SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) July 19, 2005
Netfabric Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-21419 76-0307819
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(State or other jurisdiction Commission File Number) (IRS Employer
of Incorporation) Identification No.)
Three Stewart Court, Denville, NJ 07834
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code - (973) 887-2785
67Federal Road, Building A Suite 300 Brookfield, CT 06804
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(Former Name or Former Address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into Material Definitive Agreement
Pursuant to a letter of understanding reached on June 23, 2005, the Company
sold on July 19, 2005, a Convertible Debenture (the "Debenture") in the face
amount of $500,000 to Macrocom Investors, LLC ("Macrocom). The Debenture bears
interest at 5% and is due on April 15, 2006. At the option of the Debenture
holder, the Debenture can be converted into shares of the Company's common stock
at a conversion price of $.50 per share. In connection with the sale, the
Company issued Macrocom warrants to acquire 1,000,000 shares of its common at an
exercise price $1.50 per share. The warrants expire in three years from the date
of issuance. The Company also issued to Macrocom 375,000 shares of its common
stock as additional consideration. As collateral for the Debenture, the Company
has placed with an escrow agent 5,000,000 shares of its common stock.
On July 19, 2005, the Company sold to a stockholder and an entity
affiliated with an officer of the Company convertible debentures in the face
amount of $50,000 each. These debentures were sold on substantially similar
terms as the Debenture sold to Macrocom. However, the Company did not provide
any collateral to the debenture holders.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant
See Item 1.01
Item 3.02 Unregistered Sales of Equity Securities
See Item 1.01
Item 9.01 Financial Statements And Exhibits
(a) None
(b) None
(c) Exhibits
Exhibit 99.1 Convertible Debenture date July 19, 2005 issued by the Company
to Macrocom Investors, LLC.
Exhibit 99.2 Warrant, dated July 19, 2005 issued by the Company to Macrocom
Investors, LLC.
Exhibit 99.3 Pledge and Escrow Agreement dated July 19, 2005 by and among
Macrocom Investors, LLC, the Company and Steven Siskind,
Esq., as escrow agent.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETFABRIC HOLDINGS, INC.
Date: July 29, 2005 By: /s/Jeff Robinson
-----------------
Name: Jeff Robinson
Title: Chairman and CEO
Dated: July 19, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. CD-1 $500,000
NETFABRIC HOLDINGS, INC.
Convertible Debenture
Due April 15, 2006
This Convertible Debenture (the "Debenture") is issued by NETFABRIC
HOLDINGS, INC., a Delaware corporation (the "Obligor"), to MACROCOM INVESTORS,
LLC (the "Holder").
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or
its successors and assigns the principal sum of Five Hundred Thousand Dollars
($500,000), together with accrued but unpaid interest on or before April 15,
2006 (the "Maturity Date") in accordance with the following terms:
Interest. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to 5%. Interest shall be calculated on the basis
of a 360-day year and the actual number of days elapsed, to the extent permitted
by applicable law. Interest hereunder will be paid to the Holder or its assignee
(as defined in Section 4) in whose name this Debenture is registered on the
records of the Obligor regarding registration and transfers of Debentures (the
"Debenture Register"). Interest shall be payable at Maturity.
This Debenture is subject to the following additional provisions:
Section 1. Events of Default.
(a) An "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
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(i) Any default in the payment of the principal of, interest on or other
charges in respect of this Debenture, free of any claim of subordination, as and
when the same shall become due and payable;
(ii) The Obligor or any subsidiary of the Obligor shall commence, or
there shall be commenced against the Obligor or any subsidiary of the Obligor
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Obligor or any subsidiary of the Obligor
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Obligor or any subsidiary of the Obligor or there is commenced against the
Obligor or any subsidiary of the Obligor any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 61 days; or the
Obligor or any subsidiary of the Obligor is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Obligor or any subsidiary of the Obligor suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Obligor or any subsidiary of the Obligor
makes a general assignment for the benefit of creditors; or the Obligor or any
subsidiary of the Obligor shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Obligor or any subsidiary of the Obligor shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Obligor or any subsidiary of the Obligor shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Obligor
or any subsidiary of the Obligor for the purpose of effecting any of the
foregoing;
(iii) The Obligor shall fail to file the Underlying Shares Registration
Statement (as defined in Section 4) with the Commission (as defined in Section
4) within ninety (90) days from the Effective Date of this Debenture;
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election, immediately due
and payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Debenture or any Transaction Document, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
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Section 2. Conversion and Adjustment.
(a) This Debenture shall be convertible into shares of Common Stock at
the option of the Holder, in whole or in part at any time and from time to time,
after the Original Issue Date. The number of shares of Common Stock issuable
upon a conversion hereunder equals the quotient obtained by dividing (x) the
outstanding amount of this Debenture to be converted by (y) the Conversion
Price. The Obligor shall deliver Common Stock certificates to the Holder prior
to the Fifth (5th) Trading Day after a Conversion Date. The conversion price
(the "Conversion Price") in effect on any Conversion Date shall be equal to
$.50, which may be adjusted pursuant to the other terms of this Debenture
(b) The Holder shall effect conversions by delivering to the Obligor a
completed notice in the form attached hereto as Exhibit A (a "Conversion
Notice"). The date on which a Conversion Notice is delivered is the "Conversion
Date." Unless the Holder is converting the entire principal amount outstanding
under this Debenture, the Holder is not required to physically surrender this
Debenture to the Obligor in order to effect conversions. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture plus all accrued and unpaid interest thereon in an amount equal to the
applicable conversion. The Holder and the Obligor shall maintain records showing
the principal amount converted and the date of such conversions. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error.
(c) If the Obligor, at any time while this Debenture is outstanding,
shall (i) pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock, (ii) subdivide outstanding shares
of Common Stock into a larger number of shares, (iii) combine (including by way
of reverse stock split) outstanding shares of Common Stock into a smaller number
of shares, or (iv) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Obligor, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(d) In case of any (1) merger or consolidation of the Obligor or any
subsidiary of the Obligor with or into another Person, or (2) sale by the
Obligor or any subsidiary of the Obligor of more than one-half of the assets of
the Obligor in one or a series of related transactions, a Holder shall have the
right to (A) convert the aggregate amount of this Debenture then outstanding
into the shares of stock and other securities, cash and property receivable upon
or deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and property
as the shares of Common Stock into which such aggregate principal amount of this
Debenture could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (B) in the case of a merger
or consolidation, require the surviving entity to issue to the Holder a
convertible Debenture with a principal amount equal to the aggregate principal
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amount of this Debenture then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which such newly issued convertible
Debenture shall have terms identical (including with respect to conversion) to
the terms of this Debenture, and shall be entitled to all of the rights and
privileges of the Holder of this Debenture set forth herein and the agreements
pursuant to which this Debentures were issued. In the case of clause (B), the
conversion price applicable for the newly issued shares of convertible preferred
stock or convertible Debentures shall be based upon the amount of securities,
cash and property that each share of Common Stock would receive in such
transaction and the Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holder the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(e) Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Obligor
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Obligor shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Obligor
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid.
Section 3. Notice.
(a) Any notices, consents, waivers or other communications required or
permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) trading day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
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NetFabric Holdings, Inc.
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Attention: Jeff Robinson
Telephone: (203) 775-1178
Facsimile: (270) 626-8366
With a copy to: Thelen Reid & Priest LLP
875 Third Avenue
New York, NY 10022
Attention: Robert S. Matlin, Esq.
Telephone: (212) 603-2215
Facsimile: (212).603-2001
If to the Holder, to Macrocom Investors, LLC
C/o Michael Millon
1365 York Avenue #28B
New York, NY 10021
Telephone: (212) 717-1454
Facsimile: (212) 717-1774
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 4. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001, of the Obligor
and stock of any other class into which such shares may hereafter be changed or
reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Effective Date of the Transaction" means the date that the Company
receives the total funds from the Holder. "Original Issue Date" shall mean the
date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the
number of instruments, which may be issued to evidence such Debenture. "Closing
Bid Price" means the price per share in the last reported trade of the
Common Stock on the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are quoted
on the OTC or quoted or traded on such Subsequent Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the
shares of Common Stock are not listed or quoted, then Trading Day shall mean a
Business Day.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof. "Underlying Shares Registration Statement" means a registration
statement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 5. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Obligor, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 6. If this Debenture is mutilated, lost, stolen or destroyed,
the Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Obligor.
Section 7. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the Supreme Court of the State of New York, New York County, and the U.S.
District Court for the Southern District of New York in connection with any
6
dispute arising under this Debenture and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens to the bringing of any such proceeding in such jurisdictions.
Section 8. If the Obligor fails to strictly comply with the terms of
this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
Section 9. Any waiver by the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
Section 10. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
Section 11. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 12. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
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IN WITNESS WHEREOF, the Obligor has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date set forth above.
NETFABRIC HOLDINGS, INC.
By: _______________________________________
Name: Jeff Robinson
Title: Chairman and Chief Executive Officer
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EXHIBIT"A"
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NOTICE OF CONVERSION
--------------------
(To be executed by the Holder in order to convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal
amount of the above Debenture into Shares of Common Stock of NetFabric Holdings,
Inc., according to the conditions stated therein, as of the Conversion Date
written below.
Conversion Date: ___________________________________
Applicable Conversion Price: ___________________________________
Signature: ___________________________________
Name: ___________________________________
Address: ___________________________________
Amount to be converted: $___________________________________
Amount of Debenture unconverted: $___________________________________
Conversion Price per share: $___________________________________
Number of shares of Common Stock
to be issued: ___________________________________
Please issue the shares of
Common Stock in the following
name and to the following address: ___________________________________
Issue to: ___________________________________
Authorized Signature: ___________________________________
Name: ___________________________________
Title: ___________________________________
Phone Number: ___________________________________
Broker DTC Participant Code: ___________________________________
Account Number: ___________________________________
WARRANT
-------
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
NETFABRIC HOLDINGS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: CDW-001 Number of Shares: 1,000,000
Date of Issuance: July 19, 2005
NetFabric Holdings, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in connection with the issuance of a
Convertible Debenture in the amount of $500,000 (the "Convertible Debenture"),
MACROCOM INVESTORS, LLC (the "Holder"), the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Eastern Time on the
Expiration Date (as defined herein) One Million (1,000,000) fully paid and
nonassessable shares of Common Stock (as defined herein) of the Company (the
"Warrant Shares") at the exercise price per share provided in Section 1(b) below
or as subsequently adjusted.
Section 1.
(a) Definitions. The following words and terms as used in this Warrant
shall have the following meanings:
(i) "Business Day" Means Any Day Other Than Saturday, Sunday Or Other
Day on Which Commercial Banks In The City Of New York Are Authorized Or Required
By law To Remain Closed.
(ii) "Common Stock" means (i) the Company's common stock, par value
$0.001 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of such
Common Stock.
(iii) "Event of Default" means an event of default under the
Convertible Debenture, or any other related agreements hereunder between the
Company and Holder of even date herewith which is not cured by the Company by
any applicable cure period therein.
(iv) "Expiration Date" means the date three (3) years from the
Issuance Date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York or on which trading does not take place on the
Principal Exchange or automated quotation system on which the Common Stock is
traded (a "Holiday"), the next date that is not a Holiday.
(v) "Issuance Date" means the date hereof.
(vi) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(vii) "Principal Market" means the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
whichever is at the time the principal trading exchange or market for such
security, or the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg or, if no bid or sale information is
reported for such security by Bloomberg, then the average of the bid prices of
each of the market makers for such security as reported in the "pink sheets" by
the National Quotation Bureau, Inc.
(viii) "Securities Act" means the Securities Act of 1933, as amended.
(ix) "Warrant" means this Warrant and all Warrants issued in exchange,
transfer or replacement thereof.
(x) "Warrant Exercise Price" shall be $1.50 or as subsequently
adjusted as provided in Section 8 hereof.
(xi) "Warrant Shares" means the shares of Common Stock issuable at any
time upon exercise of this Warrant.
(b) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references herein (A) to
the Company shall be deemed to include the Company's successors and (B) to any
applicable law defined or referred to herein shall be deemed references to such
applicable law as the same may have been or may be amended or supplemented from
time to time.
(ii) When used in this Warrant, the words "herein", "hereof", and
"hereunder" and words of similar import, shall refer to this Warrant as a whole
and not to any provision of this Warrant, and the words "Section", "Schedule",
and "Exhibit" shall refer to Sections of, and Schedules and Exhibits to, this
Warrant unless otherwise specified.
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(iii) Whenever the context so requires, the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and vice
versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, pro
rata as hereinafter provided, at any time on any Business Day on or after the
opening of business on such Business Day, commencing with the first day after
the date hereof, and prior to 11:59 P.M. Eastern Time on the Expiration Date (i)
by delivery of a written notice, in the form of the subscription notice attached
as Exhibit A hereto (the "Exercise Notice"), of such holder's election to
exercise this Warrant, which notice shall specify the number of Warrant Shares
to be purchased, payment to the Company of an amount equal to the Warrant
Exercise Price(s) applicable to the Warrant Shares being purchased, multiplied
by the number of Warrant Shares (at the applicable Warrant Exercise Price) as to
which this Warrant is being exercised (plus any applicable issue or transfer
taxes) (the "Aggregate Exercise Price") in cash or wire transfer of immediately
available funds and the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date ("Cash Basis") or (ii) if at the time of
exercise, the Warrant Shares are not subject to an effective registration
statement or if an Event of Default has occurred, by delivering an Exercise
Notice and in lieu of making payment of the Aggregate Exercise Price in cash or
wire transfer, elect instead to receive upon such exercise the "Net Number" of
shares of Common Stock determined according to the following formula (the
"Cashless Exercise"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A = the total number of Warrant Shares with respect to which this
Warrant is then being exercised.
B = the Closing Bid Price of the Common Stock on the date of
exercise of the Warrant.
C = the Warrant Exercise Price then in effect for the applicable
Warrant Shares at the time of such exercise.
(b) In the event of any exercise of the rights represented by this Warrant
in compliance with this Section 2, the Company shall on the fifth (5th) Business
Day following the date of receipt of the Exercise Notice, the Aggregate Exercise
Price and this Warrant (or an indemnification undertaking with respect to this
Warrant in the case of its loss, theft or destruction) and the receipt of the
representations of the holder specified in Section 6 hereof, if requested by the
Company (the "Exercise Delivery Documents"), and if the Common Stock is DTC
eligible, credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account with
The Depository Trust Company; provided, however, if the holder who submitted the
Exercise Notice requested physical delivery of any or all of the Warrant Shares,
3
or, if the Common Stock is not DTC eligible then the Company shall, on or before
the fifth (5th) Business Day following receipt of the Exercise Delivery
Documents, issue and surrender to a common carrier for overnight delivery to the
address specified in the Exercise Notice, a certificate, registered in the name
of the holder, for the number of shares of Common Stock to which the holder
shall be entitled pursuant to such request. Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (i) or (ii) above the holder
of this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised.
(c) Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised, the Company shall, as soon as practicable and
in no event later than five (5) Business Days after any exercise and at its own
expense, issue a new Warrant identical in all respects to this Warrant exercised
except it shall represent rights to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant exercised,
less the number of Warrant Shares with respect to which such Warrant is
exercised.
(d) No fractional Warrant Shares are to be issued upon any pro rata
exercise of this Warrant, but rather the number of Warrant Shares issued upon
such exercise of this Warrant shall be rounded up or down to the nearest whole
number.
Section 3. Covenants as to Common Stock. The Company hereby covenants and
agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
(c) During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized and reserved at
least one hundred percent (100%) of the number of shares of Common Stock needed
to provide for the exercise of the rights then represented by this Warrant and
the par value of said shares will at all times be less than or equal to the
applicable Warrant Exercise Price.
(d) If at any time after the date hereof the Company shall file a
registration statement, the Company shall include the Warrant Shares issuable to
the holder, pursuant to the terms of this Warrant, and the Shares of Common
Stock underlying the Convertible Debenture.
(e) This Warrant will be binding upon any entity succeeding to the Company
by merger, consolidation or acquisition of all or substantially all of the
Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes, except any
applicable withholding, which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.
4
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of
capital stock of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 5, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant and the
Convertible Debenture, by the acceptance hereof, represents that it is acquiring
this Warrant and the Warrant Shares, and the Convertible Debenture and the
shares underlying it, (collectively, the "Securities")for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution of the Securities, except pursuant to sales
registered or exempted under the Securities Act; provided, however, that by
making the representations herein, the holder does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
the Securities further represents, by acceptance hereof, that, as of this date,
such holder is an "accredited investor" as such term is defined in Rule
501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission
under the Securities Act (an "Accredited Investor").
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares. The
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price upon Subdivision or Combination
of Common Stock. If the Company at any time after the date of issuance of this
Warrant subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, any Warrant Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced and the number of shares of
5
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, any
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares issuable upon
exercise of this Warrant will be proportionately decreased. Any adjustment under
this section shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(b) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise Price, the
Company will give written notice thereof to the holder of this Warrant, setting
forth in reasonable detail, and certifying, the calculation of such adjustment.
Section 9.Reorganization, Reclassification, Consolidation, Merger or Sale.
(a) Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction in each case which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") a written agreement (in form and substance
satisfactory to the holders of Warrants representing at least two-thirds (iii)
of the Warrant Shares issuable upon exercise of the Warrants then outstanding)
to deliver to each holder of Warrants in exchange for such Warrants, a security
of the Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant and satisfactory to the holders of the
Warrants (including an adjusted warrant exercise price equal to the value for
the Common Stock reflected by the terms of such consolidation, merger or sale,
and exercisable for a corresponding number of shares of Common Stock acquirable
and receivable upon exercise of the Warrants without regard to any limitations
on exercise, if the value so reflected is less than any Applicable Warrant
Exercise Price immediately prior to such consolidation, merger or sale). Prior
to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of
Warrants representing a majority of the Warrant Shares issuable upon exercise of
the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the Warrant Shares immediately theretofore
issuable and receivable upon the exercise of such holder's Warrants (without
regard to any limitations on exercise), such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Warrant Shares which would have been
issuable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).
6
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of
an indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of receipt is received by the sending party transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
If to the Company, to: NetFabric Holdings, Inc.
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Telephone: (203) 775-1178
Facsimile: (203)
With a copy to: Thelen Reid & Priest LLP
875 Third Avenue
New York, NY 10022
Attention: Robert S. Matlin, Esq.
Telephone: (212) 603-2215
Facsimile: (212).603-2001
If to a holder of this Warrant, to it at the address and facsimile number set
forth on Exhibit C hereto, with copies to such holder's representatives as set
forth on Exhibit C, or at such other address and facsimile as shall be delivered
to the Company upon the issuance or transfer of this Warrant. Each party shall
provide five days' prior written notice to the other party of any change in
address or facsimile number. Written confirmation of receipt (A) given by the
recipient of such notice, consent, facsimile, waiver or other communication, (or
(B) provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is set forth on page 1 hereof.
This Warrant, in all events, shall be wholly void and of no effect after the
close of business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 8(b) shall continue in full force
and effect after such date as to any Warrant Shares or other securities issued
upon the exercise of this Warrant.
7
Section 13. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of
Warrants representing at least two-thirds of the Warrant Shares issuable upon
exercise of the Warrants then outstanding; provided that, except for Section
8(d), no such action may increase the Warrant Exercise Price or decrease the
number of shares or class of stock obtainable upon exercise of any Warrant
without the written consent of the holder of such Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. The corporate laws of the
State of Nevada shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
New York County and the United States District Court for the Southern District
of New York, for the adjudication of any dispute hereunder or in connection
herewith or therewith, or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Section 15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY
HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR
ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
[REMAINDER OF PAGE INTENTIALLY LEFT BLANK]
8
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the
date first set forth above.
NETFABRIC HOLDINGS, INC.
By: ___________________________
Name: Jeff Robinson
Title: Chief Executive Officer
9
EXHIBIT A TO WARRANT
--------------------
EXERCISE NOTICE
---------------
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
NETFABRIC HOLDINGS, INC.
The undersigned holder hereby exercises the right to purchase ______________ of
the shares of Common Stock ("Warrant Shares") of NetFabric Holdings, Inc., a
Delaware corporation (the "Company"), evidenced by the attached Warrant (the
"Warrant"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.
Specify Method of exercise by check mark:
1. ___ Cash Exercise
(a) Payment of Warrant Exercise Price. The holder shall pay the
Aggregate Exercise Price of $______________ to the Company in accordance
with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the
holder _________Warrant Shares in accordance with the terms of the
Warrant.
2. __ Cashless Exercise
(a) Payment of Warrant Exercise Price. In lieu of making payment of
the Aggregate Exercise Price, the holder elects to receive upon such
exercise the Net Number of shares of Common Stock determined in accordance
with the terms of the Warrant.
(b) Delivery of Warrant Shares. The Company shall deliver to the
holder _________Warrant Shares in accordance with the terms of the
Warrant.
Date: _______________ __, ______
Name of Registered Holder
By: ______________________
Name: ______________________
Title:______________________
A-1
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
---------------------
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of NetFabric Holdings, Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint ______________, attorney to transfer
the warrants of said corporation, with full power of substitution in the
premises.
Dated:________________________________ __________________________________
By: ____________________________
Name: ____________________________
Title:____________________________
B-1
PLEDGE AND ESCROW AGREEMENT
---------------------------
THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") is made and entered
into as of July 19, 2005 (the "Effective Date") by and among MACROCOM INVESTORS,
LLC (the "Pledgee"), NETFABRIC HOLDINGS, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Pledgor"), and STEVEN
SISKIND, ESQ., as escrow agent ("Escrow Agent").
RECITALS:
--------
WHEREAS, in order to secure the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all of the
Company's obligations (the "Obligations") to the Pledgee or any successor to the
Pledgee under this Agreement and the Convertible Debentures (the "Convertible
Debentures") issued or to be issued by the Company to the Pledgee, either now or
in the future, up to a total of Five Hundred Thousand Dollars ($500,000) of
principal, plus any interest, costs, fees, and other amounts owed to the Pledgee
thereunder, (collectively, the "Transaction Documents"), the Pledgor has agreed
to irrevocably pledge to the Pledgee Five Million (5,000,000) shares (the
"Pledged Shares") of the Pledgor's common stock and issue certificates
representing the Pledged Shares in the name of Pledgee.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
warranties, and representations herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
TERMS AND CONDITIONS
--------------------
1. Pledge and Transfer of Pledged Shares.
1.1. The Pledgor hereby grants to Pledgee a security interest in all
Pledged Shares as security for Pledgor's obligations under the Convertible
Debentures. Simultaneously with the execution of the Transaction Documents, the
Pledgee shall deliver to the Escrow Agent stock certificates representing the
Pledged Shares, together with duly executed stock powers or other appropriate
transfer documents executed in blank by the Pledgee (the "Transfer Documents"),
and such stock certificates and Transfer Documents shall be held by the Escrow
Agent until the full payment of all amounts due to the Pledgee under the
Convertible Debenture and through repayment in accordance with the terms of the
Convertible Debenture, or the termination or expiration of this Agreement.
2. Rights Relating to Pledged Shares. Upon the occurrence of an Event of
Default (as defined in the Convertible Debenture), the Pledgee shall be entitled
to vote the Pledged Shares, to receive dividends and other distributions
thereon, and to enjoy all other rights and privileges incident to the ownership
of the Pledged Shares.
3. Release of Pledged Shares from Pledge. Upon the payment of all amounts
due to the Pledgee under the Convertible Debenture by repayment in accordance
with the terms of the Convertible Debenture, the parties hereto shall notify the
Escrow Agent to such effect in writing. Upon receipt of such written
1
notice for payment of the amounts due to the Pledgee under the Convertible
Debenture, the Escrow Agent shall return to the Pledgor the Transfer Documents
and the certificates representing the Pledged Shares, (collectively the "Pledged
Materials"), whereupon any and all rights of Pledgee in the Pledged Materials
shall be terminated. Notwithstanding anything to the contrary contained herein,
upon full payment of all amounts due to the Pledgee under the Convertible
Debenture, this Agreement and Pledgee's security interest and rights in and to
the Pledged Shares shall terminate.
4. Event of Default. An "Event of Default" shall be deemed to have occurred
under this Agreement upon an Event of Default under the Convertible Debenture.
5. Remedies. Upon and anytime after the occurrence of an Event of Default,
the Pledgee shall have the right to provide written notice of such Event of
Default (the "Default Notice") to the Escrow Agent, with a copy to the Pledgor.
As soon as practicable after receipt of the Default Notice, the Escrow Agent
shall deliver to Pledgee the Pledged Materials held by the Escrow Agent
hereunder. Upon receipt of the Pledged Materials, the Pledgee shall have the
right to sell the Pledged Shares and to apply the proceeds of such sales, net of
any selling commissions, to the Obligations owed to the Pledgee by the Pledgor
under the Transaction Documents, including, without limitation, outstanding
principal, interest, legal fees, and any other amounts owed to the Pledgee. To
the extent that the net proceeds received by the Pledgee are insufficient to
satisfy the Obligations in full, the Pledgee shall be entitled to a deficiency
judgment against the Pledgor for such amount. The Pledgee shall have the
absolute right to sell or dispose of the Pledged Shares in any manner it sees
fit and shall have no liability to the Pledgor or any other party for selling or
disposing of such Pledged Shares even if other methods of sales or dispositions
would or allegedly would result in greater proceeds than the method actually
used.
6. Concerning the Escrow Agent.
6.1. The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein and no implied duties or obligations shall be read
into this Agreement against the Escrow Agent.
6.2. The Escrow Agent may act in reliance upon any writing or instrument
or signature which it, in good faith, believes to be genuine, may assume the
validity and accuracy of any statement or assertion contained in such a writing
or instrument, and may assume that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has been
duly authorized to do so. The Escrow Agent shall not be liable in any manner for
the sufficiency or correctness as to form, manner, and execution, or validity of
any instrument deposited in this escrow, nor as to the identity, authority, or
right of any person executing the same; and its duties hereunder shall be
limited to the safekeeping of such certificates, monies, instruments, or other
document received by it as such escrow holder, and for the disposition of the
same in accordance with the written instruments accepted by it in the escrow.
2
6.3. Pledgee and the Pledgor hereby agree, to defend and indemnify the
Escrow Agent and hold it harmless from any and all claims, liabilities, losses,
actions, suits, or proceedings at law or in equity, or any other expenses, fees,
or charges of any character or nature which it may incur or with which it may be
threatened by reason of its acting as Escrow Agent under this Agreement; and in
connection therewith, to indemnify the Escrow Agent against any and all
expenses, including attorneys' fees and costs of defending any action, suit, or
proceeding or resisting any claim (and any costs incurred by the Escrow Agent
pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent shall be vested with a
lien on all property deposited hereunder, for indemnification of attorneys' fees
and court costs regarding any suit, proceeding or otherwise, or any other
expenses, fees, or charges of any character or nature, which may be incurred by
the Escrow Agent by reason of disputes arising between the makers of this escrow
as to the correct interpretation of this Agreement and instructions given to the
Escrow Agent hereunder, or otherwise, with the right of the Escrow Agent,
regardless of the instructions aforesaid, to hold said property until and unless
said additional expenses, fees, and charges shall be fully paid. Any fees and
costs charged by the Escrow Agent for serving hereunder shall be paid by the
Pledgor.
6.4. If any of the parties shall be in disagreement about the
interpretation of this Agreement, or about the rights and obligations, or the
propriety of any action contemplated by the Escrow Agent hereunder, the Escrow
Agent may, at its sole discretion deposit the Pledged Materials with the Clerk
of the U.S District Court for the Southern District of New York, and, upon
notifying all parties concerned of such action, all liability on the part of the
Escrow Agent shall fully cease and terminate. The Escrow Agent shall be
indemnified by the Pledgor, the Company and Pledgee for all costs, including
reasonable attorneys' fees in connection with the aforesaid proceeding, and
shall be fully protected in suspending all or a part of its activities under
this Agreement until a final decision or other settlement in the proceeding is
received.
6.5. The Escrow Agent may consult with counsel of its own choice (and
the costs of such counsel shall be paid by the Pledgor and Pledgee) and shall
have full and complete authorization and protection for any action taken or
suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. The Escrow Agent shall not be liable for any mistakes of fact or
error of judgment, or for any actions or omissions of any kind, unless caused by
its willful misconduct or gross negligence.
6.6. The Escrow Agent may resign upon ten (10) days' written notice to
the parties in this Agreement. If a successor Escrow Agent is not appointed
within this ten (10) day period, the Escrow Agent may petition a court of
competent jurisdiction to name a successor.
6.7 Conflict Waiver. The Pledgor hereby acknowledges that the Escrow
Agent is counsel to the Pledgee and counsel to the Pledgee in connection with
the transactions contemplated and referred herein. The Pledgor agrees that in
the event of any dispute arising in connection with this Agreement or otherwise
in connection with any transaction or agreement contemplated and referred
herein, the Escrow Agent shall be permitted to continue to represent the Pledgee
and the Pledgor will not seek to disqualify such counsel and waives any
objection Pledgor might have with respect to the Escrow Agent acting as the
Escrow Agent pursuant to this Agreement.
3
6.8 Notices. Unless otherwise provided herein, all demands, notices,
consents, service of process, requests and other communications hereunder shall
be in writing and shall be delivered in person or by overnight courier service,
or mailed by certified mail, return receipt requested, addressed:
If to the Pledgor, to: NetFabric Holdings, Inc.
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Attention: Jeff Robinson
Telephone: (203) 775-1178
Facsimile: (270) 626-8366
With a copy to: Thelen Reid & Priest LLP
875 Third Avenue
New York, NY 10022
Attention: Robert S. Matlin, Esq.
Telephone: (212) 603.2215
Facsimile: (212) 603.2001
If to the Pledgee: Macrocom Investors, LLC
1365 York Avenue, # 28B
New York, NY 10021
Attention: Michael Millon
Telephone: (212) 717-1454
Facsimile: (2120 717-1774
With copy to: Steven Siskind, Esq.
645 5th Avenue
Suite 403
New York, New York 10022
Telephone: (212) 750-2002
Facsimile:
Any such notice shall be effective (a) when delivered, if delivered by hand
delivery or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.
7. Binding Effect. All of the covenants and obligations contained herein
shall be binding upon and shall inure to the benefit of the respective parties,
their successors and assigns.
8. Governing Law; Venue; Service of Process. The validity,
interpretation and performance of this Agreement shall be determined in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly within that state except to the extent that Federal
law applies. The parties hereto agree that any disputes, claims, disagreements,
4
lawsuits, actions or controversies of any type or nature whatsoever that,
directly or indirectly, arise from or relate to this Agreement, including,
without limitation, claims relating to the inducement, construction, performance
or termination of this Agreement, shall be brought in the Supreme Court of the
State of New York, New York County or U.S District Court for the Southern
District of New York, and the parties hereto agree not to challenge the
selection of that venue in any such proceeding for any reason, including,
without limitation, on the grounds that such venue is an inconvenient forum. The
parties hereto specifically agree that service of process may be made, and such
service of process shall be effective if made, pursuant to Section 8 hereto.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
and Escrow Agreement as of the date first above written.
MACROCOM INVESTORS, LLC
By: ______________________
Name: Michael Millon
Title:
NETFABRICS HOLDINGS, INC.
By: ______________________
Name: Jeff Robinson
Title: Chairman and Chief Executive Officer
ESCROW AGENT
By: ______________________
Name: Steven Siskind, Esq.