SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, on November 2, 2005.
Date: November 2, 2005 NETFABRIC HOLDINGS, INC.
By: /s/ Jeff Robinson
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Name: Jeff Robinson
Title: Chief Executive
Officer and Chairman
By: /s/ Vasan Thatham
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Name: Vasan Thatham
Title: Chief Financial Officer and Principal
Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jeff Robinson his true and lawful
attorney-in-fact and agent, with full power of substitution and revocation, for
him and in his name, place and stead, in any and all capacities (until revoked
in writing), to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or is substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been duly singed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
SIGNATURE DATE
/s/ Jeff I. Robinson
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Jeff I. Robinson Chairman November 2, 2005
/s/ Richard Howard
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Richard Howard Director November 2, 2005
/s/ Charlotte G. Denenberg
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Charlotte G. Denenberg Director November 2, 2005
/s/ Madelyn DeMatteo
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Madelyn DeMatteo Director November 2, 2005
/s/ Fahad Syed
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Fahad Syed Director November 2, 2005
II-6
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.: CCP-002 Number of Shares: 560,000
Date of Issuance: October 27, 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, Cornell Capital Partners, LP ("Cornell"), 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) Two Hundred
Thousand (200,000) 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; provided,
however, that in no event shall the holder be entitled to exercise this Warrant
for a number of Warrant Shares in excess of that number of Warrant Shares which,
upon giving effect to such exercise, would cause the aggregate number of shares
of Common Stock beneficially owned by the holder and its affiliates to exceed
4.99% of the outstanding shares of the Common Stock following such exercise,
except within sixty (60) days of the Expiration Date (however, such restriction
may be waived by Cornell (but only as to itself and not to any other holder)
upon not less than 65 days prior notice to the Company and any other holders
shall be unaffected by any such waiver). For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the determination of such
proviso is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised Warrants beneficially
owned by the holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
beneficially owned by the holder and its affiliates (including, without
limitation, any convertible notes or preferred stock) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock a holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such notice,
confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the exercise of Warrants (as defined below)
by such holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
Section 1.
(a) This Warrant is the common stock purchase warrant (the
"Warrant") issued pursuant to the Securities Purchase Agreement dated the date
hereof by and between the Company and Cornell.
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "Approved Stock Plan" means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(ii) "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.
(iii) "Closing Bid Price" means the closing bid price of
Common Stock as quoted on the Principal Market (as reported by Bloomberg
Financial Markets ("Bloomberg") through its "Volume at Price" function).
(iv) "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.
(v) "Event of Default" means an event of default under the
Convertible Debenture, or any other related agreements hereunder between the
Company and Cornell of even date herewith which is not cured by the Company by
any applicable cure period therein.
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(vi) "Excluded Securities" means, provided such security is
issued at a price which is greater than or equal to the arithmetic average of
the Closing Bid Prices of the Common Stock for the ten (10) consecutive trading
days immediately preceding the date of issuance, any of the following: (a) any
issuance by the Company of securities in connection with a strategic partnership
or a joint venture (the primary purpose of which is not to raise equity
capital), (b) any issuance by the Company of securities as consideration for a
merger or consolidation or the acquisition of a business, product, license, or
other assets of another person or entity and (c) options to purchase shares of
Common Stock, provided (I) such options are issued after the date of this
Warrant to employees of the Company within thirty (30) days of such employee's
starting his employment with the Company, and (II) the exercise price of such
options is not less than the Closing Bid Price of the Common Stock on the date
of issuance of such option.
(vii) "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.
(viii) "Issuance Date" means the date hereof.
(ix) "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(x) "Other Securities" means (i) those options and warrants of
the Company issued prior to, and outstanding on, the Issuance Date of this
Warrant, (ii) the shares of Common Stock issuable on exercise of such options
and warrants, provided such options and warrants are not amended after the
Issuance Date of this Warrant and (iii) the shares of Common Stock issuable upon
exercise of this Warrant.
(xi) "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.
(xii) "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.
(xiii) "Securities Act" means the Securities Act of 1933, as
amended.
(xiv) "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement thereof.
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(xv) "Warrant Exercise Price" shall be $0.50 or as
subsequently adjusted as provided in Section 8 hereof.
(xvi) "Warrant Shares" means the shares of Common Stock
issuable at any time upon exercise of this Warrant.
(c) 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.
(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:
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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.
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,
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. In the case of a dispute as to the determination of the Warrant
Exercise Price, the Closing Bid Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the holder the number of
Warrant Shares that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one (1) Business
Day of receipt of the holder's Exercise Notice.
(b) If the holder and the Company are unable to agree upon the
determination of the Warrant Exercise Price or arithmetic calculation of the
Warrant Shares within one (1) day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall immediately
submit via facsimile (i) the disputed determination of the Warrant Exercise
Price or the Closing Bid Price to an independent, reputable investment banking
firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its
independent, outside accountant. The Company shall cause the investment banking
firm or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(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
5
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.
(e) If the Company or its Transfer Agent shall fail for any reason
or for no reason to issue to the holder within ten (10) days of receipt of the
Exercise Delivery Documents, a certificate for the number of Warrant Shares to
which the holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of Warrant Shares to which the holder
is entitled upon the holder's exercise of this Warrant, the Company shall, in
addition to any other remedies under this Warrant or the Placement Agent
Agreement or otherwise available to such holder, pay as additional damages in
cash to such holder on each day the issuance of such certificate for Warrant
Shares is not timely effected an amount equal to 0.025% of the product of (A)
the sum of the number of Warrant Shares not issued to the holder on a timely
basis and to which the holder is entitled, and (B) the Closing Bid Price of the
Common Stock for the trading day immediately preceding the last possible date
which the Company could have issued such Common Stock to the holder without
violating this Section 2.
(f) If within ten (10) days after the Company's receipt of the
Exercise Delivery Documents, the Company fails to deliver a new Warrant to the
holder for the number of Warrant Shares to which such holder is entitled
pursuant to Section 2 hereof, then, in addition to any other available remedies
under this Warrant or the Placement Agent Agreement, or otherwise available to
such holder, the Company shall pay as additional damages in cash to such holder
on each day after such tenth (10th) day that such delivery of such new Warrant
is not timely effected in an amount equal to 0.25% of the product of (A) the
number of Warrant Shares represented by the portion of this Warrant which is not
being exercised and (B) the Closing Bid Price of the Common Stock for the
trading day immediately preceding the last possible date which the Company could
have issued such Warrant to the holder without violating this Section 2.
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. If at any time the Company does not
have a sufficient number of shares of Common Stock authorized and available,
then the Company shall call and hold a special meeting of its stockholders
within sixty (60) days of that time for the sole purpose of increasing the
number of authorized shares of Common Stock.
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(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 shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all Warrant
Shares from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
(f) 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.
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.
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Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares 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 this Warrant
or the Warrant Shares, 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 this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Warrant 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"). Upon exercise of this
Warrant the holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale and
that such holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.
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 and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the Issuance Date of this
Warrant, the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than (i) Excluded Securities and (ii) shares of
Common Stock which are issued or deemed to have been issued by the Company in
connection with an Approved Stock Plan or upon exercise or conversion of the
Other Securities) for a consideration per share less than a price (the
"Applicable Price") equal to the Warrant Exercise Price in effect immediately
8
prior to such issuance or sale, then immediately after such issue or sale the
Warrant Exercise Price then in effect shall be reduced to an amount equal to
such consideration per share. Upon each such adjustment of the Warrant Exercise
Price hereunder, the number of Warrant Shares issuable upon exercise of this
Warrant shall be adjusted to the number of shares determined by multiplying the
Warrant Exercise Price in effect immediately prior to such adjustment by the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:
(i) Issuance of Options. If after the date hereof, the Company
in any manner grants any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any convertible securities issuable upon exercise of
any such Option is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 8(b)(i), the lowest price per share for
which one share of Common Stock is issuable upon exercise of such Options or
upon conversion or exchange of such Convertible Securities shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option or upon conversion or exchange
of any convertible security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such convertible securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such convertible securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any convertible securities and the lowest price per share
for which one share of Common Stock is issuable upon the conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such convertible securities for such price
per share. For the purposes of this Section 8(b)(ii), the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the convertible security and upon conversion or
exchange of such convertible security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such convertible securities, and if any such issue or
sale of such convertible securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
9
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any convertible
securities, or the rate at which any convertible securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
convertible securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of Warrant Shares issuable upon
exercise of this Warrant shall be correspondingly readjusted. For purposes of
this Section 8(b)(iii), if the terms of any Option or convertible security that
was outstanding as of the Issuance Date of this Warrant are changed in the
manner described in the immediately preceding sentence, then such Option or
convertible security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment pursuant to this Section 8(b) shall be made
if such adjustment would result in an increase of the Warrant Exercise Price
then in effect.
(c) Effect on Warrant Exercise Price of Certain Events. For purposes
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:
(i) Calculation of Consideration Received. If any Common
Stock, Options or convertible securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefore will be
deemed to be the net amount received by the Company therefore. If any Common
Stock, Options or convertible securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of marketable securities, in which case the amount of consideration
received by the Company will be the market price of such securities on the date
of receipt of such securities. If any Common Stock, Options or convertible
securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefore will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or convertible securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of Warrants representing at least
two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then
outstanding. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of Warrants
representing at least two-thirds (b) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding. The determination of such appraiser
shall be final and binding upon all parties and the fees and expenses of such
appraiser shall be borne jointly by the Company and the holders of Warrants.
(ii) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01.
10
(iii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company, and the disposition of any shares so owned or held
will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in convertible securities
or (2) to subscribe for or purchase Common Stock, Options or convertible
securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) 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 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 8(d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case:
(i) any Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
11
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided, except as set forth in section 8(d),that no such adjustment pursuant
to this Section 8(f) will increase the Warrant Exercise Price or decrease the
number of shares of Common Stock obtainable as otherwise determined pursuant to
this Section 8.
(g) 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.
(ii) The Company will give written notice to the holder of
this Warrant at least ten (10) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder
of this Warrant at least ten (10) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
12
pro rata to the record holders of any class of Common Stock (the "Purchase
Rights"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(b) 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).
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
13
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 Cornell: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Attention: Mark A. Angelo
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With Copy to: Troy Rillo, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
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: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Blvd. Suite 2000
Miami, Fl 33131
Attention: Clay E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
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.
14
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 Jersey, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New Jersey or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New Jersey. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Hudson County and the United States District Court for
the District of New Jersey, 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]
15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of
the date first set forth above.
NETFABRIC HOLDINGS, INC.
By: /s/ Jeff Robinson
------------------------------------
Name: Jeff Robinson
Title: Chief Executive Officer
16
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
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
October 27, 2005, by and among NETFABRIC HOLDINGS, INC., a Delaware corporation
(the "Company"), and the Buyers listed on Schedule I attached hereto
(individually, a "Buyer" or collectively "Buyers").
WITNESSETH
WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase One Million Six Hundred
Fifty Thousand Dollars ($1,650,000) of secured convertible debentures (the
"Convertible Debentures"), which shall be convertible into shares of the
Company's common stock, par value $0.001 (the "Common Stock") (as converted, the
"Conversion Shares"), of which Four Hundred Thousand Dollars ($400,000) was
previously funded on July 1, 2005, Fifty Thousand Dollars ($50,000) was
previously funded on September 1, 2005, One Hundred Fifty Thousand Dollars
($150,000) was previously funded on October 6, 2005, Four Hundred Thousand
Dollars ($400,000) was previously funded on October 13, 2005 and Six Hundred
Fifty Thousand Dollars ($650,000) shall be funded two (2) business prior to the
date the registration statement (the "Registration Statement") is filed,
pursuant to the Investor Registration Rights Agreement dated the date hereof,
with the United States Securities and Exchange Commission (the "SEC") (the
"Closing"), for a total purchase price of One Million Six Hundred Fifty Thousand
Dollars ($1,650,000), (the "Purchase Price") in the respective amounts set forth
opposite each Buyer(s) name on Schedule I (the "Subscription Amount");
WHEREAS, the portion of the Convertible Debentures funded prior to the
date hereof in the original principal amount of One Million Dollars ($1,000,000)
shall be amended and consolidated into a new Convertible Debenture together with
accrued but unpaid interest and the unfunded portion of Six Hundred Fifty
Thousand Dollars ($650,000) shall be consolidated into a new Convertible
Debenture on the date hereof, the terms of which shall be as set forth therein;
WHEREAS, any and all agreements, documents and instruments in
connection with the Convertible Debentures funded prior to the date hereof,
including without limitation the Securities Purchase Agreement and Pledge and
Escrow Agreement, all of which are dated July 1, 2005, shall be superseded by
the Transaction Documents (as such term is defined herein);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the "Investor
Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws; and
WHEREAS, the aggregate proceeds of the sale of the Convertible
Debentures contemplated hereby shall be held in escrow pursuant to the terms of
an escrow agreement substantially in the form of the Escrow Agreement attached
hereto as Exhibit B (the "Escrow Agreement").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Amended and Restated
Security Agreements substantially in the form attached hereto as Exhibit C
(collectively the "Security Agreement") pursuant to which the Company, NetFabric
Corporation, and UCA Services, Inc. each have agreed to provide the Buyer a
security interest in Pledged Property (as this term is defined in the Security
Agreement) to secure the Company's obligations under this Agreement, the
Convertible Debentures, the Investor Registration Rights Agreement, the Escrow
Agreement, the Irrevocable Transfer Agent Instructions (as defined below), the
Security Agreement, the Officer Pledge and Escrow Agreement or any other
obligations of the Company to the Buyer;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company, Jeff Robinson and the Buyers are executing and
delivering an Officer Pledge and Escrow Agreement substantially in the form
attached hereto as Exhibit D (the "Officer Pledge and Escrow Agreement")
pursuant to which Jeff Robinson has agreed to provide the Buyer a security
interest in the Officer's Pledged Shares (as this term is defined in the Officer
Pledge and Escrow Agreement) to secure the Company's obligations under this
Agreement, the Convertible Debenture, the Investor Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions (as
defined below), the Security Agreement, or any other obligations of the Company
to the Buyer; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as Exhibit E (the
"Irrevocable Transfer Agent Instructions")
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
(a) Purchase of Convertible Debentures. Subject to the satisfaction (or
waiver) of the terms and conditions of this Agreement, each Buyer agrees,
severally and not jointly, to purchase at Closing (as defined herein below) and
the Company agrees to sell and issue to each Buyer, severally and not jointly,
at Closing, Convertible Debentures in amounts corresponding with the
Subscription Amount set forth opposite each Buyer's name on Schedule I hereto.
Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
Amount set forth opposite his name on Schedule I in same-day funds or a check
payable to "David Gonzalez, Esq., as Escrow Agent for NetFabric Holdings,
Inc./Cornell Capital Partners, LP", which Subscription Amount shall be held in
escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined)
and disbursed in accordance therewith. Notwithstanding the foregoing, a Buyer
may withdraw his Subscription Amount and terminate this Agreement as to such
Buyer at any time after the execution hereof and prior to Closing (as
hereinafter defined).
2
(b) Closing Date. The Closing of the purchase and sale of the Convertible
Debentures shall take place at 10:00 a.m. Eastern Standard Time two (2) business
days prior to the date the Registration Statement is filed with the SEC, subject
to notification of satisfaction of the conditions to the Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed
to by the Company and the Buyer(s)) (the "Closing Date"). The Closing shall
occur on the respective Closing Date at the offices of Yorkville Advisors, LLC,
101 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such other
place as is mutually agreed to by the Company and the Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution hereof by
Buyer(s) and pending the Closing, the aggregate proceeds of the sale of the
Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a
non-interest bearing escrow account with David Gonzalez, Esq., as escrow agent
(the "Escrow Agent"), pursuant to the terms of the Escrow Agreement. Subject to
the satisfaction of the terms and conditions of this Agreement, on the Closing
Date, (i) the Escrow Agent shall deliver to the Company in accordance with the
terms of the Escrow Agreement such aggregate proceeds for the Convertible
Debentures to be issued and sold to such Buyer(s), minus the unpaid structuring
fees and expenses of Yorkville Advisors Management, LLC of Ten Thousand Dollars
($10,000) and the commitment fee of $52,000 described in Section 4(g) hereof,
each of which shall be paid directly from the gross proceeds held in escrow of
the Closing and (ii) the Company shall deliver to each Buyer, Convertible
Debentures which such Buyer(s) is purchasing in amounts indicated opposite such
Buyer's name on Schedule I, duly executed on behalf of the Company.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the Convertible Debentures
and, upon conversion of Convertible Debentures, the Buyer will acquire the
Conversion Shares then issuable, for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
such Buyer reserves the right to dispose of the Conversion Shares at any time in
accordance with or pursuant to an effective registration statement covering such
Conversion Shares or an available exemption under the Securities Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited Investor" as
that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the Convertible
Debentures are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
3
(d) Information. Each Buyer and its advisors (and his or, its counsel), if
any, have been furnished with all materials relating to the business, finances
and operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. Each Buyer understands that its investment in the Convertible Debentures
and the Conversion Shares involves a high degree of risk. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.
(e) No Governmental Review. Each Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Convertible
Debentures or the Conversion Shares, or the fairness or suitability of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that except as provided in
the Investor Registration Rights Agreement: (i) the Convertible Debentures have
not been and are not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, or (B) such Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration
requirements; (ii) any sale of such securities made in reliance on Rule 144
under the Securities Act (or a successor rule thereto) ("Rule 144") may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):
4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TOWARD RESALE 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 GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed and the Company within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the Securities Act or (ii) in connection
with a sale transaction, after such holder provides the Company with an opinion
of counsel, which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public
sale, assignment or transfer of the Conversion Shares may be made without
registration under the Securities Act.
(h) Authorization, Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel has received
and read in their entirety: (i) this Agreement and each representation, warranty
and covenant set forth herein, the Security Agreement, the Investor Registration
Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Instructions, and the Officer Pledge and Escrow Agreement; (ii) all due
diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; (iii) the
Company's Form 10-KSB for the fiscal year ended December 31, 2004; (iv) the
Company's Form 10-QSB for the fiscal quarter ended June 30, 2005 and (v) answers
to all questions each Buyer submitted to the Company regarding an investment in
the Company; and each Buyer has relied on the information contained therein and
has not been furnished any other documents, literature, memorandum or
prospectus.
(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a
corporation, trust, partnership or other entity that is not an individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible Debentures and is not prohibited
from doing so.
5
(k) No Legal Advice From the Company. Each Buyer acknowledges, that it had
the opportunity to review this Agreement and the transactions contemplated by
this Agreement with his or its own legal counsel and investment and tax
advisors. Each Buyer is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that, except as
set forth in the SEC Documents (as defined herein):
(a) Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Security Agreement, the Investor Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions, the Escrow Agreement,
the Officer Pledge and Escrow Agreement, the Warrant, and any related agreements
(collectively the "Transaction Documents") and to issue the Convertible
Debentures and the Conversion Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Convertible
Debentures the Conversion Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion or exercise thereof,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, (iv) the Transaction Documents constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
authorized officer of the Company executing the Transaction Documents knows of
no reason why the Company cannot file the registration statement as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.
(c) Capitalization. As of the date hereof the authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock, par value $0.001 per
share and no shares of Preferred Stock ("Preferred Stock") of which 62,885,500
shares of Common
6
Stock are issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in the
SEC Documents (as defined in Section 3(f)), no shares of Common Stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company. Except as disclosed in the
SEC Documents, as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement) and (iv) there are no outstanding registration statements and
there are no outstanding comment letters from the SEC or any other regulatory
agency. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Convertible
Debentures as described in this Agreement. The Company has furnished to the
Buyer true and correct copies of the Company's Articles of Incorporation, as
amended and as in effect on the date hereof (the "Articles of Incorporation"),
and the Company's By-laws, as in effect on the date hereof (the "By-laws"), and
the terms of all securities convertible into or exercisable for Common Stock and
the material rights of the holders thereof in respect thereto other than stock
options issued to employees and consultants.
(d) Issuance of Securities. The Convertible Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be duly issued,
fully paid and nonassessable, are free from all taxes, liens and charges with
respect to the issue thereof. The Conversion Shares issuable upon conversion of
the Convertible Debentures have been duly authorized and reserved for issuance.
Upon conversion or exercise in accordance with the Convertible Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.
(e) No Conflicts. Except as disclosed in the SEC Documents, the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a violation of the Certificate of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of The National Association of
Securities Dealers Inc.'s OTC Bulletin Board on which the Common Stock is
quoted) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected. Except as disclosed in the SEC Documents, neither the Company nor its
subsidiaries is in violation of any term of or in default under its Articles of
7
Incorporation or By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its subsidiaries. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted
in violation of any material law, ordinance, or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. Except as disclosed in the SEC Documents, all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance, which might give rise to any of the foregoing.
(f) SEC Documents: Financial Statements. Since January 1, 2003, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (all of the foregoing filed prior to the
date hereof or amended after the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the "SEC Documents"). The
Company has delivered to the Buyers or their representatives, or made available
through the SEC's website at http://www.sec.gov., true and complete copies of
the SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "Financial Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(g) 10(b)-5. The SEC Documents do not include any untrue statements of
material fact, nor do they omit to state any material fact required to be stated
therein necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
(h) Absence of Litigation. Except as disclosed in the SEC Documents, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the
8
Company, the Common Stock or any of the Company's subsidiaries, wherein an
unfavorable decision, ruling or finding would (i) have a material adverse effect
on the transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents, have a material
adverse effect on the business, operations, properties, financial condition or
results of operations of the Company and its subsidiaries taken as a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the Convertible
Debentures. The Company acknowledges and agrees that the Buyer(s) is acting
solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
(j) No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Convertible Debentures or the Conversion Shares.
(k) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures or the Conversion Shares under the Securities Act or
cause this offering of the Convertible Debentures or the Conversion Shares to be
integrated with prior offerings by the Company for purposes of the Securities
Act.
(l) Employee Relations. Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.
(m) Intellectual Property Rights. The Company and its subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. The Company and its subsidiaries do not have any knowledge of any
infringement by the Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service mark registrations, trade secret or other similar rights of
others, and, to the knowledge of the Company there is no claim, action or
proceeding being made or brought against, or to the
9
Company's knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
(n) Environmental Laws. The Company and its subsidiaries are (i) in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
(o) Title. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
(p) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(r) Internal Accounting Controls. The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
and (iii) the recorded amounts for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(s) No Material Adverse Breaches, etc. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries is subject to any
charter, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation which in the
10
judgment of the Company's officers has or is expected in the future to have a
material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries. Except as set forth in the SEC Documents, neither the Company nor
any of its subsidiaries is in breach of any contract or agreement which breach,
in the judgment of the Company's officers, has or is expected to have a material
adverse effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries.
(t) Tax Status. Except as set forth in the SEC Documents, the Company and
each of its subsidiaries has made and filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject and (unless and only to the extent that the Company and each
of its subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
(u) Certain Transactions. Except as set forth in the SEC Documents, and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed in the SEC Documents, none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
(v) Fees and Rights of First Refusal. The Company is not obligated to
offer the securities offered hereunder on a right of first refusal basis or
otherwise to any third parties including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents or other third
parties.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
(b) Form D. The Company agrees to file a Form D with respect to the
Conversion Shares as required under Regulation D and to provide a copy thereof
to each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Conversion Shares, or
11
obtain an exemption for the Conversion Shares for sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "Blue Sky"
laws of the states of the United States, and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date.
(c) Reporting Status. Until the earlier of (i) the date as of which the
Buyer(s) may sell all of the Conversion Shares without restriction pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and
(B) none of the Convertible Debentures are outstanding (the "Registration
Period"), the Company shall file in a timely manner all reports required to be
filed with the SEC pursuant to the Exchange Act and the regulations of the SEC
thereunder, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of
the Convertible Debentures for general corporate and working capital purposes.
(e) Reservation of Shares. The Company shall take all action reasonably
necessary to at all times have authorized, and reserved for the purpose of
issuance, such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion Shares. If at any time the Company does not have
available such shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Conversion Shares of the Company shall
call and hold a special meeting of the shareholders within thirty (30) days of
such occurrence, for the sole purpose of increasing the number of shares
authorized. The Company's management shall recommend to the shareholders to vote
in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock.
(f) Listings or Quotation. The Company shall promptly secure the listing
or quotation of the Conversion Shares upon each national securities exchange,
automated quotation system or The National Association of Securities Dealers
Inc.'s Over-The-Counter Bulletin Board ("OTCBB") or other market, if any, upon
which shares of Common Stock are then listed or quoted (subject to official
notice of issuance) and shall use its best efforts to maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares from time to time issuable under the terms of this Agreement. The Company
shall maintain the Common Stock's authorization for quotation on the OTCBB.
(g) Fees and Expenses.
(i) Each of the Company and the Buyer(s) shall pay all costs and expenses
incurred by such party in connection with the negotiation, investigation,
preparation, execution and delivery of the Transaction Documents. The Company
shall pay Yorkville Advisors Management, LLC a commitment fee equal to eight
percent (8%) of the unfunded portion of the Purchase Price ($52,000).
12
(ii) The Company shall pay a structuring fee to Yorkville Advisors
Management, LLC of Ten Thousand Dollars ($10,000), which shall be paid directly
from the proceeds of the Closing.
(iii) The Company shall issue to the Buyer a warrant to purchase Five
Hundred Sixty Thousand (560,000) shares of the Company's Common Stock (the
"Warrant Shares") for a period of three (3) years at an exercise price of $0.50
per share. The Warrant Shares shall have "piggy-back" and demand registration
rights.
(h) Corporate Existence. So long as any of the Convertible Debentures
remain outstanding, the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, reverse stock split consolidation, sale
of all or substantially all of the Company's assets or any similar transaction
or related transactions (each such transaction, an "Organizational Change")
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of each Buyer. In any such case, the Company will make
appropriate provision with respect to such holders' rights and interests to
insure that the provisions of this Section 4(h) will thereafter be applicable to
the Convertible Debentures.
(i) Transactions With Affiliates. So long as any Convertible Debentures
are outstanding, the Company shall not, and shall cause each of its subsidiaries
not to, enter into, amend, modify or supplement, or permit any subsidiary to
enter into, amend, modify or supplement any agreement, transaction, commitment,
or arrangement with any of its or any subsidiary's officers, directors, person
who were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "Related Party"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (d) any agreement
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
(j) Transfer Agent. The Company covenants and agrees that, in the event
that the Company's agency relationship with the transfer agent should be
terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
13
(k) Restriction on Issuance of the Capital Stock. So long as any
Convertible Debentures are outstanding, the Company shall not, without the prior
written consent of the Buyer(s), (i) issue or sell shares of Common Stock or
Preferred Stock with or without consideration, (ii) issue any warrant, option,
right, contract, call, or other security instrument granting the holder thereof,
the right to acquire Common Stock with or without consideration, (iii) enter
into any security instrument granting the holder a security interest in any and
all assets of the Company, or (iv) file any registration statement on Form S-8 ,
except to register up to 9,000,000 shares of common stock issued pursuant to the
Obligor's 2005 stock option plan. Notwithstanding the forgoing, the Company
shall be entitled to issue or sell up to $5,000,000 of shares of Common Stock or
Preferred Stock for a consideration per share of up to 20% below the closing Bid
Price of the Common Stock determined immediately prior to its issuance, without
first obtaining the prior written consent of the Buyers provided that the
Company obtains lock up agreements from the purchasers in connection with such
an issuance for a period of at least one year from the date of issuance of such
stock.
(l) Neither the Buyer(s) nor any of its affiliates have an open short
position in the Common Stock of the Company, and the Buyer(s) agrees that it
shall not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock as long as any
Convertible Debenture or warrants to purchase the Warrant Shares shall remain
outstanding.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall issue the Irrevocable Transfer Agent Instructions to
its transfer agent irrevocably appointing David Gonzalez, Esq. as its agent for
purpose of having certificates issued, registered in the name of the Buyer(s) or
its respective nominee(s), for the Conversion Shares representing such amounts
of Convertible Debentures as specified from time to time by the Buyer(s) to the
Company upon conversion of the Convertible Debentures, for interest owed
pursuant to the Convertible Debenture, and for any and all Liquidated Damages
(as this term is defined in the Investor Registration Rights Agreement). David
Gonzalez, Esq. shall be paid a cash fee of Fifty Dollars ($50) for every
occasion they act pursuant to the Irrevocable Transfer Agent Instructions. The
Company shall not change its transfer agent without the express written consent
of the Buyer(s), which may be withheld by the Buyer(s) in its sole discretion.
Prior to registration of the Conversion Shares under the Securities Act, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(g) hereof (in the case of the
Conversion Shares prior to registration of such shares under the Securities Act)
will be given by the Company to its transfer agent and that the Conversion
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Investor
Registration Rights Agreement. Nothing in this Section 5 shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of Conversion Shares. If the Buyer(s) provides the Company with
an opinion of counsel, in form, scope and substance customary for opinions of
14
counsel in comparable transactions to the effect that registration of a resale
by the Buyer(s) of any of the Conversion Shares is not required under the
Securities Act, the Company shall within two (2) business days instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyer by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyer(s) shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
(a) Each Buyer shall have executed the Transaction Documents and delivered
them to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have
delivered the net proceeds to the Company by wire transfer of immediately
available U.S. funds pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of the Buyer(s) shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and the Buyer(s) shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer(s) at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions:
(i) The Company shall have executed the Transaction Documents and
delivered the same to the Buyer(s).
(ii) The Common Stock shall be authorized for quotation on the OTCBB,
trading in the Common Stock shall not have been suspended for any reason, and
all the Conversion Shares issuable upon the conversion of the Convertible
Debentures shall be approved by the OTCBB.
15
(iii) The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. If requested by
the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
(iv) The Company shall have executed and delivered to the Buyer(s) the
Convertible Debentures in the respective amounts set forth opposite each
Buyer(s) name on Schedule I attached hereto.
(v) The Buyer(s) shall have received an opinion of counsel from
Kirkpatrick & Lockhart Nicholoson Graham LLP in a form satisfactory to the
Buyer(s).
(vi) The Company shall have provided to the Buyer(s) a certificate of good
standing from the secretary of state from the state in which the company is
incorporated.
(vii) Jeff Robinson shall have delivered to the Escrow Agent the Officer
Pledged Shares as well executed and medallion guaranteed stock bond powers as
required pursuant to the Officer Pledge and Escrow Agreement.
(viii) The Company shall have provided to the Buyer an acknowledgement, to
the satisfaction of the Buyer, from the Company's independent certified public
accountants as to its ability to provide all consents required in order to file
a registration statement in connection with this transaction.
(ix) The Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Convertible Debentures, shares of Common Stock to effect the conversion of all
of the Conversion Shares then outstanding.
(x) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(xi) The Company shall have certified that all conditions to the Closing
have been satisfied and that the Company will file the Registration Statement
with the SEC in compliance with the rules and regulations promulgated by the SEC
for filing thereof two (2) business days after the Closing. If requested by the
Buyer, the Buyer shall have received a certificate, executed by the two (2)
officers of the Company, dated as of the Closing Date, to the foregoing effect.
The Buyers have no obligation to fund at the Closing if the Company has filed
the Registration Statement.
16
8. INDEMNIFICATION.
(a) In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Convertible Debentures and the Conversion Shares
hereunder, and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures
the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.
(b) In consideration of the Company's execution and delivery of this
Agreement, and in addition to all of the Buyer's other obligations under this
Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or
obligation of the Buyer(s) contained in this Agreement, the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby executed by the Buyer, or (c) any cause of
action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or
resulting from the execution, delivery, performance or enforcement of this
17
Agreement, the Investor Registration Rights Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New Jersey without regard to the
principles of conflict of laws. The parties further agree that any action
between them shall be heard in Hudson County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Hudson County and the United States District Court for the District of New
Jersey sitting in Newark, New Jersey for the adjudication of any civil action
asserted pursuant to this Paragraph.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyer(s), the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally
18
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
Attention: Jeff Robinson
Telephone: (203) 775-1178
Facsimile: (270) 626-8366
With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000
Miami, FL 33131-2399
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Survival. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyer(s) contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of two (2) years following the date on which the
Convertible Debentures are converted in full. The Buyer(s) shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
(j) Publicity. The Company and the Buyer(s) shall have the right to
approve, before issuance any press release or any other public statement with
respect to the transactions contemplated hereby made by any party; provided,
however, that the Company shall be entitled, without the prior approval of the
Buyer(s), to issue any press release or other public disclosure with respect to
such transactions required under applicable securities or other laws or
regulations (the Company shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public disclosure prior to its
release and Buyer(s) shall be provided with a copy thereof upon release
thereof).
19
(k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred
with respect to the Buyers on or before five (5) business days from the date
hereof due to the Company's or the Buyer's failure to satisfy the conditions set
forth in Sections 6 and 7 above (and the non-breaching party's failure to waive
such unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated by the Company pursuant
to this Section 9(l), the Company shall remain obligated to reimburse the
Buyer(s) for the fees and expenses of Yorkville Advisors Management, LLC
described in Section 4(g) above.
(m) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[REMAINDER PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
NETFABRIC HOLDINGS, INC.
By: /s Jeff Robinson
-------------------------------------------
Name: Jeff Robinson
Title: Chairman and Chief Executive Officer
21
EXHIBIT A
FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT
EXHIBIT B
FORM OF ESCROW AGREEMENT
EXHIBIT C
SECURITY AGREEMENT
EXHIBIT D
OFFICER PLEDGE AND ESCROW AGREEMENT
2
EXHIBIT E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
3
SCHEDULE I
SCHEDULE OF BUYERS
ADDRESS/FACSIMILE AMOUNT OF
NAME SIGNATURE NUMBER OF BUYER SUBSCRIPTION
- ------------------------------- -------------------------------- --------------------------------- -------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 101 Hudson Street - Suite 3700 $1,650,000
Its: General Partner Jersey City, NJ 07303
Facsimile: (201) 985-8266
By: Mark Angelo
-------------------------
Name: Mark Angelo
Its: Portfolio Manager
With a copy to: Troy Rillo, Esq. 101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Facsimile: (201) 985-8266
INVESTOR REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October
27, 2005, by and among NETFABRIC HOLDINGS, INC., a Delaware corporation (the
"Company"), and the undersigned investors listed on Schedule I attached hereto
(each, an "Investor" and collectively, the "Investors").
WHEREAS:
A. In connection with the `Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Investors secured
convertible debentures (the "Convertible Debentures") which shall be convertible
into that number of shares of the Company's common stock, par value $0.001 per
share (the "Common Stock"), pursuant to the terms of the Securities Purchase
Agreement for an aggregate purchase price of up to One Million Six Hundred Fifty
Thousand Dollars ($1,650,000). Capitalized terms not defined herein shall have
the meaning ascribed to them in the Securities Purchase Agreement.
B. To induce the Investors to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations there
under, or any similar successor statute (collectively, the "Securities Act"),
and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(b) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous or delayed basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
(c) "Registrable Securities" means the shares of Common Stock
issuable to the Investors upon conversion of the Convertible Debentures pursuant
to the Securities Purchase Agreement.
(d) "Registration Statement" means a registration statement under
the Securities Act which covers the Registrable Securities.
2. REGISTRATION.
(a) Subject to the terms and conditions of this Agreement, the
Company shall prepare and file, no later than thirty (30) days from the date
hereof (the "Scheduled Filing Deadline"), with the SEC a registration statement
on Form S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) under the
Securities Act (the "Initial Registration Statement") for the resale by the
Investors of the Registrable Securities, which includes at least 16,500,000
shares of Common Stock to be issued upon conversion of the Convertible
Debentures and 560,000 shares of Common Stock to be issued upon exercise of the
Warrant. The Company shall cause the Registration Statement to remain effective
until all of the Registrable Securities have been sold. Prior to the filing of
the Registration Statement with the SEC, the Company shall furnish a copy of the
Initial Registration Statement to the Investors for their review and comment.
The Investors shall furnish comments on the Initial Registration Statement to
the Company within twenty-four (24) hours of the receipt thereof from the
Company.
(b) Effectiveness of the Initial Registration Statement. The Company
shall use its best efforts (i) to have the Initial Registration Statement
declared effective by the SEC no later than one hundred twenty (120) days after
the date hereof (the "Scheduled Effective Deadline") and (ii) to insure that the
Initial Registration Statement and any subsequent Registration Statement remains
in effect until all of the Registrable Securities have been sold, subject to the
terms and conditions of this Agreement. It shall be an event of default
hereunder if the Initial Registration Statement is not filed by the Scheduled
Filing Deadline or declared effective by the SEC by the Scheduled Effective
Deadline.
(c) Failure to File or Obtain Effectiveness of the Registration
Statement. In the event the Registration Statement is not filed by the Scheduled
Filing Deadline or is not declared effective by the SEC on or before the
Scheduled Effective Deadline, or if after the Registration Statement has been
declared effective by the SEC, sales cannot be made pursuant to the Registration
Statement (whether because of a failure to keep the Registration Statement
effective, failure to disclose such information as is necessary for sales to be
made pursuant to the Registration Statement, failure to register sufficient
shares of Common Stock or otherwise then as partial relief for the damages to
any holder of Registrable Securities by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies at law or in equity), the Company will
pay as liquidated damages (the "Liquidated Damages") to the holder, at the
holder's option, either a cash amount or shares of the Company's Common Stock
within three (3) business days, after demand therefore, equal to two percent
(2%) of the liquidated value of the Convertible Debentures outstanding as
Liquidated Damages for each thirty (30) day period after the Scheduled Filing
Deadline or the Scheduled Effective Date as the case may be.
(d) Liquidated Damages. The Company and the Investor hereto
acknowledge and agree that the sums payable under subsection 2(c) above shall
constitute liquidated damages and not penalties and are in addition to all other
rights of the Investor, including the right to call a default. The parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (ii) the amounts specified
2
in such subsections bear a reasonable relationship to, and are not plainly or
grossly disproportionate to, the probable loss likely to be incurred in
connection with any failure by the Company to obtain or maintain the
effectiveness of a Registration Statement, (iii) one of the reasons for the
Company and the Investor reaching an agreement as to such amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are sophisticated business parties and have
been represented by sophisticated and able legal counsel and negotiated this
Agreement at arm's length.
3. RELATED OBLIGATIONS.
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investor shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(b) The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the Securities Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company's filing a report on Form 10-KSB,
Form 10-QSB or Form 8-K or any analogous report under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company shall incorporate such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
Exchange Act report is filed which created the requirement for the Company to
amend or supplement the Registration Statement.
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i) at
least one (1) copy of such Registration Statement as declared effective by the
SEC and any amendment(s) thereto, including financial statements and schedules,
all documents incorporated therein by reference, all exhibits and each
preliminary prospectus, (ii) ten (10) copies of the final prospectus included in
such Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such
Investor.
3
(d) The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its articles of incorporation or by-laws, (x)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify each
Investor who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
(e) As promptly as practicable after becoming aware of such event or
development, the Company shall notify each Investor in writing of the happening
of any event as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to each Investor. The
Company shall also promptly notify each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to each
Investor by facsimile on the same day of such effectiveness), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
(f) The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction within the United States of America and,
if such an order or suspension is issued, to obtain the withdrawal of such order
or suspension at the earliest possible moment and to notify each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
(g) At the reasonable request of any Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
4
independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investors.
(h) The Company shall make available for inspection by (i) any
Investor and (ii) one (1) firm of accountants or other agents retained by the
Investors (collectively, the "Inspectors") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
Inspector, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree, and each Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant to
a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
(i) The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
(j) The Company shall use its best efforts either to cause all the
Registrable Securities covered by a Registration Statement (i) to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) the
inclusion for quotation on the National Association of Securities Dealers, Inc.
OTC Bulletin Board for such Registrable Securities. The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(j).
5
(k) The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
(l) The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
(m) The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a twelve (12)
month period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement.
(n) The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
(o) Within two (2) business days after a Registration Statement
which covers Registrable Securities is declared effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
(p) The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
the first sentence of 3(e), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(e) or
receipt of notice that no supplement or amendment is required. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended certificates for shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(f) or the first sentence of 3(e) and for which the Investor has not
yet settled.
6
5. EXPENSES OF REGISTRATION.
All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.
6. INDEMNIFICATION.
With respect to Registrable Securities which are included in a
Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several
(collectively, "Claims") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation there under
relating to the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall reimburse the Investors
and each such controlling person promptly as such expenses are incurred and are
due and payable, for any legal fees or disbursements or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (x) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not be available to the extent such Claim is based
on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(c); and (z) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9 hereof.
7
(b) In connection with a Registration Statement, each Investor
agrees to severally and not jointly indemnify, hold harmless and defend, to the
same extent and in the same manner as is set forth in Section 6(a), the Company,
each of its directors, each of its officers, employees, representatives, or
agents and each Person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act (each an "Indemnified Party"), against
any Claim or Indemnified Damages to which any of them may become subject, under
the Securities Act, the Exchange Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or is based upon any Violation, in each case to
the extent, and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected and such new prospectus was delivered to each Investor
prior to such Investor's use of the prospectus to which the Claim relates.
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one (1) counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
8
other party represented by such counsel in such proceeding. The Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its prior written consent; provided, however, that
the indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the prior written consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
(d) The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
(e) The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144") the Company agrees to:
9
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents as are required by the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Investors
who then hold at least two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to fewer than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
10. MISCELLANEOUS.
(a) A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two (2) or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
(b) Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement 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) 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:
10
If to the Company, to: NetFabric Holdings, Inc.
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Attention: Jeff Robinson
Telephone: (203) 775-1178
Facsimile: (203) 626-8366
With Copy to: Kirkpatrk & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000
Miami, FL 33131-2399
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
If to an Investor, to its address and facsimile number on the Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the Schedule of Investors or to 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 five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
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 (C) provided by a courier or overnight courier
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.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) The laws of the State of New Jersey shall govern all issues
concerning the relative rights of the Company and the Investors as 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 Jersey, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New Jersey or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New Jersey. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the Superior Courts of the State of
New Jersey, sitting in Hudson County, New Jersey and federal courts for the
District of New Jersey sitting Newark, New Jersey, for the adjudication of any
dispute hereunder or in connection herewith 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
11
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. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(e) This Agreement, the Irrevocable Transfer Agent Instructions, the
Securities Purchase Agreement and related documents including the Convertible
Debenture and the Escrow Agreement dated the date hereof by and among the
Company, the Investors set forth on the Schedule of Investors attached hereto,
and David Gonzalez, Esq. (the "Escrow Agreement") and the Security Agreement
dated the date hereof (the "Security Agreement") constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and
related documents including the Convertible Debenture, the Escrow Agreement and
the Security Agreement supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
(f) This Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in identical counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent and no rules of strict construction
will be applied against any party.
12
(j) This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
IN WITNESS WHEREOF, the parties have caused this Investor Registration
Rights Agreement to be duly executed as of day and year first above written.
COMPANY:
NETFABRIC HOLDINGS, INC.
By: /s/ Jeff Robinson
------------------------------------
Name: Jeff Robinson
Title: Chairman and Chief Executive
Officer
14
SCHEDULE I
SCHEDULE OF INVESTORS
ADDRESS/FACSIMILE
NAME SIGNATURE NUMBER OF INVESTORS
- ---------------------------- ------------------------------- ------------------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 101 Hudson Street - Suite 3700
Its: General Partner Jersey City, NJ 07303
Facsimile: (201) 985-8266
By: /s/ Mark Angelo
--------------------------
Name: Mark Angelo
Its: Portfolio Manager
With a copy to: Troy Rillo, Esq. 101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Facsimile: (201) 985-8266
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Attention:
Re: NETFABRIC HOLDINGS, INC.
Ladies and Gentlemen:
We are counsel to NetFabric Holdings, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Securities Purchase Agreement") entered into
by and among the Company and the investors named therein (collectively, the
"Investors") pursuant to which the Company issued to the Investors shares of its
Common Stock, par value $0.001 per share (the "Common Stock"). Pursuant to the
Purchase Agreement, the Company also has entered into a Registration Rights
Agreement with the Investors (the "Investor Registration Rights Agreement")
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "Securities Act"). In connection
with the Company's obligations under the Registration Rights Agreement, on
____________ ____, the Company filed a Registration Statement on Form ________
(File No. 333-_____________) (the "Registration Statement") with the Securities
and Exchange SEC (the "SEC") relating to the Registrable Securities which names
each of the Investors as a selling stockholder there under.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the Securities Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the Securities Act pursuant to the
Registration Statement.
Very truly yours,
[LAW FIRM]
By:
------------------------------------
cc: [LIST NAMES OF INVESTORS]
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
October 27, 2005 NETFABRIC HOLDINGS, INC., a Delaware corporation (the
"Company"); the Buyer(s) listed on the Securities Purchase Agreement, dated the
date hereof (also referred to as the "Investor(s)"), and DAVID GONZALEZ, ESQ.,
as Escrow Agent hereunder (the "Escrow Agent").
BACKGROUND
WHEREAS, the Company and the Investor(s) have entered into a Securities
Purchase Agreement (the "Securities Purchase Agreement"), dated as of the date
hereof, pursuant to which the Company proposes to sell secured convertible
debentures (the "Convertible Debentures") which shall be convertible into the
Company's Common Stock, par value $0.001 per share (the "Common Stock"), for a
total purchase price of up to One Million Six Hundred Fifty Thousand Dollars
($1,650,000). The Securities Purchase Agreement provides that the Investor(s)
shall deposit the purchase amount in a segregated escrow account to be held by
Escrow Agent in order to effectuate a disbursement to the Company at a closing
to be held as set forth in the Securities Purchase Agreement (the "Closing").
WHEREAS, the Company intends to sell Convertible Securities (the
"Offering").
WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds
deposited with it in accordance with the terms of this Agreement.
WHEREAS, in order to establish the escrow of funds and to effect the
provisions of the Securities Purchase Agreement, the parties hereto have entered
into this Agreement.
NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as
follows:
1. DEFINITIONS. The following terms shall have the following meanings when
used herein:
a. "Escrow Funds" shall mean the funds deposited with Escrow Agent
pursuant to this Agreement.
b. "Joint Written Direction" shall mean a written direction executed by
the Investor(s) and the Company directing Escrow Agent to disburse all or a
portion of the Escrow Funds or to take or refrain from taking any action
pursuant to this Agreement.
c. "Escrow Period" shall begin with the commencement of the Offering and
shall terminate upon the earlier to occur of the following dates:
(i) The date upon which Escrow Agent confirms that it has received in the
Escrow Account all of the proceeds of the sale of the Convertible Debentures;
(ii) The expiration of twenty (20) days from the date of commencement of
the Offering (unless extended by mutual written agreement between the Company
and the Investor(s) with a copy of such extension to Escrow Agent); or
(iii) The date upon which a determination is made by the Company and the
Investor(s) to terminate the Offering prior to the sale of all the Convertible
Debentures.
During the Escrow Period, the Company and the Investor(s) are aware that
they are not entitled to any funds received into escrow and no amounts deposited
in the Escrow Account shall become the property of the Company or the
Investor(s) or any other entity, or be subject to the debts of the Company or
the Investor(s) or any other entity.
2. APPOINTMENT OF AND ACCEPTANCE BY ESCROW AGENT. The Investor(s) and the
Company hereby appoint Escrow Agent to serve as Escrow Agent hereunder. Escrow
Agent hereby accepts such appointment and, upon receipt by wire transfer of the
Escrow Funds in accordance with Section 3 below, agrees to hold, invest and
disburse the Escrow Funds in accordance with this Agreement.
a. The Company hereby acknowledges that the Escrow Agent is general
counsel to the Investor(s), a partner in the general partner of the Investor(s),
and counsel to the Investor(s) in connection with the transactions contemplated
and referred herein. The Company agrees that in the event of any dispute arising
in connection with this Escrow 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 Investor(s) and the Company will
not seek to disqualify such counsel.
3. CREATION OF ESCROW FUNDS. On or prior to the date of the commencement
of the Offering, the parties shall establish an escrow account with the Escrow
Agent, which escrow account shall be entitled as follows: NetFabric Holdings,
Inc./Cornell Capital Partners, LP Escrow Account for the deposit of the Escrow
Funds. The Investor(s) will instruct subscribers to wire funds to the account of
the Escrow Agent as follows:
BANK: Wachovia, N.A. of New Jersey
ROUTING #: 031201467
ACCOUNT #: 2000014931134
NAME ON ACCOUNT: David Gonzalez Attorney Trust Account
NAME ON SUB-ACCOUNT: NetFabric Holdings, Inc./Cornell Capital Partners, LP
Escrow Account
4. DEPOSITS INTO THE ESCROW ACCOUNT. The Investor(s) agrees that they
shall promptly deliver funds for the payment of the Convertible Debentures to
Escrow Agent for deposit in the Escrow Account.
2
5. DISBURSEMENTS FROM THE ESCROW ACCOUNT.
a. The Escrow Agent will continue to hold such funds until Cornell Capital
Partners, LP on behalf of the Investor(s) and Company execute a Joint Written
Direction directing the Escrow Agent to disburse the Escrow Funds pursuant to
Joint Written Direction signed by the Company and the Investor(s). In disbursing
such funds, Escrow Agent is authorized to rely upon such Joint Written Direction
from the Company and the Investor(s) and may accept any signatory from the
Company listed on the signature page to this Agreement and any signature from
the Investor(s) that the Escrow Agent already has on file.
b. In the event Escrow Agent does not receive the amount of the Escrow
Funds from the Investor(s), Escrow Agent shall notify the Company and the
Investor(s). Upon receipt of payment instructions from the Company, Escrow Agent
shall refund to each subscriber without interest the amount received from each
Investor(s), without deduction, penalty, or expense to the subscriber. The
purchase money returned to each subscriber shall be free and clear of any and
all claims of the Company, the Investor(s) or any of their creditors.
c. In the event Escrow Agent does receive the amount of the Escrow Funds
prior to expiration of the Escrow Period, in no event will the Escrow Funds be
released to the Company until such amount is received by Escrow Agent in
collected funds. For purposes of this Agreement, the term "collected funds"
shall mean all funds received by Escrow Agent which have cleared normal banking
channels and are in the form of cash.
6. COLLECTION PROCEDURE. Escrow Agent is hereby authorized to deposit the
proceeds of each wire in the Escrow Account.
7. SUSPENSION OF PERFORMANCE: DISBURSEMENT INTO COURT. If at any time,
there shall exist any dispute between the Company and the Investor(s) with
respect to holding or disposition of any portion of the Escrow Funds or any
other obligations of Escrow Agent hereunder, or if at any time Escrow Agent is
unable to determine, to Escrow Agent's sole satisfaction, the proper disposition
of any portion of the Escrow Funds or Escrow Agent's proper actions with respect
to its obligations hereunder, or if the parties have not within thirty (30) days
of the furnishing by Escrow Agent of a notice of resignation pursuant to Section
9 hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent
may, in its sole discretion, take either or both of the following actions:
a. suspend the performance of any of its obligations (including without
limitation any disbursement obligations) under this Escrow Agreement until such
dispute or uncertainty shall be resolved to the sole satisfaction of Escrow
Agent or until a successor Escrow Agent shall be appointed (as the case may be);
provided however, Escrow Agent shall continue to invest the Escrow Funds in
accordance with Section 8 hereof; and/or
b. petition (by means of an interpleader action or any other appropriate
method) any court of competent jurisdiction in any venue convenient to Escrow
Agent, for instructions with respect to such dispute or uncertainty, and to the
extent required by law, pay into such court, for holding and disposition in
accordance with the instructions of such court, all funds held by it in the
Escrow Funds, after deduction and payment to Escrow Agent of all fees
3
and expenses (including court costs and attorneys' fees) payable to, incurred
by, or expected to be incurred by Escrow Agent in connection with performance of
its duties and the exercise of its rights hereunder.
c. Escrow Agent shall have no liability to the Company, the Investor(s),
or any person with respect to any such suspension of performance or disbursement
into court, specifically including any liability or claimed liability that may
arise, or be alleged to have arisen, out of or as a result of any delay in the
disbursement of funds held in the Escrow Funds or any delay in with respect to
any other action required or requested of Escrow Agent.
8. INVESTMENT OF ESCROW FUNDS. Escrow Agent shall deposit the Escrow Funds
in a non-interest bearing account.
If Escrow Agent has not received a Joint Written Direction at any time
that an investment decision must be made, Escrow Agent shall maintain the Escrow
Funds, or such portion thereof, as to which no Joint Written Direction has been
received, in a non-interest bearing account.
9. RESIGNATION AND REMOVAL OF ESCROW AGENT. Escrow Agent may resign from
the performance of its duties hereunder at any time by giving thirty (30) days'
prior written notice to the parties or may be removed, with or without cause, by
the parties, acting jointly, by furnishing a Joint Written Direction to Escrow
Agent, at any time by the giving of ten (10) days' prior written notice to
Escrow Agent as provided herein below. Upon any such notice of resignation or
removal, the representatives of the Investor(s) and the Company identified in
Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a successor Escrow
Agent hereunder, which shall be a commercial bank, trust company or other
financial institution with a combined capital and surplus in excess of
$10,000,000.00. Upon the acceptance in writing of any appointment of Escrow
Agent hereunder by a successor Escrow Agent, such successor Escrow Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be
discharged from its duties and obligations under this Escrow Agreement, but
shall not be discharged from any liability for actions taken as Escrow Agent
hereunder prior to such succession. After any retiring Escrow Agent's
resignation or removal, the provisions of this Escrow Agreement shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall
transmit all records pertaining to the Escrow Funds and shall pay all funds held
by it in the Escrow Funds to the successor Escrow Agent, after making copies of
such records as the retiring Escrow Agent deems advisable and after deduction
and payment to the retiring Escrow Agent of all fees and expenses (including
court costs and attorneys' fees) payable to, incurred by, or expected to be
incurred by the retiring Escrow Agent in connection with the performance of its
duties and the exercise of its rights hereunder.
10. LIABILITY OF ESCROW AGENT.
a. Escrow Agent shall have no liability or obligation with respect to the
Escrow Funds except for Escrow Agent's willful misconduct or gross negligence.
Escrow Agent's sole responsibility shall be for the safekeeping, investment, and
disbursement of the Escrow Funds in accordance with the terms of this Agreement.
Escrow Agent shall have no
4
implied duties or obligations and shall not be charged with knowledge or notice
or any fact or circumstance not specifically set forth herein. Escrow Agent may
rely upon any instrument, not only as to its due execution, validity and
effectiveness, but also as to the truth and accuracy of any information
contained herein, which Escrow Agent shall in good faith believe to be genuine,
to have been signed or presented by the person or parties purporting to sign the
same and conform to the provisions of this Agreement. In no event shall Escrow
Agent be liable for incidental, indirect, special, and consequential or punitive
damages. Escrow Agent shall not be obligated to take any legal action or
commence any proceeding in connection with the Escrow Funds, any account in
which Escrow Funds are deposited, this Agreement or the Purchase Agreement, or
to appear in, prosecute or defend any such legal action or proceeding. Escrow
Agent may consult legal counsel selected by it in any event of any dispute or
question as to construction of any of the provisions hereof or of any other
agreement or its duties hereunder, or relating to any dispute involving any
party hereto, and shall incur no liability and shall be fully indemnified from
any liability whatsoever in acting in accordance with the opinion or
instructions of such counsel. The Company and the Investor(s) jointly and
severally shall promptly pay, upon demand, the reasonable fees and expenses of
any such counsel.
b. Escrow Agent is hereby authorized, in its sole discretion, to comply
with orders issued or process entered by any court with respect to the Escrow
Funds, without determination by Escrow Agent of such court's jurisdiction in the
matter. If any portion of the Escrow Funds is at any time attached, garnished or
levied upon under any court order, or in case the payment, assignment, transfer,
conveyance or delivery of any such property shall be stayed or enjoined by any
court order, or in any case any order judgment or decree shall be made or
entered by any court affecting such property or any part thereof, then and in
any such event, Escrow Agent is authorized, in its sole discretion, to rely upon
and comply with any such order, writ judgment or decree which it is advised by
legal counsel selected by it, binding upon it, without the need for appeal or
other action; and if Escrow Agent complies with any such order, writ, judgment
or decree, it shall not be liable to any of the parties hereto or to any other
person or entity by reason of such compliance even though such order, writ
judgment or decree may be subsequently reversed, modified, annulled, set aside
or vacated.
11. INDEMNIFICATION OF ESCROW AGENT. From and at all times after the date
of this Agreement, the parties jointly and severally, shall, to the fullest
extent permitted by law and to the extent provided herein, indemnify and hold
harmless Escrow Agent and each director, officer, employee, attorney, agent and
affiliate of Escrow Agent (collectively, the "Indemnified Parties") against any
and all actions, claims (whether or not valid), losses, damages, liabilities,
costs and expenses of any kind or nature whatsoever (including without
limitation reasonable attorney's fees, costs and expenses) incurred by or
asserted against any of the Indemnified Parties from and after the date hereof,
whether direct, indirect or consequential, as a result of or arising from or in
any way relating to any claim, demand, suit, action, or proceeding (including
any inquiry or investigation) by any person, including without limitation the
parties to this Agreement, whether threatened or initiated, asserting a claim
for any legal or equitable remedy against any person under any statute or
regulation, including, but not limited to, any federal or state securities laws,
or under any common law or equitable cause or otherwise, arising from or in
connection with the negotiation, preparation, execution, performance or failure
of performance of this Agreement or any transaction contemplated herein, whether
or not any such Indemnified Party is a party to any such action or proceeding,
suit or the target of any such inquiry or
5
investigation; provided, however, that no Indemnified Party shall have the right
to be indemnified hereunder for liability finally determined by a court of
competent jurisdiction, subject to no further appeal, to have resulted from the
gross negligence or willful misconduct of such Indemnified Party. If any such
action or claim shall be brought or asserted against any Indemnified Party, such
Indemnified Party shall promptly notify the Company and the Investor(s)
hereunder in writing, and the Investor(s) and the Company shall assume the
defense thereof, including the employment of counsel and the payment of all
expenses. Such Indemnified Party shall, in its sole discretion, have the right
to employ separate counsel (who may be selected by such Indemnified Party in its
sole discretion) in any such action and to participate and to participate in the
defense thereof, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that the Investor(s) and/or the Company shall be
required to pay such fees and expense if (a) the Investor(s) or the Company
agree to pay such fees and expenses, or (b) the Investor(s) and/or the Company
shall fail to assume the defense of such action or proceeding or shall fail, in
the sole discretion of such Indemnified Party, to employ counsel reasonably
satisfactory to the Indemnified Party in any such action or proceeding, (c) the
Investor(s) and the Company are the plaintiff in any such action or proceeding
or (d) the named or potential parties to any such action or proceeding
(including any potentially impleaded parties) include both the Indemnified
Party, the Company and/or the Investor(s) and the Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Company
or the Investor(s). The Investor(s) and the Company shall be jointly and
severally liable to pay fees and expenses of counsel pursuant to the preceding
sentence, except that any obligation to pay under clause (a) shall apply only to
the party so agreeing. All such fees and expenses payable by the Company and/or
the Investor(s) pursuant to the foregoing sentence shall be paid from time to
time as incurred, both in advance of and after the final disposition of such
action or claim. The obligations of the parties under this section shall survive
any termination of this Agreement, and resignation or removal of the Escrow
Agent shall be independent of any obligation of Escrow Agent.
The parties agree that neither payment by the Company or the Investor(s)
of any claim by Escrow Agent for indemnification hereunder shall impair, limit,
modify, or affect, as between the Investor(s) and the Company, the respective
rights and obligations of Investor(s), on the one hand, and the Company, on the
other hand.
12. EXPENSES OF ESCROW AGENT. Except as set forth in Section 11 the
Company shall reimburse Escrow Agent for all of its reasonable out-of-pocket
expenses, including attorneys' fees, travel expenses, telephone and facsimile
transmission costs, postage (including express mail and overnight delivery
charges), copying charges and the like. All of the compensation and
reimbursement obligations set forth in this Section shall be payable by the
Company, upon demand by Escrow Agent. The obligations of the Company under this
Section shall survive any termination of this Agreement and the resignation or
removal of Escrow Agent.
13. WARRANTIES.
a. The Investor(s) makes the following representations and warranties to
Escrow Agent:
6
(i) The Investor(s) has full power and authority to execute and deliver
this Agreement and to perform its obligations hereunder.
(ii) This Agreement has been duly approved by all necessary action of the
Investor(s), including any necessary approval of the limited partner of the
Investor(s) or necessary corporate approval, as applicable, has been executed by
duly authorized officers of the Investor(s), enforceable in accordance with its
terms.
(iii) The execution, delivery, and performance of the Investor(s) of this
Agreement will not violate, conflict with, or cause a default under any
agreement of limited partnership of Investor(s) or the articles of incorporation
or bylaws of the Investor(s) (as applicable), any applicable law or regulation,
any court order or administrative ruling or degree to which the Investor(s) is a
party or any of its property is subject, or any agreement, contract, indenture,
or other binding arrangement.
(iv) Mark Angelo has been duly appointed to act as the representative of
the Investor(s) hereunder and has full power and authority to execute, deliver,
and perform this Escrow Agreement, to execute and deliver any Joint Written
Direction, to amend, modify, or waive any provision of this Agreement, and to
take any and all other actions as the Investor(s)'s representative under this
Agreement, all without further consent or direction form, or notice to, the
Investor(s) or any other party.
(v) No party other than the parties hereto and the Investor(s)s have, or
shall have, any lien, claim or security interest in the Escrow Funds or any part
thereof. No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the Investor(s)
contained herein are true and complete as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.
b. The Company makes the following representations and warranties to the
Escrow Agent:
(i) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware and has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder.
(ii) This Agreement has been duly approved by all necessary corporate
action of the Company, including any necessary shareholder approval, has been
executed by duly authorized officers of the Company, enforceable in accordance
with its terms.
(iii) The execution, delivery, and performance by the Company of this
Agreement is in accordance with the Securities Purchase Agreement and will not
violate, conflict with, or cause a default under the certificate of
incorporation or bylaws of the Company, any applicable law or regulation, any
court order or administrative ruling or decree to which the Company is a party
or any of its property is subject, or any agreement, contract, indenture, or
other binding arrangement, including without limitation to the Securities
Purchase Agreement, to which the Company is a party.
7
(iv) Jeff Robinson has been duly appointed to act as the representative of
the Company hereunder and has full power and authority to execute, deliver, and
perform this Agreement, to execute and deliver any Joint Written Direction, to
amend, modify or waive any provision of this Agreement and to take all other
actions as the Company's Representative under this Agreement, all without
further consent or direction from, or notice to, the Company or any other party.
(v) No party other than the parties hereto and the Investor(s)s have, or
shall have, any lien, claim or security interest in the Escrow Funds or any part
thereof. No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the Company contained
herein are true and complete as of the date hereof and will be true and complete
at the time of any disbursement from the Escrow Funds.
14. CONSENT TO JURISDICTION AND VENUE. In the event that any party hereto
commences a lawsuit or other proceeding relating to or arising from this
Agreement, the parties hereto agree that the United States District Court for
the District of New Jersey shall have the sole and exclusive jurisdiction over
any such proceeding. If all such courts lack federal subject matter
jurisdiction, the parties agree that the Superior Court Division of New Jersey,
Chancery Division of Hudson County shall have sole and exclusive jurisdiction.
Any of these courts shall be proper venue for any such lawsuit or judicial
proceeding and the parties hereto waive any objection to such venue. The parties
hereto consent to and agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept the service of process to vest personal
jurisdiction over them in any of these courts.
15. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mails, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivered to any overnight courier, or when transmitted by facsimile
transmission and upon confirmation of receipt and addressed to the party to be
notified as follows:
If to Investor(s), to: Cornell Capital Partners, LP
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Attention: Mark Angelo
Portfolio Manager
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
8
If to Escrow Agent, to: Troy Rillo, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
If to the Company, 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: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard Suite 2000
Miami, FL 33131-2399
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
Or to such other address as each party may designate for itself by like notice.
16. AMENDMENTS OR WAIVER. This Agreement may be changed, waived,
discharged or terminated only by a writing signed by the parties hereto. No
delay or omission by any party in exercising any right with respect hereto shall
operate as waiver. A waiver on any one occasion shall not be construed as a bar
to, or waiver of, any right or remedy on any future occasion.
17. SEVERABILITY. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition, or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
18. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the internal laws of the State of New Jersey without giving
effect to the conflict of laws principles thereof.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the obligations and duties of the
Escrow Agent with respect to the Escrow Funds.
20. BINDING EFFECT. All of the terms of this Agreement, as amended from
time to time, shall be binding upon, inure to the benefit of and be enforceable
by the respective heirs, successors and assigns of the Investor(s), the Company,
or the Escrow Agent.
9
21. EXECUTION OF COUNTERPARTS. This Agreement and any Joint Written
Direction may be executed in counterparts, which when so executed shall
constitute one and same agreement or direction.
22. TERMINATION. Upon the first to occur of the disbursement of all
amounts in the Escrow Funds pursuant to Joint Written Directions or the
disbursement of all amounts in the Escrow Funds into court pursuant to Section 7
hereof, this Agreement shall terminate and Escrow Agent shall have no further
obligation or liability whatsoever with respect to this Agreement or the Escrow
Funds.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
IN WITNESS WHEREOF the parties have hereunto set their hands and seals the
day and year above set forth.
NETFABRIC HOLDINGS, INC.
By: /s/ Jeff Robinson
---------------------------------------
Name: Jeff Robinson
Title: Chairman and Chief Executive Officer
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Mark Angelo
---------------------------------------
Name: Mark Angelo
Title: Portfolio Manager
By: /s/ David Gonzalez
---------------------------------------
Name: David Gonzalez, Esq.
11
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Agreement"), is entered
into and made effective as of October 27, 2005, by and between NETFABRIC
HOLDINGS, INC., a Delaware corporation with its principal place of business
located at 67 Federal Road, Building A, Brookfield, CT 06804 (the "Company"),
and the BUYER(S) listed on Schedule I attached to the Securities Purchase
Agreement dated the date hereof (the "Secured Party").
WHEREAS, the Company issued to the Secured Party, as provided in the
Securities Purchase Agreement dated July 1, 2005, and as amended pursuant to the
letter agreement dated September 1, 2005 between the Company and the Secured
Party, and the Secured Party purchased One Million Dollars ($1,000,000) of
secured convertible debentures (the "Prior Convertible Debentures"). This
Agreement shall amend and restate the Security Agreement between the Company and
the Secured Party dated July 1, 2005;
WHEREAS, the Company has requested the Secured Party to make additional
financing available to the Company;
WHEREAS, the Secured Party is willing to provide such additional financing
on the condition that such additional financing is secured hereunder and under
the UCC-1 filed on September 29, 2005 (#0002353238) filed in connection with the
Securities Purchase Agreement dated July 1, 2004;
WHEREAS, the Company shall issue and sell to the Secured Party, as
provided in the Securities Purchase Agreement of even date herewith between the
Company and the Secured Party (the "Securities Purchase Agreement"), and the
Secured Party shall purchase an Amended and Restated Secured Convertible
Debenture in the original principal amount of One Million Six Hundred Fifty
Thousand Dollars ($1,650,000), plus accrued and unpaid interest for the Prior
Convertible Debentures through the date hereof in the amount of Eight Thousand
One Hundred Sixty Dollars ($8,160) (the "Convertible Debenture"), which shall be
convertible into shares of the Company's common stock, par value $0.001 (the
"Common Stock") (as converted, the "Conversion Shares") in the respective
amounts set forth opposite each Buyer(s) name on Schedule I attached to the
Securities Purchase Agreement;
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Convertible Debenture,
the Investor Registration Rights Agreement of even date herewith between the
Company and the Secured Party (the "Investor Registration Rights Agreement"),
the Officer Pledge and Escrow Agreement of even date herewith among the Company,
Jeff Robinson, the Secured Party, and David Gonzalez, Esq., (the "Officer Pledge
Agreement"), the Warrant and the Escrow Agreement of even date herewith among
the Company, the Secured Party, and David Gonzalez, Esq. (the "Escrow
Agreement"), and the Irrevocable Transfer Agent Instructions among the Company,
the Secured Party, Securities Transfer Corporation, and David Gonzalez, Esq.
(the "Transfer Agent Instructions") (collectively referred to as the
"Transaction Documents"), the Company hereby grants to the Secured Party a
security interest in and to the pledged property identified on Exhibit A hereto
(collectively referred to as the "Pledged Property") until the satisfaction of
the Obligations, as defined herein below.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the Company
now existing or hereinafter incurred to the Secured Party, whether oral or
written and whether arising before, on or after the date hereof including,
without limitation, those obligations of the Company to the Secured Party under
the Prior Convertible Debentures, this Agreement, the Transaction Documents, and
any other amounts now or hereafter owed to the Secured Party by the Company
thereunder or hereunder (collectively, the "Obligations").
ARTICLE 2.
PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL
AND TERMINATION OF SECURITY INTEREST
Section 2.1. Pledged Property.
(a) Company hereby pledges to the Secured Party, and creates in the
Secured Party for its benefit, a security interest for such time until the
Obligations are paid in full, in and to all of the property of the Company as
set forth in Exhibit "A" attached hereto (collectively, the "Pledged Property"):
The Pledged Property, as set forth in Exhibit "A" attached hereto, and the
products thereof and the proceeds of all such items are hereinafter collectively
referred to as the "Pledged Collateral."
(b) Simultaneously with the execution and delivery of this
Agreement, the Company shall make, execute, acknowledge, file, record and
deliver to the Secured Party any documents reasonably requested by the Secured
Party to perfect its security interest in the Pledged Property. Simultaneously
2
with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge and deliver to the Secured Party such documents and
instruments, including, without limitation, financing statements, certificates,
affidavits and forms as may, in the Secured Party's reasonable judgment, be
necessary to effectuate, complete or perfect, or to continue and preserve, the
security interest of the Secured Party in the Pledged Property, and the Secured
Party shall hold such documents and instruments as secured party, subject to the
terms and conditions contained herein.
Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter defined) shall
have occurred and be continuing:
(i) the Company shall be entitled to exercise any and all
rights pertaining to the Pledged Property or any part thereof for any purpose
not inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and retain any
and all payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of the Company to exercise the rights which it
would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and
to receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Collateral
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Collateral pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and
(ii) All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued interest owed
pursuant to the Convertible Debenture as described herein
(c) An "Event of Default" shall be deemed to have occurred under
this Agreement upon an Event of Default under the Convertible Debenture.
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ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, the Company hereby appoints
the Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
The Company warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement.
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ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. Default and Remedies.
(a) If an Event of Default occurs, then in each such case the
Secured Party may declare the Obligations to be due and payable immediately, by
a notice in writing to the Company, and upon any such declaration, the
Obligations shall become immediately due and payable.
(b) Upon the occurrence of an Event of Default, the Secured Party
shall: (i) be entitled to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party.
Section 5.2. Method of Realizing Upon the Pledged Property: Other
Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Company ten (10) days' prior written notice of the time and
place or of the time after which a private sale may be made (the "Sale
Notice")), which notice period is hereby agreed to be commercially reasonable.
At any sale or sales of the Pledged Property, the Company may bid for and
purchase the whole or any part of the Pledged Property and, upon compliance with
the terms of such sale, may hold, exploit and dispose of the same without
further accountability to the Secured Party. The Company will execute and
deliver, or cause to be executed and delivered, such instruments, documents,
assignments, waivers, certificates, and affidavits and supply or cause to be
supplied such further information and take such further action as the Secured
Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged Collateral
and all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for
the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled
thereto, including, without limitation, the Company.
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(c) In addition to all of the rights and remedies which the Secured
Party may have pursuant to this Agreement, the Secured Party shall have all of
the rights and remedies provided by law, including, without limitation, those
under the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the
occurrence of an Event of Default which is continuing, then the Secured Party
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company and collect the monies adjudged or decreed
to be payable in the manner provided by law out of the property of Company,
wherever situated.
(ii) The Company agrees that it shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of the Transaction Documents,
including, without limitation, reasonable legal fees and expenses, and such
amounts shall be deemed included as Obligations secured hereby and payable as
set forth in Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relating to the Company or the property of the Company
or of such other obligor or its creditors, the Secured Party (irrespective of
whether the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to the rights of Previous Security Holders, shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any claim
for the reasonable legal fees and expenses and other expenses paid or incurred
by the Secured Party permitted hereunder and of the Secured Party allowed in
such judicial proceeding), and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by the
Secured Party to make such payments to the Secured Party and, in the event that
the Secured Party shall consent to the making of such payments directed to the
Secured Party, to pay to the Secured Party any amounts for expenses due it
hereunder.
Section 5.4. Duties Regarding Pledged Collateral.
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
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ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or
proceed with due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain Company's due organization, valid existence
and good standing under the laws of its state of incorporation, and (ii) to
preserve and keep in full force and effect all qualifications, licenses and
registrations in those jurisdictions in which the failure to do so could have a
Material Adverse Effect (as defined below); and (b) the Company shall not do, or
cause to be done, any act impairing the Company's corporate power or authority
(i) to carry on the Company's business as now conducted, and (ii) to execute or
deliver this Agreement or any other document delivered in connection herewith,
including, without limitation, any UCC-1 Financing Statements required by the
Secured Party to which it is or will be a party, or perform any of its
obligations hereunder or thereunder. For purpose of this Agreement, the term
"Material Adverse Effect" shall mean any material and adverse affect as
determined by Secured Party in its sole discretion, whether individually or in
the aggregate, upon (a) the Company's assets, business, operations, properties
or condition, financial or otherwise; (b) the Company's to make payment as and
when due of all or any part of the Obligations; or (c) the Pledged Property.
Section 6.2. Financial Statements and Reports.
The Company shall furnish to the Secured Party within a reasonable time
such financial data as the Secured Party may reasonably request, including,
without limitation, the following:
(a) The balance sheet of the Company as of the close of each fiscal
year, the statement of earnings and retained earnings of the Company as of the
close of such fiscal year, and statement of cash flows for the Company for such
fiscal year, all in reasonable detail, prepared in accordance with generally
accepted accounting principles consistently applied, certified by the chief
executive and chief financial officers of the Company as being true and correct
and accompanied by a certificate of the chief executive and chief financial
officers of the Company, stating that the Company has kept, observed, performed
and fulfilled each covenant, term and condition of this Agreement during such
fiscal year and that no Event of Default hereunder has occurred and is
continuing, or if an Event of Default has occurred and is continuing, specifying
the nature of same, the period of existence of same and the action the Company
proposes to take in connection therewith;
(b) A balance sheet of the Company as of the close of each month,
and statement of earnings and retained earnings of the Company as of the close
of such month, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied,
certified by the chief executive and chief financial officers of the Company as
being true and correct; and
7
(c) Copies of all accountants' reports and accompanying financial
reports submitted to the Company by independent accountants in connection with
each annual examination of the Company.
Section 6.3. Accounts and Reports.
The Company shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other
communication alleging any nonpayment or other material breach or default, or
any foreclosure or other action respecting any material portion of its assets
and properties, received respecting any of the indebtedness of the Company in
excess of $15,000 (other than the Obligations), or any demand or other request
for payment under any guaranty, assumption, purchase agreement or similar
agreement or arrangement respecting the indebtedness or obligations of others in
excess of $15,000, including any received from any person acting on behalf of
the Secured Party or beneficiary thereof; and
(b) within fifteen (15) days after the making of each submission or
filing, a copy of any report, financial statement, notice or other document,
whether periodic or otherwise, submitted to the shareholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Collateral; or (iv) any of the
transactions contemplated in this Agreement or the Loan Instruments.
Section 6.4. Maintenance of Books and Records; Inspection.
The Company shall maintain its books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and
financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof.
Section 6.5. Maintenance and Insurance.
(a) The Company shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
making all necessary repairs thereto and renewals and replacements thereof.
(b) The Company shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Company deems reasonably necessary to the Company's business, (i) adequate
to insure all assets and properties of the Company, which assets and properties
are of a character usually insured by persons engaged in the same or similar
business against loss or damage resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents and/or applicable law and (iv) as may be reasonably requested by
Secured Party, all with adequate, financially sound and reputable insurers.
8
Section 6.6. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Company is now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
Section 6.7. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and
to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a Material
Adverse Effect, the Company shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.
Section 6.8. Payment of Debts, Taxes, Etc.
The Company shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged, all taxes, assessments and other governmental charges
and levies imposed upon it, upon any of its assets and properties on or before
the last day on which the same may be paid without penalty, as well as pay all
other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due
Section 6.9. Taxes and Assessments; Tax Indemnity.
The Company shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Company in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.
Section 6.10. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound. Without limiting the
foregoing, the Company shall pay all of its indebtedness promptly in accordance
with the terms thereof.
9
Section 6.11. Notice of Default.
The Company shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the
Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.
Section 6.12. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing:
Section 7.1. Indebtedness.
The Company shall not directly or indirectly permit, create, incur,
assume, permit to exist, increase, renew or extend on or after the date hereof
any indebtedness on its part, including commitments, contingencies and credit
availabilities, or apply for or offer or agree to do any of the foregoing
(excluding any indebtedness of the Company to the Secured Party, trade accounts
payable and accrued expenses incurred in the ordinary course of business and the
endorsement of negotiable instruments payable to the Company, respectively for
deposit or collection in the ordinary course of business).
Section 7.2. Liens and Encumbrances.
The Company shall not directly or indirectly make, create, incur, assume
or permit to exist any assignment, transfer, pledge, mortgage, security interest
or other lien or encumbrance of any nature in, to or against any part of the
Pledged Property or of the Company's capital stock, or offer or agree to do so,
or own or acquire or agree to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber its right to receive any income or other distribution or
proceeds from any part of the Pledged Property or the Company's capital stock;
or enter into any sale-leaseback financing respecting any part of the Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
10
Section 7.3. Certificate of Incorporation, By-Laws, Mergers,
Consolidations, Acquisitions and Sales.
Without the prior express written consent of the Secured Party, the
Company shall not: (a) Amend its Certificate of Incorporation or By-Laws; (b)
issue or sell its stock, stock options, bonds, notes or other corporate
securities or obligations; (c) be a party to any merger, consolidation or
corporate reorganization, (d) purchase or otherwise acquire all or substantially
all of the assets or stock of, or any partnership or joint venture interest in,
any other person, firm or entity, (e) sell, transfer, convey, grant a security
interest in or lease all or any substantial part of its assets, nor (f) create
any subsidiaries nor convey any of its assets to any subsidiary.
Section 7.4. Management, Ownership.
The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.
Section 7.5. Dividends, Etc.
The Company shall not declare or pay any dividend of any kind, in cash or
in property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in respect thereof, nor make any return of capital to shareholders,
nor make any payments in respect of any pension, profit sharing, retirement,
stock option, stock bonus, incentive compensation or similar plan (except as
required or permitted hereunder), without the prior written consent of the
Secured Party.
Section 7.6. Guaranties; Loans.
The Company shall not guarantee nor be liable in any manner, whether
directly or indirectly, or become contingently liable after the date of this
Agreement in connection with the obligations or indebtedness of any person or
persons, except for (i) the indebtedness currently secured by the liens
identified on the Pledged Property identified on Exhibit A hereto and (ii) the
endorsement of negotiable instruments payable to the Company for deposit or
collection in the ordinary course of business. The Company shall not make any
loan, advance or extension of credit to any person other than in the normal
course of its business.
Section 7.7. Conduct of Business.
The Company will continue to engage, in an efficient and economical
manner, in a business of the same general type as conducted by it on the date of
this Agreement.
11
Section 7.8. Places of Business.
The location of the Company's chief place of business is 67 Federal Road,
Building A, Brookfield, CT 06804. The Company shall not change the location of
its chief place of business, chief executive office or any place of business
disclosed to the Secured Party or move any of the Pledged Property from its
current location without thirty (30) days' prior written notice to the Secured
Party in each instance.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Secured Party: Cornell Capital Partners, LP
101 Hudson Street-Suite 3700
Jersey City, New Jersey 07302
Attention: Mark Angelo
Portfolio Manager
Telephone: (201) 986-8300
Facsimile: (201) 985-8266
With a copy to: Troy Rillo, Esq.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
Attention: Jeff Robinson
12
And if to the Company: NetFabric Holdings, Inc.
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Telephone: (203) 775-1178
Facsimile: (270) 626-8366
With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3306
Facsimile: (305) 328-7095
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
covenants shall not waiver, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
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Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged
Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New Jersey without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
Hudson County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Hudson County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
[SIGNATURE PAGES TO IMMEDIATELY FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the date first above written.
COMPANY:
NETFABRIC HOLDINGS, INC.
By: /s/ Jeff Robinson
------------------------------------
Name: Jeff Robinson
Title: Chairman and Chief Executive
Officer
SECURED PARTY:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Mark Angelo
------------------------------------
Name: Mark Angelo
Title: Portfolio Manager
15
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by
the Company of all of the Obligations, the Company unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Company:
(a) all goods of the Company, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Company or in which the Company may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
(b) all inventory of the Company, including, but not limited to, all
goods, wares, merchandise, parts, supplies, finished products, other tangible
personal property, including such inventory as is temporarily out of Company's
custody or possession and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing;
(c) all contract rights and general intangibles of the Company,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
(d) all documents, warehouse receipts, instruments and chattel paper
of the Company whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms
of obligations and rights to payment of the Company (herein collectively
referred to as "Accounts"), together with the proceeds thereof, all goods
represented by such Accounts and all such goods that may be returned by the
Company's customers, and all proceeds of any insurance thereon, and all
guarantees, securities and liens which the Company may hold for the payment of
any such Accounts including, without limitation, all rights of stoppage in
transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of
which the Company represents and warrants will be bona fide and existing
obligations of its respective customers, arising out of the sale of goods by the
Company in the ordinary course of business;
(f) to the extent assignable, all of the Company's rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property.
A-1
AMENDED AND RESTATED SUBSIDIARY SECURITY AGREEMENT
THIS AMENDED AND RESTATED SUBSIDIARY SECURITY AGREEMENT (the "Agreement"),
is entered into and made effective as of October 27, 2005, by and between
NETFABRIC CORPORATION, a Delaware corporation with its principal place of
business at 67 Federal Road, Building A, Suite 300, Brookfield, CT 06804 (the
"Company"), and Cornell Capital Partners, LP (the "Secured Party").
WHEREAS, the Company is a wholly owned subsidiary of NetFabric Holdings,
Inc. (the "Parent");
WHEREAS, the Parent issued to the Secured Party, as provided in the
Securities Purchase Agreement dated July 1, 2005, and as amended pursuant to the
letter agreement dated September 1, 2005 between the Parent and the Secured
Party, and the Secured Party purchased One Million Dollars ($1,000,000) of
secured convertible debentures (the "Prior Convertible Debentures"). The Company
entered into a Security Agreement with the Secured Party to secure the
obligations of the Parent under the Prior Debentures. This Agreement shall amend
and restate the Security Agreement between the Parent and the Secured Party
dated July 1, 2005;
WHEREAS, the Parent has requested the Secured Party to make additional
financing available to the Company;
WHEREAS, the Secured Party is willing to provide such additional financing
on the condition that such additional financing is secured hereunder and under
the UCC-1 filed (#53256931) in connection with the Security Agreement between
the Company and the Secured Party dated July 1, 2004;
WHEREAS, on the date hereof, the Parent shall issue and sell to the
Secured Party, as provided in the Securities Purchase Agreement dated the date
hereof, and the Secured Party shall purchase an Amended and Restated Secured
Convertible Debenture in the original principal amount of One Million Six
Hundred Fifty Thousand Dollars ($1,650,000), plus accrued and unpaid interest
for the Prior Debenture through the date hereof in the amount of Eight Thousand
One Hundred Sixty Dollars ($8,160) (the "Convertible Debenture"), which shall be
convertible into shares of common stock of the Parent, par value $0.001 (the
"Common Stock") (as converted, the "Conversion Shares"), in the respective
amounts set forth opposite each Buyer(s) name on Schedule I attached to the
Securities Purchase Agreement;
WHEREAS, the Company shall benefit from the sale of the Convertible
Debenture by the Parent to the Secured Party;
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Secured Convertible
Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions, and the Escrow Agreement (collectively referred to as the
"Transaction Documents"), the Company hereby grants to the Secured Party a
security interest in and to the Pledged Property (as defined below) until the
satisfaction of the Obligations, as defined herein below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the Company
or the Parent now existing or hereinafter incurred to the Secured Party, whether
oral or written and whether arising before, on or after the date hereof
including, without limitation, those obligations of the Parent to the Secured
Party under the Prior Convertible Debentures and the Transaction Documents, and
any other amounts now or hereafter owed to the Secured Party by the Parent
thereunder or hereunder (collectively, the "Obligations").
ARTICLE 2.
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL AND TERMINATION OF SECURITY
INTEREST
Section 2.1. Pledged Property.
(a) The Company hereby pledges to the Secured Party, and creates in
the Secured Party for its benefit, a security interest for such time until the
Obligations are paid in full, in and to all of the property of the Company as
set forth in Exhibit "A" attached hereto and the products thereof and the
proceeds of all such items (collectively, the "Pledged Property"):
(b) Simultaneously with the execution and delivery of this
Agreement, the Company shall make, execute, acknowledge, file, record and
deliver to the Secured Party any documents reasonably requested by the Secured
Party to perfect its security interest in the Pledged Property. Simultaneously
with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge and deliver to the Secured Party such documents and
instruments, including, without limitation, financing statements, certificates,
affidavits and forms as may, in the Secured Party's reasonable judgment, be
necessary to effectuate, complete or perfect, or to continue and preserve, the
security interest of the Secured Party in the Pledged Property, and the Secured
Party shall hold such documents and instruments as secured party, subject to the
terms and conditions contained herein.
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Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter defined) shall
have occurred and be continuing:
(i) the Company shall be entitled to exercise any and all
rights pertaining to the Pledged Property or any part thereof for any purpose
not inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and retain any
and all payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of the Company to exercise the rights which it
would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and
to receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Property
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Property pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and
(ii) All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued interest owed
pursuant to the Convertible Debenture as described herein
(c) An "Event of Default" shall be deemed to have occurred under
this Agreement upon an Event of Default under the Convertible Debenture.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, the Company hereby appoints
the Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
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the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Property or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property to make
payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
The Company warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. Default and Remedies.
(a) If an Event of Default occurs, then in each such case the
Secured Party may declare the Obligations to be due and payable immediately, by
a notice in writing to the Company, and upon any such declaration, the
Obligations shall become immediately due and payable.
(b) Upon the occurrence of an Event of Default, the Secured Party
shall: (i) be entitled to receive all distributions with respect to the Pledged
Property, (ii) to cause the Pledged Property to be transferred into the name of
the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and
(iv) to realize upon any and all rights in the Pledged Property then held by the
Secured Party.
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Section 5.2. Method of Realizing Upon the Pledged Property; Other
Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Company ten (10) days' prior written notice of the time and
place or of the time after which a private sale may be made (the "Sale
Notice")), which notice period shall in any event is hereby agreed to be
commercially reasonable. At any sale or sales of the Pledged Property, the
Company may bid for and purchase the whole or any part of the Pledged Property
and, upon compliance with the terms of such sale, may hold, exploit and dispose
of the same without further accountability to the Secured Party. The Company
will execute and deliver, or cause to be executed and delivered, such
instruments, documents, assignments, waivers, certificates, and affidavits and
supply or cause to be supplied such further information and take such further
action as the Secured Party reasonably shall require in connection with any such
sale.
(b) Any cash being held by the Secured Party as Pledged Property and
all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Property shall be applied as follows:
(i) to the payment of all amounts due the Secured Party for
the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled
thereto, including, without limitation, the Company.
(c) In addition to all of the rights and remedies which the Secured
Party may have pursuant to this Agreement, the Secured Party shall have all of
the rights and remedies provided by law, including, without limitation, those
under the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the
occurrence of an Event of Default which is continuing, then the Secured Party
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company and collect the monies adjudged or decreed
to be payable in the manner provided by law out of the property of Company,
wherever situated. The Secured Party may proceed against the Company without
proceeding first against any other party, including, without limitation, the
Parent.
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(ii) The Company agrees that it shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of the Transaction Documents,
including, without limitation, reasonable legal fees and expenses, and such
amounts shall be deemed included as Obligations secured hereby and payable as
set forth in Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relating to the Company or the property of the Company
or of such other obligor or its creditors, the Secured Party (irrespective of
whether the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to the rights of Previous Security Holders, shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any claim
for the reasonable legal fees and expenses and other expenses paid or incurred
by the Secured Party permitted hereunder and of the Secured Party allowed in
such judicial proceeding), and
(ii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by the
Secured Party to make such payments to the Secured Party and, in the event that
the Secured Party shall consent to the making of such payments directed to the
Secured Party, to pay to the Secured Party any amounts for expenses due it
hereunder.
Section 5.4. Duties Regarding Pledged Property.
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or
proceed with due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain Company's due organization, valid existence
and good standing under the laws of its state of incorporation, and (ii) to
preserve and keep in full force and effect all qualifications, licenses and
6
registrations in those jurisdictions in which the failure to do so could have a
Material Adverse Effect (as defined below); and (b) the Company shall not do, or
cause to be done, any act impairing the Company's corporate power or authority
(i) to carry on the Company's business as now conducted, and (ii) to execute or
deliver this Agreement or any other document delivered in connection herewith,
including, without limitation, any UCC-1 Financing Statements required by the
Secured Party (which other loan instruments collectively shall be referred to as
the "Loan Instruments") to which it is or will be a party, or perform any of its
obligations hereunder or thereunder. For purpose of this Agreement, the term
"Material Adverse Effect" shall mean any material and adverse affect as
determined by Secured Party in its reasonable discretion, whether individually
or in the aggregate, upon (a) the Company's assets, business, operations,
properties or condition, financial or otherwise; (b) the Company's to make
payment as and when due of all or any part of the Obligations; or (c) the
Pledged Property.
Section 6.2. Financial Statements and Reports.
The Company shall provide the Security Party with such financial data as
the Secured Party may reasonably request, within a reasonable time after any
such request, including, without limitation the following financial data:
(a) The balance sheet of the Company as of the close of each fiscal
year, the statement of earnings and retained earnings of the Company as of the
close of such fiscal year, and statement of cash flows for the Company for such
fiscal year, all in reasonable detail, prepared in accordance with generally
accepted accounting principles consistently applied, certified by the chief
executive and chief financial officers of the Company as being true and correct
and accompanied by a certificate of the chief executive and chief financial
officers of the Company, stating that the Company has kept, observed, performed
and fulfilled each covenant, term and condition of this Agreement and the other
Loan Instruments during such fiscal year and that no Event of Default hereunder
has occurred and is continuing, or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action the Company proposes to take in connection therewith;
(b) A balance sheet of the Company as of the close of each month,
and statement of earnings and retained earnings of the Company as of the close
of such month, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied,
certified by the chief executive and chief financial officers of the Company as
being true and correct; and
(c) Copies of all accountants' reports and accompanying financial
reports submitted to the Company by independent accountants in connection with
each annual examination of the Company.
Section 6.3. Accounts and Reports.
The Company shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:
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(a) as soon as available, a copy of any notice or other
communication alleging any nonpayment or other material breach or default, or
any foreclosure or other action respecting any material portion of its assets
and properties, received respecting any of the indebtedness of the Company in
excess of $50,000 (other than the Obligations), or any demand or other request
for payment under any guaranty, assumption, purchase agreement or similar
agreement or arrangement respecting the indebtedness or obligations of others in
excess of $50,000, including any received from any person acting on behalf of
the Secured Party or beneficiary thereof; and
(b) within fifteen (15) days after the making of each submission or
filing, a copy of any report, financial statement, notice or other document,
whether periodic or otherwise, submitted to the shareholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Property; or (iv) any of the
transactions contemplated in this Agreement or the Loan Instruments.
Section 6.4. Maintenance of Books and Records; Inspection.
The Company shall maintain its books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and
financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof.
Section 6.5. Maintenance and Insurance.
(a) The Company shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
subject to ordinary wear and tear, making all necessary repairs thereto and
renewals and replacements thereof.
(b) The Company shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Company deems reasonably necessary to the Company's business, (i) adequate
to insure all assets and properties of the Company, which assets and properties
are of a character usually insured by persons engaged in the same or similar
business against loss or damage resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents and/or the Loan Instruments or applicable law and (iv) as may be
reasonably requested by Secured Party, all with adequate, financially sound and
reputable insurers.
Section 6.6. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Company is now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
8
Section 6.7. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and
to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a Material
Adverse Effect, the Company shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.
Section 6.8. Payment of Debts, Taxes, Etc.
The Company shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged, all taxes, assessments and other governmental charges
and levies imposed upon it, upon any of its assets and properties on or before
the last day on which the same may be paid without penalty, as well as pay all
other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due.
Section 6.9. Taxes and Assessments; Tax Indemnity.
The Company shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Company in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.
Section 6.10. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound. Without limiting the
foregoing, the Company shall pay all of its indebtedness promptly in accordance
with the terms thereof.
Section 6.11. Notice of Default.
The Company shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the
Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.
9
Section 6.12. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing:
Section 7.1. Liens and Encumbrances.
The Company shall not directly or indirectly make, create, incur, assume
or permit to exist any assignment, transfer, pledge, mortgage, security interest
or other lien or encumbrance of any nature in, to or against any part of the
Pledged Property or of the Company's capital stock, or offer or agree to do so,
or own or acquire or agree to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber its right to receive any income or other distribution or
proceeds from any part of the Pledged Property or the Company's capital stock;
or enter into any sale-leaseback financing respecting any part of the Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
Section 7.2. Articles, By-Laws, Mergers, Consolidations, Acquisitions and
Sales.
Without the prior express written consent of the Secured Party, which
consent shall not be unreasonably withheld, the Company shall not: (a) Amend its
Articles of Incorporation or By-Laws; (b) be a party to any merger,
consolidation or corporate reorganization, (c) purchase or otherwise acquire all
or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, (d) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (e) create any subsidiaries nor convey any of its assets to any
subsidiary in excess of $200,000 in the aggregate.
Section 7.3. Management, Ownership.
The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.
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Section 7.4. Dividends, Etc.
Except for dividends payable to the Parent, the Company shall not declare
or pay any dividend of any kind, in cash or in property, on any class of its
capital stock, nor purchase, redeem, retire or otherwise acquire for value any
shares of such stock, nor make any distribution of any kind in respect thereof,
nor make any return of capital to shareholders, nor make any payments in respect
of any pension, profit sharing, retirement, stock option, stock bonus, incentive
compensation or similar plan (except as required or permitted hereunder),
without the prior written consent of the Secured Party, which consent shall not
be unreasonably withheld.
Section 7.5. Conduct of Business.
The Company will continue to engage, in an efficient and economical
manner, in a business of the same general type as conducted by it on the date of
this Agreement.
Section 7.6. Places of Business.
The location of the Company's chief place of business is 67 Federal Road,
Building A, Suite 300, Brookfield, CT 06804. The Company shall not change the
location of its chief place of business, chief executive office or any place of
business disclosed to the Secured Party or move any of the Pledged Property from
its current location without thirty (30) days prior written notice to the
Secured Party in each instance.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Secured Party: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, New Jersey 07302
Attention: Mark Angelo
Portfolio Manager
Telephone: (201) 986-8300
Facsimile: (201) 985-8266
With copy to: Troy Rillo, Esq.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
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And if to the Company: NetFabric Corporation
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Telephone: (203) 775-1178
Facsimile: (270) 626-8366
With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3306
Facsimile: (305) 328-7095
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
covenants shall not waiver, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
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Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged
Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New Jersey without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
Hudson County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Hudson County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
NETFABRIC CORPORATION
By: /s/ Jeff Robinson
------------------------------------
Name: Jeff Robinson
Title:
SECURED PARTY:
CORNELL CAPITAL PARTNERS, LP
BY: YORKVILLE ADVISORS, LLC
ITS: GENERAL PARTNER
By: /s/ Mark Angelo
------------------------------------
Name: Mark Angelo
Title: Portfolio Manager
14
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by
the Company of all of the Obligations, the Company unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Company:
(a) all goods of the Company, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Company or in which the Company may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
(b) all inventory of the Company, including, but not limited to, all
goods, wares, merchandise, parts, supplies, finished products, other tangible
personal property, including such inventory as is temporarily out of Company's
custody or possession and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing;
(c) all contract rights and general intangibles of the Company,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
(d) all documents, warehouse receipts, instruments and chattel paper
of the Company whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms
of obligations and rights to payment of the Company (herein collectively
referred to as "Accounts"), together with the proceeds thereof, all goods
represented by such Accounts and all such goods that may be returned by the
Company's customers, and all proceeds of any insurance thereon, and all
guarantees, securities and liens which the Company may hold for the payment of
any such Accounts including, without limitation, all rights of stoppage in
transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of
which the Company represents and warrants will be bona fide and existing
obligations of its respective customers, arising out of the sale of goods by the
Company in the ordinary course of business;
(f) to the extent assignable, all of the Company's rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property.
A-1
AMENDED AND RESTATED SUBSIDIARY SECURITY AGREEMENT
THIS AMENDED AND RESTATED SUBSIDIARY SECURITY AGREEMENT (the "Agreement"),
is entered into and made effective as of October 27, 2005, by and between UCA
SERVICES, INC, a New Jersey corporation with its principal place of business at
3 Stewart Court, Denville, NJ 07834 (the "Company"), and Cornell Capital
Partners, LP (the "Secured Party").
WHEREAS, the Company is a wholly owned subsidiary of NetFabric Holdings,
Inc. (the "Parent");
WHEREAS, the Parent issued to the Secured Party, as provided in the
Securities Purchase Agreement dated July 1, 2005, and as amended pursuant to the
letter agreement dated September 1, 2005 between the Parent and the Secured
Party, and the Secured Party purchased One Million Dollars ($1,000,000) of
secured convertible debentures (the "Prior Convertible Debentures"). The Company
entered into a Security Agreement with the Secured Party to secure the
obligations of the Parent under the Prior Debentures. This Agreement shall amend
and restate the Security Agreement between the Parent and the Secured Party
dated July 1, 2005;
WHEREAS, the Parent has requested the Secured Party to make additional
financing available to the Company;
WHEREAS, the Secured Party is willing to provide such additional financing
on the condition that such additional financing is secured hereunder and under
the UCC-1 filed on ____________, 2005 (#__________) filed in connection with the
Security Agreement between the Company and the Secured Party dated July 1, 2004;
WHEREAS, on the date hereof, the Parent shall issue and sell to the
Secured Party, as provided in the Securities Purchase Agreement dated the date
hereof, and the Secured Party shall purchase an Amended and Restated Secured
Convertible Debenture in the original principal amount of One Million Six
Hundred Fifty Thousand Dollars ($1,650,000), plus accrued and unpaid interest
for the Prior Convertible Debentures through the date hereof in the amount of
Eight Thousand One Hundred Sixty Dollars ($8,160) (the "Convertible Debenture"),
which shall be convertible into shares of common stock of the Parent, par value
$0.001 (the "Common Stock") (as converted, the "Conversion Shares"), in the
respective amounts set forth opposite each Buyer(s) name on Schedule I attached
to the Securities Purchase Agreement;
WHEREAS, the Company shall benefit from the sale of the Convertible
Debenture by the Parent to the Secured Party;
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Secured Convertible
Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions, the Warrant and the Escrow Agreement (collectively referred
to as the "Transaction Documents"), the Company hereby grants to the Secured
Party a security interest in and to the Pledged Property (as defined below)
until the satisfaction of the Obligations, as defined herein below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. Recitals.
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2. Interpretations.
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section 1.3. Obligations Secured.
The obligations secured hereby are any and all obligations of the Company
or the Parent now existing or hereinafter incurred to the Secured Party, whether
oral or written and whether arising before, on or after the date hereof
including, without limitation, those obligations of the Parent to the Secured
Party under the Prior Convertible Debentures and the Transaction Documents, and
any other amounts now or hereafter owed to the Secured Party by the Parent
thereunder or hereunder (collectively, the "Obligations").
ARTICLE 2.
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL AND
TERMINATION OF SECURITY INTEREST
Section 2.1. Pledged Property.
(a) The Company hereby pledges to the Secured Party, and creates in the
Secured Party for its benefit, a security interest for such time until the
Obligations are paid in full, in and to all of the property of the Company as
set forth in Exhibit "A" attached hereto and the products thereof and the
proceeds of all such items (collectively, the "Pledged Property"):
(b) Simultaneously with the execution and delivery of this Agreement, the
Company shall make, execute, acknowledge, file, record and deliver to the
Secured Party any documents reasonably requested by the Secured Party to perfect
its security interest in the Pledged Property. Simultaneously with the execution
and delivery of this Agreement, the Company shall make, execute, acknowledge and
deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, affidavits and forms as may, in
the Secured Party's reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the Secured Party
in the Pledged Property, and the Secured Party shall hold such documents and
instruments as secured party, subject to the terms and conditions contained
herein.
2
Section 2.2. Rights; Interests; Etc.
(a) So long as no Event of Default (as hereinafter defined) shall have
occurred and be continuing:
(i) the Company shall be entitled to exercise any and all rights
pertaining to the Pledged Property or any part thereof for any purpose not
inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and retain any and all
payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of the Company to exercise the rights which it would
otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to
receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Property
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Property pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and
(ii) All interest, dividends, income and other payments and distributions
which are received by the Company contrary to the provisions of Section
2.2(b)(i) hereof shall be received in trust for the benefit of the Secured
Party, shall be segregated from other property of the Company and shall be
forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be authorized to sell
any or all of the Pledged Property at public or private sale in order to recoup
all of the outstanding principal plus accrued interest owed pursuant to the
Convertible Debenture as described herein
(c) An "Event of Default" shall be deemed to have occurred under this
Agreement upon an Event of Default under the Convertible Debenture.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. Secured Party Appointed Attorney-In-Fact.
Upon the occurrence of an Event of Default, the Company hereby appoints
the Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem
3
necessary to accomplish the purposes of this Agreement, including, without
limitation, to receive and collect all instruments made payable to the Company
representing any payments in respect of the Pledged Property or any part thereof
and to give full discharge for the same. The Secured Party may demand, collect,
receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the
Pledged Property as and when the Secured Party may determine. To facilitate
collection, the Secured Party may notify account debtors and obligors on any
Pledged Property to make payments directly to the Secured Party.
Section 3.2. Secured Party May Perform.
If the Company fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization; Enforceability.
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
The Company warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. Default and Remedies.
(a) If an Event of Default occurs, then in each such case the Secured
Party may declare the Obligations to be due and payable immediately, by a notice
in writing to the Company, and upon any such declaration, the Obligations shall
become immediately due and payable.
(b) Upon the occurrence of an Event of Default, the Secured Party shall:
(i) be entitled to receive all distributions with respect to the Pledged
Property, (ii) to cause the Pledged Property to be transferred into the name of
the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and
(iv) to realize upon any and all rights in the Pledged Property then held by the
Secured Party.
4
Section 5.2. Method of Realizing Upon the Pledged Property; Other
Remedies.
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other value
in any number of lots at brokers board, public auction or private sale and may
be sold without demand, advertisement or notice (except that the Secured Party
shall give the Company ten (10) days' prior written notice of the time and place
or of the time after which a private sale may be made (the "Sale Notice")),
which notice period shall in any event is hereby agreed to be commercially
reasonable. At any sale or sales of the Pledged Property, the Company may bid
for and purchase the whole or any part of the Pledged Property and, upon
compliance with the terms of such sale, may hold, exploit and dispose of the
same without further accountability to the Secured Party. The Company will
execute and deliver, or cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates, and affidavits and supply or
cause to be supplied such further information and take such further action as
the Secured Party reasonably shall require in connection with any such sale.
(b) Any cash being held by the Secured Party as Pledged Property and all
cash proceeds received by the Secured Party in respect of, sale of, collection
from, or other realization upon all or any part of the Pledged Property shall be
applied as follows:
(i) to the payment of all amounts due the Secured Party for the expenses
reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled thereto,
including, without limitation, the Company.
(c) In addition to all of the rights and remedies which the Secured Party
may have pursuant to this Agreement, the Secured Party shall have all of the
rights and remedies provided by law, including, without limitation, those under
the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon the occurrence of an
Event of Default which is continuing, then the Secured Party may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company and collect the monies adjudged or decreed to be payable in
the manner provided by law out of the property of Company, wherever situated.
The Secured Party may proceed against the Company without proceeding first
against any other party, including, without limitation, the Parent.
(ii) The Company agrees that it shall be liable for any reasonable fees,
expenses and costs incurred by the Secured Party in connection with enforcement,
collection and
5
preservation of the Transaction Documents, including, without limitation,
reasonable legal fees and expenses, and such amounts shall be deemed included as
Obligations secured hereby and payable as set forth in Section 8.3 hereof.
Section 5.3. Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Company or the property of the Company or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to the rights of Previous Security Holders, shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the Obligations and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Secured Party (including any claim for the reasonable
legal fees and expenses and other expenses paid or incurred by the Secured Party
permitted hereunder and of the Secured Party allowed in such judicial
proceeding), and
(ii) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by the Secured Party to
make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments directed to the Secured Party, to
pay to the Secured Party any amounts for expenses due it hereunder.
Section 5.4. Duties Regarding Pledged Property.
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
(a) The Company shall do, or cause to be done, all things, or proceed with
due diligence with any actions or courses of action, that may be reasonably
necessary (i) to maintain Company's due organization, valid existence and good
standing under the laws of its state of
6
incorporation, and (ii) to preserve and keep in full force and effect all
qualifications, licenses and registrations in those jurisdictions in which the
failure to do so could have a Material Adverse Effect (as defined below); and
(b) the Company shall not do, or cause to be done, any act impairing the
Company's corporate power or authority (i) to carry on the Company's business as
now conducted, and (ii) to execute or deliver this Agreement or any other
document delivered in connection herewith, including, without limitation, any
UCC-1 Financing Statements required by the Secured Party (which other loan
instruments collectively shall be referred to as the "Loan Instruments") to
which it is or will be a party, or perform any of its obligations hereunder or
thereunder. For purpose of this Agreement, the term "Material Adverse Effect"
shall mean any material and adverse affect as determined by Secured Party in its
reasonable discretion, whether individually or in the aggregate, upon (a) the
Company's assets, business, operations, properties or condition, financial or
otherwise; (b) the Company's to make payment as and when due of all or any part
of the Obligations; or (c) the Pledged Property.
Section 6.2. Financial Statements and Reports.
The Company shall provide the Security Party with such financial data as
the Secured Party may reasonably request, within a reasonable time after any
such request, including, without limitation the following financial data:
(a) The balance sheet of the Company as of the close of each fiscal year,
the statement of earnings and retained earnings of the Company as of the close
of such fiscal year, and statement of cash flows for the Company for such fiscal
year, all in reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied, certified by the chief executive and
chief financial officers of the Company as being true and correct and
accompanied by a certificate of the chief executive and chief financial officers
of the Company, stating that the Company has kept, observed, performed and
fulfilled each covenant, term and condition of this Agreement and the other Loan
Instruments during such fiscal year and that no Event of Default hereunder has
occurred and is continuing, or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action the Company proposes to take in connection therewith;
(b) A balance sheet of the Company as of the close of each month, and
statement of earnings and retained earnings of the Company as of the close of
such month, all in reasonable detail, and prepared substantially in accordance
with generally accepted accounting principles consistently applied, certified by
the chief executive and chief financial officers of the Company as being true
and correct; and
(c) Copies of all accountants' reports and accompanying financial reports
submitted to the Company by independent accountants in connection with each
annual examination of the Company.
Section 6.3. Accounts and Reports.
The Company shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:
7
(a) as soon as available, a copy of any notice or other communication
alleging any nonpayment or other material breach or default, or any foreclosure
or other action respecting any material portion of its assets and properties,
received respecting any of the indebtedness of the Company in excess of $50,000
(other than the Obligations), or any demand or other request for payment under
any guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $50,000,
including any received from any person acting on behalf of the Secured Party or
beneficiary thereof; and
(b) within fifteen (15) days after the making of each submission or
filing, a copy of any report, financial statement, notice or other document,
whether periodic or otherwise, submitted to the shareholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations; (iii) any part of the Pledged Property; or (iv) any of the
transactions contemplated in this Agreement or the Loan Instruments.
Section 6.4. Maintenance of Books and Records; Inspection.
The Company shall maintain its books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and
financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof.
Section 6.5. Maintenance and Insurance.
(a) The Company shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
subject to ordinary wear and tear, making all necessary repairs thereto and
renewals and replacements thereof.
(b) The Company shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Company deems reasonably necessary to the Company's business, (i) adequate
to insure all assets and properties of the Company, which assets and properties
are of a character usually insured by persons engaged in the same or similar
business against loss or damage resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents and/or the Loan Instruments or applicable law and (iv) as may be
reasonably requested by Secured Party, all with adequate, financially sound and
reputable insurers.
Section 6.6. Contracts and Other Collateral.
The Company shall perform all of its obligations under or with respect to
each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Company is now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
8
Section 6.7. Defense of Collateral, Etc.
The Company shall defend and enforce its right, title and interest in and
to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged Property, those assets and properties whose loss could have a Material
Adverse Effect, the Company shall defend the Secured Party's right, title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely basis to the full extent permitted by
applicable law.
Section 6.8. Payment of Debts, Taxes, Etc.
The Company shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged, all taxes, assessments and other governmental charges
and levies imposed upon it, upon any of its assets and properties on or before
the last day on which the same may be paid without penalty, as well as pay all
other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due.
Section 6.9. Taxes and Assessments; Tax Indemnity.
The Company shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Company in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.
Section 6.10. Compliance with Law and Other Agreements.
The Company shall maintain its business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound. Without limiting the
foregoing, the Company shall pay all of its indebtedness promptly in accordance
with the terms thereof.
Section 6.11. Notice of Default.
The Company shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the
Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.
9
Section 6.12. Notice of Litigation.
The Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
ARTICLE 7.
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing:
Section 7.1. Liens and Encumbrances.
The Company shall not directly or indirectly make, create, incur, assume
or permit to exist any assignment, transfer, pledge, mortgage, security interest
or other lien or encumbrance of any nature in, to or against any part of the
Pledged Property or of the Company's capital stock, or offer or agree to do so,
or own or acquire or agree to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber its right to receive any income or other distribution or
proceeds from any part of the Pledged Property or the Company's capital stock;
or enter into any sale-leaseback financing respecting any part of the Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
Section 7.2. Articles, By-Laws, Mergers, Consolidations, Acquisitions and
Sales.
Without the prior express written consent of the Secured Party, which
consent shall not be unreasonably withheld, the Company shall not: (a) Amend its
Articles of Incorporation or By-Laws; (b) be a party to any merger,
consolidation or corporate reorganization, (c) purchase or otherwise acquire all
or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, (d) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (e) create any subsidiaries nor convey any of its assets to any
subsidiary in excess of $200,000 in the aggregate.
Section 7.3. Management, Ownership.
The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party. The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.
10
Section 7.4. Dividends, Etc.
Except for dividends payable to the Parent, the Company shall not declare
or pay any dividend of any kind, in cash or in property, on any class of its
capital stock, nor purchase, redeem, retire or otherwise acquire for value any
shares of such stock, nor make any distribution of any kind in respect thereof,
nor make any return of capital to shareholders, nor make any payments in respect
of any pension, profit sharing, retirement, stock option, stock bonus, incentive
compensation or similar plan (except as required or permitted hereunder),
without the prior written consent of the Secured Party, which consent shall not
be unreasonably withheld.
Section 7.5. Conduct of Business.
The Company will continue to engage, in an efficient and economical
manner, in a business of the same general type as conducted by it on the date of
this Agreement.
Section 7.6. Places of Business.
The location of the Company's chief place of business is 3 Stewart Court,
Denville, NJ 07834. The Company shall not change the location of its chief place
of business, chief executive office or any place of business disclosed to the
Secured Party or move any of the Pledged Property from its current location
without thirty (30) days prior written notice to the Secured Party in each
instance.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Notices.
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Secured Party: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, New Jersey 07302
Attention: Mark Angelo
Portfolio Manager
Telephone: (201) 986-8300
Facsimile: (201) 985-8266
With copy to: Troy Rillo, Esq.
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
11
And if to the Company: UCA Services, Inc.
3 Stewart Court
Denville, NJ 07834
Attention: Fahad Syed
Telephone: (973) 887-2758
Facsimile: (973) 887-7172
With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3306
Facsimile: (305) 328-7095
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section 8.2. Severability.
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
In the event of an Event of Default, the Company will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.
Section 8.4. Waivers, Amendments, Etc.
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
covenants shall not waiver, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended,
12
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Secured Party.
Section 8.5. Continuing Security Interest.
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged
Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New Jersey without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
Hudson County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Hudson County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section 8.8. Waiver of Jury Trial.
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
Section 8.9. Entire Agreement.
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
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13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
UCA SERVICES, INC.
By: /s/ Fahad Syed
------------------------------
Name: Fahad Syed
Title: Managing Director
SECURED PARTY:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Mark Angelo
------------------------------
Name: Mark Angelo
Title: Portfolio Manager
14
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by
the Company of all of the Obligations, the Company unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Company:
(a) all goods of the Company, including, without limitation, machinery,
equipment, furniture, furnishings, fixtures, signs, lights, tools, parts,
supplies and motor vehicles of every kind and description, now or hereafter
owned by the Company or in which the Company may have or may hereafter acquire
any interest, and all replacements, additions, accessions, substitutions and
proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
(b) all inventory of the Company, including, but not limited to, all
goods, wares, merchandise, parts, supplies, finished products, other tangible
personal property, including such inventory as is temporarily out of Company's
custody or possession and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing;
(c) all contract rights and general intangibles of the Company, including,
without limitation, goodwill, trademarks, trade styles, trade names, leasehold
interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
(d) all documents, warehouse receipts, instruments and chattel paper of
the Company whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms of
obligations and rights to payment of the Company (herein collectively referred
to as "Accounts"), together with the proceeds thereof, all goods represented by
such Accounts and all such goods that may be returned by the Company's
customers, and all proceeds of any insurance thereon, and all guarantees,
securities and liens which the Company may hold for the payment of any such
Accounts including, without limitation, all rights of stoppage in transit,
replevin and reclamation and as an unpaid vendor and/or lienor, all of which the
Company represents and warrants will be bona fide and existing obligations of
its respective customers, arising out of the sale of goods by the Company in the
ordinary course of business;
(f) to the extent assignable, all of the Company's rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation, insurance
proceeds) from the above-described Pledged Property.
A-1
OFFICER PLEDGE AND ESCROW AGREEMENT
THIS OFFICER PLEDGE AND ESCROW AGREEMENT (the "Agreement") is made and
entered into as of October 27, 2005 (the "Effective Date") by and among CORNELL
CAPITAL PARTNERS, LP (the "Pledgee"), NETFABRIC HOLDING, INC., a Delaware
corporation (the "Company"), JEFF ROBINSON (the "Pledgor"), and DAVID GONZALEZ,
ESQ., as escrow agent ("Escrow Agent").
RECITALS:
WHEREAS, the Company shall issue and sell to the Secured Party, as
provided in the Securities Purchase Agreement of even date herewith between the
Company and the Secured Party (the "Securities Purchase Agreement"), and the
Secured Party shall purchase up to One Million Six Hundred Fifty Thousand
Dollars ($1,650,000) of secured convertible debentures (the "Convertible
Debentures"), which shall be convertible into shares of the Company's common
stock, par value $0.001 (the "Common Stock") (as converted, the "Conversion
Shares") in the respective amounts set forth opposite each Buyer(s) name on
Schedule I attached to the Securities Purchase Agreement;
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Convertible Debentures,
the Investor Registration Rights Agreement of even date herewith between the
Company and the Secured Party (the "Investor Registration Rights Agreement"),
the Officer Pledge and Escrow Agreement of even date herewith among the Company,
the Secured Party and David Gonzalez, Esq. (the "Pledge Agreement"), the Escrow
Agreement of even date herewith among the Company, the Secured Party, and David
Gonzalez, Esq. (the "Escrow Agreement"), and the Irrevocable Transfer Agent
Instructions among the Company, the Secured Party, Securities Transfer
Corporation and David Gonzalez, Esq. (the "Transfer Agent Instructions")
(collectively referred to as the "Transaction Documents"), the Pledgor has
agreed to irrevocably pledge to the Pledgee One Million Four Hundred Twenty
Eight Thousand Five Hundred Seventy Two (1,428,572) shares (the "Pledged
Shares") of common stock of the Company beneficially owned by the Pledgor, until
the satisfaction of the Obligations, as defined herein below.
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. OBLIGATIONS SECURED. The obligations secured hereby are any and all
obligations of the Company now existing or hereinafter incurred to the Secured
Party, whether oral or written and whether arising before, on or after the date
hereof including, without limitation, those obligations of the Company to the
Secured Party under the Transaction Documents and any other amounts now or
hereafter owed to the Secured Party by the Company thereunder (collectively, the
"Obligations").
2. PLEDGE AND TRANSFER OF PLEDGED SHARES. The Pledgor hereby grants to Pledgee
an irrevocable, first priority security interest in all Pledged Shares as
security for the Company's Obligations. On or before the closing of the
Transaction Documents, the Pledgor shall deliver to the Escrow Agent stock
certificates representing the Pledged Shares, together with duly executed stock
powers or other appropriate transfer documents with medallion bank guarantees
and executed in blank by the Pledgor (the "Transfer Documents"), and such stock
certificates and Transfer Documents shall be held by the Escrow Agent until the
full payment of all Obligations due to the Pledgee, including the repayment of
all amounts owed by the Company to the Pledgee under the Convertible Debentures
(whether outstanding principal, interest, legal fees, or any other amounts owed
to the Pledgee by the Company).
3. RIGHTS RELATING TO PLEDGED SHARES. Upon the occurrence of an Event of Default
(as defined herein), the Pledgee shall be entitled to vote the Pledged Shares,
receive dividends and other distributions thereon, and enjoy all other rights
and privileges incident to the ownership of the number of Pledged Shares
actually released from escrow in accordance with Section 6.1 hereof.
4. RELEASE OF PLEDGED SHARES FROM PLEDGE. Upon the full payment of all
Obligations due to the Pledgee under the Transaction Documents, including the
repayment of all amounts owed by the Company to the Pledgee under the
Convertible Debenture (whether outstanding principal, interest, legal fees, and
any other amounts owed to the Pledgee by the Company), the parties hereto shall
notify the Escrow Agent to such effect in writing. Promptly upon receipt of such
written notice, 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.
5. EVENT OF DEFAULT. An "Event of Default" shall be deemed to have occurred
under this Agreement upon an Event of Default under any Transaction Document.
6. REMEDIES.
a. 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 (i)
sell the Pledged Shares and to apply the proceeds of such sales, net of any
selling commissions, to the Obligations owed to the Pledgor by the Company under
the Transaction Documents, including, without limitation, outstanding principal,
interest, legal fees, and any other amounts owed to the Pledgee, and exercise
all other rights and (ii) any and all remedies of a secured party with respect
to such property as may be available under the Uniform Commercial Code as in
effect in the State of New Jersey. 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 or the Company
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, the Company or any other party for selling or disposing of such Pledged
Shares even if other methods of sales or dispositions would or allegedly would
2
result in greater proceeds than the method actually used. The Escrow Agent shall
have the absolute right to disburse the Pledged Shares to the Pledgee in batches
not to exceed 9.9% of the outstanding capital of the Company (which limit may be
waived by the Pledgee providing not less than 65 days' prior written notice to
the Escrow Agent).
b. Each right, power and remedy of the Pledgee provided for in this
Agreement or any other Transaction Document shall be cumulative and concurrent
and shall be in addition to every other such right, power or remedy. The
exercise or beginning of the exercise by the Pledgee of any one or more of the
rights, powers or remedies provided for in this Agreement or any other
Transaction Document or now or hereafter existing at law or in equity or by
statute or otherwise shall not preclude the simultaneous or later exercise by
the Pledgee of all such other rights, powers or remedies, and no failure or
delay on the part of the Pledgee to exercise any such right, power or remedy
shall operate as a waiver thereof. No notice to or demand on the Pledgor in any
case shall entitle it to any other or further notice or demand in similar or
other circumstances or constitute a waiver of any of the rights of the Pledgee
to any other further action in any circumstances without demand or notice. The
Pledgee shall have the full power to enforce or to assign or contract is rights
under this Agreement to a third party.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
a. The Pledgor represents, warrants and covenants that:
(i) Pledgor is, and at the time when pledged hereunder will
be, the legal, beneficial and record owner of, and has (and will have) good and
valid title to, all Pledged Shares pledged hereunder, subject to no pledge,
lien, mortgage, hypothecation, security interest, charge, option or other
encumbrance whatsoever;
(ii) Pledgor has full power, authority and legal right to
pledge all the Pledged Shares pledged pursuant to this Agreement; and
(iii) all the Pledged Shares have been duly and validly
issued, are fully paid and non-assessable and are subject to no options to
purchase or similar rights.
b. The Pledgor covenants and agrees to take all reasonable steps to
defend the Pledgee's right, title and security interest in and to the Pledged
Shares and the proceeds thereof against the claims and demands of all persons
whomsoever (other than the Pledgee and the Escrow Agent); and the Pledgor
covenants and agrees that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee as Collateral
hereunder and will likewise take all reasonable steps to defend the right
thereto and security interest therein of the Pledgee.
c. The Pledgor covenants and agrees to take no action which would
violate or be inconsistent with any of the terms of any Transaction Document, or
which would have the effect of impairing the position or interests of the
Pledgee under any Transaction Document.
d. The Pledgor represents, warrants and covenants that (i) the
Pledgor has been the beneficial owner of the Pledged Shares for a period of not
less than two (2) years as computed in accordance with Rule 144(d) promulgated
under the Securities Act of 1933, as amended, and (ii) this Agreement is made
3
with recourse. Upon an Event of Default, the Pledgee shall be deemed to have
acquired the Pledged Shares on the date they were acquired by the Pledgor. The
Pledgor is an "affiliate" of the Company, as such term is defined in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
8. CONCERNING THE ESCROW AGENT.
a. 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.
b. 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.
c. 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.
d. 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 United States District Court of New Jersey, sitting in Newark, New
Jersey, 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.
4
e. 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.
f. 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.
9. CONFLICT WAIVER. The Pledgor hereby acknowledges that the Escrow Agent is
general counsel to the Pledgee, a partner in the general partner of 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.
10. 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 Company, to: NetFabric Holdings, Inc.
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Telephone: (203) 775-1178
Facsimile: (270) 626-8366
Attention: Jeff Robinson
With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 328-7095
5
If to the Pledgee: Cornell Capital Partners LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Attention: Mark A. Angelo
Telephone: (201) 985-8300
Facsimile: (201) 985-8744
With copy to: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
Attention: Troy J. Rillo, Esquire
Telephone: (201) 985-8300
Facsimile: (201) 985-1964
If to the Pledgor: Net Farbic/UCA
3 Stewart Court
Deville, NJ 07834
Attention: Jeff Robinson
Telephone: (973) 887-2785
Facsimile: (973) 384-9062
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.
11. 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.
12. 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 Jersey 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, 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 state superior courts located in Hudson
County, New Jersey or Federal district courts located in Newark, New Jersey, 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.
13. ENFORCEMENT COSTS. If any legal action or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
6
recover reasonable attorneys' fees, court costs and all expenses even if not
taxable as court costs (including, without limitation, all such fees, costs and
expenses incident to appeals), incurred in that action or proceeding, in
addition to any other relief to which such party or parties may be entitled.
14. REMEDIES CUMULATIVE. No remedy herein conferred upon any party is intended
to be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity, by statute, or otherwise. No single or
partial exercise by any party of any right, power or remedy hereunder shall
preclude any other or further exercise thereof.
15. 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.
16. NO PENALTIES. No provision of this Agreement is to be interpreted as a
penalty upon any party to this Agreement.
17. JURY TRIAL. EACH OF THE PLEDGEE AND THE PLEDGOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING
OUT OF, UNDER OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN PLEDGEE AND
PLEDGOR, THIS PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE.
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7
IN WITNESS WHEREOF, the parties hereto have duly executed this Officer
Pledge and Escrow Agreement as of the date first above written.
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Mark Angelo
------------------------------------
Name: Mark Angelo
Title: Portfolio Manager
PLEDGOR
By: /s/ Jeff Robonson
------------------------------------
Name: Jeff Robonson
NETFABRIC HOLDING, INC.
By: /s/ Jeff Robinson
------------------------------------
Name: Jeff Robinson
Title: Chairman and Chief Executive
Officer
ESCROW AGENT
By: /s/ David Gonzalez
------------------------------------
Name: David Gonzalez, Esq.
FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely
guarantees the Company's Obligations (as defined above). This Agreement is made
with recourse.
BY:
------------------------------------
NAME: JEFF ROBINSON
8
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
October 27, 2005
Securities Transfer Corporation
2591 Dallas Parkway
Frisco, Texas 75034
Attention: George Johnson
RE: NETFABRIC HOLDINGS, INC.
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement") of even date herewith by and between NetFabric
Holdings, Inc., a Delaware corporation (the "Company"), and the Buyer set forth
on Schedule I attached thereto (the "Buyer") and that certain Officer Pledge and
Escrow Agreement (the "Officer Pledge Agreement") of even date herewith among
the Company, the Buyer, Jeff Robinson, and the Escrow Agent. Pursuant to the
Securities Purchase Agreement, the Company shall sell to the Buyers, an the
Buyer shall purchase from the Company, convertible debentures (collectively, the
"Debentures") in the aggregate principal amount of One Million Six Hundred Fifty
Thousand Dollars ($1,650,000), plus accrued interest, which are convertible into
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock"), at the Buyers discretion. The Company has also issued to the Buyer a
warrant to purchase up to 560,000 shares of Common Stock, at the Buyer
discretion ("Warrant"). These instructions relate to the following stock or
proposed stock issuances or transfers:
1. The Company has agreed to issue to the Buyers up to 16,500,000
shares of the Company's Common Stock upon conversion of the
Debentures ("Conversion Shares") plus the shares of Common Stock to
be issued to the Buyers upon conversion of accrued interest and
liquidated damages into Common Stock (the "Interest Shares").
2. Jeff Robinson has prepared stock certificates representing 1,428,572
shares (the "Escrowed Shares") of the Common Stock, which has been
delivered to the Escrow Agent pursuant to the Officer Pledge
Agreement.
3. Up to 560,000 shares of Common Stock to be issued upon the exercise
of the Warrant ("Warrant Shares").
This letter shall serve as our irrevocable authorization and direction to
Securities Transfer Corporation (the "Transfer Agent") to do the following:
1. Conversion Shares.
a. Instructions Applicable to Transfer Agent. With respect to the
Conversion Shares and the Interest Shares, the Transfer Agent
shall issue the Conversion Shares and the Interest Shares to
the Buyers from time to time upon delivery to the Transfer
Agent of a properly completed and duly executed Conversion
Notice (the "Conversion Notice"), in the form attached hereto
as Exhibit I, delivered on behalf of the Company to the
Transfer Agent by the Escrow Agent. Upon receipt of a
Conversion Notice, the Transfer Agent shall within three (3)
Trading Days thereafter (i) issue and surrender to a common
carrier for overnight delivery to the address as specified in
the Conversion Notice, a certificate, registered in the name
of the Buyers or their designees, for the number of shares of
Common Stock to which the Buyers shall be entitled as set
forth in the Conversion Notice or (ii) provided Transfer Agent
are participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the
Buyers, credit such aggregate number of shares of Common Stock
to which the Buyers shall be entitled to the Buyers' or their
designees' balance account with DTC through its Deposit
Withdrawal At Custodian ("DWAC") system provided the Buyers
causes its bank or broker to initiate the DWAC transaction.
For purposes hereof "Trading Day" shall mean any day on which
the Nasdaq Market is open for customary trading.
b. The Company hereby confirms to the Transfer Agent and the
Buyers that certificates representing the Conversion Shares
shall not bear any legend restricting transfer and should not
be subject to any stop-transfer restrictions and shall
otherwise be freely transferable on the books and records of
the Company; provided that counsel to the Company delivers (i)
the Notice of Effectiveness set forth in Exhibit II attached
hereto and (ii) an opinion of counsel in the form set forth in
Exhibit III attached hereto, and that if the Conversion Shares
and the Interest Shares are not registered for sale under the
Securities Act of 1933, as amended, then the certificates for
the Conversion Shares and Interest Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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 ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT."
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c. In the event that counsel to the Company fails or refuses to
render an opinion as required to issue the Conversion Shares
in accordance with the preceding paragraph (either with or
without restrictive legends, as applicable), then the Company
irrevocably and expressly authorizes counsel to the Buyers to
render such opinion. The Transfer Agent shall accept and be
entitled to rely on such opinion for the purposes of issuing
the Conversion Shares.
d. Instructions Applicable to Escrow Agent. Upon the Escrow
Agent's receipt of a properly completed conversion notice
substantially in the form attached as an exhibit to the
Debentures, the Escrow Agent shall, within one (1) Trading Day
thereafter, send to the Transfer Agent a Conversion Notice in
the form attached hereto as Exhibit I, which shall constitute
an irrevocable instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms of these
instructions.
2. Escrowed Shares.
a. With respect to the Escrowed Shares, upon an event of default
as set forth in the Officer Pledge Agreement, the Escrow Agent
shall send written notice to the Transfer Agent ("Escrow
Notice") to transfer such number of Escrow Shares as set forth
in the Escrow Notice to the Buyers. Upon receipt of an Escrow
Notice, the Transfer Agent shall promptly transfer such number
of Escrow Shares to the Buyers as shall be set forth in the
Escrow Notice delivered to the Transfer Agent by the Escrow
Agent. Further, the Transfer Agent shall promptly transfer
such shares from the Buyers to any subsequent transferee
promptly upon receipt of written notice from the Buyers or
their counsel. If the Escrow Shares are not registered for
sale under the Securities Act of 1933, as amended, then the
certificates for the Escrow Shares shall bear the legend set
forth in Section 1b.
b. In the event that counsel to the Company fails or refuses to
render an opinion as may be required by the Transfer Agent to
affect a transfer of the Escrow Shares (either with or without
restrictive legends, as applicable), then the Company
irrevocably and expressly authorizes counsel to the Buyers to
render such opinion. The Transfer Agent shall accept and be
entitles to rely on such opinion for the purpose of
transferring the Escrow Shares.
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3. Warrant Shares.
a. Instructions Applicable to Transfer Agent. With respect to the
Warrant Shares, the Transfer Agent shall issue the Warrant
Shares to the Buyer from time to time upon delivery to the
Transfer Agent of a properly completed and duly executed
notice of the Buyer's election to exercise the Warrant (the
"Exercise Notice"), in the form attached hereto as Exhibit I,
specifying the number of Warrant Shares to be issued,
delivered on behalf of the Company to the Transfer Agent by
the David Gonzalez, Esq., as escrow agent (the "Escrow
Agent"). Upon receipt of an Exercise Notice, the Transfer
Agent shall use its best efforts to within three (3) Trading
Days thereafter (i) issue and surrender to a common carrier
for overnight delivery to the address as specified in the
Exercise Notice, a certificate, registered in the name of the
Buyer or its designees, for the number of shares of Common
Stock to which the Buyer shall be entitled as set forth in the
Exercise Notice or (ii) provided Transfer Agent are
participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the
Buyer, credit such aggregate number of shares of Common Stock
to which the Buyer shall be entitled to the Buyer's or its
designees' balance account with DTC through its Deposit
Withdrawal At Custodian ("DWAC") system provided the Buyer
causes its bank or broker to initiate the DWAC transaction.
For purposes hereof "Trading DAY" shall mean any day on which
the Nasdaq Market is open for customary trading.
The Company hereby confirms to the Transfer Agent and Cornell
that certificates representing the Warrant Shares shall not
bear any legend restricting transfer and should not be subject
to any stop-transfer restrictions and shall otherwise be
freely transferable on the books and records of the Company;
provided that counsel to the Company delivers (i) the Notice
of Effectiveness set forth in Exhibit II attached hereto and
(ii) an opinion of counsel in the form set forth in Exhibit
III attached hereto, and that if the Warrant Shares are not
registered for sale under the Securities Act of 1933, as
amended, then the certificates for the Warrant Shares shall
bear the restrictive legend referenced above in Section 1b.
b. In the event that counsel to the Company fails or refuses to
render an opinion as required to issue the Warrant Shares in
accordance with the preceding paragraph (either with or
without restrictive legends, as applicable), then the Company
irrevocably and expressly authorizes counsel to the Buyer to
render such opinion. The Transfer Agent shall accept and be
entitled to rely on such opinion for the purposes of issuing
the Warrant Shares.
c. Instructions Applicable to Escrow Agent. Upon the Escrow
Agent's receipt of a properly completed exercise notice
substantially in the form attached as an exhibit to the
Warrant and the Aggregate Exercise Price (as defined in the
Warrant), the Escrow Agent shall, within one (1) Trading Day
thereafter, send to the Transfer Agent an Exercise Notice in
the form attached hereto as Exhibit I, which shall constitute
an irrevocable instruction to the Transfer Agent to process
such Exercise Notice in accordance with the terms of these
instructions.
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4. All Shares.
a. The Transfer Agent shall reserve for issuance to the Buyer the
Conversion Shares, the Escrowed Shares, and the Warrant
Shares. All such shares shall remain in reserve with the
Transfer Agent until the Buyers provides the Transfer Agent
instructions that the shares or any part of them shall be
taken out of reserve and shall no longer be subject to the
terms of these instructions.
b. The Transfer Agent shall rely exclusively on the Conversion
Notice, the Escrow Notice, or the Exercise Notice and shall
have no liability for relying on such instructions. Any
Conversion Notice, Escrow Notice, or Exercise Notice delivered
hereunder shall constitute an irrevocable instruction to the
Transfer Agent to process such notice or notices in accordance
with the terms thereof. Such notice or notices may be
transmitted to the Transfer Agent by facsimile or any
commercially reasonable method.
c. The Company hereby confirms to the Transfer Agent and the
Buyers that no instructions other than as contemplated herein
will be given to Transfer Agent by the Company with respect to
the matters referenced herein. The Company hereby authorizes
the Transfer Agent, and the Transfer Agent shall be obligated,
to disregard any contrary instructions received by or on
behalf of the Company.
Certain Notice Regarding the Escrow Agent. The Company and the Transfer
Agent hereby acknowledge that the Escrow Agent is general counsel to the Buyers,
a partner of the general partner of the Buyers and counsel to the Buyers in
connection with the transactions contemplated and referred herein. The Company
and the Transfer Agent agree 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 Buyers and neither the Company nor the
Transfer Agent will seek to disqualify such counsel.
The Company hereby agrees that it shall not replace the Transfer Agent as
the Company's transfer agent without the prior written consent of the Buyers.
The Transfer Agent may cease to provide any issuance or transfer agent
services as contemplated by this agreement if the Company is not current in all
its outstanding payment obligations for services provided by the Transfer Agent
during the last thirty (30) day period, provided, however, that the Buyer may
pay for the cost associated with any issuances, or transfers of stock
contemplated by this agreement, and the Transfer Agent shall then continue to
provide issuance and transfer agent services as stipulated by this agreement.
The Transfer Agent shall provide ten days' advance written notice to the Buyer
before any attempt by the Transfer Agent to cease to provide any issuance or
transfer agent services as contemplated by this agreement shall become
effective. Upon notice that the Transfer Agent is resigning, the Company shall
have the obligation to retain a new transfer agent that will agree to be bound
by the terms of this agreement.
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The Company herby confirms that while any portion of the Debentures remain
unpaid and unconverted the Company and the Transfer Agent shall not, without the
prior consent of the Buyers, (i) issue any Common Stock or preferred stock with
or without consideration, (ii) issue any Preferred Stock, warrant, option,
right, contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock with or without consideration, (iii)
issue any S-8 shares of the Company's Common Stock, except to register up to
9,000,000 shares of common stock issued pursuant to the Obligor's 2005 stock
option plan. Notwithstanding the forgoing, the Company shall be entitled to
issue or sell up to $5,000,000 of shares of Common Stock or Preferred Stock for
a consideration per share of up to 20% below the closing Bid Price of the Common
Stock determined immediately prior to its issuance, without first obtaining the
prior written consent of the Buyers provided that the Company obtains lock up
agreements from the purchasers in connection with such an issuance for a period
of at least one year from the date of issuance of such stock.
The Company and the Transfer Agent hereby acknowledge and confirm that
complying with the terms of this Agreement does not and shall not prohibit the
Transfer Agent from satisfying any and all fiduciary responsibilities and duties
it may owe to the Company.
The Company and the Transfer Agent acknowledge that the Buyers is relying
on the representations and covenants made by the Company and the Transfer Agent
hereunder and are a material inducement to the Buyers purchasing convertible
debentures under the Securities Purchase Agreement. The Company and the Transfer
Agent further acknowledge that without such representations and covenants of the
Company and the Transfer Agent made hereunder, the Buyers would not purchase the
Debentures.
Each party hereto specifically acknowledges and agrees that in the event
of a breach or threatened breach by a party hereto of any provision hereof, the
Buyers will be irreparably damaged and that damages at law would be an
inadequate remedy if these Irrevocable Transfer Agent Instructions were not
specifically enforced. Therefore, in the event of a breach or threatened breach
by a party hereto, including, without limitation, the attempted termination of
the agency relationship created by this instrument, the Buyers shall be
entitled, in addition to all other rights or remedies, to an injunction
restraining such breach, without being required to show any actual damage or to
post any bond or other security, and/or to a decree for specific performance of
the provisions of these Irrevocable Transfer Agent Instructions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this letter agreement
regarding Irrevocable Transfer Agent Instructions to be duly executed and
delivered as of the date first written above.
COMPANY:
NETFABRIC HOLDINGS, INC.
By: /s/ Jeff Robinson
------------------------------------
Name: Jeff Robinson
Title: Chairman and Chief Executive
Officer
/s/ David Gonzalez
----------------------------------------
David Gonzalez, Esq.
SECURITIES TRANSFER CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
7
SCHEDULE I
SCHEDULE OF BUYERS
ADDRESS/FACSIMILE
NAME SIGNATURE NUMBER OF BUYERS
- ---------------------------- -------------------------------- ------------------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 101 Hudson Street - Suite 3700
Its: General Partner Jersey City, NJ 07303
Facsimile: (201) 985-8266
By: /s/ Mark Angelo
----------------------------
Name: Mark Angelo
Its: Portfolio Manager
SCHEDULE I-1
EXHIBIT I
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF CONVERSION NOTICE
Reference is made to the Securities Purchase Agreement (the "Securities
Purchase Agreement") between NetFabric Holdings, Inc., (the "Company"), and the
Buyers set forth on Schedule I attached thereto dated October 27, 2005. In
accordance with and pursuant to the Securities Purchase Agreement, the
undersigned hereby elects to convert convertible debentures into shares of
common stock, par value $0.001 per share (the "Common Stock"), of the Company
for the amount indicated below as of the date specified below.
Conversion Date: ________________________________________
Amount to be converted: $_______________________________________
Conversion Price: $_______________________________________
Shares of Common Stock Issuable: ________________________________________
Amount of Debenture unconverted: $_______________________________________
Amount of Interest Converted: $_______________________________________
Conversion Price of Interest: $_______________________________________
Shares of Common Stock Issuable: ________________________________________
Amount of Liquidated Damages: $_______________________________________
Conversion Price of Liquidated Damages: $_______________________________________
Shares of Common Stock Issuable: ________________________________________
Total Number of shares of Common Stock
to be issued: ________________________________________
EXHIBIT I-1
Please issue the shares of Common Stock in the following name and to the
following address:
Issue to: ________________________________________
Authorized Signature: ________________________________________
Name: ________________________________________
Title: ________________________________________
Phone #: ________________________________________
Broker DTC Participant Code: ________________________________________
Account Number*: ________________________________________
* NOTE THAT RECEIVING BROKER MUST INITIATE TRANSACTION ON DWAC SYSTEM.
2
EXHIBIT II
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
_________, 2005
Securities Transfer Corporation
2591 Dallas Parkway
Frisco, Texas 75034
Attention: George Johnson
RE: NETFABRIC HOLDINGS, INC.
Ladies and Gentlemen:
We are counsel to NetFabric Holdings, Inc., (the "Company"), and have
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of October 27, 2005 (the "Securities Purchase Agreement"),
entered into by and among the Company and the Buyers set forth on Schedule I
attached thereto (collectively the "Buyers") pursuant to which the Company has
agreed to sell to the Buyers up to One Million Six Hundred Fifty Thousand
Dollars ($1,650,000) of secured convertible debentures, which shall be
convertible into shares (the "Conversion Shares") of the Company's common stock,
par value $0.001 per share (the "Common Stock"), in accordance with the terms of
the Securities Purchase Agreement. Pursuant to the Securities Purchase
Agreement, the Company also has entered into an Investor Registration Rights
Agreement, dated as of October 27, 2005, with the Buyers (the "Investor
Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Conversion Shares under the Securities Act of
1933, as amended (the "1933 Act"). In connection with the Company's obligations
under the Securities Purchase Agreement and the Registration Rights Agreement,
on _______ ____, 2005, the Company filed a Registration Statement (File No.
___-_________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the sale of the Conversion Shares.
In connection with the foregoing, we advise the Transfer Agent that a
member of the SEC's staff has advised us by telephone that the SEC has entered
an order declaring the Registration Statement effective under the 1933 Act at
____ P.M. on __________, 2005 and we have no knowledge, after telephonic inquiry
of a member of the SEC's staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Conversion Shares are available for sale under
the 1933 Act pursuant to the Registration Statement.
EXHIBIT II-1
The Buyers has confirmed it shall comply with all securities laws and
regulations applicable to it including applicable prospectus delivery
requirements upon sale of the Conversion Shares.
Very truly yours,
By:
----------------------------
EXHIBIT II-2
EXHIBIT III
TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
FORM OF OPINION
________________ 2005
VIA FACSIMILE AND REGULAR MAIL
Securities Transfer Corporation
2591 Dallas Parkway
Frisco, Texas 75034
Attention: George Johnson
RE: NETFABRIC HOLDINGS, INC.
Ladies and Gentlemen:
We have acted as special counsel to NetFabric Holdings, Inc. (the
"Company"), in connection with the registration of ___________shares (the
"Shares") of its common stock with the Securities and Exchange Commission (the
"SEC"). We have not acted as your counsel. This opinion is given at the request
and with the consent of the Company.
In rendering this opinion we have relied on the accuracy of the Company's
Registration Statement on Form SB-2, as amended (the "Registration Statement"),
filed by the Company with the SEC on _________ ___, 2005. The Company filed the
Registration Statement on behalf of certain selling stockholders (the "Selling
Stockholders"). This opinion relates solely to the Selling Shareholders listed
on Exhibit "A" hereto and number of Shares set forth opposite such Selling
Stockholders' names. The SEC declared the Registration Statement effective on
__________ ___, 2005.
We understand that the Selling Stockholders acquired the Shares in a
private offering exempt from registration under the Securities Act of 1933, as
amended. Information regarding the Shares to be sold by the Selling Shareholders
is contained under the heading "Selling Stockholders" in the Registration
Statement, which information is incorporated herein by reference. This opinion
does not relate to the issuance of the Shares to the Selling Stockholders. The
opinions set forth herein relate solely to the sale or transfer by the Selling
Stockholders pursuant to the Registration Statement under the Federal laws of
the United States of America. We do not express any opinion concerning any law
of any state or other jurisdiction.
In rendering this opinion we have relied upon the accuracy of the
foregoing statements.
EXHIBIT III-1
Based on the foregoing, it is our opinion that the Shares have been
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and that Securities Transfer Corp. may remove the
restrictive legends contained on the Shares. This opinion relates solely to the
number of Shares set forth opposite the Selling Stockholders listed on Exhibit
"A" hereto.
This opinion is furnished to Securities Transfer Corp. specifically in
connection with the issuance of the Shares, and solely for your information and
benefit. This letter may not be relied upon by Securities Transfer Corp. in any
other connection, and it may not be relied upon by any other person or entity
for any purpose without our prior written consent. This opinion may not be
assigned, quoted or used without our prior written consent. The opinions set
forth herein are rendered as of the date hereof and we will not supplement this
opinion with respect to changes in the law or factual matters subsequent to the
date hereof.
Very truly yours,
EXHIBIT III-2
EXHIBIT "A"
(LIST OF SELLING STOCKHOLDERS)
NAME: NO. OF SHARES:
- --------------------------------------------------- --------------------------
EXHIBIT A-1
DATED: OCTOBER 27, 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. CCP-4 $1,658,160
NETFABRIC HOLDINGS, INC.
AMENDED AND RESTATED SECURED CONVERTIBLE DEBENTURE
DUE OCTOBER 27, 2008
This Amended and Restated Secured Convertible Debenture (the "Debenture")
is issued by NETFABRIC HOLDINGS, INC., a Delaware corporation (the "Obligor"),
to CORNELL CAPITAL PARTNERS, LP (the "Holder"), pursuant to that certain
Securities Purchase Agreement (the "Securities Purchase Agreement") of even date
herewith. The Company issued to the Holder (i) on July 1, 2005 a secured
debenture in the amount of Four Hundred Thousand Dollars ($400,000) (the "July
2005 Debenture"), (ii) on September 1, 2005, a secured debenture in the amount
of Fifty Thousand Dollars ($50,000) (the "September 2005 Debenture"), and (iii)
on October 6, 2005, a secured debenture in the amount of Five Hundred Fifty
Thousand Dollars ($550,000), of which $150,000 was funded on October 6, 2005 and
$400,000 was funded on October 13, 2005 (the "October 2005 Debenture")
(collectively referred to as the "Prior Debentures"). This Debenture is being
re-issued to consolidate the Prior Debentures plus accrued and unpaid interest
to the date hereof ($6,555,56 as and for interest on the July 2005 Debenture,
$388.89 as and for interest on the September 2005 Debenture and $1,215.27 as and
for interest on the October 2005 Debenture) and to reflect the additional
funding in the amount of Six Hundred Fifty Thousand Dollars ($650,000), for the
total principal of One Million Six Hundred Fifty Eight Thousand One Hundred
Sixty Dollars ($1,658,160).
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or
its successors and assigns the principal sum of One Million Six Hundred Fifty
Eight Thousand One Hundred Sixty Dollars ($1,658,160) together with accrued but
unpaid interest on or before October 27, 2008 (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 five percent (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
1
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").
Right of Redemption. The Obligor at its option shall have the right, with
three (3) business days advance written notice (the "Redemption Notice"), to
redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date. The Obligor shall pay an amount equal to the principal amount
outstanding and accrued interest being redeemed, plus a redemption premium of
fifteen percent (15%) ("Redemption Premium") of the amount redeemed
(collectively referred to as the "Redemption Amount"). The Obligor shall deliver
to the Holder the Redemption Amount on the third (3rd) business day after the
Redemption Notice.
Notwithstanding the foregoing in the event that the Obligor has elected to
redeem a portion of the outstanding principal amount and accrued interest under
this Debenture the Holder shall still be entitled to effectuate Conversions as
contemplated hereunder.
Security Agreements. This Debenture is secured an Amended and Restated
Security Agreement between the Obligor and the Holder of even date herewith (the
"Security Agreement"), an Officer Pledge and Escrow Agreement ("Officer Pledge
Agreement") of even date herewith among the Obligor, the Holder, the Pledgor and
the Escrow Agent and Amended and Restated Subsidiary Security Agreements between
the Holder and NetFabric Corporation, and UCA Services, Inc., both wholly-owned
subsidiaries of the Obligor (collectively, the Subsidiary Security Agreements).
Consent of Holder to Sell Capital Stock or Grant Security Interests. So
long as any of the principal amount or interest on this Debenture remains unpaid
and unconverted, the Obligor shall not, without the prior consent of the Holder,
(i) issue or sell any common stock or preferred stock with or without
consideration, (ii) issue or sell any preferred stock, warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire common stock with or without consideration, (iii) enter into
any security instrument granting the holder a security interest in any of the
assets of the Obligor, or (iv) file any registration statements on Form S-8,
except to register up to 9,000,000 shares of Common Stock issued pursuant to the
Obligor's 2005 stock option plan. Notwithstanding the forgoing, the Obligor
shall be entitled to issue or sell up to $5,000,000 of shares of common stock or
preferred stock for a consideration per share of up to 20% below the closing bid
price of the Common Stock determined immediately prior to its issuance, without
first obtaining the prior written consent of the Holder provided that the
Company obtains lock up agreements from the purchasers in connection with such
an issuance for a period of at least one year from the date of issuance of such
stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
2
Section 2. 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):
(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 (whether on a Conversion Date
or the Maturity Date or by acceleration or otherwise) which is not cured within
five (5) days of written notice of such default;
(ii) The Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture (except as may be covered by Section
2(a)(i) hereof) or any Transaction Document (as defined in Section 4) which is
not cured within fifteen (15) days of written notice of such default;
(iii) 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;
(iv) The Obligor or any subsidiary of the Obligor shall default in
any of its obligations under any other debenture or any mortgage, credit
agreement or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement of the Obligor or any subsidiary of the Obligor
in an amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;
3
(v) The Common Stock shall cease to be quoted for trading or listed
for trading on either the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq SmallCap
Market, New York Stock Exchange, American Stock Exchange or the Nasdaq National
Market (each, a "Subsequent Market") and shall not again be quoted or listed for
trading thereon within five (5) Trading Days of such delisting;
(vi) The Obligor or any subsidiary of the Obligor shall be a party
to any Change of Control Transaction (as defined in Section 4);
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 4) with the Commission (as defined
in Section 4), or the Underlying Shares Registration Statement shall not have
been declared effective by the Commission, in each case within the time periods
set forth in the Registration Rights Agreement of even date herewith between the
Obligor and the Holder;
(viii) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted to resell
the shares of Common Stock underlying this Debenture under the Underlying Shares
Registration Statement, in either case, for more than five (5) consecutive
Trading Days or an aggregate of eight Trading Days (which need not be
consecutive Trading Days);
(ix) The Obligor shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a Conversion
Date or the Obligor shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply with requests
for conversions of this Debenture in accordance with the terms hereof;
(x) The Obligor shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within fifteen (15) days after
notice is claimed delivered hereunder;
(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.
If an Event of Default occurs and remains uncured, the Conversion Price shall be
reduced to Ten Cents ($0.10). 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
4
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.
Section 3. Conversion.
(a) (i) Conversion at Option of Holder.
(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 (as defined in Section 4) (subject to the
limitations on conversion set forth in Section 3(a)(ii) hereof). 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 (as defined in Section 3(c)(i)). The
Obligor shall deliver Common Stock certificates to the Holder prior to the Fifth
(5th) Trading Day after a Conversion Date.
(B) Notwithstanding anything to the contrary contained herein, if on
any Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay principal and interest hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on
a Subsequent Market; (3) the Obligor has failed to timely satisfy its
conversion; or (4) the issuance of such shares of Common Stock would result in a
violation of Section 3(a)(ii), then, at the option of the Holder, the Obligor,
in lieu of delivering shares of Common Stock pursuant to Section 3(a)(i)(A),
shall deliver, within three (3) Trading Days of each applicable Conversion Date,
an amount in cash equal to the product of the outstanding principal amount to be
converted plus any interest due therein divided by the Conversion Price and
multiplied by the highest closing price of the stock from date of the conversion
notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in respect
of conversion of this Debenture or as payment of interest thereon by the fifth
(5th) Trading Day after the Conversion Date, the Holder may, by notice to the
Obligor, require the Obligor to issue shares of Common Stock pursuant to Section
3(c), except that for such purpose the Conversion Price applicable thereto shall
be the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provisions of this Section.
(C) 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.
5
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert this Debenture or receive shares
of Common Stock as payment of interest hereunder to the extent such conversion
or receipt of such interest payment would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 4.9% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest on, this
Debenture held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Obligor the number of shares of
Common Stock it may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of Common Stock in
excess of 4.9% of the then outstanding shares of Common Stock without regard to
any other shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of this Debenture is convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a Conversion Notice
for a principal amount of this Debenture that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would result in
the issuance in excess of the permitted amount hereunder, the Obligor shall
notify the Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in accordance
with the periods described in Section 3(a)(i)(A) and, at the option of the
Holder, either retain any principal amount tendered for conversion in excess of
the permitted amount hereunder for future conversions or return such excess
principal amount to the Holder. The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
65 days prior notice to the Obligor. Other Holders shall be unaffected by any
such waiver.
(b) (i) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to Section 2 herein for the
Obligor 's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(ii) In addition to any other rights available to the Holder, if the
Obligor fails to deliver to the Holder such certificate or certificates pursuant
to Section 3(a)(i)(A) by the fifth (5th) Trading Day after the Conversion Date,
and if after such fifth (5th) Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Obligor shall (A) pay in
6
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue a Debenture in
the principal amount equal to the principal amount of the attempted conversion
or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Obligor timely complied with its delivery requirements under
Section 3(a)(i)(A). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Obligor shall be required to pay
the Holder $1,000. The Holder shall provide the Obligor written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The Holder is entitled, at its option, to convert, and sell on the
same day, at any time, until payment in full of this Debenture, all or any part
of the principal amount of the Debenture, plus accrued interest, into shares of
the Company's common stock, par value $0.001 per share, at the price per share
equal to the lesser of (a) an amount equal to One Dollar ($1.00) (the "Fixed
Price") or (b) an amount equal to ninety five percent (95%) of the lowest
Closing Bid Price of the Common Stock for the thirty (30) trading days
immediately preceding the Conversion Date (the "Closing Bid Conversion Price")
which may be adjusted pursuant to the other terms of this Debenture.
Subparagraphs (a) and (b) above are individually referred to as a "Conversion
Price." Notwithstanding the foregoing, the Holder shall limit conversion of this
Debenture to $250,000 per calendar month for so long as no Event of Default has
occurred hereunder only if the Holder coverts pursuant to the Closing Bid
Conversion Price under this Section. Such limitation on conversion shall not
apply if the Holder coverts pursuant to the Fixed Price.
(ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) 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, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Obligor, then the Fixed
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.
(iii) If the Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Fixed Price, then the Fixed
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants (plus the number
7
of additional shares of Common Stock offered for subscription or purchase), and
of which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants, plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at the Fixed Price. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. However, upon
the expiration of any such right, option or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Fixed Price
pursuant to this Section, if any such right, option or warrant shall expire and
shall not have been exercised, the Fixed Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Fixed Price made pursuant to the provisions of this Section
after the issuance of such rights or warrants) had the adjustment of the Fixed
Price made upon the issuance of such rights, options or warrants been made on
the basis of offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iv) If the Obligor or any subsidiary thereof, as applicable, at any
time while this Debenture is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock ("Common Stock Equivalents")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Fixed Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share which is issued in
connection with such issuance, be entitled to receive shares of Common Stock at
a price per share which is less than the Fixed Price, such issuance shall be
deemed to have occurred for less than the Fixed Price), then, at the sole option
of the Holder, the Fixed Price shall be adjusted to mirror the conversion,
exchange or purchase price for such Common Stock or Common Stock Equivalents
(including any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. The Obligor
shall notify the Holder in writing, no later than one (1) business day following
the issuance of any Common Stock or Common Stock Equivalent subject to this
Section, indicating therein the applicable issuance price, or of applicable
reset price, exchange price, conversion price and other pricing terms. No
adjustment under this Section shall be made as a result of issuances and
exercises of options to purchase shares of Common Stock issued for compensatory
purposes pursuant to any of the Obligor's stock option or stock purchase plans.
(v) If the Obligor, at any time while this Debenture is outstanding,
shall distribute to all holders of Common Stock (and not to the Holder)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security, then in each such case the Fixed Price at which this
Debenture shall thereafter be convertible shall be determined by multiplying the
Fixed Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Closing Bid Price determined as
8
of the record date mentioned above, and of which the numerator shall be such
Closing Bid Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder shall have the right thereafter
to, at its option, (A) convert the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Obligor
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) require the Obligor to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive reclassifications or
share exchanges.
(vii) The Obligor shall maintain a share reserve of not less than
one hundred percent (100%) of the shares of Common Stock issuable upon
conversion of this Debenture; and within three (3) Business Days following the
receipt by the Obligor of a Holder's notice that such minimum number of
Underlying Shares is not so reserved, the Obligor shall promptly reserve a
sufficient number of shares of Common Stock to comply with such requirement.
(viii) All calculations under this Section 3 shall be rounded up to
the nearest $0.001 of a share.
(ix) Whenever the Fixed Price is adjusted pursuant to Section 3
hereof, the Obligor shall promptly mail to the Holder a notice setting forth the
Fixed Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
(x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
9
or involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Obligor, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(xi) 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) exercise any rights under Section 2(b), (B) 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 (C) 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 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 (C), 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.
(d) The Obligor covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
10
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of Sections 2(b) and 3(c)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(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.
(g) 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:
If to the Company, to: NetFabric Holdings, Inc.
67 Federal Road, Building A
Suite 300
Brookfield, CT 06804
Telephone: (203) 775-1178
Facsimile: (270) 626-8366
With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3306
Facsimile: (305) 328-7095
11
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Mark Angelo
Telephone: (201) 985-8300
With a copy to: Troy Rillo, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
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.
"Change of Control Transaction" means the occurrence of (a) an acquisition
after the date hereof by an individual or legal entity or "group" (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Obligor,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Obligor (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Obligor which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
12
a majority of the members of the board of directors who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Obligor or any subsidiary of the Obligor in one or a series of
related transactions with or into another entity, or (d) the execution by the
Obligor of an agreement to which the Obligor is a party or by which it is bound,
providing for any of the events set forth above in (a), (b) or (c).
"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.
"Conversion Date" shall mean the date upon which the Holder gives the
Obligor notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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.
"Transaction Documents" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Officer's Pledge Agreement, the Amended and
Restated Security Agreement, the Amended and Restated Subsidiary Security
Agreements, the Investor Registration Rights Agreement, the Escrow Agreement,
the Irrevocable Transfer Agent Instructions and the Warrant.
"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
meeting the requirements set forth in the Registration Rights Agreement,
covering among other things the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
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Section 5. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
Section 6. 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 7. 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 8. No indebtedness of the Obligor is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. Without the Holder's consent, the Obligor will not
and will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is senior in
any respect to the obligations of the Obligor under this Debenture.
Section 9. This Debenture shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflicts of
laws thereof. Each of the parties consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Hudson County, New Jersey and the
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection with any 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 10. 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.
14
Section 11. 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 12. 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 13. 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 14. 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.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
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IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
NETFABRIC HOLDINGS, INC.
By: /s/ Jeff Robinson
------------------------------------
Name: Jeff Robinson
Title: Chairman and Chief Executive
Officer
16
EXHIBIT "A"
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: _____________________________________
Exhibit 21.1
Subsidiaries of NETFABRIC HOLDINGS, INC.
Name Jurisdiction of incorporation
- ---- -----------------------------
NETFABRIC CORPORATION Delaware
UCA SERVICES, INC. New Jersey
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the inclusion in this registration statement on Form SB-2, of our
report dated March 30, 2005, except for the matter discussed in Note 12, as to
which the date is April 7, 2005, on our audit of the consolidated financial
statements of NetFabric Holdings, Inc. (formerly Houston Operating Company) as
of December 31, 2004 and 2003 and for each of the years then ended and for the
period from inception (January 1, 2003) to December 31, 2004, which report
contains an explanatory paragraph related to the Company's ability to continue
as a going concern. We also consent to the inclusion of our report dated July
29, 2005 on our audit of the financial statements of UCA Services, Inc. as of
December 31, 2004 and 2003 and for each of the years then ended and for the
period from inception (June 1, 2003) to December 31, 2003, and for the period
from January 1, 2003 to May 31, 2003, as well as to the reference to our Firm
under the caption "Experts."
/s/ J. H. Cohn LLP
- ------------------
Jericho, New York
October 31, 2005
