Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITIONAL 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
HUNGARIAN TELECONSTRUCT CORP.
(Exact Name of Registrant 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)
The Registrant's telephone number, including area code: (212) 758-9870
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Title of Each Class Exchange on which Registered
------------------- ----------------------------
Common Stock, par value NASDAQ
$.001 per share
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
]
Registrant had revenues of $18,597 for the year ended December 31,
1996. As of April 9, 1997, 3,125,174 shares of Common Stock were
outstanding of which 3,025,174 were held by non-affiliates of the
Company. The aggregate market value of the Common Stock held by
non-affiliates of the Company as of April 9, 1997 was $3,569,705
(based upon the closing bid price on such date on NASDAQ).
Documents Incorporated by Reference
None.
<PAGE>
PART I
Item 1. Business
(a) General Development of 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 Kft ("Teleconstruct"), a limited liability
company, 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.
The Company is currently building in Budapest two luxury 14-unit
condominium buildings for sale. In October 1996, Teleconstruct
agreed to sell to its former President one of the
luxury 14-unit condominium in Budapest upon obtaining move-in
permits and is currently in the process of completing a second
building.
In 1996 the Company initiated plans to enter the Internet
Service Provider business in Hungary. On January 2, 1997, the
Company acquired three Hungarian Internet service companies
("Internet providers"), namely, EUnet, E-Net and MS Telecom for a
purchase price of approximately $1,585,000, 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, the balance of
the purchase price was paid in December 1996.
EUnet was the leading provider of leased line Internet
services in Hungary. E-Net was recognized as the premier
developer of Web sites in Hungary, providing content, design and
database functions, as well as Web site hosting services. MS
Telecom was one of the largest providers of dial-up Internet
access services in Hungary.
The combined companies, to be known as EuroWeb, supply a
full range of Internet services.
The Internet industry consists of three primary functions:
1) providing access to the Internet; 2) developing content,
including graphics and database functions, for Web sites on the
Internet; and 3) maintaining ("hosting") the computers, known as
"servers," which store, and allow for access to, Web sites.
EuroWeb provides services in all three arenas.
Access to the Internet can be either through a leased line,
which maintains an open connection to the Internet at all times,
or through a dial-up service, which requires subscribers to dial a
telephone number to connect to the Internet. Dedicated lines and
dial-up connections can provide access to the Internet at varying
speeds (bandwidths). Faster connections move data more quickly
and are more expensive.
EuroWeb offers a variety of access options, including
leased-line, dial-up and ISDN (Integrated Services Digital
Network) lines. There are also plans to eventually offer access
via cable modem, which can provide extremely high bandwidth
connections to the Internet using the same coaxial cable used by
cable television.
<PAGE>
Providing content for the Internet can include graphic
design for Web sites as well as software applications to provide
subscribers with tools, such as calculators or databases, they can
use over the Internet. Value added services such as these will be
provided on an exclusive basis to EuroWeb subscribers. The first
of these value added services, recently completed by the Company,
will be a searchable database of Hungarian corporations, which the
Company believes will attract corporate clients doing, or seeking
to do, business in Hungary.
Web site content on the Internet is stored on computers
known as servers (they "serve" information to Internet users).
The business of "Web site hosting" includes maintaining these
computers as well as making certain that the computers are always
connected to the Internet (one of the benefits of the Internet is
that required information is available 24 hours a day, seven days
a week). Web hosting services are provided for a monthly fee
which varies depending on the bandwidth of the connection to the
Internet and certain other factors.
EuroWeb currently employs 36 persons; four in management,
thirteen in sales and marketing, eight in graphics and Web
development, seven in networking operations and four in
administration. EuroWeb is in the process of developing its
corporate identity and establishing relationships with the media
to promote its services.
EuroWeb's strategy is to target the corporate leased line
market, emphasizing quality of service. Management believes that
leased line subscribers, who are almost exclusively corporations,
are willing to pay more for quality service yet require less
customer service expense than dial-up subscribers. Corporations
which initially purchase access often want Web sites developed for
their business as well as a reliable, experienced company to
"host" the site. EuroWeb provides all of these Internet services.
Currently, EuroWeb has approximately fifty-five (55) leased
line, fourteen (14) ISDN and eight hundred (800) dial-up
subscribers. Approximately eighty percent (80%) of the dial-up
subscribers are corporations. Revenues are approximately
US$70,000 per month, but the Company has not yet reached the
break-even point.
The Company currently has about a 15% share of Hungary's
Internet market. The Company's goal is to capture thirty percent
(30%) of the Hungarian Internet market within the next two years.
According to RIPE (Regional Internet Registry for Europe), in
1996, approximately nine hundred (900) new Internet Web domains
were registered in Hungary.
The Company plans to compete by offering more reliable
Internet connections, higher quality and more comprehensive
services and certain value added services which will be available
exclusively through EuroWeb.
Government Regulations
The Company is not subject to direct regulation other than
regulation applicable to businesses generally. However, changes
in the regulatory environment relating to the telecommunications
and media industry could have an effect on the Company's business.
The Company cannot predict the impact, if any, future regulation
may have on its business.
<PAGE>
Competition
Competition in the Internet Service Provider industry is
significant and is based largely on price and service. In the
future, the Company's competitors may be larger and have greater
financial resources than HTEL. The principal competitor of the
Company is the Hungarian national telephone company known as
MATAV.
Employees
The Company employs 36 persons; four in management, thirteen
in sales and marketing, eight in graphics and Web development,
seven in networking operations and four administrative persons.
None of the Company's employees are represented by a labor
organization. The Company believes that it's relations with its
employees are excellent.
Item 2. Properties
The Company rents approximately 4,500 sq. feet of space at
1051 Budapest, Sas ut 14 from Varosmajor Passage Kft. as executive
offices and for operations at a rental paid in Hungarian forints
of approximately $140,000 per year for a five year term commencing
April 1, 1997.
Item 3. Legal Proceedings
There are no legal proceedings to which the Company is currently a
party or to which any of its property is subject, and the Company
knows of no legal proceedings pending or threatened against either
the Company or any director or officer of the Company in his
capacity as such.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security
holders during the last quarter of the fiscal year ended December
31, 1996.
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded in the over-the-counter
market on the National Association of Securities Dealers'
Automated Quotation System ("NASDAQ") under the symbol "HTEL".
Trading on both the Boston Stock Exchange and on NASDAQ
commenced on July 29, 1993. Trading on the Boston Stock Exchange
was discontinued at the request of the Company on February 26,
1997.
The following table sets forth the high and low bid prices
for the Common Stock during the periods indicated as reported by
NASDAQ. The prices reported reflect inter-dealer quotations, and
may not represent actual transactions and do not include retail
mark-ups, mark-downs or commissions.
High Low
---- ----
Quarter Ending:
1995
March 31, 1995 13 3/4 4 5/8
June 30, 1995 6 1/2 4
September 30, 1995 7 3 3/4
December 31, 1995 5 2 5/8
1996
March 31, 1996 3 7/8 3 1/4
June 30, 1996 3 3/4 2 3/4
September 30, 1996 5 1/4 2 7/8
December 31, 1996 3 1/8 1 3/8
On April 9, 1997, the closing bid price on the NASDAQ for the
Common Stock was $1.18.
Shareholders
As of April 9, 1997, the Company had 3,125,174 shares of
Common Stock outstanding and 57 shareholders of record. The
Company believes that it has approximately 500 beneficial owners
who hold their shares in street names.
Dividend Policy
It is the present policy of the Company to retain earnings,
if any, to finance the development and growth of its business.
Accordingly, the Board of Directors does not anticipate that cash
dividends will be paid until earnings of the Company warrant such
dividends, and there can be no assurance that the Company can
achieve such earnings or any earnings.
<PAGE>
ADDITIONAL INFORMATION
Certain Information
The Company is presently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and
Exchange Commission.
Transfer Agent
The transfer agent for the Company's securities is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10007.
Item 6. Management's Discussion and Analysis of Results of
Operations and Financial Condition
General
The Company is a Delaware corporation which was organized on
November 9, 1992. It was a development stage company through
December 31, 1993. Through its wholly-owned Hungarian Subsidiary,
Teleconstruct Epitesi RT ("Teleconstruct") which 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 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. All construction revenues reflected in the
1995 consolidated statement of loss were earned by Termolang Kft.
Teleconstruct is currently building in Budapest, Hungary two
luxury 14-unit condominiums for sale and did not have any
construction revenue during 1996.
Operations
Year Ended December 31, 1996 compared with Year Ended December 31,
1995
The Company had no revenues from construction operations in
the year ended December 31, 1996 since it did not complete the
sale of any condominium units. The Company devoted its efforts to
the construction of the two luxury 14-unit condominium buildings
and to preparing to enter the Internet service provider business.
In January 1997, the Company acquired three operating Internet
service provider businesses and is currently in the process of
consolidating the three businesses under one roof and operating
the three businesses as a single unit.
The decrease in 1996 compensation and related costs of
$4,285,000 is primarily as a result of a decrease in stock option
related compensation of $4,582,000 and the termination pay of
$324,000 accrued to the former president in 1996.
The management of the Company believes that the provision of
$1 million made in 1996 for write down construction in progress to
estimated net realizable value is required based on the current
real estate market conditions in Budapest.
<PAGE>
Interest expense of $385,000 includes $300,000 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.
Liquidity and Capital Resources
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.
In November 1996 and December 1996, the Company sold
$792,500 of 10% convertible debentures due September 30, 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. 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 September 30, 1998 except in
the case of the occurrence of one of more "Events of Default" as
described in the debenture, the debenture may be immediately due
and payable. At December 31, 1996, $307,500 of debentures have
been converted into 263,979 shares of common stock and, as of
March 31, 1997, an additional $435,000 of debentures have been
converted into 568,105 shares of common stock.
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.
Inflation and Seasonality
The rate of inflation in Hungary was 23% in 1996 as compared
to 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>
Item 7. Financial Statements
Hungarian Teleconstruct Corp.
Index to Consolidated Financial Statements
- ------------------------------------------------------
Report of independent certified public accountants F-2
Consolidated financial statements:
Balance sheet F-3
Statements of loss F-4
Statements of stockholders' equity F-5
Statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-22
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Hungarian Teleconstruct Corp.
New York, New York
We have audited the accompanying consolidated balance sheet of
Hungarian Teleconstruct Corp. as of December 31, 1996, and the
related consolidated statements of loss, stockholders' equity, and
cash flows for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Hungarian Teleconstruct Corp. as of December 31, 1996,
and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 9, 1997 F-2
<PAGE>
Hungarian Teleconstruct Corp.
Consolidated Balance Sheet
------------------------------------------
December 31, 1996
Assets
Current:
Cash (Note 3) $ 495,703
VAT refund receivable 74,412
Receivables from related parties (Note 4) 480,784
Prepaid and other 101,564
-------------
Total current assets 1,152,463
Property and equipment, less accumulated
depreciation of $38,750 65,586
Office condominium unit held for sale 209,000
Construction-in-progress (Note 5) 3,527,090
Advances on acquisitions (Note 11) 1,585,000
Investment in and advances to affiliate (Note 6) 218,344
-------------
$ 6,757,483
=============
Liabilities and Stockholders' Equity
Current:
Payable to owner of acquired business (Note 11) $ 400,000
Accounts and accrued expenses payable 259,996
Compensation payable to officers 96,000
Deposits (Note 5(b)) 594,320
-------------
Total current liabilities 1,350,316
10% Convertible debentures (Note 7(a)) 485,000
Payable to former officer (Note 10(a)) 895,719
-------------
Total liabilities 2,731,035
-------------
Commitments (Notes 5 and 9)
Stockholders' equity (Note 8):
Common stock, $.001 par value - shares
authorized 10,000,000;
issued and outstanding 2,476,269 2,476
Additional paid-in capital 17,189,447
Deficit (13,165,475)
-------------
Total stockholders' equity 4,026,448
-------------
$ 6,757,483
=============
See accompanying notes to consolidated financial statements
F-3
<PAGE>
Hungarian Teleconstruct Corp.
Consolidated Statements of Loss
-----------------------------------------
Year ended December 31, 1996 1995
- -------------------------------- ------ ------
Revenues (Note 10(c)):
Construction- $ - $ 244,745
Other 18,597 125,680
---------- ---------
18,597 370,425
---------- ---------
Expenses:
Cost of construction revenue - 240,400
Compensation and related costs
(Notes 9 and 10(a)) 1,364,550 5,747,188
Foreign currency loss 260,917 126,002
Write-down of construction-in-progress
to estimated market value (Note 5(a)) 1,000,000 -
Interest expense (Note 7(a)) 385,679 -
Interest income (98,002) (247,465)
Other 622,467 644,915
---------- ----------
3,535,611 6,511,040
---------- ----------
Loss before minority interest and
equity in net loss of
unconsolidated affiliate (3,517,014) (6,140,615)
Minority interest in net losses - 76,238
Equity in net loss of unconsolidated
affiliate (Note 6) (278,000) (415,000)
---------- ----------
Net loss $(3,795,014) $(6,479,377)
========== ==========
Net loss per share $ (.26) $ (4.27)
========== ===========
Weighted average number of shares
outstanding 1,681,000 1,518,290
========== ===========
.
See accompanying notes to consolidated financial statements
F-4
<PAGE>
Hungarian Teleconstruct Corp.
Consolidated Statements of Stockholders' Equity
- ------------------------------------------------------------
<TABLE>
Year ended December 31, 1996 and 1995
- ----------------------------------------------------
<CAPTION>
Common stock Additional
------------------- paid-in
Shares Amount capital Deficit
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 1,518,290 $1,518 $9,260,331 $(2,891,084)
Options granted as compensation -
$5,980,000, less previously earned
compensation of $797,333 (Note 9) - - 5,182,667 -
Gain on issuance of stock by affiliate
(Note 6) - - - - 203,000 -
Net loss for the year - - - (6,479,377)
------------- ------- ------------ -----------
Balance, December 31, 1995 1,518,290 1,518 14,645,998 (9,370,461)
Issuance of shares for cash
(Note 7(b)) 550,000 550 972,450 -
Compensation relating to the extension
of the period of exercisability of
former officer's options (Note 10(a)) - - 600,000 -
Issuance of shares for businesses to be
acquired (Note 11) 144,000 144 359,856 -
Issuance of shares on conversion of
debentures (Note 7(a)) 263,979 264 311,143 -
Incremental interest from revaluation
of convertible debentures (Note 7(a)) - - 300,000 -
Net loss for the year - - - - (3,795,014)
------------ ------- ----------- -----------
Balance, December 31, 1996 2,476,269 $2,476 $17,189,447 $(13,165,475)
========= ===== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
Hungarian Teleconstruct Corp.
Consolidated Statements of Cash Flows
--------------------------------------------------
<TABLE>
Year ended December 31,
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,795,014) $(6,479,377)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 29,352 51,335
Options granted/extended as compensation 600,000 5,182,667
Incremental interest on revaluation of
convertible debentures 300,000 -
Provision for loss on construction-in-progress 1,000,000 -
Equity in net loss of unconsolidated affiliate 278,000 415,000
Minority interest in net losses - (76,238)
Loss on sale of property 8,940 -
(Increase) decrease in:
Accounts receivable - 38,820
Vat refund receivable 146,804 (221,216)
Receivables from related parties 85,962 332,474
Other assets (9,881) 68,831
Increase (decrease) in:
Accounts payable and accrued expenses (323,283) 417,309
Compensation payable to officers 96,000 -
Deposits 594,320 -
Payable to former officer 895,719 -
---------- ----------
Net cash used in operating activities (93,081) (270,395)
---------- ----------
Cash flows from investing activities:
Investment in and advances to affiliate 376,323 353,233
Advances on acquisitions (825,000) -
Acquisition of property and equipment and
construction-in-progress (1,429,992) (1,813,744)
Proceeds from sale of property 321,060 -
---------- ---------
Net cash used in investing activities (1,557,609) (1,460,511)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of convertible debt 796,957 -
Proceeds from issuance of common stock 972,450 -
---------- ----------
Net cash provided by financing activities 1,769,407 -
Net increase (decrease) in cash and
cash equivalents 118,717 (1,730,906)
Cash and cash equivalents, beginning of year 376,986 2,107,892
---------- ----------
Cash and cash equivalents, end of year $ 495,703 $ 376,986
========== ==========
Noncash transactions:
Issuance of common stock upon conversion of
debentures and accrued interest $ 311,407 $ -
Issuance of common stock as advances
on acquisition 360,000 -
Payable to stockholders of companies
to be acquired 400,000 -
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the
accounts of Hungarian Teleconstruct Corp. (the
"Company") and its majority-owned subsidiaries. All
material intercompany balances and transactions have
been eliminated.
Certain 1995 items have been reclassified to conform
to the 1996 presentation.
(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
Sale of constructed condominium apartments is recognized
when collection of sales price is assured and occupancy
permits have been issued.
(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 Hungarian
subsidiaries were remeasured at year-end exchange rates
while nonmonetary assets and liabilities were remeasured
at historical rates. Income and expense accounts were
remeasured at the average rates in effect during the
year. Remeasurement adjustments and transaction gains or
losses are reflected in the consolidated statements of
loss.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
(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 amount
reported in the accompanying balance sheet approximates
fair value.
(g) Fair Value of Financial Instruments
Due to the nature of the VAT refund receivable,
receivables from related parties, payable to former
officer and advances to affiliate, it is not practical
to approximate their fair market value. The carrying
value of the convertible debentures approximates their
fair market value.
(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
are 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 6).
(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 3-5 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 is being held for sale at
December 31, 1996 and has been classified as such on the
December 31, 1996 balance sheet.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
(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 is effective in
1996 for transactions entered into after 1994,
establishes 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 the
year.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
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. All construction revenues reflected in
the 1995 consolidated statement of loss were earned by
Termolang Kft. Teleconstruct is currently building in
Budapest, Hungary two luxury 14-unit condominium buildings
for sale.
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.
3. Cash Concentration
At December 31, 1996, cash of $462,116, denominated in U.S.
dollars, was on deposit with a major money center bank in the
United States.
4. Receivables from Related Parties
At December 31, 1996, receivables from related parties
include the following:
HBC (Note 6) $448,000
HTCC 32,784
--------
$480,784
========
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
The receivable from HBC represents the second and final
installment of principal and interest on an $800,000 loan
made by the Company, due June 30, 1997. In February 1997,
the Company borrowed $350,000 at 6% per annum from HBC,
collateralized by the installment receivable from HBC.
The amount due from HTCC primarily represents accrued
interest on advances and a receivable on the sale of certain
equipment.
5. 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 December 31, 1996, net of a provision of
$1,000,000 made in 1996 for write-down to estimated net
realizable value. The Company believes that the
provision is required based on the current real estate
market conditions in Budapest. Estimated additional cost
to complete is $300,000.
(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 in the sold building, prior to
the sale (see Note 10).
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
6. Investment in and Advances to Affiliate
Investment in and advances to HBC includes the following
December 31, 1996
-----------------
Investment $125,000
Loans and advances,
including accrued interest, less
original issue discount of $26,000 541,344
-------
666,344
Less: Repayment to be received June 30, 1997,
included in receivable from related
parties (Note 4) 448,000
-------
$218,344
=======
On November 28, 1994, the Company entered into a loan
agreement with HBC, which provides for the Company to lend
HBC $800,000 at 6% interest per annum, originally repayable
the earlier of December 31, 1995 or the completion of an 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 has been accounted for as an
equity transaction, an increase in additional paid-in
capital, since HBC is a development stage company.
The loan agreement provides 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 exercisable until
April 30, 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 $448,000 being due June 30, 1997.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
In 1995, the Company exercised its option to purchase 150,000
shares of HBC at $3 per share. The Company's 9.7% interest in
HBC (250,000 shares of common stock) at December 31, 1996 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 is being amortized
over the term of the loan with $52,000 and $87,000 amortized
during 1996 and 1995, respectively, and included in interest
income.
The 250,000 shares are restricted securities under Rule 144
of the Securities Act of 1933, as amended. In addition, the
Company has entered into an agreement with HBC underwriters
not to sell or otherwise dispose of the HBC shares before
December 23, 1997 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 December 31, 1995, the three officers of the Company owned
approximately 24% 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 December 31, 1995,
since the Company had the ability to exercise significant
influence over HBC. The quoted market price per share of
HBC's common stock on the NASDAQ Small Cap Market at
December 31, 1996 was $4.00.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
7. Private Placements
(a) In November 1996 and December 1996, the Company sold
$792,500 of 10% convertible debentures due September 30,
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.
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 September 30, 1998 except in the case of the
occurrence of one or more "events of default" as
described in the debenture, the debentures may be
immediately due and payable. At December 31, 1996,
$307,500 of debentures have been converted into 263,979
shares of common stock and, as of March 31, 1997, an
additional $435,000 of debentures have been converted
into 568,105 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 an interest charge of $300,000 to the consolidated
statement of loss for the year ended December 31, 1996.
In addition, the financing costs of $99,000 incurred in
connection with the sale of the debentures have been
charged to 1996 operations since substantially all of
the debentures were converted to common stock within a
short period after 1996.
(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.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
8. Stock Option Plan and Warrants
(a) Stock Options
The Company has a Stock Option Plan (the "Plan"). An
aggregate of 100,000 shares of common stock is authorized for
issuance under the Plan. On May 14, 1996, the stockholders
approved an increase in the number of stock options available
under 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 for the purpose of
providing an incentive to those persons to work for 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"). The Board or Committee determines,
among other things, the persons to whom stock options are
granted, the number of shares subject to each option, the
date or dates upon which each option may be exercised and the
exercise price per share.
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 the
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>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
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 $1.00 per share were granted
to three officers in connection with their employment
agreements (see Note 9). 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 75,000
options previously granted under the Plan was reduced from
$8.00 to $3.38, which was the market price at that date.
SFAS No. 123 requires the Company to provide, beginning with
1995 grants, pro forma 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 pro forma information has not been
presented because management has determined that the
compensation costs associated with options granted in 1996
and 1995 are not material to net loss or net loss per common
share.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
Transactions involving options granted under the Plan are
summarized below:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
-----------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, January 1, 560,000 $2.32 560,000 $2.32
Granted 240,000 - - -
Cancelled (25,000) - - -
- ----------------------------------------------------- -------
Outstanding, December 31, 775,000 1.71 560,000 2.32
- -----------------------------------------------------------------------------------
Exercisable, December 31, 725,000 $1.62 560,000 $2.32
- -----------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options
outstanding under the Plan at December 31, 1996:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------- ------------------------
Weighted
Number average Weighted Number Weighted
Range of outstanding at remaining average exercisable average
exercisable December 31, contractual exercisable December 31, exercisable
prices 1996 life price 1996 price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.00 - $3.38 775,000 3.2 $1.71 725,000 $1.62
================================================================================
</TABLE>
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
(b) Stock Warrants
The following table summarizes information about stock
warrants at December 31, 1996:
Warrants outstanding
and exercisable
----------------------------------------
Number Weighted
outstanding at average
December 31, remaining
Range of exercisable prices 1996 contractual life
- ---------------------------------------------------------------------
$ 2.00 - 4.00 555,700 4.8
$13.20 - $14.75 87,000 1.7
- ---------------------------------------------------------------------
642,700 4.4
=====================================================================
9. Commitments
Effective May 1, 1994, the Company entered into three-year
employment agreements with the three officers and terminated
the existing consulting and retainer agreement with them. The
agreements were extended to June 1, 2000 by two additional
years on October 23, 1995, and another two additional 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 $1.00 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 options 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
Company's 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 has been charged to operations for the year ended
December 31, 1995.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
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 5 years of the date the options were granted,
the options will expire. A compensation expense of $972,000
has been charged to 1996 operations as a result of cancelling
the President's employment agreement and extending the
termination date of his options (see Note 10(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.
10. 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 5(b)). The purchaser agreed to purchase the
building, subject to receiving move-in permits, for
$1,281,512 and the Company 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 due on June 30, 1997. The sale
will be consummated upon the receipt of the move-in
permits. As of March 31, 1997, move-in permits have not
been obtained.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
The Company's President also resigned as an officer,
director and employee and agreed to a cancellation of
his employment agreement (which provided for a $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.
Compensation and related costs for the year ended
December 31, 1996 on the statement of loss include
$372,000 in connection with 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.
(b) The Company paid legal fees to the Secretary/Treasurer
and current Chairman of the Board of $112,000 and
$15,000 for the years ended December 31, 1996 and 1995,
respectively.
(c) Revenues
Included in other revenues for the year ended
December 31, 1995 is rental income of approximately
$40,000 from HTCC and advertising income of
approximately $70,000.
Interest income for the year ended December 31, 1995
includes interest of approximately $30,000 earned from a
subsidiary of HTCC.
(d) Expenses
The Company incurred a loss of approximately $54,000 in
1995 as the general contractor for an affiliate of the
Company's President.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
11. Acquisitions
On January 2, 1997, the Company acquired three Hungarian
Internet service companies ("Internet providers") for a
purchase price of approximately $1,585,000, 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,
the purchase price was paid in December 1996.
These acquisitions will be accounted for using the purchase
method of accounting. Based on a preliminary valuation, the
acquisitions will result in goodwill of approximately
$1,600,000 with an estimated useful life of five years. The
pro forma results of operations are based on the historical
financial statements of the Company and the Internet
providers.
The Company's consolidated statement of loss will not include
the results of operations until 1997. The following pro forma
results are unaudited and are not necessarily indicative of
what the actual results of operations of the Company would
have been, assuming the transactions had been completed as of
January 1, 1996, nor necessarily indicative of the results of
operations for future periods.
Year ended December 31, 1996 (unaudited)
Net revenues $ 948,000
Net loss (4,600,000)
Net loss per share $ (.86)
The above unaudited pro forma results have been adjusted to
reflect the amortization of goodwill generated by the
acquisitions, over a 5-year period, and additional interest
expense.
<PAGE>
Hungarian Teleconstruct Corp.
Notes to Consolidated Financial Statements
12. Subsequent Events
(a) 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, is payable on the
earlier to occur 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 loan owed by HBC to the
company (see Note 6) and the proceeds of a debt owed
by a company controlled by the Company's former
President (see Note 10(a)).
(b) During the quarter ended March 31, 1997, the Company
sold an additional $250,000 of 10% convertible
debentures, receiving net proceeds of approximately
$220,000.
(c) 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 200,000 five-year
options exercisable at $2.00 per share. The
compensation relating to these options is
approximately $200,000 and will be charged to
operations over a two-year period.
(d) 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 approximately $100,000 will
be charged to the 1997 operations relating to the
extension of the period of exercisability of the
options.
<PAGE>
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons;
Compliance with Section 16(a) of the Exchange Act
Name Age Position
Frank R. Cohen 74 Chairman of the Board,
Secretary, Treasurer, Director
Richard G. Maresca 55 Director
Donald K. Roberton 55 Director
Imre M. Kovats 40 President (as of January 1997)
Csaba Toro 30 Chief Operating Officer
(as of January 1997)
Frank R. Cohen has been a Director, Secretary and Treasurer
of the Company since its inception in 1992. Mr. Cohen has been
practicing law in the City of New York since 1946. Since 1985 he
has been a member of the law firm of Cohen & Cohen, counsel to the
Company.
Richard G. Maresca, age 55, has been a director of the
Company since its inception. He has been Senior Telecommunications
Manager for the American Stock Exchange since 1991. From 1954 to
1991, he was Communications Manager for Josephthal & Co., Inc., a
brokerage firm.
Donald K. Roberton, age 55, was Vice Chairman and Chief
Operating Officer of Hungarian Telephone and Cable Corp. ("HTC"),
until he resigned in order become a director of the Company in
1996 and assist in the development of HTEL's Internet Service
Provider business. Prior to that, Mr. Roberton spent five years
with Citizens Utility Company as Assistant to the Chairman and
Vice President - Strategic Development - Telecommunications and as
Vice President, Telecommunications. Prior to Citizens Utilities he
had been with Centel for 28 years and an officer since 1984.
During his tenure with Centel he held numerous executive and
managerial positions.
Imre M. Kovats, age 40, of Austro-Hungarian nationality, has
been Executive Vice President and a director of Hungarian
Broadcasting Corp. since August 1995. From 1990 until 1994 he was
Group Chairman of Saatchi & Saatchi Group Hungary. In January
1997, Mr. Kovats was made President and nominated for election as
a director of the Company.
Csaba Toro, age 30, a Hungarian national, founded in 1994
and was President of E-Net Kft., one of the Hungarian Internet
companies acquired by the Company in January 1997. Prior thereto,
he was a student. In January 1997, Mr. Toro was made Chief
Operating Officer and nominated for election as a director of the
Company.
Board members are reimbursed for their expenses for each
meeting attended and may be compensated for serving as directors
in the future.
<PAGE>
Directors are elected annually and hold office until the
next annual meeting of the stockholders of the Company and until
their successors are elected and qualified. Officers are elected
annually and serve at the discretion of the Board of Directors.
During the Company's last fiscal year, its Board of
Directors held four meetings.
Item 10. Executive Compensation
On February 17, 1994, Peter E. Klenner, Robert Genova and
Frank R. Cohen entered into employment agreements with the
Company. By the terms of these employment agreements, Klenner,
Genova and Cohen agreed to serve as President, Chairman of the
Board, and Secretary-Treasurer, respectively, and as directors of
the Company at salaries of $144,000, $120,000 and $72,000,
respectively. Messrs. Klenner, Genova and Cohen also were granted
5 year non-qualified stock options to purchase 250,000, 175,000,
and 35,000 shares respectively exercisable at $1.00 per share with
vesting over a five-year period (20% per year). On October 23,
1995, the Board of Directors of the Registrant extended the
employment contracts for one year and voted to replace the
original vesting period with immediate vesting instead of over the
life of such employment contracts. When Mr. Klenner resigned as
President and Director on October 30, 1996, the balance of his
annual salary was accrued and accordingly received $144,000 in
salary for 1996. Mr. Genova was paid a salary of $60,000 for the
six months period of January through June 1996. When Mr. Genova
resigned in February 1997, he received a payment of $50,000 for
the period July 1, 1996 to December 31, 1996 and waived all claims
for subsequent salary. Mr. Cohen received salary of $6,000 per
month from January through June 1996 (aggregate $36,000). In
October 1996, Mr. Cohen's salary was increased to $10,000 per
month, but the salary was not paid from July 1996 through January
1997, but was accrued as a liability to the Company. Mr. Cohen
has been receiving salary at the rate of $10,000 per month since
February 1997.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
Bonus and
Name and Other Annual
Principal Position Year Salary Compensation Options
Frank Cohen 1996 72,000 0 70,000
Chairman of the Board 1995 72,000 0 0
Chief Executive Officer 1994 72,000 0 35,000
Peter Klenner 1996 144,000 0 0
Former President and 1995 144,000 0 0
Former Director 1994 144,000 0 250,000
Robert Genova 1996 110,000 0 70,000
Former Chairman 1995 120,000 0 0
of the Board 1994 120,000 0 175,000
No options were exercised by any holder in 1994, 1995 or
1996.
The Company has no pension or profit sharing plan or other
contingent forms of remuneration with any officer, employee,
director, or consultant.
<PAGE>
Stock Option Plan
In 1993, the Company adopted a Stock Option Plan (the
"Plan"). An aggregate of 350,000 shares of Common Stock are
authorized for issuance under the Plan. The Plan provides that
qualified and non-qualified options may be granted to officers,
directors, employees, and consultants to the Company for the
purpose of providing an incentive to those persons to work for the
Company. The Plan may be administered by either the Board of
Directors or a committee of three directors appointed by the Board
("Committee"). The Board or Committee determines, among other
things, the persons to whom stock options are granted, the number
of shares subject to each option, the date or dates upon which
each option may be exercised and the exercise price per share.
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
non-qualified option with an exercise price less than 85% of the
fair market value of the underlying Common Stock on the date of
the grant.
The following options were granted under the Plan during the
fiscal year ended December 31,1996:
<TABLE>
<CAPTION>
Percent of
Total Options
Granted to
Number of Employees under Exercise Price Expiration
Name Options Granted the Plan per share* Date
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert Genova 70,000 29.2% $3.00 1998
Frank R. Cohen 70,000 29.2% $3.00 1998
Richard Fry 50,000 20.8% $3.00 1998
Donald K. Roberton 40,000 16.7% $3.00 1998
Richard G. Maresca 10,000 4.1% $3.00 1998
- ----------------------------------------------------------------------------------
Total 240,000 100.0%
</TABLE>
* 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.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information with respect to the
beneficial ownership of the Common Stock as of April 9, 1997 by
(i) each person known by the Company to own beneficially more than
5% of the outstanding Common Stock; (ii) each director of the
Company; and (iii) all executive officers and directors as a
group. Except as otherwise indicated below, each of the entities
or persons named in the table has sole voting and investment
powers with respect to all shares of Common Stock beneficially
owned by it or him as set forth opposite its or his name.
<PAGE>
Shares
Beneficially Percent
Name and Address Owned(1) Owned(9)
- --------------------------------------------------------------
Peter E. Klenner 375,000(2) 11.5%
1118 Budapest
Kelenhegyi ut 39
Hungary
Robert Genova 125,000(3) 9.3%
227 Route 206, Unit 11
Flanders, NJ 07836
Frank R. Cohen 120,000(4) 3.76%
445 Park Avenue
New York, NY 10022
Donald K. Roberton 40,000(5) 1.28%
38 Campbell Drive
Stamford, CT 06903
Richard Maresca 20,000(6) *
1111 Wyoming Drive
Mountainside, NJ 07082
Imre M. Kovats 25,000(7) *
Budapest, Hungary
Csaba Toro 50,000(8) 1.59%
Budapest, Hungary
All Officers and Directors as a 255,000 5.04%
Group (3 Persons)
* less than 1%
(1) Unless otherwise indicated the above figures are based on
3,125,174 shares of Common Stock outstanding on March 31, 1997,
each person has sole investment and voting power with respect to
the shares indicated, subject to community property laws, where
applicable. For purposes of this table, a person or group of
persons is deemed to have "beneficial ownership" of any shares
which such person has the right to acquire within 60 days after
April 9, 1997. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named
above on April 9, 1997, any security which such person or group of
persons has the right to acquire within 60 days after such date is
deemed to be outstanding for the purpose of computing the
percentage ownership for such person or persons, but is not deemed
to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Resigned as President and Director of Company on October 30,
1996. Includes 285,000 currently exercisable options which Mr.
Klenner has to purchase 250,000 shares at $1 per share pursuant to
his employment agreement, which provision survived the termination
of his employment agreement and 35,000 shares at $3.00 per share
pursuant to the Company's 1993 Stock Option Plan. Does not include
200,000 options which Mr. Klenner has to purchase 200,000 shares
at $2 per share which are not currently exercisable and have been
granted to him in 1997 as compensation under a consulting
agreement..
(3) Resigned as Chairman of the Board and as an officer of the
Company on February 6, 1997. Includes 125,000 currently
exercisable options which Mr. Genova has to purchase 125,000
shares at $1 per share pursuant to his employment agreement, which
provision survived the termination of his employment agreement.
(4) Includes 110,000 currently exercisable options which Mr.
Cohen has to purchase 35,000 shares at $1 per share pursuant to
his employment agreement and 75,000 shares at $1.25 per share
pursuant to the Company's 1993 Stock Option Plan.
<PAGE>
(5) Includes 40,000 options granted to Mr. Roberton exercisable
at $1.25 per share pursuant to the Company's 1993 Stock Option
Plan.
(6) Includes 20,000 options granted to Mr. Maresca exercisable
at $1.25 per share pursuant to the Company's 1993 Stock Option
Plan.
(7) Includes 25,000 currently exercisable options which Mr.
Kovats has to purchase 25,000 share at $2 per share pursuant to
his employment agreement. In February 1997 Mr. Kovats was made
President.
(8) Includes 50,000 currently exercisable options which Mr. Toro
has to purchase 50,000 share at $2 per share pursuant to his
employment agreement. In February 1997 Mr. Toro was made Chief
Operating Officer.
(9) Does not include the possible issuance of 5,700 shares on
exercise of Placement Agent Warrants, 62,000 shares issuable upon
exercise of Underwriter Warrants or 550,000 shares issuable upon
exercise of Private Placement Purchase Warrants.
Item 12. Certain Relationships and Related Transactions
1. On November 28, 1994, the Company entered into a loan
agreement with Hungarian Broadcasting Corp. ("HBC") which
provided for the Company to lend HBC $800,000 at 6% interest
per annum, repayable the earlier of December 31, 1995 or the
completion of an IPO by HBC. The 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 exercisable until April 30, 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. The Company exercised its
option and purchased the 150,000 shares at $3 per share. On
January 2, 1996, HBC repaid $400,000 of the loan receivable
together with accrued interest of $24,000.
2. 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 four units for which deposits for the full
sales price have been received by the Company. The purchaser
agreed to purchase the building, subject to receiving move
in permits, for $1,281,512 and 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 due on June 30, 1997, which note was extended
to December 31, 1997. As of March 31, 1997, move in permits
have not been obtained.
The Company's President also resigned as an officer,
director and employee and agreed to a cancellation of his
employment agreement (which provided for a $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.
3 The Company paid legal fees to the Secretary/Treasurer
and current Chairman of the Board of $112,000 and $15,000
for the years ended December 31, 1996 and 1995,
respectively.
4 HBC loaned the Company $350,000 in February 1997 at 6%
interest to be used for working capital. The loan was
secured by sums owed by HBC to the Company.
5. 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 200,000 five-year options exercisable at $2.00
per share. The compensation relating to these options is
approximately $200,000 and will be charged to operations
over a two-year period.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
A. Exhibits* (numbers below reference Regulation S-B)
(3) (a) Certificate of Incorporation filed November
9, 1992
(b) 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
Lazlo Modransky
(d) 1993 Incentive Stock Option Plan
(e) Sharing Agreement for space and facilities
between Registrant and Hungarian Telephone
& 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***
(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 KeletNograd RT
(n) Letter of Intent Agreement between
Registrant and 3 Pilistav villages for
installation of cable in those areas
(o) Lease agreement between Registrant'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***
(t) Promissory Note from Registrant to HBCO***
* 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 this report
B. No reports on Form 8-K have been filed during the last
quarter covered by this report on Form 10-K.
<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 day of
1997.
HUNGARIAN TELECONSTRUCT CORP
By /s/ Frank R. Cohen
-------------------
Frank R. Cohen
Chairman of the Board
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S
UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE
ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.
No. _______ US $_________
HUNGARIAN TELECONSTRUCT CORP.
10% SERIES __ CONVERTIBLE DEBENTURE DUE ________________
THIS DEBENTURE is one of a duly authorized issue of Debentures of
Hungarian Teleconstruct Corp., a corporation duly organized and existing
under the laws of the State of Delaware (the "Company") designated as its
10% Series __ Convertible Debenture Due ___________in an aggregate
principal amount not exceeding Six Hundred Thousand Dollars and
No/100 (U.S. $600,000).
FOR VALUE RECEIVED, the Company promises to pay to
______________________ the registered holder hereof and its successors and
assigns (the "Holder"), the principal sum of ______________________ Dollars
(US $_________) on November 30, 1998 (the "Maturity Date"), and to pay
interest on the principal sum outstanding, at the rate of 10% per annum due
and payable quarterly in arrears. Accrual of interest shall commence on
the date hereof and shall continue until payment in full of the
outstanding principal sum has been made or duly provided for. The
interest so payable will be paid to the person in whose name this Debenture
(or one or more predecessor Debentures) is registered on the records of
the Company regarding registration and transfers of the Debentures
(the "Debenture Register"); provided, however, that the Company's
obligation to a transferee of this Debenture arises only if such transfer,
sale or other disposition is made in accordance with the terms and
conditions of the Offshore Securities Subscription Agreement dated as of
__________________ between the Company and ____________________________
(the "Subscription Agreement"). The principal of, and interest on, this
Debenture are payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public
and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder hereof
from time to time. The Company will pay the outstanding principal of
and all accrued and unpaid interest due upon this Debenture on the
Maturity Date, less any amounts required by law to be deducted or
withheld, to the Holder of this Debenture as of the Maturity Date
and addressed to such Holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a
payment of outstanding principal and interest hereunder and shall
satisfy and discharge the liability for principal and interest on
this Debenture to the extent of the sum represented by such check plus
any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Fifty Thousand
Dollars (US$50,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holders
surrendering the same but not less than U.S. $50,000. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required
to be withheld under the applicable provisions of the United States
income tax or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred
or exchanged in the U.S. only in compliance with the Securities Act of
1933, as amended (the "Act") and applicable state securities laws.
Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture
is duly registered on the Company's Debenture Register as the owner
hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by notice to
the contrary. Any holder of this Debenture, electing to exercise the
right of conversion set forth in Section 4(a) hereof, in addition to
the requirements set forth in Section 4(a), is also required to give
the Company (i) written confirmation that it is not a U.S. Person and
the Debenture is not being converted on behalf of a U.S. Person and the
representations contained in the Subscription Agreement are true
("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect
that the Debenture and shares of common stock issuable upon conversion
thereof have been registered under the 1933 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel
is not provided the Holder hereof will not be entitled to exercise the
right to convert the Debentures pursuant to Section 4(a) herein.
4. (a) The Holder of this Debenture is entitled, at its option,
at any time commencing 45 days after completion of distribution of the
Debentures of which this Debenture is one, as determined and certified
to the Company by Placement Agent, to convert any or all of the original
principal amount of this Debenture into shares of common stock, $0.001
par value per share, of the Company (the "Common Stock"), at a conversion
price for each share of Common Stock equal to Fifty Percent (50%) of the
Market Price (as defined below) of the Company's Common Stock. For
purposes of this Section 4(a), the "Market Price" shall be the lower of
(i) the average closing bid price of the Common Stock for the Five (5)
business days immediately preceding the conversion date, or (ii) the
average closing bid price of the Common Stock for the five (5) business
days prior to subscription by the Holder as reported by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ").
Such conversion shall be effectuated by surrendering the Debentures to be
converted to the Company with the form of conversion notice attached
hereto as Exhibit I, executed by the Holder of this Debenture evidencing
such Holder's intention to convert this Debenture or a specified portion
(as above provided) hereof, and accompanied by proper assignment hereof
in blank. Accrued but unpaid interest shall be subject to conversion at
the option of the Company. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share, with the fraction
paid in cash at the discretion of the Company. The date on which notice
of conversion is given shall be deemed to be the date on which the Holder
has delivered this Debenture, with the conversion notice duly executed,
to the Company or, if earlier, the date set forth in such notice of
conversion if the Debenture is received by the Company within five (5)
business days thereafter.
(b) Notwithstanding the provisions of paragraph 4(a) hereof, the
Company is entitled, at its option, at any time after 75 days from the date
of issue of this Debenture to redeem part or all of the Debentures being
converted by paying to the holder the product of (i) the Market Price, and
(ii) the higher number of shares of Common Stock that would be issuable for
such Debentures pursuant to the calculations in paragraph 4(a).
Such payment shall include accrued interest to such date, and shall be
less any amounts required by law to be deducted or withheld. Such payment
shall be made by delivering immediately available funds in United States
Dollars by wire transfer to the Holder, or if no wiring instructions have
been provided to the Company, by cashier's or certified check to the last
address of Holder appearing on the Debenture Register, within 5 days of the
date of the Company's forward notice to the holder of the Company's intention
to redeem all or part of the Debentures. The wiring of such funds or the
forwarding of such check shall constitute a payment of principal and interest
hereunder and shall automatically satisfy and discharge the liability for
principal and interest on this Debenture to the extent of the sum
represented by such wire or check plus any amount so deducted.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the
coin currency, herein prescribed.
6. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of
dishonor, notice of intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
7. The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in
collecting any amount due under this Debenture.
8. If one or more of the following described "Events of Default"
shall occur:
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this
Debenture or the Subscription Agreement shall be false
or misleading in any material respect at the time made
and such failure shall remain uncured for a period of 7
days from receipt of written notice from the Holder; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture
and such failure shall continue uncured for a period of
seven (7) days after notice from the Holder of such failure;
or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts generally as they mature;
(3) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (4) apply for
or consent to the appointment of a trustee, liquidator or
receiver for its or for a substantial part of its
property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within thirty
(30) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of
the properties or assets of the Company and shall not be
dismissed within thirty (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or similar
process in excess of One Hundred Thousand ($100,000) Dollars
in the aggregate shall be entered or filed against the Company
or any of its properties or other assets and shall remain
unpaid, unvacated, unbonded or unstayed for a period of
fifteen (15) days or in any event later than five (5) days
prior to the date of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within
thirty (30) days after such instruction of the Company
shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed
in any such proceeding; or
(i) The Company shall have its Common Stock delisted, so that
said Common Stock is no longer listed on any national
securities exchange nor traded in the over-the-counter market.
Then, or at any time thereafter, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default)
at the option of the Holder and in the Holder's sole discretion, the Holder
may consider this Debenture immediately due and payable, without presentment,
demand or protest of any kinds, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the
Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
9. This Debenture represents a general unsecured obligation of
he Company. No recourse shall be had for the payment of the principal of,
or the interest on, this Debenture, or for any claim based hereon, or
otherwise in respect hereof, against any incorporator, shareholder,
officer or director, as such, past, present or future, of the Company or
any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. The Holder of this Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will
not offer, sell or otherwise dispose of this Debenture or the Shares of
Common Stock issuable upon exercise thereof except under circumstances
which will not result in a violation of the Act or any applicable state
Blue Sky law or similar laws relating to the sale of securities.
11. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible,
and the validity and enforceability of the remaining provisions of this
Debenture will not in any way be affected or impaired thereby.
12. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the
Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the
Company and the Holder.
13. This Debenture shall be governed by and construed in accordance
with the internal laws of New York.
14. As set forth herein, the Company shall use all reasonable efforts
to issue and deliver, within three business days after the Holder has
fulfilled all conditions and submitted all necessary documents duly
executed and in proper form required for conversion (the "Deadline"), to
the Holder or any party receiving a Debenture by transfer from the Holder
(together, a "Holder"), at the address of the Holder on the books of the
Company, a certificate or certificates for the number of Shares of Common
Stock to which the Holder shall be entitled. The Company understands
that a delay in the issuance of the Shares of Common Stock beyond the
Deadline could result in economic loss to the Holder. As compensation
to the Holder for such loss, the Company agrees to pay liquidated
damages to the Holder for late issuance of Shares upon conversion in
accordance with the following schedule (where "No. Business Days Late"
is defined as the number of business days beyond seven (7) business days
from the date of receipt by the Company of a Notice of Conversion and
the transfer agent of all necessary documentation duly executed and in
proper form required for conversion, including the original Debenture
to be converted, all in accordance with the Debenture, Subscription
Agreement and the requirements of the transfer agent):
No. Business Days Late Liquidated Damages
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each
Business Day Late beyond 10
days
The Company shall pay the Holder any liquidated damages incurred under
this Section by check upon the earlier to occur of (i) issuance of the
Shares to the Holder or (ii) each monthly anniversary of the receipt of
the Company of such Holder's Notice of Conversion. Nothing herein shall
limit the Holder's right to pursue actual damages for the Company's
failure to issue and deliver shares of Common Stock to the Subscriber in
accordance with the terms of the Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:
HUNGARIAN TELECONSTRUCT CORP.
By:
Title:
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______________
of the above Debenture No. ___ into Shares of Common Stock of Hungarian
Teleconstruct Corp. the Company") according to the conditions set forth
in such Debenture, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined
in Regulation S promulgated under the Securities Act of 1933, as amended,
and is not converting the Debenture on behalf of any U.S. Person and the
representations contained in the Subscription Agreement are true.
Date of Conversion*
Applicable Conversion Price
Signature
[Name]
Address:
* This original Debenture and Notice of Conversion must be received by
the Company by the fifth business day following the Date of Conversion.
HUNGARIAN TELECONSTRUCT CORP.
Form of Warrant for the Purchase of Common Shares
No. W-__ _______ Shares
FOR VALUE RECEIVED, HUNGARIAN TELECONSTRUCT CORP., a
Delaware corporation (the "Company"), hereby certifies that Mr.
George Szakacs or its permitted assigns is entitled to purchase
from the Company , at any time or from time to time after October
1, 1997 but prior to 5:00 P.M. on September 30, 2000,
___________________) fully paid and non-assessable shares of
common stock, par value $.001 per share, of the Company for an
aggregate purchase price of $_________ (computed on the basis of
$2.00 per share). (Hereinafter, (i) said common shares, together
with any other equity securities which may be issued by the
Company in substitution therefor, are referred to as the "Common
Shares", (ii) the Common Shares purchasable hereunder are referred
to as the "Warrant Shares", (iii) the aggregate purchase price
payable hereunder for the Warrant Shares is referred to as the
"Aggregate Warrant Price", (iv) the price payable hereunder for
each of the Warrant Shares, as adjusted in the manner set forth in
Section 3, is referred to as the "Per Share Warrant Price" and
(v) this Warrant and all warrants hereinafter issued in exchange
or substitution for this Warrant are referred to as the
"Warrants".) The Aggregate Warrant Price is not subject to
adjustment. The Per Share Warrant Price and the number of Warrant
Shares are subject to adjustment as hereinafter provided.
1. Exercise of Warrant. This Warrant may be exercised,
in whole at any time or in part from time to time (such partial
exercises to be in amounts of not less than 25,000 Warrant
Shares), on and after October 1, 1997, but prior to 5:00 P.M. on
September 30, 2000, by the holder of this Warrant) the ("Holder")
by the surrender of this Warrant (with the subscription form at
the end hereof duly executed) at the principal office of the
Company's counsel Cohen & Cohen, 445 Park Avenue, New York, NY
10022, together with proper payment of the Aggregate Warrant Price
applicable on such date, or the proportionate part thereof if this
Warrant is exercised in part. Payment for Warrant Shares shall be
made by check or checks, payable to the order of the Company. If
this Warrant is exercised in part, this Warrant must be exercised
for a number of whole Warrant Shares, and the Holder is entitled
to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting
forth the proportionate part of the Aggregate Warrant Price
applicable to such Warrant Shares. Upon such surrender of this
Warrant, the Company will (a) issue a certificate or certificates
in the name of the Holder for the largest number of whole Warrant
Shares to which the Holder shall be entitled and, if this Warrant
is exercised in whole, in lieu of any fractional Warrant Share to
which the Holder shall be entitled, cash equal to the fair value
of such fractional share (determined in such reasonable manner as
the Board of Directors of the Company shall determine), and
(b) deliver the other securities and properties receivable upon
the exercise of this Warrant, or the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions of
this Warrant.
2. Reservation of Warrant Shares. The Company agrees
that, prior to the expiration of this Warrant, the Company will at
all times have authorized and will reserve, and will keep
available, solely for issuance or delivery upon the exercise of
this Warrant, the shares receivable upon the exercise of this
Warrant, the Warrant Shares and other securities and properties as
from time to time shall be receivable upon the exercise of this
Warrant, free and clear of all restrictions on sale or transfer
(except as may arise under applicable securities laws) and free
and clear of all preemptive rights.
3. Protection Against Dilution.
(a) If, at any time or from time to time after the
date of this Warrant, the Company shall issue to the holders of
the Common Shares any Common Shares by way of a stock dividend or
stock split (including, without limitation, a reverse stock
split), then, and in each such case, the Per Share Warrant Price
on the date of such stock dividend or stock split shall be
adjusted, or further adjusted, to a price (to the nearest cent)
determined by dividing (i) an amount equal to the number of Common
Shares outstanding immediately prior to such issuance multiplied
by the Per Share Warrant Price in effect immediately prior to such
issuance by (ii) the total number of Common Shares outstanding
immediately after such issuance. Upon each adjustment in the Per
Share Warrant Price resulting from a stock split or stock
dividend, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Warrant Price by the Per Share Warrant
Price in effect immediately after such adjustment. Notice of each
such adjustment and each such readjustment shall be forthwith
mailed to the Holder.
(b) If the Company shall be consolidated with or
merged into another corporation, or shall sell all or
substantially all of its assets in part of a reorganization to
which the Company is a party within the meaning of the Internal
Revenue Code of 1986, as presently in effect, or shall issue a
security convertible into its Common Shares as a dividend on its
Common Shares, or shall reclassify or reorganize its capital
structure (except a stock split covered by Subsection 3(a)
hereof), each Warrant Share shall be replaced for the purposes
hereof by the securities or properties issuable or distributable
in respect of one Common Share upon such consolidation, merger,
sale, reclassification or reorganization, and adequate provisions
to that effect shall be made at the time thereof. Notice of such
consolidation, merger, sale, reclassification or reorganization,
and of said provisions so proposed to be made, shall be mailed to
the Holder not less than 15 days prior to such event.
(c) If the Company shall sell all or substantially
all of its assets, other than as part of a reorganization to which
the Company is a party within the meaning of the Internal Revenue
Code of 1986, as presently in effect, or shall distribute its
assets in dissolution or liquidation (other than as part of such a
reorganization), the Company shall mail notice thereof to the
Holder and shall make no distribution to shareholders until the
expiration of 15 days from the date of mailing of said notice and
then only to shareholders of record as of a date at least 15 days
after the date of mailing of said notice.
(d) If the Board of Directors of the Company shall
declare any dividend or other distribution in cash with respect to
the Common Shares, other than out of surplus, the Company shall
mail notice thereof to the Holder not less than 15 days prior to
the record date fixed for determining shareholders entitled to
participate in such dividend or other distribution.
4. Fully Paid Shares; Taxes. The Company agrees that the
Common Shares represented by each and every certificate for
Warrant Shares delivered on the exercise of this Warrant shall, at
the time of such delivery, be validly issued and outstanding,
fully paid and non-assessable, and the Company will take all such
actions as may be necessary to assure that the par value or stated
value, if any, per Warrant Share is at all times equal to or less
than the then Per Share Warrant Price. The Company further
covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes
which may be payable in respect of the issue of any Warrant Share
or certificate therefor.
5. Loss, etc. of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and of indemnify reasonably
satisfactory to the Company, if lost, stolen or destroyed, and
upon surrender and cancellation of this Warrant, if mutilated, and
upon reimbursement of the Company's reasonably incidental
expenses, the Company shall execute and deliver to the Holder a
new Warrant of like date, tenor and denomination.
6. Warrant Holder Not Shareholder. Except as otherwise
provided therein, this Warrant does not confer upon the Holder any
right to vote or to consent or to receive notice as a shareholder
of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a shareholder, prior to the
exercise hereof.
7. Communication. No notice or other communication under
this Warrant shall be effective unless the same is in writing and
is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at c/o Cohen & Cohen, at 445 Park
Avenue, 15th Floor, New York, New York 10022, or such other
address as the Company has designated in writing to the Holder, or
(b) the Holder at ___________________ or such other
address as the Holder has designated in writing to the Company.
8. Headings. The headings of this Warrant have been
inserted as a matter of convenience and shall not affect the
construction hereof.
9. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, HUNGARIAN TELECONSTRUCT CORP. has caused
this Warrant to be signed by its President and its corporate seal
to be hereunto affixed this 6th day of October, 1996.
ATTEST: HUNGARIAN TELECONSTRUCT
CORP.
By:
[Corporate Seal]
SUBSCRIPTION
The undersigned,
pursuant to the provisions of the Warrant, dated October 6, 1996,
granted by Hungarian Teleconstruct Corp. for ________ Common
Shares hereby elects to purchase ________________________________
(____________) Common Shares of Hungarian Teleconstruct Corp.
covered by that Warrant.
Dated:____________, 1996
Signature
(Robert Genova)
TERMINATION AND RELEASE AGREEMENT
Agreement made as of February 5, 1997 between Hungarian
Teleconstruct Corp. (the "Company"), and Robert Genova ("Genova").
WHEREAS, the Company has employed Genova, and the Company
and Genova desire to terminate Genova's employment with the
Company, but only on terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and Genova hereby
agree as follows:
1. Genova hereby immediately resigns as Chairman of the
Board of Directors of the Company and all of its subsidiaries and
affiliates, and resigns as an employee and officer of the Company
and all of its subsidiaries and affiliates, effective February 5,
1997. Concurrently with the execution of this Agreement, Genova is
returning all Company property currently in his possession.
2. Genova and the Company are parties to an Employment
Agreement, dated January 1, 1997 (which restated and modified a
prior agreement dated February 1, 1994, as amended (the
"Agreement") which includes a grant of Stock Options and, has been
granted additional Stock Options pursuant to the Company's 1993
Stock Option Plan as of July 14, 1994 and October 30, 1996. Genova
represents and warrants to the Company that, other than the
agreements identified in the preceding sentence, there are no
other written or oral agreements governing his employment by the
Company (including related compensation and benefits), and that he
does not have, and will not seek, any severance, social welfare,
or similar rights under American or Hungarian law arising out of
the termination of his employment.
3. In full and final satisfaction of all of the Company's
obligations to Genova arising out of or relating to his employment
and Genova's aforementioned employment agreement, the Company
shall pay to Genova the sum of fifty thousand ($50,000) dollars at
the time of the signing of this agreement.
Genova shall retain his rights as a stock optionee,
which, with respect to 125,000 options granted under his
employment agreement exercisable at $1 per share, which options
will continue to be governed by the terms of the employment
agreement. All other options granted to Genova under the Company's
1993 Incentive Stock Option Plan, as amended, and pursuant to the
employment agreement shall be deemed canceled as of the date of
this agreement. Notwithstanding the foregoing, Genova shall have
the right to assign 35,000 of the 125,000 options retained by him
as set forth above to Richard Fry, former President of the
Company.
4. (a) Genova, on his own behalf and for his heirs,
executors, administrators, successors and assigns, hereby releases
the Company, its Affiliates, and their respective present or
former predecessors, successors, assigns, directors, officers,
shareholders, agents, employees, and anyone acting for any of
them, from any and all claims of any kind arising in connection
with Genova's employment by the Company and the termination
thereof, including, but not limited to, claims for breach of or
interference with any alleged contract, wrongful discharge, and
any federal, state, or local discrimination laws, including,
without limitation, the age discrimination in Employment Act of
1967, as amended, and claims alleging defamation, intentional
infliction of emotional distress, or any other tort.
(b) The Company, its agents and affiliates, on their
behalf and on the behalf of their respective assigns, hereby
release Genova and his heirs, executors, administrators,
successors, and assigns from any and all claims of any kind
arising in connection with Genova's employment with the Company
(including his service as Chairman of the Board of Directors of
the Company) and the termination thereof.
(c) Both parties acknowledge that the releases and waivers
granted in this Agreement will not release the Company or Genova
from their respective obligations under this Agreement, and that
the releases and waivers do not waive rights or claims of Genova
against the Company or the Company against Genova which may arise
after the date of this Agreement is executed. In addition, as a
former director and officer of the Company, Genova shall be
entitled, following termination of his employment, to
indemnification to the fullest extent permitted under the
Company's bylaws and the Delaware General Corporation Law, as
amended.
5. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. The parties
agree to submit to the executive jurisdiction of the federal and
state courts in the State of New York for any dispute arising
under or relating to this Agreement. The parties further agree not
to commence or continue litigation or other legal proceedings
relating to this agreement in any forum other than New York, and
waives any claim that New York is an inconvenient forum.
6. Any notice or other communication required or permitted
under this agreement shall be effective only if it is in writing
and delivered personally or sent by registered or certified mail,
postage prepaid, addressed as follows:
If to Genova
Robert Genova
227 Route 206, Unit 11
Flanders, NJ 07836
If to the Company
c/o Cohen & Cohen
445 Park Avenue
New York NY 10022
or such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
7. This agreement constitute the entire agreement between
the parties hereto with respect to the subjects thereof, and
supersede and are in full substitution for any and all prior
understandings or agreements, written or oral, with respect to
Genova's employment and other subjects covered in this Agreement
and in those other agreements. Genova shall not disclose, or
permit any other person to disclose, to the media or any other
person, other than his immediate family, the negotiations or
circumstances leading up to this Agreement or those other
agreements; the terms of this Agreements or those other
agreements; or the termination of Genova's employment by the
Company. It is acknowledged and agreed that the Company has the
sole and executive right to make (subject to Genova's prior review
and approval, which approval shall not unreasonably be withheld),
or decline to make any public disclosures concerning any or all of
the foregoing subjects; provided, however, that no information
released by the Company regarding any or all of the foregoing
subjects shall in any way disparage Genova or his contributions to
the Company.
8. This Agreement may be amended only by an instrument in
writing signed by the parties hereto, and any provision hereof may
be waived only by an instrument in writing signed by the party or
parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require
the performance by the other party hereto of any provision hereof
shall in no way affect the full right to require such performance
at any time thereafter, nor shall the waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
9. This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives. Neither
this Agreement nor any right or obligation hereunder may be
assigned by the Company or by Genova without written consent of
the parties, which shall not unreasonably be withheld.
IN WITNESS WHEREOF, the Company and Genova have executed
this Agreement as of the date first written above.
HUNGARIAN TELECONSTRUCT
CORP.
BY: /s/ Frank R. Cohen
Frank R. Cohen
BY: /s/ Robert Genova
Robert Genova
/s/ Peter E. Klenner
(Peter Klenner)
TERMINATION AND RELEASE AGREEMENT
Agreement made as of October 30, 1996 between Hungarian
Teleconstruct Corp. (the "Company"), and Peter E. Klenner
("Klenner").
WHEREAS, the Company has employed Klenner, and the Company
and Klenner desire to terminate Klenner's employment with the
Company, but only on terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and Klenner hereby
agree as follows:
1. Klenner hereby immediately resigns as a director of the
Company and all of its subsidiaries and affiliates, and resigns as
an employee and officer of the Company and all of its subsidiaries
and affiliates, effective October 20, 1996. Concurrently with the
execution of this Agreement, Klenner is returning all Company
property currently in his possession.
2. Klenner and the Company are parties to an Employment
Agreement, dated February 1, 1994 (which was modified on April 12,
1994 and on October 23, 1995), which includes a grant of Stock
Options, and a Stock Option Agreement, dated July 14, 1994.
Klenner represents and warrants to the Company that, other than
the agreements identified in the preceding sentence, there are no
other written or oral agreements governing his employment by the
Company (including related compensation and benefits), and that he
does not have, and will not seek, any severance, social welfare,
or similar rights under American or Hungarian law arising out of
the termination of his employment.
3. In full and final satisfaction of all of the Company's
obligations to Klenner arising out of or relating to his
employment and Klenner's aforementioned employment agreement, the
Company shall pay Klenner the sum of $372,000.
Klenner shall retain his rights as a stock optionee,
which, with respect to those options granted under his employment
agreement, will continue to be governed by the terms of that
agreement. All options granted under the Company's 1993 Incentive
Stock Option Plan, as amended, must be exercised within five (5)
years of the date(s) such were options were originally granted,
notwithstanding any provisions of the plan or any option agreement
relating to acceleration of the exercise dates due to termination
of Klenner's employment. If not exercised within five (5) years of
the date such options were originally granted, the grant(s) will
expire.
4. (a) Klenner, on his own behalf and for his heirs,
executors, administrators, successors and assigns, hereby releases
the Company, its Affiliates, and their respective present or
former predecessors, successors, assigns, directors, officers,
shareholders, agents, employees, and anyone acting for any of
them, from any and all claims of any kind arising in connection
with Klenner's employment by the Company and the termination
thereof, including, but not limited to, claims for breach of or
interference with any alleged contract, wrongful discharge, and
any federal, state, or local discrimination laws, including,
without limitation, the age discrimination in Employment Act of
1967, as amended, and claims alleging defamation, intentional
infliction of emotional distress, or any other tort.
(b) The Company, its agents and affiliates, on their
behalf and on the behalf of their respective assigns, hereby
release Klenner and his heirs, executors, administrators,
successors, and assigns from any and all claims of any kind
arising in connection with Klenner's employment with the Company
(including his service as a director of the Company) and the
termination thereof.
(c) Both parties acknowledge that the releases and waivers
granted in this Agreement will not release the Company or Klenner
from their respective obligations under this Agreement, and that
the releases and waivers do not waive rights or claims of Klenner
against the Company or the Company against Klenner which may arise
after the date of this Agreement is executed. In addition, as a
former director and officer of the Company, Klenner shall be
entitled, following termination of his employment, to
indemnification to the fullest extent permitted under the
Company's bylaws and the Delaware General Corporation Law, as
amended.
5. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. The parties
agree to submit to the executive jurisdiction of the federal and
state courts in the State of New York for any dispute arising
under or relating to this Agreement. The parties further agree not
to commence or continue litigation or other legal proceedings
relating to this agreement in any forum other than New York, and
waives any claim that New York is an inconvenient forum.
6. Any notice or other communication required or permitted
under this agreement shall be effective only if it is in writing
and delivered personally or sent by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company:
Robert Genova
c/o Hungarian Teleconstruct Corp.
227 Route 206, Unit 11
Flanders, NJ 07836
If to Klenner
Peter E. Klenner
Kelenhegy u.43
1118 Budapest, Hungary
or such other address as either party may designate by notice to
the other, and shall be deemed to have been given upon receipt.
7. This agreement and other agreements being executed
simultaneously with this Agreement constitute the entire agreement
between the parties hereto with respect to the subjects thereof,
and supersede and are in full substitution for any and all prior
understandings or agreements, written or oral, with respect to
Klenner's employment and other subjects covered in this Agreement
and in those other agreements. Klenner shall not disclose, or
permit any other person to disclose, to the media or any other
person, other than his immediate family, the negotiations or
circumstances leading up to this Agreement or those other
agreements; the terms of this Agreements or those other
agreements; or the termination of Klenner's employment by the
Company. It is acknowledged and agreed that the Company has the
sole and executive right to make (subject to Klenner's prior
review and approval, which approval shall not unreasonably be
withheld), or decline to make any public disclosures concerning
any or all of the foregoing subjects; provided, however, that no
information released by the Company regarding any or all of the
foregoing subjects shall in any way disparage Klenner or his
contributions to the Company.
8. This Agreement may be amended only by an instrument in
writing signed by the parties hereto, and any provision hereof may
be waived only by an instrument in writing signed by the party or
parties against whom or which enforcement of such waiver is
sought. The failure of either party hereto at any time to require
the performance by the other party hereto of any provision hereof
shall in no way affect the full right to require such performance
at any time thereafter, nor shall the waiver of any succeeding
breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
9. This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives. Neither
this Agreement nor any right or obligation hereunder may be
assigned by the Company or by Klenner without written consent of
the parties, which shall not unreasonably be withheld.
IN WITNESS WHEREOF, the Company and Klenner have executed
this Agreement as of the date first written above.
HUNGARIAN TELECONSTRUCT CORP.
BY: /s/ Robert Genova
PETER E. KLENNER
/s/ Peter E. Klenner
AGREEMENT FOR SALE OF CONDOMINIUM PROJECT
This Agreement made as of this 30th day of October, between
Hungarian Teleconstruct Corp., (the "Company"), a Delaware
Corporation, and M&A Management Kft. ("M&A"), a Corporation formed
under the laws of Hungary.
W I T N E S S E T H
WHEREAS the Company owns a parcel of land fronting on
KelenhagyStreet in Budapest, Hungary on which it is currently
constructing two luxury 14 unit condominiums (the "Condominium
Project"); known as Condo A and Condo B, one of which (Condo A) is
completed but has 10 unsold units and the other (Condo B) requires
$300,000 to complete and has not sold any units to date.
WHEREAS the Company intends to enter the Internet business
in Hungary and requires funds for this purpose; and
WHEREAS the Company does not have funds available either to
complete the Condominium Project or to fund the Internet venture;
and
WHEREAS M&A which is owned by the Company's former president
and chief executive officer, has offer to purchase Condo A from
the Company in an "as is" condition, and has loaned to the Company
$346,473 to date to complete the construction of Condo A.
NOW, THEREFORE, it is agreed as follows:
1. At the closing, M&A shall purchase and the Company shall
sell its entire interest consisting of eight units in the Condo A
building for $1,281,512. Out of these funds, M&A will be repaid
$346,473 which it previously loaned to the Company for the purpose
of completing Condo B, leaving a balance of $935,039, which shall
be paid $250,000 in cash at the closing and the remainder no later
than June 30, 1007. In the event more than $300,000 are required
to complete Condo B, M&A will loan 50% of such monies to the
Company and deduct the amount of the loan together with bank rate
interest from the note when paid. In addition, M&A shall furnish
the Company with 50,000 shares of Hungarian Telephone & Cable
Corp., at the closing to hold as security for the note.
2. The closing is to take place on receipt of the move-in
permits for Condo A.
3. At the closing, Company shall deliver to M&A such
instruments of transfer and conveyance as to effectively vest in
M&A good and marketable title to the Condominium Project and
hereby agrees, at M&A's request in the future, to execute any and
all further instruments to more effectively convey and transfer
title to M&A.
4. The Company represents and warrants as follows:
(a) The execution and delivery of this Agreement and
the sale of Condo A to M&A have been duly authorized by the
Company's Board of Directors, and the Company had delivered
to M&A a copy of the minutes of the meeting of its Board of
Directors at which such authority was granted.
(b) The Company has good and marketable title to the
Condominium project.
(c) The representations and warranties contained in
this agreement shall be true at the time of closing as if
they were made at such time.
5. The Company and M&A agree that there was no broker
involved in this transaction.
6. Except as otherwise expressly provided herein, this
agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors,
and assigns.
7. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
8. The sale price of Condo A is mutually agreed upon by both
parties and there are no additional monetary requirements for
either party.
The parties set their hands on October 30, 1996.
HUNGARIAN TELECONSTRUCT CORP.
By: /s/ Robert Genova
M&A Management Kft.
/s/ Peter Klenner
(Frank R. Cohen)
EMPLOYMENT CONTRACT, dated as of January 1, 1997
between Hungarian Teleconstruct Corp., 227 Route 206, Flanders,
New Jersey 07836 (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, and on December 23,
1996 (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 December 23, 1996
agreed that this Agreement shall be modified so as to extend the
term of the Agreement from June 1, 2000 to December 31, 2001 and
to provide for an increase in duties to include Chief Financial
Officer and for an increase in salary to $10,000 per month; and
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 January 1, 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 five years
commencing January 1, 1997. 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 $120,000 per year payable in
monthly installments at the rate of $10,000 per month
for the term of this agreement.
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.
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 monthly in
accordance with the terms of the Agreement and to payment of any
unpaid salary owed to Employee under this Agreement:
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:
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.
HUNGARIAN TELECONSTRUCT CORP.
BY /s/ Robert Genova
Robert Genova
/s/ Frank R. Cohen
Frank R. Cohen
EUnet KFt
LEASE AGREEMENT
Between:
Varosmajor Passage Kft., a company located in 1051 Budapest, Sas u. 14,
represented by Mr. Ferenc Lancos, as managing director,
hereinafter knows as "the Lessor"
And: EUNET company located in Budapest, represented by /s/L. Josao
managing director
hereinafter known as "the Lessee"
WHEREAS:
The Lessor is owner of an office building to be known as "The Varosmajor
Passage Office Building" hereinafter referred to as the 'Building
located in Budapest, XII, ker. Varosmajor u 13. Hungary. The building
has 6 floors and attic. The Building offers 25 private parking places.
entrance halls common areas and ancillary accommodation.
WHEREAS:
The Lessee has registered interest in rental occupation of retail/office
space and parking places. and the Lessor wishes to lease such
retail/office space and parking places, subject to the terms and
conditions set forth in this agreement hereinafter referred to as "the
Lease",
THEREFORE, the parties hereto hereby agree as follows:
PART A - GENERAL CONDITIONS
P. 1. Subject of the Lease
1.1. The Lessor shall lease and the Lessee shall rent the areas
specified in Part B. P.16,1, hereinafter known as "the leased
premises'. Within the Building specified above.
1.2. The Lessee hereby declares that he is fully aware of the present
state of the leased premise, having visited and examined the
premises prior to signing this Lease and he also declares that
he has found the premises proper to the use for which they are
intended.
1.3. Any difference between the areas specified above and the actual
size of the leased premises shall not involve an adjustment of
the rent, the Lessor and the Lessee referring to the leased
premises as they exists.
1.4. The leased premises shall be rented for the use specified in
Part B. P. 6.2.
Any alteration in the use here above specified shall not be
permitted unless prior written approval has been obtained from
the Lessor.
Any use by the Lessee shall always be deemed granted by the
Lessor subject to any approvals required from local authorities
and such approvals shall be obtained and maintained by the
Lessee at his expense.
1.5. Should such alteration in the use of the leased premises cause
an increase of the charges and/or taxes applicable to the
building or lead to an Introduction of new taxes, such charges
and/or taxes will be in the whole borne by the Lessee.
Should such an alteration in the use of the leased premises
cause an increase of the insurance premiums. the Lessee shall
notify the insurers and the Lessor accordingly and the increase
of the insurance premiums shall be borne by the Lessee.
1.6. The Lessor reserves the right to make changes for design or
constructional reasons or if so required under any provision of
law.
P. 2.Duration, handover
2.1 The Lease shall commence on the date specified in Part B. P. 17
and shall continue for the period specified in the same clause.
The Lease Agreement shall be concluded by the Lessor for a
period of 5 years.
2.2 The leased premises will be handed over to the Lessee on the
first day of the Lease on condition that the Lessee has
fulfilled his obligations under P. 7, P. 8, P. 10.2, and P.
11.2.
2.3. A schedule of condition recording the condition of the leased
premises shall be signed by the Lessor and the Lessee on the
date of the handover, and shall be attached as Appendix 2.
Any minor defect still existing at the time of handover which do
not have any detrimental effects on the Lessee's business
operations and which may be solved without causing any
detrimental effects to the Lessee's business operations shall
not delay the date of handover to the Lessee.
However. such detect shall be solved by the Lessor. within 4
weeks from handover excluding materials necessitating special
orders, as mentioned in the joint statement enclosed In Appendix
2, otherwise the Lessee shall be entitled to claim damages In
the event of a dispute, the Lessor and the Lessee will act in
concert to appoint a professional construction expert to solve
the dispute. In case that the parties cannot agree on the expert
or In case that a party does not perform the expert's decision
P. 16 shall apply.
2.4. The Lease shall be terminated at the date of expiry.
Six months before the date of expiry~ of the Lease, each party
may notify by registered or receipted post a proposal to discuss
the terms and conditions an e~extension or renewal of the tease.
if there 16 no new agreement between the parties at the latest
three months before the date of expiry. the Lease shall be
terminated at the date of expiry.
Early termination of the Lease shall be permissible only as
provided for in clauses 7,8 and 12.
P. 3 Maintenance and repairs of the premises
3.1. The Lessee undertakes to keep the leased premises. at his own
expense and at all times in the same state of repair as it was at the
commencement of the Lease, with the exception of normal wear and tear.
The Lessee also undertakes to comply with the house regulations and all
reasonable management requests issued by the Lessor or his appointed
agents.
The Lessor undertakes to repair any damage to the leased premises which
may have been caused due to faults in the design or construclion of the
structure facades and roofs of the Building and the Lessee undertakes to
promptly notify the Lessor of any such damage.
The Lessee undertakes to return the leased premises to the Lessor upon
termination or expiry of the Lease with vacant possession, in good and
tenantable condition, with the exception of normal wear and tear, and
available for immediate occupancy thereafter.
Upon termination or explry of the lease, telecommunications lines
transferred to the Lessee by the Lessor or his representatives shall be
returned to the Lessor, free of charges.
3.2. No structural or material changes shall be made to the leased
premises without the Lessor's prior written approval.
Any approvals required for such changes shall be secured at the
Lessee's expense.
3.3. All fitting out works by the Lessee shall require the Lessor's
pror written approval.
3.4. Upon termination or expiry of the Lease, a second schedule of
condition of the leased premises will be prepared and agreed by
the Lessor and the Lessee.
The Lessor shall entitled to request the Lessee to restore the
leased premises to their former state upon termination or expiry
of the Lease, i.e., in conformity with the first schedule of
condition as referred to in 2.3 of this Lease, subject to the
exception of fair wear and tear.
In the event that restoration in conformity with the first
schedule of condition is not required by the Lessor, all works
or alterations which cannot be removed without damaging the
structure shall become the Lessor's property without any right
of compensation or claim of refund.
In the absence of agreement between the parties, an expert will
be appointed to determine the responsibilities of the parties.
Both parties agree to act in accordance with his decision. In
case that the parties cannot agree on the expert in case that a
party does not perform the expert's decision P. 15 shall apply.
3.5. The Lessor shall be entitled to perform any structural or
material changes which may be required for maintenance or proper
operation of the building inside and outside the leased premises
without the Lessee's consent, following the service of eight
days prior notice on the Lessee.
The Lessee shall not be entitled to any rent reduction or
damages in connection with the performance of such work provided
that such works endure for a maximum period of 4 months, and
further provided that the Lessor shall use his best efforts to
minimize the inconvenience caused to the Lessee.
3.6. The Lessor or his authorized representative shall be entitled to
check the proper conditions of the leased premises during normal
business hours and to visit the leased premises together with
prospective new tenants starting six months before the Lease
expiry date, subject to the service of 48 hours prior notice,
and provided that such visits shall not be exercised in a manner
detrimental to the Lessee's normal business operations.
3.7. In the event that the lessee fails to fully comply with his
obligations to maintain as defined above, and after having been
requested to do so in writing. the Lessor shall, 14 days after
the service of a written request. be entitled to undertake the
necessary work at the Lessee's expense.
3.8. The monthly rent will be reduced by the 1/12 part of the value
of cabling (1 million Hungarian Forints) during one year.
4.1. The Lessee undertakes to use the leased premises and common
parts with due care and consideration, and in accordance with
the house regulations at the direction of the Lessor's managing
agents.
4.2. The Lessee shall be liable for any and all damage caused to the
leased premises by the Lessee, its employees, visitors,
customers, supplier& or by any craftsmen commissioned by the
Lessee.
The Lessee shall be liable for any and all damage caused to the
common parts and collective facilities by the Lessee, its
employees, or, particularly during the move into the leased
premises, by any suppliers or by any craftsmen commissioned by
the Lessee.
4.3. The Lessee shall not be entitled to any claims against the
Lessor concerning temporary failure or interruption of water
supply, failure of gas, light. sewer, power or waterlines, heat
supply. air conditioning, telecommunications, or other systems
or services.
The Lessor will, however, promptly implement suitable measures
to remedy such failures.
4.4. The Lessor shall not be liable for any loss of, damage to. or
destruction of furnishings or goods owned by the Lessee or
introduced into the leased premises by any third party where
such loss, damage or destruction has been caused by force
majeure (acts of war, riot, earthquake, lightening, etc.).
damage from theft, fire, water, moisture or similar events.
The Lessor shall, however, be liable for any damage caused by
the Lessor or any of his employees due to willful or gross
negligence.
The amount of the Lessor's liability shall in any case be
limited to the maximum amount of liability provided for by the
third party liability insurance coverage as reasonably
undertaken by the Lessor.
P. 5. House regulations
5.1. The Lessee undertakes to comply with the house regulations, and
to cause his employees, visitors suppliers and any person
entering the Building. to be aware of and respect them.
The Lessor reserves the right to make reasonable changes and
additions to the house regulations in order to preserve a high
standard of occupational condition within the Building.
5.2. The Lessor reserves the right to prescribe an uniform size,
quality and material type for company signs to his Lessees.
P. 6 Subleasing, Assignment
The Lessee shall not be entitled to sublease nor assign partly
or in whole the leased premises without obtaining the prior
written approval of the Lessor, not to be unreasonably withheld.
The Lessor must give a reply to any such prior requests within
30 days.
The Lessee shall remain ~jointly and severally liable to the
Lessor for each and every sublessee and subsequent sub Lessee
for the compliance to the provisions of the Lease.
The terms and condition of the sublease shall reflect those of
this Lease and the duration of any sublease shall not exceed the
remaining duration of this Lease at the date of signature of the
sublease.
Acceptance of payments made by a third party shall not
constitute any express or implied acceptance of any tenancy
rights by such third party.
P. 7 Deposit
7.1. In order to secure compliance with this obligation under this
agreement, the Lessee shall make a cash deposit equivalent to 3
months rent plus A.A. The cash deposit brings in interest and
the interest will be accounted yearly. The amount of the
interest will be the equivalent of the interest provided by the
UNICBANK at tying up for one month.
7 1.2. The cash deposit shall be maintained at an amount always
equivalent to three months rent plus A.A., during the duration
of the Lease.
7.2. The Lessee shall be entitled to a refund of the deposit upon
expiry or termination the Lease and proper return of the leased
premises, after the Lessor is satisfied that the leased premises
are in a proper state of repair in conformity with the Lease and
after the Lessee has settled any and all obligations arising
from and/or connected with the Lease.
7.3. The leased premises shall only be handed over after the cash
deposit here above has been deposited with the Lessor by the
Lessee.
7.4. Within 10 days after the signature of the Lease, should the
lessor have not received the amount representing the cash
deposit, the Lease shall be deemed null and void without any
damages due to the Lessee.
P.8 Rent
8.1. Lessee undertakes to pay the Lessor an annual net rent specified
in Part B P. 18. plus A.A.~at the legally valid rate, and any
and all other applicable taxes.
8.2. The rent within the terms of the Lease shall include the
following:
Any and all taxes and dues concerning the leased premises and
imposed on the Lessor under any laws. decrees or other provision
of law.
Should any local charges (taxes, fees and contributions),
insurance premiums or other costs in connection with the
Building be increased or should new property charges be
introduced after the date of conclusion of this Lease, then the
Lessor shall be entitled to apportion such increased charges
with effect from the date of their introduction to the Lessee in
direct proportion to the size of the leased premises.
Any and all expenses required for the proper upkeep and
operation of the Building including but not limited to:
- maintenance and repair of the Building. car parks and
surroundings,
- maintenance and repair of the general facilities,
- the cost of maintenance staff, including staff facilities,
- consumption of gas, electric current, water and sewage,
- telecommunications costs of general services,
- fire safety and guard service
- the costs of employment of reception staff and related
expenses,
- mall dispatching costs,
- cleaning, maintenance, and repair of common areas,
- insurance costs,
- provision for depreciation & renewal of equipment,
- any and all expenses occurring from compliance with provision
of law in connection with the maintenance, repair,
replacement and renewal, if justified, operation and
utilization of the Building.
Non-use by the Lessee of the common area or the common
facilities such as lifts, heating, air conditioning, hot water
systems shall not absolve the Lessee from his payment
obligation.
P. 9 Payments
9.1. The rent as specified under the terms of this Lease shall be
paid in advance by the Lessee monthly, until the first day of
each month.
Each month the Lessor will send an invoice in HUF to the Lessee.
one month before the date of payment, at the middle exchange
rate effective on the date of the drawing up of the invoice as
it is established by the Hungarian National Bank (Magyar Nemzetl
Bank).
Payments shall be made in HUF, to the following account:
Bank: UNICBANK Rt.
Name of the beneficiary: Varosmajor Passage Kft.
Acc. Number. 12001008-00128281-00300005
Address of the Bank: Budapest V. ker. Vaci u. 19-21.
9.2. The first invoice will cover the rent prorata temporis, from the
date of the beginning of the Lease for the month April, for the
main part of the office.
The leased premises shall only be handed over after this invoice
has been paid to the Lessor.
9.3. The Lessee shall ensure that the rent shall be available on the
Lessor's account at the payment date specified in P. 10.1.
Interest of 35% in force during the period of delay, will be
charged to the Lessee. This Interest will be charged on all
amounts not paid in due time, and the Lessor shall be entitled
to apply the dispositions of clause 12 1. in the event of non-payment
Payments shall always be accounted for from the date of earliest
liability.
P. 10 Insurance
10.1. The Lessee shall reimburse to the Lessor the costs of property
insurance for the Building. Such amounts will be included in the
rent.
10.2. On his own account and in his own name, the Lessee shall take
out the following adequate insurances:
- furniture and goods inside the leased premises and against all
damages,
- employer's liability insurance,
- civil and professional liability insurance.
- third party liability insurance.
10.3 On the date of the handing over at the latest and once a year
thereafter, the Lessee shall provide to the Lessor evidence that
he has taken out adequate and appropriate insurance for the
present year.
P 11 Rescission of the Lease prior to Expiry
11.1 The Lessor may give written notice of termination of the Lease
with immediate effect, for any of the following reasons:
a) the Lessee is in arrears for more than one month with the
payment of the rent and/or A.A.,
b in the event that a petition for bankruptcy or liquidation is
filed against the Lessee.
11.2 The Lessor may give written notice of termination of the Lease
with a time limit of 2 weeks. If the default has not been
rectified at that time, for any of the following reasons:
a) the Lessee is not using the premises in accordance with the
use sta+ed under Part B, P.16.2, of the present Lease, or in
accordance with the house regulations,
b) the Lessee and/or persons sharing the premises with the
Lessee disturb other occupiers' quiet enjoyment of the Building,
c) a decision and/or regulation of competent governmental or
local authorities prevents the further use of the premises by
the Lessee
d) the Lessee does not comply with the provisions of this Lease.
11.3 The Lessee may give written notice of termination before the
date of expiry of the Lease as stated n Part B, P. 17 for any of
the following reasons:
a) the Lessee has lost the necessary and relevant authorities'
approval for the activities conducted by him in the premises,
except if this approval's loss is the Lessee's fault,
b) the premises become unfit for the purposes for which they
were originally rented by the Lessee, as described in Part B, P.
16.2 hereafter, except in so far as this may be due to a fault
or breach on the part of the Lessee
c) the Lessor is guilty of violation of his obligation to hand
over the leased premises - in respect with clauses 2.2 and 2.3
of the Lease
The notice period is six months, and starts the first day of
the month following the day of delivery of the notice.
In this case any rent paid in advance following the
deduction of sums outstanding and owned to the Lessor, shall
be reimbursed.
12. Notices, changes
The Lease shell be executed in six copies; the Lessee shall
be given two copies, the Lessor shall be given four copies.
There may be no verbal supplements to the Lease. Any changes
of or additions to the Lease shall be in writing and agreed
by both parties to be effective.
Any and all notices, mutual information, statements and rent
notifications shall be effective if directed to the address
last identified by one party to the other.
P. 13 Miscellaneous
13.1 Each party shall bear its own legal expenses.
13.2 Where several persons constitute the party of the Lessee,
they shall be liable as joint and several debtors. Any
notification on the part of the Lessor shall be deemed
legally valid if addressed to any one of such persons.
13.3 Should any of the provisions of the Lease violate any
provisions of applicable law or become invalid during the
performance of the Lease, its invalidity shall not affect
validity of the Lease as such.
Such invalid provision shall be replaced with a provision
which is valid and fulfills as closely as possible the
correct legal meaning of the clause determined to be
invalid.
13.4 Any tolerance by the Lessor of any breach of Lessee's
obligations ir compliance with the Lease, whatever its
frequency or its duration shall not allow the Lessee to
consider this tolerance as a modification or a cancellation
of any of its obligation, neither shall imply a right of any
nature for the Lessee, and does not mean that the Lessor
gave up his rights.
P. 14 Jurisdiction - applicable law
This agreement shall be governed by Hungarian law.
All disputes arising from or in connection with the present
lease agreement which cannot be settled by direct
negotiation between the parties shall be finally settled
under the rules of arbitration of the Hungarian Chamber of
Commerce and Industry by three arbitrators designated in
accordance with the said rules, applying Hungarian Law.
The language used in this procedure will be the Hungarian
Language.
The deliberations of these arbitrators shall be final and
shall bind the parties.
Budapest 21st March 1997
____________________________ ______________________
Lessor Lessee
PART B - PARTICULAR CLAUSES
P. 15. Leased premises
15.1 The Lessor shall lease and the Lessee shall rent the
following areas:
- 1st floor, totally approx. 510m2
the premises being delimited with a red colored outline on
the drawings attached in Appendix 1.
- 5 parking places
- the right in common with others to use the common areas
15.2 The leased premises shall be rented for the following use:
office purposes
P. 16 Beginning and duration of the Lease
The Lease shall commence on 1st April 1997 and shall
continue for a period expiring on 31st March 2002 herein
known as the date of expiry, being 5 years thereafter.
P. 17 Rent
The Lessee undertakes to pay the Lessor an annual net rent
equivalent in HUF to 195,000,- DEM during the Lease plus
A.A. at the legally valid rate, and any and all other
applicable taxes.
P. 18 Cash deposit (amounts)
Referring to paragraph 7 of the present Lease, the amount of
the cash deposit is fixed at 48.750. -DEM
+25%VAT 12.187.5.-DEM
-------------
60.937.5.-DEM
and shall be paid in HUF
Referring to paragraph 8 of the present lease, the amount of
the bank guarantee is fixed at 243.750.-DEM.
P. 19 First payments
Upon execution of the present Lease, the Lessee will pay as
first payments to the Lessor:
Date of signature of the Lease: 21 March 1997
Date of beginning of the Lease 1st April 1997
Rent 857.149 HUF
+25% VAT 214.287 HUF
-----------
1.071.436 HUF
Cash Deposit: 6.389.297 HUF
P. 20 Miscellaneous
The present Lease is valid only with Part A and Part B both
signed. In case of discrepancies between the two parts,
Part B shall prevail.
Budapest, 21st March 1997
- ------------------------------ ---------------------------
The Lessee The Lessor
APPENDICES
APPENDIX 1: Plan
APPENDIX 2: Joint statement recording the condition of the leased
premises
APPENDIX 3: Form of guarantee
(KFKI)
SHAREHOLDERS AGREEMENT
concluded between the following Parties:
KFKI Computer Systems Corporation, (registered under the laws of
Hungary, and represented by Laszlo Szonyi, having its registered
office at 1121 Budapest, Konkoly Thege M. 29-33) hereinafter
referred to as "KFKI"
AND
Hungarian Teleconstruct Corp. (registered in Delaware and
represented by Richard L. Fry, President), having its registered
office at 445 Park Avenue, New York, NY 10022, hereinafter
referred to as "HTEL"
hereinafter jointly referred to as the "Parties,"
Whereas EUNET Hungary (hereinafter referred to as the "Company")
is under purchase by HTEL based on the Business Share Purchase
Agreement signed simultaneously with concluding the present
Agreement and
Whereas HTEL has the capacity to develop the Company and both
Parties have a mutual interest to create strategic alliance
binding for the Parties and for the Company as well in respect of
their business activity
now therefore the Parties have agreed on the following terms:
Definition:
In this agreement the following expressions hall have the
following meanings:
:IPO" - "Initial Public Offering" of EuroWeb Rt. stock for trading
as an "Rt." listed on the Budapest Stock Exchange.
"EuroWeb" - EuroWeb Rt. a stock company to be established or/and
acquired by HTEL.
"closing the acquisition" - means the execution (signing by the
relevant Parties) of the Business Share Purchase Agreement and the
Shareholders Agreement.
"Due Diligence process - means the investigation of the Company
made by HTEL according to the Memorandum of Understanding.
I. Preliminaries
1. The Parties have signed the Memorandum of Understanding
(hereinafter referred to as MoU) on 2 December 1996, in order to
lay down the basic terms of the acquisition of the Company and the
future cooperation of the Parties.
2. HTEL escrowed on 4 December 1996, US$ 400,000 in cash funds
and shall hand over to KFKI, or to the other legal entity
nominated by KFKI, three (3) HTEL common stock certificates each
with a value of US$ 200,000 until January 2, 1997 latest. Parties
agree that the price of the stocks that will determine the number
of the HTEL common stocks is US$ 2.5/shares, which results in
80,000 shares for each certificates.
a. The escrowed US$ 400,000 is the initial installment of
the purchase price of the Company shares, according to the
terms of the Business Share Purchase Agreement.
b. Two of the three HTEL common stock certificates are the
second installment of the purchase price of the Company
shares, according to the terms of the Business Share
Purchase Agreement.
c. The third HTEL common stock certificates acts as
security of HTEL's obligation stipulated in article II. 1.2.
3. HTEL undertakes:
- to buy back from KFKI, or from the other legal entity
nominated by KFKI one of the stock certificates of US$
200,000 which was provided according to Article 2.b against
cash payment of US$ 200,000, on the close of the IPO but not
later than May 15, 1997.
- to exchange the other stock certificate of US$ 200,000
which was provided according to Article 2.c for EuroWeb
shares or to get back paying US$ 200,000 cash to KFKI, or to
the other legal entity nominated by KFKI, if EuroWeb shares
shall not be handed over to KFKI, or to the other legal
entity nominated by KFKI until June 15, 1997 latest.
4. HTEL warrants that:
- by handing over the stock certificates to KFKI, or to the
other legal entity nominated by KFKI, KFKI or the other
legal entity nominated by KFKI will be in the legal position
to dispose over the HTEL common stocks, and no other
documents are needed for establishing the unrestricted
ownership right of the KFKI or to the other legal entity
nominated by KFKI over the common stocks from the date of
the handing over the stock certificates to KFKI, or to the
other legal entity nominated by KFKI.
- the stock certificates provided as stipulated under
article 1.2 are endorsed by HTEL to KFKI, or to the other
legal entity nominated by KFKI, and are endorsable by KFKI,
or by the nominated legal entity, without any restrictions
from the date of the handing over.
5. The obligations of HTEL stipulated under 1.3 are guaranteed by
EUNET Hungary based on a separate written guarantee. HTEL
guarantees that itself and EuroWeb, the company into which EUNET
Hungary will be merged according to article II 1.1 will honor this
commitment of EUNET Hungary. Moreover, HTEL guarantees that
EuroWeb also will provide a guarantee for above mentioned
obligations of HTEL.
II. Consensus
II.I
HTEL undertakes:
1. EUnet Hungary shall be merged, with all other Hungarian
Internet service providers to be acquired by HTEL, into EuroWeb.
HTEL shall introduce EuroWeb at the Budapest stock Exchange.
2. Upon successful listing of the EuroWeb stock, on the BSE but
not later than June 15, 1997 HTEL will issue and hand over US$
200,000 of stock of EuroWeb to KFKI at the identical price of the
stock issue (actually sells the stock to KFKI for a symbolic
amount of US$ 10).
3. HTEL undertakes to list EuroWeb in the Budapest Stock Exchange
not later than 15th June 1997.
4. HTEL undertakes the obligation that payment obligations of the
Company to KFKI shall be paid by the Company or its successors not
later then closing of IPO or May 15, 1997, which is the earliest.
II.2
KFKI undertakes:
1. KFKI shall arrange its pending matters with EUnet Hu, based on
the balance sheet of EUnet Hungary of November 30, 1996, according
to the terms of the Protocol signed by the parties on December 10,
1996.
2. KFKI will return to HTEL one US$ 200,000 common stock
certificate upon satisfactory compliance by HTEL of the terms of
section II.1.2.
II.3
Parties agree:
1. A representative of KFKI will be appointed both to the Board
of Directors and the Supervisory Board of EuroWeb.
2. The staff of EUnet Hungary, with the exception of one
commuting, will be transferred to EuroWeb and employed for a
minimum of 6 months at least under the same terms and conditions
of employment as under their existing contracts. HTEL will make a
best effort to utilize him in the city of his residence.
3. EuroWeb will appoint a key account manager agreed by both
parties, under terms and conditions of employment agreed by both
parties to act as the prime interface between KFKI and EuroWeb and
to be responsible for major accounts where both parties are under
contract or are considering or negotiating a contract or where
there is a prospect of using any of the services of KFKI as
defined in article 8.a.
4. HTEL, EuroWeb and KFKI undertake that they will not approach
or offer any inducements to employment of each others' staff
without prior agreement.
5. EuroWeb will seek to maintain good strategic relationships
with EUnet International and will make best endeavors to promote
their services where EUnet International and EuroWeb are not in
direct competition.
6. HTEL will grant to EUnet International a stock of US$ 50,000
in EuroWeb free of charge at the close of the IPO to improve their
relationship. In addition EUnet International can participate in
the IPO under the conditions established by the securities
underwriter.
7. KFKI also can participate in the IPO under the conditions
established by the securities underwriter.
8. Parties agree to share the Internet related activity between
each other as follows:
a. KFKI will seek to provide for corporate customers
consultancy on strategic information systems planning,
systems design including network design systems integration,
network installation, Intranet systems, application
development, systems support and operation not directly
related to the provision of Internet services. These will
hereafter be referred to as KFKI services.
b. EuroWeb will seek to provide for customers Internet
services including Internet access provision and Value Added
Services as for example media services, graphics, Web page
design. These will hereafter be referred to as EuroWeb
services.
c. EuroWeb, its parent company, or its subsidiaries will
not compete with KFKI either alone or in partnership with
others in the provision of KFKI services and KFKI, and its
subsidiaries will similarly not compete in EuroWeb services.
d. KFKI and EuroWeb agree that they will each sub-contract
for the services of the other partner whenever the corporate
customer requires and allows.
e. KFKI and EuroWeb undertake to actively promote each
others' services with corporate customers.
f. KFKI and EuroWeb undertake to share marketing
information in Hungary and Central and Eastern Europe
related to their respective services.
III.I
HTEL undertakes to secure the provisions under article II.3 of
this agreement. If EuroWeb fails to act according to the agreed
terms it shall be regarded the material breach of HTEL.
HTEL grants that all and each obligations undertaken by HTEL
according to the present agreement and other related agreements
shall be binding on its successors, assigns or/and its parent
company such as EuroWeb.
IV.
Indemnification
HTEL undertakes to indemnify, save and hold harmless KFKI for any
and all costs or loss of profit which may arise out of or in
connection with the breach of the terms of this agreement. If
HTEL, its successors or/and EuroWeb do not meet their obligations
under this agreement, KFKI, at his own discretion, is entitled to
get cash compensation or/and additional HTEL/EuroWeb or/and other
shares in the value being in the proportion of the damage or/and
injury suffered by KFKI.
IV Closing Provisions
1. Parties warrant that the information they gathered during due
diligence they will keep as business secrets and will not make it
known to any third party. The obligations of confidentiality in
this article shall survive the termination of this agreement.
2. The individual person signing this agreement on behalf of HTEL
and KFKI confirm by their signatures that they are fully entitled
and allowed to represent HTEL and KFKI, that no further signatures
are required to constitute an agreement legally binding to the
Parties. The Parties hereto warrant that the officers mentioned
below have the signing and representation authority to conclude
the present agreement.
3. Simultaneously with concluding the present Shareholders
Agreement, the Business Share Purchase Agreement is concluded by
the Parties. Parties agree that these agreements are to be deemed
as a contractual agreement as a whole.
4. This agreement remains in force until December 31, 1997 or for
the period as far as KFKI owns EuroWeb shares, whichever is the
latest.
5. This agreement is governed by Hungarian law. The agreement is
duly signed in four copies in English.
This Agreement comes into force on the date of signing by the
Parties.
December 13, 1996, Budapest
For and on behalf of HTEL For and on behalf of KFKI
/s/ Richard L. Fry /s/Laszlo Szonyi .
Richard L. Fry, President Laszlo Szonyi, Managing
Director
Before us as witnesses:
Name: JWC Sackman Name: Kren Emil
BUSINESS SHARE PURCHASE AGREEMENT
concluded between the following Parties:
KFKI Computer Systems Corporation., (registered under the laws of
Hungary, and represented by Laszlo Szonyi)) having its registered
office at 1121 Budapest, Konkoly Thege M. 29-33) as seller,
hereinafter referred to as "Seller"
AND
Hungarian Teleconstruct Corp. (registered in Delaware and
represented by Richard L. Fry, President), having its registered
office at 445 Park Avenue, New York, NY 10022, as buyer,
hereinafter referred to as Buyer" or "HTEL."
hereinafter jointly referred to as the "Parties."
Definitions:
In this agreement the following expressions hall have the
following meanings:
"closing the acquisition" - means the execution (signing by the
relevant Parties) of the Business Share Purchase Agreement and the
Shareholders Agreement.
"Due Diligence process" - means the investigation of the Company
made by HTEL according to the Memorandum of Understanding.
"Memorandum of Understanding" - means the agreement signed by the
Parties on December 2, 1996, hereinafter referred to as MoU
OBJECT OF PURCHASE
1. The Seller is the sole owner of EUnet Hungary Ltd. (in
Hungarian: EUnet Magyarorszag Halozati Szolgaltato Korlatolt
Felelossegu Tarsasag) having its registered office at 1035
Budapest, Miklos ter 1 and registered by the Municipal Court of
Budapest, as Court of Registration - hereinafter referred to as
"Company."
The stock capital of the Company is 10,000,000 HUF, (in words ten
million Hungarian forints), which has been paid up in total for
the Company.
2. The Seller warrants that it is the sole owner of the Company
and its proprietary ratio corresponds to the figure given in
Article 1. The Seller warrants that it has the full and
unconditional right of disposal to the shares, hereinafter
referred to as the "business shares" and that no other party has
any right whatsoever to an ownership in the Company.
PURCHASE
3.1 The Seller hereby undertakes to sell and the Buyer hereby
undertakes to purchase all the business shares in the Company free
from all liens, charges, encumbrances and other third party rights
of any nature and together with all rights of any nature
whatsoever now or hereafter attached to them.
3.2 Dividend, if any, for the Financial Year 1996 will be for
the benefit of the Buyer.
PAYMENT OBLIGATION OF THE BUYER
4.1 The amount of $800,000 USD (in words: eight-hundred
thousand) is agreed as the purchase price of the business shares.
4.2 Buyer has escrowed $400,000 (in words: four hundred thousand
U.S. dollars to the bank account of Sarkadi and Associates Law
Office (as Bailee) on December 4, 1996. Based upon the signing of
the present Business Share Purchase Agreement and the
Shareholder's Agreement (as stipulated under Article 12) the
Seller is authorized to receive the escrowed $400,000 USD in cash
as the first part of the purchase price no later than 16 December,
1996. The second part of the purchase price, the $400,000 USD of
shall be paid to the seller on January 2, 1997, latest by handing
over to the Seller, or to other legal entities nominated by the
Seller in a separate letter addressed to the Buyer, two HTEL
common stock certificates each with a value of US$200,000. The
concerned Parties agree that they will sign a Protocol concerning
the handing over of the stock certificates.
a.
Buyer undertakes, according to the stipulated terms of the
Shareholders Agreement to buy back from the Seller (or from the
nominated legal entity) the HTEL common stock certificates of US$
200,000 against cash payment of US$ 200,000, not later than May
15, 1997.
The other HTEL common stock certificate of US$ 200,000 is at the
disposal of the Seller without any restrictions from the date of
handing over.
b.
The obligations of the Buyer stipulated under 4.2 a. are
guaranteed by EUnet Hungary based on a separate written guarantee.
HTEL guarantees that EuroWeb, the company into which EUnet Hungary
will be merged according to article II 1.1 of the Shareholders
Agreement, will honor this commitment of EUnet Hungary. Moreover,
HTEL guarantees that EuroWeb also will provide a guarantee for
above mentioned obligations of HTEL.
4.3 Parties agree that the price of the stocks that will determine
the number of the HTEL common stocks is US$ 2.5/shares, which
results in 80,000 shares for each certificates.
4.4 The Buyer obtains the exclusive ownership right to the
business shares on January 2, 1997.
If Buyer fails to hand over the stock certificates to the Seller
until January 2, 1997 the ownership right is not transferred to
the Buyer and the Seller shall be authorized to terminate the
agreement without any compensation to the Buyer, and Seller shall
be entitled to keep the already paid US$ 400,000, as the amount of
an indemnification.
Seller undertakes to exercise its powers in relation to the
Company so as to ensure that the Company, during the period
between December 12, 1996 and the date of the transfer of the
ownership right performs its customary business activity only.
WARRANTIES
5. The Seller warrants in respect of the Company as follows:
5.1.1 The Seller is the legal and beneficial owner of the business
shares free from all encumbrances or claims whatsoever created by
or through the Sellers.
5.1. 2 The Company has been investigated by the Buyer under
the process of Due Diligence, as stipulated in the Memorandum of
Understanding. Buyer was entitled to make a thorough examination
of the Company. Due Diligence process was accomplished on December
6, 1996 and was successful as stated in the Protocol signed by the
Parties on December 10, 1996. Seller warrants that information's
received by the Buyer under the process of Due Diligence are
correct.
5.2 The Buyer warrants that:
5.2.1 by handing over the stock certificates to the Seller or to
the nominated legal entity, the Seller or the nominated legal
entity will be in the legal position to dispose over the HTEL
common stocks from the date of the handing over, no other
documents are needed for establishing the unrestricted ownership
right over the common stocks.
5.2.2 the stock certificates provided as stipulated under article
4.2 are endorsed by the Buyer to the Seller, or to the other legal
entity nominated by the Seller, and are endorsable by the Seller
or by the nominated legal entity without any restrictions from the
date of the handing over.
LIMITATION OF LIABILITY
6. The Seller undertakes to indemnify the buyer for the proved
damages only which may arise out of or in connection with a breach
of the above-mentioned warranties stipulated under Article 5.1.
but in any case the liability of the Seller is limited up to the
amount of 20 MHUF.
MISCELLANEOUS
7. In the case that further contractual documents are necessary
for the purpose of execution of the Purchase Agreement the Parties
undertake to issue and sign the obligatory documents in the
required form.
8. This Agreement shall be governed by the laws of Hungary.
9. Any dispute, controversy or claim arising out of or in
connection with this Agreement or the breach, termination or
invalidity thereof shall be finally settled by arbitration in
Arbitration Court organized at the Hungarian Chamber of Commerce,
in accordance with its rules. The tribunal shall be composed of
three arbitrators. The language to be used in the proceedings
shall be English.
10. The individual persons signing this agreement on behalf of
the Buyer and the Seller confirm by their signature that they are
fully entitled and allowed to represent the Buyer and the Seller,
that no further signatures are required to constitute an agreement
legally binding to the Parties. The Parties hereto warrant, that
the officers mentioned below have the signing and representation
authority to conclude the present agreement.
11. The Buyer recognizes the obligations of the Company to the
Seller, which payment obligations shall be arranged according to
the agreed terms of the Protocol signed by the Parties on December
10, 1996.
12. Simultaneously with concluding the present Business Share
Purchase Agreement the Shareholders Agreement is concluded by the
Parties which regulate future cooperation of the present Parties
and the Company. Parties agree that the agreements mentioned above
are to be deemed as a contractual agreement as a whole.
13. Save as article 12 of the present agreement, contracting
Parties state that except the Protocol signed by the Parties on
December 10, 1996, other documents made earlier in the subject of
sale (minutes, memorandums, etc.) are regarded invalid with the
signing of the present Agreements and exclusively the directions
of the Agreements are authoritative to their legal relationship.
Any modifications of the Agreements may be done in written form
only, any verbal amendment and modification will not be effective.
14. This Agreement is binding for the Parties and enters into
force upon signing by both Parties.
The Seller is authorized to cancel immediately this Agreement
without any compensation to the Buyer, and shall be entitled to
claim back the ownership right of the Company shares and to keep
the US$ 400,000 as the amount of compensation and be entitled to
claim for further compensation for the damages and cost suffered
if the Buyer does not fulfil its obligations, especially those
stipulated in article 5.2 of the present agreement.
Buyer undertakes to indemnify, save and hold harmless the Seller
for any and all costs or loss of profit which may arise out of or
in connection with the breach of the terms of this agreement.
15. Parties warrant that the information they gathered they will
keep as business secrets and will not make them known to a third
party. The obligations of confidentiality in this article shall
survive the termination of this agreement.
16. Costs which arise out of or in connection with the execution
of this Agreement in the Court of Registration shall be borne by
the Company. The costs and fees for legal consultation shall,
however, be borne by each Party itself.
The Parties to the Agreement have read the present Agreement and
have interpreted it collectively and have properly signed four
copies in English in simultaneous presence of two witnesses as
being completely in agreement with their will.
December 13, 1996
/s/ Laszlo Szonyi /s/ Richard Fry
Laszlo Szonyi Richard Fry, HTEL
Before us as witnesses:
Name: JWC Sparkman Name: Kren Emil
(Enet)
SHAREHOLDERS AGREEMENT
concluded between the following Parties:
E-Net Hungary Telecommunications and Multimedia Kft., (registered
under the laws of Hungary, and represented by Toro Csaba) having
its registered office at 1016 Budapest, Naphegy ter 8, hereinafter
referred to as "E-Net"
AND
Hungarian Teleconstruct Corp. (registered in Delaware and
represented by Richard L. Fry, President), having its registered
office at 445 Park Avenue, New York, NY 10022, hereinafter
referred to as "HTEL"
hereinafter jointly referred to as the "Parties"
Whereas E-Net has been purchased by HTEL based on the Business
Share Purchase Agreement signed simultaneously with concluding the
present Agreement; now therefore the Parties have agreed on the
following terms:
Definition:
In this agreement the following expressions hall have the
following meanings:
:IPO" - "Initial Public Offering" of EuroWeb Rt. stock for trading
as an "Rt." listed on the Budapest Stock Exchange.
"EuroWeb" - EuroWeb Rt. a stock company to be established or/and
acquired by HTEL.
"closing the acquisition" - means the execution (signing by the
relevant Parties) of the Business Share Purchase Agreement and the
Shareholders Agreement.
"Due Diligence process - means the investigation of the Company
made by HTEL according to the Memorandum of Understanding.
I. Preliminaries
1. The Parties have signed the Memorandum of Understanding
(hereinafter referred to as MoU) on 6 December 1996, in order to
set forth the basic terms of the acquisition of the Company. This
agreement has been prepared according to the agreed terms of MoU,
which document still forms an integral part of the consensus of
the Parties.
2. HTEL escrowed on 9 December 1996, US$ 200,000 in cash funds
and shall cause to issued into an escrow account $150,000 USD of
HTEL common stock prior to 9 January 1997. All funds and stocks
are to escrowed with the law offices of Sarkadi and Tarsa, 1023
Budapest, Romer Floris U.55. The HTEL stock will be held in escrow
by a party named by E-Net, namely Csaba Toro.
II. Terms:
1. HTEL shall escrow $200,000 USD in cash with the law offices of
Sarkadi and Tarsa, 1023 Budapest, Romer Floris U.55, on 6 December
1996, and $150,000 in shares of HTEL common stock mentioned above
in paragraph 2, "Preliminaries" by 2 January 1977 at the party
named by E-Net above (paragraph 2, "Preliminaries"). Closing of
the acquisition by signing of the Sale and Purchase Agreement,
Option Agreement and Shareholders agreement shall be completed by
17th of December 1996.
2. HTEL shall transfer to the owners of E-Net $200,000 USD in
cash at the date of closing of the acquisition of E-Net.
2.1 If the buyer fails to hand over the stock certificates to the
seller on or before 9 January, 1997, the ownership right is not
transferred to the buyer and the seller shall be authorized to
terminate the Business Share Purchase Agreement, Option Agreement,
and Shareholders Agreement without any compensation to the buyer,
and seller shall be entitled to keep the already paid $200,000 USD
as the amount of indemnification.
3. At the closing of the IPO HTEL will issue $150,000 USD of
stock in EuroWeb to the owners of E-Net. HTEL will endeavor to
complete the IPO no later than 15 May, 1997. If HTEL fails to
complete the IPO by 15 May 1997, the owners of E-Net will be
issued the $150,000 USD of escrowed stock in HTEL. During the
subscription period of the IPO the HTEL stock will be fully
convertible to EuroWeb stock consistent with the terms of the IPO.
If the HTEL stock has not been converted for EuroWeb shares, upon
being issued the $150,000 USD of EuroWeb stock, the seller agrees
to surrender to HTEL the said shares of HTEL stock.
4. The owners and immediate families of the owners of E-Net agree
to a "non compete" clause that prohibits them from entering into
or engaging in the establishing of, ownership in, or management
of, an Internet service provider company, except EuroWeb, in
Hungary for a period of five years(5) from the closing date of
this Agreement.
5. The staff of E-Net will be interviewed by HTEL and HTEL will
make a best effort to hire as many staff members of E-Net as
feasible.
6. Csaba Toro agrees to join the management team of EuroWeb and
enter into a separate management agreement with Euro Web.
7. All assets, shares, and liabilities of E-Net either owned,
leased, or loaned will transfer to HTEL upon closing of the
acquisition.
8. The current owners of E-Net will be offered a seat on the
Board of Directors of EuroWeb Rt. Compensation for serving on the
Board of Directors will be in the form of stock options to
purchase shares of EuroWeb and shall be awarded at the discretion
of the Board of Directors.
9. The acquisition of E-Net by HTEL shall remain confidential
information by all parties until the closing of the acquisition.
III. Disbursement of funds and transfer of stocks and assets.
1. Upon signing of the final Shareholders Agreement and Business
Share Purchase Agreement the $200,000 USD of escrowed funds will
be released to the current owners of E-Net and all assets of E-Net
will be transferred to the ownership of HTEL.
2. At the closing of the IPO of EuroWeb HTEL will issue $150,000
USD of stock in EuroWeb to the current owners of E-Net consistent
with the IPO. HTEL will endeavor to complete the IPO no later than
15 May 1997. If HTEL fails to complete the IPO by 15 May 1997. If
HTEL fails to complete the IPO by 15 May 1997 the current owners
of E-Net will be issued the $150,000 USD of escrowed common stock
in HTEL. During the subscription period of the IPO the HTEL stock
will be fully convertible to EuroWeb stock consistent with the
terms of the IPO. If the HTEL stock has not been converted for
EuroWeb shares, upon being issued the $150,000 USD of EuroWeb
stock, the seller agrees to surrender to HTEL the said shares of
HTEL stock.
IV Closing Provisions
1. Parties warrant that the information they gathered during due
diligence they will keep as business secrets and will not make it
known to any third party. The obligations of confidentiality in
this article shall survive the termination of this agreement.
2. The individual person signing this agreement on behalf of HTEL
confirms by his signature that he is fully entitled and allowed to
represent the HTEL, that no further signatures are required to
constitute an agreement legally binding to HTEL. The Parties
hereto warrant that the officers mentioned below have the signing
and representation authority to conclude the present agreement.
3. This agreement remains in force until December 31, 1997 or for
the period as far as the current owners of E-Net own EuroWeb
shares, whichever is later.
4. If HTEL or the current owners of E-Net breach this agreement
or fail to meet their respective obligations under this agreement,
then HTEL or the current owners of E-Net are entitled to seek all
manners of relief proportional to the damage suffered by the
injured party.
5. This agreement is governed by Hungarian law. The agreement is
duly signed in two copies in English.
This Agreement comes into force on the date of signing by the
Parties.
December 19, 1996, Budapest
For and on behalf of HTEL For and on behalf of E-Net
/s/ Richard L. Fry /s/ Csaba Toro .
ichard L. Fry, President
Csaba Toro, Global Net Kft.
/s/ Gabor Dicso .
Gabor Dicso, Darol Rt.
BUSINESS SHARE PURCHASE AGREEMENT
concluded between the following Parties:
The current owners identified as Global Net Hungary Kereskedelmi
es Kommunikacios Korlatolt Felelossegu Tarsasag (Fo u. 12., 7400
Kaposvar) and Darol Reszventarsasag (Ergrossy u. 20., 1149
Budapest), of E-Net Hungary Telecommunications and Multimedia,
Kft., (registered under the laws of Hungary, and represented by
Csaba Toro) having its registered office at 1016 Budapest, Naphegy
ter 8 as seller hereinafter referred to as "Seller"
AND
Hungarian Teleconstruct Corp. (registered in Delaware and
represented by Richard L. Fry, President), having its registered
office at 445 Park Avenue, New York, NY 10022, as buyer,
hereinafter referred to as Buyer" or "HTEL."
hereinafter jointly referred to as the "Parties."
Definitions:
In this Agreement the following expressions hall have the
following meanings:
"closing the acquisition" - means the execution (signing by the
relevant Parties) of the Business Share Purchase Agreement and the
Shareholders Agreement.
"Due Diligence process" - means the investigation of the Company
made by HTEL according to the Memorandum of Understanding.
"Memorandum of Understanding" - means the agreement signed by the
Parties on December 6, 1996, hereinafter referred to as MoU
"Company" - means E-Net Hungary Telecommunications and Multimedia,
hereinafter referred to as "E-Net" or "Company."
OBJECT OF PURCHASE
1. The Seller is the sole owner of E-Net Hungary
Telecommunications and Multimedia having its registered office at
1016 Budapest, Naphegy ter 8. and registered by the Municipal
Court of Budapest, as Court of Registration at registration number
01-09565274.
The stock capital of the Company is 1,000,000 HUF, (in words one
million Hungarian forints), which has been paid up in total for
the Company.
2. The Seller warrants that it is the sole owner of the Company
and its proprietary ratio corresponds to the figure given in
Article 1. The Seller warrants that it has the full and
unconditional right of disposal to the shares, hereinafter
referred to as the "business shares" and that no other party has
any right whatsoever to an ownership in the Company.
PURCHASE
3.1 The Seller hereby undertakes to sell and the Buyer hereby
undertakes to purchase all the business shares in the Company free
from all liens, charges, encumbrances and other third party rights
of any nature and together with all rights of any nature
whatsoever now or hereafter attached to them.
3.2 Dividend, if any, for the Financial Year 1996 will be for
the benefit of the Buyer.
PAYMENT OBLIGATION OF THE BUYER
4.1 The amount of $350,000 USD (in words: three hundred fifty
thousand US dollars) is agreed as the purchase price of the
business shares.
4.2 Buyer has escrowed $200,000 (in words: two hundred thousand
U.S. dollars to the bank account of Sarkadi and Tarsa Law Office
(as Bailee) on December 9, 1996. Based upon the execution of the
Business Shareholders Agreement and the Shareholder's Agreement,
the seller is authorized to receive the escrowed $200,000 USD in
cash as the first part of the purchase price no later than 18
December, 1996. The second part of the purchase price, the
$150,000 USD of escrowed HTEL stock, shall be surrendered to the
seller according to the terms of the Option agreement attached
hereto. All parties agree to the terms of the Option Agreement.
4.3 The Buyer obtains the exclusive ownership right to the
business shares on January 2, 1997.
WARRANTIES
5. The Seller warrants in respect of the Company as follows:
5.1 The Seller is the legal and beneficial owner of the business
shares free from all encumbrances or claims whatsoever created by
or through the Sellers.
5.2 The Company has been investigated by the Buyer under the
process of Due Diligence, as stipulated in the Memorandum of
Understanding. Buyer was entitled to make a thorough examination
of the Company. Seller warrants that information's received by the
Buyer under the process of Due Diligence are correct.
5.3 The Company warrants the E-Net Hungary Telecommunications
and Multimedia is a legal Kft. under Hungarian statutes.
LIMITATION OF LIABILITY
6. The Seller and Buyer jointly indemnify each other for any
established damages which may arise out of or in connection with a
breach of the above-mentioned warranties stipulated under Article
5.
MISCELLANEOUS
7. In the case that further contractual documents are necessary
for the purpose of execution of the Purchase Agreement the Parties
undertake to issue and sign the obligatory documents in the
required form. Parties agree that the duly signed extract of the
present agreement shall be handed over to the Court of
Registration.
8. This Agreement shall be governed by the laws of Hungary.
9. Any dispute, controversy or claim arising out of or in
connection with this Agreement or the breach, termination or
invalidity thereof shall be finally settled by arbitration in
Arbitration Court organized at the Hungarian Chamber of Commerce,
in accordance with its rules. The tribunal shall be composed of
three arbitrators. The language to be used in the proceedings
shall be English.
10. The individual person signing this agreement on behalf of
the Buyer confirms by his signature that he is fully entitled and
allowed to represent the Buyer, that no further signatures are
required to constitute an agreement legally binding to the Buyer.
The Parties hereto warrant, that the officers mentioned below have
the signing and representation authority to conclude the present
agreement.
11. The Buyer hereby declares the acknowledgment and the
acceptance of the terms of the Memorandum of Understanding and
payment obligations shall be arranged according to the agreed
terms.
12. Simultaneously with concluding the present Business Share
Purchase Agreement the Shareholders Agreement is concluded by the
Parties which regulate future cooperation of the present Parties
and the Company.
13. With the exception of the Memorandum of Understanding signed
by the Parties in December 6, 1996 mentioned in article 12 above,
other documents made earlier in the subject of sale (minutes,
memorandums, etc.) are regarded invalid with the signing of the
present Agreement and exclusively the directions of the Business
Share Purchase Agreement, Option Agreement, Shareholders Agreement
and MoU are authoritative to their legal relationship. Any
modifications of the Agreements may be done in written form only,
any verbal amendment and modification will not be effective.
14. This Agreement is binding for the Parties and enters into
force upon signing by both Parties. The Seller is authorized to
cancel immediately this Agreement without any compensation to the
Buyer if the Buyer does not fulfill its obligations stipulated in
the agreements listed above in 13.
15. Parties warrant that the information they gathered they will
keep as business secrets and will not make them known to a third
party. The obligations of confidentiality in this article shall
survive the termination of this agreement.
16. Costs which arise out of or in connection with the execution
of this Agreement in the Court of Registration shall be borne by
the Company. The costs and fees for legal consultation shall,
however, be borne by each Party itself.
The Parties to the Agreement have read the present Agreement and
have interpreted it collectively and have properly signed four
copies in English in simultaneous presence of two witnesses as
being completely in agreement with their will.
December 19, 1996
/s/ Csaba Toro /s/ Richard Fry
Csaba Toro, Global Net Kft. Richard Fry, HTEL
Before Us as witnesses:
Name: Marianne Kanyo Name: Amdrea Macsai
Address: Budapest iiii Address: Emek, 2091
Bartok 8 u 52 Kender 4.3
OPTION AGREEMENT
In order to secure payment of a portion of the consideration
for the acquisition from the owners of E-NET of the stock of
Hungarian Teleconstruct ("HTEL") as the purchaser, has deposited
with the owners of E-NET, 60,000 shares of HTEL common stock,
(with an aggregate value of $150,000 USD based on a price of $2.50
USD per share), hereinafter referred to as the "Escrow Shares."
The Escrow Shares shall be delivered to the owners of E-NET on 15
May 1997 in the event that EuroWeb Rt. has not completed the
registration of its shares with the Budapest Stock Exchange for an
initial public offering as is contemplated in the Business Share
Purchase Agreement dated as of 17 December.
1. Call Option for Escrow Shares: the owners of E-NET hereby
grants to HTEL, or its nominee, the right to purchase (the "Call
Option") all of the Escrow Shares from the owners of E-NET at an
aggregate cash price of $150,000 USD, or in exchange for the
number of shares of EuroWeb Rt. that have an aggregate value equal
to $150,000 USD consistent with the terms of the IPO. The Call
Option may be exercised only pursuant to the terms and conditions
herein stated.
a) The Call Option for cash, 1., may be exercised by HTEL only
during the period of 15 May 1997 to 30 October 1997. Thereafter
the cash payment Call Option, 1.(i), if not exercised as provided
for herein, shall expire and shall be of no further force and
effect.
b) In the event that HTEL elects to exercise its rights to
purchase the Escrow Shares pursuant to 1. for cash payment, HTEL
shall provide written notice to E-NET of the exercise of its
rights a minimum of 5 days prior to the effective purchase date
(the "Cash Purchase Date").
c) HTEL shall authorize payment to E-NET or its designated
representative within 15 days of the Cash Purchase Date. Payment
shall be made by HTEL to E-NET or its designated representative in
USD through a deposit of good funds in a commercial bank selected
by E-NET against tender to the bank of the Escrow Shares by E-NET.
d) HTEL may exercise the Call Option in exchange HTEL shares
for shares of EuroWeb Rt. only during the period of the IPO. All
terms of the exchange are to be consistent with the terms of the
IPO. The exchange of EuroWeb shares for HTEL shares shall be in an
aggregate value of $150,000 USD. The rights of HTEL shall be
exercisable only as of the date that the securities broker,
dealer, or underwriter selected by EuroWeb Rt. notifies HTEL and
all the owners of E-NET that all conditions for the initial public
offering of stock have been satisfied..
e) In the event that HTEL elects to exercise its rights to
exchange the Escrow Shares pursuant to 1.d. HTEL shall provide
written notice to the owners of E-NET of the exercise of its
rights a minimum of 15 days prior to the Exchange Date. On the
Exchange Date, EuroWeb Rt. shall issue and deliver the requisite
shares EuroWeb Rt. stock to the owners of E-NET. Shares of EurWeb
Rt. shall be free and clear of all liens and encumbrances other
than restrictions on sale as may be imposed by the Shareholder
Agreement of the underwriter.
f) In the event that HTEL elects to exercise its rights for
cash 1.(i) or in exchange for shares of EuroWeb Rt. pursuant to
1.(ii), the purchase shall include all of the Escrow Shares.
2. Put Option for Escrow Shares: HTEL hereby grants to the owners
of E-NET or its nominee, the right for the owners of E-NET to put
(the "Put Option") all of the Escrow Shares to HTEL at a cash
price of $150,000 (USD$) to the owners of E-NET. The Put Option
may be exercised only pursuant to the terms and conditions herein
stated.
a) The Put Option may be exercised by owners of E-NET only during
the period of 1 July 1997 to 30 October 1997. Thereafter the Put
Option shall expire and shall be of no further force and effect
except as provided for in section 2.e) herein.
b) In the event that E-NET elects to exercise its rights to put
the Escrow Shares to HTEL, E-NET shall provide written notice to
HTEL of the exercise of its rights a minimum of 5 days prior to
the effective purchase date (the "Put Purchase Date").
c) HTEL, upon receipt of notice from owners of E-NET that the
owners of E-NET has elected to exercise its option to put the
Escrow Shares, shall authorize payment to the owners of E-NET,
within 15 days of the Put Purchase Date. Payment shall be made by
HTEL to owners of E-NET in the amount of $150,000 USD through a
deposit of good funds in a commercial bank selected by E-NET
against tender to such bank of the Escrow Shares by E-NET.
d) In the event that the owners of E-NET shall have received
timely written notice from HTEL in accordance with the terms of
this Agreement, and prior to having received notice from the
owners of E-NET as provided in 2.a or 2.b, to the effect that HTEL
has elected to exercise its rights pursuant to the Call Option,
1.(i) or 1.(ii), 1.(ii), exercise of the Put Option by E-NET shall
be suspended. The suspension shall be lifted in the event that
HTEL defaults on the conditions set forth in sections 1.c) and
1.d) of this Agreement.
e) In the event that HTEL defaults in its obligations under 1.c),
1.d) or 2.c) than the Put Option rights shall be extended for 90
additional days from the date of such default.
Agreed and Accepted
Hungarian Teleconstruct
/s/ Richard Fry
By: Richard Fry
E-NET
/s/ Gabor Dicso, Darol Rt.
By: Gabor Dicso
/s/ Csaba Toro
By: Csaba Toro
(MS Telecom)
SHAREHOLDERS AGREEMENT
concluded between the following Parties:
MS Telecom, Rt., (registered under the laws of Hungary, and
represented by Maros Peter) having its registered office at 1027
Budapest Csalogany 23 hereinafter referred to as "MST"
AND
Hungarian Teleconstruct Corp. (registered in Delaware and
represented by Richard L. Fry, President), having its registered
office at 445 Park Avenue, New York, NY 10022, hereinafter
referred to as "HTEL" hereinafter jointly referred to as the
"Parties,"
Whereas IH (or the "Company") has been purchased from MST by HTEL
based on the Business Share Purchase Agreement signed
simultaneously with concluding the present Agreement; now
therefore the Parties have agreed on the following terms:
Definition:
In this agreement the following expressions hall have the
following meanings:
:IPO" - "Initial Public Offering" of EuroWeb Rt. stock for trading
as an "Rt." listed on the Budapest Stock Exchange.
"EuroWeb" - EuroWeb Rt. a stock company to be established or/and
acquired by HTEL.
"closing the acquisition" - means the execution (signing by the
relevant Parties) of the Business Share Purchase Agreement and the
Shareholders Agreement.
"Due Diligence process - means the investigation of the Company
made by HTEL according to the Memorandum of Understanding.
I. Preliminaries
1. The Parties have signed the Memorandum of Understanding
(hereinafter referred to as MoU) on 6 December 1996, in order to
set forth the basic terms of the acquisition of the Company. This
agreement has been prepared according to the agreed terms of MoU,
which document still forms an integral part of the consensus of
the Parties.
2. HTEL escrowed on 9 December 1996, US$ 225,000 in cash funds
and shall cause to issued into an escrow account $210,000 USD of
HTEL common stock prior to 2 January 1997. All funds and stocks
are to escrowed with the law offices of Sarkadi and Tarsa, 1023
Budapest, Romer Floris U.55.
II. Terms:
1. HTEL shall escrow $225,000 USD in cash with the law offices of
Sarkadi and Tarsa, 1023 Budapest, Romer Floris U.55, on 9 December
1996, and $210,000 in shares of HTEL common stock by 2 January
1977. Closing of the acquisition by signing of the Sale and
Purchase Agreement and Shareholders agreement shall be completed
by 13th of December 1996.
2. HTEL shall transfer to MST $225,000 USD from the escrow
account at the date of closing of the acquisition of IH.
3. At the closing of the IPO HTEL will issue $210,000 USD of
stock in EuroWeb to MST. HTEL will endeavor to complete the IPO no
later than 31 March 1997. If HTEL fails to complete the IPO by 31
March 1997, MST will be issued the $210,000 USD of escrowed stock
in HTEL. During the subscription period of the IPO the HTEL stock
will be fully convertible to EuroWeb stock consistent with the
terms of the IPO.
4. The employees, owners and immediate families of the owners of
MST and the employees of IH agree to a "non compete" clause that
prohibits them from entering into or participating in the
establishing of, ownership in, or management of, an Internet
service provider company, other than businesses affiliated with
EuroWeb, in Hungary for a period of five years(5) from the closing
date of this Agreement.
5. The staff of IH will be interviewed by HTEL and HTEL shall
make a best effort to hire as many staff members of IH as
feasible.
6. All assets, shares, goodwill, intellectual property, and
liabilities of IH that are owned, or leased will transfer to HTEL
upon closing of the acquisition.
8. A nominee of MST shall be offered a seat on the Board of
Directors of EuroWeb for a period of 5 years following the closing
of the acquisition. Compensation for serving on the Board of
Directors shall be in the form of stock options to purchase shares
of EuroWeb and shall be awarded at the discretion of the Board of
Directors. For the first year, MST shall nominate Peter Maros to
the Board. The Board shall provide award Mr. Maros a minimum of
5,000 stock options to purchase shares of EuroWeb under the same
terms and conditions as stock options that may be awarded to other
members of the Board.
9. The acquisition of IH by HTEL shall remain confidential
information by all parties until the closing of the acquisition.
10. This memorandum shall be governed by Hungarian law.
11 Parties warrant that the information they have obtained shall
be maintained as "business secrets" and will not make them known
to a third party. The obligations of confidentiality in this
article shall survive the termination of this Agreement.
12. The individual person signing this Agreement on behalf of the
HTEL confirms by his signature that he is fully entitled and
allowed to represent the HTEL, that no further signatures are
required to constitute an Agreement legally binding to the HTEL.
The Parties hereto warrant, that the officers mentioned below have
the signing and representation authority to conclude the present
Agreement.
13. This Agreement remains in force until December 31, 1997 or for
the period as far as MST owns EuroWeb shares, whichever is later.
14. If HTEL or MST breach this Agreement or fail to meet their
respective obligations under this Agreement, then HTEL or MST are
entitled to seek all manners of relief proportional to the damage
suffered by the injured party.
15. During 1997 Board of Directors meetings shall occur not less
than once per month.
16. Through 31 March 1997, any employee of the Company shall be
provided by the Board of Directors with 60 days notice of
termination.
17. This Agreement is governed by Hungarian law. The Agreement is
duly signed in two copies on English.
This Agreement comes into force on the date of signing by the
Parties.
December 13, 1996, Budapest
For and on behalf of HTEL For and on behalf of MST
/s/ Richard L.Fry /s/ Maros Peter
Richard L. Fry, President Maros Peter, Managing Director
BUSINESS SHARE PURCHASE AGREEMENT
concluded between the following Parties:
MS Telecom, Rt., (registered under the laws of Hungary, and
represented by Maros Peter) having its registered office at
Csalogany U. 23 1027 Budapest, as seller, hereinafter referred to
as "Seller"
AND
Hungarian Teleconstruct Corp. (registered in Delaware and
represented by Richard L. Fry, President), having its registered
office at 445 Park Avenue, New York, NY 10022, as buyer,
hereinafter referred to as Buyer" or "HTEL."
hereinafter jointly referred to as the "Parties."
Definitions:
In this agreement the following expressions hall have the
following meanings:
"closing the acquisition" - means the execution (signing by the
relevant Parties) of the Business Share Purchase Agreement and the
Shareholders Agreement.
"Due Diligence process" - means the investigation of the Company
made by HTEL according to the Memorandum of Understanding.
"Memorandum of Understanding" - means the agreement signed by the
Parties on December 6, 1996, hereinafter referred to as MoU
"Company" - means Internet Hungary Kft. hereinafter referred to as
"IH" or "Company."
OBJECT OF PURCHASE
1. The Seller is the sole owner of IH having its registered
office at Csalogany u. 23, 1027 Budapest, and registered by the
Municipal Court of Budapest, as Court of Registration at
registration number CG 01-09-369917.
The stock capital of the Company is 17,000,000 HUF, (in words
seventeen million Hungarian forints), which has been paid up in
total for the Company.
2. The Seller warrants that it is the sole owner of the Company
and its proprietary ratio corresponds to the figure given in
Article 1. The Seller warrants that it has the full and
unconditional right of disposal to the shares, hereinafter
referred to as the "business shares" and that no other party has
any right whatsoever to an ownership in the Company.
PURCHASE
3.1 The Seller hereby undertakes to sell and the Buyer hereby
undertakes to purchase all the business shares in the Company free
from all liens, charges, encumbrances and other third party rights
of any nature and together with all rights of any nature
whatsoever now or hereafter attached to them.
3.2 Dividend, if any, for the Financial Year 1996 will be for
the benefit of the Buyer.
PAYMENT OBLIGATION OF THE BUYER
4.1 The amount of $435,000 USD (in words: four hundred thirty-five thousand)
is agreed as the purchase price of the business shares.
4.2 Buyer has escrowed $225,000 (in words: two hundred twenty-five thousand
U.S. dollars to the bank account of Sarkadi and Tarsa Law Office (as Bailee)
on December 9, 1996. Based upon the execution of the Business Shareholders
Agreement and the Shareholder's Agreement, the seller is authorized to
receive the escrowed $225,000 USD in cash as the first part of the purchase
price no later than 16 December, 1996. The second part of the purchase
price, the $210,000 USD of escrowed HTEL stock, shall be surrendered to
the seller according to the terms of the Option agreement attached hereto.
All parties agree to the terms of the Option Agreement.
4.3 The Buyer obtains the exclusive ownership right to the
business shares on the date of execution of this Agreement.
WARRANTIES
5. The Seller warrants in respect of the Company as follows:
5.1 The Seller is the legal and beneficial owner of the business
shares free from all encumbrances or claims whatsoever created by
or through the Sellers.
5.2 The Company has been investigated by the Buyer under the
process of Due Diligence, as stipulated in the Memorandum of
Understanding. Buyer was entitled to make a thorough examination
of the Company. Seller warrants that information's received by the
Buyer under the process of Due Diligence are correct.
5.3 MS Telecom warrants and HTEL accepts that during the due
diligence BDO had access to all financial and legal information of
the Company. MS Telecom warrants that since the completion of due
diligence, no substantial changes have taken place and the
activity of IH was "business as usual." All the activity and
responsibility of ownership is transferred to HTEL at closing.
LIMITATIONS OF LIABILITY
6. The Seller and Buyer jointly indemnify each other for any
established damages which may arise out of or in connection with a
breach of the above-mentioned warranties stipulated under Article
5.
MISCELLANEOUS
7. In the case that further contractual documents are necessary
for the purpose of execution of the Purchase Agreement the Parties
undertake to issue and sign the obligatory documents in the
required form. Parties agree that the duly signed extract of the
present agreement shall be handed over to the Court of
Registration.
8. This Agreement shall be governed by the laws of Hungary.
9. Any dispute, controversy or claim arising out of or in
connection with this Agreement or the breach, termination or
invalidity thereof shall be finally settled by arbitration in
Arbitration Court organized at the Hungarian Chamber of Commerce,
in accordance with its rules. The tribunal shall be composed of
three arbitrators. The language to be used in the proceedings
shall be English.
10. The individual person signing this agreement on behalf of
the Buyer confirms by his signature that he is fully entitled and
allowed to represent the Buyer, that no further signatures are
required to constitute an agreement legally binding to the Buyer.
The Parties hereto warrant, that the officers mentioned below have
the signing and representation authority to conclude the present
agreement.
11. The Buyer hereby declares the acknowledgment and the
acceptance of the terms of the Memorandum of Understanding and
payment obligations shall be arranged according to the agreed
terms.
12. Simultaneously with concluding the present Business Share
Purchase Agreement the Shareholders Agreement is concluded by the
Parties which regulate future cooperation of the present Parties
and the Company.
13. With the exception of the Memorandum of Understanding signed
by the Parties in December 6, 1996 mentioned in article 12 above,
other documents made earlier in the subject of sale (minutes,
memorandums, etc.) are regarded invalid with the signing of the
present Agreement and exclusively the directions of the Business
Share Purchase Agreement, Option Agreement, Shareholders Agreement
and MoU are authoritative to their legal relationship. Any
modifications of the Agreements may be done in written form only,
any verbal amendment and modification will not be effective.
14. This Agreement is binding for the Parties and enters into
force upon signing by both Parties. The Seller is authorized to
cancel immediately this Agreement without any compensation to the
Buyer if the Buyer does not fulfill its obligations stipulated in
the agreements listed above in 13.
15. Parties warrant that the information they gathered they will
keep as business secrets and will not make them known to a third
party. The obligations of confidentiality in this article shall
survive the termination of this agreement.
16. Costs which arise out of or in connection with the execution
of this Agreement in the Court of Registration shall be borne by
the Company. The costs and fees for legal consultation shall,
however, be borne by each Party itself.
The Parties to the Agreement have read the present Agreement and
have interpreted it collectively and have properly signed four
copies in English in simultaneous presence of two witnesses as
being completely in agreement with their will.
December 13, 1996
/s/ Maros Peter /s/ Richard Fry
Maros Peter, MST Richard Fry, HTEL
OPTION AGREEMENT
In order to secure payment of a portion of the consideration
for the acquisition from MST of the stock of Internet Hungary
Kft., Hungarian Teleconstruct ("HTEL") as the purchaser, has
deposited with the law offices of Sarkadi and Tarsa in Budapest,
Hungary, as escrow agent, 84,000 shares of HTEL common stock,
hereinafter referred to as the "Escrow Shares." The Escrow Shares
hall be delivered by the escrow agent to MST on 31 March 1997 in
the event that EuroWeb Rt. has not completed the registration of
its shares with the Budapest Stock Exchange for an initial public
offering as is contemplated in the Business Share Purchase
Agreement dated as of ___ December 1996.
1. Call Option for Escrow Shares: MST hereby grants to HTEL, or
its nominee, the right to purchase (the "Call Option") all of the
Escrow Shares at either" (i) a cash price of $2.50 (USD) net per
share paid to MST; or (ii) in exchange for the number shares of
EuroWeb Rt. that have an aggregate value equal to $210,000,
calculated at the National Bank of Hungary average exchange rate
for USD to HUF as shall be determined on the first day of that
shares of EuroWeb Rt. are available for trading on the Budapest
Stock Exchange. The Call Option may be exercised only pursuant to
the terms and conditions herein stated.
a) The Call Option for cash, 1.(i), may be exercised by HTEL
only during the period of 1 September 1997 to 30 October 1997.
Thereafter the cash payment Call Option, 1.(i), if not exercised
as provided for herein, shall expire and shall be of no further
force and effect.
b) In the event that HTEL elects to exercise its rights to
purchase the Escrow Shares pursuant to 1.(i) for cash payment,
HTEL shall provide written notice to MST of the exercise of its
rights a minimum of 5 days prior to the effective purchase date
(the "Cash Purchase Date").
c) HTEL shall authorize payment to MST or its designated
representative within 15 days of the Cash Purchase Date. Payment
shall be made by HTEL to MST or its designated representative in
USD through a deposit of good funds in a commercial bank selected
by MST against tender to the bank of the Escrow Shares by MST.
d) HTEL may exercise the Call Option in exchange for shares of
EuroWeb Rt. pursuant to 1. (ii), during the period of 1 February
1997 to 30 September 1997 provided that EuroWeb Rt. has completed
the registration of its initial public offering of stock in
accordance with the rules and regulations of the Budapest Stock
Exchange. The rights of HTEL shall be exercisable only as of the
date that the securities broker, dealer, or underwriter selected
by EuroWeb Rt. notifies HTEL and MST that all conditions for the
initial public offering of stock have been satisfied. The Call
Option in exchange for shares, 1.(ii), shall expire on 30
September 1997 and shall be of no further force and effect.
e) In the event that HTEL elects to exercise its rights to
purchase the Escrow Shares pursuant to 1.(ii), HTEL shall provide
written notice to MST of the exercise of its rights a minimum of
15 days prior to the Exchange Date. On the Exchange Date, EuroWeb
Rt. shall issue and deliver the requisite shares of EuroWeb Rt.
stock to MST. Shares of EuroWeb Rt. shall be free and clear of all
liens and encumbrances other than restrictions on sale as may be
imposed by the Shareholder Agreement of the underwriter.
f) In the event that HTEL elects to exercise its rights for
cash 1.(i) or in exchange for shares of EuroWeb Rt. pursuant to
1.(ii), the purchase shall include all of the Escrow Shares.
2. Put Option for Escrow Shares: HTEL hereby grants to MST or its
nominee, the right for MST to put (the "Put Option") all of the
Escrow Shares to HTEL at a cash price of $2.50 (USD$) net per
share to MST. The Put Option may be exercised only pursuant to the
terms and conditions herein stated.
a) The Put Option may be exercised by MST only during the period
of 1 July 1997 to 30 October 1997. Thereafter the Put Option shall
expire and shall be of no further force and effect except as
provided for in section 2.e) herein.
b) In the event that MST elects to exercise its rights to put the
Escrow Shares to HTEL, MST shall provide written notice to HTEL of
the exercise of its rights a minimum of 5 days prior to the
effective purchase date (the "Put Purchase Date").
c) HTEL, upon receipt of notice from MST that MST has elected to
exercise its option to put the Escrow Shares, shall authorize
payment to MST, within 15 days of the Put Purchase Date. Payment
shall be made by HTEL to MST in USD through a deposit of good
funds in a commercial bank selected by MST against tender to such
bank of the Escrow Shares by MST.
d) In the event that MST shall have received timely written notice
from HTEL in accordance with the terms of this Agreement, and
prior to having received notice from MST as provided in 2.a or
2.b, to the effect that HTEL has elected to exercise its rights
pursuant to the Call Option, 1.(i) or 1.(ii), 1.(ii), exercise of
the Put Option by MST shall be suspended. The suspension shall be
lifted in the event that HTEL defaults on the conditions set forth
in sections 1.c) and 1.d) of this Agreement.
e) In the event that HTEL defaults in its obligations under 1.c),
1.d) or 2.c) than the Put Option rights shall be extended for 90
additional days from the date of such default.
December 13, 1996
Agreed and Accepted
Hungarian Teleconstruct
/s/ Richard Fry
By: Richard Fry
MST
/s/ Maros Peter
By: Maros Peter
(Imre Kovats)
Agreement
AGREEMENT made this 28th day of January 1997 by and between
Imre Kovats (herein referred to as "Consultant"), and Hungarian
Teleconstruct Corp., with offices at 445 Park Avenue, 15th Floor,
New York NY 10022, (herein referred to as the "Client").
WHEREAS Client desires to obtain Consultant's Management
consulting services in connection with Client's business affairs,
and consultant is willing to render such services as hereinafter
more fully set forth.
NOW, THEREFORE, the parties agree as follows:
1. Client hereby engages and retains Consultant and
Consultant hereby agrees to use his best efforts, to render to
Client management consulting services hereinafter described for a
period of two years commencing with the date of this agreement.
2. Consultant's services hereunder shall consist of
consultations with Client concerning the management and operations
of Client's business as Client may from time to time require
during the term of this agreement ("Agreement").
3. Consultant shall devote full time to the affairs of
Client in the form of consultation, advice and assistance on such
matters as client requests. Such services may include, at the
request of the client, written reports, attendance at meetings of
the Clients Board of Directors and review, analysis and reports
with respect to management matters. Client agrees that consultant
shall not be prevented or barred from rendering services of
similar or dissimilar nature for or on behalf of any person, firm
or corporation other than Client. Consultant further agrees that
if requested by the Client, he will serve as an officer and as a
director of the Company.
4. Client agrees to pay to Consultant for his services
the sum of $4,000 per month for the months of January through June
1997. In the event Consultant equals or exceeds the projections
are forth in his business plan for said six month period the
Consultant's salary shall increase to $7,000 per month thereto.
5. Consultant shall be entitled to reimbursement by
Client of such reasonable out-of-pocket expenses as Consultant may
incur in performing services under this agreement.
6. Client hereby grants Consultant five year options to
purchase 50,000 shares of Client's Common Stock at $2 per share
which options may not be exercised until one year after the date
of this agreement and only in the event Consultant is still
employed by the Company on such date.
7. All final decisions with respect to consultations or
services rendered by Client shall be those of Client, and there
shall be no liability on the part of the Consultant in respect
thereof.
8. This Agreement contains the entire agreement of the
parties hereto with respect to the subject matter hereof, and
there are no representations or warrants other than as contained
herein or therein. No waiver or modification hereof shall be valid
unless in writing. Waiver or breach of any terms or conditions
hereof shall not be deemed a waiver of any other subsequent
breach, whether or like or different nature.
9. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties, hereto have caused this
Agreement to be signed as of the day and year first above written.
Imre Kovats
Hungarian Teleconstruct Corp.
By_________________________
Frank R. Cohen
(Csaba Toro)
Agreement
AGREEMENT made this 28th day of January 1997 by and between
Csaba Toro (herein referred to as "Consultant"), and Hungarian
Teleconstruct Corp., with offices at 445 Park Avenue, 15th Floor,
New York NY 10022, (herein referred to as the "Client").
WHEREAS Client desires to obtain Consultant's Management
consulting services in connection with Client's business affairs,
and consultant is willing to render such services as hereinafter
more fully set forth.
NOW, THEREFORE, the parties agree as follows:
1. Client hereby engages and retains Consultant and
Consultant hereby agrees to use his best efforts, to render to
Client management consulting services hereinafter described for a
period of two years commencing with the date of this agreement.
2. Consultant's services hereunder shall consist of
consultations with Client concerning the management and operations
of Client's business as Client may from time to time require
during the term of this agreement ("Agreement").
3. Consultant shall devote full time to the affairs of
Client in the form of consultation, advice and assistance on such
matters as client requests. Such services may include, at the
request of the client, written reports, attendance at meetings of
the Clients Board of Directors and review, analysis and reports
with respect to management matters. Client agrees that consultant
shall not be prevented or barred from rendering services of
similar or dissimilar nature for or on behalf of any person, firm
or corporation other than Client. Consultant further agrees that
if requested by the Client, he will serve as an officer and as a
director of the Company.
4. Client agrees to pay to Consultant for his services the
sum of $4,000 per month for the months of January through June
1997. In the event Consultant equals or exceeds the projections
are forth in his business plan for said six month period the
Consultant's salary shall increase to $6,000 per month thereto.
5. Consultant shall be entitled to reimbursement by Client
of such reasonable out-of-pocket expenses as Consultant may incur
in performing services under this agreement.
6. Client hereby grants Consultant five year options to
purchase 50,000 shares of Client's Common Stock at $2 per share
which options may not be exercised until one year after the date
of this agreement and only in the event Consultant is still
employed by the Company on such date.
7. All final decisions with respect to consultations or
services rendered by Client shall be those of Client, and there
shall be no liability on the part of the Consultant in respect
thereof.
8. This Agreement contains the entire agreement of the
parties hereto with respect to the subject matter hereof, and
there are no representations or warrants other than as contained
herein or therein. No waiver or modification hereof shall be valid
unless in writing. Waiver or breach of any terms or conditions
hereof shall not be deemed a waiver of any other subsequent
breach, whether or like or different nature.
9. This Agreement shall be governed, construed and enforced
in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties, hereto have caused this
Agreement to be signed as of the day and year first above written.
/s/ Csaba Toro
Csaba Tor
Hungarian Teleconstruct Corp.
By: /s/ Frank R. Cohen
Frank R. Cohen
Promissory Note - HBCO
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT WHERE THE HOLDER HAS FURNISHED TO THE
COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
Date: February 10, 1997 US$ 300,000
HUNGARIAN TELECONSTRUCT CORP.
6% Promissory Note due June 30, 1997
This Promissory Note ("Note") is a duly authorized
Promissory Note of Hungarian Teleconstruct Corp., a corporation
organized and existing under the laws of the State of Delaware
(the "Company") in the principal amount of Three Hundred Thousand
and No/100 Dollars (U.S. $300,000).
FOR VALUE RECEIVED, the undersigned, Hungarian
Teleconstruct Corp., a Delaware corporation (the "Payor"), having
its executive office and principal place of business at 227 Route
206, Flanders, New Jersey 07836, hereby promises to pay to
Hungarian Broadcasting Corp., a Delaware Corporation (the
"Payee"), having an address at 445 Park Avenue, New York, NY
10022 on the earlier to occur of (i) June 30, 1997 or (ii) a
closing (the "Closing") of any offering by the Payor of its
securities, or (iii) sale by Payor of any of its assets, at the
Payee's address set forth hereinabove or, at such other place as
the Payee shall hereafter specify in writing, the principal sum of
Three Hundred Thousand and No/100 Dollars (U.S. $300,000) in such
coin or currency of the United States of America as at the time
shall be legal tender for the payment of public and private debts.
1. Interest and Payment.
1.1 The unpaid principal amount hereof shall
bear simple interest from the date hereof at the rate of 6% per
annum until the Maturity Date (or until any such earlier date of
payment if this Note is prepaid as herein provided).
1.2 Interest shall be payable in full on the
Maturity Date (or on any such earlier date of payment if this Note
is prepaid as herein provided).
1.3 If payment of the principal amount hereof
and interest accrued thereon is not made when due and payable, at
the Maturity Date or upon acceleration, then interest shall accrue
on such unpaid amount from the date of nonpayment to the date of
payment.
2. Prepayment. At the option of the Payor, this
Note may be prepaid in whole or in part at any time or from time
to time, without penalty or premium. Each partial prepayment of
this Note shall first be applied to interest accrued through the
date of prepayment and then to principal.
3. Events of Default. If any of the following
conditions, events or acts (each shall constitute an "Event of
Default" hereunder) shall occur:
3.1 The dissolution of the Payor, or any of
its subsidiaries ("Subsidiary"); or
3.2 the Payor's or a Subsidiary's insolvency,
assignment for the benefit of creditors, application for or
appointment of a receiver, filing of a voluntary or involuntary
petition under any provision of any bankruptcy or similar law or
any other statute affording relief to debtors; or there shall be
commenced against the Payor or any Subsidiary any such proceeding
or filed against the Payor or a Subsidiary any such application or
petition which proceeding, application or petition is not
dismissed or withdrawn within thirty (30) days of commencement or
filing as the case may be; or
3.3 the failure by the Payor to make any
payment of any amount of principal on, or accrued interest under,
this Note, as and when the same shall become due and payable; or
3.4 the commencement of a proceeding to
foreclose the security interest or lien in any property or assets
to satisfy the security interest or lien therein of any secured
creditor of the Payor whose debt is in excess of $50,000; or
3.5 the entry of a final judgment for the
payment of money in excess of $50,000 by a court of competent
jurisdiction against the Payor or any Subsidiary, which judgment
the Payor shall not discharge (or provide for such discharge) in
accordance with its term within thirty (30) days of the date of
entry thereof, or procure a stay of execution thereof within
thirty (30) day period, or such longer period during which
execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal;
then, in any such event and at any time
thereafter, while such Event of Default is continuing, the
indebtedness evidenced by this Note shall immediately become due
and payable, both as to principal and interest, without
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, notwithstanding anything
contained herein to the contrary.
4. Suits for Enforcement and Remedies. If any one
or more Events of Default shall occur and be continuing, the
holder of this Note may proceed to protect and enforce such
holder's rights either by suit in equity or by action at law, or
both, whether for the specific performance of any covenant,
condition or agreement contained in this Note or in any agreement
or document referred to herein or in aid of the exercise of any
power granted in this Note or in any agreement or document
referred to herein, or proceed to enforce the payment of this Note
or to enforce any other legal or equitable right of the holder of
this Note. No right or remedy herein or in any other agreement or
instrument conferred upon the holder of this Note is intended to
be exclusive of any other right or remedy, and each and every such
right or remedy shall be cumulative and shall be in addition to
every other right and remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
5. Collateral Security
5.1 To secure the payment of this Note and the
indebtedness evidenced hereby, the Payor has pledged cthe proceeds
of the balance of a certain loan made for Payor to Payee in or
about November 1994 and the proceeds of a debt owed to Payor by
Peter E. Klenner arising out of the sale of a property on
Kelenhegy in Budapest of Hungarian Broadcasting Corp. which are
registered in the name of Payor.
5.2 The Payor shall have the right to prepay
the unpaid principal in whole or in part at any time at its
option, without penalty or payment of interest beyond the day of
any such prepayment.
6. Unconditional Obligation; Fees, Waivers, Other.
6.1 The obligations to make the payments
provided for in this Note are absolute and unconditional and not
subject to any defense, set-off, counterclaim, rescission,
recoupment or adjustment whatsoever.
6.2 If the holder of this Note shall institute
any action to enforce the collection of any amount of principal of
and/or interest of this Note, there shall be immediately due and
payable from the Payor, in addition to the then unpaid sum of this
Note, all reasonable costs and expenses incurred by the Payee in
connection therewith, including, without limitation, reasonable
attorneys' fees and disbursements.
6.3 No forbearance, indulgence, delay or
failure to exercise any right or remedy with respect to this Note
shall operate as a waiver, nor as an acquiescence in any default,
nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or the exercise of
any other right or remedy.
6.4 This Note may not be modified or
discharged except by a writing duly executed by the Payor and the
Payee.
6.5 The Payor hereby expressly waives demand
and presentment for payment, notice of nonpayment, notice of
dishonor, protest, notice of protest, bringing of suit, and
diligence in taking any action to collect amounts called for
hereunder, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to
the collection of any amount called for hereunder or in connection
with any right, lien, interest or property at any and all times
which the Payee had or is existing as security for any amount
called for hereunder.
6.6 The Payor shall bear all of its expenses,
including attorneys' fees incurred in connection with the
preparation of this Note.
7. Miscellaneous.
7.1 The headings of the various paragraphs of
this Note are for convenience of reference only and shall in no
way modify any of the terms or provisions of this Note.
7.2 All notices required or permitted to be
given hereunder shall be in writing and shall be deemed to have
been duly given when personally delivered or sent by registered or
certified mail, return receipt requested, postage prepaid, to the
address of the intended recipient set forth in the preamble to
this Note or at such other address as the intended recipient shall
have hereafter given to the other party hereto pursuant to the
provisions hereof.
7.3 This Note shall bind the Payor and its
successors and assigns.
HUNGARIAN TELECONSTRUCT CORP.
By:
Frank R. Cohen, Treasurer
ATTEST:
Secretary
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<PERIOD-END> DEC-31-1996
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