Dated: July 19, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. CD-1 $500,000
NETFABRIC HOLDINGS, INC.
Convertible Debenture
Due April 15, 2006
This Convertible Debenture (the "Debenture") is issued by NETFABRIC
HOLDINGS, INC., a Delaware corporation (the "Obligor"), to MACROCOM INVESTORS,
LLC (the "Holder").
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or
its successors and assigns the principal sum of Five Hundred Thousand Dollars
($500,000), together with accrued but unpaid interest on or before April 15,
2006 (the "Maturity Date") in accordance with the following terms:
Interest. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to 5%. Interest shall be calculated on the basis
of a 360-day year and the actual number of days elapsed, to the extent permitted
by applicable law. Interest hereunder will be paid to the Holder or its assignee
(as defined in Section 4) in whose name this Debenture is registered on the
records of the Obligor regarding registration and transfers of Debentures (the
"Debenture Register"). Interest shall be payable at Maturity.
This Debenture is subject to the following additional provisions:
Section 1. Events of Default.
(a) An "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
1
(i) Any default in the payment of the principal of, interest on or other
charges in respect of this Debenture, free of any claim of subordination, as and
when the same shall become due and payable;
(ii) The Obligor or any subsidiary of the Obligor shall commence, or
there shall be commenced against the Obligor or any subsidiary of the Obligor
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Obligor or any subsidiary of the Obligor
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Obligor or any subsidiary of the Obligor or there is commenced against the
Obligor or any subsidiary of the Obligor any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 61 days; or the
Obligor or any subsidiary of the Obligor is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Obligor or any subsidiary of the Obligor suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Obligor or any subsidiary of the Obligor
makes a general assignment for the benefit of creditors; or the Obligor or any
subsidiary of the Obligor shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Obligor or any subsidiary of the Obligor shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Obligor or any subsidiary of the Obligor shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Obligor
or any subsidiary of the Obligor for the purpose of effecting any of the
foregoing;
(iii) The Obligor shall fail to file the Underlying Shares Registration
Statement (as defined in Section 4) with the Commission (as defined in Section
4) within ninety (90) days from the Effective Date of this Debenture;
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election, immediately due
and payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Debenture or any Transaction Document, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
2
Section 2. Conversion and Adjustment.
(a) This Debenture shall be convertible into shares of Common Stock at
the option of the Holder, in whole or in part at any time and from time to time,
after the Original Issue Date. The number of shares of Common Stock issuable
upon a conversion hereunder equals the quotient obtained by dividing (x) the
outstanding amount of this Debenture to be converted by (y) the Conversion
Price. The Obligor shall deliver Common Stock certificates to the Holder prior
to the Fifth (5th) Trading Day after a Conversion Date. The conversion price
(the "Conversion Price") in effect on any Conversion Date shall be equal to
$.50, which may be adjusted pursuant to the other terms of this Debenture
(b) The Holder shall effect conversions by delivering to the Obligor a
completed notice in the form attached hereto as Exhibit A (a "Conversion
Notice"). The date on which a Conversion Notice is delivered is the "Conversion
Date." Unless the Holder is converting the entire principal amount outstanding
under this Debenture, the Holder is not required to physically surrender this
Debenture to the Obligor in order to effect conversions. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture plus all accrued and unpaid interest thereon in an amount equal to the
applicable conversion. The Holder and the Obligor shall maintain records showing
the principal amount converted and the date of such conversions. In the event of
any dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error.
(c) If the Obligor, at any time while this Debenture is outstanding,
shall (i) pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock, (ii) subdivide outstanding shares
of Common Stock into a larger number of shares, (iii) combine (including by way
of reverse stock split) outstanding shares of Common Stock into a smaller number
of shares, or (iv) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Obligor, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(d) In case of any (1) merger or consolidation of the Obligor or any
subsidiary of the Obligor with or into another Person, or (2) sale by the
Obligor or any subsidiary of the Obligor of more than one-half of the assets of
the Obligor in one or a series of related transactions, a Holder shall have the
right to (A) convert the aggregate amount of this Debenture then outstanding
into the shares of stock and other securities, cash and property receivable upon
or deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and such Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and property
as the shares of Common Stock into which such aggregate principal amount of this
Debenture could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (B) in the case of a merger
or consolidation, require the surviving entity to issue to the Holder a
convertible Debenture with a principal amount equal to the aggregate principal
3
amount of this Debenture then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which such newly issued convertible
Debenture shall have terms identical (including with respect to conversion) to
the terms of this Debenture, and shall be entitled to all of the rights and
privileges of the Holder of this Debenture set forth herein and the agreements
pursuant to which this Debentures were issued. In the case of clause (B), the
conversion price applicable for the newly issued shares of convertible preferred
stock or convertible Debentures shall be based upon the amount of securities,
cash and property that each share of Common Stock would receive in such
transaction and the Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the Holder the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(e) Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Closing Bid Price at such time. If the Obligor
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Obligor shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Obligor
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid.
Section 3. Notice.
(a) Any notices, consents, waivers or other communications required or
permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) trading day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
4
NetFabric Holdings, Inc.
00 Xxxxxxx Xxxx, Xxxxxxxx X
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxx Xxxx & Priest LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (212).603-2001
If to the Holder, to Macrocom Investors, LLC
C/o Xxxxxxx Xxxxxx
0000 Xxxx Xxxxxx #00X
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 4. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001, of the Obligor
and stock of any other class into which such shares may hereafter be changed or
reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
5
"Effective Date of the Transaction" means the date that the Company
receives the total funds from the Holder. "Original Issue Date" shall mean the
date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the
number of instruments, which may be issued to evidence such Debenture. "Closing
Bid Price" means the price per share in the last reported trade of the
Common Stock on the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are quoted
on the OTC or quoted or traded on such Subsequent Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the
shares of Common Stock are not listed or quoted, then Trading Day shall mean a
Business Day.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof. "Underlying Shares Registration Statement" means a registration
statement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 5. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Obligor, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 6. If this Debenture is mutilated, lost, stolen or destroyed,
the Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Obligor.
Section 7. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the Supreme Court of the State of New York, New York County, and the U.S.
District Court for the Southern District of New York in connection with any
6
dispute arising under this Debenture and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens to the bringing of any such proceeding in such jurisdictions.
Section 8. If the Obligor fails to strictly comply with the terms of
this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) during any workout, attempted
workout, and/or in connection with the rendering of legal advice as to the
Holder's rights, remedies and obligations, (ii) collecting any sums which become
due to the Holder, (iii) defending or prosecuting any proceeding or any
counterclaim to any proceeding or appeal; or (iv) the protection, preservation
or enforcement of any rights or remedies of the Holder.
Section 9. Any waiver by the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
Section 10. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
Section 11. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 12. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
7
IN WITNESS WHEREOF, the Obligor has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date set forth above.
NETFABRIC HOLDINGS, INC.
By: _______________________________________
Name: Xxxx Xxxxxxxx
Title: Chairman and Chief Executive Officer
8
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: ___________________________________