PLEDGE AND ESCROW AGREEMENT
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THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") is made and entered
into as of July 19, 2005 (the "Effective Date") by and among MACROCOM INVESTORS,
LLC (the "Pledgee"), NETFABRIC HOLDINGS, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Pledgor"), and XXXXXX
XXXXXXX, ESQ., as escrow agent ("Escrow Agent").
RECITALS:
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WHEREAS, in order to secure the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all of the
Company's obligations (the "Obligations") to the Pledgee or any successor to the
Pledgee under this Agreement and the Convertible Debentures (the "Convertible
Debentures") issued or to be issued by the Company to the Pledgee, either now or
in the future, up to a total of Five Hundred Thousand Dollars ($500,000) of
principal, plus any interest, costs, fees, and other amounts owed to the Pledgee
thereunder, (collectively, the "Transaction Documents"), the Pledgor has agreed
to irrevocably pledge to the Pledgee Five Million (5,000,000) shares (the
"Pledged Shares") of the Pledgor's common stock and issue certificates
representing the Pledged Shares in the name of Pledgee.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
warranties, and representations herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
TERMS AND CONDITIONS
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1. Pledge and Transfer of Pledged Shares.
1.1. The Pledgor hereby grants to Pledgee a security interest in all
Pledged Shares as security for Pledgor's obligations under the Convertible
Debentures. Simultaneously with the execution of the Transaction Documents, the
Pledgee shall deliver to the Escrow Agent stock certificates representing the
Pledged Shares, together with duly executed stock powers or other appropriate
transfer documents executed in blank by the Pledgee (the "Transfer Documents"),
and such stock certificates and Transfer Documents shall be held by the Escrow
Agent until the full payment of all amounts due to the Pledgee under the
Convertible Debenture and through repayment in accordance with the terms of the
Convertible Debenture, or the termination or expiration of this Agreement.
2. Rights Relating to Pledged Shares. Upon the occurrence of an Event of
Default (as defined in the Convertible Debenture), the Pledgee shall be entitled
to vote the Pledged Shares, to receive dividends and other distributions
thereon, and to enjoy all other rights and privileges incident to the ownership
of the Pledged Shares.
3. Release of Pledged Shares from Pledge. Upon the payment of all amounts
due to the Pledgee under the Convertible Debenture by repayment in accordance
with the terms of the Convertible Debenture, the parties hereto shall notify the
Escrow Agent to such effect in writing. Upon receipt of such written
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notice for payment of the amounts due to the Pledgee under the Convertible
Debenture, the Escrow Agent shall return to the Pledgor the Transfer Documents
and the certificates representing the Pledged Shares, (collectively the "Pledged
Materials"), whereupon any and all rights of Pledgee in the Pledged Materials
shall be terminated. Notwithstanding anything to the contrary contained herein,
upon full payment of all amounts due to the Pledgee under the Convertible
Debenture, this Agreement and Pledgee's security interest and rights in and to
the Pledged Shares shall terminate.
4. Event of Default. An "Event of Default" shall be deemed to have occurred
under this Agreement upon an Event of Default under the Convertible Debenture.
5. Remedies. Upon and anytime after the occurrence of an Event of Default,
the Pledgee shall have the right to provide written notice of such Event of
Default (the "Default Notice") to the Escrow Agent, with a copy to the Pledgor.
As soon as practicable after receipt of the Default Notice, the Escrow Agent
shall deliver to Pledgee the Pledged Materials held by the Escrow Agent
hereunder. Upon receipt of the Pledged Materials, the Pledgee shall have the
right to sell the Pledged Shares and to apply the proceeds of such sales, net of
any selling commissions, to the Obligations owed to the Pledgee by the Pledgor
under the Transaction Documents, including, without limitation, outstanding
principal, interest, legal fees, and any other amounts owed to the Pledgee. To
the extent that the net proceeds received by the Pledgee are insufficient to
satisfy the Obligations in full, the Pledgee shall be entitled to a deficiency
judgment against the Pledgor for such amount. The Pledgee shall have the
absolute right to sell or dispose of the Pledged Shares in any manner it sees
fit and shall have no liability to the Pledgor or any other party for selling or
disposing of such Pledged Shares even if other methods of sales or dispositions
would or allegedly would result in greater proceeds than the method actually
used.
6. Concerning the Escrow Agent.
6.1. The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein and no implied duties or obligations shall be read
into this Agreement against the Escrow Agent.
6.2. The Escrow Agent may act in reliance upon any writing or instrument
or signature which it, in good faith, believes to be genuine, may assume the
validity and accuracy of any statement or assertion contained in such a writing
or instrument, and may assume that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has been
duly authorized to do so. The Escrow Agent shall not be liable in any manner for
the sufficiency or correctness as to form, manner, and execution, or validity of
any instrument deposited in this escrow, nor as to the identity, authority, or
right of any person executing the same; and its duties hereunder shall be
limited to the safekeeping of such certificates, monies, instruments, or other
document received by it as such escrow holder, and for the disposition of the
same in accordance with the written instruments accepted by it in the escrow.
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6.3. Pledgee and the Pledgor hereby agree, to defend and indemnify the
Escrow Agent and hold it harmless from any and all claims, liabilities, losses,
actions, suits, or proceedings at law or in equity, or any other expenses, fees,
or charges of any character or nature which it may incur or with which it may be
threatened by reason of its acting as Escrow Agent under this Agreement; and in
connection therewith, to indemnify the Escrow Agent against any and all
expenses, including attorneys' fees and costs of defending any action, suit, or
proceeding or resisting any claim (and any costs incurred by the Escrow Agent
pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent shall be vested with a
lien on all property deposited hereunder, for indemnification of attorneys' fees
and court costs regarding any suit, proceeding or otherwise, or any other
expenses, fees, or charges of any character or nature, which may be incurred by
the Escrow Agent by reason of disputes arising between the makers of this escrow
as to the correct interpretation of this Agreement and instructions given to the
Escrow Agent hereunder, or otherwise, with the right of the Escrow Agent,
regardless of the instructions aforesaid, to hold said property until and unless
said additional expenses, fees, and charges shall be fully paid. Any fees and
costs charged by the Escrow Agent for serving hereunder shall be paid by the
Pledgor.
6.4. If any of the parties shall be in disagreement about the
interpretation of this Agreement, or about the rights and obligations, or the
propriety of any action contemplated by the Escrow Agent hereunder, the Escrow
Agent may, at its sole discretion deposit the Pledged Materials with the Clerk
of the U.S District Court for the Southern District of New York, and, upon
notifying all parties concerned of such action, all liability on the part of the
Escrow Agent shall fully cease and terminate. The Escrow Agent shall be
indemnified by the Pledgor, the Company and Pledgee for all costs, including
reasonable attorneys' fees in connection with the aforesaid proceeding, and
shall be fully protected in suspending all or a part of its activities under
this Agreement until a final decision or other settlement in the proceeding is
received.
6.5. The Escrow Agent may consult with counsel of its own choice (and
the costs of such counsel shall be paid by the Pledgor and Pledgee) and shall
have full and complete authorization and protection for any action taken or
suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. The Escrow Agent shall not be liable for any mistakes of fact or
error of judgment, or for any actions or omissions of any kind, unless caused by
its willful misconduct or gross negligence.
6.6. The Escrow Agent may resign upon ten (10) days' written notice to
the parties in this Agreement. If a successor Escrow Agent is not appointed
within this ten (10) day period, the Escrow Agent may petition a court of
competent jurisdiction to name a successor.
6.7 Conflict Waiver. The Pledgor hereby acknowledges that the Escrow
Agent is counsel to the Pledgee and counsel to the Pledgee in connection with
the transactions contemplated and referred herein. The Pledgor agrees that in
the event of any dispute arising in connection with this Agreement or otherwise
in connection with any transaction or agreement contemplated and referred
herein, the Escrow Agent shall be permitted to continue to represent the Pledgee
and the Pledgor will not seek to disqualify such counsel and waives any
objection Pledgor might have with respect to the Escrow Agent acting as the
Escrow Agent pursuant to this Agreement.
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6.8 Notices. Unless otherwise provided herein, all demands, notices,
consents, service of process, requests and other communications hereunder shall
be in writing and shall be delivered in person or by overnight courier service,
or mailed by certified mail, return receipt requested, addressed:
If to the Pledgor, to: NetFabric Holdings, Inc.
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: (000) 000.0000
If to the Pledgee: Macrocom Investors, LLC
0000 Xxxx Xxxxxx, # 00X
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (0000 000-0000
With copy to: Xxxxxx Xxxxxxx, Esq.
000 0xx Xxxxxx
Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile:
Any such notice shall be effective (a) when delivered, if delivered by hand
delivery or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.
7. Binding Effect. All of the covenants and obligations contained herein
shall be binding upon and shall inure to the benefit of the respective parties,
their successors and assigns.
8. Governing Law; Venue; Service of Process. The validity,
interpretation and performance of this Agreement shall be determined in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly within that state except to the extent that Federal
law applies. The parties hereto agree that any disputes, claims, disagreements,
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lawsuits, actions or controversies of any type or nature whatsoever that,
directly or indirectly, arise from or relate to this Agreement, including,
without limitation, claims relating to the inducement, construction, performance
or termination of this Agreement, shall be brought in the Supreme Court of the
State of New York, New York County or U.S District Court for the Southern
District of New York, and the parties hereto agree not to challenge the
selection of that venue in any such proceeding for any reason, including,
without limitation, on the grounds that such venue is an inconvenient forum. The
parties hereto specifically agree that service of process may be made, and such
service of process shall be effective if made, pursuant to Section 8 hereto.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
and Escrow Agreement as of the date first above written.
MACROCOM INVESTORS, LLC
By: ______________________
Name: Xxxxxxx Xxxxxx
Title:
NETFABRICS HOLDINGS, INC.
By: ______________________
Name: Xxxx Xxxxxxxx
Title: Chairman and Chief Executive Officer
ESCROW AGENT
By: ______________________
Name: Xxxxxx Xxxxxxx, Esq.
