EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
between
MAGNOLIA BROADBAND, INC.,
as Issuer
and
LEISUREPLANET HOLDINGS, LTD.
as Investor
April 14, 2000
TABLE OF CONTENTS
SECTION 1. AUTHORIZATION OF SERIES A PREFERRED STOCK.............................................................1
SECTION 2. PURCHASE AND SALE OF SECURITIES.......................................................................1
2.1. Issuance of Series A Preferred Stock...........................................................1
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................2
3.1. Corporate Organization.........................................................................2
3.2. Subsidiaries...................................................................................2
3.3. Capitalization.................................................................................3
3.4. Corporate Proceedings, etc.....................................................................3
3.5. Consents and Approvals.........................................................................4
3.6. Absence of Defaults, Conflicts, etc............................................................4
3.7. Absence of Certain Developments................................................................4
3.8. Compliance with Law............................................................................5
3.9. Litigation.....................................................................................5
3.10. Material Contracts.............................................................................5
3.11. Loan to Founder, Absence of Undisclosed Liabilities............................................5
3.12. Labor Agreements and Actions...................................................................6
3.13. Tax Matters....................................................................................7
3.14. Employee Benefit Plans.........................................................................7
3.15. Patents, Licenses, etc.........................................................................7
3.16. Title to Tangible Assets.......................................................................7
3.17. Condition of Properties........................................................................7
3.18. Insurance......................................................................................8
3.19. Transactions with Related Parties..............................................................8
3.20. Interest in Competitors........................................................................8
3.21. Registration Rights............................................................................8
3.22. Brokerage......................................................................................9
3.23. Illegal or Unauthorized Payments; Political Contributions......................................9
3.24. Year 2000 Compliance...........................................................................9
3.25. Material Supplier/Customer Contracts...........................................................9
3.26. Indebtedness..................................................................................10
3.27. Material Facts................................................................................10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.......................................................10
4.1. Authorization.................................................................................10
4.2. Investment Intent; Certain Restrictions.......................................................10
4.3. Disclosure of Information.....................................................................11
4.4. Status........................................................................................12
4.5. Broker's Fees.................................................................................12
4.6. Restrictive Legend............................................................................12
4.7. Restricted Securities.........................................................................12
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SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES..................................................................13
5.1. Covenants Pending Closing.....................................................................13
5.2. Further Assurance.............................................................................13
5.3. Employee Confidential Information and Inventions Agreements...................................13
SECTION 6. INVESTOR'S CLOSING CONDITIONS........................................................................13
6.1. Representations, Warranties and Covenants.....................................................13
6.2. No Actions; Laws..............................................................................13
6.3. Legal Opinion.................................................................................14
6.4. Officer's Certificate.........................................................................14
6.5. Transaction Documents.........................................................................14
6.6. No Material Adverse Effect....................................................................14
6.7. Certificate of Designation....................................................................14
6.8. Employment Agreements.........................................................................14
6.9. Delivery of Stock Certificate.................................................................15
SECTION 7. COMPANY CLOSING CONDITIONS...........................................................................15
7.1. Representations, Warranties and Covenants.....................................................15
7.2. No Actions; Laws..............................................................................15
7.3. Transaction Documents.........................................................................15
7.4. Consents and Approvals........................................................................16
7.5. Payment of Purchase Price.....................................................................16
SECTION 8. COVENANTS............................................................................................16
8.1. Financial and Business Information............................................................16
8.2. Proceeds......................................................................................17
8.3. Inspection....................................................................................17
8.4. Confidentiality...............................................................................18
8.5. Conduct of Business and Maintenance of Existence..............................................18
8.6. Compliance with Laws..........................................................................19
8.7. Insurance.....................................................................................19
8.8. Keeping of Books..............................................................................19
8.9. Lost, etc. Certificates Evidencing Shares (or Shares of Common Stock); Exchange...............19
8.10. Termination...................................................................................19
SECTION 9. INTERPRETATION OF THIS AGREEMENT.....................................................................20
9.1. Terms Defined.................................................................................20
9.2. Accounting Principles.........................................................................20
9.3. Directly or Indirectly........................................................................21
9.4. Governing Law.................................................................................21
9.5. Paragraph and Section Headings................................................................21
SECTION 10. MISCELLANEOUS.......................................................................................21
10.1. Notices.......................................................................................21
10.2. Expenses and Taxes............................................................................22
10.3. Reproduction of Documents.....................................................................22
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10.4. Survival......................................................................................22
10.5. Successors and Assigns........................................................................23
10.6. Entire Agreement; Amendment and Waiver........................................................23
10.7. Severability..................................................................................23
10.8. Arbitration...................................................................................23
10.9. Facsimile Signatures and Counterparts.........................................................24
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SECURITIES PURCHASE AGREEMENT, dated as of April 14, 2000,
between MAGNOLIA BROADBAND, INC., a corporation organized and existing under the
laws of the State of Delaware (the "COMPANY"), as issuer, and LEISUREPLANET
HOLDINGS, LTD., a corporation organized and existing under the laws of Bermuda
("INVESTOR").
In consideration of the respective agreements, covenants,
representations, and warranties hereinafter set forth and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
SECTION 1. AUTHORIZATION OF SERIES A PREFERRED STOCK
The Company has authorized and created a series of its
preferred stock consisting of 3,447,774 shares, $0.0001 par value per share,
designated as its Series A Convertible Preferred Stock (the "Series A Preferred
Stock"). The terms, limitations, and relative rights and preferences of the
Series A Preferred Stock are set forth in the certificate of designation
attached hereto as Exhibit A (the "Certificate of Designation").
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1. Issuance of Series A Preferred Stock
(a) Subject to the terms and conditions set forth in this Agreement and in
reliance upon the Company's and the Investor's representations set forth below,
on the Closing Date (as defined below) the Company shall sell to the Investor,
and the Investor shall purchase from the Company, 3,447,774 shares of Series A
Preferred Stock (the "SHARES"), for an aggregate purchase price of $2,500,000
(the "PURCHASE PRICE"). Such sale and purchase shall be effected on the Closing
Date by the Company executing and delivering to the Investor, duly registered in
the Investor's name, a duly executed stock certificate evidencing the Shares, in
consideration of the payment by the Investor to the Company of the Purchase
Price by wire transfer of immediately available funds to such account as the
Company shall designate.
(b) The closing (the "CLOSING") of the transactions contemplated hereby shall
take place at 10:00 a.m., New York City time, on April 18, 2000, or at such
other time or on such other date as the Investor and the Company may agree in
writing (the "CLOSING DATE"), at the offices of Parker Chapin LLP, The Chrysler
Building, 405 Lexington Avenue, New York, New York, or such other location as
the Investor and the Company shall mutually select (or by such other means,
including a remote closing wherein the relevant documents are delivered by means
of facsimile, mail or courier).
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that,
except as set forth on a correspondingly numbered section of the disclosure
schedule hereto (the "DISCLOSURE SCHEDULE"):
3.1. Corporate Organization
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Attached
hereto as Exhibits B and C, respectively, are true and complete copies of the
Certificate of Incorporation and the bylaws of the Company, as amended through
the date hereof (together, the "ORGANIZATIONAL DOCUMENTS").
(b) The Company and each of the Company Subsidiaries have all
requisite power and authority and has all necessary approvals, licenses, permits
and authorization to own their respective properties and to carry on their
respective businesses as now conducted and as proposed to be conducted. The
Company has all requisite power and authority to execute and deliver the
Transaction Documents and to perform its obligations hereunder and thereunder.
(c) The Company and each of the Company Subsidiaries have
filed all necessary documents to qualify to do business as foreign corporations
in, and the Company and each of the Company Subsidiaries are in good standing
under the laws of, each jurisdiction in which the conduct of the their
respective businesses as now conducted or as proposed to be conducted or the
nature of their respective property now owned or proposed to be owned requires
such qualification, except where the failure to so qualify would not have a
material adverse effect on the business, properties, assets, liabilities,
prospects, profits, or condition (financial or otherwise) of the Company and the
Company Subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT").
3.2. Subsidiaries
Set forth on Schedule 3.2 of the Disclosure Schedule is a
complete and accurate list of each Company Subsidiary: (i) its jurisdiction of
incorporation or organization, (ii) its authorized capital stock or share
capital, (iii) the number of issued and outstanding shares of its capital stock
or share capital and (iv) the holder or holders of such shares. Except for the
ownership of the Company Subsidiaries, none of the Company or the Company
Subsidiaries owns beneficially or otherwise, directly or indirectly, any capital
stock of, or other securities, equity or ownership interest in, or has any
obligation to form or participate in, any corporation, partnership of other
Person. The Company has good and marketable title to, and is the record and
beneficial owner of, the shares of capital stock of the Company Subsidiaries and
equity interests in other entities owned by it, in each case, free and clear of
any liens. All of the outstanding shares of each of the Company Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable and none of such
shares were issued in violation of, or are subject to, any preemptive rights.
There are no outstanding options, warrants, calls, demands, contracts or other
rights of any nature to purchase, obtain or acquire, or any outstanding
securities or obligations convertible into or exchangeable for, or any voting
agreements with respect to, any shares of capital stock of
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any Company Subsidiary or any other securities of any Company Subsidiary.
Neither the Company nor any of the Company Subsidiaries is obligated, pursuant
to any securities, options, warrants, calls, demands, contracts or other rights
or otherwise, now or in the future, contingently or otherwise, to issue,
deliver, sell, purchase, redeem any capital stock of any Company Subsidiary or
any other securities of any Company Subsidiary to or from any Person.
3.3. Capitalization
(a) Schedule 3.3 sets forth the authorized, issued and
outstanding capital stock of the Company and a list of the holders of such
capital stock as of the date of this Agreement. The authorized capital stock of
the Company consists only of 20,000,000 shares of common stock, $0.0001 par
value (the "COMMON STOCK"), of which 0 shares are issued and outstanding, and
7,000,000 shares of preferred stock, $0.0001 par value, of which 3,447,774 have
been designated Series A Preferred Stock and of which 3,447,774 shares of Series
A Preferred Stock will be issued and outstanding upon the consummation of the
Closing. The Company has not issued and, is not obligated to issue any warrants,
options or other rights to purchase or acquire any shares of its capital stock,
or any securities convertible into such shares or any warrants, options or other
rights to acquire any such convertible securities.
(b) All of the outstanding shares of capital stock of the Company are, and as of
the Closing, all of the then outstanding shares of Series A Preferred Stock will
be, duly authorized, validly issued, fully paid and nonassessable. All of the
outstanding capital stock of the Company has been, and the Series A Preferred
Stock will be, offered, issued, sold and delivered in compliance with applicable
federal and state securities laws, and none of such securities are or were at
the time of issuance subject to any preemptive rights. The shares of Common
Stock issuable upon conversion of the Series A Preferred Stock have been duly
authorized and reserved for issuance and, when issued upon conversion of the
Series A Preferred Stock, will be validly issued, fully paid and nonassessable,
and assuming the accuracy of the Investor's representations and warranties
contained in Section 4, will have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws, and will not be
subject to any preemptive rights.
(c) There are no preemptive rights, rights of first refusal, put or call rights
or obligations, or anti-dilution rights with respect to the issuance, sale or
redemption of the Series A Preferred Stock or the Common Stock issuable upon
conversion thereof. The Company is not a party to any agreements relating to the
voting of the Company's voting securities, and there are no restrictions on the
transfer of the Company's capital stock.
3.4. Corporate Proceedings, etc.
The Company has authorized the execution, delivery, and
performance of each of the Transaction Documents and each of the transactions
and agreements contemplated hereby and thereby. No other corporate action
(including stockholder approval) is necessary to authorize such execution,
delivery, and performance of the Transaction Documents, and upon such execution
and delivery, each of the Transaction Documents shall constitute a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its
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terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies. The Company has authorized the issuance and delivery of the
Shares in accordance with this Agreement and, subject to the issuance of the
Shares, the Company has reserved for issuance shares of Common Stock issuable
upon conversion of the Shares.
3.5. Consents and Approvals
The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations hereunder and
thereunder and the consummation by the Company of the transactions contemplated
hereby and thereby do not require the Company or any Company Subsidiary to
obtain any consent, approval or action of, or make any filing with or give any
notice to, any corporation, person, or firm, or any public, governmental, or
judicial authority.
3.6. Absence of Defaults, Conflicts, etc.
The execution and delivery of the Transaction Documents and
the adoption by the Board of Directors of the Company of the Certificate of
Designation do not, and the fulfillment of the terms hereof and thereof by the
Company, and the issuance of the Shares, and the Common Stock issuable upon
conversion of the Shares, will not, result in a breach of any of the terms,
conditions, or provisions of, or constitute a default under, or permit the
acceleration of rights under or termination of, any indenture, mortgage, deed of
trust, credit agreement, note, or other evidence of indebtedness, or other
agreement of the Company or any Company Subsidiary (collectively the "AGREEMENTS
AND INSTRUMENTS"), or the Organizational Documents or any organizational
document of a Company Subsidiary, or any rule or regulation of any court or
federal, state, or foreign regulatory board or body or administrative agency
having jurisdiction over the Company or any Company Subsidiary or over their
respective properties or businesses. No event has occurred and no condition
exists which, upon notice or the passage of time (or both), would constitute a
default under any such Agreements and Instruments or in any license, permit, or
authorization to which the Company or any Company Subsidiary is a party or by
which each may be bound.
3.7. Absence of Certain Developments
Since the date of incorporation of the Company, there has been
no (i) Material Adverse Effect with respect to the Company or any Company
Subsidiary, (ii) declaration, setting aside, or payment of any dividend or other
distribution with respect to the capital stock of the Company or any Company
Subsidiary, (iii) material loss, destruction, or damage to any property of the
Company or any Company Subsidiary, whether or not insured, (iv) acceleration or
prepayment of any indebtedness for borrowed money or the refunding of any such
indebtedness, (v) labor trouble involving the Company or any Company Subsidiary
or any material change in their respective personnel or the terms and conditions
of employment, (vi) waiver by the Company or any Company Subsidiary of any
valuable right, (vii) loan or extension of credit to any officer or employee of
the Company or any Company Subsidiary, or (viii) acquisition or disposition of
any material assets (or any contract or arrangement therefor), or any other
material
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transaction, by the Company or any Company Subsidiary otherwise than for fair
value in the ordinary course of business.
3.8. Compliance with Law
(a) Neither the Company nor any Company Subsidiary is in
material violation of any laws, ordinances, or governmental rules or regulations
to which it is subject, including, without limitation, laws or regulations
relating to the environment or to occupational health and safety, and no
material expenditures are or will be required in order to cause its current or
proposed operations or properties to comply with any such law, ordinances,
governmental rules or regulations.
(b) The Company and each Company Subsidiary has all licenses,
permits, franchises, or other governmental authorizations necessary to the
ownership of its property or to the current or proposed conduct of their
respective businesses. Neither the Company nor any Company Subsidiary has been
denied any application for any such licenses, permits, franchises or other
governmental authorizations necessary to its business.
3.9. Litigation
There is no legal action, suit, arbitration, or other legal,
administrative, or other governmental investigation, inquiry, or proceeding
(whether federal, state, local, or foreign) pending, or, to the best of the
Company's knowledge, threatened against or affecting the Company or any Company
Subsidiary or any of their respective current or proposed properties, assets, or
business. Neither the Company nor any Company Subsidiary is subject to any
order, writ, judgment, injunction, decree, determination, or award of any court,
or of any governmental agency or instrumentality (whether federal, state, local,
or foreign).
3.10. Material Contracts
Schedule 3.10 sets forth a true and complete list of each
material contract, agreement, instrument, commitment, and other arrangement to
which the Company or any Company Subsidiary is a party or otherwise relating to
or affecting any of their respective assets, including, without limitation,
employment, severance, or consulting agreements; loan, credit, or security
agreements; joint venture agreements and distribution agreements (each, a
"CONTRACT"). Each Contract is valid, binding, and enforceable against the
Company or the Company Subsidiary, as applicable, and, to the Company's best
knowledge, the other parties thereto, in accordance with its terms, and in full
force and effect on the date hereof.
3.11. Loan to Founder, Absence of Undisclosed Liabilities
(a) Schedule 3.11(a) sets forth the total amount due to Haim
Harel from the Company or any Company Subsidiary as of the date hereof (the
"HAREL LOAN"). All such amounts represent expenses incurred by Haim Harel on
behalf of the Company or a Company Subsidiary and were incurred in the ordinary
course of business of the Company or such Company Subsidiary, as the case may
be. Upon reasonable request of the Company, any Company Subsidiary or the
Investor, Haim Harel agrees to produce reasonable evidence of such expenses.
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(b) Neither the Company nor any Company Subsidiary has
liabilities or obligations of any nature (whether absolute, accrued, contingent
or otherwise and whether due or to become due) other than the Harel Loan and
ordinary expenses incurred in connection with the transaction contemplated by
this Agreement.
3.12. Labor Agreements and Actions
(a) The Company and each of the Company Subsidiaries is in
full compliance with all laws regarding employment, wages, hours, equal
opportunity, collective bargaining, and payment of social security and other
taxes. Neither the Company nor any Company Subsidiary is engaged in any unfair
labor practice or discriminatory employment practice, and no complaint of any
such practice against the Company or any Company Subsidiary is filed or, to the
best of the Company's knowledge, threatened to be filed with or by the National
Labor Relations Board, the Equal Employment Opportunity Commission or any other
administrative agency, federal or state, that regulates labor or employment
practices, nor is any grievance filed or, to the best of the Company's
knowledge, threatened to be filed, against the Company or any Company Subsidiary
by any employee pursuant to any collective bargaining or other employment
agreement to which the Company or any Company Subsidiary is a party or is bound.
The Company and each of the Company Subsidiaries are in compliance with all
applicable foreign, federal, state, and local laws and regulations regarding
occupational safety and health standards except to the extent that noncompliance
will not have a Material Adverse Effect, and have received no complaints from
any foreign, federal, state, or local agency or regulatory body alleging
violations of any such laws and regulations.
(b) The employment of all Persons employed by the Company or
any Company Subsidiary is terminable at will without any penalty or severance
obligation of any kind on the part of the employer. All sums due for employee
compensation and benefits and all vacation time owing to any employees of the
Company or any Company Subsidiary have been duly and adequately accrued on the
books and records of the Company or the respective Company Subsidiary.
(c) The Company is not aware that any of its employees or any
employees of any Company Subsidiary is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree, or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote the
interests of the Company or the Company Subsidiaries, as applicable, or that
would conflict with the Company's or any of the Company Subsidiary's businesses
as proposed to be conducted.
(d) To the Company's knowledge, no officer or key employee, or
any group of key employees, currently intends to terminate their employment with
the Company or any Company Subsidiary, as applicable, nor does the Company or
any Company Subsidiary have a present intention to terminate the employment of
any of the foregoing.
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3.13. Tax Matters
There are no foreign, federal, state, county, or local taxes
due and payable by the Company which have not been paid. The Company has duly
filed all foreign, federal, state, county, and local tax returns required to
have been filed by it and there are in effect no waivers of applicable statutes
of limitations with respect to taxes for any year. The Company has not been
subject to a foreign, federal, state or local tax audit of any kind.
3.14. Employee Benefit Plans.
Neither the Company nor any Company Subsidiary has any
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974) covering former or current employees of the Company
or any Company Subsidiary, or under which the Company or any Company Subsidiary
has any obligation or liability. Schedule 3.14 lists all material plans,
contracts, bonuses, commissions, profit-sharing, savings, stock options,
insurance, deferred compensation, or other similar fringe or employee benefits
covering former or current employees of the Company or any Company Subsidiary or
under which the Company or any Company Subsidiary has any obligation or
liability (each, a "BENEFIT ARRANGEMENT"). True and complete copies of all
Benefit Arrangements have been provided or made available to the Investor prior
to the date hereof. The Benefit Arrangements are and have been administered in
compliance with their terms and with the requirements of applicable law. The
Company's and each Company Subsidiary's payments to current or former employees
pursuant to the Benefit Arrangements are and have been fully deductible under
the Code.
3.15. Patents, Licenses, etc.
Neither the Company nor any Company Subsidiary owns or
licenses any patents, patent applications, trademarks, trademark applications,
trade names, logos, URLs, internet domain names, service marks, copyrights,
copyright applications, franchises, trade secrets, computer programs (in object
or source code form), software and software tools, databases and data
collections, economic and other rights of authors and inventors or other
intangible or proprietary property or assets (collectively, "INTELLECTUAL
PROPERTY") which are individually or in the aggregate material to the conduct of
the business of the Company or any Company Subsidiary as presently conducted or
as proposed to be conducted.
3.16. Title to Tangible Assets
The Company and each Company Subsidiary has good title to
their respective properties and assets and good title to all of their respective
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance, or charge, other than or resulting from taxes which have not yet
become delinquent and minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto.
3.17. Condition of Properties
All facilities, machinery, equipment, fixtures, vehicles, and
other properties now or proposed to be owned, leased, or used by the Company or
any Company Subsidiary are in good operating condition and repair, are
reasonably fit and useable for the purposes for which
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they are now or proposed to be used, are adequate and sufficient for the
Company's and each of the Company Subsidiary's respective businesses and conform
in all material respects with all applicable ordinances, regulations, and laws.
3.18. Insurance
The Company, each Company Subsidiary and each of their
respective properties are insured in such amounts, against such losses and with
such insurers as are prudent when considered in light of the nature of the
current and proposed properties and businesses of the Company and the Company
Subsidiaries. Schedule 3.18 sets forth a true and complete listing of the
insurance policies of the Company and each Company Subsidiary as in effect on
the date hereof, including in each case the applicable coverage limits,
deductibles, and the policy expiration dates. No notice of any termination or
threatened termination of any of such policies has been received and such
policies are in full force and effect.
3.19. Transactions with Related Parties
Neither the Company nor any Company Subsidiary is a party to
any agreement with any of their respective directors, officers, or stockholders,
or any Affiliate or family member of any of the foregoing, under which it: (i)
leases any real or personal property (either to or from such Person), (ii)
licenses technology (either to or from such Person), (iii) is obligated to
purchase any tangible or intangible asset from or sell such asset to such
Person, (iv) purchases products or services from such Person, or (v) has
borrowed money from or lent money to such Person. Neither the Company nor any
Company Subsidiary employs as an employee or engages as a consultant any family
member of any of the Company's or any Company Subsidiary's directors, officers,
or stockholders.
3.20. Interest in Competitors
Neither the Company nor any Company Subsidiary nor any of
their respective directors or officers has any interest, either by way of
contract or by way of investment (other than as holder of not more than 2% of
the outstanding capital stock of a publicly traded Person) or otherwise,
directly or indirectly, in any Person that (i) provides any services or designs,
produces, or sells any product or product lines or engages in any activity
similar to or competitive with any activity now conducted or proposed to be
conducted by the Company or any of the Company Subsidiaries or (ii) has any
direct or indirect interest in any asset or property, real or personal, tangible
or intangible, of the Company or any Company Subsidiary.
3.21. Registration Rights
Except as provided by the Investor's Rights Agreement (as
defined herein) by and between the Company and the Investor, neither the Company
nor any Company Subsidiary will, as of the Closing Date, be under any obligation
to register any of their respective securities under the Securities Act.
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3.22. Brokerage
There are no claims for brokerage commissions or finder's fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement made by or on behalf of the Company or any
Company Subsidiary and the Company agrees to indemnify and hold the Investor
harmless against any costs or damages incurred as a result of any such claim.
3.23. Illegal or Unauthorized Payments; Political
Contributions
Neither the Company, nor any of the Company Subsidiaries nor,
to the best knowledge of the Company (after reasonable inquiry of its officers
and directors), any of their respective officers, directors, employees, agents,
or other representatives or any other business entity or enterprise with which
they respectively have been affiliated or associated, has, directly or
indirectly, made or authorized any payment, contribution, or gift of money,
property, or services, whether or not in contravention of applicable law, (a) as
a kickback or bribe to any Person or (b) to any political organization, or to
the holder of or to any aspirant to any elective or appointive public office,
except for personal political contributions not involving the direct or indirect
use of funds of the Company or any Company Subsidiary.
3.24. Year 2000 Compliance
All of the computer and other hardware and software currently
or proposed to be owned or used in the conduct of the Company's and each of the
Company Subsidiary's current or proposed businesses: (a) will not malfunction,
cease to function, generate incorrect date dependent or related data, or produce
incorrect results, regardless of the particular date, year, century, or other
chronological variable; (b) applies formulae, calculates, displays, exports,
imports, manages, manipulates, operates, provides, processes, recognizes, sorts,
and stores all dates and date dependent or related user or interface data,
fields, functionalities, and values: (i) in four-digit year date format (whether
"date" or "year" field or otherwise); (ii) that properly, fully, and correctly
identifies any year (including, without limitation, the century thereof), and
computes any period, value, or result (including, without limitation, those
spanning the end of any century or millennium); and (iii) without any error; in
each case: (A) without the necessity of any human intervention or system
modification; and (B), regardless of the particular date, year, century or other
chronological variable; and (C) will properly interface with other hardware and
software of the Company and each Company Subsidiary without rendering any of
them less functional in any material respect.
3.25. Material Supplier/Customer Contracts
No material supplier to or material customer of the Company or
any Company Subsidiary has terminated or substantially altered, or has notified
the Company or any Company Subsidiary of an intention to terminate or
substantially alter, its existing business relationship with the Company or any
Company Subsidiary.
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3.26. Indebtedness
Neither the Company nor any Company Subsidiary is indebted to
any person, whether or not contingent, for borrowed money.
3.27. Material Facts
This Agreement, the disclosure schedules furnished
contemporaneously herewith, and the other agreements, documents, certificates,
or written statements furnished or to be furnished to the Investor through the
Closing Date by or on behalf of the Company in connection with the transactions
contemplated hereby taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances in which they were
made, not misleading.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Except as otherwise specifically disclosed in writing to the
Company, the Investor represents and warrants to the Company as follows:
4.1. Authorization.
The Investor has full power and legal right to execute and
deliver this Agreement and to perform its obligations hereunder. The Investor
has taken all action necessary for the authorization, execution, delivery, and
performance of this Agreement and its obligations hereunder, and, upon execution
and delivery by the Company, this Agreement shall constitute the valid and
binding obligation of the Investor, enforceable against the Investor in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
4.2. Investment Intent; Certain Restrictions.
(a) The Investor is acquiring the Shares, and will acquire the
Common Stock issuable upon conversion of the Shares, for its own account for
investment and not with a view towards the resale, transfer, or distribution
thereof, nor with any present intention of distributing the Shares or the Common
Stock acquired upon conversion of the Shares. The Investor understands that the
Shares have not been registered under the Securities Act or state securities
laws by reason of specific exemptions from the registration provisions of the
Securities Act and applicable state securities laws that depend upon, among
other things, the bona fide nature of the Investor's investment intent and the
accuracy of the Investor's representations as set forth in this Section 4. The
Investor has not been formed for the specific purpose of acquiring the Shares.
The Investor further understands that, other than any rights of the Investor
pursuant to the Investor's Rights Agreement, the Company shall have no
obligation to register the Shares under the Securities Act or any state
securities laws or to take any action that would make available any exemption
from the registration requirements of such laws. The Investor hereby
acknowledges
10
that because of the restrictions on transfer and assignment of the Shares, the
Investor may have to bear the economic risk of the investment in the Shares for
an indefinite period of time.
(b) The Investor understands that there is no established
trading market for the Shares and that no public market for the Shares may
develop in the future. The Investor understands that the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration requirement is available.
(c) The Investor will observe and comply with the Securities
Act and the rules and regulations promulgated thereunder, as now in effect and
as from time to time amended, in connection with any offer, sale, pledge,
transfer or other disposition of the Shares. In furtherance of the foregoing,
and in addition to the other restrictions contained in this Section 4, the
Investor will not offer to sell, exchange, transfer, pledge, or otherwise
dispose of any of the Shares unless at such time at least one of the following
conditions is satisfied:
(i) a registration statement under the Securities Act covering
the Shares proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer, pledge
or other disposition, and containing a current prospectus, shall have
been filed with the SEC and which has become effective under the
Securities Act;
(ii) such transaction shall be permitted pursuant to the
provisions of Rule 144 promulgated under the Securities Act;
(iii) such transaction shall be permitted pursuant to the
provisions of Regulation S promulgated under the Securities Act;
(iv) counsel representing the Investor, reasonably
satisfactory to the Company and its counsel (with the Company hereby
agreeing that Parker Chapin LLP shall be satisfactory), shall have
advised the Company in a written opinion letter, upon which the Company
and its counsel may rely, that no registration under the Securities Act
is required in connection with the proposed sale, transfer or other
disposition; or
(v) an authorized representative of the SEC shall have
rendered written advice to the Investor (sought by the Investor or
counsel to the Investor, with a copy thereof and of all other related
communications delivered to the Company and its counsel) to the effect
that the SEC would take no action, or that the Staff of the SEC would
not recommend that the SEC take action, with respect to the proposed
sale, transfer or other disposition.
4.3. Disclosure of Information.
The Investor further represents that it has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares and the business, properties, prospects
and financial condition of the Company. Neither such inquiries nor any other due
diligence investigations conducted by the Investor or its advisors, if any, or
its representatives, shall modify, amend or affect the Investor's right to rely
on the representations and warranties contained in Section 3 of this Agreement.
11
4.4. Status.
(a) The Investor is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D of the Securities Act.
(b) The Investor, by reason of its business and financial
experience has such knowledge, sophistication and experience in financial and
business matters and in making investment decisions of this type that it is
capable of (i) evaluating the merits and risks of an investment in the Shares
making an informed investment decision, (ii) protecting its own interest and
(iii) bearing the economic risk of such investment for an indefinite period of
time.
4.5. Broker's Fees.
There are no claims for brokerage commissions or finder's fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement made by or on behalf of the Investor and the
Investor agrees to indemnify and hold the Company harmless against any costs or
damages incurred as a result of any such claim.
4.6. Restrictive Legend.
All certificates representing the Shares deliverable to the
Investor pursuant to this Agreement, and any certificates subsequently issued
with respect thereto or in substitution therefor, shall bear the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE
WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, THE SALE IS MADE IN
ACCORDANCE WITH REGULATION S PROMULGATED UNDER THE ACT, OR THE CONDITIONS
SPECIFIED IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT, INVESTOR'S RIGHTS
AGREEMENT AND SHAREHOLDERS AGREEMENT DATED AS OF APRIL 14, 2000 HAVE BEEN
SATISFIED. A COPY OF SUCH AGREEMENTS MAY BE OBTAINED FROM MAGNOLIA BROADBAND,
INC. WITHOUT CHARGE, BY THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST
THEREFOR.
4.7. Restricted Securities
The Investor understands that the Shares it is purchasing are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances. In this connection, the Investor represents
that it is familiar with Rule 144, as presently in effect, and understands the
resale limitations imposed hereby and by the Securities Act.
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SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1. Covenants Pending Closing
From the date hereof through the Closing, the Company will
not, without the Investor's prior written consent, take any action which would
result in any of the representations or warranties contained in this Agreement
not being true at and as of the time immediately after such action, or in any of
the covenants contained in this Agreement becoming incapable of performance. The
Company will promptly advise the Investor of any action or event of which it
becomes aware which has the effect of making incorrect any of such
representations or warranties or which has the effect of rendering any of such
covenants incapable of performance.
5.2. Further Assurance
Each of the parties shall execute such documents and other
papers and take such further actions as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
Each such party shall use its reasonable efforts to fulfill or obtain the
fulfillment of the conditions to the Closing as promptly as practicable.
5.3. Employee Confidential Information and Inventions
Agreements
On or prior to the Closing, each of Haim Harel and Evan Chaim
Goldman shall execute an Employee Confidential Information and Inventions
Agreement in the form attached hereto as Exhibit F (the "Inventions Agreement").
SECTION 6. INVESTOR'S CLOSING CONDITIONS
The obligation of the Investor to purchase and pay for the
Shares on the Closing Date, as provided in Section 2.1 hereof, shall be subject
to the performance by the Company of its agreements theretofore to be performed
hereunder and to the satisfaction, prior thereto or concurrently therewith, of
each of the conditions set forth in this Section 6.
6.1. Representations, Warranties and Covenants
The representations and warranties of the Company contained
herein shall have been true and complete when made and shall be true and
complete as of the Closing Date, with the same force and effect as if made as of
the Closing Date, other than such representations and warranties as are made as
of another date, which shall remain true and complete as of such other date, and
the covenants and agreements contained herein to be performed, observed, or
complied with by the Company at or prior to the Closing shall have been
performed, observed, or complied with.
6.2. No Actions; Laws
No action, suit, or proceeding shall have been commenced or
threatened by or before any governmental authority against the Company or any
Investor, and no law shall have been enacted, issued, promulgated, enforced, or
entered, that could reasonably be expected to restrain, prohibit, invalidate,
render impossible or unlawful, or otherwise materially and
13
adversely affect the transactions contemplated hereby and the other Transaction
Documents, or have a Material Adverse Effect; provided, however, that the
provisions of this Section 6.2 shall not apply to the Investor if the Investor
shall have solicited or encouraged, directly or indirectly, any such action,
suit, proceeding, or law.
6.3. Legal Opinion
The Investor shall have received from Heller Ehrman, a legal
opinion, addressed to the Investor and dated the Closing Date in form and
substance reasonably satisfactory to the Investor.
6.4. Officer's Certificate
The Investor shall have received from the president of the
Company an executed certificate dated the Closing Date, certifying that the
conditions specified in the foregoing Sections 6.1 and 6.2 hereof have been
fulfilled.
6.5. Transaction Documents
Each Transaction Document shall have been executed and
delivered by the parties thereto at or prior to the Closing and shall be in full
force and effect as of the Closing, and there shall exist no facts,
circumstances, or conditions that constitute or, with the giving of notice or
lapse of time or both, could reasonably be expect to constitute a default
thereunder or breach thereof or could reasonably be expect to give any party
thereto the right to terminate such agreement; provided, however, that the
provisions of this Section 6.5 shall not apply to the Investor if the Investor
shall have failed to execute and deliver any Transaction Document to which it is
to be a party or shall have defaulted under or breached any Transaction
Document, or caused, directly or indirectly, any Transaction Document not to be
in full force and effect as of the Closing.
6.6. No Material Adverse Effect
No event or events shall have occurred, or shall be reasonably
likely to occur, which in the reasonable opinion of the Investor, individually
or in the aggregate, have had, or could be expected to have, a Material Adverse
Effect.
6.7. Certificate of Designation
The Company shall have filed the Certificate of Designation
for the Series A Preferred Stock with the Secretary of State of the State of
Delaware.
6.8. Employment Agreements
Haim Harel shall have entered into an employment agreement
with the Company or a Company Subsidiary in a form satisfactory to the Investor.
14
6.9. Delivery of Stock Certificate
The Company shall have delivered to the Investor a stock
certificate representing the Shares.
SECTION 7. COMPANY CLOSING CONDITIONS
The obligation of the Company to issue and deliver the Shares
on the Closing Date, as provided in Section 2 hereof, shall be subject to the
performance by the Investor of its agreements theretofore to be performed
hereunder and to the satisfaction, prior thereto or concurrently therewith, of
the following further conditions:
7.1. Representations, Warranties and Covenants
The representations and warranties of the Investor contained
herein shall have been true and complete when made and shall be true and
complete as of the Closing Date, with the same force and effect as if made as of
the Closing Date, other than such representations and warranties as are made as
of another date, which shall remain true and complete as of such other date, and
the covenants and agreements contained herein to be performed, observed, or
complied with by the Investor at or prior to the Closing shall have been
performed, observed, or complied with.
7.2. No Actions; Laws
No action, suit, or proceeding shall have been commenced or
threatened by or before any governmental authority against the Company or any
Investor, and no law shall have been enacted, issued, promulgated, enforced, or
entered, that could reasonably be expected to restrain, prohibit, invalidate,
render impossible or unlawful, or otherwise materially and adversely affect the
transactions contemplated hereby and the other Transaction Documents, or have a
Material Adverse Effect; provided, however, that the provisions of this Section
7.2 shall not apply to the Company if the Company shall have solicited or
encouraged, directly or indirectly, any such action, suit, proceeding, or law.
7.3. Transaction Documents
Each Transaction Document shall have been executed and
delivered by the parties thereto at or prior to the Closing and shall be in full
force and effect as of the Closing, and there shall exist no facts,
circumstances, or conditions that constitute or, with the giving of notice or
lapse of time or both, could reasonably be expect to constitute a default
thereunder or breach thereof or could reasonably be expect to give any party
thereto the right to terminate such agreement; provided, however, that the
provisions of this Section 7.3 shall not apply to the Company if the Company
shall have failed to execute and deliver any Transaction Document to which it is
to be a party or shall have defaulted under or breached any Transaction
Document, or caused, directly or indirectly, any Transaction Document not to be
in full force and effect as of the Closing.
15
7.4. Consents and Approvals
The Investor shall have received, each in form and substance
reasonably satisfactory to the Company, all authorizations, consents, orders,
and approvals of all governmental authorities and officials and all third party
consents and estoppel certificates which the Company reasonably deem necessary,
appropriate, or desirable for the consummation by the Investor of the
transactions contemplated hereby.
7.5. Payment of Purchase Price
The Investor shall have delivered the Purchase Price to the
Company.
SECTION 8. COVENANTS
8.1. Financial and Business Information
From and after the date hereof, the Company shall deliver to
the Investor so long as the Investor owns beneficially (within the meaning of
Rule 13d-3 under the Exchange Act) at least 172,388 Shares, or at least 172,388
shares of Common Stock issued upon conversion of such Shares:
(a) Monthly and Quarterly Statements--as soon as practicable,
and in any event within 30 days after the close of each month of each fiscal
year of the Company in the case of monthly statements and 45 days after the
close of each of the first three fiscal quarters of each fiscal year of the
Company in the case of quarterly statements, a consolidated balance sheet,
statement of income, and statement of cash flows of the Company and any
subsidiaries as at the close of such month or quarter and covering operations
for such month or quarter, as the case may be, and the portion of the Company's
fiscal year ending on the last day of such month or quarter, all in reasonable
detail and prepared in accordance with GAAP, subject to audit and year-end
adjustments, setting forth in each case in comparative form the figures for the
comparable period of the previous fiscal year. The Company shall also provide
comparisons of each pertinent item to the budget referred to in subsection (c)
below.
(b) Annual Statements--as soon as practicable after the end of
each fiscal year of the Company, and in any event within 90 days thereafter,
duplicate copies of: (i) consolidated and consolidating balance sheets of the
Company and any subsidiaries at the end of such year; and (ii) consolidated and
consolidating statements of income, stockholders' equity and cash flows of the
Company and any subsidiaries for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and accompanied by an opinion thereon of independent certified public
accountants selected by the Company, which opinion shall state that such
financial statements fairly present the financial position of the Company and
any subsidiaries on a consolidated basis and have been prepared in accordance
with GAAP and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards, and accordingly included such tests of the accounting
records and such other auditing procedures as were considered necessary in the
circumstances, and the Company shall also provide comparisons of each pertinent
item to the budget referred to in subsection (c) below.
16
(c) Business Plan; Projections--no later than 30 days prior to
the commencement of each fiscal year of the Company, an annual business plan of
the Company and projections of operating results.
(d) Audit Reports--promptly upon receipt thereof, one copy of
each other financial report and internal control letter submitted to the Company
by independent accountants in connection with any annual, interim or special
audit made by them of the books of the Company.
(e) Other Reports--promptly upon their becoming available, one
copy of each financial statement, report, notice, or proxy statement sent by the
Company to stockholders generally, of each financial statement, report, notice
or proxy statement sent by the Company or any of its subsidiaries to the SEC or
any successor agency, if applicable, of each regular or periodic report and any
registration statement, prospectus, or written communication (other than
transmittal letters) in respect thereof filed by the Company or any subsidiary
with, or received by such Person in connection therewith from, any domestic or
foreign securities exchange, the SEC or any successor agency or any foreign
regulatory authority performing functions similar to the SEC, of any press
release issued by the Company or any subsidiary, and of any material of any
nature whatsoever prepared by the SEC or any successor agency thereto or any
state blue sky or securities law commission which relates to or affects in any
way the Company or any subsidiary.
(f) Requested Information--with reasonable promptness, the
Company shall furnish the Investor with such other data and information as from
time to time may be reasonably requested.
8.2. Proceeds
The Company shall use the proceeds from the issuance and sale
to the Investor of the Series A Preferred Stock for research and development and
other general corporate purposes pursuant to the plans and budgets presented by
management of the Company and approved by the Board of Directors of the Company.
8.3. Inspection
As long as the Investor owns beneficially (within the meaning
of Rule 13d-3 under the Exchange Act) at least 172,388 Shares, or at least
172,388 shares of Common Stock issued upon conversion of such Shares, the
Company shall, to the fullest extent permitted by law and the Company's
contractual obligations to third parties, permit the Investor, its nominee,
assignee, and its representative, provided, that each such person agrees to be
bound by a nondisclosure agreement reasonably acceptable to the Company and such
other party, to visit and inspect any of the properties of the Company, to
examine all its books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss its affairs, finances and accounts
with its officers, directors, key employees and independent public accountants
or any of them (and by this provision the Company authorizes said accountants to
discuss with the Investor, its nominees, assignees and representatives the
finances and affairs of the Company and any subsidiaries), all at such
reasonable times and as often as may be reasonably requested. The Company shall
use all reasonable efforts to obtain a waiver of any
17
contractual confidentiality obligations it may have to third parties in order to
allow the Investor the greatest practicable access to the contracts and other
documents of the Company.
8.4. Confidentiality
As to so much of the information and other material furnished
under or in connection with this Agreement (whether furnished before, on or
after the date hereof, including, without limitation, information furnished
pursuant to Sections 8.1 and 8.3 hereof) as constitutes or contains confidential
business, financial or other information of the Company or any subsidiary, the
Investor covenants for itself and its directors, officers and partners that it
will not use (except in connection with its investment hereunder) or disclose
any such information and will enter into, and cause its directors, officers and
partners who receive information under or in connection with this Agreement to
enter into any additional nondisclosure agreements reasonably requested by the
Company or required by any contracts to which the Company is a party and to use
reasonable efforts to prevent its officers, directors, partners, employees,
counsel, accountants and other representatives from disclosing such information
to Persons other than their respective authorized employees, counsel,
accountants, stockholders, partners, limited partners and other authorized
representatives who have a need to know such information and have agreed to
bound by the relevant nondisclosure agreement; provided, however, that the
Investor may disclose or deliver any information or other material disclosed to
or received by it should the Investor be advised by its counsel that such
disclosure or delivery is required by law, regulation or judicial or
administrative order; provided further that this Section 8.4 shall not apply to
information which: (i) is or becomes generally available or known to the public,
other than a result of any disclosure by the Investor or any of its
representatives in violation hereof; (ii) is or becomes available to the
Investor on a nonconfidential basis from any source other than the Company or
any representative thereof, other than any such source that the Investor or any
of its representatives knows is prohibited by a legal, contractual, or fiduciary
obligation to the Company from disclosing such information; or (iii) is
independently developed by the Investor. In the event of any termination of this
Agreement prior to the Closing Date, the Investor shall return to the Company
all confidential material previously furnished to the Investor or its officers,
directors, partners, employees, counsel, accountants and other representatives
in connection with this transaction. For purposes of this Section 8.4, "due
care" means at least the same level of care that the Investor would use to
protect the confidentiality of its own sensitive or proprietary information, and
this obligation shall survive termination of this Agreement.
8.5. Conduct of Business and Maintenance of Existence
The Company will continue to engage in business of the same
general type as now or as proposed to be conducted by it, and preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business. The Company shall require all
of its current and future employees or consultants to enter into Invention
Agreements.
18
8.6. Compliance with Laws
The Company will comply in all respects with all applicable
laws, rules, regulations and orders except where the failure to comply would not
have a Material Adverse Effect.
8.7. Insurance
The Company will maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies of similar size and credit standing
engaged in similar business and owning similar properties. In addition to the
foregoing, the Company and the Investor agree that, within 60 days of the
Closing, the Company will obtain key man life insurance on the lives of Haim
Harel and such other individuals as is determined by the Board of Directors,
naming the Company as beneficiary and in an amount reasonably acceptable to the
Company and the Investor.
8.8. Keeping of Books
The Company will keep proper books of record and account, in
which full and correct entries shall be made of all financial transactions and
the assets and business of the Company in accordance with GAAP.
8.9. Lost, etc. Certificates Evidencing Shares (or Shares of
Common Stock); Exchange
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
certificate evidencing any Shares, or shares of Common Stock issuable upon
conversion of such Shares, owned by the Investor, and (in the case of loss,
theft or destruction) of an unsecured indemnity satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of such certificate, if mutilated, the Company
will make and deliver in lieu of such certificate a new certificate of like
tenor and for the number of shares evidenced by such certificate which remain
outstanding. The Investor's agreement of indemnity shall constitute indemnity
satisfactory to the Company for purposes of this Section 8.9. Upon surrender of
any certificate representing any Shares, or shares of Common Stock issuable upon
conversion of such Shares, for exchange at the office of the Company, the
Company at its expense will cause to be issued in exchange therefor new
certificates in such denomination or denominations as may be requested for the
same aggregate number of Shares, or shares of Common Stock, as the case may be,
represented by the certificate so surrendered and registered as such holder may
request. The Company will also pay the cost of all deliveries of certificates
for such shares to the office of the Investor (including the cost of insurance
against loss or theft in an amount satisfactory to the holders) upon any
exchange provided for in this Section 8.9.
8.10. Termination
The provisions of this Section 8 shall remain in effect until
the closing of the Qualified Public Offering at which time they shall terminate
and thereafter be of no force or effect.
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SECTION 9. INTERPRETATION OF THIS AGREEMENT
9.1. Terms Defined
As used in this Agreement, the following terms have the
respective meanings set forth below:
"AFFILIATE" means any Person or entity, directly or indirectly
controlling, controlled by, or under common control with such Person or entity.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday,
or other day on which banks in the State of New York are required or authorized
to close.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMPANY SUBSIDIARY" shall mean any corporation, or other
entity of which the Company owns, directly or indirectly, more than 50% of the
stock or other equity interests or voting power entitled to elect a majority of
the board of directors or other persons performing similar functions.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"GAAP" shall mean U.S. generally accepted accounting
principles, consistently applied.
"PERSON" shall mean an individual, partnership, joint-stock
company, corporation, limited liability company, trust, or unincorporated
organization, and a government or agency or political subdivision thereof.
"QUALIFIED PUBLIC OFFERING" shall have the meaning set forth
in the Certificate of Designation.
"INVESTOR'S RIGHTS AGREEMENT" shall mean the investor's rights
agreement between the Company and the Investor, substantially in the form
attached hereto as Exhibit D.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SHAREHOLDERS AGREEMENT" shall mean the shareholders agreement
between the Company, Haim Harel and the Investor, substantially in the form
attached hereto as Exhibit E.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the
Certificate of Designation, the Investor's Rights Agreement and the Shareholders
Agreement.
9.2. Accounting Principles
Where the character or amount of any asset or liability or
item of income or expense is required to be determined or any consolidation or
other accounting computation is
20
required to be made for the purposes of this Agreement, this shall be done in
accordance with GAAP at the time in effect, to the extent applicable, except
where such principles are inconsistent with the requirements of this Agreement.
9.3. Directly or Indirectly
Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
9.4. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State.
9.5. Paragraph and Section Headings
The headings of the sections and subsections of this Agreement
are inserted for convenience only and shall not be deemed to constitute a part
thereof.
SECTION 10. MISCELLANEOUS
10.1. Notices
(a) All communications under this Agreement shall be in
writing and shall be delivered by hand, by facsimile, or mailed by overnight
courier or by registered mail or certified mail, postage prepaid:
(i) if to the Investor, at 6100 Glades Road, Suite 305, Boca
Raton, Florida 33434 (Facsimile: (561) 479-0757), with a copy to:
Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New
York, New York 10174, Attention: Henry I. Rothman, Esq. (Facsimile:
(212) 704-6288).
(ii) if to the Company, at Magnolia Broadband, Inc., c/o
Stephen M. Davis, Esq., Heller Ehrman White & McAuliffe, 711 Fifth
Avenue, 5th Floor, New York, New York 10022 (Facsimile: (212)
832-3353), marked for the attention of Haim Harel, or at such other
address as the Company may have furnished the Investor in writing in
accordance with the terms of this Section 10.1.
(b) Any notice so addressed shall be deemed to be given: if
delivered by hand or facsimile, on the date of such delivery; if mailed by
courier, on the first Business Day following the date of such mailing; and if
mailed by registered or certified mail, on the third Business Day after the date
of such mailing.
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10.2. Expenses and Taxes
(a) Except as set forth in subsection 10.2(b) and 10.2(c),
each party hereto shall pay the fees and disbursements incurred by it, including
consulting, accounting and legal expenses, in connection with the negotiation,
preparation, execution, and delivery of this Agreement, the other Transaction
Documents, and the other instruments and agreements entered into pursuant to
this Agreement.
(b) At the Closing, the Company will pay to the Investor (or
as directed by the Investor) up to $25,000 to reimburse for documented legal and
due diligence expenses and out-of-pocket expenses which were incurred by the
Investor or its agents in connection with the financing contemplated hereby.
(c) The Company will pay, and save and hold the Investor
harmless from any and all liabilities (including interest and penalties) with
respect to, or resulting from any delay or failure in paying, stamp and other
taxes (other than income taxes), if any, which may be payable or determined to
be payable on the execution and delivery or acquisition of the Shares, or the
shares of Common Stock issuable upon conversion of the Shares.
10.3. Reproduction of Documents
This Agreement and all documents relating thereto, including,
without limitation: (a) consents, waivers, and modifications which may hereafter
be executed, (b) documents received by the Investor on the Closing Date (except
for certificates evidencing the Shares of themselves), and (c) financial
statements, certificates and other information previously or hereafter furnished
to the Investor, may be reproduced by the Investor by any photographic,
photostatic, microfilm, micro-card, miniature photographic, or other similar
process and the Investor may destroy any original document so reproduced. All
parties hereto agree and stipulate that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not such
reproduction was made by the Investor in the regular course of business) and
that any enlargement, facsimile, or further reproduction of such reproduction
shall likewise be admissible in evidence.
10.4. Survival
All warranties, representations, and covenants made by the
Investor and the Company herein or in any certificate or other instrument
delivered by one of the Investor or the Company under this Agreement shall be
considered to have been relied upon by the Company or the Investor, as the case
may be, and shall survive all deliveries to the Investor of the Shares, or
payment to the Company for such Shares, regardless of any investigation made by
the Company or the Investor, as the case may be, or on the Company's or the
Investor's behalf. All statements in any such certificate or other instrument
shall constitute warranties and representation by the Company hereunder.
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10.5. Successors and Assigns
This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties.
10.6. Entire Agreement; Amendment and Waiver
This Agreement and the agreements attached as Exhibits hereto
constitute the entire understandings of the parties hereto and supersede all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended or any provision of this
Agreement may be waived by the written consent of the Company and the Investor.
10.7. Severability
In the event that any part or parts of this Agreement shall be
held illegal or unenforceable by any court or administrative body of competent
jurisdiction, such determination shall not effect the remaining provisions of
this Agreement which shall remain in full force and effect.
10.8. Arbitration.
The parties shall arbitrate any dispute arising out of or
relating to this Agreement. Such arbitration shall be conducted in accordance
with the following:
(a) Each party to such dispute shall have five Business Days
after written notice by any such party of the commencement of arbitration
proceedings hereunder to appoint an arbitrator who is on the approved panel of
arbitrators of the American Arbitration Association. Each party to such dispute
shall immediately notify the other party thereto of such appointment. If any
such party shall fail to so appoint such an arbitrator within such five Business
Day period, the other party to such dispute may appoint such arbitrator and
shall so notify the party failing to appoint an arbitrator. The arbitrators so
appointed shall then select a third arbitrator within five Business Days after
the appointment of the second arbitrator to then constitute the Board of
Arbitration. The Board of Arbitration shall then proceed under the Commercial
Arbitration Rules of the American Arbitration Association.
(b) Following the designation of such Board of Arbitration,
the parties to such dispute, together with the members of the Board of
Arbitrators, shall promptly undertake appropriate informal efforts to mediate
and negotiate a solution to the matter covered by the original notice.
(c) If a negotiated solution cannot be achieved within
fourteen days after the date on which the Board of Arbitration is constituted,
then the Board of Arbitration shall notify the parties to such dispute. The
proceeding, upon such notification, will then become a compulsory arbitration to
be conducted under the Commercial Arbitration Rules of the American Arbitration
Association by the Board of Arbitration. These rules shall be subject to the
following modifications: (i) discovery shall be permitted under the same
standards provided for in the Federal Rules of Civil Procedure; (ii) the members
of the Board of Arbitration shall interpret and
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apply the provisions of this Agreement; (iii) the arbitration costs may be
charged to the losing party or allocated between the parties as may be
determined by the Board of Arbitration; and (iv) the proceedings will be held in
New York, New York, unless the parties to such dispute shall otherwise agree in
writing.
(d) In connection with the enforcement of the mediation and arbitration
provisions of this Section 10.8, any agreement, decision or award shall be
final, binding and conclusive as to any such claim.
10.9. Facsimile Signatures and Counterparts
This Agreement may be executed by facsimile and in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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IN WITNESS WHEREOF, each party hereto, by its duly authorized
officer, has executed and delivered this Securities Purchase Agreement as of the
date first written above.
MAGNOLIA BROADBAND, INC.
By: /s/ Haim Harel
--------------------------------------
Name: Haim Harel
Title: Chief Executive Officer
and President
LEISUREPLANET HOLDINGS, LTD.
By: /s/ Clive Kabatznik
------------------------------------
Name: Clive Kabatznik
Title: Chief Executive Officer
and President
25
LIST OF EXHIBITS
Exhibit A Certificate of Designation
Exhibit B Certificate of Incorporation
Exhibit C Bylaws
Exhibit D Investor's Rights Agreement
Exhibit E Shareholders Agreement
Exhibit F Inventions Agreement