Preferred Stock Exchange Offer, dated March 29, 2011

Our company has determined, based on discussions with some of our stockholders and potential financing sources, that we should reduce the company’s “liquidation overhang” by exchanging shares of our series K 10% convertible preferred stock (“Series K Preferred Stock”) for shares of our common stock at a special negotiated rate.  We currently have 217.77 outstanding shares of Series K Preferred Stock, which are currently convertible into 36,294,474 shares of our common stock, at a conversion price of $0.15 per share.  On March 28, 2011, the closing price for our common stock was $0.13 per share, as quoted by the OTC Bulletin Board.

Before you make a decision with respect to exchanging your Series K Preferred Stock for shares of our common stock on the  terms described in this letter, you should review and consider the risk factors described in Annex A to this letter, along with the information in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 31, 2010, and our latest Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, filed with the SEC on November 22, 2010, each of which is incorporated herein in its entirety by reference.  Finally, as the offer described in this letter is intended to be a private placement exempt from the registration requirements imposed by the SEC, you should review the notices regarding such matters in Annex B to this letter.

If you wish to exchange your shares of Series K Preferred Stock on the terms set forth in this letter, please complete and execute the Preferred Stock Exchange Agreement and Registration Rights Letter attached as Annex C and Annex D to this letter, respectively, and return them to New Leaf Brands no later than Friday, April 15, 2011.  We have separately included the respective signature pages for these agreements for your convenience.  The two signature pages should be sent by facsimile to the attention of David Tsiang, our Chief Financial Officer, at facsimile number ###-###-####, or by e-mail (via .pdf) to him at ***@***, and all original executed materials should be sent by mail to New Leaf Brands, Inc., One DeWolf Road, Suite 208, Old Tappan, New Jersey 07675, Attn: Mr. David Tsiang, Chief Financial Officer.

 

An investment in the shares of common stock offered hereby involves a high degree of risk.  In addition to the other information contained and incorporated by reference in this letter (including the risk factors stated therein), you should carefully consider the following risks before acquiring the shares offered hereby.  If any of these risks occurs, our business, financial condition and operating results could be materially adversely affected.  The following are not the only risks and uncertainties we face.  Additional risks and uncertainties of which we are unaware or which we currently believe are immaterial could also adversely affect our business, financial condition or results of operations.  In any case, the trading price of our common stock could decline and you could lose all or part of your investment.

 

 

You should consider the following summary risk factors, in addition to those risk factors set forth under the caption “Item 1A – Risk Factors; Risks Related to Our Business” contained in our Annual Report on Form 10-K for the year ended December 31, 2009, and under the caption “Item 1A – Risk Factors” contained in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, for risks related to our business:

 

●	We have limited cash resources and our limited cash could hinder our ability to run our ongoing operations, including producing our beverage products.

In addition to the risk factors below, you should also read “Risk Factors – Risks Related To Our Securities” in our Annual Report on Form 10-K referenced above for risks related to this offer and our common stock.

 

 

 

There is no minimum number of shares of Series K Preferred Stock that must be exchanged before we can accept such exchanges.  There can be no assurance that all current Series K Preferred Stockholders will accept the offer set forth in this letter and exchange their shares.  Therefore, those holders which exchange their shares of Series K Preferred Stock for our common stock will be structurally subordinated upon liquidation or other such event to those holders which retain their shares of preferred stock.

 

 

The shares of common stock issuable upon exchange of the Series K Preferred Stock have not been registered under the Securities Act or any state or foreign securities laws in reliance upon an exemption from registration under the Securities Act for an offer and sale of securities that does not involve a public offering.  Unless such shares are so registered, they may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state or foreign securities laws.  Holders will be required to make representations agreeing to restrictions on transfer necessary to satisfy the requirements of the exemption from registration being relied upon by us for the issuance of shares of common stock into which the preferred stock are exercisable, and certificates evidencing such shares will bear a legend indicating that they are so restricted.  Moreover, there can be no assurance that we will ever file a registration statement to register the shares of our common stock into which our preferred stock are exercisable, or that if filed, such registration statement will become effective, or that once effective, such effectiveness will be maintained.  Accordingly, an investor may be unable to liquidate an investment for an indefinite period of time.

 

 

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exchange price of less than $5.00 per share, subject to specific exemptions.  The market price of our common stock is less than $5.00 per share and therefore may be designated as a “penny stock” according to rules of the SEC.  This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities.  These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of our stockholders to sell their shares.  In addition, since our common stock is currently quoted on the OTC Bulletin Board, stockholders may find it difficult to obtain accurate quotations of our common stock, and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price.

 

The shares of common stock issuable upon exchange of the Series K Preferred Stock have not been registered under the Securities Act of 1933, as amended.  This offer is being made pursuant to the exemption provided by Sections 3(a)(9) and 4(2) of the Securities Act and certain rules and regulations promulgated under Section 4(2).  Accordingly, you may not transfer the common stock issuable upon exchange of the Series K Preferred Stock in the absence of an effective registration statement under the Securities Act or evidence acceptable to us and our counsel, which may include an opinion of counsel, that registration is not required.

 

We request that you maintain the confidentiality of the offer described in this letter.  Further, the existence and nature of all conversations regarding this offer and our company must be kept strictly confidential.  You should be aware that the federal securities laws impose restrictions on the purchase or sale of our securities based on information regarding this offer and the communication of information regarding this offer.  We request that you promptly destroy or return to us this letter and any other documents or information furnished by or on our behalf if you elect not to acquire the shares of common stock offered hereby.

 

We intend that this offer be made only to accredited investors (as defined under Rule 501(a) under the Securities Act) purchasing in the ordinary course of their business for their own account for investment and not with a view to, or in connection with any arrangements or understandings regarding, any subsequent distributions.  An investment in the shares of common stock described in this letter is speculative and involves a high degree of risk.  Only investors who can bear the risk of loss of their entire investment in the shares offered hereby should invest and investors should understand that they will be required to bear the financial risk of any investment in these shares for an indefinite period of time.  In addition, the common stock issuable upon exchange of the Series K Preferred Stock are subject to restrictions on their transferability and resale and may not be transferred or resold except as permitted under the registration rights letter entered into by us and the holders, the Securities Act and applicable state securities laws pursuant to registration or exemption therefrom.

 

Neither the SEC nor any state regulatory authority has passed upon the adequacy or accuracy of this letter or endorsed the merits of this offer.  Any representation to the contrary is a criminal offense.  In addition, this letter does not constitute an offer to sell or a solicitation of an offer to buy any of our shares of common stock in any state or other jurisdiction or to any person if such an offer or solicitation is unlawful or unauthorized.  You must comply with all applicable laws and regulations in force and any jurisdiction in which you purchase, offer or sell the shares offered hereby and must obtain any consent, approval or permission required for your purchase, offer or sale of the shares of common stock under the laws and regulations in force in any jurisdiction to which you are subject or in which you make such purchases, offers or sales.

 

The shares of common stock issuable upon exchange of the Series K Preferred Stock have not been registered under the Securities Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and any state or foreign securities laws.  Accordingly, the shares are only being offered to accredited investors.

THIS PREFERRED STOCK EXCHANGE AGREEMENT (the “Agreement”) is dated as of __________, 2011, by and between New Leaf Brands, Inc., a Nevada corporation (the “Company”), and the undersigned holder of the Company’s Series K Preferred Stock, as defined below (“Holder”).

 

 

WHEREAS, the Holder is the legal and beneficial owner of certain shares of series K 10% convertible preferred stock (the “Series K Preferred Stock”), which is convertible into shares of the Company’s common stock (the “Common Stock”);

 

WHEREAS, the Company has offered to eligible holders of its Series K Preferred Stock, including the Holder, the opportunity, for a limited period, to exchange such preferred stock for shares of Common Stock at a special negotiated rate, as set forth in a notice to such holders dated March __, 2011 (the “Notice”);

 

WHEREAS, the Holder has determined to exchange all of the Series K Preferred Stock currently held by Holder in accordance with the terms set forth in the Notice; and

 

WHEREAS, in connection with such exchange, the Company and Holder will enter into a Registration Rights Letter, pursuant to which the Company will agree to file on behalf of the Holder a registration statement under the Securities Act of 1933, as amended, covering the shares of Common Stock exchanged therefor.

 

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

2.            "Piggyback Registration Rights.  If, at any time after the date hereof, the Company shall determine to proceed with the preparation and filing of a registration statement under the Securities Act in connection with the proposed offer and sale of any of its securities by it or any of its security holders (other than a registration statement on Form S-4, S-8 or other limited purpose form), the Company will give written notice of its determination to all record holders of the Registrable Securities.  Upon the written request from any requesting holders of Registrable Securities, within 15 days after receipt of any such notice from the Company, the Company will, except as herein provided, cause all such Registrable Securities to be included in such registration statement, all to the extent requisite to permit the sale or other disposition by the prospective seller or sellers of the Registrable Securities to be so registered; provided, however, that nothing herein shall prevent the Company from, at any time, abandoning or delaying any registration.  If any registration pursuant to this Section 2 shall be underwritten in whole or in part, the Company may require that the Registrable Securities requested for inclusion pursuant to this Section 2 be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters.  If in the good faith judgment of the managing underwriter of such public offering the inclusion of all of the Registrable Securities originally covered by a request for registration (the "Requested Stock") would reduce the number of shares to be offered by the Company or interfere with the successful marketing of the shares of stock offered by the Company, the number of shares of Requested Stock otherwise to be included in the underwritten public offering may be reduced pro rata (by number of shares) among the holders thereof requesting such registration or excluded in their entirety if so required by the underwriter.  To the extent only a portion of the Requested Stock is included in the underwritten public offering, those shares of Requested Stock which are thus excluded from the underwritten public offering shall be withheld from the market by the holders thereof for a period, not to exceed 180 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering.

 (a)           With respect to the registration required pursuant to Section 1 hereof, all fees, costs and expenses of and incidental to such registration, inclusion and public offering (as specified in paragraph (b) below) in connection therewith shall be borne by the Company; provided, however, that the Holders shall bear their pro rata share of the underwriting discount and commissions and transfer taxes and the cost of their own counsel.

 

 (b)           The fees, costs and expenses of registration to be borne by the Company as provided in paragraph (a) above shall include, without limitation, all registration, filing and FINRA fees, printing expenses, fees and disbursements of counsel and accountants for the Company, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered and qualified (except as provided in Section 3(a) above).  Fees and disbursements of counsel and accountants for the Holders and any other expenses incurred by the Holders not expressly included above shall be borne by the Holders.