EXHIBIT 10.3
EXCHANGE AGREEMENT
May 1, 2006
Stellar Technologies, Inc.
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Attention: Board of Directors
Gentlemen:
1. The undersigned (the "Purchaser") is currently the sole record and
beneficial owner of that certain Convertible Note of Stellar Technologies, Inc.,
a Colorado corporation (the "Company"), dated March 21, 2006 in the principal
amount of $200,000 (the "Note"). As of the date hereof, the outstanding
principal amount and all accrued and unpaid interest due under the Note is
$202,222.22. The Purchaser desires to purchase 13,482 shares (the "Shares") of
Series B Convertible Preferred Stock, $.001 par value per share, of the Company
at a purchase price of $15.00 per Share and to pay the purchase price for the
Shares by cancellation of all amounts due and owing to the Purchaser under the
Note. As used herein, the term "Securities" shall mean the Shares and the shares
of common stock, $.001 par value per share ("Common Stock"), of the Company
issuable upon conversion of the Shares.
2. The Purchaser hereby acknowledges, represents and warrants to the
Company, and covenants and agrees with the Company, as set forth below.
(a) Accredited Investor. Purchaser is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933,
as amended (the "Securities Act"). If Purchaser is an entity, Purchaser was not
formed for the specific purpose of acquiring the Securities, and, if it was, all
of Purchaser's equity owners are "accredited investors" as defined above.
(b) "U.S. Person". The Purchaser: (i) is executing and delivering this
Agreement outside the United States, is not a "U.S. Person" as such term is
defined in Rule 902 of Regulation S under the Securities Act, and is not
acquiring the securities for the account or benefit of any "U.S. Person"; or
(ii) is a "U.S. Person" that is purchasing the Securities in a transaction that
does not require registration under the Securities Act. A "U.S. Person" is
defined in Rule 902 of Regulation S under the Securities Act as:
(i) Any natural person resident in the United States;
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(ii) Any partnership or corporation organized or incorporated under the
laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S. Person;
(iv) Any trust of which any trustee is a U.S. Person;
(v) Any agency or branch of a foreign entity located in the United States;
(vi) Any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or account
of a U.S. Person;
(vii) Any discretionary account or similar account (other than an estate
or trust) held by a dealer or other fiduciary organized, incorporated, or, if an
individual, resident in the United States; and
(viii) Any partnership or corporation if:
(A) Organized or incorporated under the laws of any foreign
jurisdiction; and
(B) Formed by a U.S. Person principally for the purpose of investing
in securities not registered under the Securities Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined in Rule 501(a)
under the Securities Act) that are not natural persons, estates or trusts.
(c) No Government Review. Purchaser understands that neither the United
States Securities and Exchange Commission ("SEC") nor any securities commission
or other governmental authority of any state, country or other jurisdiction has
approved the issuance of the Securities or passed upon or endorsed the merits of
this Agreement or the Shares, or confirmed the accuracy of, determined the
adequacy of, or reviewed this Agreement or the Shares.
(d) Investment Intent. The Securities are being acquired for the
Purchaser's own account for investment purposes only, not as a nominee or agent
and not with a view to the resale or distribution of any part thereof, and
Purchaser has no present intention of selling, granting any participation in or
otherwise distributing the same. By executing this Agreement, Purchaser further
represents that Purchaser does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or third person with respect to any of the Securities.
(e) Restrictions on Transfer. Purchaser understands that the Securities
are "restricted securities" as such term is defined in Rule 144 under the
Securities Act and have not been registered under the Securities Act or
registered or qualified under any state securities law, and may not be, directly
or indirectly, sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of except in accordance with the provisions of Regulation S
under the Securities Act, pursuant to registration under the Securities Act and
registration or qualification
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under applicable state securities laws or the availability of an exemption
therefrom. In any case where such an exemption is relied upon by Purchaser from
the registration requirements of the Securities Act and the registration or
qualification requirements of such state securities laws, Purchaser shall
furnish the Company with an opinion of counsel stating that the proposed sale or
other disposition of such securities may be effected without registration under
the Securities Act and will not result in any violation of any applicable state
securities laws relating to the registration or qualification of securities for
sale, such counsel and opinion to be satisfactory to the Company. Purchaser
acknowledges that it is able to bear the economic risks of an investment in the
Securities for an indefinite period of time, and that its overall commitment to
investments that are not readily marketable is not disproportionate to its net
worth.
(f) Restrictions on Registration. Purchaser understands and agrees that
the Company is not permitted to register any transfer of the Securities not made
in accordance with the provisions of Regulation S, pursuant to registration
under the Securities Act and registration or qualification under applicable
state securities laws, or pursuant to an available exemption therefrom.
Purchaser further understands and agrees that hedging transactions, including
but not limited to short sales, swaps or derivative securities transactions may
not be conducted unless in compliance with the Securities Act.
(g) Investment Experience. Purchaser has such knowledge, sophistication
and experience in financial, tax and business matters in general, and
investments in securities in particular, that it is capable of evaluating the
merits and risks of this investment in the Securities, and Purchaser has made
such investigations in connection herewith as it deemed necessary or desirable
so as to make an informed investment decision without relying upon the Company
for legal or tax advice related to this investment. In making its decision to
acquire the Securities, Purchaser has not relied upon any information other than
information provided to Purchaser by the Company or its representatives and
contained or referenced herein.
(h) Access to Information. Purchaser acknowledges that it has had access
to and has reviewed all documents and records relating to the Company,
including, but not limited to, the Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended December 31, 2005 and the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2005, that it has deemed
necessary in order to make an informed investment decision with respect to an
investment in the Securities; that it has had the opportunity to ask
representatives of the Company certain questions and request certain additional
information regarding the terms and conditions of such investment and the
finances, operations, business and prospects of the Company and has had any and
all such questions and requests answered to its satisfaction; and that it
understands the risks and other considerations relating to such investment.
(i) Reliance on Representations. Purchaser understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of the federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of such Purchaser to acquire
the Securities.
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Purchaser represents and warrants to the Company that any information that
Purchaser has heretofore furnished or furnishes herewith to the Company is
complete and accurate, and further represents and warrants that it will notify
and supply corrective information to the Company immediately upon the occurrence
of any change therein occurring prior to the Company's issuance of the
Securities. Within five (5) days after receipt of a request from the Company,
Purchaser will provide such information and deliver such documents as may
reasonably be necessary to comply with any and all laws and regulations to which
the Company is subject.
(j) No General Solicitation. Purchaser is unaware of, and in deciding to
purchase the Securities is in no way relying upon, and did not become aware of
the Offering through or as a result of, any form of general solicitation or
general advertising including, without limitation, any article, notice,
advertisement or other communication published in any newspaper, magazine or
similar media, or broadcast over television or radio or the internet, in
connection with the Offering.
(k) Placement and Finder's Fees. No agent, broker, investment banker,
finder, financial advisor or other person acting on behalf of Purchaser or under
its authority is or will be entitled to any broker's or finder's fee or any
other commission or similar fee, directly or indirectly, in connection with the
purchase of the Securities, and no person is entitled to any fee or commission
or like payment in respect thereof based in any way on agreements, arrangements
or understanding made by or on behalf of Purchaser.
(l) Investment Risks. Purchaser understands that purchasing Securities
will subject Purchaser to certain risks, including, but not limited to, those
set forth under the caption "Risk Factors" and elsewhere in the Company's Annual
Report on Form 10-KSB and other periodic reports filed with the SEC, as well as
each of the following:
(i) The offering price of the Securities offered hereby has been
determined solely by the Company and does not necessarily bear any relationship
to the value of the Company's assets, current or potential earnings of the
Company, or any other recognized criteria used for measuring value, and
therefore, there can be no assurance that the offering price of the Securities
is representative of the actual value of the underlying Securities.
(ii) The Company has experienced net losses in each fiscal quarter
since its inception and expects to continue to incur significant net losses for
the foreseeable future. While the Company is unable to predict accurately its
future operating expenses, it currently expects these expenses to increase
substantially as it implements its business plan.
(iii) In order to fund its future operations, attract and retain
employees, consultants and other service providers, and satisfy other
obligations, the Company may be required to issue additional shares of Common
Stock, securities exercisable or convertible into shares of Common Stock, or
debt. Such securities may be issued for a purchase price consisting of cash,
services or other consideration that may be materially different than the
purchase price of the Units. The issuance of any such securities may result in
substantial dilution to the relative ownership interests of the Company's
existing shareholders and substantial reduction in net book value per share.
Additional equity securities may have rights, preferences and privileges senior
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to those of the holders of Common Stock, and any debt financing may involve
restrictive covenants that may limit the Company's operating flexibility.
(iv) An investment in the Securities may involve certain material
legal, accounting and federal and state tax consequences. Purchaser should
consult with its legal counsel, accountant and/or business adviser as to the
legal, accounting, tax and related matters accompanying such an investment.
(m) Exclusive Document. In making its decision to purchase the Securities
hereunder, Purchaser has not relied on any representations, warranties or
information other than those set forth in this Agreement which Purchaser has
independently investigated and verified to its satisfaction and neither the
Company nor any person acting on its behalf has made any representation or
warranty regarding the Company or the Securities except as set forth herein.
(n) Legends. The certificates and agreements evidencing the Securities
shall have endorsed thereon the following legend (and appropriate notations
thereof will be made in the Company's stock transfer books), and stop transfer
instructions reflecting these restrictions on transfer will be placed with the
transfer agent of the Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE
SECURITIES ACT, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT AND
REGISTRATION OR QUALIFICATION UNDER APPLICABLE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION, OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION. HEDGING TRANSACTIONS, INCLUDING, BUT NOT LIMITED TO, SHORT SALES,
SWAPS OR DERIVATIVE SECURITIES TRANSACTIONS, INVOLVING THESE SECURITIES MAY NOT
BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NO TRANSFER OF THE
SECURITIES REPRESENTED HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR
QUALIFICATION UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN
OPINION OF UNITED STATES COUNSEL OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR
QUALIFICATION UNDER APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION.
(o) Confidentiality. The Purchaser acknowledges that this Agreement and
the information set forth herein may constitute material non-public information
under United States securities laws, and that the United States securities laws
prohibit any person who has received material non-public information relating to
the Company from purchasing or selling the securities of the Company, or from
communicating such material non-public information to any
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person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell securities of the Company. Accordingly,
until such time as any such non-public information has been adequately
disseminated to the public, the Purchaser agrees to not purchase or sell any
securities of the Company, or communicate such material non-public information
to any other person.
3. The Purchaser shall be entitled to the rights and subject to the
obligations set forth in Section 6 of that certain Securities Purchase Agreement
dated on or about March __, 2006 by and between the Company and the Purchaser
with respect to the Common Stock issuable upon conversion of the Shares.
4. The Purchaser hereby delivers the Note to the Company in full payment
of the purchase price for the Shares and does hereby fully and irrevocably
remise, release and forever discharge the Company, of and from any and all
obligations of any kind or nature under the Note including, but not limited to,
repayment of any amounts due under the Note. The Purchaser represents, warrants
and covenants that it has not sold, assigned, transferred, or otherwise conveyed
to any other person or entity all or any portion the Note.
5. This Agreement may be executed and delivered via facsimile, which shall
be deemed to be an original.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has executed this Agreement on this 1st day of May, 2006.
PURCHASER
MONTEX EXPLORATION, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Title (if applicable): President
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Number of Shares: 13,482
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Amount Due Under Note: $202,222.22
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