Memorandum of Understanding for Joint Venture Between ISAN Holdings Ltd. and Euroweb RE Corp. for Hayarkon Project

Summary

ISAN Holdings Ltd. and Euroweb RE Corp. agree to form a joint venture through a new Israeli company, each owning 50%. The company will develop, finance, and manage the Hayarkon real estate project. ISAN will manage daily operations, while Euroweb RE Corp. will provide project financing, including a $4 million shareholder loan at 9% interest. Major decisions require mutual consent, and disputes may be resolved by a third party. Profits will be distributed based on ownership, and directors and officers are indemnified. Restrictions apply to transferring ownership interests.

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 MEMORANDUM OF UNDERSTANDINGS THIS MEMORANDUM OF UNDERSTANDINGS (this "Agreement") is made and entered into as of September 3, 2006, by and between ISAN Holdings Ltd., an Israeli company, whose address is 51 David Pinsky street, Haifa ("ISAN"), and Euroweb RE Corp., a Nevada corporation, whose address is 1061 (1)/2 N Spaulding, West Hollywood, CA 90046 ("ERC"). WHEREAS: ISAN, a company wholly-owned by the Franco family, is engaged in the business of real estate development and promotion and management of real estate projects; WHEREAS: ERC, a wholly-owned subsidiary of Euroweb International Corp., a Delaware corporation ("Euroweb"), is engaged in the business of real estate development and has available access to funds which could be invested to advance real estate projects; WHEREAS: the parties hereto seek to form a joint venture to advance the real estate development project entitled "Hayarkon Project" (as such project is generally described in Exhibit A hereto) (the "Project"); and WHEREAS: the parties desire to enter into a written agreement governing the affairs of the company to be established for carrying on the joint venture and the conduct of its business; NOW, THEREFORE, for and in consideration of the premises and the covenants set forth herein, and for other good and valuable consideration, the adequacy, receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: I. The Company 1. Formation. Upon entering into this Agreement, the parties organize a special purpose entity in the form of an Israeli company (the "Company"). 2. Purpose and Scope of Business. The business purpose of the Company shall be to engage solely in the following activities, all in accordance with this Agreement: (i) purchasing, financing, developing, marketing and selling the Project and the real estate subject thereof, (ii) performing its obligations under agreements, instruments or other documents to which it is a party, including any purchase agreement, loan agreement, and agreements with contractors and consultants in connection with the Project, and (iii) engaging in those activities, including execution of agreements, that are necessary or desirable to accomplish the foregoing or are incidental thereto. 3. Ownership. The Company shall be owned in equal parts by ISAN and ERC. Upon its formation, the Company shall issue each of ISAN and ERC 50% of the Company's shares. The Company shall not issue any equity interests or other securities to any third party without the written consent of each of ISAN and ERC. 4. Shareholders Action. A quorum for any meeting of the shareholders of the Company (which may be held in person or telephonically) shall require the participation of both ISAN and ERC. Any action of the shareholders of the Company (which may also be taken by written consent) shall require the consent of both ISAN and ERC. 5. Board of Directors. The Board of Directors of the Company (the "Board of Directors") shall be initially comprised of two members, one to be appointed by ISAN (the "ISAN Director") and one to be appointed by ERC (the "ERC Director"). Each shareholder shall have the right to remove the director appointed by it and fill any vacancy resulting from such removal or the resignation of such director, by appointing a new director who shall be acceptable by both parties . A quorum for any meeting of the Board of Directors (which may be held in person or telephonically) shall require the participation of both the ISAN Director and the ERC Director. Any action of the Board of Directors (which may also be taken by written consent) shall require the consent of both the ISAN Director and the ERC Director.  6. Management. The management and conduct of the day-to-day business and affairs of the Company shall be vested to begin with in ISAN who shall be appointed as the general manager of the Company. ISAN shall have the right to take all actions on behalf of the Company and to do all things in connection with managing the Company as it may reasonably deem necessary or desirable for the best interest of the Project and the Company (other than decisions with material financial implications not previously agreed to by the parties, which shall be brought before the Board of Directors. As such agreements are generally described in Exhibit B added to the establishment documents of the company). 7. Deadlock. In the event that the Board of Directors or the shareholders cannot reach a decision on a certain fundamental business or financial matter (to the extent a board or shareholder action is required for such matter under applicable law or this Agreement), each party shall have the right to cause such dispute to be conclusively determined by a third party individual who shall be selected by the mutual agreement of the parties (the "Deadlock Determining Party"). If the parties cannot come to an agreement on the identity of the Determining Party, then the provisions of Section 24 below shall apply with respect to such dispute. The expenses of the Deadlock Determining Party shall be borne by the Company. 8. Transfer Restrictions. Neither party shall be permitted to sell, transfer or otherwise dispose of its interest in the Company, other than to its wholly-owned subsidiary or to an entity which is wholly-owned by its current shareholders (in each case, which shall remain so wholly-owned at all times it holds such interest), it is being clarified that nothing herein shall prevent ERC or Euroweb from doing any transactions whatsoever in the share capital of ERC (including IPO, spin-off and the like). 9. Distributions. Subject to restrictions set forth in any financing document entered into by the Company in connection with the Project, upon completion of the Project and repayment of the Shareholder's Loan (as defined below), the Company shall distribute its available cash (net cash generated from sale of the Project units less disbursements and appropriate reserves) to ISAN and ERC based on their relative equity interest in the Company. 10. Indemnification. The Company shall indemnify and hold harmless its directors, officers and representatives to the fullest extent permitted by law, from and against any and all liabilities and damages (including legal expenses) imposed on or incurred by them in any way relating to or arising out of their services to the Company. The Company shall purchase an insurance policy providing directors' and officers' liability insurance. II. The Project 11. Financing. a. ERC shall provide the financing for the entire Project (subject to Section 11d) (the "Financing"). The Financing shall include (but shall not be limited to) the cost of the real estate of the Project and any improvements, cost of development and construction of the Project, fees of subcontractors of all kinds (including architects, contractors, sales and marketing personnel, appraisers, lawyers and accountants) and costs of any other consultants that may be engaged to work on the Project. b. As part of the Financing, ERC shall provide the Company, upon its request, with a shareholder's loan (which shall be subordinated only to a bank which will provide construction and development loan to the Company) in an amount of US $4,000,000 or such higher amount agreed to by the parties (the "Shareholder's Loan"). The Shareholder's Loan shall (i) bear interest in an annual rate of 9% and (ii) be repaid, together with any interest accrued thereon, only upon the completion of the Project (following the repayment of any third party debt) or such earlier time as may be decided by the Company subject to any restrictions in the Company's financing documents. 2  c. As part of the Financing, ERC shall provide such securities and financial guarantees as may be required by the financing bank or the seller of the real estate of the Project. d. It is hereby agreed that ERC's obligation to provide the Financing (including the Shareholder's Loan) to the Company shall be subject to the Company's reaching an agreement in principle with a bank for the financing by such bank of the Project (through a construction loan, a credit arrangement for the purchase of the real estate whereby each of the Company and the bank shall provide half of the purchase price, or any other manner which is agreed to by the parties). 12. Management Services. a. The management of the Project until its completion shall be conducted by ISAN. The management of the Project shall include (but shall not be limited to) negotiation and execution of a purchase agreement for the real estate of the Project, negotiation and execution of bank financing, hiring subcontractors of all kinds (including architects, contractors, sales and marketing personal, appraisers, lawyers, accountants and other consultants), supervising and managing the construction process and marketing and sales of the Project (collectively, the "Management Services"). b. It is hereby agreed that any decisions with material financial implications not previously agreed to by the parties(as such agreements are generally described in Exhibit B added to the establishment documents of the company) shall be brought before the Board of Directors of the Company. c. ERC shall evaluate from time to time the performance of the Management Services by ISAN and if, at any time, ERC shall reasonably determine in good faith that the Management Services are not satisfactory to it (based on ISAN's not meeting customary professional standards), it shall have the right to appoint a co-manager to the Project who shall have proven experience and knowledge in the construction and development business in Israel and who shall be acceptable to both parties and cooperate in good faith with ISAN. Any dispute between ISAN and such co-manager with respect to the management of the Project shall be brought before the Board of Directors. d. In consideration for its Management Services supervising, the Company shall pay ISAN a total amount of US $396,000 divided into 24 equal monthly payments starting the first day of construction, it being clarified that no other fee is or will be paid to ISAN as a "contractor profit" or for its knowledge or connections. e. It is hereby agreed that in no event ISAN or any of its officers, directors, representatives or affiliates shall be (or requested to be) held financially responsible for any part of the Financing or liabilities of the Company or required to provide personal guarantees in connection with the Project or the Company. III. Representations and Warranties of the Parties. 13. Representations and Warranties of ISAN. ISAN hereby represents and warrants that: (i) this Agreement has been duly authorized by all necessary corporate action and constitutes a valid and binding agreement enforceable against ISAN in accordance with its terms; (ii) ISAN is a company duly organized, validly existing and in good standing under the laws of the State of Israel, and has the requisite corporate power to enter into and perform this Agreement; (iii) neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate or result in any violation of or be in conflict with or constitute a default under any term of the organizational documents of ISAN, or be a violation of any law, rules or regulations applicable to ISAN, and will not breach any agreement or undertaking to which ISAN is a party; and (iv) ISAN shall use its reasonable best efforts to complete the Project in a timely, cost effective, and economically efficient manner. ISAN shall use its reasonable best efforts to assure that the Project in managed and completed in compliance in all material respects with all applicable laws and regulations. 3  14. Representations and Warranties of ERC. ERC hereby represents and warrants that: (i) this Agreement has been duly authorized by all necessary corporate action and constitutes a valid and binding agreement enforceable against ERC in accordance with its terms; (ii) ERC is a company duly organized, validly existing and in good standing under the laws of the State of Nevada, and has the requisite corporate power to enter into and perform this Agreement; (iii) neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate or result in any violation of or be in conflict with or constitute a default under any term of the organizational documents of ERC, or be a violation of any law, rules or regulations applicable to ERC, and will not breach any agreement or undertaking to which ERC is a party; (iv) ERC has sufficient funds to provide the Financing and such Financing is not subject to conditions not provided herein; and (v) ERC has obtained the consent of Euroweb, its parent company, to this Agreement. 15. Nature of Transaction. ERC hereby acknowledges and agrees that (i) the Project and the Financing involve a substantial risk, (ii) it has experience as investor in such projects and is capable of evaluating the merits and risks of its investment in the Company and the Project, (iii) it has conducted to its satisfaction an independent investigation of the Project (including through outside consultants) and in making its determination to invest in the Company and the Project it has relied solely on the results of such independent investigation and evaluation. Neither party shall have (and each party hereby irrevocably waives) any claim against the other party or any of its directors, officers, representatives or affiliates in connection with the Project (including its financial success and the benefits derived, or expected to be derived, therefrom or from its investment in the Company). 16. Exhibit A. The parties hereby agree and acknowledge that Exhibit A hereto reflects their current plans, estimates and projections regarding the Project and there is no guarantee that such plans, estimates and projections shall materialize, in whole or in part. ERC agrees that any development plans, cost estimates or forecasts that have been provided with respect to the Project (including as included in Exhibit A) shall not be deemed representations or warranties of ISAN or its directors, officers, representatives or affiliates. IV. Miscellaneous 17. Detailed Agreement. A detailed agreement shall be signed between the parties based upon this Agreement (the "Detailed Agreement") and the parties shall use their respective reasonable efforts to execute such Detailed Agreement following the execution hereof. For the avoidance of doubt, it is hereby acknowledged and agreed by the parties that, until its substitution by the Detailed Agreement, this Agreement shall be binding on all parties for any and all purposes and shall be considered a full and binding agreement with respect to the subject matter hereof . 18. Termination. This Agreement shall terminate and be of no further force and effect, with no liability of any party towards the other, upon the mutual consent of all of the parties hereto or at such earlier time as (i) the parties execute and deliver the Detailed Agreement or (ii) a final binding purchase agreement for the property that is the subject matter of the Project is entered into with any purchaser that is not the Company. 19. Integration. This Agreement contains the entire agreement and understanding between the parties with respect to the subject matter hereof and incorporates and supersedes any and all prior or contemporaneous oral or written negotiations, understandings and documents with respect thereto. 4  20. Binding Nature of Agreement; No Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto or their successors in interest, except as expressly otherwise provided herein. Nothing in this Agreement shall convey any rights upon any person or entity which is not a party or an assignee of a party to this Agreement. 21. Exclusivity. ISAN shall not initiate or carry on negotiations for the acquisition, management, development or operation of the Project with any party other than ERC prior to the termination of this Agreement in accordance with its terms. 22. Assignment. This Agreement may not be assigned by any party hereto without the prior written consent of the other party, other than to its wholly-owned subsidiary or to an entity which is wholly-owned by its current shareholders (in each case, which shall remain so wholly-owned until this Agreement is terminated in accordance with its terms), it is being clarified that nothing herein shall prevent ERC or Euroweb from doing any transactions whatsoever in the share capital of ERC (including IPO, spin-off and the like). 23. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Israel. 24. Negotiation; Arbitration. In the event of any dispute, claim, question, or disagreement arising from or relating to this Agreement (including the Project) or the breach thereof, the parties hereto (a "Dispute") shall use their best efforts to settle the dispute, claim, question, or disagreement. To this effect, they shall consult and negotiate with each other in good faith and, recognizing their mutual interests and interests of the Company, attempt to reach a just and equitable solution satisfactory to both parties. If they do not reach such solution within a period of thirty (30) days, then, upon notice by either party to the other, all Disputes shall be finally settled by arbitration (i) administered by an arbitrator selected by the Head of the Israeli Bar Association (ii) in accordance with the Israeli Arbitration Law and (iii) held in Israel. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The expenses of the arbitrator shall be initially borne by the Company and then repaid to it upon final settlement of the Dispute by the party so determined by the arbitrator. 25. Jurisdiction. ERC hereby submits to the exclusive jurisdiction of the courts located in Tel-Aviv, Israel, for purposes of issuing any pre-arbitral injunction or other preliminary relief, an order to compel arbitration or other order in aid of arbitration proceedings (collectively, "Relief Order"). ISAN shall have the right to commence any proceeding for purposes of issuing any Relief Order in any court of competent jurisdiction in Israel or the US. The parties hereby irrevocably waive any objection which they may have to the courts being nominated as the forum to hear and determine such matters and agree not to claim that any such court is not a convenient or appropriate forum. 26. Service of Process. ERC agrees that the process by which any arbitration or court proceedings are begun may be served on it by being delivered in connection therewith in Israel to S. Horowitz & Co., 31 Ahad Haam Street, Tel-Aviv 65202. Nothing herein shall affect the right to serve process in any other manner permitted by law. 27. Amendments. This Agreement may not be amended, modified or supplemented except with the written approval of each of ISAN and ERC. 28. Notices. Any notice or consent required or permitted by this Agreement shall be in writing and sent by registered airmail or delivered by hand to the other party at its address specified on the first page of this Agreement, or to such other address as such party may designate by notice given in accordance herewith. Any such communications shall be deemed given five (5) business days after mailed as aforesaid and immediately upon receipt by messenger. 5  29. Further Actions. Each party undertakes to execute, acknowledge and deliver all such other acts, deeds, documents and assurances as may be reasonably requested to effect and consummate the transactions contemplated hereby. The parties shall cooperate in good faith in structuring the transactions contemplated hereby in the most tax-efficient manner for the benefit of both parties. IN WITNESS HEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written. ISAN HOLDINGS LTD. By: /s/ Abbot Franco Name: Abbot Franco Title: CEO EUROWEB RE CORP. By: /s/ Yossi Attia Name: Yossi Attia Title: CEO 6