IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
July 5, 2005
Securities Transfer Corporation
0000 Xxxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxxx
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"), that certain Pledge and Escrow
Agreement (the "Pledge Agreement") of even date herewith among the Company, the
Buyer and Xxxxx Xxxxxxxx, as escrow agent (the "Escrow Agent"), and that certain
Officer Pledge and Escrow Agreement (the "Officer Pledge Agreement") of even
date herewith among the Company, the Buyer, Xxxx Xxxxxxxx, 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 Dollars ($1,000,000), 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 200,000 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 714,286 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. The Company has prepared a stock certificate representing 4,285,714
shares, and Xxxx Xxxxxxxx has prepared stock certificates
representing 1,428,572 shares each (the 5,714,286 shares are
collectively referred to herein as the "Escrowed Shares") of the
Common Stock, that have been delivered to the Escrow Agent pursuant
to the Pledge Agreement and the Officer Pledge Agreement.
3. Up to 200,000 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 Pledge Agreement and 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 Xxxxx Xxxxxxxx, 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 and the Transfer Agent acknowledges that while
any portion of the Debentures remain unpaid and unconverted with the exception
of Common Stock issuable to Cornell Capital Partners, LP pursuant to the Standby
Equity Distribution Agreement and the Conversion Shares, the Company and the
Transfer Agent shall not, without the prior consent of the Buyers, (i) issue any
Common Stock or preferred stock without consideration or for a consideration per
share less than its fair market value determined immediately prior to its
issuance, (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 without consideration or for a consideration per share less
than such Common Stock's fair market value determined immediately prior to its
issuance, (iii) issue any S-8 shares of the Company's Common 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.
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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/ Xxxx Xxxxxxxx
-------------------------------------
Name: Xxxx Xxxxxxxx
Title: Chairman and Chief Executive
Officer
/s/ Xxxxx Xxxxxxxx, Esq.
-----------------------------------------
Xxxxx Xxxxxxxx, Esq.
SECURITIES TRANSFER CORPORATION
By: /s/ Xxxxxx Xxxxxxx
------------------
Name: Xxxxxx Xxxxxxx
Title: Vice President
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SCHEDULE I
SCHEDULE OF BUYERS
Address/Facsimile
Name Signature Number of Buyers
----------------------------- -------------------------------- -------------------------------
Cornell Capital Partners, LP By: Yorkville Advisors, LLC 000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxx: Xxxxxxx Xxxxxxx Xxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
By: /s/ Xxxx Xxxxxx
-----------------------------
Name:Xxxx Xxxxxx
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 July 5, 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
0000 Xxxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxxx
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 July 5, 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 Dollars ($1,000,000) 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 July 5, 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
0000 Xxxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxxx
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
