CONVEYANCE, TERMINATION AND RELEASE AGREEMENT

 

 

This CONVEYANCE, TERMINATION AND RELEASE AGREEMENT (this “Agreement”) is dated as of November 30, 2007, by and among Titan Nexus, Inc., a Delaware corporation (the “Creditor”), Nexus Custom Electronics Corp., a Florida corporation (f/k/a NECI Acquisition, Inc. and hereinafter, “NCEC”) and Nexus Nano Electronics, Inc., a Nevada corporation (f/k/a Sagamore Holdings, Inc. and hereinafter, “Nexus Nano”, and collectively with NCEC, the “Debtor”).

 

 

 

WHEREAS, Debtor is indebted to Creditor in the aggregate sum of $11,245,178.38, plus accrued interest from November 1, 2007 through the date hereof (the “Debt”), in accordance with Schedule A, annexed hereto;

WHEREAS, pursuant to the terms of (i) certain security agreements, dated as of September 20, 2004, granted by NCEC in favor of Comerica Bank, and assigned by Comerica Bank to YA Global Investments, L.P. (“YA Global”) pursuant to that certain Amended and Restated Security Agreement, dated August 8, 2007, as further assigned by YA Global to the Creditor on November 2, 2007; (ii) certain security agreements, dated as of November 10, 2005, granted by Nexus Nano to CSI Business Finance, Inc., a Texas corporation, and assigned to YA Global on March 10, 2006, as amended by that certain Amended and Restated Security Agreement, dated as of June 1, 2006 entered into by and between Nexus Nano and YA Global, as further assigned by YA Global to the Creditor on November 2, 2007; and (iii) certain parent security agreements, dated as of July 30, 2007, granted by Nexus Nano to YA Global, as further assigned by YA Global to the Creditor on November 2, 2007 (collectively, the “Security Agreements”), Creditor has obtained a security interest in its favor of all of Debtor’s assets, including, but not limited to, Debtor’s accounts, inventory, machinery, equipment, intellectual property, receivables, contractual rights and general intangibles;

 

WHEREAS, the Creditor’s security interest have been perfected through the filing of the following UCC-1 Financing Statements: (i) UCC Financing Statement naming NCEC as debtor, in favor of Comerica Bank as secured party, and filed with the Secretary of State of Florida on September 22, 2004 as document number 200407923665, as further assigned to the Creditor; (ii) UCC Financing Statement naming Nexus Nano as debtor, in favor of YA Global as secured party, and filed with the Secretary of State of Nevada on March 21, 2007 as document number  ###-###-####-9, as further assigned to the Creditor; and (iii) UCC Financing Statement naming Nexus Nano as debtor, in favor of YA Global as secured party, and filed with the Secretary of State of Nevada on August 1, 2007 as document number ###-###-####-2, as further assigned to the Creditor (collectively, the “UCC-1s”);

 

WHEREAS, subject to the terms and conditions hereof, Debtor desire to convey, transfer and assign to Creditor, and Creditor desires to acquire and assume from Debtor, the Collateral (as such term is defined in the Security Agreements) in accordance with this Agreement;

 

WHEREAS, immediately upon the acquisition of the Collateral, it is intended that the Creditor’s security interest in the Debtor shall be released; and

 

WHEREAS, immediately upon the acquisition of the Collateral, it is intended that the Creditor shall release Debtor from any liability in connection with the Security Agreements or otherwise and that the Security Agreements shall be terminated and be of no further force or effect.

 

 

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, the parties hereby agree as follows:

 

 

1.1. Acquisition of Collateral. Because of the inability of the Debtor to pay the Debt, Debtor hereby transfer, convey and assign to the Creditor all right, title and interest of possession in and to the Collateral, including, without limitation, the following assets of the Debtor:

 

(a) all equipment, computer hardware, machinery, furniture, fixtures, dies, tools, vehicles, trucks, cars, tractors, trailers, fork lifts, cranes, hoists and tangible personal property of Debtor, and all accessions and attachments to or relating to any of the foregoing;

 

(b) all books, records, computer software and other property relating to or referring to any of the foregoing;

 

(c) all patents, trade names, trade styles, service marks, all rights associated with the foregoing, and goodwill;

 

(d) all present and future accounts, contract rights, general intangibles, chattel paper, documents and instruments, as such terms are defined in the Uniform Commercial Code, including without limitation, all accounts receivable and other receivables of any kind, and all obligations for the payment of money arising out of the sale of goods, rendition of services or the lease by the Debtor of their property;

 

(e) all other property of the Debtor, including, without limitation, all of the issued and outstanding capital stock of NCEC;

 

(f) all guaranties or other agreements securing or relating to any of the items referred to in subparagraphs (a)-(e) above, or acquired for the purpose of securing and enforcing any such items; and

 

(g) all proceeds of any of the foregoing in whatever form, including, without limitation, any claims against third parties for loss or damage to or destruction of any or all of the foregoing and cash, negotiable instruments and other instruments for the payment of money, chattel paper, Security Agreements or other documents.

 

 

The assets, properties and business of Debtor being acquired by the Creditor under this Section 1.1 are referred to herein collectively as the “Collateral”.

 

1.2. Waiver. Debtor acknowledge that they have defaulted in the payment of the Debt to Creditor and hereby waives and renounces all rights to notification under Section 9-611 of the Uniform Commercial Code as adopted in the State of Nevada (“UCC”) as to the sale or other disposition by the Creditor of the Collateral and under Sections 9-620 and 9-623 of the UCC regarding acceptance of the Collateral as discharge of the Debt of the Debtor and waiver of the Debtor’s right to redeem the Collateral, respectively. The Debtor knowingly and voluntarily waive any rights they may have to notice and a hearing before a court of competent jurisdiction and consent to Creditor’s entry on the premises where the aforesaid Collateral is located for the purposes set forth herein.

 

1.3. Cancellation of Debt; Release of Claims Against Debtor and Affiliates. In consideration of the assumption of the Collateral, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Creditor hereby agrees to release Debtor from any and all obligations to pay the Debt and agrees to file UCC-3 termination statements in order to effectively and fully release the UCC-1s (the “UCC-3s”).

 

1.4. Debt Allocation. Creditor and Debtor shall mutually agree on the allocation of the Debt. Such allocation shall be binding upon Creditor and Debtor for all purposes (including financial accounting purposes, financial and regulatory reporting purposes and tax purposes). Creditor and Debtor each further agrees to file its Federal income tax returns and its other tax returns reflecting such allocation, Form 8594 and any other reports required by Section 1060 of the Internal Revenue Code of 1986, as amended.

 

1.5. Further Assurances. Debtor shall, from time to time after the consummation of the transactions contemplated herein, at the request of Creditor and without further consideration, execute and deliver further instruments of transfer and assignment and take such other action as Creditor may reasonably require to more effectively transfer and assign to, and vest in, Creditor the Collateral.

 

1.6. Sales and Transfer Taxes. All sales, transfer, use, recordation, documentary, stamp, excise taxes, personal property taxes, fees and duties (including any real estate transfer taxes) under applicable law incurred in connection with this Agreement or the transactions contemplated hereby will be borne and paid by Creditor.

 

1.7. Transfer of Subject Collateral. Debtor shall deliver or cause to be delivered to Creditor good and sufficient instruments of transfer transferring to Creditor title to all of the Collateral, together with all required consents. Such instruments of transfer (a) shall contain appropriate warranties and covenants which are usual and customary for transferring the type of property involved under the laws of the jurisdictions applicable to such transfers, (b) shall be in form and substance reasonably satisfactory to Creditor and its counsel and (c) shall effectively vest in Creditor good and marketable title to all of the Collateral subject to those limitations set forth in Section 2.8 hereof.

 

 

1.8. Releases.

 

(a) Release by Creditor. In consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Creditor, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Debtor and their respective successors and assigns, former and current stockholders, Debtor’s affiliates, subsidiaries, divisions, predecessors, former and current directors and officers, attorneys, employees, agents and other representatives (Debtor and all such other persons being hereinafter referred to collectively in this Section 1.8(a) as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a “Claim” and collectively, “Claims”) of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Creditor or any of its successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Agreement, including, without limitation, for or on account of, or in relation to, or in any way in connection with any of the Security Agreements, or any of the loan documents related thereto or transactions thereunder or related thereto; provided, however, that this release does not release, waive, impair or diminish Creditor’s rights under this Agreement. The Creditor understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. The Creditor agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

 

(b) Release by Debtor. In consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Debtor, on behalf of themselves and their successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Creditor and its successors and assigns, former and current stockholders, affiliates, subsidiaries, divisions, predecessors, former and current directors and officers, attorneys, employees, agents and other representatives (Creditor and all such other persons being hereinafter referred to collectively in this Section 1.8(b) as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a “Claim” and collectively, “Claims”) of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Debtor or any of their successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Agreement, including, without limitation, for or on account of, or in relation to, or in any way in connection with any of the Security Agreements, or any of the loan documents related thereto or transactions thereunder or related thereto; provided, however, that this release does not release, waive, impair or diminish Debtor’s rights under this Agreement. The Debtor understand, acknowledge and agree that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. The Debtor agree that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

 

 

The Debtor hereby represent and warrant to the Creditor that:

 

2.1. Organization and Good Standing. The Debtor are corporations duly organized, validly existing and in good standing under the laws of the jurisdictions of their incorporation as set forth above and have all requisite power and authority to own, lease and operate their properties and to carry on their business as now conducted.

 

2.2. Authorization of Agreement. The Debtor have all requisite power, authority and legal capacity to execute and deliver this Agreement, and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed by the Debtor in connection with the consummation of the transactions contemplated by this Agreement (together with this Agreement, the “Debtor Documents”), and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and each of the Debtor Documents will be duly and validly executed and delivered by the Debtor and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the Debtor Documents when so executed and delivered will constitute, legal, valid and binding obligations of the Debtor, enforceable against the Debtor, as applicable, in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

2.3. Ownership and Transfer of Collateral. Debtor have good and marketable title to all of the Collateral free and clear of all mortgages, pledges, security interests, charges, liens, restrictions and encumbrances of any kind (collectively, “Liens”), except those in favor of the Creditor or as otherwise set forth on Schedule A attached hereto. Upon the assignment, transfer and delivery of the Collateral to the Creditor hereunder and under the Debtor Documents, there will be vested in the Creditor good, marketable and indefeasible title to the Collateral, free and clear of all Liens subject to those exceptions set forth on Schedule A attached hereto. The Collateral includes all of the assets and properties (i) held for use by Debtor to conduct their business as presently conducted and (ii) necessary for Creditor to operate the Business in the same manner as such business is currently operated by Debtor.

 

2.4. Stockholder Approval. On November 27, 2007, Nexus Nano obtained majority stockholder approval of this Agreement and the transactions contemplated hereby.

 

2.5. No Misrepresentations. No representation or warranty of the Debtor contained in this Agreement or in any schedule hereto or in any certificate or other instrument furnished by the Debtor to the Creditor pursuant to the terms hereof, taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

 

 

The Creditor represents and warrants that:

 

3.1. Organization and Good Standing. The Creditor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

 

3.2. Authorization of Agreement. The Creditor has full corporate power and authority to execute and deliver this Agreement, and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by the Creditor in connection with the consummation of the transactions contemplated hereby and thereby (together the “Creditor Documents”), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Creditor of this Agreement and each Creditor Document has been duly authorized by all necessary corporate action on behalf of the Creditor. This Agreement has been, and each Creditor Document will be duly executed and delivered by the Creditor and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each Creditor Document when so executed and delivered will constitute, legal, valid and binding obligations of the Creditor, enforceable against the Creditor in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

3.3. No Misrepresentations. No representation or warranty of the Creditor contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

 

 

4.1 Cancellation of UCC-1s. Creditor shall file, within five (5) business days following its receipt of the Collateral, UCC-3s in order to effectively and fully release all of the UCC-1s.

 

4.2 Termination of Security Agreements. Upon the receipt of the Collateral by the Creditor, the Security Agreements shall immediately terminate and be of no further force of effect.

 

4.3. Other Actions. Each of the Debtor and Creditor shall use its best efforts to (i) take all actions necessary or appropriate to consummate the transactions contemplated by this Agreement and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the transactions contemplated by this Agreement.

 

4.4 Valuation Acknowledgment. The parties hereto hereby acknowledge and agree that Creditor engaged Lehrer Financial Economic Advisory Services (the “Economist”) to determine the Fair Market Forced Liquidation Value of Debtor and that Economist did determine the total assets (excluding cash) of Debtor to be Four Million One Hundred Thousand Dollars ($4,100,000) as set forth in that certain Forced Liquidation Valuation, dated as of October 31, 2007, issued on November 15, 2007 and attached hereto as Exhibit A.

 

4.5 Defense of Actions. Creditor hereby agrees to defend, indemnify and hold harmless each of Debtor’s former and current directors and officers, attorneys, employees, agents and other representatives (collectively, the “Indemnitees”) from any and all defense costs incurred by any Indemnitee by reason of or arising out of any and all demands, actions, causes of action, suits, controversies, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature both at law and in equity, which anyone may now or hereafter assert, own, hold, have or claim to have against the Indemnitees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever arising under this Agreement or the transactions contemplated hereby up to a maximum of One Hundred Thousand Dollars ($100,000).

 

4.6. Assumption of Leases. Creditor hereby agrees to assume those leases referenced in Schedule A hereto.

 

 

5.1. Expenses. Except as otherwise provided in this Agreement, the Debtor and the Creditor shall each bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby. Notwithstanding the foregoing, the Creditor has agreed to pay up to Fifteen Thousand Dollars ($15,000) for legal fees of the Debtor contemporaneously with the execution of this Agreement.

 

5.2. Specific Performance. The Debtor acknowledge and agree that the breach of this Agreement would cause irreparable damage to the Creditor and that the Creditor will not have an adequate remedy at law. Therefore, the Debtor’ obligation to transfer the Collateral to the Creditor, shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise.

 

 

5.3. Submission to Jurisdiction; Consent to Service of Process.

 

(a) The parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within the State of Texas over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby and each party hereby irrevocably agrees that all claims in respect of such dispute or any suit, action proceeding related thereto may be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

(b) Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding by the mailing of a copy thereof in accordance with the provisions of Section 5.7.

 

5.4. Entire Agreement; Amendments and Waivers. This Agreement represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. No action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.

 

5.5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas.

 

5.6. Headings. The section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement.

 

5.7. Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or mailed by certified mail, return receipt requested, to the parties (and shall also be transmitted by facsimile to the Persons receiving copies thereof) at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):

 

 

	If to Creditor:
	Titan Nexus, Inc.
	1700 Jay Ell Drive Suite 200
	Richardson, Texas 75081
	Attention: Bryan M. Chance, President & CEO
	Telephone:  ###-###-####
	Facsimile:  ###-###-####
	With a copy to:
	Sichenzia Ross Friedman Ference LLP
	61 Broadway
	New York, New York 10006
	Attention: Thomas A. Rose, Esq.
	Telephone:  ###-###-####
	Facsimile:  ###-###-####
	If to Debtor:
	Nexus Nano Electronics, Inc.
	Nexus Custom Electronics Corp.
	402 Prospect Street
	Branson, Vermont 05733
	Attention: Jerry Panos, President and CEO
	Telephone:  ###-###-####
	Facsimile:  ###-###-####
	With a copy to:
	Kirkpatrick & Lock Preston Gates Ellis LLP
	Wachovia Financial Center
	200 S. Biscayne Boulevard, Suite 2000
	Miami, Florida 33131
	Attention: Clayton E. Parker, Esq.
	Telephone:  ###-###-####
	Facsimile:  ###-###-####

 

5.8. Severability. If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect.

 

 

5.9. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any person or entity not a party to this Agreement except as provided below. No assignment of this Agreement or of any rights or obligations hereunder may be made by either the Debtor or the Creditor (by operation of law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, however, that the Creditor may assign this Agreement and any or all rights or obligations hereunder (including, without limitation, the Creditor’s rights to acquire the Collateral, the Creditor’s rights to foreclose on the Collateral and the Creditor’s rights to rely on any of Debtor’s representations and warranties made hereunder). Upon any such permitted assignment, the references in this Agreement to the Creditor shall also apply to any such assignee unless the context otherwise requires. 

 

5.10. Opportunity to Hire Counsel; Role of Kirkpatrick & Lockhart Preston Gates Ellis LLP. Creditor hereby acknowledges that it has been advised and has been given an opportunity to hire counsel and that its has hired counsel with respect to this Agreement and the transactions contemplated hereby. Creditor further acknowledges that the law firm of Kirkpatrick & Lockhart Preston Gates Ellis LLP has solely represented Debtor in connection with this Agreement and the transactions contemplated hereby and no other person.

 

IN WITNESS WHEREOF, the parties hereto have caused this Conveyance, Termination and Release Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written.

		TITAN NEXUS, INC.
		By: /s/ Bryan M. Chance
		Bryan M. Chance
		Title: President
		NEXUS NANO ELECTRONICS, INC.
		By: /s/ Jerry Panos
		Name:    Jerry Panos
		Title:       President
		NEXUS CUSTOM ELECTRONICS CORP.
		By: /s/ Jerry Panos
		Name: Jerry Panos
		Title:    President

 

1) Letter Agreement, dated June 22, 2007, with Cohn & Dussi (on behalf of GE Capital Corporation and Lyon Financial Services, Inc.) pursuant to which Debtor purchased Leased Equipment (Orbotech AOI Machine) which had previously been in the possession of Mass Tech. Associates, Inc., d/b/a MassTech EMS.

2) Security Agreement, by and between Nexus Custom Electronics Corp. and UPS Capital Business Credit, pursuant to which UPS received a first priority security interest in the Collateral named therein.

3) Debtor pays a monthly fee for the leasing of a Juki 760 Placement Machine (with feeders and conveyors) through Citicorp, this lease was never formally assigned to Debtor (from MassTech EMS).

3) Those UCC-1s attached as hereto as Annex A.

As of - October 31, 2007

Issued - November 15, 2007

The Board of Directors

Nexus Nano Electronics, Inc.

402 Prospect Street

Brandon, Vermont 05733

ATTN: Mr. Chris Mathers, Chief Financial Officer and Member of the Board of Directors

	RE:	Forced Liquidation Valuation of Nexus Custom Electronics Corporation
		(A Florida Corporation)

Dear Mr. Mathers and Gentlemen:

Per our agreement, you have requested the undersigned Economist to determine a Fair Market Forced Liquidation Value of Nexus Custom Electronics Corporation (a Florida Corporation) a wholly owned subsidiary of Nexus Nano Electronics, Inc. (“NXNO”) (a Nevada Corporation) headquartered in Brandon, Vermont as of October 31, 2007.

In most similar circumstances, an Economist or Analyst seeking to determine the Fair Market Forced Liquidation Value of an organization, only needs to look at the local newswire service to determine the price of the stock on any given day and simply multiply the number of shares issued by the then existing price in order to compute a total Fair Market Value, if the company was a publicly traded organization. From that Fair Market Valuation, the analyst would then determine a discount or liquidation factor for the forced liquation and a Forced Liquation Value would then have been determined. However, in the specific matter at hand, the organization and its shares are not a publicly traded organization and need to be independently valued.

The undersigned, in order to perform the desired valuation has been supplied with a variety of accounting and financial data on the corporation for recent periods. The data furnished and relied upon by the undersigned includes the following:

 

 

 

1) The corporate website of Nexus Custom Electronics, Inc. and the information contained therein;

 

 

 

 

 

In rendering our opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of financial and other information that was available to us from public and non public sources and all the financial and other information provided to us by either / or Nexus Custom Electronics, Inc. or their representatives. We have further relied upon the assurances of the Senior Management of Nexus Custom Electronics, Inc. that they are unaware of any facts that would make the information regarding either / or Nexus Custom Electronics, Inc. or the general industry data, as provided, inaccurate, incomplete or misleading.

In examining and valuing corporations that are basically service or “small” semi-manufacturing organizations as opposed to “large” manufacturers or distributors, entities / corporations such as Nexus Custom Electronics, Inc. that are privately held and non-publicly traded corporate entities, and is owned and / or operated by an individual or a small group or unit (or a family), such corporations need to be valued according to standard methods and approaches. This is especially true of applying the appropriate methods for a specific entity in a specific type of business activity. While different Appraisers can use and include their own favorite approaches to support their findings, one of the basic and widely acceptable methods of valuing corporations such as the type and size of Nexus Custom Electronics, Inc. is the Comparative Market Method, utilizing a multiple of earnings, such as net earnings (“net income”).

In order to clearly rectify and denote the differences between organizations that are publicly traded and operated on a daily basis by “hired” management, whose goals can often conflict with the goals and desires of individual shareholders, the Internal Revenue Service promulgated a method of its own for valuing many small businesses. This method, which has been utilized since the early 1920s, is commonly known as and referred to as the “Excess Earnings Method”. This method, unlike other methods, removes a great deal of speculation from the overall valuation process and has become widely relied upon to value small businesses, especially professional practices. In other words, it values organizations that do not possess a great deal of tangible assets and / or whose assets are basically the talents, skill and input of an individual or a group of a few individuals. This has commonly come to be referred to as “intellectual property” valuations.

 

 

Valuation methods, such as and including the Capitalization of Net Cash Flow, the Market Approach and Debt Capacity methods are all open to a variety of projections, Appraiser bias and use and reliance upon data that often could be suspect in accuracy, as in the case of the market approach. Instead of trying to create a value by mixing and blending a number of approaches that require interpretation, projections and use of data that is not open to the public and can easily be skewed to reflect the desires of an Appraiser, a clear and obvious answer is to utilize the method that was recommended by the United States Treasury and the Internal Revenue Service for the valuation of small service business, namely the Excess Earnings Method. This method is not open to projections, a wide variety of assumptions and the reliance upon data that is not public in nature and not subject to financial scrutiny of collection, and analytical methods.

However, in the matter at hand, the Excess Earnings Method and the other methods outlined and described above CANNOT be utilized in the liquidation valuation of a small business such as and including Nexus Custom Electronics, Inc. The reason said approach cannot be employed is that the Excess Earnings Method and all other methods thus far described rely upon the fact that the business is and will remain an ongoing entity, which is clearly not the circumstances based upon the facts of a forced liquidation. In as much as there is no published or standard norm for the liquidation or liquidation value of organizations such as Nexus Custom Electronics, Inc. the methods outlined above will be discarded in favor of the Liquidation Methods of Valuation, (described below, herein) that can be applied via the utilization of proper economic and financial techniques and well utilized and recognized in the economic / financial / securities industry.

 

Before turning to the Fair Market Forced Liquidation Valuation of the organization - Nexus Custom Electronics, Inc., an explanation of the organization, namely a small contract manufacturer / supplier to industrial original equipment manufacturers (OEM”) and the circumstances surrounding that business explored and explained.

 

 

Nexus Custom Electronics, Inc., a wholly owned subsidiary of Nexus Nano Electronics, Inc., provides contract-manufacturing services to industrial original equipment manufacturers ("OEMs") customers. The core customer base consists primarily of small and medium-sized manufacturers that produce electronic equipment used in a wide variety of industries. Sales from the business is recognized at the time products are shipped to customers and may vary depending on the time of customers' orders, product mix and availability of component parts. Substantially all of the business is performed on a turnkey basis that involves the procurement of specified components and raw materials from its network of suppliers and other suppliers, assembly of components on printed circuit boards and post-assembly testing. OEMs then incorporate the printed circuit boards into their finished products. In assembling printed circuit boards, Nexus is capable of employing both conventional pin-through-hole interconnection technology, as well as advanced surface mount technology. Pin-through-hole interconnection technology is a method of assembling printed circuit boards in which component leads are inserted and soldered into plated holes in the board. Surface mount technology is a method of assembling printed circuit boards in which components are fixed directly to the surface of the board, rather than being inserted into holes. The gross profit margin for such materials is generally lower than the gross profit associated with the manufacturing process and other value-added services.

 

The company does not typically enter into long-term purchase orders or commitments from its customers. Instead, the company works with its customers to develop forecasts for future orders that are not binding. Customers may cancel their orders, change their orders, and change production quantities from forecasted volumes or delay production for a number of reasons beyond the company control. Cancellations, reductions or delays by a significant customer or by a group of customers could have an adverse effect on the company. In addition, as many of the costs and operating expenses are relatively fixed, a reduction in customer demand can adversely affect the gross margins and operating income.

Nexus conducts contract manufacturing operations through a wholly owned subsidiary, Nexus, at two locations. The first location is an approximately 32,000 square foot facility located in Brandon, Vermont and offers full turnkey contract manufacturing services. In November 2005, Nexus scaled back its second facility located in Woburn, Massachusetts. The Woburn facility is a satellite of Nexus specializing in prototype, new customer introduction, as well as operating two (2) dedicated lines for a defense contractor and an automotive customer. Nexus provides turnkey contract manufacturing services to OEM customers which includes procurement of customer specified components and raw materials from a network of suppliers and other suppliers, assembly of components on printed circuit boards and post-assembly testing. OEMs then incorporate the printed circuit boards into finished products. In assembling printed circuit boards, Nexus is capable of employing both pin-through-hole and surface mount technology.

 

 

Pin-through-hole interconnection technology is a method of assembling printed circuit boards in which component leads are inserted and soldered into plated holes in the board. Surface mount technology is a method of assembling printed circuit boards in which components are fixed directly to the surface of the board, rather than being inserted into holes. The surface mount technology process allows for more miniaturization, cost savings and shorter lease paths between components (which results in greater signal speed).

Nexus provides electronics manufacturing services to the communications, aviation, defense, medical devices and instrumentation industries, and serves the continental United States, with its concentrated market in the eastern region of the United States. Both of Nexus' manufacturing facilities have earned ISO 9001:2000 certification by the Geneva-based organization dedicated to the development of worldwide standards for quality management guidelines and quality assurance. Management believes sophisticated customers increasingly are requiring their manufacturers to be ISO 9001 certified for purposes of quality assurance.

Printed circuit boards are platforms on which integrated circuits and other electronic components are mounted.

Semiconductor designs are complex and often require printed circuit boards with many layers of narrow, densely spaced wiring. Rapid technological advances have occurred in the electronics industry in recent years that have increased the speed and performance of components while reducing their size. These technological advances have caused printed circuit boards to become smaller with components more densely attached to the board requiring increasingly advanced surface mount manufacturing technologies, in addition to traditional surface mount and pin through-hole technology.

In pin-through-hole production, components are attached by pins, also called leads, inserted through and soldered to plated holes in the printed circuit board. In traditional surface mount technology production, the leads on integrated circuits, and other electronic components are soldered to the surface of the printed circuit board rather than inserted into holes. Surface mount technologies can accommodate a substantially higher number of leads in a given area than pin-through-hole production. As a result, surface mount technologies allow the printed circuit board to interconnect a greater density of integrated circuits. This density permits tighter component spacing and a reduction in the printed circuit board dimensions. Additionally, surface mount technologies allow components to be placed on both sides of the printed circuit board to permit even greater density. The substantially finer lead-to- lead spacing in surface mount technologies requires a manufacturing process far more exacting than the pin-through-hole interconnect products. An advanced surface mount technology called micro ball grid array allows for even greater densities than traditional surface mount technology. The ball grid array assembly process uses small balls of solder, instead of leads that could bend and break, located directly underneath the part, to interconnect the component and circuit board. Because of their high number of leads, most complex or very large-scale integrated circuits are configured for surface mount technologies production.

 

 

Nexus employs advanced surface mount technologies in its printed circuit board assembly operations in addition to traditional surface mount technologies. The company also continues to support pin-through-hole technology and related semi-automated and manual placement processes for existing and new applications that require these technologies.

Nexus focuses on low to moderate volume manufacturing of highly complex printed circuit board assemblies. The company manufactures these complex assemblies on a batch basis and has developed expertise in quickly changing equipment set-up and manufacturing capabilities in order to respond to customers' changing needs. The company believes this capability provides customers with optimal flexibility in product design while allowing for rapid turnaround of new or highly complex, but lower volume products.

 

 

Nexus serves a wide range of customers from emerging growth companies to established multinational corporations in a variety of markets. The timing and level of orders from its customers varies substantially from period to period.

 

 

The historic level of net sales Nexus Electronics has received from a specific customer in one particular period is not necessarily indicative of net sales the company may receive from that customer in any future period. While the company focuses on maintaining long term relationships with its customers for various reasons including consolidation in its customers' industries; Nexus Electronics has in the past and will continue in the future to terminate or lose relationships with customers. Customers may also significantly reduce the level of business done with Nexus Electronics or delay the volume of manufacturing services ordered from the company. Significant or numerous terminations, reductions or delays in its customers' orders could negatively impact its operating results in future quarters.

The company's three (3) largest customers, GSI Lumonics, Frequency Electronics, and S-TEC, accounted for 70.0% of total sales in fiscal 2005 (lasted data supplied), and as a result of its importance, Nexus Electronics is dependent upon continuing its business with these customers. The company, nonetheless, continues to focus on expanding and diversifying its customer base to reduce dependence on any individual customer or market.

In many cases, the company's customers utilize more than one contract manufacturing provider across product lines. The company's goal is to be the primary contract manufacturing provider for its customers. Nexus Electronics seeks to manufacture the high-value, leading-edge products of its customers and target OEMs that require moderate volume production. The low-to-medium volume, low cost facilities enable the company to offer its customers a broad range of volume production and cost alternatives. The company believes that it is advantageously positioned to be selected to provide manufacturing and value-added services for its customers' new product offerings due to:

·

Close interaction with the design engineering personnel of its customers at the product development stage;

·

Prototype production experience;

·

Advanced manufacturing and engineering capabilities, such as radio frequency capabilities; and

·

Established and dependable materials pipeline.

 

 

 

 

Nexus generally warrants that its products will be free from defects in workmanship for twelve months. Nexus also passes on to its customers any warranties provided by component manufacturers and material suppliers to the extent permitted under its arrangements with these parties. The company warranty provides that during the warranty period, action will be taken to repair or replace failed products. Nexus tests substantially all of our assemblies prior to shipment. In addition, customers generally test or have tested final products on a sample basis prior to deployment in the field. Warranty costs have not been material to date.

Nexus OEM customers require:

·

Assurance that the short and long term supply of materials and components to manufacture their products;

·

Negotiate low prices for these materials;

·

Secure high quality and reliable materials;

·

Assure the on-time delivery of these materials; and

·

Provide flexibility to change their production requirements on short notice.

To compete effectively in this business environment, Nexus Electronics has developed a materials procurement strategy whereby it maintains strong, long-term relationships with a limited number of suppliers who conform to its highest standards. The company seeks to work with suppliers that consistently deliver the best technology and quality materials at low total cost on short and flexible lead times. Nexus Electronics consistently evaluates all of its suppliers' performances and provides suggestions for improving its relationships. When Nexus does business with a supplier at its customer's direction, the company closely monitors the supplier's performance and work with both the supplier and the customer to improve the supplier's performance when necessary. The company believes this strategy enables it to provide optimal flexibility to its OEM customers and enables it to better satisfy their EMS needs.

 

 

 

The Nexus team of materials acquisition professionals is responsible for all materials procurement and planning. The company has a strategic purchasing group that develops its worldwide materials and commodity procurement strategy. This strategic group is responsible for understanding the needs of its customers and the commodity supply market, evaluating the overall quality of suppliers and negotiating and executing low cost commodity supply contracts with preferred suppliers. The company also has a group that focuses on the day-to-day tactical execution of its materials procurement process to attempt to insure that material or component costs or shortages do not prevent the company from providing optimal services to its customers. This group is responsible for proactively managing inventory programs, evaluating day-to-day supplier performance, and coordinating customer plan production changes.

Nexus Electronics typically procures components when a purchase order or forecast is received from a customer. Due to its utilization of just-in-time inventory techniques, the timely availability of many components depends on its ability to both develop accurate forecasts of customer requirements and manage the materials supply chain. Given the company’s direct component procurement strategy with quality suppliers, Nexus Electronics relies on a single or limited number of suppliers for many proprietary and other components used in the assembly process. Although Nexus Electronics has strong relationships with high quality suppliers, the company does not have any long-term supply agreements, except with Jaco, as described below. Shortages of materials and components have occurred from time to time and will likely occur in the future despite the development of select long-term supplier relationships. The company believes its direct procurement strategy and the division of responsibility within its materials procurement team enables them to better manage its supply chain in order to reduce the occurrence and minimize the effect on its customers of materials or component shortages.

Nexus entered into a five-year Supply Agreement with Jaco Electronics, Inc., on September 20, 2004. Pursuant to the Supply Agreement, Jaco provides electronic components to Nexus for use in its manufacturing operations. Under the Supply Agreement, Nexus must purchase at least 15.0% of the dollar amount of its annual purchases of electronic components that are included in Jaco's line card and are compatible with Nexus' needs. However, Nexus may submit requests for proposals to other suppliers as it may choose. If Jaco's proposal contains the lowest price, then Nexus must purchase its components from Jaco.

 

The electronics contract manufacturing industry is highly fragmented and is characterized by relatively high levels of volatility, competition and pricing and margin pressure. Many large contract manufacturers operate high-volume facilities and primarily focus on high-volume product runs. In contrast, certain contract manufacturers, such as Nexus, focus on low-to-medium volume and service-intensive products.

Nexus competes against numerous providers with global operations, including Benchmark Electronics, Celestica, Flextronics, Jabil Circuit, Plexus, Sanmina-SCI, Suntron and Solectron. Nexus also faces competition from a number of EMS providers that operate on a local or regional basis. In addition, current and prospective customers continually evaluate the merits of manufacturing products internally.

Consolidation in the EMS industry results in a continually changing competitive landscape. The consolidation trend in the industry also results in larger and more geographically diverse competitors who have significant combined resources with which to compete against Nexus. Nexus believes that the principal competitive factors in the segments of the electronics contract manufacturing industry in which it operates are:

Geographic location and coverage;

Flexibility in adapting to customers' needs;

Manufacturing capability;

Price;

Service;

Technology;

Quality;

Reliability; and

Timeliness in delivering finished products.

 

 

 

Nexus believes that it has developed a particular strength relative to some of its major competitors in the manufacturing of complex, low-to-moderate volume, leading-edge products. Competition from existing or potential competitors could result in reduced prices, margins and market share which would significantly and negatively impact operating results.

Nexus has entered into a business development services agreement with Celerity Systems, Inc. Pursuant to the agreement with Celerity, upon request, Celerity shall assist us in managerial assistance, including significant guidance and counsel in management, operations or business objectives and policies. Such assistance may include strategic and financial planning, designing budgets, and control systems. No services have been provided by Celerity to date.

Nexus is well-known in the industry in which it competes, particularly in the northeast region. Together with its website and other marketing activities, the company believes its trade name and trademark has value to the business. In connection with the acquisition purchase price allocation, the company recorded $257,735 valuation for its trademark and trade name. Subsequently, an impairment charge in the amount of $45,070 was taken in Fiscal 2005 in accordance with SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets”.

 

 

 

 

In order to help determine a Fair Market Forced Liquidation Valuation, an analyst needs to look at the finances of the overall and general formulation of the organization. Value depends upon a great many factors, especially, past performance, risk and industry growth rate potential / reward. In as much as Nexus Custom Electronics, Inc. is NOT a publicly traded organization, the amount of data both collected and available is limited. However, an overall financial review of the organization is denoted via the information furnished the undersigned to be utilized in regard to this corporate Fair Market Forced Liquidation Valuation.

 

 

 

 

 

Nexus purchases raw materials specified in the material requirements to manufacture products that customers order. If a customer cancels an order and materials cannot be returned to suppliers, nor used on other products, the inventory may need to be adjusted downward in the financial statements or written off. Prior to its acquisition by Sagamore, Nexus had never prepared financial statements that had been audited. As a result of the preparation of the financial statements of Nexus, and the related audits for the period from July 1, 2004 through October 3, 2004, and the years ended June 30, 2004 and 2003, which were done in connection with and at the time of the company's acquisition and the filing of its initial registration statement; Sagamore determined that Nexus purchased customized component parts that were included in raw material inventory that arose from customer orders that were subsequently replaced or cancelled prior to July 1, 2002. These materials could not be returned to suppliers nor used in connection with orders from other customers. As a result, Nexus effectively recorded obsolescence charges of approximately $2,000,000 prior to July 1, 2002.

The company has adopted procedures currently to periodically perform an in depth review of its inventory to determine if adjustments are required to its carrying value for accounting purposes. The company recorded an obsolescence and slow moving inventory reserve of $913,777 in Fiscal 2005 as the result of reduction of sales, cancelled purchase orders, and technical obsolescence.

 

 

Further, the undersigned has been informed by Corporate Management that as of October 29, 2007 Nexus had a total of $1,540,277 of inventory that is considered “slowing moving” and its value would have to be substantially reduced on the corporate balance sheet and records.

 

 

The consolidated financial statements have been prepared assuming that Nexus will continue as a going concern. However, the Company incurred a net loss of $7,556,949 in Fiscal 2005, and had a net working capital deficiency of $3,578,734 at June 30, 2005. It also did not meet certain covenants under its credit facility with Comerica and promissory note with Jaco, and accordingly, the outstanding balance of $3,779,423 under the credit facility ($2,759,423 under the revolver and $1,020,000 under the term loan) and the outstanding balance of $2,750,000 under the note agreement were in default as of June 30, 2005, and is classified in current liabilities in the consolidated balance sheet. Accordingly, there was in 2005 substantial doubt as to the ability of Sagamore Holdings and its subsidiary to continue as going concern.

 

The company did not meet the requirements of four (4) covenants under the provisions of its credit facility with Comerica: Minimum working capital ratio; debt service ratio (“EBITDA”, as defined, divided by interest and principal payment requirements); leverage ratio (liabilities to tangible net worth ratio) and minimum tangible net worth (tangible net worth includes subordinated debt but excludes intangible assets), and, therefore, was in default. During the period while the company is in default under the credit facility, the lender may force immediate repayment of amounts due ($3,779,423 at June 30, 2005), and invoke penalty interest (up to three percentage points or approximately $114,000 annually) at the lender’s discretion. Since the Company has not been notified that it will be charged penalty interest, it has not accrued any as of June 30, 2005.

The Company entered into a forbearance agreement with Comerica on July 15, 2005, effective July 1, 2005 through August 1, 2005, which essentially provided an extension of the revolver under the credit facility which expired on July 1, 2005, and also provided that Comerica would not exercise its right to call for acceleration of all amounts due under the term loan and revolver under the credit facility if the Company met certain conditions. Effective August 1, 2005, the company and Comerica agreed to extend the maturity date of the revolver under the credit facility to September 1, 2005. Nexus and Comerica are currently negotiating an extension of the forbearance agreement from September 1, 2005 through June 30, 2006. If an extension is agreed upon, the Company intends to attempt to negotiate an amendment to the credit facility in order to renew the facility and have the company in compliance going forward. However, there can be no assurance that the company will get an extension on the forbearance agreement.

Nexus Electronics is also in default under its promissory note agreement with Jaco due to being delinquent on interest payments, as well as effecting a change in control event subsequent to June 30, 2005. As a result of these events of default, the $2,750,000 underlying note was also classified as a current obligation since Jaco has a right to accelerate payment. The company disputes the amount due Jaco under the purchase agreement. In addition, the company intends to pursue its claims and remedies against Jaco.

 

 

 

According to information supplied the to the undersigned, while new financial statements that have been prepared are not audited, the company is still in default under most, if not all of the covenants of the loans as outlined above, herein.

 

 

Currently, corporate headquarters is located at 402 Prospect Street, Brandon Vermont. This location is an approximately 32,000 square foot facility located in Brandon, Vermont, which is also used for manufacturing and storage in addition to our office space. This property is owned and occupied by our wholly-owned subsidiary, Nexus, and is fully encumbered by a first security interest in the amount of $5,000,000 held by Comerica Bank on all property Nexus now or later owns or has an interest.

The company also operates a second facility in Woburn, Massachusetts through Nexus. This facility's address is 317 New Boston Street, 2nd Floor, Woburn Massachusetts. The property is leased and has a base rent of $14,197 per month. The lease expires on July 31, 2008, and has a three-year option to renew with base rent increases of 3.34%. Nexus believes that its present facilities will be adequate to meet our needs for the foreseeable future.

 

The subject property known as Nexus Custom Electronics, Inc., is located at 402 Prospect Street in the Town of Brandon, Vermont. It consists of a circa 1975 one-story steel framed building of approximately 30,418 square feet located upon a 5.7 acre parcel of land. The property is presently owned by NECI Acquisitions, Inc., and is described with a QuitClaim Deed recorded September 27, 2004, in Book 170, pages 411-412 of the Town of Brandon Land Records.

 

 

Brandon is located in Rutland County, in the western central portion of the state and has a population of roughly 4,194 persons. The town is bisected by Route 7, the major north-south highway on the west side of the state approximately sixteen (16) miles north of Rutland and fourteen miles south of Middlebury. In an east-west direction, the town is bisected by Route 73.

 

 

 

 

The downtown of Brandon is a classic New England village with central green, a large hotel, a well established central business district with fine old residences and commercial buildings of historic and architectural work. Most shopping and professional services are available, including post office, banks, restaurants, and retail shops; many of which cater to the tourist trade. Manufacturing includes electronic supplies, fertilizers, grist mills, lumber, millwork, and woodworking.

The subject property is located at 402 Prospect Street which is located approximately one-quarter (1/4) mile north off U. S. Route 7, in the Conant Square District of the Town of Brandon. The immediate area is an established residential neighborhood of primarily single family dwellings, and adjacent to the Pleasant Height residential subdivision.

According to the Town of Brandon Zoning Ordinance, the subject property lies in an area designated as the "Neighborhood Residential District". Permitted uses in this district are residential, planned residential developments and open space. Uses requiring a conditional use permit within this district include agriculture uses, natural resource extraction uses, commercial #1 uses, community support and recreational uses, mobile home parks, and public service uses. The minimum lot size of this district is 0.25 acres, the minimum front setback is twenty (20) feet, and the minimum side and rear setbacks is five (5) feet. The present building improvements are a pre-existing legal, non-conforming use under the current zoning regulations.

 

 

The subject site is shown on the town of Brandon Tax Map #20-51 as parcel #42. This property is irregular in shape and consists of 5.7 acres of land. The land is level on road grade, being entirely open with a spacious northernly and rear lawn area with woods located along the rear boundary. There are two (2) paved, single entrance driveways located off Prospect Street, one leads to a visitors parking area for approximately twenty-five (25) vehicles and the other leads to an employee parking area for approximately seventy-five (75) vehicles. Located at the rear of the land is a paved surface truck turn-around area and driveway leading to the shipping and receiving docks.

 

 

There is municipal water and sewer, and overhead electrical and telephone service. The subject property is located on the National Flood Insurance Program's Flood Insurance Rate Map, Community Panel Number 5000900000-5C dated February 19, 1982. This property is not located within the designated flood hazard area.

Located upon the above land parcel in a circa 1975 one-story steel frame building with several subsequent additions totaling approximately 30,418 square feet of building area. The building is built upon a concrete foundation and concrete slab.

The building exterior has steel siding, double hung and fixed glass windows, and a metal and rubber membrane roof. There is a front covered entry leading to the main office area, an additional covered entry leading into the main factory portion of the building, and a side and rear truck loading dock.

The interior layout of the building is briefly described as follows:

Main reception and waiting room, leading to the executive office area with conference room, engineering, accounting, and computer center.

The manufacturing area surrounds an open interior court yard, which is accessed of the employee's kitchenette and dining area. Located in the southwest corner of the building is a receiving area and the production staff offices; and a shipping area located at the rear of the building.

Located at the rear of the manufacturing area in the northwest corner of the building is an area set for spray finishing which has several large exhaust fans.

The building interior is primarily finished with drywalls and ceilings, vinyl tile and carpeted floors, and fluorescent lighting. The building is fully insulated and has propane gas-fired heating and air conditioning throughout. The building is completely sprinkled.

 

 

Although the original building was built in 1975, there have been several subsequent additions and extensive renovations, and the general physical condition is considered above average.

 

 

Before turning to the direct analysis and valuation of Nexus Custom Electronics, Inc. an overall explanation of the general methods used to value businesses, especially small or family owned or controlled organizations needs to be outlined and explored. They are explained below in succinct form for a reader’s reference.

The purpose of this valuation report is to value the above noted contract manufacturing corporation that has been conducting business (in whole or part) for a substantial period of time. Based upon data, as explained below, the valuation we are seeking is a Fair Market Forced Liquidation Value as opposed to a Fair Market Value (FMV - Treasury Regulation 20.2031-1(b); Revenue Ruling 59-60, 1959-1 C.B. 237; as modified by Revenue Ruling 65-193; I.R.B. 1965-2, and Revenue Ruling 68-609, I.R.B. 1968-48) concept, or a book value. In order to obtain a corporate valuation, several methods can be selected including - Comparative Company Method utilizing Net Income or EBITDA, Excess Earnings Method and the Discounted Cash Flow method which encompasses Capitalization of Earnings or the Liquidation Method. In as much as the undersigned has been informed that a corporate foreclosure could be in process, the undersigned was requested to value Nexus Custom Electronics, Inc. under the Fair Market Forced Liquidation Method. For completeness of thought and understanding the most widely utilized and commonly engaged methods of valuing an organization will be outlined below.

The idea behind the Comparative Earnings Method is that the value of companies, organizations or service entities involving comparative ventures in the same or similar industry provide objective evidence as to values at which investors are willing to, value, buy or sell in a specific industry.

In applying the comparative earnings valuation approach, the consultant usually computes a value multiple for each comparative method or industry. The appropriate multiple is then determined and adjusted for the unique aspects of the organization being valued, namely a Net Income is computed. The multiple is then applied to the organization being valued to arrive at an estimate of value for either the entire organization and / or the appropriate ownership interest. A market multiple represents a ratio that expresses the fair market value of an organization as a percentage of annual net revenues (or financial position) as the denominator. Value multiples can either be computed on a per share basis or a total annual earnings or other measure. The most well known value multiple is price / earnings whereby a company’s stock price is divided by its earnings per share. Once a number of comparative organizations and their adjusted financial information has been selected, the last step is to determine and compute the appropriate earning multiples.

 

 

 

In valuing organizations, such as Nexus Custom Electronics, Inc., the comparative method, also sometimes known as or referred to as Market Data Comparable Approach, is well known and utilized in the overall business services sector. The approach requires the analyst to have some first hand information of actual purchases or sales of similar organizations that are involved in or known as “electronic contract manufacturers” and evidence that these organizations are comparable in “economic fiber” to the subject organization under analysis. The database of comparative corporate data should be broad based and contain data involving a good number of organizations, related organizations and affiliated organizations in the electronic contract manufacturing business sector, in addition to geographic locations, sizes, average revenues, mark-ups utilized, and a whole host of other economic and financial data. While a significant amount of this type of information is often confidential in nature, a good number of such organizations that are similar to Nexus Custom Electronics, Inc. have available data via public / SEC sources and databases.

Based upon the above, in order to place all of the variable information into a usable number or guideline, a price-annual or revenue multiplier has often been utilized in recent years. Here, the subject corporation’s revenues are capitalized by the price-revenues multiple and the result is an estimate of the fair market value of the subject organization under analysis. While this approach can often require limited finance or economics as it analyzes organizations of a similar nature, the accuracy of the final valuation is also based upon general overall data often times referred to as a “rule of thumb” analysis.

This technique for electronic contract manufacturing sector is generally relied upon and has become more customized and tailored to the specific corporation or entity under analysis. Hence, this method would have been utilized if the undersigned was seeking a Fair Market Value of Nexus Custom Electronics Inc. organization.

 

 

 

However, this valuation method denotes that the organization would continue operating in its normal mode of operation and remain a going concern. Since data has been presented to the undersigned that a possible corporate foreclosure is being considered that would effectively end the ability of the company to continue as a going concern, said valuation method will not be utilized herein to obtain a Fair Market Forced Liquidation Value for an electronic contract manufacturing services type organization.

 

 

The Excess Earnings Method was developed by the United States Treasury Department in 1920 in Appeals and Review Memorandum 34 (ARM 34). Its current version is found in Revenue Ruling 68-609. The excess earnings method is commonly used in valuing a wide variety of small businesses.

The idea for the Excess Earnings Method is to compute the company’s equity value based on the “appraised” value of tangible assets, plus an additional amount for intangible assets. A company’s tangible assets should provide a current return to its owners. Since there are risks associated with owning the company’s assets, the rate of return on those assets should be commensurate with the risks involved. That rate of return should be either the prevailing industry rate of return required to attract capital to that industry or an appropriate rate above the risk-free rate.

Any returns produced by the company above the rate on tangible assets are considered to arise from intangible assets of the organization. Accordingly, the weighted average capitalization rate for tangible assets and intangible assets should be equivalent to the capitalization rate for the entire company.

While the Internal Revenue Service and a substantial number of professionals in the Financial and Economic industries have come to utilize and rely upon this valuation technique, this method is usually employed and relied upon in the analysis of professional and medical practices. In these instances, it is the earnings of the professional that are above “normal compensation” as determined by industry standards that create the corporate value. In the matter at hand, especially for business service / business maintenance organizations, no such normal earnings or industry standards are collected, published or made available and therefore the excess earnings method, in spite of its sound fundamental and economic underpinnings, cannot be utilized for the present corporate valuation under analysis.

 

 

The Discounted Net Cash Flow Approach and the Capitalized Returns Approach are based upon the premise that the value of an ownership interest in a company is equal to the net present value of the future benefits of that ownership. The two (2) well known and accepted valuation approaches that directly use this premise are the Discounted Net Cash Flow Approach and the Capitalized Returns Approach.

The Capitalized Returns Approach tends to be the more appropriate valuation method when it appears that an organization’s current operations are indicative of its future operations (assuming a normal growth rate). On the other hand, if there is going to be a sale or transfer of an organization, the Discounted Net Cash Flow Approach tends to be more appropriate, since future returns could be expected to be “substantially different” from current operations. (“Substantially different” means materially greater or less than a normal growth rate.) In some cases, it may be desirable to use both of these approaches to estimate a company’s value.

The Discounted Net Cash Flow Approach requires an analyst to quantify the financial benefits associated with future ownership of a specific ongoing corporate organization. In order to achieve these goals, projection of net cash flows are made for a specific period of time, usually five (5) to eight (8) years. Usually, the projected number of years equates to the length of time it would take for an organization to create, from the ground up, a comparable on-going corporate entity that is competitive with the established organization. The projection requires an income forecast, usually by category of income (type of product, number of products sold, length of existing contracts and type of sales organization utilized), and expense forecast, based upon the normal expected future costs (allowing for inflation) to operate the organization and an investment forecast for expenditures on new equipment, if any, and a cost of capital forecast.

This last forecast takes into consideration the total capital structure of the organization, along with the inherent risks that inure to the specific organization in a specific industry based upon known or reasonably projected economic, financial, and legal ramifications as reflected in the discount rate chosen. The fair market value of the organization under analysis is then the cumulative present value of all future cash flows.

 

 

 

Since the laws, rules and regulations regarding electronic contract manufacturer providers, as reflected in the report herein above are mostly set, they are not subject to a constant revisions or alterations regarding their operations. In addition, the general operations of business service organizations are usually not effected by most of the ongoing changes in our national legal system, including multiple and sometimes conflicting national and state legislation. Thus, it would appropriate to utilize this method, as a check or support for the Comparative Market Method in the valuation of Nexus Custom Electronics, Inc. IF the organization had earned a profit in the proper periods AND was going to remain as a “going concern” in the overall stream of business and commerce.

Since data has been presented to the undersigned that a possible corporate foreclosure is being considered that would effectively end the ability of the company to continue as a going concern, said valuation method will not be utilized herein to obtain a Fair Market Forced Liquidation Value for an electronic contract manufacturing services type organization. Under a forced corporate foreclosure accurate or moderately accurate cash flow projections usually cannot be prepared or supported and are basically not relied upon for an organization in a potential foreclosure position. Thus, the potential foreclosure will not allow for accurate future projections and use of the Discounted Cash Flow Method.

 

 

A Liquidation Value assumes that the company will not remain a going concern and the owner will sell its assets piecemeal. Usually, a liquidation sale will loose some or all of the value reflected by economic goodwill. The assessment of liquidation value must consider the time required to sell assets in an orderly fashion or the discounts associated with a fire sale (or both). The valuation should consider costs of liquidating assets, such as commissions, shrinkage of inventory and receivables, and ongoing operating expenses.

Under this premise, it is assumed subject assets are sold piecemeal, and not as part of a mass assemblage. It is assumed the assets are given an adequate level of exposure in their normal secondary marketplace.

However, due to the orderly disposition market transaction assumption, this premise does not contemplate any contributory value effect of the subject tangible assets on the intangible assets or of the subject intangible assets on the tangible assets.

 

 

Under this premise, it is assumed the subject assets are sold piecemeal, and not as part of a mass assemblage. It is also assumed the assets are not allowed a normal level of exposure of their normal secondary market. Rather, the assets are permitted an abbreviated level of exposure to a market of the highest bidders present (who may or may not represent the collective demand side marketplace for such assets), such as in an auction environment.

Due to the forced liquidation market transaction assumption, this premise assumes no contributory value (or other economic interrelationships) from the subject tangible assets to the subject intangible assets, or vice versa.

Hence, liquidation value is usually determined using one of the following premises - a) Orderly liquidation that includes selling the assets over a reasonable time period to get the highest price for each; or b) Forced Liquidation that includes selling the assets as quickly as possible, such as at an auction. (Forced liquidation value is sometimes called auction value.)

 

 

 

Liquidation value considers not only the proceeds from selling the assts, but also the selling costs, the costs to hold the assets until their sale and other expenses. Typically, although not always, when valuing an interest with absolute control, a company's net liquidation value represents the lower limit of value. The Liquidation method should be considered when:

a. The company is in liquidation such as Chapter 7 bankruptcy.

b. The company's current and projected net cash flows from continuing operations are low compared to net assets, and the company is worth more dead than alive. Then, the company's liquidation value might be its maximum potential value and the only usable indicator of value to the owners.

c. The company's current and projected cash flows from continuing operations are low enough that its liquidation value is almost equal to its going concern value. Some owners may prefer liquidation, while others may prefer continued operation. Then, both the liquidation value method and going-concern methods may be considered in valuing the business.

d. The company is a multi-division or multi-subsidiary holding company where some divisions are profitable and others are not.

 

 

 

The undersigned has been informed by Management and independent Corporate Counsel that the following table below represents the correct and most accurate listing (rounded to the nearest dollar) of principal and interest outstanding under the Assigned Documents as of October 31, 2007:

 

 

Base upon data and appraisal reports supplied the undersigned, as of October 29, 2007 the following is a listing of the Nexus Custom Electronics, Inc. Corporate Collateral.

 

 

 

Combining all of the above data into a succinct economic scenario affords the undersigned the opportunity to appropriately determine a Fair Market Forced Liquidation Value of the Nexus Custom Electronics Corporation as of October 31, 2007.

In order to determine this valuation in an orderly and scholarly manner, each of the items above will be recalculated into a Forced Liquidation Value and then retotalled in order to present a summarized forced liquidation value of the organization.

 

 

 

 

Corporate machinery and equipment have been independently appraised via a desktop orderly liquidation appraisal report dated September 4, 2007, with an effective date of August 31, 2007. In that report "leased equipment" was included. This leased equipment constitutes approximately $395,000 of the $1,600,000 of machinery and equipment. Presuming that those who foreclosed on the existing Nexus Custom Electronics, Inc. ongoing corporation do not assume or honor the existing leased equipment obligations, then the value of the machinery and equipment per the orderly liquidation value appraisal becomes $1,205,000.

In as much as the appraisal was denoted as in orderly liquidation valuation, wherein the appraiser Paul J. Finn of Joseph Finn Co., Inc. of Newton, Massachusetts defines Orderly Liquidation Value as:

Orderly Liquidation Value as a professional opinion of the estimated most probable price expressed in terms of currency which the subject equipment could typically realize at a privately negotiated sale, properly advertised and professionally managed, by a seller obligated to sell over an extended period of time, usually within six to twelve months, as of the effective date of the appraisal report. Further, the ability of the asset group to draw sufficient prospective buyers to insure competitive offers is considered. All assets are to be sold on a piecemeal basis "as is" with purchases responsible for removal of assets at their own risk and expense. Any deletions or additions to the total assets appraised could change the psychological and/or monetary appeal necessary to gain the value indicated.

As clearly noted, the value is for an orderly liquidation as opposed to a forced liquidation value. Translating an orderly liquidation value into a forced liquidation value, the undersigned denoted that significant selling and administrative expenses need to be deducted, as well as a significant discount that buyers would place on the value of the assets noting that the liquidation was forced and needs to be concluded in a timely manner. Thus, it is the opinion of the undersigned that the Fair Market Forced Liquidation value of the machinery and equipment excluding the leased equipment is valued at $785,000.

 

 

 

Corporate real estate has been independently appraised via a summary limited appraisal report dated November 21, 2006, with an effective date of November 17, 2006. In that report, the appraisal is denoted as the Fair Market Value of the fee simple title of the real estate property located at 402 Prospect Street in Brandon, Vermont. The appraised property consists of a one-story steel-framed building of approximately 30,418 square feet located upon a 5.7 acre parcel of land.

In as much as the real estate appraisal was a fair market value of the fee simple title of the real estate and allowing normal market exposure of up to one year, the appraiser did not take into account the components and forces for a Fair Market Forced Liquidation Value of the real estate. Translating a fair market value real estate appraiser report into a forced liquidation value, the undersigned denotes that significant selling and administrative expenses need to be deducted, as well as a significant discount that buyers would place on the value of the real estate noting that the liquidation was forced and the property needs to be sold and concluded in a timely manner. Thus, it is the opinion of the undersigned the Fair Market Forced Liquidation value of the real estate is valued at $840,000, under a forced liquidation of the property.

Corporate inventory (both Brandon inventory and Woburn inventory) is carried on the corporate books according to GAAP policies, practices, and procedures. Such GAAP policies, practices, and procedures do not take into account a forced liquidation.

As clearly noted, the value for the inventory is accounted for under GAAP as opposed to the economics and finance of a forced liquidation value. Translating regular / standard inventory accounted for under GAAP value into a forced liquidation value, the undersigned denotes that significant selling and administrative expenses need to be deducted, as well as a significant discount that buyers would place on the value of the inventory noting that the liquidation was forced and needs to be concluded in a timely manner. Thus, it is the opinion of the undersigned that the Fair Market Forced Liquidation value of the regular inventory (also referred to as active inventory) under a forced liquidation should be valued at $1,515,000.

 

 

 

 

Corporate inventory (both Brandon inventory and Woburn inventory) as noted above, is carried on the corporate books according to GAAP policies, practices, and procedures. Such GAAP policies, practices, and procedures do not take into account a combination of obsolescence and / or a forced liquidation.

As clearly noted, the value for the inventory is accounted for under GAAP as opposed to the economics and finance of a combination of obsolescence and / or a forced liquidation. Translating obsolete / slow moving inventory accounted for under GAAP value into a forced liquidation value, the undersigned denotes that significant selling and administrative expenses need to be deducted, as well as a significant discount that buyers would place on the value of the obsolete / slow moving inventory noting that the liquidation was forced and needs to be concluded in a timely manner.

Thus, it is the opinion of the undersigned that the Fair Market Forced Liquidation value of the obsolete / slow moving inventory (also referred to as "written down" or "written off" inventory) under a forced liquidation should be valued at $150,000.

Corporate accounts receivable (both Brandon inventory and Woburn inventory) are carried on the corporate books according to GAAP policies, practices, and procedures. Such GAAP policies, practices, and procedures do not take into account a forced corporate liquidation. However, it is well documented that when ongoing organizations are foreclosed upon and / or cease to operate, a significant percentage of organizations that owe the foreclosed organization equitable funds either fail to pay, settle at a reduced rate, or otherwise negotiate a discount.

As clearly noted, the value for accounts receivable is accounted for under GAAP as opposed to the economics and finance of a forced liquidation. Translating accounts receivable accounted for under GAAP value into a forced liquidation value, the undersigned denotes that significant recordkeeping and administrative expenses need to be deducted, as well as a discount that would accumulate based upon those who owe funds who either fail to pay, pay significantly late, and those who negotiate a settlement for their account, based upon the fact that the corporation was liquidated via a forced liquidation and needs to be concluded in a timely manner.

 

 

 

Thus, it is the opinion of the undersigned that the Fair Market Forced Liquidation value of the accounts receivable (also referred to as "written down" or "written off" accounts receivable inventory) under a forced liquidation should be valued at $695,000.

Based upon information provided the undersigned, other than cash, Nexus Custom Electronics, Inc. does not own any significant assets not accounted for in this analysis. An entry denoted as "Identifiable intangibles" contains a variety of items, but does not contain any specific patents, trademarks, or other significant income producing items. Without the ongoing economic fiber of the existing corporation, and without specific documented legal protection; the "Identifiable intangibles" would have a greatly diminished value.

While the "Identifiable Intangibles" are accounted for under GAAP, this accounting does not take into account the economics and finances of a forced liquidation. Translating certain "Intangibles" accounted for under GAAP value into a forced liquidation value, without an ongoing master corporate entity to hold these "intangibles" into an agglomerated entity, the undersigned denotes that a significant discount should accrue to these items, as buyers, if any could be located, would place on the value of the "intangibles" noting that the liquidation was forced and needs to be concluded in a timely manner.

Thus, it is the opinion of the undersigned that the Fair Market Forced Liquidation value of the "Identifiable Intangibles" under a forced liquidation should be valued at $120,000.

 

In addition and in support for the liquidation valuation approach, the undersigned examined the Income Statement for Nexus Custom Electronics, Inc. for the period July 1, 2007 to September 30, 2007, as well as other prior years income documentation. Simply stated, the organization has almost consistently failed to produce a profit and without significant outside financing will soon become totally insolvent and unable to meet its financial obligations. As of September 30, 2007, the corporation, in addition had a negative working capital ratio with total current liabilities exceeding total current assets by $2.0 million. Thus, an overall corporate financial analysis review denotes and supports that the liquidation valuation method is appropriate at this time.

Lastly, note is made of the fact that as of September 30, 2007, the corporation had a negative total equity of $7,521,000. This when combined with a negative working capital ratio and the inability to produce an ongoing profit, not only supports the liquidation valuation method, but supports the significant probability that the corporation would be unable to obtain independent third party financing in order to continue to carry out its functions and remain an ongoing business concern.

 

 

 

 

Based upon data and appraisal reports supplied the undersigned, as of October 29, 2007 the following detailed the Force Liquidation Valuation of the Nexus Custom Electronics, Inc.

 

The above total of $4,100,000 appropriately represents the Fair Market Forced Liquidation Value of the Nexus Custom Electronics Corporation as of October 31, 2007, on a category by category basis, aside from cash that might be held by the organization.

Special note is made of the fact that when comparing the Fair Market Force Liquidation value of the organization to the TOTAL debt under the Assignment Documents as of October 31, 2007, the Assigned Debt of the organization is approximately $7,145,000 greater than the Liquidation Value of Nexus Custom Electronics, Inc., as of October 31, 2007.

 

 

Four (4) separate approaches to value (comparative market approach, discounted net cash flow, excess earnings approach and liquidation approach) were potentially utilized in estimating the Fair Market Forced Liquidation Valuation of - Nexus Custom Electronics, Inc. that is under analysis. The following is a brief summary of each method and the value indication provided by the analysis of each.

	The final corporate valuation amount noted above is based upon the valuation methods utilized in this valuation report. The factors that are brought to bear in determining the final valuation are - quantity and quality of the individual information available, the experience, judgment and education of the appraiser, Dr. Kenneth Eugene Lehrer, and the degree of confidence placed on each valuation technique by the appraiser in regard to the specific organization under analysis.
	Valuation by:  _______________________________ Dr. Kenneth Eugene Lehrer November, 2007

 

 

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