U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1200
EUROWEB INTERNATIONAL CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3696015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
445 Park Avenue, 15th Floor, New York, NY 10022
(Address of principal executive offices)
(212) 758-9870
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirement for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.001 par value 4,685,717 Shares
(Class) (Outstanding at September 30, 1997)
Transitional Small business Disclosures Format (Check one): Yes No X
<PAGE>
EUROWEB INTERNATIONAL CORP.
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of September 30, 1997
(unaudited) and December 31, 1996 (audited) 2
Consolidated statements of loss (unaudited) for the three
months ended September 30, 1997 and 1996 and the nine months
ended September 30, 1997 and 1996 3
Consolidated statements of stockholders' equity (unaudited)
for the nine months ended September 30, 1997 and 1996 4
Consolidated statements of cash flows (unaudited) for the
nine months ended September 30, 1997 and 1996 5
Notes to consolidated financial statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
PART II. Other Information 20
Signature 22
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
September 30, 1997 December 31, 1996
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 294,282 $ 495,703
Accounts receivable 217,779 -
VAT refund receivable 7,317 74,412
Receivables from related parties 502,168 480,784
Prepaid and other current assets 95,962 101,564
Total current assets 1,117,508 1,152,463
Property and equipment, less accumulated
depreciation of $124,968 and $38,750,
respectively 331,608 65,586
Office condominium unit held for sale - 209,000
Construction in progress, net of $1,000,000
allowance for reduction to market value 3,743,202 3,527,090
Advances on acquisitions - 1,585,000
Investment in and advances to affiliate 193,806 218,344
Goodwill 1,638,861 -
Other 53,699 -
$ 7,078,684 $ 6,757,483
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to affiliate $ 350,000 $ -
Payable to owners of acquired business 237,174 400,000
Accounts payable and accrued expenses 747,852 259,996
Compensation payable to officers 46,000 96,000
Deposits payable 594,320 594,320
Total current liabilities 1,975,346 1,350,316
10% CONVERTIBLE DEBENTURES 220,000 485,000
PAYABLE TO FORMER OFFICER 1,031,891 895,719
Total liabilities 3,227,237 2,731,035
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT OPTIONS;
$.001 PAR VALUE, SHARES ISSUED AND
OUTSTANDING 144,000 360,000 -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value - shares
authorized 5,000,000 (1997) and -0- (1996);
issued and outstanding - none
Common stock, $.001 par value - shares
authorized 15,000,000 (1997) and
10,000,000 (1996); issued and
outstanding 4,541,717 and 2,476,269,
respectively 4,542 2,476
Additional paid-in capial 18,447,657 17,189,447
Accumulated deficit (14,960,752) (13,165,475)
Total stockholders' equity 3,491,447 4,026,448
$ 7,078,684 $ 6,757,483
See accompanying notes to consolidated financial statements.
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
REVENUES
Internet $ 323,625 $ - $ 931,705 $ -
Other - - - 31,098
Total 323,625 - 931,705 31,098
EXPENSES(INCOME)
Network costs 152,305 - 381,736 -
Compensation and
related costs 172,811 51,516 558,928 350,918
Consulting and
professional fees 49,869 29,152 220,430 140,552
Foreign currency
(gain)loss (1,380) 6,220 74,381 110,297
Depreciation and
amortization of
property and equipment 31,950 9,017 86,218 21,700
Amortization of goodwill 98,000 - 289,000 -
Interest and dividend
income (12,796) (19,658) (53,007) (61,318)
Interest expense 58,492 - 437,009 -
Financing costs 17,144 - 150,847 -
Loss on sale of office
condominium unit - - 75,000 -
Write-down of construction
in progress to market
value - 700,000 - 700,000
Other 140,814 64,812 506,440 214,993
Total 707,209 841,059 2,726,982 1,477,142
Loss before equity in net
loss of unconsolidated
affiliate (383,584) (841,059) (1,795,277) (1,446,044)
Equity in net loss of
unconsolidated affiliate - (180,000) - (362,000)
Net loss $ (383,584) $(1,021,059) $(1,795,277) $(1,808,044)
Net loss per share $ (.10) $ (.67) $ (.54) $ (1.19)
Weighted average
number of common
shares outstanding 4,015,695 1,518,290 3,347,238 1,518,290
See accompanying notes to consolidated financial statements.
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
NINE MONTHS ENDED SEPTEMBER 30, 1997:
Balance, January 1, 1997 2,476,269 $2,476 $17,189,447 $(13,165,475)
Issuance of put options on
common stock issued in
connection with acquisitions (144,000) (144) (359,856) -
Compensation relating to the
extension of the period of
exercisability of former
officers' options - - 137,500 -
Issuance of shares on
conversion of debentures 2,209,448 2,210 1,153,566 -
Incremental interest from
revaluation of convertible
debentures - - 327,000 -
Net loss for the period - - - (1,795,277)
Balance, September 30, 1997 4,541,717 $4,542 $18,447,657 $(14,960,752)
NINE MONTHS ENDED SEPTEMBER 30, 1996:
Balance, January 1, 1996 1,518,290 $1,518 $14,645,998 $ (9,370,461)
Net loss for the period - - - (1,808,044)
Balance, September 30, 1996 1,518,290 $1,518 $14,645,998 $(11,178,505)
See accompanying notes to consolidated financial statements.
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,795,277) $(1,808,044)
Adjustments to reconcile net loss to net cash
provided by(used in) operating activities:
Depreciation and amortization of property
and equipment 86,218 21,700
Write-off of construction in progress to
market value - 700,000
Amortization of goodwill 289,000 -
Amortization of imputed interest income (26,000) (39,000)
Options granted/extended as compensation 137,500 -
Incremental interest on revaluation of
convertible debentures 327,000 -
Interest on debentures paid in shares of
capital stock 40,775 -
Loss on sale of office condominium unit 75,000 -
Loss on disposal of property and equipment - 1,829
Foreign currency loss 74,381 110,297
Equity in net loss of unconsolidated affiliate - 362,000
Changes in operating assets and liabilities:
Increase in accounts receivable (217,779) -
Decrease in VAT refund receivable 67,095 152,166
(Increase)decrease in receivables from
related parties (21,384) 533,962
(Increase)decrease in prepaid and other assets (48,096) 41,487
Increase(decrease) in accounts payable and
accrued expenses 487,856 (351,654)
Decrease in compensation payable to officers (50,000) -
Increase in payables to related parties - 323,974
Increase in deposits payable - 594,320
Increase in payable to former officer 136,172 -
Net cash provided by(used in) operating activities (437,539) 643,037
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
and construction in progress (568,352) (1,026,417)
Decrease in advances on acquisitions 1,585,000 -
Acquisition of goodwill (1,927,861) -
Payment to owners of acquired business (162,826) -
Proceeds from sale of building to HTCC - 315,000
Proceeds from sale of office condominium unit 134,000 -
(Increase)decrease in investment in and advances
to affiliate 50,538 (9,081)
Net cash used in investing activities (889,501) (720,498)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debt 850,000 -
Proceeds from note payable to affiliate 350,000 -
Decrease in bank overdraft - (16,502)
Net cash provided by(used in) financing activities 1,200,000 (16,502)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (74,381) (110,297)
DECREASE IN CASH AND CASH EQUIVALENTS (201,421) (204,260)
Cash and cash equivalents at beginning of period 495,703 376,986
Cash and cash equivalents at end of period $ 294,282 $ 172,726
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock upon conversion of
debentures and accrued interest $1,155,775 $ -
See accompanying notes to consolidated financial statements.
<PAGE>
EUROWEB INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Euroweb
International Corp. (the "Company") and its majority-owned subsidiaries.
All material intercompany balances and transactions have been eliminated.
(b) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Fiscal Year
The Company's reporting period is the fiscal year ending December 31.
(d) Revenue Recognition
Sales of constructed condominium apartments are recognized when
collection of the sales price is assured and occupancy permits have
been issued. Internet subscription income and usage fees are recognized
as services are provided.
(e) Foreign Currency Translation
The Company uses the U.S. dollar as the functional currency for its
Hungarian subsidiaries. Accordingly, monetary assets and liabilities of
the subsidiaries were translated by using the exchange rate in effect at
the balance sheet date while nonmonetary assets and liabilities were
translated at historical rates. Income and expense accounts were
translated at the average rates in effect during the period. Translation
adjustments and transaction gains or losses were reflected in the
consolidated statements of loss.
(f) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. The carrying amounts
reported in the accompanying balance sheets approximate fair value.
(g) Fair Value of Financial Instruments
Due to the nature of the VAT refund receivable, receivables from related
parties, payables to related parties and former officer and advances to
affiliate, it is not practicable to approximate their fair market values.
The carrying value of the convertible debentures approximates their fair
market value.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
(h) Investment in Affiliate
The Company's 9.7% equity interest in Hungarian Broadcasting Corp.
("HBC") through September 30, 1996 was accounted for using the equity
method since the Company had the ability to exercise significant
influence over HBC. Under this method, the Company recorded as a loss
its share of the losses and dividends (if any) were credited against the
investment account when declared. Beginning October 1, 1996, the Company
discontinued its use of the equity method of accounting for its
investment in HBC, since the Company no longer had the ability to
exercise significant influence over HBC (See Note 8).
(i) Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets of 3 to 5 years.
During 1996, the Company sold one of its office condominium units to
Hungarian Telephone and Cable Corp. ("HTCC") at a net profit of
approximately $9,000. Its other office condominium unit was being held
for sale at December 31, 1996 and was sold during the second quarter of
1997, resulting in a loss of $75,000.
(j) Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123, which was
effective in 1996 for transactions entered into after 1994, established
a fair value method of accounting for stock-based compensation, through
either recognition or disclosure. The Company adopted the disclosure
option for employee stock-based compensation provisions of SFAS No. 123
in 1996. However, since the pro forma net income and earnings per share
amounts assuming the fair value method was adopted January 1, 1995 did
not differ materially from the comparable amounts reported on the
consolidated statements of loss, no such pro forma amounts have been
disclosed. The adoption of SFAS No. 123 did not impact the Company's
results of operations, financial position or cash flows.
(k) Net Loss Per Share
The net loss per share is computed using the weighted average number of
common shares outstanding during each period.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
2. Organization and Business
The Company is a Delaware corporation which was organized on November 9,
1992. It was a development stage company through December 31, 1993. Its
wholly-owned Hungarian subsidiary, Teleconstruct Epitesi Rt.
("Teleconstruct"), was organized on March 19, 1993 with the intention to
contract with community-sponsored telecom companies in Hungary to
construct and maintain local telephone exchanges in their areas. The
Company had two operating business segments: (1) building of condominium
apartments and building renovation and (2) design and civil engineering,
and laying of underground fiber optic telephone and cable lines. The
latter segment was discontinued in 1994. Effective September 30, 1995,
the Company's 90% interest in Termolang Kft., which was in the building
renovation business, was sold for its original investment to the 10%
interest holder for a gain of approximately $11,000. Teleconstruct is
currently building for sale two luxury 14-unit condominium buildings in
Budapest.
During 1994, the Company organized Central Europe Consult ("CEC"), an
Austrian corporation, in which it has a 51% interest, with HTCC owning
the remaining 49%. CEC is in the process of being liquidated.
On January 2, 1997, the Company acquired three Hungarian Internet service
companies ("Internet providers") for a purchase price of approximately
$1,785,000, consisting of 144,000 shares of common stock of the Company
and $1,225,000 in cash. Except for $400,000 which was paid in January
1997 and $200,000 which was payable after June 15, 1997 but remained
unpaid at September 30, 1997, the purchase price was paid in December
1996. The Company paid $110,000 of the balance in November 1997. The
144,000 shares and related amounts have been excluded from stockholders'
equity in the September 30, 1997 financial statements since they are
subject to put options during the period July 1 to October 31, 1997,
obligating the Company to purchase each share for $2.50 if the former
owners exercise their options.
These acquisitions which have been accounted for using the purchase
method of accounting, resulted in goodwill of $1,927,861 with an
estimated useful life of five years.
The Company's consolidated statement of loss includes the results of the
acquired companies' operations since January 2, 1997.
Effective July 9, 1997, the Company changed its name from Hungarian
Teleconstruct Corp. to Euroweb International Corp. and increased the
authorized number of shares of capital stock from 10,000,000 shares of
common stock to 15,000,000 shares of common stock and 5,000,000 shares
of preferred stock. In addition, one of the three Internet subsidiaries
changed its name to Euroweb Kft. (a Limited Liability Company) and the
accounts of the three subsidiaries were consolidated into this company.
Euroweb Kft. then changed its name and corporate structure to Euroweb Rt.
(a Stock Corporation) in order to make possible a public offering of its
shares in Hungary. The Company has no present plans or intent to sell
any of the Euroweb Rt. shares in Hungary and has no current negotiations
for such sale with any investment bankers.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
3. Interim Periods
The accompanying consolidated financial statements for the three months
ended September 30, 1997 and 1996 and the nine months ended September 30,
1997 and 1996 are unaudited but, in the opinion of management, include all
adjustments, consisting mainly of normal recurring accruals necessary for
fair presentation. Results for the interim periods are not necessarily
indicative of the results for a full year.
4. Incorporation by Reference
Reference is made to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1996 and to the notes to the consolidated
financial statements included therein, which are incorporated herein by
reference.
5. Cash Concentration
At September 30, 1997, cash includes $152,457 denominated in U.S. dollars on
deposit with a major money center bank in the United States and $5,107
invested in a U.S. Treasury money market fund. In addition, $136,718 was on
deposit in Hungarian banks.
6. Receivables from and Note Payable to Related Parties
At September 30, 1997, receivables from and payables to related parties
include the following:
Note
Receivables Payable
HBC (Note 8) $470,000 $350,000
HTCC 32,168 -
$502,168 $350,000
The receivable from HBC represents the second and final installment of
principal and interest on an $800,000 loan made by the Company, which was
originally due on June 30, 1997.
The amount due from HTCC primarily represents accrued interest on advances
and a receivable on the sale of certain equipment.
In February 1997, the Company borrowed $350,000 from HBC. The loan, which
is evidenced by a promissory note with interest at 6% per annum, was payable
on the earlier of (1) June 30, 1997, (2) the closing of any offering by the
Company of its securities, or (3) sale of any assets by the Company. The
loan is secured by the balance of the aforementioned loan owed by HBC to the
Company and the proceeds of a debt owed by a company controlled by the
Company's former President (see Note 12(a)). Although both the loan
receivable and the note payable were originally due on June 30, 1997,
neither one has been paid by September 30, 1997 and the Company has
continued to accrue interest receivable on the loan and interest payable on
the note.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
7. Construction in Progress
(a) Construction-in-progress of two luxury 14-unit condominium buildings
to be held for sale includes the cost of land ($885,000) and
construction costs incurred through September 30, 1997, net of a
provision of $1,000,000 made in 1996 for a write-down to estimated net
realizable value. The Company believes that the provision was require
based on the current real estate market conditions in Budapest. The
estimated additional cost to complete the construction is $40,000.
(b) Deposits have been received for the full sales price for four
condominium apartments and upon the issuance of move-in permits, the
sale of the apartments will be recognized. The deposits were received
from the Company's former President ($394,320) and HTCC ($200,000).
The $394,320 represents approximately 80% of the expected cost of the
apartments. The deposits were received for apartments sold in the
building, prior to the sale (see Note 12).
8. Investment in and Advances to Affiliate
Investment in and advances to HBC at September 30, 1997 includes the
following:
Investment $125,000
Loans and advances, including
accrued interest 538,806
663,806
Less: Repayment originally due
June 30, 1997, included
in receivable from related
parties (Note 6) 470,000
$193,806
On November 28, 1994, the Company entered into a loan agreement with HBC,
which provided for the Company to lend HBC $800,000 at 6% interest per
annum, originally repayable on the earlier of December 31, 1995 or the
completion of an Initial Public Offering ("IPO") by HBC. The IPO was
consummated in December 1995 by selling 1,150,000 shares of common stock
at a price of $5 per share, with the Company recognizing a gain of
approximately $203,000 resulting from the increase in the Company's
proportionate share in HBC's equity. The gain was accounted for as an
equity transaction, increasing additional paid-in capital, because HBC
was a development stage company.
The loan agreement provided for the following additional consideration to
the Company: (1) issuance of 100,000 shares of HBC's common stock, which
shares shall be deemed fully paid and nonassessable; (2) an option which was
exercised in April 1995, to purchase an additional 150,000 shares of HBC's
common stock at $3 per share; and (3) three years right of first refusal to
act as general contractor for all broadcast facilities to be built by
companies controlled by HBC. On January 2, 1996, HBC repaid $424,000 of the
amount owed to the Company with the balance being due June 30, 1997. Notes
receivable of $470,000 at September 30, 1997 includes accrued interest.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
The Company's interest in HBC (250,000 shares of common stock) at
September 30, 1997 has an original cost of $615,000 and includes the
100,000 shares received in connection with the loan made to HBC and valued
at $165,000, representing the original issue discount on the $800,000
loan. The original issue discount was amortized over the original term of
the loan with $26,000 amortized during the nine months ended September 30,
1997 and included in interest income.
The 250,000 shares are restricted securities under Rule 144 promulgated
under the Securities Act of 1933, as amended. In addition, the Company
has entered into an agreement with HBC's underwriters not to sell or
otherwise dispose of the HBC shares before February 7, 1999 without the
written consent of the underwriters. The Company has the right to include
the HBC shares in any registration statement filed by HBC to the extent
that the managing underwriter of the public offering advises HBC that such
inclusion would not interfere with the orderly sale of the securities to
be offered to the public.
At September 30, 1996, two officers of the Company owned approximately 16%
of the outstanding common stock of HBC and sat on the Board of HBC,
constituting a majority of the Board, but at December 31, 1996, only one
of the Company's officers sat on the Board of HBC and that officer owned
less than 1% of the outstanding common stock of HBC. The Company's 9.7%
interest in HBC was carried at equity at September 30, 1996, since the
Company had the ability to exercise significant influence over HBC. At
September 30, 1997, none of the Company's officers were on the Board of
HBC. The quoted market price per share of HBC's common stock on the
NASDAQ Small Cap Market at September 30, 1997 was $4.50.
On October 29, 1997, the Company, with the consent of HBC's underwriters,
sold its entire investment (250,000 shares of restricted stock) for
$625,000.
9. Private Placements
(a) In November and December 1996, the Company sold $792,500 of 10%
convertible debentures due in September 1998 to foreign investors
outside the United States in private placements, receiving aggregate
net proceeds of approximately $693,500 after deducting placement agent
fees and offering expenses of approximately $99,000. During the nine
months ended September 30, 1997, the Company sold an additional $850,000
of 10% convertible debentures due from January 1999 through September
1999, receiving $699,153 after deducting financing costs of $150,847.
No subsequent sales of 10% convertible debentures were made during
October 1997.
Commencing 45 days after issuance, the original principal amount of the
debentures is convertible into the Company's shares of common stock at a
conversion price of 50% of the market price, as defined, of the
Company's common stock. The unconverted debentures are due on the
maturity dates noted above except in the case of the occurrence of
one or more "events of default" as described in the debenture, in which
case the debentures may be immediately due and payable. At December 31,
1996, $307,500 of debentures
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
and accrued interest were converted into 263,979 shares of common stock
and during the nine months ended September 30, 1997, an additional
$1,115,000 of debentures and accrued interest were converted into
2,209,448 shares of common stock. During October 1997, another $70,000
of debentures and accrued interest were converted into 204,219 shares of
common stock.
The incremental yield on the debentures relating to the convertibility
of the debentures into common stock at a 50% discount to the common
stock's market price resulted in interest charges of $327,000 to the
consolidated statement of loss for the nine months ended September 30,
1997. In addition, the financing costs of $150,847 incurred in
connection with the sale of the debentures were charged to 1997
operations, since a substantial portion of the debentures is expected
to be converted to common stock
within a short period.
(b) In October 1996, the Company sold a private placement consisting of
550,000 shares of common stock and 550,000 common stock purchase
warrants exercisable at $2 per share at any time from October 1, 1997
until September 30, 2001 for net proceeds of $972,450 after deducting
placement agent fees and offering expenses of $127,550. The warrants
and the underlying shares of common stock have been registered under the
Securities Act of 1933. The exercise price was reduced to $1.25 per
share on June 26, 1997.
10. Stock Option Plan and Warrants
Stock Options
On May 14, 1996, the Company's stockholders approved an increase in the
number of stock options available under the Stock Option Plan (the "Plan")
to 350,000. The Plan provides that incentive and nonqualified options may
be granted to officers and directors and consultants to the Company. The
Plan may be administered by either the Board of Directors or a committee of
three directors appointed by the Board (the "Committee").
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options terminate upon the optionee's
termination of employment or consulting arrangement with the Company, except
that, under certain circumstances, an optionee may exercise an option within
the three-month period after such termination of employment. An optionee
may not transfer any options except that an option may be exercised by the
personal representative of a deceased optionee within the three-month period
following the optionee's death. Incentive options granted to any employee
who owns more than 10% of the Company's outstanding common stock immediately
before the grant must have an exercise price of not less than 110% of the
fair market value of all underlying stock on the date of the grant and the
exercise term may not exceed five years. The aggregate fair market value of
common stock (determined at the date of grant) for which any employee may
exercise incentive options in any calendar year may not exceed $100,000.
In addition, the Company will not grant a nonqualified option with an
exercise price less than 85% of the fair market value of the underlying
common stock on the date of the grant.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
For options granted to employees at exercise prices equal to the fair market
value of the underlying common stock at the date of grant, no compensation
cost is recognized.
Effective July 29, 1993, the Company granted to three directors 15,000
incentive stock options exercisable at $8 per share, the IPO price. In
February 1994, three employees in Hungary were granted 20,000 incentive
stock options exercisable at $10 per share, provided they remain in the
employ of the Company until December 31, 1994. In May 1994, 460,000
options exercisable at $1 per share were granted to three officers in
connection with their employment agreements (see Note 12(a)). In June
1994, the officers and directors of the Company were granted 65,000
incentive stock options exercisable at $8 per share, market value on the
date of grant. On March 7, 1996, the exercise price of the 75,000
options granted under the Plan was reduced from $8 to $3.375, which was
the market price at that date. On March 19, 1997, the exercise price of the
options granted under the Company's 1993 Stock Option Plan held by the three
directors on that date was reduced to $1.25 in order to bring the exercise
price more in line with the recent trading range of the Company's common
stock.
In February 1997, the former President of the Company was retained as a
consultant to the Company to oversee the Company's real estate interests and
Internet business. He agreed to render consulting services for a two-year
period for a fee of 100,000 five-year options exercisable at $2.00 per
share. The compensation relating to these options is being charged to
operations over a two-year period.
SFAS No. 123 requires the Company to provide, beginning with 1995 grants,
proforma information regarding net income and net income per common share as
if compensation costs for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in SFAS
No. 123. Such proforma information has not been presented because
management has determined that the compensation costs associated with
options granted in 1997 and 1996 are not material to net loss or net loss
per common share.
The following table is a summary of all stock options as of September 30,
1997:
Outstanding Option Price
Options Per Share
Outstanding at
January 1, 1997 775,000 $1.00 to $3.375
Granted 175,000 $2.00
Granted 40,000 $1.50
Change of exercise price (135,000) $3.00
from $3.00 to $1.25 135,000 $1.25
Canceled (170,000) $1.00 to $3.375
Outstanding at
September 30, 1997 820,000 $1.00 to $3.375
As of September 30, 1997, stock options for 680,000 shares were exercisable.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
On August 26, 1997, the Board of Directors approved an increase in the
number of shares of common stock to be available under the Company's 1993
Incentive Stock Option Plan from 350,000 to 700,000. The Board also
approved the establishment of a 1998 Directors Stock Option Plan with the
right to grant 300,000 shares to the Company's Directors. Both of these
actions are subject to approval of the Company's shareholders at the next
annual shareholder meeting to be held in 1998.
11. Commitments and Contingencies
(a) Employment Agreements
Effective May 1, 1994, the Company entered into three-year employment
agreements with three officers and terminated the existing consulting
and retainer agreement with them. The agreements were extended by two
additional years on October 23, 1995 and another two years on
December 23, 1996. The amended agreements provided for aggregate
annual compensation of $336,000 for the Chairman of the Board,
President and Secretary/Treasurer of the Company, and the granting
of options to the three officers to purchase 460,000 shares of common
stock of the Company at the exercise price of $1 per share with vesting
over a five-year period (20% per year).
Compensation expense, the difference between the quoted market price at
the date of grant and the option price, of $5,980,000 in connection
with the granting of the 460,000 stock options was being amortized over
the five-year vesting period which began May 1, 1994. On October 23,
1995, the Board of Directors voted to replace the original vesting
period with immediate vesting and, accordingly, the entire unearned
compensation of $5,182,667 as of January 1, 1995 was charged to
operations for the year ended December 31, 1995.
On October 20, 1996, the Company entered into a termination agreement
with its President which provides, among other things, for (1) his
resignation as an officer, director and employee and (2) for the
cancellation of his employment agreement upon payment of $372,000,
which amount is to be deducted from the amount owed by a company
controlled by him in connection with the purchase of one of the
Company's condominium buildings. The President retained his rights
as a stock optionee with respect to his 285,000 options granted under
his employment agreement and pursuant to the Company's Incentive Stock
Option Plan of 1992. Unless he exercises his options within five years
of the date the options were granted, the options will expire.
Compensation expense of $972,000 was charged to 1996 operations as a
result of cancelling the President's employment agreement
and extending the termination date of his options (See Note 12(a)).
On December 23, 1996, the Board of Directors extended the employment
contracts of the Chairman of the Board and Treasurer to December 31,
2001 and increased their annual compensation to $144,000 and $120,000,
respectively.
In February 1997, the Company's Chairman of the Board resigned as an
officer, director and employee, and agreed to a cancellation of his
employment agreement upon payment of $50,000, which represented the
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
approximate amount owed to him with respect to 1996 salary. In
addition, 125,000 stock options which were granted to him under his
employment agreement will not terminate as a result of the resignation,
but will continue to be governed by the original terms of the options.
Compensation of $100,000 has been charged to the 1997 operations
relating to the extension of the period of exercisability of the
options.
During February 1997, the Company appointed a new President, who was to
be paid a consulting fee of $7,000 per month for a two year period.
Effective July 1, 1997, the Board of Directors increased the
President's consulting fee to $10,000 per month and increased the
salary of the Chairman of the Board to $150,000 per year.
On August 26, 1997, the Board of Directors extended the term of the
employment agreement with its Chairman of the Board to December 31,
2005 and included a provision in the contract to provide the Chairman
with a split dollar life insurance policy with a face amount of
$2,000,000. The policy is to be structured so that the premiums
and other costs paid by the Company in connection with the policy would
be recovered by the Company out of the proceeds of the policy.
Effective October 1, 1997, the President's employment contract was
terminated. The termination agreement provides for payment to him by
the Company and its subsidiary of $3,000 per month. In addition, the
Company agreed to grant him five-year options for 45,000 shares of the
Company's common stock with an exercise price of $1 per share and he
agreed to give up his existing options for 25,000 shares, which were
exercisable at $2 per share.
(b) Communication Services
The Company has entered into an agreement with MCI Global Resources,
Inc. ("MCI") for certain communication services to be provided by MCI
during a three year period which is expected to begin approximately
November 1, 1997 at a minimum charge of $17,888 per month.
(c) Litigation
The Company has commenced a lawsuit against a prior general contractor
and several subcontractors for failing to complete some construction
work and for performing certain work in a negligent manner. Both the
costs of the litigation and any proceeds derived from the litigation
are to be shared equally with the owner of the sold building referred
to in Note 12(a).
12. Related Party Transactions
(a) Transactions with Former President
On October 30, 1996, the Board of Directors approved the sale of one of
the condominium buildings under construction to a company controlled by
the Company's President and Chief Executive Officer. The building to
be sold contains the four units for which deposits for the full sales
price have been received by the Company (see Note 7(b)). The purchaser
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
agreed to purchase the building, subject to receiving move-in permits,
for $1,281,512 and the Company must repay therefrom $346,473 previously
loaned by the purchaser to the Company. The balance of $935,039 is
payable to the Company as follows: $250,000 upon receipt of move-in
permits and a note payable for $685,039 which was due on June 30, 1997.
The sale will be consummated upon the receipt of the move-in permits.
As of September 30, 1997, move-in permits have not been obtained.
The Company's President also agreed to resign as an officer, director
and employee and agreed to a cancellation of his employment agreement
(which provided for $168,000 salary per annum until February 1999) upon
payment of $372,000, which amount is to be deducted from the
aforementioned $685,039 note payable to the Company, leaving a balance
due on the note of $313,039. It was further agreed that the stock
options which were granted to the President under his employment
agreement and pursuant to the Company's Incentive Stock Option Plan
of 1992 will not terminate, but will continue to be governed by the
original terms of the options. The aforementioned $372,000 relating to
the cancellation of the President's employment agreement and $600,000
relating to the extension of the period of exercisability of the
President's options were charged to compensation and related costs
during the fourth quarter of 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operations
The Company was organized on November 9, 1992. The Company was in the
development Stage through December 31, 1993 and has been unprofitable to date.
Through its Wholly-owned Hungarian subsidiary, Teleconstruct Epitesi Rt.
("Teleconstruct") the Company is constructing for sale two luxury 14-unit
condominiums in Budapest.
In January 1997, the Company acquired three operating Internet service provider
businesses and has consolidated the three businesses under one roof. Revenues
from the Internet business for the nine months ended September 30, 1997 amounted
to $931,705.
Effective July 9, 1997, the Company changed its name to Euroweb International
Corp. and increased the authorized number of shares of capital stock from
10,000,000 shares of common stock to 15,000,000 shares of common stock and
5,000,000 shares of preferred stock. In addition, one of the three Internet
subsidiaries changed its name to Euroweb Kft. (a Limited Liability Company)
and the accounts of the three subsidiaries were consolidated into this company.
Euroweb Kft. then changed its name and corporate structure to Euroweb Rt.
(a Stock Corporation) in order to make possible a public offering of its shares
in Hungary. The Company has no present plans or intent to sell any of the
Euroweb Rt. shares in Hungary and has no current negotiations for such sale
with any investment bankers.
In February 1997, the Company's Chairman of the Board resigned as an officer,
director and employee, and agreed to a cancellation of his employment agreement
upon payment of $50,000, which represented the approximate amount owed to him
with respect to 1996 salary. In addition, 125,000 stock options which were
granted to him under his employment agreement will not terminate as a result
of the resignation, but will continue to be governed by the original terms of
the options. Compensation of $100,000 has been charged to the 1997 operations
relating to the period of exercisability of the options.
In February 1997, the former President of the Company was retained as a
consultant to the Company to oversee the Company's real estate interests and
Internet business. He agreed to render consulting services for a two-year period
for a fee of 100,000 five-year options exercisable at $2.00 per share. The
compensation relating to these options is being charged to operations over a
two-year period.
On August 26, 1997, the Board of Directors extended the term of the employment
agreement with its Chairman of the Board to December 31, 2005 and included a
provision in the contract to provide the Chairman with a split dollar life
insurance policy with a face amount of $2,000,000. The policy is to be
structured so that the premiums and other costs paid by the Company in
connection with the policy would be recovered by the Company out of the
proceeds of the policy.
For the nine months ended September 30, 1997, the Company incurred a net loss of
$1,795,277; the net loss for the nine months ended September 30, 1996 amounted
to $1,808,044. The acquisition of the Internet business resulted in goodwill of
$1,927,861, which is being amortized over five years; amortization for the nine
months ended September 30, 1997 amounted to $289,000.
<PAGE>
The equity in net loss of unconsolidated affiliate of $362,000 for the nine
months ended September 30, 1996 represented the Company's share of HBC's
estimated loss. The Company's 9.7% interest in HBC was carried at equity
because the Company had the ability to exercise significant influence over HBC.
Effective October 1, 1996, the Company discontinued its use of the equity
method of accounting for its investment in HBC, since the Company no longer
had the ability to exercise significant influence over HBC. On October 29,
1997, the Company, with the consent of HBC's underwriters, sold its entire
investment (250,000 shares of restricted stock) for $625,000.
Financing costs of $150,847 incurred in connection with the sale of convertible
debentures were charged to 1997 operations since a substantial portion of the
debentures are expected to be converted to common stock within a short period.
Interest expense of $437,009 in 1997 includes $327,000 of incremental interest
on the convertible debentures relating to the convertibility of the debentures
at a 50% discount to the Common Stock's market price. The balance of the
interest was primarily incurred on various borrowings.
The Company has entered into an agreement with MCI Global Resources, Inc.
("MCI") for certain communication services to be provided by MCI during a
three year period which is expected to begin approximately November 1, 1997
at a minimum charge of $17,888 per month.
Liquidity and Capital Resources
In November and December 1996, the Company sold $792,500 of 10% convertible
debentures due in September 1998 to foreign investors outside the United States
in private placements, receiving aggregate net proceeds of approximately
$693,500 after deducting placement agent fees and offering expenses of
approximately $99,000. During the nine months ended September 30, 1997, the
Company sold an additional $850,000 of 10% convertible debentures due from
January 1999 through September 1999, receiving $699,153 after deducting
financing costs of $150,847. No subsequent sales of 10% convertible debentures
were made during October 1997.
At December 31, 1996, $307,500 of debentures and accrued interest were
converted into 263,979 shares of common stock and during the nine months ended
September 30, 1997, an additional $1,115,000 of debentures and accrued interest
were converted into 2,209,448 shares of common stock. During October 1997,
another $70,000 of debentures and accrued interest were converted into 204,219
shares of common stock.
On August 26, 1997 the Board of Directors approved an increase in the number of
shares of common stock to be available under the Company's 1993 Incentive Stock
Option Plan from 350,000 to 700,000. The Board also approved the establishment
of a 1998 Directors Stock Option Plan with the right to grant 300,000 shares to
the Company's Directors. Both of these actions are subject to approval of the
Company's shareholders at the next annual shareholder meeting to be held in
1998.
The Company believes that its revenues from operations, together with the funds
already raised and to be raised in 1997, will meet the Company's cash
requirements to the end of 1998.
<PAGE>
Inflation and Seasonality
The rate of inflation in Hungary was 23% in 1996 as compared with 28% for 1995
and 18% for 1994. Prices have been rising rapidly in recent years mainly
because of reduction or removal of subsidies and price controls, not because of
expansionist monetary policies. Since the Company uses the U.S. dollar as the
functional currency for its Hungarian subsidiaries, the Hungarian inflation does
not have a material effect on financial condition and results of operations.
Internet operations are not seasonal or dependent on weather conditions.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
Except for historical information provided in the Management's Discussion and
Analysis, statements made throughout this document are forward-looking and
contain information about financial results, economic conditions, trends and
known uncertainties. The Company cautions the reader that actual results could
differ materially from those expected by the Company, depending on the outcome
of certain factors (some of which are described with the forward-looking
statements) including: 1) heightened competition, particularly price
competition, reducing margins; and 2) slower growth than expected in the
market for Internet services in Hungary.
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits* (numbers below reference Regulations S-B)
(3) (a) Certificate of Incorporation filed November 9, 1992
(b) Amendment to Certificate of Incorporation filed July 9, 1997
(c) By-laws
(4) (a) Form of Common Stock Certificate
(b) Form of Underwriters' Warrants to be sold to Underwriters
(c) Placement Agreement between Registrant and J.W. Barclay & Co.,
Inc. and form of Placement Agent Warrants issued in connection
with private placement financing
(d) Form of 10% Convertible Debenture used in connection with
offshore private placement financing pursuant to Regulation S***
(e) Form of Common Stock Purchase Warrant in connection with private
placement financing under Section 506 of Regulation D***
(10) (a) Consulting agreement between Registrant and Klenner Securities
Ltd.
(b) Consulting agreement between Registrant and Robert Genova
(c) Consulting agreement between Registrant and Laszlo Modransky
(d) 1993 Incentive Stock Option Plan
(e) Sharing agreement for space and facilities between Registrant
and Hungarian Telephone and Cable Corp.
(f) Articles of Association (in English) of Teleconstruct Building
Corp.
(g) Articles of Association (in English) of Termolang Engineering
and Construction Ltd.
(h) Letter of intent between Teleconstruct Building Corp. and
Pilistav
(i) Employment agreement between Registrant and Robert Genova** and
termination agreement dated February 5, 1997***
<PAGE>
(j) Employment agreement between Registrant and Peter E. Klenner**
and termination agreement dated October 30, 1996, and agreement
for sale of condominium unit to M&A***
(k) Employment agreement between Registrant and Frank R. Cohen** and
modification of employment agreement****
(l) Letter of Intent agreement between Registrant and Raba-Com Rt.
(m) Letter of Intent agreement between Registrant and Kelet-Nograd
Rt.
(n) Letter of Intent agreement between Registrant and 3 Pilistav
villages for installation of cable in those areas
(o) Lease agreement between Registant's subsidiary EUnet Kft. and
Varosmajor Passage, Kft. for office space***
(p) Acquisition agreement between Registrant and KFKI Computer
Systems Corp. dated December 13,1996***
(q) Acquisition agreement between Registrant and Enet Hungary***
(r) Acquisition agreement between Registrant and MS Telecom Rt.***
(s) Employment Agreement between Registrant and Imre Kovats***
(t) Employment Agreement between Registrant and Csaba Toro***
(u) Promissory Note from Registrant to HBC***
(v) Communication Services Agreement between Registrant and MCI
Global Resources, Inc.****
(w) 1998 Directors Stock Option Plan (subject to approval of the
Company's shareholders at the next annual shareholder meeting to
be held in 1998)****
* All Exhibits are incorporated by reference to Registrant's Registration
Statement on Form SB-2 dated May 12, 1993 (Registration No. 33-62672-NY,
as amended)
** Filed with Form 8-K as of February 17, 1994
*** Filed with Form 10-KSB for year ended December 31, 1996
**** Filed herewith.
B. No reports on Form 8-K have been filed during the last quarter covered by
this report on Form 10-QSB
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 14th day of November 1997
EUROWEB INTERNATIONAL CORP.
By
Frank R. Cohen
Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000905428
<NAME> EUROWEB INTERNATIONAL CORP.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 294,282
<SECURITIES> 0
<RECEIVABLES> 727,264
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,117,508
<PP&E> 456,576
<DEPRECIATION> 124,968
<TOTAL-ASSETS> 7,078,684
<CURRENT-LIABILITIES> 1,975,346
<BONDS> 1,251,891
0
0
<COMMON> 4,542
<OTHER-SE> 3,486,905
<TOTAL-LIABILITY-AND-EQUITY> 7,078,684
<SALES> 0
<TOTAL-REVENUES> 931,705
<CGS> 0
<TOTAL-COSTS> 2,289,973
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437,009
<INCOME-PRETAX> (1,795,277)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,795,277)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,795,277)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
MCI COMMUNICATIONS SERVICES AGREEMENT
THIS COMMUNICATIONS SERVICES AGREEMENT (the "Agreement") is entered into on
October 4, 1996, by and between MCI Global Resources, Inc., at Two
International Drive, Ryebrook, NY 10573 ("MCI") and EuroWeb Corp. ("Customer").
MCI agrees to provide to Customer and Customer agrees to take from MCI certain
communications services described herein (the "Service") pursuant to the Service
Description and the MCI Tariff (defined below) and the Terms and Conditions
attached hereto and incorporated by reference. The parties can agree to the
provision of additional communications services by attaching to this Agreement a
Service Description Addendum executed by the parties setting forth additional
communications services to be provided, which Addendum will be governed by the
Terms and Conditions of this Agreement unless otherwise expressly stated in the
Service Description Addendum. "MCI Tariff' means Tariff No.4 of MCI's affiliate,
Overseas Telecommunications, Inc., on file with the FCC as amended from time to
time and any other tariff of MCI or its affiliates which may be applicable to
the service. The MCI Tariff is hereby incorporated by reference.
SERVICE AGREEMENT
ORDER REFERENCE: ---------------------------------
1. NAME AND ADDRESS OF CUSTOMER:
EuroWeb Corp. ("Customer")
--------------------------------------------------------
227 Route 206 unit
--------------------------------------------------------
Flanders, NJ 07836
--------------------------------------------------------
Attn: Robert Genova
--------------------------------------------------------
Authorized Representative or Corporate Officer
2. SERVICE TO BE PROVIDED:
A 5l2Kbps Skyline Direct circuit between the MCI Internet POP in the
U.S. and Budapest, Hungary
----------------------------------------------------------------
3 TERMINATION POINTS (END USER PREMISES):
----------------------------------------------------------------
4. INTERFACE SPECIFICATIONS:
V.35 interface in Budapest, Hungary_____________
----------------------------------------------------------------
5. REQUESTED SERVICE COMMENCEMENT DATE:
1-1-97
----------------------------------------------------------------
<PAGE>
6. TERM OF SERVICE:
3 years
-----------------------------
7. PAYMENT TERMS:
(a) MONTHLY RECURRING SERVICE CHARGES:
$31,444
---------------------------------------
(b) NON-RECURRING CHARGES:
$15,201
---------------------------------------
(c) LOCAL ACCESS AND IOC MONTHLY RECURRING AND NON-RECURRING
$2,119
---------------------------------------
(d) NON-RECURRING CHARGES:
---------------------------------------
8. MAINTENANCE CONTACT POINTS:
Customer contact point:
Robert Genova
-----------------------------------------------
Telephone: (201) 927-6560
MCI Contact point:
Deborah Shelton
-----------------------------------------------
Telephone: (212) 297-2677
9. TECHNICAL STANDARDS:
-----------------------------------------------
IN WITNESS WHEREOF, the undersigned have executed this Communications Services
Agreement as of the date first set forth above.
<TABLE>
<CAPTION>
<S> <C> <C>
By: MCI Global Resources, Inc. EuroWeb Corp.
--------------------------------------
Customer Corporate Name
By: ----------------------------------------------- By: /s/Robert Genova
---------------------------------------
Title: ----------------------------------------------- Title: Chairman
--------------------------------------
</TABLE>
<PAGE>
MCI
(G) This Agreement and any exhibits and schedules attached hereto contain the
entire agreement between the parties with respect to the subject matter hereof
and supersede all prior oral or written agreements, commitments, or
understandings with respect to the matters provided for herein.
(H) In the event of a conflict between the body of this Agreement, the Service
Description, the MCI Tariff or the Customer tariff plan, the following order of
precedence shall govern resolution of the conflict, in descending priority:
- Tariff plan
- MCI Tariff
- Agreement
- Service Description
(I) All notices or other communications which may be or are required to be given
by either party to the other under this Agreement shall be in writing and mailed
by first-class, registered or certified air mail, return receipt requested,
postage prepaid, or transmitted by hand delivery, or facsimile machine to those
persons whose names and businesses addresses appear in the Service Description.
(J) This Agreement shall be governed by and construed in accordance with the
laws of the State of New York (USA) (not including the choice-of-law rules
thereof).
(K) Any dispute arising out of or related to this Agreement, which cannot be
resolved by negotiation, shall be settled by binding arbitration in accordance
with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures ("Endispute
Rules"), as amended by this Agreement. The costs of arbitration, including the
fees and expenses of the arbitrator, shall be shared equally by the Parties
unless the arbitration award provides otherwise. Each Party shall bear the cost
of preparing and presenting its case. The Parties agree that this provision and
the arbitrator's authority to grant relief shall be subject to the United States
Arbitration Act, 9 U.S.C. 1-16 et seq. (the "USAA") the provisions of this
Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial
Disputes. The Parties agree that the arbitrator shall have no power or authority
to make awards or issue orders of any kind except as expressly permitted by this
Agreement, and in no event shall the arbitrator have the authority to make any
award that provides for punitive or exemplary damages. The arbitrator's decision
shall follow the plain meaning of the relevant documents, and shall be final and
binding. The award may be confirmed and enforced in any court of competent
jurisdiction. All post-award proceedings shall be governed by the USAA.
INITIAL:
- --------------------------------------------
- -----------------------------------------------
<PAGE>
MCI COMMUNICATIONS SERVICES AGREEMENT TERMS AND CONDITIONS
1. INSTALLATION AND USE:
(A) Customer, at its cost and expense, shall provide MCI and its authorized
agents and representatives access to its or its end user's premises throughout
the term of this Agreement, and will obtain all necessary local zoning licenses
and building permits, in order for MCI to install and maintain the Service,
including installation, maintenance and repair of equipment and related
facilities provided and/or installed by MCI in connection with the Service (the
"Equipment") and removal of such Equipment upon termination of this Agreement.
(B) Customer shall pay the costs and expenses associated with installation and
operation of the Equipment, including Customer and/or its end user's personnel
as needed, crane rental as needed, electrical power, site preparation, premises
rental or similar space costs, air conditioning and other utilities and cabling
in excess of 50 meters.
(C) Customer or its end users may not repair, alter, relocate or otherwise
modify any Equipment without the prior written approval of MCI. If Customer or
its end users engages in, or negligently permit others to engage in, the
foregoing without the prior written approval of MCI, Customer shall promptly pay
MCI for any damage to the Equipment caused thereby or related thereto, including
replacement of the Equipment. In addition, MCI may pursue its remedies against
Customer for breach of this Agreement and Customer shall not receive any credit
for Service interruption under Paragraph 4 caused by such conduct.
(D) Customer and its end users shall comply with any restrictions or conditions
imposed by applicable government authorities on Customer and its end users'
receipt or use of the Service in any country in which Customer or its end users
use the Service, and any restrictions or conditions imposed as aforesaid that
apply to Customer or its end user's use of the Service in, between, or among any
countries, and shall not use the Service in violation of any applicable law,
rule or regulation.
(E) Customer shall not resell the Service using any logo, service mark or
trademark of MCI its parent, its affiliates or its subsidiaries.
2. COMMENCEMENT OF SERVICE AND TESTING: Prior to the start of the Service, MCI
shall complete a test of the Service. Service will be commenced at 12:01 a.m.
the day following completion of a test that demonstrates Service operates in
accordance with Service Description provisions of the Agreement ("Service
Commencement Date").
3. SERVICE CHARGES AND PAYMENT TERMS:
(A) MCI shall invoice Customer thirty (30) days in advance for the Monthly
Recurring Service Charges due, which invoice shall be due and payable within
thirty (30) days of the date of invoice. For the first and last month of the
term in which Service is provided on a fractional basis, the Monthly Recurring
Service Charges shall be pro-rated accordingly.
(B) All payments by Customer to MCI hereunder shall be made in U.S. Dollars.
Payment shall be deemed made only upon receipt by MCI of collected funds and
shall be made either by (i) bank wire transfer to such bank account as MCI may
designate by notice to Customer (ii) bank cashier's or certified check or (iii)
check, payable to MCI upon demand, and drawn from currently available funds.
(C) Any use, excise, sales or privilege taxes, duties, or similar liabilities,
chargeable to or against MCI by any applicable government authority because of
the Service provided to Customer or its end users, shall be charged to and
payable by the Customer in addition to the other charges under this Agreement.
<PAGE>
MCI
4. SERVICE INTERRUPTIONS:
(A) In the event of an interruption in Service, other than for those causes set
forth in Paragraphs 1(c), 4(B), or 8, Customer shall be entitled to a credit
against the Monthly Recurring Service Charges payable to MCI for the next month.
Service interruption shall be measured from the time notice is given by Customer
to MCI that interruption has occurred until the time Service is restored. No
credit shall be allowed for a Service interruption of two hours or less. Credit
shall be given for each half hour of interrupted Service and shall be computed
on a proportionate basis.
(B) Customer shall not be entitled to credit for interruptions in Service if
such interruptions result, directly or indirectly (i) from periodic or
cooperative testing deemed appropriate or necessary by MCI, (ii) from failure by
Customer to perform any of its material obligations under this Agreement, (iii)
from failure or inadequate performance of any equipment and all related
facilities provided by Customer or its end user, (iv) for that time which
Customer or its end user does not provide access to the equipment associated
with the Service or (v) failure of commercial power supplies or in public
network facilities.
(C) All credits for Service interruption shall be set forth in the invoice sent
the month following the interruption in Service.]
5. TERMINATION:
(A) Customer may terminate this Agreement as to the effected communications if
the following occurs: (i) Service is interrupted or fails to meet the Technical
Standards specified in the Service Description for seven (7) consecutive
business days and such interruption or failure is not corrected within
forty-eight (48) hours after written notice by Customer, (ii) Service is
interrupted or fails to meet the Technical Standards specified in the Service
Description, for a total of fifteen (15) days during any six (6) month period or
(iii) MCI fails to comply in all material respects with the covenants,
agreements or conditions herein, which remain uncorrected for thirty (30)
business days after receipt of written notice from Customer specifying the
alleged failure. In the event Customer terminates this Agreement in accordance
with the foregoing, no further payment shall be payable by either party to the
other except for payments concerning obligations relating to periods prior to
and including the termination date.
(B) MCI may terminate this Agreement without liability if (i) MCI is prohibited
from finishing the Service by any applicable government authority or (ii) if any
material term, condition or rate contained herein is substantially changed by
any applicable government authority.
(C) In the event that Service does not commence within one hundred twenty (120)
days of the date of this Agreement, either party may terminate this Agreement
without liability upon written notice to the other party given by no later than
one hundred thirty (130) days from the date of this Agreement.
6. DEFAULT AND REMEDIES: If Customer (i) fails to pay any Service Charges or
other amount due to MCI and such failure continues for ten (10) days after the
date due, (ii) fails to comply in material respects with all covenants,
agreements or conditions herein and such failure continues for thirty (30) days
after written notification from MCI or (iii) is in violation (or its end user is
in violation ) of any laws or regulations of any applicable government authority
in connection with the Service or its use, MCI may, at its option , upon
twenty-four (24) hours notice, exercise one or more of the following remedies:
(a) temporarily suspend Service (either completely or with respect to any
communications paths ) to Customer without terminating the Agreement until
Customer cures the default, (b) terminate Service with respect to any
communications paths without terminating the Agreement, (c) terminate the
Agreement, (d) proceed to recover damages for breach of Agreement, including
costs and expenses in connection with enforcing the Agreement and (e) pursue any
other remedies available at law or in equity.
7. TERM: The term of this Agreement shall commence on the Service Commencement
Date and continue for the term specified in the Service Description above.
<PAGE>
MCI
8. FORCE MAJEURE: Neither MCI nor Customer shall be liable for any failure of or
delay in performance hereunder arising out of or resulting from cause beyond its
reasonable control including, but not limited to, acts of God; fire; flood;
adverse weather conditions; meteorological or atmospheric occurrences or
disturbances (including, but not limited to, Sun outages) or other natural
events; acts of government (including, but not limited to, any law rule order,
regulation or direction of any applicable government, civil or military
authority); national emergencies; insurrections; riots; acts of war; civil
disorder; quarantine restrictions; embargoes; delays of suppliers, contractors,
material men, vendors and other carriers; and strikes, lockouts, work stoppages
and other labor difficulties.
9. PROPRIETARY INFORMATION: Information considered proprietary or confidential
by either MCI or Customer which is delivered or disclosed pursuant to or in
connection with this Agreement and identified as such by the disclosing party
shall be held in confidence by the recipient, and shall be disclosed only to its
employees and authorized representatives or agents on a need to know basis. The
recipient shall use the same level of care in safeguarding such proprietary
information as it normally takes to safeguard its own proprietary information.
Neither party shall be liable under this paragraph for the disclosure or use of
proprietary information which is, or becomes, publicly known, other than by
breach hereof; is obtained without restriction by the recipient on a
nonconfidential basis from a third party lawfully possessing and lawfully
entitled to disclose such information; is previously know by the recipient, is,
at the time, developed by the recipient independent of any disclosures
hereunder, or, is required to be disclosed by a governmental entity having
jurisdiction over the recipient. If either party is required to disclose any
proprietary information of the other party, it shall provide notice thereof to
the other party in a timely fashion so that impacted party may avail itself of
any procedures or remedies to protect or avoid such disclosure.
10. PUBLICITY: Neither party shall issue a public notice or news release
concerning this Agreement and the transactions contemplated hereby without the
prior approval of the other, which approval shall include the right to approve
the form, content and timing of any such publicity.
11. WARRANTY: (A) MCI warrants that the service will be provided in accordance
with the Technical Standards set forth in Service Description.
(B) THE WARRANTY EXPRESSLY SET FORTH HEREIN IS GIVEN AND ACCEPTED IN LIEU OF ANY
AND ALL WARRANTIES EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING,
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ALL OF WHICH WARRANTIES ARE HEREBY EXCLUDED AND DISCLAIMED.
(C) Customer sole and exclusive remedy for breech of the warranties set forth in
Paragraph 11(A) shall be termination of this Agreement and credits in accordance
with and subject to the limitations of this Agreement.
12. LIABILITY AND LIMITATIONS:
(A) MCI's liability arising in any way under this Agreement shall be limited to
the credits provided for under paragraph 4 and shall not exceed an amount equal
to the portion of the Service Charges due MCI for the provision of Service
allocable to period of time during an action which caused liability occurred.
(B) MCI has no other or further liability under this Agreement or with respect
to the Service or the Equipment, whether arising out of statute, contract,
negligence, strict liability, in or, under any warranty or otherwise. MCI shall
not be liable for libel, slander or infringement of patent or copyright arising
from or in connection with the Service; unlawful or unauthorized use of the
Service or Equipment, or any claim arising out of a breach of privacy or
security of communications transmitted over the Service.
<PAGE>
MCI
Notwithstanding the foregoing, MCI assumes liability for negligent installation
and maintenance of equipment which causes personal injury or property damage.
(C) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, MCI SHALL NOT FOR ANY
REASON BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL
OR OTHER SIMILAR DAMAGES, INCLUDING, BUT NOT LIMITED TO, DAMAGES, RESULTING FROM
LOSS OF ACTUAL OR ANTICIPATED REVENUES OR PROFITS, OR LOSS OF BUSINESS, DATA,
CUSTOMER OR GOOD WILL.
13. INDEMNIFICATION: Customer shall indemnify and hold harmless MCI, its parent,
its affiliates, partners, directors, officers, employees, shareholders, agents
and representatives from and against all claims, causes of actions, judgments,
damages, expenses, and liabilities arising from or in connection with (i) the
use of the Service or Equipment by Customer or its end users, (ii) the content
of material that Customer or its end users transmits through use the Service,
including, but limited to, claims for defamation, invasion of privacy,
disparagement, trademark or copyright and (iii) any breach by Customer of this
agreement.
14. ADDITIONAL ACTIONS AND DOCUMENTS: MCI and Customer each agree to take all
necessary actions to execute, deliver and file any additional documents and
instruments, and to use reasonable efforts to obtain necessary or appropriate
consents and br approvals in order to effectuate the provision of the Service
under this Agreement.
15. ADDITIONAL PROVISIONS:
(A) Waivers or consents by either party to any variation from any provision of
this Agreement shall be valid only in the specific instance in which waiver or
consent is given, and shall not be construed as a waiver of any other provision
of this Agreements or with respect to any similar instance or circumstance.
(B) Customer may not assign this Agreement without the prior written consent of
MCI, which consent may not be reasonably withheld. MCI may assign all or part of
its right, title or interest in the Equipment or this Agreement and any or all
sums due or to become due pursuant to this Agreement for any reason. Upon
receipt of written notice of a permitted assignment there under, each party
shall perform all its obligations hereunder to or for the benefit of the
assignee and execute and deliver such documentation as may be reasonably
required under this Agreement.
(C) Subject to provisions hereof restricting assignment, this Agreement shall be
binding upon and shall insure to the benefit of the parties hereto and their
respective successors and assignees.
(D) This Agreement may be executed in two or more counterparts, all of which
taken together shall constitute one instrument.
(E) If any provision of this Agreement shall be finally determined by a forum of
proper jurisdiction to be invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby and shall be valid and enforced to the
fullest extent permitted by law consistent with the parties' intent as expressed
in this Agreement. Each communication path constituting part of the Service
shall be deemed several from other communications paths set forth in this
Agreement and each Service Description shall be several from other Service
Descriptions.
(F) This Agreement may not be amended, altered, or modified except by an
instrument in writing, duly executed by both parties.
<PAGE>
AMENDMENT NO. 1
TO AGREEMENT BETWEEN
MCI GLOBAL RESOURCES, INC.
AND
EUROWEB INTERNATIONAL CORP.
THIS AMENDMENT NO.1 is made and entered into to as of July 22, 1997 by and
between MCI Global Resources, Inc. ("MCI") and EuroWeb International Corp., a
Delaware corporation ("Customer").
WHEREAS, MCI and Customer previously entered into that certain Communications
Services Agreement, dated October 4,1996 (the "Agreement"") pursuant to which
MCI provides Customer with MCI Skyline Direct VSAT service between the U.S.A.
and Budapest, Hungary; and
WHEREAS, MCI and Customer desire to amend certain terms of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, as well as other good and valuable consideration the adequacy and
receipt of which is hereby acknowledged the Parties agree as follows:
1. The Agreement is hereby amended by replacing the header on page 1 "SERVICE
AGREEMENT" with "SERVICE DESCRIPTION."
2. Section 3 of the "Service Description" section of the Agreement is hereby
amended by replacing the address stated with the following:
Varosmajor u. 13
H-1122 Budapest
Hungary
3 Section 6 of the "Service Description" section of the Agreement is hereby
amended and restated as follows, replace:
"3 years" with: "3 years from the actual Service Commencement Date (the
"Initial Term"). Unless one party notifies the other no less than sixty
(60)calendar days prior to the end of this three (3) year period, this
Agreement shall automatically renew on a month-to-month basis;
provided, however that such month-to-month renewal is cancelable by
either party only upon sixty (60) calendar days prior written notice."
<PAGE>
4 Section 7 of the "Service Description" section of the Agreement is hereby
amended and restated as follows:'
"PAYMENT TERMS"
(a) MONTHLY RECURRING SERVICES CHARGES: (APPLICABLE TO INITIAL TERM
ONLY)
US $17,888.00
(b) NON-RECURRING SERVICE CHARGE:
US $10,000.00 - Installation
(c) LOCAL ACCESS AND IOC MONTHLY RECURRING AND NON-RECURRING:
US $2119.00
(d) NON RECURRING CHARGES:
Removal of Equipment upon expiration or termination of Agreement: $0
5. Section 5(C) of the "Communications Services Agreement Terms and Conditions"
section of the Agreement is hereby amended by deleting the existing 5(C) and
replacing it with the following:
"(C) Except for termination pursuant to Section 5(A) above, in the event
Customer terminates this Agreement prior to the end of the Initial Term, or any
renewal term for any reason, including, specifically, early termination of this
Agreement by Customer for purposes of migrating to another service (i.e. fiber
service) whether provided by MCI or any other entity; Customer shall pay to MCI
an early termination fee equal to one hundred (100%) of all monthly recurring
charges for each month remaining in the Initial Term, or any renewal term, as
applicable. In the event Customer upgrades the Skyline Direct service ordered
hereunder to another MCI Skyline Direct Service, Customer shall not be liable to
MCI for early termination penalties but shall be responsible for any and all
additional costs associated with implementation and operation of such upgraded
Skyline Direct service."
6. Section 16(I) is hereby amended and restated as follows:
All notices, reports and other communications pursuant to or in
connection with this Agreement to be legally effective shall be given by
personal delivery, facsimile or courier service. Notices shall be deemed
received on the first date the facsimile is transmitted and the sender has
<PAGE>
received a confirmation of such transmission or the courier message is delivered
to the applicable locations described below.
Unless otherwise specified by not less then fifteen (15) calendar days notice in
writing by the party in question, the address to which communications shall be
sent shall be:
TO MCI:
FOR NOTICES OTHER. THAN FOR PAYMENT OR INVOICE MATTERS:
Mailing Address:.
MCI Global Resources, Inc.
Two International Drive
Rye Brook, New York 10573
Attn: Vice President of Finance
FAX: (914) 934-6507
With Copy to:
MCI Communications Corporation
1133 19th Street, N.W.
Washington, D.C. 20036
Attn: Law and Public Policy
Fax: (202) 736-6047
FOR NOTICES TO MCI REGARDING INVOICE AND PAYMENT MATTERS
MCI Global Resources, Inc.
201 Centennial Avenue
Piscataway, NJ 08854
TO CUSTOMER:
FOR NOTICES OTHER THAN FOR PAYMENT OR INVOICE MATTERS:
EuroWeb International Corp.
Varosmajor u. 13
H-1122 Budapest
ATTN.: Ms. Valeria Horvoth
FAX: 361 224 4100
<PAGE>
FOR NOTICES TO CUSTOMER REGARDING INVOICE AND PAYMENT MATTERS:
EuroWeb International Corp.
Varosmajor u. 13
H-1122 Budapest
Hungary
ATTN: Ms. Valeria Horvoth
FAX: 361 224 4100
7. Except as modified herein, all other terms and conditions of the Agreement
remain unchanged. For purposes of clarity, EuroWeb International Corp. hereby
expressly accepts all of the rights, obligations and liabilities of Customer set
forth in the Agreement, in which Customer is incorrectly referred to as EuroWeb
Corp., including, specifically, the obligation to submit a security deposit to
MCI in the amount of Thirty Three Thousand Five Hundred and Sixty Three U.S.
Dollars (US$33,563.00) no later than three (3) business days from the signing of
this Amendment by MCI.
8. This Amendment No 1 may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment No. 1 to be
executed as of the date first written above.
MCI GLOBAL RESOURCES, INC. EUROWEB INTERNATIONAL CORP.
By: /s/ ANTHONY CIRIECO By: /s/ IMRE M. KOVATS
------------------- --------------------
Name: Anthony Cirieco Name: Imre M. Kovats
Title: Vice President Title: President
EUROWEB INTERNATIONAL CORP.
1998 DIRECTOR STOCK OPTION PLAN
1. Purposes.
The EUROWEB INTERNATIONAL CORP. 1998 DIRECTOR STOCK OPTION PLAN (the
"Plan") is intended to provide the directors of EUROWEB INTERNATIONAL CORP.,
formally known as Hungarian Teleconstruct Corp., (the "Company") with an added
incentive to provide their services to the Company and to induce them to exert
their maximum efforts toward the Company's success. By thus encouraging
directors and promoting their continued association with the Company, the Plan
may be expected to benefit the Company and its stockholders. The Plan allows the
Company to grant Incentive Stock Options ("ISOs") (as defined in Section 422(b)
of the Internal Revenue Code of 1986, as amended [the "Code"]), and
Non-Qualified Stock Options ("NQSOs"), not intended to qualify under Section
422(b) of the Code (ISOs and NQSOs hereinafter collectively the "Options"), to
directors of the Company, irrespective of whether they are employees of the
Company.
2. Shares Subject to the Plan.
The total number of shares of Common Stock of the Company, $.00l par
value per share, that may be subject to Options granted under the Plan shall be
the greater of 300,000 shares or 5% of the number of shares of the Company's
Common Stock which are from time to time outstanding, in the aggregate, subject
to adjustment as provided in Paragraph 8 hereunder. The Company shall at all
times while the Plan is in force reserve such number of shares of Common Stock
as will be sufficient to satisfy the requirement of outstanding Options granted
under the Plan, except as otherwise provided below. In the event any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, the unpurchased shares subject thereto shall again be available for
the granting of Options under the Plan.
In a given fiscal year, the maximum number of Options that can be granted
hereunder to a single person shall be limited to 100,000 Options, as adjusted
for future stock dividends and/or stock splits. Further, such limitation shall
not be deemed exceeded in the event subsequent to the date of grant of Options
under the Plan, the Company effectuates a stock split and/or stock dividend
which results in an adjustment to the number of Options previously granted. The
aforesaid limitation is intended to comply with Section 162(m) of the Code. To
the extent any provision of the Plan or action by the Board of Directors or
Committee, as hereinafter defined, fails to comply with Section 162(m), it shall
be deemed null and void to the extent required by statute and to the extent
deemed advisable by the Board of Directors and/or such Committee.
3. Eligibility.
ISOs may be granted under the Plan to one or more directors who are
employees of the Company or of a "subsidiary" or "parent" of the Company, as the
quoted terms are defined within Section 424 of the Code. An Officer is an
employee for the above purposes. NQSOs may be granted from time to time
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<PAGE>
under the Plan to one or more directors of the Company, irrespective of whether
they are employees of the Company.
4. Administration of the Plan.
(a) The Plan shall be administered by a Compensation Committee of the
Board of Directors of the Company (the "Committee") comprised of at least two
outside directors (as described under Rule 16b-3, promulgated under the
Securities Exchange Act of 1934 [the "1934 Act"]), and in accordance with the
requirement of Section 162(m) of the Code, appointed by the Board of Directors
of the Company. In the event such Committee is not comprised of said outside
directors, any Option granted hereunder shall not be deemed automatically null
and void, except as otherwise provided below. Within the limits of the express
provisions of the Plan, the Committee shall have the authority, in its
discretion, to determine the character of such Options (whether ISOs or NQSOs),
and to interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of option agreements
that may be entered into in connection with Options (which need not be
identical), subject to the limitation that option agreements granting ISOs must
be consistent with the requirements for the ISOs being qualified as incentive
stock options" as provided in Section 422 of the Code, and to make all other
determinations and take all other actions necessary or advisable for the
administration of the Plan. In making such determinations, the Committee may
take into account the nature of the services rendered by such individuals, their
present and potential contributions to the Company's success, and such other
factors as the Committee, in its discretion, shall deem relevant. The
Committee's determinations on the matters referred to in this Paragraph shall be
conclusive.
(b) Notwithstanding anything contained herein to the contrary,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3, as amended from time to time (and its successor
provisions, if any), under the 1934 Act. To the extent any provision of the Plan
or action by the Board of Directors or Committee fails to so comply, it shall be
deemed null and void to the extent required by law and to the extent deemed
advisable by the Board of Directors and/or such Committee.
5. Terms of Options.
Each Director of the Company who is a director on the date this Plan is
adopted by the Board of Directors and approved at a stockholder meeting, shall
be awarded 10,000 five-year options on that date at an exercise price equal to
the fair market value (as defined in subparagraph (b) below) of the Common Stock
as of such date, and each Director who is appointed to the Board of Directors of
the Company subsequent to the date this Plan is adopted by the Board of Director
shall receive a grant of 10,000 five-year options as of the date on which such
person is appointed to the Board of Directors, at an option exercise price equal
to the fair market value of the Common Stock as of the date such person is
appointed to the Board of Directors. A similar number of options shall be
awarded to each director on the anniversary date thereof. Directors who are
employees of the Company shall be awarded ISOs and Directors who are not
employed by the Company shall be awarded NQSOs. An ISO or an NQSO enables the
optionee to purchase from the Company, at any time during a specified exercise
period, a specified number of shares of Common Stock at a specified price (the
"Option Price"). The character and terms of each Option granted under the Plan
shall be subject to the following:
(a) An Option granted under the Plan must be granted within 10 years from
the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
2
<PAGE>
(b) The Option Price of the shares of Common Stock subject to each ISO
shall be the fair market value of such shares of Common Stock as of the time
such ISO is granted. Such fair market value shall be determined by the
Committee, and if the shares of Common Stock are then listed on any national
securities exchange or traded on the over-the~counter market, the fair market
value shall be the closing price on such exchange, or the mean of the closing
bid and asked prices of the shares of Common Stock on the over-the-counter
market, as reported by Nasdaq, the National Association of Securities Dealers
OTC Bulletin Board or the National Quotation Bureau, Inc., as the case may be,
on the day on which the Option is granted or, if there is no closing price or
bid or asked price on that day, the closing price or mean of the closing bid and
asked prices on the most recent day preceding the day on which the Option is
granted for which such prices are available. If an ISO is granted to an
individual who, immediately before the ISO is to be granted, owns directly or
through attribution) more than 10% of the total combined voting power of all
classes of capital stock of the Company or a subsidiary or parent of the
Company, the Option Price of the shares of Common Stock subject to such ISO
shall be equal to 110% of the fair market value per share of the shares of
Common Stock at the time such ISO is granted.
(c) The Option Price of the shares of Common Stock subject to an NQSO
granted pursuant to the Plan shall be the fair market value of the shares of
Common Stock, as determined above.
(d) In no event shall any Option granted under the Plan have an
expiration date later than ten (10) years from the date of its grant, and all
Options granted under the Plan shall be subject to earlier termination as
expressly provided in Paragraph 6 hereof. If an ISO is granted to any individual
who, immediately before the ISO is granted, owns (directly or through
attribution) more than 10% of the total combined voting power of all classes of
capital stock of the Company or of a subsidiary or parent of the Company, such
ISO shall by its terms expire and shall not be exercisable after the expiration
of five (5) years from the date of its grant.
e) Unless otherwise provided in any option agreement under the Plan, and
except as otherwise provided below, an Option granted under the Plan shall
become exercisable, in whole at any time or in part from time to time, but in no
case may an Option (i) be exercised as to less than one hundred (100) shares of
Common Stock at any one time, or the remaining shares of Common Stock covered by
the Option if less than one hundred (100), and (ii) become fully exercisable
more than ten years from the date of its grant.
(f) An Option granted under the Plan shall be exercised by the delivery
by the holder thereof to the Company at its principal office (to the attention
of the Secretary) of written notice of the number of full shares of Common Stock
with respect to which the Option is being exercised, accompanied by payment in
full, in cash or by certified or bank check payable to the order of the Company,
of the Option Price for such shares of Common Stock, or, by the delivery of
unexercised Options and/or shares of Common Stock having a fair market value
equal to the Option Price, or by a combination of cash and such unexercised
Options and/or shares held by an optionee that have a fair market value equal to
the Option Price, and, in the case of a NQSO, by having the Company withhold
from the shares of Common Stock to be issued upon exercise of the Option that
number of shares having a fair market value equal to the tax withholding amount
due, or otherwise provide for withholding as set forth in Paragraph 9(c) hereof.
The Option Price may also be paid in full by a broker-dealer to whom the
optionee has submitted an exercise notice consisting of a fully endorsed Option,
or through any other medium of payment as the Committee, in its discretion,
shall authorize.
3
<PAGE>
(g) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares of Common Stock covered by such holder's
Option until such shares of Common Stock shall be issued to such holder upon the
exercise of the Option.
(h) All Options granted under the Plan shall not be transferable
otherwise than by will or the laws of descent and distribution, and any Option
granted under the Plan may be exercised during the lifetime of the holder
thereof only by the holder. No Option granted under the Plan shall be subject to
execution, attachment or other process.
(i) Subject to the provisions of Section 6 hereof and except as set forth
below, each Option shall become exercisable with respect to one third of the
total number of shares of Common Stock subject to the Option on the date of its
grant and with respect to each additional one-third at the end of each one-year
period thereafter during the succeeding two years. Except as otherwise provided
herein, all or any part of the shares underlying the Option with respect to
which the Option is exercisable may be purchased commencing at the time and to
the extent such Option became exercisable or at any time or times thereafter
during the term of the Option. Mandatory grants of options to directors pursuant
to Section 5 shall vest immediately upon their grant.
(j) The aggregate fair market value, determined as of the time any ISO is
granted and in the manner provided for by Subparagraph (b) of this Paragraph 5,
of the shares of Common Stock with respect to which ISOs granted under the Plan
are exercisable for the first time during any calendar year and under incentive
stock options qualifying as such in accordance with Section 422 of the Code
granted under any other incentive stock option plan maintained by the Company or
its parent or subsidiary corporations, shall not exceed $100,000. Any grant of
Options m excess of such amount shall be deemed a grant of a NQSO. In addition
and notwithstanding anything contained herein to the contrary, in the event an
ISO granted hereunder does not, for any reason, at the time of grant or during
the term of the ISO satisfy all of the conditions under the Code with respect to
being deemed an ISO, then said ISO shall be deemed a NQSO, but only to the
extent, if applicable, said ISO exceeds any such conditions, and any said
determination that said ISO is deemed an NQSO shall not be deemed the grant of a
new Option hereunder.
(k) Whenever an optionee holding any Option outstanding under this Plan
(including Reload Options, as hereinafter defined, previously granted under this
Paragraph 5(k), exercises the Option and makes payment of the Option Price
pursuant to Paragraph 5(b) hereof, in whole or in part, by tendering shares of
Common Stock previously held by the optionee, then the Company shall grant to
the optionee a Reload Option ("Reload Option"), for the number of shares of
Common Stock that is equal to the number of shares of Common Stock tendered by
the Optionee in payment of the Option Price of the Option being exercised. The
Reload Option Price per share shall be an amount equal to the fair market value
per share of the Company's Common Stock, as determined as of the date of receipt
by the Company of the notice by the optionee to exercise the option, and as
determined in accordance with Paragraph 5(b) above. Subject to the terms of the
Plan and applicable law and regulation, the term of the Reload Option shall
expire and the Reload Option shall no longer be exercisable, on the later to
occur of (i) the expiration date of the originally exercised Option or (ii) ten
years from the date of grant of the Reload Option. Any Reload Option granted
under this Paragraph 5(b) shall vest immediately upon grant. All other terms of
the Reload Options granted hereunder shall be identical to the terms and
conditions of the original Option, the exercise of which gives rise to the grant
of the Reload Option. Notwithstanding anything contained herein to the contrary,
no Reload Options should be granted
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<PAGE>
hereunder if an optionee is no longer a director of the Company as of the date
of the exercise of the Options giving rise to the grant of Reload Options
hereunder. ln addition, and notwithstanding anything contained herein to the
contrary, in the event there is not a sufficient number of shares of Common
Stock authorized for issuance upon exercise of Reload Options under the Plan,
the Company shall use its best efforts to cause such number of authorized shares
of Common Stock underlying the Plan to be increased, provided, however, that if
the Company is unable to so cause such increase in the authorized number of
shares of Common Stock underlying the Plan to be effectuated, the ability of the
optionee to exercise such Reload Options may be delayed indefinitely, until such
time as the requisite number of shares of Common Stock is so authorized.
6. Death, Termination of Membership on the Board of Directors, or Disability.
(a) Except as otherwise provided herein, upon termination of membership
on the Company's Board of Directors, a holder of an Option under the Plan may
exercise such Options to the extent such Options were exercisable as of the date
of termination at any time within three (3) months after the date of such
termination, subject to the provisions of Subparagraph (c) of this Paragraph 6.
Notwithstanding anything contained herein to the contrary, any Options granted
hereunder to an optionee and then outstanding shall immediately terminate in the
event the optionee is convicted of a felony committed against the Company, and
the provisions of this Subparagraph (a) shall not be applicable thereto. In
addition, and anything contained herein to the contrary notwithstanding, the
term during which an optionee may exercise Options subsequent to the date of
termination may, in the Committee's discretion, be modified, subject to
applicable law and regulation, from the term specified above, as of the date of
grant and as specified in an option agreement evidencing the grant of Options
under the Plan.
(b) If the holder of an Option granted under the Plan dies (i) while
serving as a member of the Company's Board of Directors or (ii) within three (3)
months after the termination of such holder's membership on the Company's Board
of Directors, such Options may, subject to the provisions of Subparagraph (c) of
this Paragraph 6, be exercised by a legatee or legatees of such Option under
such individual's last will or by such individual's personal representatives or
distributees at any time within six (6) months after the individual's death, to
the extent, except as otherwise provided herein, such Options were exercisable
as of the date of death or date of termination of membership on the Board of
Directors, whichever date is earlier.
(c) An Option may not be exercised pursuant to this Paragraph 6 except to
the extent that the holder was entitled to exercise the Option at the time of
termination of membership on the Company's Board of Directors, and in any event
may not be exercised after the original expiration date of the Option.
(d) Notwithstanding anything in this Plan to the contrary, any Options
granted hereunder and then outstanding shall become immediately exercisable in
full in the event the optionee's membership on the Board of Directors is
terminated by the Company subsequent to the consummation of a tender offer or
exchange offer made by any "person" within the meaning of Section 14(d) of the
1934 Act or subsequent to a Change in Control, as defined below. For purposes of
this Subparagraph, a "Change in Control" shall have occurred if:
(1) any "person" within the meaning of Section 14(d) of the 1934 Act
becomes the "beneficial
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owner" as defined in Rule I 3d-3 thereunder, directly or indirectly, of more
than 20% of the Company's Common Stock (or with respect to the holders of the
Company's Common Stock on the effective date of the Company's registration
statement with respect to its initial public offering, if any such "person"
acquires more than 35% of the Common Stock).
(2) any "person," directly or indirectly, acquires by proxy or otherwise
the right to vote more than 20% of the Company's Common Stock for the election
of Directors (Or with respect to the holders of the Company's Common Stock on
the effective date of the Company's registration statement with respect to its
initial public offering, if any such person" acquires the right to vote more
than 35% of the Company's Common Stock for the election of Directors), other
than solicitation of proxies by the Incumbent Board (as hereinafter defined),
for any merger or consolidation of the Company or for any other matter or
question.
(3) during any two-year period, individuals who constitute the Board of
Directors of the Company (the "Incumbent Board") as of the beginning of the
period cease for any reason to constitute at least a majority thereof, provided
that any person becoming a Director during such period whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least three quarters of the Incumbent Board (either by specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for Director without objection to such nomination) shall be, for
purposes of this clause (3), considered as though such person were a member of
the Incumbent Board.
(4) the Company's stockholders have approved the sale of all or
substantially all of the assets of the Company.
(5) Notwithstanding the foregoing, a Change of Control shall not be
deemed to have occurred if the event causing the Change of Control is a
repurchase by the Company of its own shares (although subsequent acquisitions of
shares of Common Stock by any person" owning more than the percentage interest
Set forth above shall constitute a Change of Control).
(e) In addition, and notwithstanding anything contained herein to the
contrary, in the event an optionee dies during such time as the optionee is a
member of the Company's Board of Directors, then fifty percent (50%) of any
outstanding Options which have not vested and are not exercisable by the
optionee as of the date of death shall be automatically deemed vested and
exercisable by the optionee's estate and/or his legatees in accordance with
Subparagraph 6(b) hereof.
7. Intentionally Omitted.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are
hereafter changed by reason of recapitalization, reclassification, stock split,
combination or exchange of shares of Common Stock or the like, or by the
issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Committee, in the aggregate number of shares of
Common Stock available under the Plan, in -the number of shares of Common Stock
issuable upon exercise of outstanding Options, and the Option Price per share.
In the event of any consolidation or merger of the Company with or into another
company, or the conveyance of all or substantially all of the assets of the
Company to
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another company, each then outstanding Option shall upon exercise thereafter
entitle the holder thereof to such number of shares of Common Stock or other
securities or property to which a holder of shares of Common Stock of the
Company would have been entitled to upon such consolidation, merger or
conveyance; and in any such case appropriate adjustment, as determined by the
Committee shall be made as set forth above with respect to any further changes
in the capitalization of the Company or its successor entity. In the event of
the proposed dissolution or liquidation of the Company, all outstanding Options
under the Plan will automatically terminate, unless otherwise provided by the
Board of Directors of the Company or any authorized committee thereof.
(b) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock.
9. Further Conditions of Exercise.
(a) Unless the shares of Common Stock issuable upon the exercise of an
Option under the Plan have been registered with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, prior to the exercise
of the Option, an optionee must represent in writing to the Company that such
shares of Common Stock are being acquired for investment purposes only and not
with a view towards the further resale or distribution thereof, and must supply
to the Company such other documentation as may be required by the Company,
unless in the opinion of counsel to the Company such representation, agreement
or documentation is not necessary to comply with said Act.
(b) The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange on which the
shares of Common Stock may then be listed or until there has been qualification
under or compliance with such state or federal laws, rules or regulations as the
Company may deem applicable. The Company shall use reasonable efforts to obtain
such listing, qualification and compliance.
(c) The Committee may make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of any taxes that the Company
is required by any law or regulation of any governmental authority, whether
federal, state or local, domestic or foreign, to withhold in connection with the
exercise of any Option, including, but not limited to, (i) the withholding of
delivery of shares of Common Stock upon exercise of Options until the holder
reimburses the Company for the amount the Company is required to withhold with
respect to such taxes, (ii) the canceling of any number of shares of Common
Stock issuable upon exercise of such Options in an amount sufficient to
reimburse the Company for the amount it is required to so withhold, or (iii)
withholding the amount due from any such person's wages or compensation due such
person.
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10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by the
Board of Directors, or the date the Plan is approved by the stockholders of the
Company, or such date of termination, as hereinafter provided, and no Option
shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company voting as a single class, and entitled to vote
thereon.
(c) The Board of Directors of the Company may at any time, prior to ten
(10) years from the earlier of the date of the adoption of the Plan by such
Board of Directors or the date the Plan is approved by the stockholders,
terminate the Plan or from time to time make such modifications or amendments of
the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Company, voting as
a single class, and entitled to vote thereon, increase (except as provided by
Paragraph 8) the maximum number of shares of Common Stock as to which Options
may be granted under the Plan, materially change the standards of eligibility
under the Plan or materially increase the benefits which may accrue to
participants under the Plan. Any amendment to the Plan which, in the opinion of
counsel to the Company, will be deemed to result in the adoption of a new Plan,
will not be effective until approved by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company, voting as a
single class, and entitled to vote thereon.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding Option without the consent of the
individual to whom such Option shall have been previously granted and/or
awarded.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of Directors
of the Company. The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon within one year before or after adoption of the
Plan by the Board of Directors.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an Option
is or may be granted hereunder any right to remain in the employ of the Company
or of a subsidiary or parent of the Company or confer any continued right to be
a member of the Company's Board of Directors, or in any way limit the right of
the Company, or of any parent or subsidiary thereof, to terminate the employment
of any employee, or to terminate any other relationship with an Optionee,
including that of independent contractor or consultant Notwithstanding anything
contained herein to the contrary, and except as otherwise provided at the time
of grant, all references hereunder to termination of employment shall with
respect to consultants and independent contractors mean the termination of
retention of their services with or for
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the Company.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
This 1998 Director Stock Option Plan
was adopted by the Company's Board
of Directors on August 26, 1997 is
to be submitted for Shareholder
approval at the Annual Shareholder
meeting to be held in 1998
9
EMPLOYMENT CONTRACT, dated as of August 26, 1997 between Euroweb
International Corp., formally Hungarian Teleconstruct Corp.,445 Park Avenue, New
York, NY 10022 (the "Company") and Frank R. Cohen (the "Employee").
Whereas the Company and Employee entered into an employment contract
dated as of February 1, 1994 which was modified on April 12, 1994, October 23,
1995, December 23, 1996, and May 6, 1997 (which contract together with the
modifications are hereinafter referred to as the "Agreement"); and
Whereas the Agreement provided for the grant of 35,000 non-qualified
options to purchase 35,000 shares of the Company's Common Stock ("Stock") at an
exercise price of $1 per share, which options have vested and the shares
underlying said options have been registered with the Securities and Exchange
Commission; and
Whereas the Board of Directors on August 26, 1997 agreed that this
Agreement shall be modified so as to extend the term of the Agreement from to
December 31, 2002 to December 31, 1995 and to provide for Frank R. Cohen a split
dollar life insurance policy in the face amount of $2,000,000.
Whereas the Company and the Employee desire to restate the Agreement
so as to incorporate the aforesaid modifications into the Agreement:
Now, therefore, the parties agrees as follows:
1. Agreement dated as of August 26, 1997 between the Company and the
Employee is restated by the agreement set forth herein.
2. TERM:
The Company agrees to employ the Employee in an executive capacity as
Chief Financial Officer, Secretary, Treasurer and Director and Employee agrees
to serve on the terms and conditions of this Agreement for a period of seven
years ending December 31, 2005. The period during which Employee is employed
hereunder is hereinafter referred to as the "Employment Period."
3. DUTIES & SERVICES:
During the Employment Period, Employee shall be employed in the
business of the Company. In performance of his duties, Employee shall be subject
to the reasonable direction of the Board of Directors of the Company. Employee
agrees to perform his duties hereunder to the best of his abilities and to take
no action outside of the ordinary course of business that he is not specifically
authorized to take by the Board of Directors of the Company, and that the
foregoing shall constitute a material term of this Agreement. Employee shall be
based in New York but shall be available to travel as the needs of the business
reasonably require.
4. COMPENSATION:
As full compensation for his services hereunder, the Company shall pay
Employee, during the Employment Period, as follows:
A. A basic salary of $150,000 per year payable in monthly installments
at the rate of $12,500 per month for the term of this agreement.
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B. The Company has granted to the Employee as of February 1, 1994,
35,000 non-qualified options to purchase 35,000 shares of Common Stock of
the Company at the same exercise price of $1 per share. All options vested
as of October 23, 1995 and the shares underlying the options were
registered with the Securities and Exchange Commission under a Registration
Statement on Form S-8 on December 9, 1996.
The options have a 10-year exercise term. Employee's right to receive
shares will be adjusted when the option is exercised both as to number and
exercise price to account for stock splits or other forms of recapitalization.
C. The Company acknowledges that it has not paid any salary to
Employee for the months of July through December 1996 and that any unpaid
salary shall be a debt of the Company to be paid to Employee at the time of
termination of the Agreement.
D. The Company agrees to provide the employee forthwith with a split
dollar life insurance policy in the face amount of $2 million to be paid
for by the Company but to be structured in such a way that the Company is
paid back in full out of the proceeds of the policy all of its costs in
connection with the policy, including all premiums paid by the Company.
5. EXPENSES AND BENEFITS:
(a) The Company, consistent with its policy of reporting and
reimbursement of business expenses, reimburse Employee for such ordinary and
necessary business related expenses as shall be incurred by Employee in the
course of the performance of his duties under this Agreement
(b) Employee shall be eligible to participate to the extent that he
qualifies in all benefit plans, including without limitation, pension, term life
insurance, hospitalization, medical insurance and disability plans as are made
available from time-to-time to executives of the Company.
(c) Employee shall be entitled to three weeks of paid vacation
annually, and to accumulate unused vacation weeks to the end of this agreement.
6. REPRESENTATIONS & WARRANTIES OF EMPLOYEE
Employee represents and warrants to the Company that Employee is under
no contractual or other restriction which is inconsistent with the execution of
this Agreement or performance of his duties hereunder.
7. TERMINATION:
In the event of death or physical or mental incapacity, or in the
event Employee resigns from Company due to change in management or in the event
of the termination of Employee's employment by the Company for any reason other
than "Cause" as hereinafter defined, Employee or his estate or representative
shall be entitled to full payment of his salary for the balance of the Agreement
payable in a lump sum at the option of the Employee or of his estate or
representative or payable monthly in accordance with the terms of the Agreement
and to
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payment of any unpaid salary owed to Employee under this Agreement. In addition
on termination of the agreement, the Company agrees to pay up all premiums due
or to be due under the split dollar life insurance policy described in paragraph
4D above so that the policy is not cancelled or terminated prior to the death of
the employee.
A. Cause, for purposes of this Agreement, shall mean that the Employee
shall have committed an intentional art of fraud, embezzlement or theft in
connection with Employee's duties or in the course of his employment with
the Company or any Subsidiary
8. SURVIVAL:
The covenants, agreements, representations and warranties contained in
or made pursuant to this Agreement shall survive Employee's rightful termination
of employment.
9. MODIFICATIONS:
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements between
the parties concerning such subject matter, and may be modified only by a
written instrument duly executed by such party.
10. NOTICES
Any notice or other communication permitted to be given hereunder
shall be in writing and shall be mailed by certified mail, return receipt
requested or delivered against receipt to the party to whom it is to be given at
the address of such party set forth in the preamble to this Agreement (or to
such other address as the party shall have furnished in writing and in
accordance with the provisions of this Section 10). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 10. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
11. WAIVER:
Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be waiver of any other breach
of such provision or of any breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this agreement. Any waiver must be in writing.
12. BINDING EFFECT:
Employee's rights and obligations under this agreement shall not be
transferable by assignment or otherwise, such rights shall not be subject to
commutation, encumbrance or the claims of Employee's creditors and any attempt
to do any of the foregoing shall be void. The provisions of this Agreement shall
be binding upon and inure to the benefit of Employee and his heirs and personal
representative and shall be binding upon and inure to the benefit of the Company
and its successors and assigns.
13. NO THIRD PARTY BENEFICIARIES:
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This Agreement does not create and shall not be construed as creating
any rights enforceable by any person not a party to this Agreement.
14. HEADINGS:
The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
15. COUNTERPARTS, GOVERNING LAW:
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. It shall be governed and construed in accordance
with the laws of the Republic of Hungary without giving effect to conflict of
laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above-written.
EUROWEB INTERNATIONAL CORP.
BY: /s/ Frank R. Cohen
------------------
Frank R. Cohen
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