
hours after the same have been deposited in a regularly maintained receptacle
for the deposit of United States mail, addressed and postage prepaid as
aforesaid.
4.7 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
4.8 Counterparts. This Agreement may be executed in two or more
counterparts with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall construe one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
11
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the _______ day of _____________, 2002.
NEBO PRODUCTS, INC.,
a Utah corporation
By: _____________________________
Xxxxx Xxxxxx, President
BUYER:
__________________________________
__________________________________
Name [Printed]
12
