As filed with the Securities and Exchange Commission on ______________
Registration No. 33-
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EUROWEB INTERNATIONAL CORP.
--------------------------------------------
(Name of small business issuer in its charter)
Delaware 7379 13-3696015
- ---------------------- --------------------------- -------------------
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
445 Park Avenue, 15th Floor, New York, New York 10022 (212) 758-9870
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(Address and telephone number of principal executive offices)
Frank R. Cohen
445 Park Avenue, 15th Floor New York, New York 10022, (212) 758-9870
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(Name, address and telephone number of agent for service)
COPIES TO:
Frank R. Cohen, Esq. Henry C. Malon, Esq.
Cohen & Cohen 1 Battery Park Plaza, 3rd Floor
445 Park Avenue, 15th Floor New York, NY 10004
New York, New York 10022 Tel: (212) 483-9600
Tel: (212) 758-9870
Approximate date of proposed sale to the public: As soon as practicable
after this registration statement becomes effective. If any of the Securities
being registered on this form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following
box|X|.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering|_|.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering|_|.
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box|_|.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit(1) Offering Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units each consisting of one share of Preferred
Stock, $.001 par value, and one Common Stock
Purchase Warrant(2)................................. 920,000 $6.00 $5,520,000 $1,628
Common Stock, ($.001 par value)(3).................... 2,760,000 -- -- --
Common Stock, ($.001 par value)(4).................... 920,000 $3 $2,760,000 $814
Underwriter's Unit Warrants(5)........................ 80,000 $.001 $ 80 $ 0.00
Units underlying the Underwriter's Unit Warrants...... 80,000 $7.50 $ 600,000 $ 177
Common Stock, $.001 par value(6)...................... 240,000 -- -- --
Common Stock, $.001 par value(7)...................... 80,000 $3 $ 240,000 $ 71
Total registration Fee................................ $3 $9,120,080 $2,690
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(FOOTNOTES CONTINUED ON NEXT PAGE)
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
(CONTINUED FROM COVER PAGE)
(1) Estimated solely for the purpose of computing the registration fee.
(2) Includes 120,000 Units subject to the Underwriter's over-allotment option.
(3) Issuable upon conversion of Preferred Shares.
(4) Represents shares of Common Stock issuable upon the exercise of Warrants.
The Registration Statement also covers any additional shares which may
become issuable pursuant to antidilution provisions in the aforementioned
warrants.
(5) To be issued to the Underwriter.
(6) Issuable upon conversion of Preferred Shares underlying Underwriter's Unit
Warrants.
(7) Issuable upon exercise of Warrants included in the Units underlying the
Underwriter's Unit Warrants. The Registration Statement also covers any
additional shares which may become issuable pursuant to antidilution
provisions in the aforementioned warrants.
<PAGE>
Subject to Completion dated ---------------
PROSPECTUS
EUROWEB INTERNATIONAL CORP.
800,000 Units
--------------------------------------------
Each unit (the "Units"), consists of one share of Series A Convertible
Cumulative Redeemable Preferred Stock (the "Preferred Shares") and one Common
Stock Purchase Warrant (the "Warrants"). The components of the Units will not be
separately transferable until _______ 1999 (nine months after the date of the
Prospectus) or such earlier date after _____ (two months after the date of this
Prospectus) as J.W. Barclay & Co., Inc. (the "Representative") may determine
(the "Separation Date"). The Warrants are neither detachable nor separately
transferable until the Separation Date. Each Warrant entitles the holder to
purchase one share of Common Stock at a price of $_ per share after the
Separation Date until __________, 2003 (five years after the date of the
Prospectus). The Warrants may be redeemed by the Company commencing two months
after the Separation Date under certain circumstances. Each Preferred Share is
convertible into __ shares of Common Stock commencing on the Separation Date and
pays a cumulative annual dividend of $.60 per share payable on April 30 of each
year.
(CONTINUED ON PAGE 2)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS."
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER UNIT....................... $6.00 $.60 $5.40
TOTAL(3)....................... $4,800,000 $480,000 $4,320,000
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not reflect additional compensation to the Underwriter, including (a) a
nonaccountable expense allowance equal to 3% of the aggregate purchase price
of the Units; and (b) issuance of unit purchase options to the Underwriter
entitling the Underwriter to purchase up to 80,000 units from the Company,
for a period of five years commencing on the effective date of the Offering,
at an exercise price equal to 125% of the public offering price of the
Units. The Company and the Underwriter have also agreed to indemnify each
other against certain civil liabilities including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). see
"Underwriting."
(2) Before deducting expenses of the Offering estimated at $350,000 which
includes the Underwriter's nonaccountable expense allowance. (3) the Company
has granted an option to the Underwriter exercisable within 30 days after
the date of this Prospectus, to purchase up to an additional 120,000 units,
on the same terms, solely to cover over-allotments, if any. if the over
allotment option is exercised in full, the total "price to public,"
"Underwriting Discounts and Commissions" and "Proceeds to Company" would be
$5,520,000, $552,000, and $4,968,000, respectively. see "Underwriting."
The Units are being offered by the Underwriter on a "firm commitment"
basis, subject to prior sales, receipt and acceptance, the approval of certain
legal matters by counsel and certain other conditions. The Underwriter reserves
the right to reject orders in whole or in part. It is expected that delivery of
the certificates representing the Units will be made at the offices of J.W.
Barclay & Co., Inc., One Battery Park Plaza, New York, New York 10004 on or
about , 1998.
J.W. BARCLAY & CO., INC.
The date of this Prospectus is , 1998
<PAGE>
(CONTINUED FROM COVER PAGE)
Dividends on the Preferred Shares may be paid in shares of Common Stock or
cash at the Company's option. For the foreseeable future, the Company expects to
make dividend payments in shares of Common Stock to the extent it may legally do
so. The Company has been operating at a loss since it commenced operations. In
the years ended December 31, 1997 and 1996, the Company had losses of $2,007,228
and $3,795,014, respectively. Unless previously redeemed by the Company, each
Preferred Share is redeemable by the Company commencing on the Separation Dare
on not less than 30 nor more than 60 days' written notice to the registered
holders, at $7.20 per share plus accumulated dividends, provided the Company may
not redeem any Preferred Share unless the closing price of the Common Stock for
20 of the 30 days prior to the date of the redemption notice is more than $_ as
adjusted. See "Description of Securities."
The Company's Common Stock is traded on the NASDAQ Small-Cap Market under
the symbol EWEB. There has been no market for the Units or the Preferred Shares
or the Common Stock Purchase Warrants prior to this offering. It is expected
that after this offering, the Units will trade on the NASDAQ Small-Cap Market
under the symbol EWEBU, but there can be no assurance that a market will develop
for the Units. See "Underwriting." On May 1, 1998, the closing bid prices of the
Common Stock, as reported by NASDAQ, was $2 1/8. See "Price Range of
Securities."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933 (the
"Act") with respect to the securities to which this Prospectus relates. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, which may be obtained, together with other information about the
Company, from the Public Reference Section of the Commission upon payment of the
prescribed fees.
The Company will provide without charge to any person who receives a copy
of this Prospectus, upon written or oral request of such person, a copy of any
of the information that is incorporated by reference in this Prospectus. Any
such request should be directed to the attention of Frank R. Cohen, Chairman of
the Board, EuroWeb International Corp. at 445 Park Avenue, New York, New York
10022, telephone number: (212) 758-9870.
The Company furnishes its stockholders after the close of each fiscal year,
annual reports containing financial statements audited by its independent
certified public accountants. The Company will also furnish other reports as it
may determine or as may be required by law.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance with
Section 12(g) thereunder, files reports, proxy statements, and other information
with the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located at 7 World Trade Center, New York, New York 10048 and
500 West Madison Street, Chicago, Illinois 60601.
2
<PAGE>
The Commission maintains a Web Site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
requirements, such as the Company, that file documents electronically with the
Commission.
FORWARD-LOOKING STATEMENTS
This Prospectus includes certain forward-looking statements within the
meaning of the Private Securities Litigation Reform act of 1995 with respect to
the financial condition, results of operations and business of the company. Such
statements reflect significant assumptions and subjective judgments by the
Company's management concerning anticipated results. These assumptions and
judgments may or may not prove to be correct. Moreover, such forward-looking
statements are subject to risks and uncertainties that may cause actual results
to differ materially from those contemplated in such forward-looking statements.
For a discussion of such risks, see "risk factors." investors are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Underwriter has not attempted to verify the basis for
any such statements independently and neither the Underwriter nor the company
undertakes any obligation to release publicly any revisions to these
forward-looking statements to reflect events occurring or circumstances arising
after the date hereof or to reflect the occurrence of unanticipated events.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. except as otherwise noted (i) the information in
this Prospectus assumes that the Underwriter's over-allotment option will not be
exercised, and (ii) all statistical and financial information presented in this
Prospectus has been converted into United States Dollars using exchange rates as
of May 1, 1998. all references to $ or Dollars are to United States Dollars; all
references to "HUF" are to Hungarian Forints. as of May 1, 1998, the Exchange
Rate was HUF 211 to $1.
The Company
EuroWeb International Corp. ("EuroWeb" or the "Company") is a full service
Internet service provider ("ISP") operating in Hungary, supplying international
leased lines and MCI VSAT data connections to the World Wide Web and providing
access to managed lease lines and dial-up subscribers, complete Internet graphic
services including designing and creation of Web sites ans hosting of Web sites,
Internet fax discount services, and development of software to provide
electronic commercial Internet based solutions to perform many business
processes.
The Company was organized on November 9, 1992 under the laws of the State
of Delaware as Hungarian Teleconstruct Corp., and changed its name to EuroWeb
International Corp. on July 9, 1997. It was a development stage company through
December 31, 1993. It originally had two subsidiaries Hungarian corporations,
one of which was engaged as a general contractor in the construction of
buildings and the other was engaged in the construction of local telephone
exchanges for community sponsored telecom companies in Hungary. It had two
operating business segments: (1) building of condominium apartments and (2)
design and laying of underground fiber optic telephone and cable lines. The
latter segment was discontinued in 1994.
The Company built two luxury 14-unit condominium building in Budapest.
During 1996 and 1997, the Company sold one of the Units in one of the buildings
("Building A") to a third party and agreed to sell the remaining 13 apartments
in Building A prior to its completion to Peter Klenner ("Klenner"), its former
president. It was agreed that the closing of the sale would take place on the
date that Building B was completed and ready for occupancy. Klenner agreed to
loan the Company funds to complete Building B, which loans were to be applied
against his purchase price of Building A. The Company completed the second
building in April 1998. The Company leased Building B to an unaffiliated person
for a five year term commencing April 1, 1998 at a net rental of $22,000 per
month with an option to purchase the building for $2,000,000. In April 1998, it
transferred title to Building A to Klenner and received the balance of the
purchase price from him after deducting his loans. (See "Certain Transactions").
On January 2, 1997, the Company entered the Internet service provider
business in Hungary acquiring three Hungarian Internet Service Companies, namely
EUNET, MC Telecom, and E-Net. EUNET was a provider of managed leased line
Internet access to corporate customers, MC Telecom was a provider of dial-up
Internet access to small businesses, and E-Net was a developer of Web Sites.
Each of these companies had separate facilities, marketed their services through
different channels, had different customer bases, different personnel and
different bookkeeping systems. By the end of April 1997, the Company rented a
new facility, combined all three companies into one facility, eliminated
approximately 35% of the personnel to avoid duplication, established a common
accounting department and was able to retain the customer bases of each of the
acquired companies.
In 1998 the Company started a division to develop Internet software to
provide electronic commercial based solutions to perform many business
processes. This division was retained by Fornex, an agent of the Budapest Stock
Exchange ("BSE"), to develop software to record all transactions on the BSE in
real time, which information can be obtained by subscribers through the
Internet. The division also has been retained by Posta Bank, Hungary's second
largest bank, to help develop software for home banking use by customers of the
bank and to provide access for the customers to enable the customers to transfer
funds on deposits at the bank by the Internet electronically to third parties.
The Company is also working on software for credit card processing and
transaction validation.
4
<PAGE>
The Company also added fax service for its customers in 1998. These
services enable customers to send faxes any where in the world at a cost
substantially lower than what the customers would pay using ordinary telephone
lines. Customers are able to access this new service using a regular fax machine
or through their computers. Recipients will be able to receive the transmission
on a computer or on a fax machine. The Company is also the node for faxes sent
to Hungary from locations around the world by members of a worldwide alliance of
Internet service providers known as GRIC (Global Research Internet Connection).
EuroWeb further expanded its services in 1998 by leasing satellite space on
a satellite owned by MCI.
Unless the context otherwise requires, when used herein, the term "Company"
shall include EuroWeb International Corp. and its Hungarian subsidiaries,
EuroWeb Rt., which administers the Internet Company's operations in Hungary, and
Teleconstruct Epitesi, Kft., which administers the Company's building operation
in Hungary. The office of the Company in the United States is 445 Park Avenue,
New York, NY 10022; Telephone number: (212) 758-9870. The office of both
subsidiaries in Hungary is H-1122 Budapest, Varosmajor utca 13; Telephone
number: (361) 2244-000.
5
<PAGE>
<TABLE>
<CAPTION>
The Offering(1)
<S> <C>
Securities Offered by the Company 800,000 Units, each unit consists of one Preferred
Share and One Common Stock Purchase Warrant. The
Underwriter has an option to purchase up to 120,000
additional Units to cover over-allotments. See
"Underwriting." The Preferred Shares and the
Common Stock Purchase Warrants are not detachable,
separately transferable or exercisable until ____, 1999
or such earlier date after ____, 1998 as may be
designated by the Representative (the "Separation
Date"). See "Description of Securities."
Rights of the Preferred Shares:
Dividends....................................... Cumulative annual dividends of $.60 payable on April
30 of each year beginning April 30, 1999. Unpaid
dividends will accumulate and be payable prior to the
payment of dividends on the Common Stock. The
Company may, at its option, pay dividends in shares
of Common Stock, in lieu of cash. Shares used for
such purpose will be valued at the average closing bid
price during the ten trading days ending on the tenth
day before the dividend record date, subject to certain
conditions. For the foreseeable future, the Company
expects to make dividend payments on the Preferred
Shares in shares of Common Stock. See "Description
of Securities."
Conversion Rights............................... Unless previously redeemed, Preferred Shares are
convertible at any time at the option of the holder,
commencing on the Separation Date at the rate of
_____ (_) shares of Common Stock for each Preferred
Share, subject to adjustment under certain
circumstances. No fractional shares of Common Stock
will be issued but in lieu thereof, the Company shall
"round up" any fractional shares over 50% of a share
to a full share of Common Stock and round down any
fractional share under 50% of a share.
Redemption..................................... The Preferred Shares are redeemable beginning on the
Separation Date at the redemption price of $7.20 per
share plus accumulated dividends, provided the
Company may not redeem Preferred Shares unless the
closing price of the Common Stock equals or exceeds
$_ per share for 20 of the 30 consecutive trading days
prior to the date the notice of redemption is mailed.
6
<PAGE>
Voting Rights................................... Preferred Shares will be entitled to one vote per share
voting together with the Common Stock, as one class
except as otherwise provided by the Delaware General
Corporation Law or in connection with certain other
matters. See "Description of Securities - Series A
Convertible Cumulative Preferred Stock.".
Warrants:
Exercise Price.................................. $____ per share subject to adjustment in certain
circumstances. See "Description of Securities--
Warrants." The Warrants may be exercised at any
time commencing on the Separation Date.
Expiration Date................................. ___________, 2003.
Redemption..................................... Redeemable by the Company at any time commencing
on the earlier of the Separation Date or at a price of
$.__ per Warrant, provided that the closing sale or bid
price per share of the Common Stock exceeds $____
per share on at least 20 of the 30 consecutive trading
days ending within 15 days of the date on which the
Company mailed notice of redemption. See
"Description of Securities--Warrants."
Common Stock Outstanding (prior to and after
Offering(2)....................................... 5,178,246 shares of Common Stock.
Preferred Stock Outstanding:
Prior to the Offering........................... 0
After the Offering(3)........................... 800,000 Preferred Shares.
Warrants and Options Outstanding(2)
Prior to the Offering........................... 1,847,000
After the Offering.............................. 2,647,000
7
<PAGE>
Use of Proceeds...................................... The net proceeds of the Offering will be used for
working capital and to support more rapid expansion,
develop new or enhanced services and products,
respond to competitive pressures, and acquire related
businesses (see "Use of Proceeds").
Risk Factors......................................... The securities offered hereby involve a high degree of
risk and immediate substantial dilution. See "Risk
Factors."
NASDAQ Symbols:
Common Stock.................................... EWEB
Preferred Shares................................ EWEBP
Warrants........................................ EWEBW
Units........................................... EWEBU
</TABLE>
(1) Unless otherwise indicated, all information in this Prospectus assumes that
no portion of the Over-allotment Option is exercised.
(2) Does not include an aggregate of ___________ shares of Common Stock,
reserved as follows: (i) 350,000 shares reserved for outstanding options
granted pursuant to the Company' Stock Option Plan; (ii) 1,497,000 shares
reserved to cover exercise of outstanding Common Stock Purchase Warrants
and options; (iii) __________ shares issuable upon conversion of the
Preferred Shares including shares issuable on exercise of the
over-allotment option; and (iv) __________ shares issuable upon conversion
of the Preferred Shares underlying the Underwriter's Preferred Share
Warrants. In addition, shares of Common Stock may be issuable upon payment
of dividends on the Preferred Shares.
(3) Does not include 120,000 Units reserved to cover Underwriter's Over
Allotment Option.
8
<PAGE>
Summary of Financial Information
The following table summarizes certain selected consolidated financial data
derived from the financial statements of the Company, and is qualified in its
entirety by the more detailed consolidated financial statements included
elsewhere herein.
<TABLE>
<CAPTION>
Operating Statement Data
YEAR ENDED DECEMBER 31,
----------------------
1997 1996
---- ----
<S> <C> <C>
Revenues - Internet......................... $ 1,270,135 $ --
----------- -----------
Expenses (income)
Compensation and related costs............ 810,543 1,364,550
Network costs............................. 525,530 --
Consulting and professional fees.......... 234,042 190,330
Rent...................................... 117,531 5,716
Depreciation and amortization............. 497,362 29,352
Interest expense - net ................... 370,166 287,677
Financing costs........................... 153,965 99,000
Foreign currency loss..................... 28,654 150,917
Write-down of construction-in-
progress to estimated market value...... 350,000 1,000,000
Gain on sale of investment in affiliate... (524,000) --
Other..................................... 713,570 379,472
----------- -----------
Total expenses.............................. 3,277,363 3,517,014
----------- -----------
Loss before equity in net loss of
unconsolidated affiliate................... (2,007,228) (3,517,014)
Equity in net loss of unconsolidated affiliate -- (278,000)
----------- -----------
Net Loss.................................... $(2,007,228) $(3,795,014)
========== ===========
Net loss per share - basic and diluted...... $ (.54) $(2.26)
====== =====
Weighted average number of shares
outstanding................................ 3,728,000 1,681,000
========== =========
</TABLE>
Balance Sheet Data
As of December 31, 1997
------------------------------------------
Actual As Adjusted(1)
------------------------------------------
Current assets............ $1,519,511 $5,489,511
Current liabilities....... $1,349,079 $1,349,079
Working capital........... $170,432 $4,140,432
Total assets.............. $6,640,304 $10,610,304
Stockholders' equity...... $3,551,572 $7,521,572
(1) Adjusted for the Units to be sold by the Company in this Offering and the
estimated net proceeds of $3,970,000 to be received by the Company.
9
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE
FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY
1. LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT. Although the Company was
founded in November 1992, it only entered the Internet business in January 1997
by acquiring three operating Internet businesses. Accordingly, the Company has
only a limited operating history on which to base an evaluation of its present
business and prospects. The Company and its prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in an early stage of development, particularly companies in new and
rapidly evolving markets such as Internet. Such risks for the Company include,
but are not limited to, an evolving business model and the management of both
internal and acquisition~based growth. To address these risks, the Company must,
among other things, continue to expand its client base, continue to develop the
strength and quality of its operations, maximize the value delivered to clients,
respond to competitive developments and continue to attract, retain and motivate
qualified employees. There can be no assurance that the Company will be
successful in meeting these challenges and addressing such risks and the failure
to do so could have a material adverse effect on the Company's business, results
of operations and financial condition.
The Company has incurred net losses since inception, and as of December 31,
1997 had an accumulated deficit of $15.2 million. In 1997, the only year in
which the Company had Internet operations, the Company incurred a net loss of
approximately $2.0 million. On a pro forma basis, assuming that the acquisition
by the Company of the three Internet services providers occurred on January 1,
1996, the Company's consolidated net loss for the year ended December 31, 1996
would have been approximately $4.6 million. Although the Company has experienced
revenue growth in recent months, such growth rates may not be sustainable or
indicative of future operating results. There can be no assurance that the
Company will achieve or sustain profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
2. RISKS ASSOCIATED WITH EXPANSION AND ACQUISITIONS. The Company intends to use
the proceeds of this offering to expand its operations through internal growth
and acquisition. The Company plans to expand the services which it offers,
attract significant numbers of additional subscribers, expand its work force and
expand its presence in selected geographic markets. To successfully manage
growth, the Company will be required to continue to implement and improve its
operating systems, train and manage its employees, monitor operations, control
costs and maintain effective quality controls. The Company has limited
experience in effectuating rapid expansion and in managing operations which are
geographically dispersed, and there can be no assurance that the Company will be
able to successfully expand its operations or manage growth. The Company intends
to pursue opportunities by making selective acquisitions of subscriber bases or
service firms. While the Company from time to time evaluates possible
acquisition opportunities, as of the date of this Prospectus, the Company has no
plans, agreements, commitments, understandings or arrangements with respect to
any such acquisition. There can be no assurance that the Company will ultimately
effect any acquisition, that it will be able to successfully integrate into its
operations any subscriber base which it may acquire or that the Company will not
incur significant amortization expense associated with attrition of newly
acquired subscriber bases.
The Company may determine, depending upon the opportunities available to
it, to seek additional debt or equity financing to fund the cost of acquiring
subscriber bases or service firms. To the extent that the Company finances an
acquisition with equity securities, any such issuance of equity securities would
result in dilution to the interests of the Company's stockholders. Additionally,
to the extent that the Company incurs indebtedness or issues debt securities in
connection with any acquisition, the Company will be subject to risks associated
with incurring substantial indebtedness, including the risks that interest rates
may fluctuate and cash flow may be insufficient to pay principal and interest on
any such indebtedness. See "Use of Proceeds" and "Business--Company Strategy."
10
<PAGE>
3. POSSIBLE FUTURE CAPITAL NEEDS. The Company currently anticipates that its
available cash resources, combined with the net proceeds to the Company from
this offering, will be sufficient to meet its presently anticipated working
capital and capital expenditure requirements for at least the next 12 months.
However, the Company may need to raise additional funds in order to support more
rapid expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or take
advantage of unanticipated opportunities. The Company's future liquidity and
capital requirements will depend upon numerous factors, including the success of
the Company's existing and new service offerings and competing technological and
market developments. The Company may be required to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurance that such additional funding, if needed,
will be available on terms acceptable to the Company, or at all. If adequate
funds are not available on acceptable terms, the Company may be unable to
develop or enhance its services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. "See Use of Proceeds."
4. RECRUITMENT AND RETENTION OF INTERNET SOLUTIONS PROFESSIONALS. The Company's
business of delivering Internet services is labor intensive. Accordingly, the
Company's success depends in part on its ability to identify, hire, train and
retain employees who can provide the Internet strategy, technology, marketing,
audience development and creative skills required by clients. There is currently
a shortage of such personnel, and this shortage is likely to continue for the
foreseeable future, The Company competes intensely for qualified personnel with
other companies, and there can be no assurance that the Company will be able to
attract, assimilate or retain other highly qualified technical, marketing and
managerial personnel in the future. The inability to attract and retain the
necessary technical, marketing and managerial personnel would have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Employees."
5. COMPETITION, LOW BARRIERS TO ENTRY. The market for Internet services is
relatively new, intensely competitive, rapidly evolving and subject to rapid
technological change. The Company expects competition to persist, intensify and
increase in the future. The Company's principal competitors are Datanet, which
has a customer base similar to that of the Company but larger than the
Company's, and MATAV, the national Hungarian telephone company, which targets
residential rather than business subscribers. The Company believes it can
compete on the basis of the quality and reliability of its services, but there
can be no assurance that it will be able to compete successfully.
There are relatively low barriers to entry into the Company's business.
Because professional services firms such as the Company rely on the skill of
their personnel and the quality of their client service, the Company has no
patented technology that would preclude or inhibit competitors from entering the
Internet services market. The Company expects that it will face additional
competition from new entrants into the market in the future. There can be no
assurance that existing or future competitors will not develop or offer services
that provide significant performance, price, creative or other advantages over
those offered by the Company, which could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Competition."
6. MANAGEMENT OF GROWTH. The Company's rapid growth has placed, and is expected
to continue to place, a significant strain on the Company's managerial,
operational, financial and other resources. The Company expects that continued
hiring of new personnel will be required to support its business. The Company's
future success will depend, in part, upon its ability to manage its growth
effectively, which will require that the Company continue to implement and
improve its operational, administrative and financial and accounting systems and
controls and to expand, train and manage its employee base. There can be no
assurance that the Company's systems, procedures or controls will be adequate to
support the Company's operations or that the Company's management will be able
to achieve the rapid execution necessary to exploit the market for the Company's
business model. Furthermore, the Company's future performance will depend on the
Company's ability to integrate any organizations which it may acquire and whose
integration, which, even if successful, could take a significant period of time
and will place a significant strain on the Company. As a result, there can be no
assurance that the Company will be able to integrate any acquisitions
successfully or in a timely manner in accordance with its strategic objectives.
If the Company is unable to manage internal or acquisition-based growth
effectively, the Company's business, results of operations and financial
condition will be materially adversely affected. See "Business-- Employees."
11
<PAGE>
7. RAPID TECHNOLOGICAL CHANGE. The market for Internet services is characterized
by rapid technological change, changes in user and client requirements and
preferences, frequent new product and service introductions embodying new
processes and technologies and evolving industry standards and practices that
could render the Company's existing service practices and methodologies
obsolete. The Company's success will depend, in part, on its ability to improve
its existing services, develop new services and solutions that address the
increasingly sophisticated and varied needs of its current and prospective
clients, and respond to technological advances, emerging industry standards and
practices, and competitive service offerings. There can be no assurance that the
Company will be successful in responding quickly, cost-effectively and
sufficiently to these developments. If the Company is unable, for technical,
financial or other reasons, to adapt in a timely manner in response to changing
market conditions or client requirements, its business, results of operations
and financial condition would be materially adversely affected. See
"Business--Industry Overview."
8. DEPENDENCE ON KEY PERSONNEL The Company's performance is substantially
dependent on the continued services and on the performance of its executive
officers and other key employees, many of whom have worked together for only a
short period of time. Particularly in light of the Company's relatively early
stage of development, the Company is dependent on retaining and motivating
highly qualified personnel, especially its senior management. The Company does
not have "key person" life insurance policies on its executive officers or key
employees. The loss of the services of its executive officers or other key
employees could have a material adverse effect on the business, results of
operations or financial condition of die Company. See "Management--Executive
Compensation."
9. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company is not currently
subject to direct government regulation other than laws and regulations
applicable to businesses generally, and there are currently few laws or
regulations directly applicable to access to or commerce on the Internet.
However, due to the increasing growth and use of the Internet, it is likely that
a number of laws and regulations may be adopted at the local, state, national or
international levels with respect to the Internet covering issues such as user
privacy, freedom of expression, pricing of products and services, taxation,
information security or the convergence of traditional communications services
with Internet communications. Moreover, the adoption of any such laws or
regulations may decrease the growth of the Internet, which could in turn
decrease the demand for the Company's services or increase the cost bf doing
business or in some other manner have a material adverse effect on the Company's
business, results of operations or financial condition. See
"Business--Government Regulations."
10. DISCRETION IN USE OF PROCEEDS. The Company expects to use the net proceeds
for general corporate purposes and working capital. Accordingly, management will
have significant flexibility in applying the net proceeds of this offering. The
failure of management to apply such funds effectively could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Use of Proceeds."
11. FOREIGN CURRENCY AND EXCHANGE RISKS AND RATE REVALUATION. The Company will
be subject to significant foreign exchange risk. There are currently no
meaningful ways to hedge currency risk in Hungary. Therefore, the Company's
ability to limit its exposure to currency fluctuations is significantly
restricted.
Although the Forint has recently become exchangeable outside Hungary, there
is not yet a freely convertible exchange market in place for the Forint. In
addition, Hungarian law permits the repatriation of foreign currency only for
dividends to the extent of capital investment and earnings, as determined under
applicable Hungarian law. There can no assurances as to the future
exchangeability or convertibility of Forints. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operation--Foreign Currency."
12. NO PRIOR PUBLIC MARKET FOR UNITS OR PREFERRED SHARES. Prior to the Offering,
there has been no public market for the Units or the Preferred Shares, and there
can be no assurance that an active trading market will develop or continue after
the completion of the Offering. The initial public offering price of the Units
has been determined by negotiations between the Company and the Underwriter and
may not be indicative of the market price for the Units after the Offering.
Since July 29, 1993, the Common Stock has traded on the NASDAQ SmallCap Market.
See "Description of Securities."
13. DIVIDENDS. The Company has not previously paid any dividends on its
Common Stock and intends to follow a
12
<PAGE>
policy of retaining all of its cash flow from operations, if any, to finance the
development and expansion of its business. Since its formation, the Company's
operation have resulted in losses, and for the foreseeable future, the Company
expects to pay dividends on the Preferred Shares in Common Stock, to the extent
legally permissible. See "Dividend Policy."
14. RISK OF INCLUSION OF FORWARD-LOOKING STATEMENTS. This Prospectus includes
certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the financial condition, results
of operations and business of the Company. Such statements reflect significant
assumptions and subjective judgments by the Company's management concerning
anticipated results. These assumptions and judgments may or may not prove to be
correct. Moreover, such forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those
contemplated in such forward-looking statements. Investors are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Underwriter has not attempted to verify the basis for any
such statements independently and neither the Underwriter nor the Company
undertakes any obligation to release publicly any revisions to these
forward-looking statements to reflect events occurring or circumstances arising
after the date hereof or to reflect the occurrence of unanticipated events. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
15. EFFECT OF OUTSTANDING OPTIONS AND WARRANTS ON FUTURE PRICE OF COMMON STOCK.
As of the date of this Prospectus, there are outstanding Warrants to purchase an
aggregate of 637,000 shares of Common Stock at prices from $1.25 to $14.75 per
share, outstanding non-plan stock options to purchase 860,000 shares of Common
Stock at prices ranging from $1 1/8 to $3 3/8 per share and options outstanding
under the Option Plan to purchase 350,000 shares of Common Stock at prices from
$1 to 3 3/8 per share. No prediction can be made as to the effect, if any, that
the exercise of Warrants and stock options will have on the market prices
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect the prevailing
market price for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Description of
Securities--Outstanding Options and Warrants."
16. POSSIBLE DELISTING AND RISK OF LOW-PRICED SECURITIES. The Common Stock and
Warrants are currently being quoted on the NASDAQ SmallCap Market under the
symbols "EWEB." The Units are expected to be approved for listing, subject to
official notice of issuance, on the NASDAQ SmallCap Market. If the Company is
unable to satisfy the NASDAQ SmallCap Market maintenance criteria in the future,
its Units and Common Stock and Warrants may be delisted from trading on the
NASDAQ SmallCap Market. If it did not qualify for such listing, trading, if any,
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. ("NASD"), and consequently an investor could find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Such exceptions include any
equity security listed on NASDAQ and any equity security issued by an issuer
that has net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith. The regulations also require that broker/dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Company's securities could be
severely affected. In such an event, the regulations on penny stocks could limit
the ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to sell their securities in
the secondary market.
17. REGULATORY AND TAX ASPECTS OF DIVIDENDS PAID IN COMMON STOCK; LOSS OF
DIVIDENDS UPON CONVERSION OF PREFERRED SHARES. The Dividends payable on the
Preferred Shares are cumulative and may be paid either in cash or in shares of
Common Stock or partly in cash and partly in shares of Common Stock. The first
dividend is scheduled to be paid
13
<PAGE>
on April 30, 1999. Dividends on the Preferred Shares are payable, at the option
of the Company, in either cash or shares of Common Stock. The Company expects to
make dividend payments in shares of Common Stock for the foreseeable future to
the extent it may legally do so. The Company will be unable to legally issue
Common Stock as dividend payments on the Preferred Shares unless it has
sufficient authorized shares of Common Stock and has surplus available for such
purpose. Payment of dividends in shares of Common Stock will create federal
income tax liability, equivalent to the then current market price of such Common
Stock, to the recipient without the receipt by such recipient of any cash to pay
such tax liability.
For federal income tax purposes, distributions of Common Stock with respect
to Preferred Shares are treated as taxable distributions of property. The fair
market value of such shares of Common Stock distributed will be treated as a
taxable dividend (to the extent of the Company's current or accumulated earnings
and profits) or a taxable gain (if the excess of the fair market value of such
shares over the Company's current or accumulated earnings and profit per share
exceeds the shareholder's tax basis in his Preferred Shares. The cash portion of
the dividend, if any, may not be sufficient to pay the total federal income tax
payable on the cash portion of the dividend and on shares of Common Stock
treated as a taxable dividend or taxable gain. See "Description of
Securities--Certain Tax Effects."
18. POSSIBLE NEGATIVE EFFECTS OF PREFERRED STOCK. The Company has authorized
5,000,000 shares of Preferred Stock, of which 1,250,000 have been designated as
Series A Convertible Cumulative Preferred Stock. The designation, rights and
preferences of the remaining 3,250,000 shares (including voting, dividend,
redemption and liquidation rights) may be fixed by the Company's Board of
Directors, from time to time, without further shareholder action. Shares of such
remaining shares of Preferred Stock could be issued in the future with such
rights and preferences as could make the possible takeover of the Company or the
removal of management of the Company more difficult or could otherwise adversely
impact the rights of holders of Common Stock. Further, under current regulations
of the Securities and Exchange Commission, if any such Preferred Stock were
issued by the Company with such voting rights as had the effect of nullifying,
restricting or disparately reducing the per share voting rights of holders of
Common Stock, such issuance could result in the disqualification of the
Company's securities from listing on NASDAQ or on a securities exchange. See
"Description of Securities--Preferred Stock."
19. VOTING RIGHTS OF PREFERRED SHARES. Until conversion, the Preferred Shares
will be entitled to only one vote per share, voting together with the Common
Stock as one class on all matters except as otherwise provided by Delaware law
and with respect to the issuance of certain additional shares of Preferred
Stock. Each Preferred Share is convertible into three shares of Common Stock,
each of which is entitled to one vote. See "Description of Securities."
14
<PAGE>
PRICE RANGE OF SECURITIES
Effective July 29, 1993, the Company's Common Stock commenced trading on
NASDAQ Small-Cap Market under the symbol HTEL. Prior to that date, there was no
established public trading market for the Company's Common Stock. The name of
the corporation was changed from Hungarian Teleconstruct Corp. to EuroWeb
International Corp. on July 9, 1997 and the symbol was changed to EWEB on the
NASDAQ Small-Cap Market.
The following table sets forth the range of high and low bid prices as
reported by NASDAQ. Bid quotations reflect interdealer prices without retail
mark-up, mark-down or commission transactions.
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
1997
- ----
March 31, 1997 2 1/2 1 1/8
June 30, 1997 1 5/16 5/8
September 30, 1997 1 5/8
December 31, 1997 7/8 3/8
1998
- ----
March 31, 1998 1/2 1/4
June 30, 1998 (up to May 1, 1998) 3 1/4 3/8
As of May 1, 1998, there were 57 holders of record of the 5,178,246
outstanding shares of the Common Stock. As of May 1, 1998, the Company had an
estimated 1,500 beneficial shareholders. The closing bid price of the Common
Stock on May 1, 1998 was 2 1/8. There is presently no market for the Units or
the Preferred Shares, and there can be no assurance that a public trading market
for the Units or the Preferred Shares will develop after this Offering. The
Representative has advised the Company that it intends to make a market for the
Units immediately after the public offering of these securities but may
discontinue these activities at any time.
The average daily trading volume of the Company's Common Stock for the
month of March 1998 was 28,649 shares.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997, and adjusted to give effect to the sale of 800,000 Units
offered by the Company and the application of the proceeds therefrom as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
As
ACTUAL Adjusted(1)
------ ----------
Stockholders' equity:
<S> <C> <C>
Common Stock, $.001 par value; 15,000,000 shares authorized;
4,949,936 issued; as adjusted 4,949,936.................................. $ 4,950 $ 4,950
Preferred Stock $.001 par value, 5,000,000 shares authorized -
Series A Cumulative Convertible Preferred Stock, 1,250,000 shares
authorized - no shares issued, 800,000 shares issued
as adjusted................................................................ 0 800
Additional paid-in capital.................................................. 18,755,225 22,724,425
Deficit..................................................................... (15,172,703) (15,172,703)
Currency translation adjustments............................................ (35,900) (35,900)
Total Stockholders' Equity............................................... $ 3,551,572 $ 7,521,572
========== ==========
</TABLE>
(1) Unless otherwise indicated, all information in this Prospectus assumes that
no portion of the Over-allotment Option is exercised.
DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock. The
Company anticipates that in the foreseeable future, earnings, if any, will be
retained for use in the business or for other corporate purposes, and it is not
anticipated that cash dividends will be paid either on the Preferred Shares or
Common Stock. Dividends on the Preferred Shares will be paid in Common Stock if
the Company is legally able to do so. The Company is dependent upon payment of
dividends from its Hungarian subsidiary companies as the source of its own cash
dividends.
Hungarian companies are permitted to pay annual dividends out of profits,
determined on the basis of Hungarian accounting principles, following
recommendation of its Board of Directors and a declaration by the Annual General
Meeting which must be held in the first four months of each year. Dividends are
payable to foreign investors, such as the Company, in Forints, which may be
converted into U.S. Dollars at the official rate of exchange set by the National
Bank of Hungary.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 800,000 Units offered
hereby at the offering price of $6.00 per share are estimated to be $3,970,000
after deducting underwriting discounts and estimated offering expenses of
approximately $350,000 from gross proceeds of $4,800,000.
The Company has been handicapped in fulfilling its available business
commitments and expanding its operations because of inadequate working capital.
It intends to use from this offering the net proceeds to provide additional
working capital to conduct its present business and expand its operations. The
Company currently anticipates that its current cash position and its cash flows
from current operations will be sufficient to meet its presently anticipated
working capital and capital expenditure requirements for at least the next 12
months. However, the Company may need to raise additional funds in order to
support more rapid expansion, develop new
16
<PAGE>
or enhanced services and products, respond to competitive pressures, and to
acquire complementary businesses. The Company's future liquidity and capital
requirements will depend upon numerous factors, including the success of the
Company's existing and new service offerings and competing technological and
market developments. The Company may be required to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurance that such additional funding, if needed,
will be available on terms acceptable to the Company, or at all. If adequate
funds are not available on acceptable terms, the Company may be unable to
develop or enhance its services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The foregoing represents the Company's best estimate of its use of the net
proceeds of this offering, based upon present planning, industry, economic and
business conditions, and the Company's estimated future revenues and
expenditures. Specific dollar amounts for the use of proceeds cannot be
reasonably forecasted because of the rapid changes occurring in the industry.
Moreover, changes in the use of proceeds may be necessitated in response to
unanticipated events such as increased expenses, growth or competition or new
attractive opportunities, which may cause the Company to redirect its priorities
and to reallocate a portion of the proceeds or use portions thereof for other
purposes.
Pending application of the net proceeds of this offering as described
above, the Company intends to invest those proceeds in short-term, investment
grade, interest-bearing instruments.
17
<PAGE>
SELECTED FINANCIAL INFORMATION
The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included in this
Prospectus. The data insofar as it relates to each of the years 1997 and 1996
have been derived from audited financial statements and notes thereto appearing
elsewhere herein. The Company entered into the Internet business in January
1997. Accordingly, and recognizing that the Company has engaged in its current
primary line of business only for approximately one year, the Company has a
limited operating history upon which an evaluation of the Company and its
prospects can be based. Management therefore believes that period-to-period
comparisons of the Company's results of operations are not indicative of future
results.
<TABLE>
<CAPTION>
Operating Statement Data
YEAR ENDED DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Revenues - Internet......................... $1,270,135 $ --
--------- ------------
Expenses (income)
Compensation and related costs............ 810,543 1,364,550
Network costs............................. 525,530 --
Consulting and professional fees.......... 234,042 190,330
Rent...................................... 117,531 5,716
Depreciation and amortization............. 497,362 29,352
Interest expense - net ................... 370,166 287,677
Financing costs........................... 153,965 99,000
Foreign currency loss..................... 28,654 150,917
Write-down of construction-in-
progress to estimated market value...... 350,000 1,000,000
Gain on sale of investment in affiliate... (524,000) --
Other..................................... 713,570 379,472
---------- ----------
Total expenses.............................. 3,277,363 3,517,014
---------- ----------
Loss before equity in net loss of
unconsolidated affiliate................... (2,007,228) (3,517,014)
Equity in net loss of unconsolidated affiliate -- (278,000)
---------- ----------
Net Loss.................................... $(2,007,228) $(3,795,014)
========== ===========
Net loss per share - basic and diluted...... $ (.54) $(2.26)
====== =====
Weighted average number of shares
outstanding................................ 3,728,000 1,681,000
========== =========
</TABLE>
Balance Sheet Data
As of December 31, 1997
---------------------------------
Current assets............. $1,519,511
Current liabilities........ $1,349,079
Working capital............ $170,432
Total assets............... $6,640,304
Stockholders' equity....... $3,551,572
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion and analysis should be read in conjunction with
"Selected Financial Information" and the Company's Consolidated Financial
Statements including the Notes thereto, included elsewhere in this Prospectus.
Except for the historical information contained herein, the discussion in this
Prospectus contains forward-looking statements that invoke risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The Company's actual results could differ
materially from those discussed below. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors," as well as those
discussed elsewhere herein.
The Company was organized on November 9, 1992 under the laws of the State
of Delaware as Hungarian Teleconstruct Corp., and changed its name to EuroWeb
International Corp. on July 9, 1997. It was a development stage company through
December 31, 1993. It originally had two subsidiaries Hungarian corporations,
one of which was engaged as a general contractor in the construction of
buildings and the other was engaged in the construction of local telephone
exchanges for community sponsored telecom companies in Hungary. It had two
operating business segments: (1) building of condominium apartments and (2)
design and laying of underground fiber optic telephone and cable lines. The
latter segment was discontinued in 1994.
The Company built two luxury 14-unit condominium building in Budapest.
During 1996 and 1997, the Company sold one of the Units in one of the buildings
("Building A") to a third party and agreed to sell the remaining 13 apartments
in Building A prior to its completion to Peter Klenner ("Klenner"), its former
president. It was agreed that the closing of the sale would take place on the
date that Building B was completed and ready for occupancy. Klenner agreed to
loan the Company funds to complete Building B, which loans were to be applied
against his purchase price of Building A. The Company completed the second
building in April 1998. The Company leased Building B to an unaffiliated person
for a five year term commencing April 1, 1998 at a net rental of $22,000 per
month with an option to purchase the building for $2,000,000. In April 1998, it
transferred title to Building A to Klenner and received the balance of the
purchase price from him after deducting his loans. (See "Certain Transactions").
EuroWeb is a leading Internet service provider operating in Hungary that
provides full Internet and Web site solutions and services primarily to
businesses. The Company offers a comprehensive range OF services to deliver
Internet solutions designed to improve clients' business processes. The
Company's services include providing access to an international backbone, design
of web sites, hosting of web sites, strategy consulting, analysis and design,
software development, electronic commerce and discount Fax. The Company markets
its services principally to medium-sized and large companies.
The Company has only a limited operating history upon which to base an
evaluation of its business and prospects. The Company and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development, particularly
companies in new and rapidly evolving markets such as Internet services. Such
risks for the Company include, but are not limited to, an evolving business
model and the management of both internal and acquisition based growth. To
address these risks, the Company must, among other things, respond to
competitive developments and continue to attract, retain and motivate qualified
employees. There can be no assurance that the Company will be successful in
meeting these challenges and addressing such risks and the failure to do so
could have a material adverse effect on the Company's business, results of
operations and financial condition. The Company has incurred net losses since
inception and as of December 31, 1997 had an accumulated deficit of $15.2
million. Although the Company has experienced revenue growth in recent months,
such growth rates may not be sustainable or indicative of future operating
results, and there can be no assurance that the Company will achieve and sustain
profitability. See "Risk Factors--Limited Operating History; Accumulated
Deficit."
19
<PAGE>
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
For the year ended December 31, 1997, the Company incurred a net loss of
$2,007,228, a net loss of $.54 per share compared to a net loss of $3,795,014, a
net loss of $2.26 per share for the year ended December 31, 1996.
For the year ended December 31, 1997, revenues were $1,270,135, all of
which were derived from the Internet business, compared with no revenues during
the year ended December 31, 1996.
Compensation and related costs decreased to $810,543 in 1997 from
$1,364,550 in 1996, even though the 1997 amount includes cost relating to the
Internet business. The 1996 amount included $972,000 in connection with the
former President's resignation.
Network costs of $525,530 were incurred in 1997 in connection with the
Internet business.
Rent increased to $117,531 in 1997 from $5,716 in 1996 as a result of the
Internet business.
Depreciation and amortization increased to $497,362 in 1997 from $29,352 in
1996 as a result of amortization of goodwill ($383,000) and depreciation of
equipment relating to the Internet business.
Interest expense-net increased to $370,166 in 1997 from $287,677 in 1996
primarily as a result of the convertible debt borrowing and the loan from
Hungarian Broadcasting Corp.
Other expenses increased to $713,570 in 1997 from $363,472 in 1996
primarily as a result of the Internet business.
Liquidity and Capital Resources
In 1997 and 1996, the Company sold $850,000 and $792,500 of 10% convertible
debentures due 2 years from the date of sale to foreign investors outside the
United States in private placements receiving aggregate net proceeds of
approximately $696,000 and $693,500, respectively, after deducting placement
agent fees and offering expenses of approximately $154,000 and $99,000,
respectively. The original principal amount of the debentures was convertible
into shares of Common Stock at a conversion price of 50% of the market price of
the Company's common stock. The unconverted debentures in the principal amount
of $100,000 at the date of this Prospectus are due in September 1999. During
1998, 1997 and 1996, debentures of $50,000, $1,185,000 and $307,500 and accrued
interest of $0, $42,252 and $3,907, respectively, were converted into 228,310,
2,413,667 and 263,979 shares of common stock, respectively.
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 $327,000 and $300,000 to the
consolidated statement of loss for the years ended December 31, 1997 and 1996,
respectively. In addition, financing costs of approximately $154,000 and $99,000
incurred in connection with the sale of the debentures have been charged to
operations during 1997 and 1996, respectively, since substantially all of the
debentures were converted to common stock within a short period after issuance.
In October 1996, the Company sold a private placement of securities
consisting of 550,000 shares of common stock and 550,000 common stock purchase
warrants exercisable at $2 per share, (which exercise price was subsequently
reduced to $1.25 per share on June 26, 1997), 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.
On August 26, 1997, the Board of Directors approved an increase in the
number of shares of common stock to be available under the Company's 1993
Incentive Stock Option Plan from 350,000 to 700,000. This action is subject
20
<PAGE>
to approval of the Company's shareholders at the next annual shareholder meeting
to be held in 1998.
In April 1998, the Company completed the construction of the two 14-unit
condominium buildings it was constructing in Budapest. As of April 1, 1998, the
Company net leased Building B to an unaffiliated person for a net monthly rental
of $22,000 for a five year term. The net lease also contains an option to
purchase Building B for the sum of $2,000,000, plus VAT taxes, if any, during
any time during the lease. Also, in April 1998, the Company held a closing on
Building A and received the final payment therefor. See "Certain Transactions."
The Company currently anticipates that its current cash position and its
cash flows from current operations will be sufficient to meet its presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. The net proceeds from this offering will be used to support
more rapid expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or take
advantage of unanticipated opportunities. The Company's future liquidity and
capital requirements will depend upon numerous factors, including the success of
the Company's existing and new service offerings and competing technological and
market developments. The Company may be required to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurance that such additional funding, if needed,
will be available on terms acceptable to the Company, or at all.. If adequate
funds are not available on acceptable terms, the Company may be unable to
develop or enhance its services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Year 2000
The Company is currently evaluating the impact of the Year 2000 on its
management, information and operating systems. At this time, management believes
that the impact of the Year 2000 will have no material effect on its operations
or financial results.
Foreign Currency, Inflation and Seasonality
The rate of inflation in Hungary was 18% in 1997 compared with 23% in 1996
and 28% for 1995. Prices have been rising rapidly in recent years.
Internet operations are not seasonal.
The Company will be subject to significant foreign exchange risk. There are
currently no meaningful ways to hedge currency risk in Hungary. Therefore, the
Company's ability to limit its exposure to currency fluctuations is
significantly restricted.
Although the Forint has recently become exchangeable outside Hungary, there
is not yet a freely convertible exchange market in place for the Forint. In
addition, Hungarian law permits the repatriation of foreign currency only for
dividends to the extent of capital investment and earnings, as determined under
applicable Hungarian law. There can no assurances as to the future
exchangeability or convertibility of Forints.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No 130. "Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those results from investments by owners
and distributions to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial element that is
displayed with the same prominence as other financial statements.
21
<PAGE>
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on future
financial statements disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information, which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards
for the way that public companies report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosure regarding products and services, geographic
areas and major customers. SFAS 131 defines operating segments as components of
a company about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, it may have on future financial
statement disclosures. Results of operations and financial position, however,
will be unaffected by implementation of this standard.
BUSINESS
History
The Company was organized on November 9, 1992 under the laws of the State
of Delaware as Hungarian Teleconstruct Corp., and changed its name to EuroWeb
International Corp. on July 9, 1997. It was a development stage company through
December 31, 1993. It originally had two subsidiaries Hungarian corporations,
one of which was engaged as a general contractor in the construction of
buildings and the other was engaged in the construction of local telephone
exchanges for community sponsored telecom companies in Hungary. It had two
operating business segments: (1) building of condominium apartments and (2)
design and laying of underground fiber optic telephone and cable lines. The
latter segment was discontinued in 1994.
The Company built two luxury 14-unit condominium building in Budapest.
During 1996 and 1997, the Company sold one of the Units in one of the buildings
("Building A") to a third party and agreed to sell the remaining 13 apartments
in Building A prior to its completion to Peter Klenner ("Klenner"), its former
president. It was agreed that the closing of the sale would take place on the
date that Building B was completed and ready for occupancy. Klenner agreed to
loan the Company funds to complete Building B, which loans were to be applied
against his purchase price of Building A. The Company completed the second
building in April 1998. The Company leased Building B to an unaffiliated person
for a five year term commencing April 1, 1998 at a net rental of $22,000 per
month with an option to purchase the building for $2,000,000. In April 1998, it
transferred title to Building A to Klenner and received the balance of the
purchase price from him after deducting his loans. (See "Certain Transactions").
On January 2, 1997, the Company entered the Internet service provider
business in Hungary by acquiring three Hungarian Internet service companies
("Internet providers") from unrelated parties, namely, EUNET, E-Net and MS
Telecom. EUNET was the leading provider of leased line Internet access 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 a provider of dial-up Internet access services
in Hungary. The three combined companies were merged into a new Hungarian
company known as EuroWeb and relocated into a single new facility. New
technological equipment was added including a CISCO 7200 router, a CISCO AS 5200
Terminal Server, and two pieces of Sun Ultra servers. Additional international
trunk line connections were added, including MCI VSAT connections and TMI
(Italia Telecom) terrestrial lines. The total number of employees was decreased
by 25% by eliminating duplication of services.
22
<PAGE>
Industry Overview
THE INTERNET AND THE WORLD WIDE WEB
The Internet is a global collection of thousands of computer networks
interconnected to enable commercial organizations, educational institutions,
government agencies and individuals to communicate electronically, access and
share information and conduct business, The Internet was historically used by a
limited number of academic institutions, defense contractors and governmental
agencies. Recently, use of the Internet by commercial organizations and
individuals has increased significantly, in part as the result of cultural and
business changes, technological advances, including increases in microprocessor
speed, and the development of easy-to-use graphical user interfaces. "Graphical
user interfaces" in the context of the Internet are the graphics and text that
appear on a computer screen.
Much of the recent growth in Internet use by businesses and individuals has
been driven by the emergence of a network of servers and information available
on the Internet called the World Wide Web. The Web is not only rich in content
and format, containing magazines, news feeds and corporate, product,
educational, research, and political information, it also enables users to
engage in activities, including providing customer service, conducting
electronic commerce and banking, making reservations, playing games and
participating in discussion groups.
The market for Internet services is characterized by rapid technological
change, changes in user and client requirements and preferences, frequent new
product and service introductions embodying new processes and technologies and
evolving industry standards and practices that could render the Company's
existing service practices and methodologies obsolete. The Company's success
will depend, in part, on its ability to improve its existing services, develop
new services and solutions that address the increasingly sophisticated and
varied needs of its current and prospective clients, and respond to
technological advances, emerging industry standards and practices, and
competitive service offerings. There can be no assurance that the Company will
be successful in responding quickly, cost-effectively and sufficiently to these
developments. If the Company is unable, for technical, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or client requirements, its business, results of operations and financial
condition would be materially adversely affected.
EuroWeb Strategy
EuroWeb's objective is to be the leading supplier to businesses of complete
communication solutions using Internet technologies. Instead of concentrating on
small users, EuroWeb concentrates on large business users and seeks to satisfy
all their needs with a high quality and reliable service.
The Company's business has shown continued growth since it entered the
Internet field in January 1997, and the Company expects such growth to continue
in Hungary. In addition, the Company is currently exploring the potential of
expanding its operations into other Central European countries.
Products and Services
EuroWeb provides its customers with a comprehensive range of Internet
access options, content services and value added services. EuroWeb believes that
over time its strategic focus on business applications for the Internet will
play an increasing role in differentiating the Company from its competitors.
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<PAGE>
Access Options
The following tables describe EuroWeb's Internet access options.
Low speed dial-up access
<TABLE>
<CAPTION>
SERVICES CURRENT LIST PRICE SUMMARY DESCRIPTION
- -------- ------------------ -------------------
<S> <C> <C>
Limitless Internet $290/Year Full Internet for single computer
No start up fee with mailbox
Company Post Office $17/Month Only mail service for corporate
Startup fee: $48 networks
Company Internet $29/Month Full Internet service for small
Traffic Fee corporate networks
Startup fee: $48
High speed access
SERVICES CURRENT LIST PRICE SUMMARY DESCRIPTION
- -------- ------------------ -------------------
Company Internet ISDN $48/Month Full Internet service for medium
Traffic Fee corporate networks over ISDN
Startup fee: $48
Company Internet Managed $48-$762/Month Full Internet service for big
Leased Line Traffic fee corporate networks over dedicated
Startup fee: $381-$4,571 line
Dedicated International Line 64K- $2,300-$14,000/Month Full Internet service for very big
512K Traffic Fee: Limitless corporate networks or Internet
Startup fee: $571-$1,286 resellers over dedicated
international line
</TABLE>
Content (or "WEB") services
EuroWeb makes available various services to customers, including the
design, development, hosting and maintenance of home pages (entry points for a
collection of information presented through the World Wide Web) and content on
the World Wide Web. EuroWeb will install and maintain home pages on EuroWeb
servers for customers concerned with the cost, difficulty or security of
maintaining home pages on their own network.
24
<PAGE>
<TABLE>
<CAPTION>
SERVICES CURRENT LIST PRICE SUMMARY DESCRIPTION
- -------- ------------------ -------------------
<S> <C> <C>
Web Hosting $24-$476/Month Hosting companies' sites
Web Server Hosting From $143 Hosting companies' Web servers
Startup fee: $71 in EuroWeb's machinery room
Autoweb $24/Month Automatic creation of Web sites
From $476 Design & Programming corporate
Web sites
The Company provides Internet content services to clients in a variety of
industries, as indicated by the selected clients set forth below:
Microsoft Hungary Ltd. Budapest Sun (Sunpress Ltd.) Intercom Ltd.
Hewlett Packard Hungary Ltd. EMI Quint Record Corp. European Commercial Bank Corp.
Digital Hungary Ltd. Hungarian Power Company Ltd. Kossuth Radio
Bull-Zenith Hungary Ltd. Paksi Power Generator Corp. Peton Radio
Generali Hungary Ins. Corp. Waterworks of Budapest Corp. Pesti Musor Magazin Corp.
Sun Microsystems Ltd. Hungarian Tourism Service Magyar Hirlap (Daily)
Nationale-Niederland Corp.
</TABLE>
Value Added Services
EuroWeb provides various value added services to customers including online
databases, electronic banking and software development and Netfax.
ONLINE DATABASES
The Company has developed several databases for its customers including a
"companies" database, and a composite Hungarian library catalogue database.
The companies database enables subscribers to search for company data
registered in Hungarian Court of Registration. Every Hungarian company must file
with a Hungarian Court of Registration a statement setting forth the names and
addresses of its directors and managers, its accountants and attorneys and its
paid-in capital. In addition, regulations promulgated by the various government
ministries and statistical data releases by the government are also filed with
the Hungarian Court of Registration. The Company keeps this database current on
a weekly basis and has had it translated into English and German.
The library catalogue database consolidates the book catalogues of all of
the libraries in Hungary and identifies each book by name, author and a brief
identification of contents and in which libraries a copy of the book can be
found.
The Company intends to continue to develop databases for other customers.
ELECTRONIC BANKING AND SOFTWARE DEVELOPMENT
In 1998 the Company started a division to develop Internet software to
provide electronic commercial software to perform many business processes. This
division was retained by Fornex, an agent of the Budapest Stock Exchange
("BSE"), to develop software to record all transactions on the BSE in real time
and create a database for such information, which information can be obtained by
subscribers through the Internet. The division also has been retained by Posta
Bank, Hungary's second largest bank, to help develop software for home banking
use by customers of the bank and to provide access for the customers to enable
the customers to transfer funds on deposits at the bank by the Internet
electronically to third parties. The Company is also working on software for
credit card processing and transaction validation.
25
<PAGE>
NETFAX
The Company added discount fax service for its customers in 1998. These
services enable customers to send faxes any where in the world at a cost
substantially lower than what the customers would pay using ordinary telephone
lines. Customers are able to access this new service using a regular fax machine
or through their computers. Recipients are able to receive the transmission on a
computer or on a fax machine. The Company is also the node for faxes sent to
Hungary from locations around the world by members of a worldwide alliance of
Internet service providers known as GRIC (Global Research Internet Connection).
Customers
The Company's customers are businesses and professionals in varied lines of
business. The Company's customer base has grown to over 250 business customers
as of May 1, 1998. In 1998, no customer accounted for more than ten percent of
the Company's total revenues. The following is a list of certain EuroWeb
customers in each of 8 selected industry groups.
<TABLE>
<CAPTION>
GOVERNMENT COMPUTER SYSTEMS & SERVICE
- ---------- --------------------------
<S> <C>
State Privatization and Holding Corp. DYNAsoft Ltd. (SAP consultant)
Office of Economic Competition ICON Computing Ltd.
General Inspectorate of Communications IDOM Corp. (System Integrator)
Institute of Geodesy, Cartography and Remote Hungarian Railway Information Services Ltd.
Sensing
Hungarian Banking and Capital Market Supervision Szuv Computing and Management Organization
Service Ltd.
KFKI Research Institute for Particle and Nuclear
Physics Corp.
Nuclear Physics Corp.
Scala ECE Hungary Ltd.
MULTINATIONAL COMPANIES TOURISM & ENTERTAINMENT
Bull-Zenith Hungary Ltd. Danubius Hotels Corp.
Digital Hungary Corp. Hungarian Tourism Service
ICL Hungary Ltd. Intercom Ltd.
HBO Hungary Ltd.
INDUSTRY BANKING
North-West Hungarian Electricity Supply EuroNet Corp.
Company Corp.
RABA Hungarian Railway Carriage and Machine OTP Bank Corp.
Works
Waterworks of Budapest Corp. Postabank Corp.
Malev Hungarian Airlines Corp. Coopers & Lybrand Corp.
Dunaferr Danube Ironworks Corp. Credit Lyonnais Bank Corp.
Heinz Canning Factory
North American Bus Industries Ltd.
NEWSPAPER RADIO
Budapest Sun Sunpress Ltd. Kossult Radio
Axel Springer Hungary Ltd. Petofi Radio
Magyar Hirlap (Daily) Slager Radio
Radio Hungary
</TABLE>
26
<PAGE>
Network Operations and Technical Support
EuroWeb believes that effective network and technical support are important
criteria by which commercial users select Internet access providers and has
dedicated substantial resources to building a high quality support
infrastructure. As of May 1, 1998, EuroWeb had a network operations group
consisting of 12 people, including 7 providing technical support and 5 providing
customer support. The Company's network operations personnel located at
EuroWeb's network operations center in Budapest are responsible for continuously
monitoring traffic across the Company's network infrastructure. The Company's
technical support personnel work to find solutions for customers experiencing
difficulties with Internet applications. Both the technical support and customer
support personnel currently are available from 8 a.m. to 8 p.m. Monday through
Friday. At other times, these personnel respond to technical support requests by
being paged.
Sales and Marketing
The Company employs eight persons in sales and marketing. To date, the
Company has sold its Internet access and applications products and services
primarily through direct telephone contact. Call activity is generated in
response to a variety of promotional programs, including advertising in general
business and specialty periodicals, participation in industry shows, and press
relations. The sales persons work closely with the twelve person customer and
technical support group, which is responsible for installation at multiple sites
and for support and technical consulting services for the first thirty days
after installation. In addition, the Company competes for government tender
offers to develop software for varying projects from time to time and prepares
proposals in connection therewith.
Competition
The market for Internet services is relatively new, intensely competitive,
rapidly evolving and subject to rapid technological change. The Company expects
competition to persist, intensify and increase in the future. The Company's
principal competitors are Datanet, which has a customer base similar to that of
the Company's, and MATAV, the national Hungarian telephone company, and many
small niche companies engaged in WEB design, systems integration, and software
development. Furthermore, some of the Company's current and potential
competitors have longer operating histories, larger installed customer bases,
longer relationships with clients and significantly greater financial,
technical, marketing and public relations resources than the Company, and could
decide at any time to increase their resource commitments to the Company's
market. The Company strives to compete on the basis of the quality and
reliability of its services. There can be assurance that it will compete
successfully in the future.
There are relatively low barriers to entry into the Company's business.
Because professional services firms such as the Company rely on the skill of
their personnel and the quality of their client service, the Company has no
patented technology that would preclude or inhibit competitors from entering the
Internet services market. The Company expects that it will face additional
competition from new entrants into the market in the future. There can be no
assurance that existing or future competitors will not develop or offer services
that provide significant performance, price, creative or other advantages over
those offered by the Company, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Government Regulations
The Company is not currently subject to direct government regulation other
than laws and regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, it is likely that a number of laws and regulations may be adopted at
the local, state, national or international levels with respect to the Internet
covering issues such as user privacy, freedom of expression, pricing of products
and services, taxation, information security or the convergence of traditional
communications services with Internet communications. Moreover, the adoption of
27
<PAGE>
any such laws or regulations may decrease the growth of the Internet, which
could in turn decrease the demand for the Company's services or increase the
cost bf doing business or in some other manner have a material adverse effect on
the Company's business, results of operations or financial condition.
Employees
The Company employs thirty-six persons; eight in management, seven in
sales, eight in graphics and Web development, five in customer support, 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.
The Company's business of delivering Internet services is labor intensive.
Accordingly, the Company's success depends in part on its ability to identify,
hire, train and retain employees who can provide the Internet strategy,
technology, marketing, audience development and creative skills required by
clients. There is currently a shortage of such personnel, and this shortage is
likely to continue for the foreseeable future, The Company competes intensely
for qualified personnel with other companies, and there can be no assurance that
the Company will be able to attract, assimilate or retain other highly qualified
technical, marketing and managerial personnel in the future. The inability to
attract and retain the necessary technical, marketing and managerial personnel
would have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company's rapid growth has placed, and is expected to continue to
place, a significant strain on the Company's managerial, operational, financial
and other resources. The Company expects that continued hiring of new personnel
will be required to support its business. The Company's future success will
depend, in part, upon its ability to manage its growth effectively, which will
require that the Company continue to implement and improve its operational,
administrative and financial and accounting systems and controls and to expand,
train and manage its employee base. There can be no assurance that the Company's
systems, procedures or controls will be adequate to support the Company's
operations or that the Company's management will be able to achieve the rapid
execution necessary to exploit the market for the Company's business model.
Furthermore, the Company's future performance will depend on the Company's
ability to integrate the organizations to be acquired by the Company, which,
even if successful, may take a significant period of time, will place a
significant strain process. As a result, there can be no assurance that the
Company will be able to integrate acquired businesses successfully or in a
timely manner in accordance with its strategic objectives. If the Company is
unable to manage internal or acquisition-based growth effectively, the Company's
business, results of operations and financial condition will be materially
adversely affected.
Description of Properties
The Company rents approximately 4,500 sq. feet of space at H-1122 Budapest,
Varosmajor u. 13 from an unaffiliated person. It uses the premises for executive
offices and for operations and pays a rent in Hungarian forints of approximately
$114,000 per year under a five year lease expiring March 31, 2002. The Company
also leases space at 445 Park Avenue, New York, NY 10022 on a month to month
basis at a rental of $2,000 per month which it uses for stockholder relations
and general executive use.
Legal Proceedings
The Company is not a party to any material legal proceedings as of the date
of this Prospectus.
28
<PAGE>
Republic of Hungary
INVESTMENT CONSIDERATIONS--POLITICAL, ECONOMIC AND OTHER FACTORS
REGARDING HUNGARY
Investment in the Company involves certain special investment
considerations not usually associated with investing in securities of U.S.
companies, including risks related to (a) greater social, economic and political
uncertainty; (b) certain restrictions on foreign investment and repatriation of
capital; (c) exchange control regulations; (d) currency exchange rate
fluctuations, which may increase the costs associated with conversion of
investment principal and income from one currency to another; (e) higher rates
of inflation; and (f) greater governmental involvement in the economy.
The value of the Company's assets may be adversely affected by political,
economic and social factors, changes in the law or regulations of Hungary, and
the status of political and economic foreign relations of Hungary. Developments
in the region may also affect the value of the Company's assets. In addition,
the economy of Hungary may differ favorably or unfavorably from the U.S. economy
in such respects as the rate of growth of gross domestic product, the rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Actions of the government of Hungary in the future may affect
the local economy, which may affect private sector companies, market conditions
and general economic stability.
GEOGRAPHY
Hungary is located in the Danubian Basin in East Central Europe. In terms
of square kilometers, Hungary ranks 18th amongst the European countries, with a
territory of about 93,033 square km (36,296 square miles, about the size of the
state of Indiana). According to the latest population census of January 1995,
Hungary has a population of 10.4 million. Currently, about 3.2 million people
are living in Budapest and environs, the capital of Hungary. Budapest is the
administrative, cultural, industrial, commercial and economic center of the
country. No other urban area in Hungary has over 220,000 people.
FOREIGN EXCHANGE AND REVALUATION
The Hungarian Forint is a convertible currency in Hungary, but not
internationally at this time. Its exchange rate is set by the National Bank of
Hungary against a basket of convertible currencies. Any devaluation exceeding 5%
requires government approval. The National Bank of Hungary has announced that
its policy in the future will be to adjust the Forint on a continual floating
basis, thereby avoiding large devaluations. As of date of this Prospectus, the
exchange rate of the Forint is based on a ratio consisting of 70% European
Currency Unit ("ECU") and 30% United States Dollars. The exchange rate for the
Hungarian Forint, as set by the National Bank of Hungary, declined from
approximately 100 Forints per U.S. Dollar at December 31, 1993 to 211 forints
per United States Dollar at May 1, 1998.
29
<PAGE>
MANAGEMENT
Executive Officers and Directors of the Company
The following table sets forth certain information concerning the executive
officers and directors of the Company as of April 1, 1998.
NAME AGE POSITION WITH COMPANY
Frank R. Cohen 77 Chairman of the Board,
President and Treasurer
Richard G. Maresca 57 Director
Donald K. Roberton 57 Director
Hershel Krasnow 74 Director
Robert Genova 57 Director and Secretary
Frank R. Cohen, age 77, has been a Director and Treasurer of the Company
since its inception in 1992, and has been Chairman of the Board and President
since February 6, 1997. 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.
Richard G. Maresca, age 57, 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 57, was Vice Chairman and Chief Operating Officer
of Hungarian Telephone and Cable Corp. ("HTC"), until he resigned in order to
become a director of the Company in 1996 and assist in the development of
EuroWeb'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.
Hershel Krasnow, age 74, is a senior vice president of First Security
Investment Inc., investment bankers, and has held that position since March
1998. Prior thereto he was a senior vice president of Josephthal Lyon & Ross,
Inc. for seven years. He has been employed in the securities industry since
1961, and was a former allied member of the New York Stock Exchange, Inc. Mr.
Krasnow is presently a director of Windsor Capital Corp., a publicly traded
corporation engaged in the retail cigar distribution business, and of
International Asset Management Group Inc., a publicly traded company on the
bulletin board.
Robert Genova, age 57, had been Chairman of the Board of Directors between
February 17, 1994 and February 6, 1997. Prior thereto Mr. Genova had been a
management and financial consultant to the Company since 1992 and to other
companies since 1990. Mr. Genova resigned as a Director as of February 6, 1997,
but was appointed to the Board again in February 1998 and as Secretary of the
Company. After the completion of this offering, Mr. Genova intends also to
assume the position of President of the Company in place of Mr. Cohen.
Board members are reimbursed for their expenses for each meeting attended
but do not receive fees for attendance at meetings.
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.
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<PAGE>
Executive Compensation
The following table sets forth information concerning the annual and long
term compensation of the Company's chief executive officer, the only executive
officer of the Company, whose salary and bonus for 1997 exceeded $100,000 for
services in all capacities to the Company during the Company's 1995, 1996, and
1997 fiscal years:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- ------------------- -----------------------
Bonus and Securities
Name and Year Ended Other Annual Underlying
Principal Position December 31, Salary($) Compensation($) Options
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank Cohen 1997 125,000 0 0
Chairman of the Board 1996 82,000 0 75,000
Chief Executive Officer 1995 72,000 0 0
Since February 7, 1997
</TABLE>
Employment and Management Agreements
The Company has an employment agreement with Frank R. Cohen which expires
December 31, 2005 and provides for an annual salary of $150,000 and grants Mr.
Cohen 35,000 options to purchase 35,000 shares of Common Stock of the Company at
$1.00 per share through December 31, 2005. The Company also agreed to provide to
a family trust of Mr. Cohen (the "Trust") a split dollar life insurance policy
on the life of Mr. Cohen in the face amount of $1 million and to loan to the
Trust on an annual basis a substantial portion of the annual premium. The loan
would be secured by an assignment of the policy to the Company with an
irrevocable agreement that the Company can pay itself out of the proceeds of
such policy the outstanding loan balance. The Company also owns the cash
surrender value of the policy and would have the right to borrow against the
cash surrender value at any time. The Company has not yet provided such a policy
to the Trust and will not provide such a policy until the completion of this
offering. An insurance company has estimated that the annual premium on such a
policy would be $116,260 of which the Company would be responsible for a
$104,520 share in the first year, declining to $75,280 in the tenth year while
the Trust would be responsible for $11,740 in the first year increasing to
$40,980 in the tenth year. No premium would be required to be paid after the
tenth year.
The agreement provides that, if employment is terminated other than for
willful breach by the employee or for cause or in the event of a change in
control of the Company, then the employee has the right to terminate the
agreement. In the event of any such termination, the employee will be entitled
to receive the payment due on the balance of his employment agreement and a loan
to his trust for the payments due, if any, on the split dollar life insurance
policy.
The Company intends to enter into a five year employment agreement with
Robert Genova, a director of the Company, on the completion of this offering
that will provide that Mr. Genova will serve as president of the Company at a
salary of $60,000 per year.
The Company has no pension or profit sharing plan or other contingent forms
of remuneration with any officer, director, employee or consultant. The Company
does not have "key person" life insurance policies on its executive officers or
key employees.
31
<PAGE>
Options/Grants in Last Fiscal Year
The Company's 1993 Stock Option Plan permits the grant of options to
employees of the Company, including officers and directors, who are serving in
such capacities. There were no options granted in the 1997 fiscal year under the
plan to the chief executive officer named above or to any employee, director, or
officer of the Company.
Options Exercised in Last Fiscal Year and Year-End Values
No options were exercised by Frank R. Cohen or by any employee, director
or officer of the Company during the fiscal year ended December 31, 1997. The
following table contains information concerning the number and value at December
31, 1997 of unexercised options held by Mr. Cohen:
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised "In-the-
Acquired on Value Options held at Money" Options held at Fiscal
Name Exercise Realized Fiscal Year-End Year-End(1)
======================== ================== ============= ===================================== =================================
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank R. Cohen 0 0 110,000 0 $0 $0
</TABLE>
(1) Fair market value of underlying securities (the closing price of the
Company's Common Stock on the NASDAQ Small Cap system as of December 31,
1997, minus the exercise price).
Limitation of Liability and Indemnification
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments. fines, amounts paid in settlement, and reasonable expenses
(including attorneys' fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Certificate of Incorporation, the Company has included a
provision that limits, to the fullest extent now or hereafter permitted by the
DGCL, the personal liability of its directors to the Company or its stockholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Under the DGCL as currently in effect, this provision limits a
director's liability except where such director (i) breaches his duty of loyalty
to the Company or its stockholders, (ii) fails to act in good faith or engages
in intentional misconduct or a knowing violation of law, (iii) authorizes
payment of an unlawful dividend or stock purchase or redemption as provided in
Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This
provision does not prevent the Company or its stockholders from seeking
equitable remedies, such as injunctive relief or rescission. If equitable
remedies are found not to be available to stockholders in any particular case,
stockholders may not have any effective remedy against actions taken by
directors that constitute negligence or gross negligence.
Anti-Takeover Provisions
The Company is governed by the provisions of DCCL Section 203, an
anti-takeover law enacted in 1988 In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and certain other transactions
resulting in a financial benefit to the stockholders. An "interested
stockholder" is defined as a person who, together with affiliates or associates,
owns (or, within the prior three years, did own) 15% or more of a Company may be
discouraged from attempting to effect an acquisition transaction with the
Company, thereby possibly depriving holders of the Company's securities of
certain opportunities to sell or otherwise dispose of such securities at
above-market prices pursuant to such transactions.
32
<PAGE>
Stock Option Plan and Stock Options
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 all of which have been granted and are currently outstanding 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. A proposal
to add 350,000 additional shares to the 1993 Plan is to be considered at the
Annual Meeting.
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. Options to
purchase an aggregate of 350,000 shares of Common Stock have been granted under
the Plan including options to purchase to directors Cohen, Genova, Roberton,
Maresca and Krasnow to purchase 105,000, 30,000, 50,000, 30,000, and 10,000
respectively. No options were exercised in 1997 by any holder.
The Company has no pension or profit sharing plan or other contingent forms
of remuneration.
As part of its expansion plans into other countries of Central Europe, the
Company retained Eurus Capital Corporation as its consultant in Poland to
provide various services including market surveys, advice regarding the
political, economic and regulatory conditions in Poland, consideration of
possible funding sources, seeking potential joint venture parties and
identifying possible acquisitions. For its services, the Company granted an
option to Eurus in April 1998 to acquire 300,000 shares of the Company's Common
Stock at a price of $1.125 per share for a period expiring on April 20, 2001.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of the date of this Prospectus of (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.
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of May 1, 1998, and as adjusted to reflect the
sale of the Units offered hereby (assuming (1) no exercise of the Underwriter's
over-allotment option, and (2) the Preferred Shares included in the Units had
been immediately and fully converted as of the date of this Offering) 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
directors and officers 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.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Name and Address Owned Prior to Offering Owned After Offering
- -------------------------------------------- ---------------------------------------- -------------------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Peter E. Klenner(1)(2) 340,000(2) 6.27% 340,000 6.27%
1118 Budapest
Kelenhegyi ut 39
Hungary
Robert Genova(1)(3) 210,000(3) 3.94% 210,000 3.94%
227 Route 206, Unit 11
Flanders, NJ 07836
Frank R. Cohen(1)(4) 150,000(4) 2.82% 150,000 2.82%
445 Park Avenue
New York, NY 10022
Donald K. Roberton(1)(5) 50,000(5) * 50,000 *
3350 Charles MacDonald Drive
Sarasota FL 34240
Richard Maresca(1)(6) 30,000(6) * 30,000 *
1111 Wyoming Drive
Mountainside, NJ 07082
Hershel Krasnow(1)(7) 10,000 * 10,000 *
1111 Kane Concourse
Suite 501
Bay Harbor Island FL 33154
All Officers and Directors as a 450,000 8.22% 450,000 8.22%
Group (5 Persons)
- --------------------------------------------
</TABLE>
* less than 1%
(1) Unless otherwise indicated, 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
34
<PAGE>
acquire within 60 days after the date of this Prospectus. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons named above on May 1, 1998, 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
250,000 currently exercisable options to purchase 250,000 shares at $1 per
share pursuant to Mr. Klenner's employment agreement, which provision
survived the termination of his employment agreement. Does not include
100,000 options to purchase 100,000 shares at $2 per share which are not
currently exercisable.
(3) Includes 155,000 currently exercisable options to purchase 125,000 shares
at $1 per share and 30,000 shares at $1.625 per share.
(4) Includes 140,000 currently exercisable options to purchase 35,000 shares
at $1 per share and 75,000 shares at $1.625 per share.
(5) Includes 50,000 options granted to Mr. Roberton exercisable from $1.25 to
1.625 per share.
(6) Includes 30,000 options granted to Mr. Maresca exercisable from $1.25 to
$1.625 per share.
(7) Includes 10,000 options granted to Mr. Krasnow exercisable at $1.625 per
share.
(8) Does not include the possible issuance of 62,000 shares issuable upon
exercise of Underwriter Warrants or 575,000 shares issuable upon exercise
of Private Placement Purchase Warrants, 400,000 shares issuable upon
exercise of consultant options, or the possible issuance of an
indeterminate number of shares upon conversion of $100,000 of outstanding
convertible notes.
CERTAIN TRANSACTIONS
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 initial public offering of securities by HBC. At that time,
HBC was affiliated with the Company since the Company was a principal
stockhiolder of HBC and had three common directors, Messrs. Cohen, Genova and
Klenner). The agreement provided for the following additional consideration to
the Company: (1) issuance of 100,000 shares of HBC's common stock; (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) a 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 in March 1995. On January 2, 1996, HBC repaid
$400,000 of the loan receivable together with accrued interest of $24,000. In
February 1997, the Company borrowed $350,000 at 6% per year interest from HBC
collateralized by the remainder due on the note from HBC to the Company. On
October 29, 1997, the Company sold the 250,000 of HBC shares it owned for
$649,000.
The Company built two luxury 14-unit condominium buildings in Budapest. In
January 1996, it sold, prior to completion, one unit in one of the buildings
("Building A") to an unaffiliated person and three units to M&A Corp. ("M&A"), a
corporation owned by Peter Klenner ("Klenner"), then President of the Company.
M&A paid the Company $394,320 for the three units.
In October 1996, Mr. Klenner agreed to resign as president and as a
director 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. It was further agreed that the term of the 250,000 stock options which
were granted to him under his employment agreement and pursuant to the Company's
Incentive Stock Option Plan of 1993 would not terminate but would continue
through the original term. After Mr. Klenner resigned, the Company agreed to
sell the remaining 10 units in Building A to M&A for $1,164,197. M&A further
agreed to lend to the Company funds to complete Building B and to complete the
purchase of Building A on the date that Building B was completed. Building B was
completed in April 1998. The Company transferred title to Building A to M&A and
received the balance of the purchase price.
In February 1997, the Company's Chairman of the Board, Robert Genova,
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 his 1996 salary. In addition, the
Company agreed that 125,000
35
<PAGE>
stock options which were granted to him under his employment agreement would not
terminate as a result of the resignation, but would continue to be governed by
the original terms of the options. In February 1998, Mr. Genova was appointed a
director of the Company. Mr. Genova also was granted 30,000 options under the
Stock Option Plan during April 1998 and has agreed to be employed by the Company
as President after the completion of this offering under a five year employment
agreement at a salary of $60,000 per year.
In February 1997, Mr. Klenner was retained as a consultant to the Company
to oversee the Company's real estate interests and Internet business. He agreed
to render consulting services for a two-year period for a fee of 100,000
five-year options exercisable at $2.00 per share. The compensation relating to
these options which was valued at $50,000 is being charged to operations over a
two-year period.
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 15,000,000 shares of
Common Stock, par value $.001 per share and 5,000,000 shares of Preferred Stock,
par value $.001 per share, which may be issued in one or more series. As of the
date of this Prospectus, the Company had 5,178,246 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding. The following summary
description of the Units, Common Stock, Preferred Stock and Series A Preferred
Stock are qualified in their entirety by reference to the Company's Certificate
of Incorporation, as amended.
Units
Each Unit offered hereby consists of one share of Series A Convertible
Cumulative Redeemable Preferred Stock and one Common Stock Purchase Warrant. The
components of the Units will not be separately transferable until ______________
1999, or such earlier date after ______________, 1998 as may be determined by
the Representative (the "Separation Date").
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by Shareholders. The holders of shares of Common Stock
are entitled to dividends when and as declared by the Board of Directors from
funds legally available therefor, and, upon liquidation, are entitled to share
pro rata in any distribution to stockholders after payments to creditors and
after paying, or providing for, any liquidation preferences of any outstanding
Preferred Stock. There are no conversion or redemption privileges, nor sinking
fund provisions with respect to the Common Stock, and stockholders have no
preemptive rights to acquire shares of Common Stock issued by the Company in the
future. All of the outstanding shares of Common Stock are validly issued, fully
paid and non-assessable.
The Common Stock is traded on NASDAQ SmallCap Market under the symbol EWEB.
Preferred Stock
The Preferred Stock may be issued in one or more series, to be determined
and to bear such title or designation as may be fixed by resolution of the Board
of Directors prior to the issuance of any shares thereof. Each series of
Preferred Stock will have such voting powers, if any, preferences, and other
rights as determined by the Board of Directors, with such qualifications,
limitations or restrictions as may be stated in the resolutions of the Board of
Directors adopted prior to the issuance of any shares of such series of
Preferred Stock.
The Preferred Shares being offered hereby are the first series of Preferred
Stock designated by the Board of Directors. The Company may not, without the
affirmative vote of the holders of at least a majority of the outstanding
Preferred Shares offered hereby, amend, alter or repeal any of the provisions of
the Certificate of Incorporation or
36
<PAGE>
the Certificate of Designation for the Preferred Shares, or authorize any
reclassification of the Preferred Shares so as to adversely affect the
preferences, special rights or privileges or voting power of the Preferred
Shares or authorize or create any class of stock ranking prior to the Preferred
Shares as to dividends or distribution of assets, or create or issue any shares
of any series of the Company's authorized preferred stock ranking prior to the
Preferred Shares as to dividends or distribution on liquidation. The Board has
no present plans to issue any other series of Preferred Stock. However,
purchasers of the Preferred Shares offered hereby should be aware that subject
to the foregoing restrictions, the holders of any series of the Preferred Stock
which may be issued in the future could have voting rights, rights to receive
dividends or rights to distribution in liquidation superior to those of holders
of the Preferred Shares or Common Stock, thereby adversely affecting rights of
the holders of the Preferred Shares or Common Stock.
Because the terms of each series of Preferred Stock may be fixed by the
Company's Board of Directors without shareholder action, the Preferred Stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the market
price of the Preferred Shares, the publicly held Warrants, and the Common Stock.
Management of the Company is not aware of any such threatened transaction to
obtain control of the Company.
Series A Convertible Cumulative Preferred Stock
The Board of Directors has filed a Certificate of Designation designating
1,250,000 shares of Preferred Stock as "Series A Convertible Cumulative
Preferred Stock" with the following rights, preferences and privileges:
CONVERSION. Unless previously redeemed by the Company, the holders of the
Preferred Shares are entitled beginning on the Separation Date, to convert each
Preferred Share into ___ (__) shares of Common Stock subject to adjustment
described below. No fractional shares of Common Stock will be issued but in lieu
thereof, the Company shall "round up" any fractional shares over 50% of a share
to a full share of Common Stock and round down any fractional share under 50% of
a share. If any holder surrenders a Preferred Share for conversion after the
close of business on the record date for the payment of a dividend and prior to
the opening of business on the next dividend payment date, then, notwithstanding
such conversion, the dividend payable on such dividend date will be paid to the
registered holder of such share on such record date. In such event, such share,
when surrendered for conversion, must be accompanied by payment of an amount
equal to the dividend payable on such dividend payment date on the share so
converted. In the case of Preferred Shares called for redemption, conversion
rights will expire at the close of business on the redemption date.
The conversion rate is subject to adjustment upon the occurrence of certain
events, including the issuance of stock of the Company as a dividend or
distribution on the Common Stock but not as dividends on the Preferred Shares;
sub-divisions and combinations of Common Stock; certain reclassifications,
consolidations, mergers and sales of property of the Company; the issuance to
all holders of Common Stock of certain rights or warrants; and the distribution
to all holders of Common Stock of evidence of indebtedness of the Company or of
assets (excluding cash dividends or distributions from retained earnings).
Except as stated above, the Conversion Price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock, or carrying the right to purchase any of the foregoing, in
exchange for cash, property or services.
DIVIDENDS. Each Preferred Share is entitled to cumulative annual dividends
of $.60 payable on April 30 of each year commencing April 30, 1999. Unpaid
dividends will accumulate and be payable prior to the payment of dividends on
the Common Stock. The Company may, at its option, pay dividends in shares of
Common Stock, in lieu of cash. Shares used for such purpose will be valued at
the average closing bid price during the ten trading days ending on the tenth
day before the dividend payment date, subject to certain conditions. For the
foreseeable future, the Company expects to make dividend payments on the
Preferred Shares in shares of Common Stock.
REDEMPTION. The Preferred Shares are redeemable after the Separation Date
at the option of the Company, on not less than 30 days' written notice to
registered holders at the redemption price of $7.20 per share plus accumulated
dividends, provided the Company may not redeem the Preferred Shares unless the
closing price of the Common Stock
37
<PAGE>
equals or exceeds $_ per share for at least 20 of the 30 consecutive trading
days ending within five trading days prior to the date the redemption notice is
mailed.
VOTING RIGHTS. Preferred Shares are entitled to one vote per share voting
together with the Common Stock as one class, except as otherwise provided by the
Delaware General Corporation Law provided, however, that if dividends payable on
the Preferred Shares shall have been unpaid for two dividend periods, the
holders of the Preferred Shares, voting as a class, shall be entitled to elect
two directors to the Board of Directors.
PREFERENCE ON LIQUIDATION. Preferred Shares will be entitled to a
preference on liquidation equal to $6 per share, plus accumulated unpaid
dividends.
NO SINKING FUND. The Company is not required to provide for the
retirement or redemption of the Preferred Shares through the operation
of a sinking fund.
Common Stock Purchase Warrants
The Company is offering 800,000 Common Stock Purchase Warrants (the
"Warrants") as part of the Units offered hereby. Each Warrant entitles the
holder to purchase until __________ one share of Common Stock at an exercise
price of $___. The Warrants offered hereby are subject to redemption at any time
after the Separation Date, on 30 days notice at $.__ per Warrant provided that
the closing sale price, or if none, the closing bid price of the Common Stock
exceed $____ per share on at least 20 days of the 30 trading days ending within
15 days of the date on which the notice of redemption is mailed. Holders of
Warrants shall have exercise rights until the close of the business day
preceding the date fixed for redemption.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends and distributions, stock splits, recapitalizations, mergers and
consolidations. No adjustment exists for the issuance of shares of Common Stock,
among other circumstances, upon exercise of any of the Warrants or options
granted under any stock option plan or the Underwriter's Unit Warrants. The
Company is not required to issue fractional shares. The holder of a Warrant does
not possess any rights as a stockholder of the Company unless he exercises his
Warrant and obtains Common Stock. The Warrants have been issued in registered
form under a Warrant Agreement dated as of ___________, 1998 between the Company
and American Stock Transfer & Trust Company as Warrant Agent. The shares of
Common Stock issued upon exercise of a Warrant, will be fully paid and
non-assessable.
A Warrant may be exercised upon the surrender of a duly completed warrant
certificate on or prior to its expiration, accompanied by cash or certified bank
check for the exercise price.
Underwriter's Warrants
The Company sold to J.W. Barclay & Co., Inc. (one of the underwriters in
its public offering of securities in July, 1993 and the Representative of the
underwriters in this Offering) at a price of $.001 per Warrant 62,000 warrants
(the "1993 Underwriter's Warrants") to purchase a like number of shares of
Common Stock of the Company. The 1993 Underwriter's Warrants are exercisable at
a price of $13.20 per share until July 23, 1998 at which time they expire.
Subject to the sale of the securities offered hereby, the Company will sell
to the Representative of the underwriters of this offering for a nominal
consideration, 80,000 Unit warrants to purchase a like number of Units at an
exercise price of $7.50 per unit.
38
<PAGE>
Certain Tax Considerations
The following discussion sets forth what the Company believes are the
material federal income tax consequences, under current law, of a purchase of
the Preferred Shares. However, the Company has not requested a ruling from the
Internal Revenue Service or a formal opinion from its tax counsel. Prospective
purchasers of the Preferred Shares should consult their own tax advisors with
respect to the consequences to them of the purchase and holding of such
securities including the Preferred Shares and the applicability and effect of
federal, state and other tax laws.
The sale of a Preferred Share will result in the recognition of gain or
loss to the holder in an amount equal to the difference between the amount
realized and his adjusted basis therein. Such a sale will result in capital gain
or loss, provided the security is a capital asset in the hands of the holder.
Such capital gain or capital loss will be long-term gain or loss if the
Preferred Share being sold has been held for more than one year at the time of
such sale of exchange. Shares of Common Stock received on conversion of
Preferred Shares will have the same tax basis and holding period as the
Preferred Shares converted into such shares and will be accorded the same tax
treatment on sale as the Preferred Shares.
Dividends paid on the Preferred Shares will be includable in income, for
federal income tax purposes, by the holders thereof. If the dividend is paid in
Common Stock (rather than in cash) the amount of dividend so includible will be
equal to the fair market value of the Common Stock on the date of payment (which
is expected to be equal to the amount of cash that otherwise would have been
paid as a dividend), and the amount so includible will become the holder's tax
basis in the Common Stock. The holding period of any Common Stock paid as a
dividend will commence on the date of payment.
A holder of Preferred Shares or Common Stock may be subject to backup
withholding at the rate of 20% with respect to interest or dividends paid on the
Preferred Shares or the Common Stock, respectively and with respect to the gross
proceeds of amounts paid to redeem the Preferred Shares if such proceeds are
received by the holder's broker, unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a current taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
The Company will report to the holders of the Preferred Shares and the
Common Stock and to the Internal Revenue Service the amount of any "reportable
payments" for each calendar year and the amount of tax withheld, if any, with
respect to payments on the securities.
The tax consequences referred to in the preceding paragraphs are based on
the current provisions of the Internal Revenue Code of 1986, as amended, and the
currently applicable regulations, in final and proposed form, promulgated
thereunder. In addition to the foregoing, the Internal Revenue Code of 1986, as
amended, provides that (i) for taxable years commencing in 1988 for individuals,
and (ii) for taxable years commencing on or after July 1, 1987 for corporations,
gain from the sale of long term capital assets will be taxed at the same rates
as ordinary income. There can be no assurance, however, that any such provisions
may not change in the future, either retroactively or prospectively, resulting
in changes in such tax consequences.
There may, in addition, be other federal, state, local or foreign tax
considerations applicable to the circumstances of a prospective investor.
Because the matters discussed above are not, as a matter of Federal Income
Tax Law, free from doubt, and applicable proposed regulations of the Internal
Revenue Service are subject to varying interpretations, purchasers of the
securities offered hereby are urged to consult with their own tax advisors
regarding this offering, as well as with respect to other federal, state and
local tax considerations which may be relevant to their situations.
39
<PAGE>
Outstanding Options and Warrants
As of the date of this Prospectus, there are outstanding warrants to
purchase an aggregate of 637,000 shares of Common Stock at prices ranging from
$1.25 to $14.75 per share, outstanding non-plan stock options to purchase
860,000 shares of Common Stock at prices ranging from $1.00 to $3 5/8 per share
(of which 295,000 of such options are subject to two-year lockup-up agreements),
and options outstanding under the Option Plan to purchase 350,000 shares of
Common Stock at prices from $1.00 to 3 3/8 per share.
The Company intends to file one or more registration statements under the
Securities Act to register all shares of Common Stock subject to outstanding
stock options and warrants and such registration statements are expected to
become effective upon filing. Shares covered by these registration statements
will thereupon be eligible for sale in the public markets, subject in certain
cases to lock-up restrictions.
Lock-up Agreements
Messrs. Cohen, Genova and Klenner own an aggregate of 155,000 shares of
Common Stock and options to purchase an additional 645,000 shares of Common
Stock and have agreed not to directly or indirectly sell, assign, transfer,
encumber, contract to sell, grant an option to purchase of otherwise dispose of
any shares of Common Stock or any other security convertible into or
exchangeable for shares of Common Stock which they beneficially own for a period
of 12 months after the date of this Prospectus without the prior written consent
of the Representative, except in the event of a change of control, which event
releases them from the Lock-up Agreement.
Transfer Agent
The transfer agent for the Common Stock and for the Preferred Shares is
American Stock Transfer & Trust Co., 40 Wall Street, New York, New York 10005.
Reports to Shareholders
The Company intends to furnish its shareholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm and intends to furnish other reports as it may determine or may
be required by law.
Application for Listing
It is anticipated that after this Offering, the Units will be quoted on
NASDAQ Small-Cap under the symbol EWEBU. The Common Stock is currently being
quoted on the NASDAQ Small-Cap Market under the symbol "EWEB" No assurance can
be given that a trading market for the Company's Units will develop or be
sustained.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 5,178,246 shares
of Common Stock outstanding. 5,078,246 of these shares are freely tradeable and
100,000 are restricted securities as that term is defined under Rule 144 under
the Securities Act of 1933 (the "Act") and may not be resold except in
compliance with the registration requirements of the Securities Act, or pursuant
to Rule 144 or pursuant to some other exemption from registration.
See "Certain Transactions."
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated under the terms of Rule
144), who has
40
<PAGE>
beneficially owned restricted shares of Common Stock for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the sale. A person who has not been an affiliate
of the Company for at least the three months immediately preceding the sale and
who has beneficially owned shares of Common Stock for at least two years is
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement between
EuroWeb and the Underwriters named below, for which J.W. Barclay is acting as
Representative, a copy of which agreement is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part), EuroWeb has
agreed to sell to each of the Underwriters named below, and each of such
Underwriters has severally agreed to purchase, the number of Units set forth
opposite its name. All 800,000 Units must be purchased by the several
Underwriters if any are purchased.
UNDERWRITER NUMBER OF UNITS
----------- ---------------
J.W. Barclay & Co., Inc ....................
Total .................... 800,000
The Representative has advised the Company that the Underwriters propose to
offer the Units to the public at the offering price set forth on the cover page
of this Prospectus and that the Underwriters may allow certain dealers who are
members in good standing of the National Association of Securities Dealers, Inc.
("NASD") a concession of $__ per Unit. After the initial public offering, the
public offering price and concessions may be changed by the Underwriter.
The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to 120,000 Units at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriters may exercise this option solely to cover
over-allotments in the sale of the Units.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the gross proceeds of the Units sold in the offering
(including the over-allotment option), of which $30,000 has been paid.
The Company has agreed to enter into an agreement with the Representative
retaining the Representative as financial consultant for a period of two years
from the date hereof, pursuant to which the Representative will receive a fee of
$____ per year payable in full at the closing of the Offering. The Company has
agreed with the Representative to pay a finder's fee, ranging from 7% of the
first $1,000,000 down to 2 1/2% of the excess over $9,000,000 of the
consideration involved in any transaction (including mergers and acquisitions)
consummated by the Company in which the Representative introduced the other
party to the Company during the five year period commencing on the closing date.
The Company will pay the Representative, commencing one year from the date
hereof, a commission equal to ten percent of the exercise price of the Warrants
exercised, provided that (i) at the time of exercise the market price of the
Common Stock is greater than the exercise price of the Warrants, and (ii) the
exercise of the Warrants was solicited by a member of the NASD and the NASD
member is designated in writing by the Warrant Holder, (iii) the Warrants
exercised are not held in discretionary accounts, (iv) disclosure of the
compensation arrangements has been made both at the time of exercise, and (v)
the solicitation of the exercise of the Warrants is not in violation of Rule
10b-6 under the Securities Exchange Act of 1934. A portion of such commission
may be reallocated to any dealer who solicited such exercise.
41
<PAGE>
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933.
The Company has agreed to sell to the Underwriters or their designees, at a
price of $.001 per warrant, a total of 80,000 Units (the "Underwriters' Unit
Warrants") to purchase a like number Units. The Underwriter Unit Warrants will
be exercisable at a price of $7.50 per Unit for a period of four years
commencing one year after the date hereof, and they will not be transferable for
one year after the date hereof except to Underwriters and selected dealers and
officers and partners thereof. Any profit realized upon any resale of the
Underwriters' Unit Warrants may be deemed to be additional underwriter's
compensation. The Company has agreed to register (or file a post-effective
amendment with respect to any registration statement registering) the
Underwriters' Unit Warrants and their underlying securities under the Securities
Act at its expense on one occasion, and at the expense of the holders thereof on
another occasion, upon the request of a majority of the holders thereof. The
Company has also agreed to certain "piggy-back" registration rights for the
holders of the Underwriters' Unit Warrants and their underlying securities.
The Underwriters have informed the Company that they do not expect sales of
Units to be made to discretionary accounts to exceed 2% of the shares of Common
Stock offered hereby.
Pup Certain current Common Stock and option holders, of the Company, have agreed
that they will not, directly or indirectly, offer to sell, contract to sell,
sell, transfer, assign, encumber, grant an option to purchase, pledge or
otherwise dispose of any beneficial interest in such securities, for a period of
twelve months following the date hereof, without the prior written consent of
the Representative. This lockup does not apply in the event of change of control
of the Company.
The Underwriting Agreement provides that the Representative has the right,
for a period of five years from the date of the closing of the Offering, to
designate one person to attend Board of Directors meetings. Such person shall be
entitled to attend all such meetings and to receive all notices and other
correspondence and communications sent by the Company to members of its Board of
Directors. The Company shall reimburse the designee of the Representative for
his out-of-pocket expenses incurred in connection with his attendance at such
meetings. As of the date of this Prospectus, the Representative has not
designated any director.
The Company has agreed that for a period of six months from the date
hereof, it will not issue any securities not contemplated by this Prospectus for
a period of three years, it will not issue any Preferred Stock without the prior
written consent of the Representative.
The Representative and its two principal officers are principal officers
are principal stockholders of Eurus Capital Corporation, which owns options to
purchase 300,000 shares of Common Stock of the Company. See "Management--Stock
Option Plan and Stock Options."
LEGAL MATTERS
The validity of the Units (including the Preferred Shares and the Common
Stock Purchase Warrants) offered hereby will be passed upon for the Company by
Cohen & Cohen, 445 Park Avenue, New York, New York 10022. Frank R. Cohen, a
partner in Cohen & Cohen, owns 10,000 shares of the Common Stock and holds
options to purchase an additional 140,000 shares of Common Stock, and he is
Chairman of the Board and President. Certain legal matters in connection with
this Offering are being passed upon for the Underwriter by Henry C. Malon, Esq.,
1 Battery Park Plaza, New York, NY 10004.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
42
FINANCIAL STATEMENTS
EuroWeb INTERNATIONAL CORP.
(FORMERLY 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-23
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
EuroWeb International Corp.
New York, New York
We have audited the accompanying consolidated balance sheet of EuroWeb
International Corp. (formerly Hungarian Teleconstruct Corp.) as of December 31,
1997, and the related consolidated statements of loss, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1997.
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 EuroWeb
International Corp. as of December 31, 1997, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 10, 1998
F-2
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------
ASSETS
CURRENT:
<S> <C>
Cash and cash equivalents (Note 3) $ 697,948
Accounts receivable, less allowance of $39,216 for doubtful accounts 172,437
Receivables from Hungarian Broadcasting Corporation (Note 4(a)) .... 546,053
Prepaid and other .................................................. 103,073
------------
TOTAL CURRENT ASSETS .......................................... 1,519,511
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF $102,402 ..... 240,887
CONSTRUCTION-IN-PROGRESS (NOTE 5) ..................................... 3,279,900
GOODWILL, LESS ACCUMULATED AMORTIZATION OF $383,000 (NOTE 10) ......... 1,529,912
OTHER ................................................................. 70,094
------------
$ 6,640,304
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Loan payable to Hungarian Broadcasting Corporation (Note 4(c)) ..... $ 368,456
Payable to former owners of acquired businesses (Note 10) .......... 191,000
Accounts payable and accrued expenses .............................. 789,623
------------
TOTAL CURRENT LIABILITIES ..................................... 1,349,079
10% CONVERTIBLE DEBENTURES (NOTE 6(A)) ................................ 150,000
DEFERRED REVENUE (NOTE 5(B)) .......................................... 1,589,653
------------
TOTAL LIABILITIES ............................................. 3,088,732
------------
COMMITMENTS (NOTES 5 AND 8)
STOCKHOLDERS' EQUITY (NOTE 7):
Preferred stock, $.001 par value - shares authorized 5,000,000;
no shares outstanding ........................................... --
Common stock, $.001 par value - shares authorized 15,000,000;
issued and outstanding 4,949,936 ................................ 4,950
Additional paid-in capital ......................................... 18,755,225
Deficit ............................................................ (15,172,703)
Foreign currency translation adjustment ............................ (35,900)
------------
TOTAL STOCKHOLDERS' EQUITY .................................... 3,551,572
------------
$ 6,640,304
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------
REVENUES - INTERNET $ 1,270,135 $ -
- -----------------------------------------------------------------------------------------------------------
EXPENSES (INCOME):
<S> <C> <C>
Compensation and related costs (Notes 8 and 9(a)) 810,543 1,364,550
Network costs 525,530 -
Consulting and professional fees 234,042 190,330
Rent 117,531 5,716
Depreciation and amortization 497,362 29,352
Interest expense - net (Note 6(a)) 370,166 287,677
Financing costs (Note 6(a)) 153,965 99,000
Foreign currency loss 28,654 150,917
Write-down of construction-in-progress to estimated market
value (Note 5(a)) 350,000 1,000,000
Gain on sale of investment in affiliate (Note 4(b)) (524,000) -
Other 713,570 379,472
- --------------------------------------------------------------------------------------------------------------
3,277,363 3,517,014
- --------------------------------------------------------------------------------------------------------------
LOSS BEFORE EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE (2,007,228) (3,517,014)
EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE (NOTE 4(B)) - (278,000)
- --------------------------------------------------------------------------------------------------------------
NET LOSS - BASIC AND DILUTED $(2,007,228) $(3,795,014)
- --------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE $ (.54) $ (2.26)
- --------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,728,000 1,681,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign
Common stock Additional Currency
------------------------------ paid-in translation
Shares Amount capital adjustment Deficit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 ............ 1,518,290 $ 1,518 $ 14,645,998 -- $ (9,370,461)
Issuance of shares for cash
(Note 6(b)) ...................... 550,000 550 972,450 -- --
Compensation relating to the
extension of the period of
exercisability of former officer's
options (Note 9(a)) .............. -- -- 600,000 -- --
Issuance of shares for businesses to
be acquired (Note 10) ............ 144,000 144 359,856 -- --
Issuance of shares on conversion of
debentures and accrued interest
(Note 6(a)) ...................... 263,979 264 311,143 -- --
Incremental interest from revaluation
of convertible debentures
(Note 6(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)
Compensation relating to the
extension of the period of
exercisability of former officer's
options and issuance of options to
consultant (Note 8) .............. -- -- 170,000 -- --
Issuance of shares on conversion of
debentures and accrued interest
(Note 6(a)) ...................... 2,413,667 2,414 1,224,838 -- --
Exercise of put options on common
stock issued in connection with
acquisitions ..................... 60,000 60 (156,060) -- --
Incremental interest from revaluation
of convertible debentures
(Note 6(a)) ...................... -- -- 327,000 -- --
Foreign currency translation
adjustment ....................... -- -- -- (35,900) --
Net loss for the year ............... -- -- -- -- (2,007,228)
------------
BALANCE, DECEMBER 31, 1997 .......... 4,949,936 $ 4,950 $ 18,755,225 $ (35,900) $(15,172,703)
------------ -------- ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ......................................................... $(2,007,228) $(3,795,014)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ............................... 497,362 29,352
Gain on sale of investment .................................. (524,000) --
Options granted/extended as compensation .................... 170,000 600,000
Stock issued for accrued interest ........................... 42,252 3,907
Incremental interest on revaluation of convertible debentures 327,000 300,000
Provision for loss on construction-in-progress .............. 350,000 1,000,000
Equity in net loss of unconsolidated affiliate .............. -- 278,000
Provision for doubtful accounts ............................. 39,216 --
Loss on sale of property .................................... 75,000 5,033
(Increase) decrease in:
Accounts receivable ...................................... (70,849) --
Vat refund receivable .................................... 74,412 146,804
Receivables from related parties ......................... (65,269) 85,962
Other assets ............................................. 82,329 (9,881)
Increase (decrease) in:
Accounts payable and accrued expenses .................... (59,449) (227,283)
Deferred revenue ......................................... 99,614 1,490,039
-----------
NET CASH USED IN OPERATING ACTIVITIES ............... (969,610) (93,081)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receivable from HBC .............................................. (65,269) 376,323
Acquisition of Internet service companies, net of cash acquired .. (501,986) (825,000)
Acquisition of property and equipment and construction-in-progress (243,890) (1,429,992)
Proceeds from sale of investment in HBC .......................... 649,000 --
Proceeds from sale of property ................................... 134,000 320,510
-----------
NET CASH USED IN INVESTING ACTIVITIES ............... (28,145) (1,558,159)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debt ....................... 850,000 796,957
Proceeds from HBC loan ........................................... 350,000 --
Proceeds from issuance of common stock ........................... -- 973,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........... 1,200,000 1,769,957
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................... 202,245 118,717
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ........................ 495,703 376,986
-----------
CASH AND CASH EQUIVALENTS, END OF YEAR .............................. $ 697,948 $ 495,703
-----------
NONCASH TRANSACTIONS:
Issuance of common stock upon conversion of debentures and ....... $ 1,185,000 $ 307,500
accrued interest
Issuance of common stock as advances on acquisition .............. -- 360,000
Payable to stockholders of acquired companies .................... 191,000 400,000
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY 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 EuroWeb
International Corp., formerly Hungarian Teleconstruct Corp. (the
"Company") and its majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated.
Certain 1996 items have been reclassified to conform to the 1997
presentation.
(b) USE OF ESTIMATES AND ASSUMPTIONS
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
Revenues from monthly Internet service are recognized in the month in
which the services are provided.
Sale of constructed condominium apartments is recognized when collection
of sales price is assured and occupancy permits have been obtained.
F-7
<PAGE>
EUROWEB INTERNATIONAL CORP. (FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(e) FOREIGN CURRENCY TRANSLATION
The Company's Hungarian subsidiary, EuroWeb Rt, uses the local currency,
the Hungarian forint, as the functional currency and translates all
assets and liabilities at year-end exchange rates and all income and
expense accounts at average rates, and records adjustments resulting
from the translation in a separate component of stockholders' equity.
The Company uses the U.S. dollar as the functional currency for its
Hungarian subsidiary, Teleconstruct Epitesi Rt ("Teleconstruct").
Accordingly, monetary assets and liabilities of Teleconstruct were
remeasured at year-end exchange rates, nonmonetary assets and
liabilities were remeasured at historical rates, and 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.
(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.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable,
receivables from and loan payable to Hungarian Broadcasting Corporation
("HBC"), payable to former owners of acquired businesses, accounts and
accrued expenses payable and the 10% convertible debentures approximate
fair values.
F-8
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) EQUITY IN NET LOSS OF UNCONSOLIDATED AFFILIATE
The Company's 9.7% equity interest in HBC was accounted for using the
equity method through September 30, 1996 since the Company had the
ability to exercise significant influence over HBC. 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 4(b)).
On October 29, 1997, the Company sold its interest in HBC.
(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 its office condominium at a net loss of
$75,000, which is included in other expenses.
(j) GOODWILL
Goodwill is amortized on a straight-line basis over its estimated useful
life of 5 years. The Company periodically evaluates goodwill based upon
the expected undiscounted cash flow from the acquired businesses.
(k) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") which
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. However, since the pro forma net loss and
net loss 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.
F-9
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(l) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). This statement requires
a liability approach for measuring deferred taxes based on temporary
differences between the financial statement and income tax bases of
assets and liabilities existing at the balance sheet date using enacted
rates for the years in which the taxes are expected to be paid or
recovered.
F-10
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(m) NET LOSS PER SHARE
During 1997, the FASB issued SFAS No. 128 ("SFAS No. 128"), "Earnings
per Share," which provides for the calculation of "basic" and "diluted"
earnings per share. This statement became effective for financial
statements issued for periods ending after December 15, 1997. Basic
earnings per share include no dilution and are computed by dividing
income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflect, in periods in which they have a dilutive effect, the effect of
common shares issuable upon exercise of stock options. Although SFAS No.
128 requires that all periods presented be restated to comply with the
provisions of this statement, no restatement was required since the
Company's basic net loss per share and primary net loss per share for
the year ended December 31, 1996 were the same.
(n) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier
years to be restated. Because of the recent issuance of this standard,
management has been unable to fully evaluate the impact, if any, the
standard may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of this standard.
F-11
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". SFAS 131
establishes standards for the way that public companies report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic
areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing
performance.
SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier
years to be restated. Because of the recent issuance of this standard,
management has been unable to fully evaluate the impact, if any, it may
have on future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of
this standard.
2. ORGANIZATION AND BUSINESS
The Company is a Delaware corporation which was organized on November 9,
1992. Its wholly-owned Hungarian subsidiary,
Teleconstruct, was organized on March 19, 1993. Teleconstruct is
currently building in Budapest, Hungary two luxury 14-unit condominium
buildings for sale (see Note 5).
On January 2, 1997, the Company acquired three Hungarian Internet
service companies and is operating them through its wholly-owned
subsidiary, EuroWeb Rt.
F-12
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CASH CONCENTRATION
At December 31, 1997, cash of $531,840, denominated in U.S. dollars, was
on deposit with a money market fund and major money center bank in the
United States. In addition, approximately $145,000 ($52,000 denominated
in U.S. dollars and the equivalent of $93,000 denominated in Hungarian
forints) was on deposit in a Hungarian bank.
4. ADVANCES TO, PAYABLE FROM AND(A) INVESTMENT IN HBC
At December 31, 1997, receivable from HBC represents loans, advances and
accrued interest receivable. The receivable was due June 30, 1997.
(b) The Company's investment in HBC, represented by 250,000 shares of
common stock, was subject to a lock-up agreement through February 7,
1999. On October 29, 1997, the Company sold the 250,000 shares for
$649,000 to the then three principals of HBC's underwriter on its
previous two public offerings. The sales price was approximately 55% of
the market price of HBC's common stock as of the date of the agreement
to sell and approximately 40% at the time of the closing of the sale.
The Company recognized a gain of $525,000 based on a carrying value of
$125,000.recognized a gain of $524,000 based on a carrying value of
$125,000.
(c) 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 and the proceeds of a debt owed by a company
controlled by the Company's former President (see Note 9(a)).
F-13
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. CONSTRUCTION-IN PROGRESS
(a) Construction-in-progress of two luxury 14-unit condominium
buildings held for sale includes the cost of land ($885,000) and
construction costs incurred through December 31, 1997, net of a
provision of $1,350,000 ($350,000 and $1,000,000 provided in 1997 and
1996, respectively), to write down to estimated net realizable value.
The Company believes that the provision is required based on the real
estate market conditions in Budapest. Estimated additional cost to
complete is less than $100,000.
(b) Deposits of $1,589,653 out of a total sales price of $1,679,653 have
been received for all of the apartments in one of the condominium
buildings and, upon obtaining move-in permits, the sale of the
apartments will be recognized. All the deposits for the apartments with
the exception of one for $200,000 were received from the Company's
former President. The sales price of these apartments approximates the
cost of the apartments net of the allocated provision for write-down.
The second condominium building is in the process of being leased under
a net lease which provides for monthly rentals of $22,000 for a period
of five years. The lessee has the right to purchase the leased building
for $2,000,000 during the lease period.
F-14
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PRIVATE PLACEMENTS
(a) In 1997 and 1996, the Company sold $850,000 and $792,500 of 10%
convertible debentures due 2 years from the date of sale to foreign
investors outside the United States in private placements receiving
aggregate net proceeds of approximately $696,000 and $693,500,
respectively, after deducting placement agent fees and offering expenses
of approximately $154,000 and $125,000, respectively. 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. 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. During 1997 and 1996, debentures of $1,185,000 and $307,500 and
accrued interest of $42,252 and $3,907, respectively, have been
converted into 2,413,667 and 263,979 shares of common stock,
respectively.
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 $327,000 and
$300,000 to the consolidated statements of loss for the years ended
December 31, 1997 and 1996, respectively. In addition, financing costs
of approximately $154,000 and $125,000 incurred in connection with the
sale of the debentures have been charged to operations during 1997 and
1996, respectively, since substantially all of the debentures were
converted to common stock within a short period after issuance.
The unconverted debentures of $150,000 at December 31, 1997 are due from
January through September 1999.
F-15
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, reduced to $1.25 per share on June
26, 1997, at any time from October 1, 1997 until September 30, 2001 for
net proceeds of $973,000 after deducting placement agent fees and
offering expenses of $127,000. The warrants and the underlying shares of
common stock have been registered under the Securities Act of 1933.
7. 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. At December
31, 1997, 90,000 stock options were available under the Plan. 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.
F-16
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
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 1997 and 1996 are not material to net
loss or net loss per common share.
F-17
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions involving options are summarized below:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding, January 1, 775,000 $1.71 560,000 $2.32
Granted 240,000 1.77 240,000 3.01
Cancelled (195,000) 2.33 (25,000) 9.60
- -------------------------------------------- -------------
Outstanding, December 31, 820,000 1.39 775,000 1.71
- ----------------------------------------------------------------------------------
Exercisable, December 31, 720,000 $1.32 725,000 $1.62
- ----------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options
outstanding under the Plan at December 31, 1997:
<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 1997 life life 1997 life
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 - $3.38 820,000 2.6 $1.39 720,000 $1.32
- -------------------------------------------------------------------------------------
</TABLE>
As part of its expansion plans into other countries of Central Europe,
the Company retained Eurus Capital Corporation as its consultant in
Poland to provide various services for a period of two years including
market surveys, advice regarding the political, economic and regulatory
conditions in Poland, considerations of possible funding sources,
seeking potential joint venture parties and identifying possible
acquisitions. For its services, the Company granted an option to Eurus
in April 1998 to acquire 300,000 shares of the Company's Common Stock
at a price of $1.125 per share for a period expiring on April 20, 2001.
F-18
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) STOCK WARRANTS
The following table summarizes information about stock warrants at
December 31, 1997:
<TABLE>
<CAPTION>
Warrants outstanding
Range of exercise prices and exercisable
----------------------------------------------
Number Weighted
outstanding at average
December 31, remaining
1997 contractual life
- ----------------------------------------------------------------------------------
<S> <C> <C>
$1.25 - $4.00 555,700 4.8
$13.20 - $14.75 87,000 1.7
- -----------------------------------------------------------
642,700 4.4
- ----------------------------------------------------------------------------------
</TABLE>
8. COMMITMENTS
(a) EMPLOYMENT AGREEMENTS
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).
F-19
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 30, 1996, the Company entered into a termination agreement
with its President which provided, 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 (subsequently reduced to 250,000) options under
his employment agreement and pursuant to the Company's Incentive Stock
Option Plan of 1993. 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 9(a)).
On December 23, 1996, the Board of Directors extended the employment
contracts of the Chairman of the Board and Treasurer to December 31,
2001 and increased their annual compensation to $144,000 and $120,000,
respectively.
In February 1997, the former President of the Company was retained as a
consultant to the Company to oversee the Company's real estate interests
and Internet business. He agreed to render consulting services for a
two-year period for a fee of 100,000 five-year options exercisable at
$2.00 per share. The compensation relating to these options of $50,000
is being charged to operations over a two-year period.
F-20
<PAGE>
EUROWEB INTERNATIONAL CORP. (FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Also 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 did not terminate as a result of the resignation, but
continues to be governed by the original terms of the options.
Compensation of $100,000 has been charged to the 1997 operations
relating to the extension of the period of exercisability of the
options. The Company's Treasurer was appointed Chairman of the Board
with an increase in compensation to $150,000 effective July 1, 1997 and
the term of his employment contract was extended to December 31, 2005.
The Company will also provide the Chairman of the Board with a split
dollar life insurance policy in the face amount of $2,000,000 to be
structured so that the premium and other costs paid by the Company would
be recovered by the Company out of the insurance proceeds.
(b) LEASE COMMITMENT
The Company leases office space in Budapest, Hungary, which provides for
future minimum annual lease payments of approximately $114,000 through
March 31, 2002.
(c) SERVICE AGREEMENTS
The Company has entered into various communications service agreements
with terms in excess of one year in connection with the Internet
business which provide for aggregate minimum annual payments by the
Company as follows:
1998 $ 424,000
1999 424,000
2000 424,000
2001 190,000
2002 190,000
---------
$1,652,000
F-21
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 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 contained 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 all of the apartments in the building, except for
one, for $1,479,653. The sale will be recognized upon the receipt of the
move-in permits. As of March 31, 1998, move-in permits have not been
obtained.
On October 30, 1996, the Company's President also resigned as an
officer, director and employee and agreed to a cancellation of his
employment agreement (which provided for $168,000 salary per annum until
February 1999), upon payment of $372,000. The $372,000, together with an
additional amount of approximately $1,017,000 owed to the former
President, was used as a deposit with $90,000 being owed by him on the
above purchase at December 31, 1997.
It was further agreed that 250,000 stock options which were granted to
the President under his employment agreement and pursuant to the
Company's Incentive Stock Option Plan of 1993 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 $24,000 and $112,000 for the years ended
December 31, 1997 and 1996, respectively.
F-22
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ACQUISITIONS
On January 2, 1997, the Company acquired three Hungarian Internet
service companies for a purchase price of approximately $1,913,000,
consisting of $1,225,000 in cash ($825,000 paid in 1996), 204,000 shares
of common stock of the Company (144,000 issued in 1996), assumption of
$128,000 of liabilities, and $356,000 in notes, of which $191,000 is
still owed at December 31, 1997 and is payable at various dates through
October 31, 1998.
These acquisitions have been accounted for using the purchase method of
accounting. The cost in excess of net assets acquired (goodwill) of
approximately $1,900,000 resulting from these acquisitions is being
amortized over 5 years using the straight-line method.
The Company's consolidated statement of loss for the year ended December
31, 1997 includes the results of operations of the Internet service
companies from the acquisition date. The pro forma results of operations
are based on the historical financial statements of the Company and the
Internet providers. 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 (2.44)
- ---------------------------------------------------------------
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.
F-23
-----------------------------------------------------
No person is authorized to give any information or to make any
representation other than those contained in this Prospectus, and if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Units offered by this Prospectus, or an offer to sell or a
solicitation of an offer to buy the Units or from any person in any jurisdiction
in which such offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the business or affairs
of the Company since the date hereof or that the information in this Prospectus
is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Prospectus Summary.......................... 4
Summary of Financial Information............ 9
Risk Factors................................ 10
Price Range of Securities................... 15
Capitalization.............................. 16
Dividend Policy............................. 16
Use of Proceeds............................. 16
Selected Financial Data..................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................... 19
Business.................................... 22
Management.................................. 30
Principal Stockholders...................... 34
Certain Transactions........................ 35
Description of Securities................... 36
Shares Eligible for Future Sale............. 40
Underwriting................................ 41
Legal Matters............................... 42
Experts..................................... 42
Index to Financial Statements............... F-1
Until __________, 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
800,000 Units
EuroWeb
International Corp.
PROSPECTUS
------------------
____________ 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides, in general, that a corporation incorporated under the laws of
the State of Delaware, such as registrant, may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than a derivative action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonable believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such director,
officer, employee or agent of the corporation person's conduct was unlawful. In
the case of a derivative action, a Delaware corporation may indemnify any such
person against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or any other court in which such action was
brought determines such person is fairly and reasonably entitled to indemnity
for such expenses. Section 10 of the Company's Certificate of Incorporation, and
Article X of the Company's By-laws provide that the Company shall indemnify its
officers, directors, employees and agents to the extent permitted by the DGCL.
In addition, Section 9 of the company's Certificate of Incorporation provides,
in general, that no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for beach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (which provides that under certain
circumstances, directors may be jointly and severally liable for willful or
negligent violations of the DGCL provisions regarding the payment of dividends
or stock repurchases or redemptions), or (iv) for any transaction from which the
director derived an improper personal benefit.
Item 25. Other Expenses of Issuance and Distribution.
The expenses of the registrant, other than underwriting discounts and
commissions, to be incurred in connection with the issuance and distribution of
the securities being registered hereby are estimated to be as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee........................... 2,690
NASD registration fee......................................................... 980
The NASDAQ SMALL-CAP Market listing fee.......................................
Printing and engraving expenses*..............................................
Accounting fees and expenses*.................................................
Legal Fees and expenses*......................................................
Blue Sky fees and expenses*...................................................
Underwriter's Expense Allowance...............................................
Transfer agent fees and expenses*.............................................
Miscellaneous*................................................................
Total*........................................................................ 350,000
=======
</TABLE>
* To be provided by amendment
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the Registrant has sold securities to a
limited number of persons, as described below. Except as indicated, there were
no underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith. The purchasers of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transactions. All purchasers of
securities in each such transaction had adequate access to information about the
Registrant.
(1) In October 1996, Registrant sold to 7 persons an aggregate of 22 units
(the "Units"), each Unit consisting of 25,000 shares of Common Stock and 25,000
five year Common Stock Purchase Warrants exercisable at $2 per share (reduced to
$1.25 per share on June 27, 1997) for a purchase price of $50,000 per Unit, or
an aggregate of $1,100,000. In connection with the financing, the Registrant
paid a selling commission of $100,000 to an unaffiliated finder. Each of the
purchasers signed a letter indicating an agreement to hold the shares for
investment. The issuance of such securities was exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder. The names of the persons purchasing units pursuant to
the private placement are as follows:
<TABLE>
<CAPTION>
Number of Number of Amount
NAME Shares Warrants Paid
- ---- ------------ ----------- --------
<S> <C> <C> <C>
Mr. Steve Altman........................................ 50,000 50,000 $100,000
Mr. Kenneth S. Grossman................................. 25,000 25,000 $50,000
Mr. Edward S. Gutman.................................... 50,000 50,000 $100,000
Hudson Investment Partners.............................. 25,000 25,000 $50,000
Mr. Augustus La Rocca and Mr. Joseph La Rocca........... 250,000 250,000 $500,000
Mr. Joel Stuart......................................... 50,000 50,000 $100,000
Mr. George Szakacs...................................... 100,000 100,000 $200,000
</TABLE>
(2) From November 1996 to March 1997, the Registrant sold $1,642,500 of
two year 10% convertible debentures to 11 foreign investors outside the United
States pursuant to Regulation S. The notes were convertible into shares of
Common Stock at a discount of 50% from the average closing bid price of the
shares on NASDAQ for the 5 day period prior to the date of the Notice of
Conversion. As of April 15, 1998, $1,542,500 of the notes had been converted
into 2,905,956 shares of Common Stock of the Company. The remaining $100,000 in
notes are still outstanding. Sales of these notes were effected in Europe
through an unaffiliated finder who received a 10% commission. Each of the
purchasers signed a letter indicating an agreement to hold the shares for
investment. The issuance of these securities were considered exempt from
registration under Section 4(2) of the Securities Act of 1933, and the
Regulation S promulgated thereunder. The names of the investors and the number
of shares purchase and the amounts paid are as follows:
II-2
<PAGE>
<TABLE>
<CAPTION>
Amount of
Note Shares Received
Company Name ($) on Conversion*
- ---------------------------------------------------------------------------
<S> <C> <C>
Dreyton Investment Ltd. 125,000 217,955
First National Funding Corp. 435,000 832,861
(Montreal)
R. Wagli & Cie A.G. 245,000 351,714
Consult SL 130,000 221,239
Beresford Overseas Corp. 130,000 162,512
West Ventures Ltd. 17,500 18,667
Intergalatic Growth Fund, Inc. 150,000* 201,314
Mutual Indemnity 200,000 438,333
Contiglia Ltd. 40,000 114,285
First National Fund Corp. 100,000* 142,857
(Bahamas)
T.L.T. Investments Ltd 70,000 204,219
---------- ---------
Total $1,642,500 2,905,956
========= =========
</TABLE>
* $50,000 not converted as of this date ($100,000 total unconverted)
- ----------------
Item 27. Exhibits
<TABLE>
<CAPTION>
A. Exhibits* (numbers below reference Regulations S-B)
<S> <C> <C>
(1) (a) Form of Agreement Among Underwriters, Underwriting Agreement, and Selected Dealer
Agreement(7)
(3) (a) Certificate of Incorporation filed November 9, 1992(1)
(b) Amendment to Certificate of Incorporation filed July 9, 1997
(c) By-laws(1)
(d) Proposed Certificate of Designation Relating to the Series A
Convertible Preferred Stock(6) (4) (a) Form of Common Stock Certificate(1)
(b) Form of Underwriters' Warrants to be sold to Underwriters(1)
(c) Placement Agreement between Registrant and J.W. Barclay & Co., Inc. and form of
Placement Agent Warrants issued in connection with private
placement financing(1) (d) Form of 10% Convertible Debenture used
in connection with private placement financing
pursuant to Regulation S(3)
(e) Form of Common Stock Purchase Warrant in connection with
private placement financing under Section 506 of Regulation
D(3)
(f) Form of Warrant Agreement including Form of Common Stock Purchase Warrant
Certificate(7)
(g) Form of Series A Preferred Stock Certificate(6) (h) Form of
Underwriter's Unit Warrant(7)
(5) (a) Opinion of Cohen & Cohen as to legality of shares being offered(6)
(10) (a) Consulting agreement between Registrant and Klenner Securities
Ltd.(1)
(b) Consulting agreement between Registrant and Robert Genova(1)
(c) Consulting agreement between Registrant and Laszlo Modransky(1)
(d) 1993 Incentive Stock Option Plan(1)
(e) Sharing agreement for space and facilities between
Registrant and Hungarian Telephone and Cable Corp.(1)
(f) Articles of Association (in English) of Teleconstruct Building
Corp.(1)
(g) Articles of Association (in English) of Termolang
Engineering and Construction Ltd.(1)
(h) Letter of intent between Teleconstruct Building Corp.
and Pilistav(1)
II-3
<PAGE>
(i) Employment agreement between Registrant and Robert Genova(2)
and termination agreement dated February 5, 1997(3)
(j) Employment agreement between Registrant and Peter E.
Klenner(2) and termination agreement dated October 30, 1996,
and agreement for sale of condominium unit to M&A(3)
(k) Employment agreement between Registrant and Frank R.
Cohen(2) and modification of employment agreement(3)
(1) Letter of Intent agreement between Registrant and Raba-Com
Rt.(3)
(m) Letter of Intent agreement between Registrant and
Kelet-Nograd Rt.(3)
(n) Letter of Intent agreement between Registrant and 3 Pilistav
villages for installation of cable in those areas(3)
(o) Lease agreement between Registrant's subsidiary EUNET Kft. and Varosmajor Passage, Kft.
for office space(3)
(p) Acquisition agreement between Registrant and KFKI Computer
Systems Corp. dated December 13, 1996(3)
(q) Acquisition agreement between Registrant and E-Net Hungary(3)
(r) Acquisition agreement between Registrant and MS Telecom Rt.(3)
(s) Employment Agreement between Registrant and Imre Kovats(3)
(t) Employment Agreement between Registrant and Csaba Toro(3)
(u) Promissory Note from Registrant to HBC(3)
(v) Communication Services Agreement between Registrant and MCI Global Resources, Inc.(4)
(w) Lease and Option Agreement for Building B as of April 1, 1998 with Hafisa Kft.(5)
(x) License Agreement between GRIC Communications, Inc. and EuroWeb Internet Service
Provider Co.(5)
(y) Consulting Agreement between Registrant and Eurus Capital
Corporation(7)
(21) Subsidiaries of the Registrant(6) (23) (a) Consent of
Cohen & Cohen (included in their opinion to be filed as Exhibit 5(a)
(b) Consent of BDO Seidman
(25) Power of Attorney (included on signature page)
- ----------------
(1) 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)
(2) Filed with Form 8-K as of February 17, 1994 (3) Filed with Form l0-KSB
for year ended December 31, 1996 (4) Filed with Form 10-QSB for quarter
ended September 30, 1997. (5) Filed with Form 10-KSB for year ended
December 31, 1997 (6) To be filed with amendment (7) Filed herewith
</TABLE>
- ----------------------
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:
(i) to include any Prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) to reflect in the Prospectus any
facts or events which individually or together,
represent a fundamental change in the information in
the registration statement; and
(iii) to include any additional
or changed material on the plan of distribution.
(2) That, for determining any liability under the Securities Act,
it will treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at that time
to be the initial bona fide offering;
II-4
<PAGE>
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the Offering.
The undersigned registrant hereby undertakes that:
1) For determining any liability under the Securities Act it will treat
the information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as of
the time it was declared effective.
2) For determining any liability under the Securities Act, it will
treat each post-effective amendment that contains a form of Prospectus as to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time as the initial bona fide
offering of these securities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2, and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York, on , 1998.
EUROWEB INTERNATIONAL CORP.
By: /s/Frank R. Cohen
----------------------------------------
Frank R. Cohen, Chairman of the Board
Each of the undersigned does hereby appoint Robert Genova and Frank R.
Cohen and, each of them severally, its or his true and lawful attorneys to
execute on behalf of the undersigned any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have the power
to act hereunder with or without the other.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed below by the following persons in the
capacities and on the dates stated:
SIGNATURE TITLE DATE
--------- ----- -----
/S/FRANK R. COHEN Chairman of the Board, May 15, 1998
- ----------------- President, Principal
Frank R. Cohen Executive Officer
April 15, 1998
/S/RICHARD G. MARESCA Director May 15, 1998
- --------------------
Richard G. Maresca
/S/DONALD K. ROBERTON Director May 15, 1998
- ---------------------
Donald K. Roberton
/S/ROBERT GENOVA Director, Secretary, May 15, 1998
- ---------------- Principal Accounting
Robert Genova Officere
/S/HERSHEL KRASNOW m Director May 15, 1998
- -------------------
Hershel Krasnow
II-6
Exhibit 1(a)
800,000 UNITS
EUROWEB INTERNATIONAL CORP.
(EACH UNIT CONSISTING OF
ONE SHARE OF SERIES A CONVERTIBLE CUMULATIVE REDEEMABLE PREFERRED STOCK
AND ONE COMMON STOCK PURCHASE WARRANT)
AGREEMENT AMONG UNDERWRITERS
Dated: , 1998
J.W. Barclay & Co., Inc.
as Representative of the Several Underwriters
1 Battery Park Plaza
New York, New York 10004
Dear Sirs:
We confirm our agreement with you as follows for the purchase by you and
the other several Underwriters hereinafter referred to, including ourselves, of
800,000 Units, each Unit consisting of one shares of Series A Convertible
Cumulative Redeemable Preferred Stock and one Common Stock Purchase Warrant,
(the "Units") plus the option to purchase up to an aggregate of 120,000
additional Units of Euroweb International Corp., a Delaware corporation, (the
"Company"). The Units are to be purchased from the Company pursuant to an
underwriting agreement, the form of which is annexed hereto (the "Underwriting
Agreement"), the number of Units to be purchased by us severally being
indicated on Schedule A to the Underwriting Agreement. The Units are to be
offered to the public, and such offering will be made under a registration
statement and prospectus relating thereto filed by the Company with the
Securities and Exchange Commission, under the Securities Act of 1933, as
amended (the "Act") copies of which, together with amendments thereto, we have
received. The registration statement in the form in which it becomes effective
and the prospectus, as then amended, are hereinafter respectively referred to
as the "Registration Statement" and the "Prospectus".
1. AUTHORITY OF MANAGING UNDERWRITER. We hereby authorize you, on our
behalf, and as our agent and representative (in that capacity sometimes herein
called the "Managing Underwriter" or "Representative"), to execute and deliver
the Underwriting Agreement substantially in the form attached hereto, to act in
our behalf in carrying it out and to take such action and make such
determinations as you may deem advisable under and with respect thereto,
including agreement to any non-material modification thereto (but not
modifications as to price and number of Units to be purchased by us).
2. PAYMENT AND DELIVERY. The purchase price of the Units to be purchased
by us shall be $5.40 per Unit, and on the Closing Date we will pay you the
amount so due plus an additional amount equal to $______ per Unit purchased by
us, as compensation for your services as Managing Underwriter.
1
<PAGE>
You shall give us at least 24 hours' notice of the Closing Date and the place
thereof pursuant to the Underwriting Agreement. We will deliver, at or before
9:00 A.M., New York City time, on the day fixed as such Closing Date, to you at
the office of the Representative, or at such other place or time as instructed
by you, certified or bank cashier's checks, payable to the order of the
Representative, in New York Clearing House funds, for the price of the Units
which we have agreed to purchase and for the aforesaid fee. Upon receipt of
such payment, you will make payment to the order of the Company, for our
account, of the purchase price of such Units against delivery thereof to you
for our account. You shall thereupon deliver to us the Units purchased by us,
less such amounts thereof as shall have been reserved for offering to Selected
Dealers if a selling group is formed. In the event we do not pay you the
purchase price in the amount and at the time stated above, you may either treat
our failure to do so as a default on our part or, at your election, pay the
purchase price to the Company on our behalf and charge us with the amount
thereof, with interest, withholding delivery of the Units for our account until
such purchase price and interest are received by you.
3. EXPENSES. You shall charge our account with: (i) all transfer taxes, if
any, and other charges on purchases, sales or transfers for our account; and
(ii) our proportionate share (based upon the number of Units we agree to
purchase) of all other expenses which are not paid by the Company, including,
but not limited to, advertising costs and legal fees and disbursements of
counsel for the Underwriters, incurred by you under the terms of this Agreement
or in connection with the purchase, carrying and sale of the Units, including
the expenses chargeable to and caused by any defaulting Underwriter hereunder.
Funds of the Underwriters in your hands, as Managing Underwriter, may be held
in your general funds without accountability for interest.
4. PUBLIC OFFERING. The initial public offering of the Units, which shall
be made as set forth in the Prospectus, may be made on the date on which the
Registration Statement becomes effective or as soon thereafter as in your
judgment shall be practicable. The initial public offering prices for the Units
shall be as shown on the cover page of the Prospectus. We authorize you to
determine the form of any advertisement of the Units and the form of
agreements, if any, with dealers. We also authorize you to manage any such
public offering and to act as manager under agreements with dealers.
We authorize you to reserve for sale, sell and deliver, on our behalf and
for our account, to dealers (who may include any Underwriter) selected by you
(herein sometimes referred to as the "Selected Dealers"), who are members of
the National Association of Securities Dealers, Inc. (the "NASD") or to foreign
banks, dealers and institutions not registered under the Securities Exchange
Act of 1934, as amended, (the "Exchange Act") which agree to make no sales
within the United States, its territories or possessions or to persons who are
citizens thereof or residents therein, and in making sales to comply with the
NASD's Interpretation With Respect to Free Riding and Withholding, and to such
persons other than dealers as you shall select, such number of Units purchased
by us from the Company as you shall determine. Such reservations and sales to
Selected Dealers and other persons for the respective accounts of the several
Underwriters shall be made as you may determine. The concessions to be allowed
to Selected Dealers and by them to be reallowed to others are specified in the
form of Selected Dealer Agreement annexed hereto. If no Selected Dealer
Agreement is entered into, we hereby authorize you to allow concessions not
exceeding $_____ per Unit (no part of which may be reallowed) to any other
dealer who is a member
2
<PAGE>
of the National Association of Securities Dealers, Inc. or is a foreign dealer.
The concessions and reallowances may be allowed only to dealers who are members
in good standing of said Association, or foreign banks, dealers or institutions
not eligible for membership in said Association who agree to make no sales
within the United States, its territories or possessions or to persons who are
citizens thereof or residents therein, and in making other sales, to comply
with said Associations' Interpretation With Respect to Free-Riding and
Withholding. Sales to others than such members or such foreign banks, dealers
or institutions will be made at the public offering prices.
You shall advise us promptly on the public offering date of the number of
Units purchased by us which you have not reserved for sale to dealers or other
persons. We will retain for direct sale all of such Units and, at any time
prior to the termination of this Agreement, you may reserve for sale to dealers
and other persons additional Units retained by us and remaining unsold.
We agree that whether or not any Selected Dealer Agreement with Selected
Dealers is entered into we shall be governed by the provisions of the attached
form of Selected Dealer Agreement (except as otherwise expressly provided
herein) during the term hereof, whether or not we are a Selected Dealer.
Upon our request you may from time to time, in your discretion, release to
us for direct sale any Units reserved by you for sale to Selected Dealers and
other persons on our behalf and not then sold, and any Units so released shall
not thereafter be deemed reserved.
If prior to, or within seven days after, the termination of this Agreement
any Units sold by us (other than Units sold by you as Managing Underwriter for
the account of an Underwriter pursuant to this Agreement or any Selected Dealer
Agreement) shall be purchased by the Managing Underwriter or by any Underwriter
through the Managing Underwriter in the open market, then any of such Units
shall be repurchased by us at a price equal to the total cost thereof including
commissions and transfer taxes, if any, on redelivery. The Units delivered on
such repurchase need not be the identical Units originally so purchased. In
lieu of the repurchase of such Units you may, at your option (a) charge us an
amount equal to the difference between the public offering prices and the cost
prices to Selected Dealers of the Units so purchased, and any broker's
commissions paid in connection with such purchase, or (b) sell for our account
the Units so purchased, publicly or privately without notice at such prices and
upon such terms and to such purchasers, including any of the several
Underwriters, as you may determine, charging us the amount of any loss and
expense or crediting to us the amount of any profit, less any expense,
resulting from such sale.
5. SALE OF UNITS BY UNDERWRITERS TO MANAGING UNDERWRITER. We will advise
you, from time to time upon request, of the number of Units retained by or
released to us for direct sale which then remain unsold and until the
termination of this Agreement we will, upon your request, sell to you, in order
to enable you to consummate sales or cover over-allotments, such number of such
unsold Units as you may specify, at such price as you may designate, but not
less than the purchase prices paid to the Company therefor.
6. TRANSACTIONS IN UNITS BY UNDERWRITERS. We agree that until termination
of this Agreement
3
<PAGE>
and the Selected Dealer Agreements, we will not buy or sell for our account any
of the Units or outstanding shares of Common Stock of the Company except as
permitted in this Agreement and the Selected Dealer Agreement or as a broker
pursuant to unsolicited orders, provided, however, that, subject to the
approval of the Managing Underwriter, any Underwriter may buy Units from, or
sell Units to, any other Underwriter at the public offering price, less all or
any part of a concession of $______ per Unit, and may buy from, and sell the
same to, any Selected Dealer at the public offering price less all or any part
of any concession to Selected Dealers in the amount specified in the form of
Selected Dealer Agreement.
7. LOANS AND ADVANCES. We authorize you to arrange such loans for our
account, or to make such advances of your funds on our behalf, as you may deem
necessary or advisable in connection with the purchase, delivery or carrying of
any of the Units (and as may be permitted by law), and to pledge or hold as
security therefor all or any part of the Units which we shall have purchased or
agreed to purchase from the Company. We shall be paid or credited with the
proceeds of all loans made for our account.
You may, and at our request will, deliver to us from time to time on or
after the Closing Date and prior to the termination of this Agreement, for
carrying purposes only, any Units purchased by us which have been reserved for
sale for our account but not sold and paid for. We will redeliver to you any
Units so delivered to us for carrying purposes at such time or times prior to
such termination as you may demand.
8. STABILIZATION. We authorize you, in your discretion, during the term of
this Agreement, and for our account (a) to buy and sell Units in the open
market or otherwise, for long or short account, in such amounts and on such
terms and at such prices as you may determine, provided that, during the term
of this Agreement and the Selected Dealer Agreement, any such sales of Units
shall be made at the public offering prices or, in the case of sales of Units
to a Selected Dealer or one of the Underwriters, at the public offering price
less the concession applicable thereto under Section 6 above, or any part of
such concession, and (b) in arranging for sales of Units to Selected Dealers,
to over-allot and to cover such over-allotments; it being understood that such
purchases and sales and over-allotments shall be as nearly as practicable in
the proportions in which the respective Underwriters have agreed to purchase
the Units, and that at no time shall our net position, for either long or short
account including such over-allotments, exceed 15% of the Units which we have
agreed to purchase under the Underwriting Agreement. Upon your demand, we will
pay you the cost of any Units purchased for our account and will deliver to you
any Units sold or over-allotted for our account.
We authorize you to file on our behalf with the Securities and Exchange
Commission any reports required in connection with any transaction pursuant to
this Section 8. You shall notify us promptly if you effect such transactions.
9. TERMINATION AND SETTLEMENT. Unless earlier terminated by you, this
Agreement shall terminate at the close of business on the 30th day after the
initial public offering unless extended by you for an additional period or
periods not exceeding an aggregate of 30 additional days. You may
4
<PAGE>
extend this Agreement for such period or periods and may terminate this
Agreement at any time without prior notice.
As soon as practicable after any such termination, any Units held by you
for our account or reserved by you for sale to dealers and other persons but
not sold and paid for, shall be delivered to us and our net credit or debit
balance, taking into account our share of known expenses and charges and any
necessary reserve for additional expenses, shall be received from or paid to
you.
Notwithstanding any settlement under this Agreement, we agree to pay our
proportion (based on the number of Units we agree to purchase from the Company)
of the amount of any claim, demand or liability which may be asserted against
and discharged by the Underwriters, or any of them, based on the claim that the
Underwriters constitute an association, unincorporated business or other
separate entity, and also to pay a like proportion of any transfer taxes which
may be assessed after such settlement and a like proportion of the expenses
incurred by the Underwriters, or any of them, and approved by you in contesting
any such claim, demand, liability or tax.
10. DEFAULTING UNDERWRITERS. In the event of failure of any Underwriter to
perform its obligation to take up and pay for the Units which it has agreed to
purchase, you shall have the right to arrange for other persons, who may
include yourselves, to take up and pay for such Units. In the event that such
arrangements are made, the proportions of the Units then to be purchased by the
other Underwriters and by such other person or persons, if any, shall be taken
as the basis for all rights and obligations hereunder; but this shall not in
any way affect the liability of any defaulting Underwriters to the other
Underwriters for damages resulting from such default, nor shall default in any
way relieve any other Underwriter of any of its obligations hereunder or under
the Underwriting Agreement, except as therein provided.
11. POSITION OF MANAGING UNDERWRITER. Except as herein otherwise expressly
provided, you shall have full authority to take such action as you may deem
necessary or advisable in respect of all matters pertaining to the Underwriting
Agreement and this Agreement, and the purchase, sale and distribution of the
Units, but you shall be under no liability to us except for want of good faith
and for obligations assumed by you hereunder and except for any liabilities
under the Act. No obligation not expressly assumed by you in this Agreement
shall be implied herefrom.
12. INDEMNITY. (a) We agree, and each of the several Underwriters
(including yourselves) shall agree, to indemnify, defend and hold harmless each
other Underwriter and each person who controls any other Underwriter within the
meaning of Section 15 of the Act, to the extent and upon the terms that each
Underwriter agrees to indemnify and hold harmless the Company as set forth in
Section 6 of the Underwriting Agreement.
(b) We will pay, upon your request, our proportionate share, based upon
our underwriting obligation, of any losses, damages, liabilities or expenses,
joint or several, paid or incurred by any Underwriter to any person other than
an Underwriter, arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
5
<PAGE>
the Prospectus, any amendments or supplements thereto or any preliminary
prospectus or any selling or advertising material approved by you for use by
the Underwriters in connection with the sale of the Units, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading (other than an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by an Underwriter specifically for use therein) and such
proportionate share of any legal or other expenses reasonably incurred by you
or with your consent in connection with investigating or defending any claim or
action in respect of such loss, damage, liability or expense. In determining
the amount of our obligation under this Section 12(b), appropriate adjustment
may be made by you to reflect any amounts received from the Company by any one
or more Underwriters in respect of such claim pursuant to Section 6 or Section
7 of the Underwriting Agreement or otherwise. There shall be credited against
any amount paid or payable by us pursuant to this Section 12(b) any loss,
damage, liability or expense which is incurred by us as a result of any such
claim asserted against us, and if such loss, damage, liability or expense is
incurred by us subsequent to any payment by us pursuant to this Section 12(b),
appropriate provision shall be made to effect such credit, by refund or
otherwise. If any such claim is asserted, you may take such action in
connection therewith as you deem necessary or desirable, including retention of
counsel for the Underwriters and in your discretion separate counsel for any
particular Underwriter or groups of Underwriters. In determining amounts
payable pursuant to this Section 12(b) any loss, damage, liability or expense
incurred by any person controlling any Underwriter within the meaning of
Section 15 of the Act which has been incurred by reason of such control
relationship shall be deemed to have been incurred by such Underwriter. Any
Underwriter may elect to retain at its own expense its own counsel. You may
settle or consent to the settlement of any such claim with the approval of a
majority in interest of the Underwriters on advice of counsel retained by you.
Whenever you receive notice of the assertion of any claim to which the
provisions of this Section 12(b) would be applicable, you will give prompt
notice thereof to each Underwriter. You will also furnish each Underwriter with
periodic reports, at such times as you deem appropriate, as to the status of
such claim and the action taken by you in connection therewith. If any
Underwriter or Underwriters default in their obligation to make any payments
under this Section 12(b), each non-defaulting Underwriter shall be obligated to
pay its proportionate share of all defaulted payments, based upon such
Underwriter's underwriting obligation as related to the underwriting
obligations of all non-defaulting Underwriters. Nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) The indemnity agreement in this Section shall survive the termination
of this Agreement.
13. CONFIRMATION OF UNDERWRITERS. We confirm that we have examined the
Registration Statement and the amendments thereto referred to in the
Underwriting Agreement, that we are familiar with the proposed final amendment
thereto (including the proposed final form of prospectus), that we are willing
to accept the responsibilities of an underwriter under the Act in respect of
the Registration Statement and are willing to proceed with the public offering
of the Units in the manner contemplated, and that the form of the Selected
Dealer Agreement employed by you in connection with this offering is
satisfactory to us. We further confirm that the information relating to us in
such proposed final form of prospectus and the statements therein as to the
terms of the offering of the Units under the heading "Underwriting" of the
Registration Statement insofar as they relate to us are
6
<PAGE>
correct, and we authorize you, as our Managing Underwriter, so to advise the
Company. We further confirm that (a) we are members in good standing of the
NASD, or (b) we are a foreign bank, dealer or institution not registered under
the Exchange Act and we agree (i) that in making sales of the Units outside the
United States we will comply with the requirements of the NASD's Interpretation
With Respect to Free Riding and Withholding and (ii) that we will not offer or
sell any of the Units within the United States, its territories or possessions
or to persons who are citizens thereof or residents therein and, (c) we have
the ratio of net capital to aggregate indebtedness, including the indebtedness
represented by our obligation under this Agreement and under the Underwriting
Agreement, required by Rule 15c3-1 promulgated by the Commission pursuant to
the provisions of Section 15(c)(3) of the Exchange Act. We know of no
engineering, management or similar report or memorandum relating to the Company
prepared within the last year in connection with the offering by or for the
Company, a controlling person of the Company or any Underwriter which has not
been filed with the Commission. We also confirm that copies of the latest
preliminary prospectus with respect to the Units have been mailed, at least two
days prior to the date hereof, to all persons to whom it is presently expected
we will sell Units and that, if we expect to mail a confirmation of any such
sale to any person by air mail, said preliminary prospectus has been sent to
such person by air mail. In response to Securities Act Release No. 5398, we
agree that we will not sell more than five (5%) percent of the Units purchased
by us hereunder to accounts over which we exercise discretionary authority. We,
and any affiliate of ours engaged in the retail distribution of securities
which is used by us in connection with the offering of the Units, will comply
with the applicable provisions of the Selected Dealer Agreement. We will not
sell any Units at prices less than the Offering Prices except to persons who
have entered into, or agreed to enter into, the Selected Dealer Agreement. For
a period of twenty-five (25) days after the effectiveness of the Registration
Statement, or until completion of the public offering of the Units, whichever
is later, we will provide a copy of the Prospectus to any person making a
written request therefor.
14. MISCELLANEOUS. Nothing herein contained shall constitute the several
Underwriters an association, or any Underwriters partners with you or us, or
with each other, or render any Underwriter liable for the obligations of any
other Underwriter; and the rights and liabilities of ourselves and of each of
the Underwriters shall be several and not joint.
The Units purchased by us pursuant to the Underwriting Agreement shall
remain our property until sold, and no title to any such Units shall pass to
you by virtue of any of the provisions of this Agreement.
Default by any one or more Underwriters in respect of their several
obligations shall not release us or any other Underwriter from any obligations
hereunder.
You shall not have any responsibility with respect to the right of any
Underwriter or other person to sell the Units in any jurisdiction,
notwithstanding any information you may furnish in that connection. We
authorize you to file with the New York authorities, as syndicate manager, a
Further State Notice relating to the Units if required.
7
<PAGE>
The section headings in this Agreement have been inserted as a matter of
convenience of reference and are not a part of this Agreement.
This Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of New York, and we hereby
consent and shall submit to the jurisdiction of the courts of the State of New
York and of any federal court sitting in the City of New York with respect to
controversies arising under this Agreement.
15. NOTICES. Any notice from you to us shall be deemed to have been duly
given if mailed, telephoned, telegraphed or delivered to us at our address set
forth after on Schedule A to the attached Underwriting Agreement.
16. EXECUTION OF AGREEMENT. This Agreement has been executed by us and is
delivered to you in duplicate. Your confirmation hereof shall constitute this
Agreement a valid and binding contract between you and us and each party to a
similarly confirmed agreement substantially identical herewith, and this and
such other agreements shall constitute the Agreement Among Underwriters.
Very truly yours,
By:_________________________________
Attorney-in-fact for each of the
several Underwriters named in
Schedule A of the attached
Underwriting Agreement
Confirmed as of the date first above written:
J.W. BARCLAY & CO., INC.
By:___________________________
8
Exhibit 1(a)
800,000 UNITS
EUROWEB INTERNATIONAL CORP.
(EACH UNIT CONSISTING OF
ONE SHARE OF SERIES A CONVERTIBLE CUMULATIVE REDEEMABLE PREFERRED STOCK
AND ONE COMMON STOCK PURCHASE WARRANT)
UNDERWRITING AGREEMENT
Dated: , 1998
J.W. Barclay & Co., Inc.
as Representative of the Several Underwriters
One Battery Park Plaza
New York, New York 10004
Dear Sirs:
The undersigned, EuroWeb International Corp., a Delaware corporation (the
"Company"), hereby confirms its agreement with J.W. Barclay & Co., Inc.
(sometimes the "Representative" or "you") and the several Underwriters named in
Schedule A hereto (the "Underwriters") as follows:
1. DESCRIPTION OF UNITS. The Company has authorized by appropriate
corporate action, and proposes to issue and sell to the Underwriters, 800,000
Units, each consisting of one Share of Series A Convertible Cumulative
Redeemable Preferred Stock and one Common Stock Purchase Warrants, (the
"Units"). An additional 120,000 Units have been authorized to cover
over-allotments as provided in Section 3 below. The Units, Series A Convertible
Cumulative Redeemable Preferred Stock and Common Stock Purchase Warrants are
more fully described in the Registration Statement and Prospectus referred to
hereinafter.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to,
and agrees with, you and the Underwriters that:
(a) A registration statement on Form SB-2 with respect to the Units,
including a preliminary prospectus, copies of which have heretofore been
delivered by the Company to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended,
(hereinafter called the "Act") and the Rules and Regulations of the Securities
and Exchange Commission (hereinafter called the "Commission") under such Act,
and has been filed with the Commission (File No. __________). On or prior to
the effective date of such registration statement, one or more amendments to
such registration statement (including a final prospectus), copies of which
have heretofore been or will be delivered to you, will have been so prepared
and filed in the form delivered to you. Such registration statement (including
all exhibits thereto) as amended
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as of the effective date thereof and each related preliminary prospectus are
herein respectively referred to as the "Registration Statement", the
"Preliminary Prospectus" and the "Prospectus".
(b) When the Registration Statement becomes effective (the "Effective
Date") and at all times subsequent thereto up to and at the Closing Date (as
defined in Section 3 hereof) and the Additional Closing Date (as defined in
Section 3 hereof), (i) the Registration Statement and the Prospectus and any
amendments or supplements thereto will contain all statements which are
required to be stated therein by the Act and the Rules and Regulations of the
Commission thereunder and will in all respects conform to the requirements of
the Act and such Rules and Regulations, (ii) neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and (iii) all documents which are required to be filed as exhibits
to the Registration Statement will have been so filed; provided however, that
the Company makes no representations or warranties as to information contained
in or omitted from the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by you or any Underwriter expressly for
use in the preparation thereof.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with all
corporate and other powers and authority necessary to carry on its businesses,
and it is qualified and in such jurisdictions in which the nature of its
business requires such qualification.
(d) The consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any
of its properties is bound, or of its Certificate of Incorporation, or By-laws,
or any order, rule or regulation applicable to the Company or any of its
properties, of any court or other governmental body.
(e) The Company has full power and lawful authority to authorize,
issue and sell the Units and the Underwriters' Unit Warrants (as defined
hereinafter) on the terms and conditions herein set forth, and has taken all
corporate action necessary therefor; no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or state Units or blue
sky laws. This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and legally binding agreement of the Company
enforceable in accordance with its terms. The Warrant Agreement between the
Company and American Continental Stock Transfer & Trust Company, to be dated
the Closing Date, pursuant to which the Warrants will be issued (the "Warrant
Agreement") has been duly authorized by the Company and, when executed and
delivered by the Company and American Stock Transfer & Trust Company, will be a
valid and legally binding obligation of the Company, enforceable in accordance
with its terms.
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(f) The Units and the authorized capitalization of the Company conform
to the descriptions thereof contained in the Registration Statement and
Prospectus. The holders of the Warrants will, upon their exercise, be entitled
to purchase shares in accordance with the terms and conditions set forth in the
Warrant Agreement and the form of Warrant filed as exhibits to the Registration
Statement. The outstanding shares of capital stock are, and the shares issuable
pursuant to the public offering contemplated hereby and upon exercise of any of
the warrants referred to herein will upon such issuance be, duly authorized,
validly issued and fully paid and nonassessable, and the Company has duly
authorized and reserved for issuance upon exercise of warrants such number of
shares as are initially issuable upon such exercise. The Warrants, the
Underwriters' Unit Warrants and the warrants underlying the Underwriters' Unit
Warrants will, when issued and delivered in accordance with the provisions of
the Warrant Agreement, in the case of the Warrants and the warrants underlying
the Underwriters' Unit Warrants, and this Agreement, in the case of the
Underwriters' Unit Warrants, be valid and legally binding obligations of the
Company enforceable in accordance with their respective terms. There are no
options, warrants, rights of conversion, indebtedness or calls on equity of the
Company other than as disclosed in the Prospectus and Registration Statement.
(g) Except as set forth or contemplated in the Registration Statement
and Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, not in the ordinary course of business,
and there has not been any material change in the capital stock or funded debt
of the Company, or any material adverse change in the condition (financial or
other) or results of operations of the Company.
(h) The financial statements (audited and unaudited) set forth in the
Registration Statement and Prospectus fairly present the financial condition of
the Company and the results of its operations as of the dates and for the
periods therein specified; and said financial statements (including the related
notes and schedules) have been prepared in accordance with generally accepted
accounting principles which have been consistently applied throughout the
periods covered thereby. Such financial statements and the summaries thereof
included in the Registration Statement and the Prospectus conform in all
material respects to the requirements of the Rules and Regulations of the
Commission.
(i) The accountants whose opinion or opinions is or are included in
the Registration Statement are independent public accountants within the
meaning of the Act and the Rules and Regulations of the Commission thereunder.
(j) Except as set forth in the Prospectus, there is not pending any
action, suit or other proceeding to which the Company is a party or of which
any property of the Company is the subject, before or by any court or other
governmental body, which might result in any material adverse change in the
condition, business or prospects of the Company, or might materially adversely
affect the assets of the Company; and except as indicated in the Prospectus, no
such proceeding is known by the Company to be threatened or contemplated.
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(k) The Company knows of no claim for services, either in the nature
of a finder's fee, brokerage fee or otherwise, with respect to the financing
contemplated hereby, whether or not heretofore satisfied, for which it or the
Underwriters, or any of them, may be responsible, other than as expressly
disclosed in the Prospectus.
(l) The business and operations of the Company and the ownership
thereof, except as may be disclosed in the Prospectus, comply with all
statutes, ordinances, laws, rules and regulations applicable thereto, the
non-compliance with which could reasonably be expected to have a material,
adverse effect on the Company or its condition (financial or other), business,
prospects, net worth or results of operations; the Company possesses, and is
operating in compliance with the terms, provisions and conditions of, all
certificates, licenses, permits, consents, waivers, approvals, franchises and
concessions required to conduct its business as now conducted, the
non-compliance with which could reasonably be expected to have a material
adverse effect on the Company or its condition (financial or other), business,
prospects, net worth or results of operations; each such certificate, license,
permit, consent, waiver, approval, franchise and concession is valid and in
full force and effect and there is no proceeding pending or threatened (or to
the best of the knowledge of the Company and the Selling Stockholders, any
basis therefor) which may lead to the revocation, termination, suspension or
nonrenewal of any such certificate, license, permit, consent, waiver, approval,
franchise or concession.
(m) On the Effective Date of the Registration Statement and
immediately prior to the sale of the Units, the outstanding capital stock of
the Company will consist of no more than 5,178,246 shares of Common Stock, par
value $.001 per share, and no shares of Preferred Stock, and there shall be no
warrants or options to purchase shares of Stock of the Company except as set
forth in the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF SHARES. Subject to the terms and
conditions of this Agreement, and on the basis of the representations,
warranties and agreements herein contained, the Company hereby agrees to sell
to the several Underwriters, the number of Units set forth opposite their
respective names on Schedule A hereto, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company such number of Units at
a purchase price of $5.40 per Unit.
The Company will deliver the Units to you at your office, or such other
place as you may designate, against payment to the Company for the Units by
wire transfer or by certified or official bank check or checks payable in New
York Clearing House funds to the order of the Company. The Units so to be
delivered will be in definitive, fully registered form in such authorized
denominations and registered in such names as you request by notice to the
Company given not later than 5:00 P.M., New York City time, on the second
business day next preceding the Closing Date. The date and the time of such
delivery and payment shall be 11:00 A.M., New York City time, on
________________, 1998 (or such other time and date as you and the Company may
agree upon). The time and date of such payment and delivery is herein sometimes
referred to as the "Closing Date".
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The Company agrees to make the Units available to you for the purpose of
expediting the checking and packaging of the Units, at the office at which they
are to be delivered, not later than 2:00 P.M., New York City time, on the
business day next preceding the Closing Date.
The Company hereby grants to you the right, exercisable within 45 days
from the date hereof, to purchase from the Company up to 210,000 additional
Units (the "Additional Units") at a purchase price of $5.22 per Unit, for the
purpose of covering over-allotments in the sale by any of the Underwriters of
the Units. You may exercise your right to purchase Additional Units by giving
written notice of such exercise to the Company.
Such notice shall set forth the aggregate number of Additional Units as to
which such right is being exercised, the names in which Additional Units are to
be registered, the denominations in which Additional Units are to be issued and
the date and time, as determined by you, when the Additional Units are to be
delivered (such date and time being herein sometimes referred to as the
"Additional Closing Date"); PROVIDED, HOWEVER, that the Additional Closing Date
shall not be earlier than the Closing Date. The Additional Closing Date may be
on the Closing Date; if not, it shall be no earlier than the third business day
after the date on which the right shall have been exercised nor later than the
twelfth business day after the date on which the right shall have been
exercised.
The Company will deliver the Additional Units to you at your office, or
such other place as you may designate, against payment to the Company for the
Additional Units by wire transfer or by certified or official bank check or
checks payable in New York Clearing House funds to the order of the Company.
The Additional Units so to be delivered will be in definitive, fully registered
form in such authorized denominations and registered in such names as you
request by notice to the Company given not later than 5:00 P.M., New York City
time, on the second business day next preceding the Additional Closing Date.
The Company agrees to make the Additional Units available to you for the
purpose of expediting the checking and packaging of the Units, at the office at
which they are to be delivered, not later than 2:00 P.M., New York City time,
on the business day next preceding the Additional Closing Date.
It is understood that the Underwriters propose to offer the Units for sale
to the public upon the terms and conditions set forth in the Registration
Statement, after the Registration Statement becomes effective.
4. COVENANTS OF THE COMPANY. The Company further covenants and agrees with
you that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will not at any time, whether before or after
the effective date, file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Act, or the Rules
and Regulations of the Commission thereunder.
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(b) The Company will notify you immediately and confirm in writing (A)
when the Registration Statement and any post-effective amendment thereto
becomes effective, (B) of the issuance of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or of the Prospectus or of the
initiation of any proceedings for such purposes, and (C) of the receipt of any
comments (in writing or orally) from the Commission in respect of the
Registration Statement or requesting the amendment, post-effective amendment or
supplementation of the Registration Statement or Prospectus or for additional
information. If the Commission shall enter a stop order or any order preventing
or suspending the use of any Preliminary Prospectus or of the Prospectus at any
time, or shall initiate any proceedings for such purposes, the Company will
make every reasonable effort to prevent the issuance of such order and, if
issued, to obtain the withdrawal thereof. The Company will provide you with
copies of all written communications received by it from the Commission and any
other regulatory agency with respect to the Registration Statement, and every
amendment and post-effective amendment thereto and copies of all replies
thereto by the Company, its counsel and its accountants.
(c) Within the time during which a prospectus relating to the Units
(or the exercise of any Warrants) is required to be delivered under the Act,
the Company will comply so far as it is able with all requirements imposed upon
it by the Act, as now and hereafter amended, and by the Rules and Regulations
of the Commission thereunder, from time to time in force, so far as necessary
to permit the continuance of sales of or dealings in the Units (or the shares
of stock to be acquired upon the exercise of the Warrants) as contemplated by
the provisions hereof and the Prospectus; and if during such period any event
occurs as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if during such period it is
necessary to amend or supplement the Prospectus to comply with the Act, the
Company will promptly notify you and will amend or supplement the Prospectus
(in form reasonably satisfactory to your counsel and at the expense of the
Company) so as to correct such statement or omission or effect such compliance.
(d) The Company will cooperate with you and will take all necessary
action, and furnish to whomever you may direct such proper information, as may
be lawfully required in qualifying the Units for offering and sale under the
Units or blue sky laws of such states as you may designate, and in continuing
such qualifications in effect so long as required for the distribution of Units
by you; provided that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any such state, consent to
general service of process in such state or otherwise to submit to any
requirements which it reasonably deems unduly burdensome.
(e) The Company will pay any and all fees, taxes and expenses incident
to the performance of its obligations under this Underwriting Agreement,
including expenses and taxes incident to the issuance and delivery to you of
the Units and Additional Units, if any, to be sold to the Underwriters pursuant
to Section 3 hereof; all fees and disbursements of counsel and accountants for
the Company; expenses and filing fees incident to the preparation, printing,
delivery, shipment and filing with the Commission, the National Association of
Securities Dealers, Inc., and state blue sky authorities of
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the Registration Statement and all exhibits thereto and the Prospectus, and any
amendments or supplements thereto, including fees of blue sky counsel (to be
designated by the Representative and who may be counsel to the Underwriters)
incident to the qualification for sale of the Units and Additional Units, if
any, under blue sky laws. The Company will further pay you as Representative of
the Underwriters for your expenses incurred in connection with this offering,
on a non-accountable basis, an amount equal to 3% of the public offering price
of the Units sold on behalf of the Company hereunder, including any Units sold
pursuant to the overallotment option, such reimbursement and payment to be made
to you on closing, and may be deducted by you from the amount due to the
Company for purchase of the Units pursuant to Section 3 hereof. In the event
that the offering is not consummated, the Representative will be reimbursed
only for its actual, accountable, out-of-pocket expenses.
(f) The Company will apply the net proceeds from the sale of the Units
substantially as set forth under the caption "Use of Proceeds" in the
Prospectus.
(g) The Company will deliver to you as promptly as practicable three
signed copies of the Registration Statement and all amendments thereto,
including all exhibits therewith or incorporated therein by reference, and
signed consents, certificates and opinions of accountants and of any other
persons named in the Registration Statement as having prepared, certified or
reviewed any part thereof, and will deliver to you such number of unsigned
copies of the Registration Statement and exhibits, and of all amendments
thereto, as you may reasonably request. The Company will deliver to you or upon
your order, from time to time until the effective date of the Registration
Statement, as many copies of the Preliminary Prospectus as you may reasonably
request. The Company will deliver to you or upon your order, on the effective
date of the Registration Statement and thereafter, subject to the provisions of
Section 4(a)(iii) hereof, from time to time, as many copies of the Prospectus
in final form or as thereafter amended or supplemented, as you may reasonably
request. The Company will deliver to you, promptly after closing, three (3)
bound volumes of all of the documents, papers, exhibits, correspondence and
records forming the materials involved in this public offering.
(h) The Company will make generally available to its security holders,
as soon as it is practicable to do so (but in no event later than fifteen
months after the effective date of the Registration Statement), an earnings
statement of the Company (which need not be audited) covering a period of at
least twelve months beginning not later than the first day of the fiscal
quarter next succeeding such effective date which shall satisfy the provisions
of Section 11(a) of the Act.
(i) For a period of at least five years from the date hereof, the
Company will supply to the Representative, (A) as soon as practicable after the
end of each fiscal year, a balance sheet and statement of operations of the
Company and its consolidated subsidiaries (if any) as at the end of and for
each such year, all in reasonable detail and certified by independent certified
public accountants, (B) as soon as practicable after the end of each of the
first three quarters of each fiscal year, an unaudited statement of operations
of the Company and its consolidated subsidiaries (if any) for such period, (C)
copies of such financial statements and reports as the Company may, from time
to time, furnish generally to holders of any class of its stock, (D) copies of
each report which it shall be
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required to file with the Commission, any blue sky authority or any Units
exchange at the same time as such reports are filed and (E) copies of the daily
stock transfer sheets and weekly DTC reports for Units of the Company.
(j) Simultaneously with the purchase and payment by the Underwriters
for the Units on the Closing Date, the Company shall sell, at a price of $0.001
per warrant, and issue and deliver to the Representative and, at its request,
to any of the several Underwriters or to dealers in the selling group, or to
officers or partners of the Representative, the several Underwriters or dealers
in the selling group, 80,000 warrants, in form and substance satisfactory to
your counsel, to purchase 80,000 Units of the Company (similar to those being
sold to the public) at a price of $_____ per Unit ("Underwriters' Unit
Warrants"). The Underwriters' Unit Warrants will be exercisable for a period of
five years commencing on the Effective Date, and will not be transferable for a
period of one year from the Effective Date except to Underwriters and Selected
Dealers and officers and partners thereof. The Underwriters' Unit Warrants
shall have been registered under the Registration Statement and the holders of
a majority of such Underwriters' Unit Warrants or the Units which may have been
issued thereunder shall have the right, at any one time, to require the Company
to prepare and file a post-effective amendment to the Registration Statement
(or a new registration statement, if then required under the Act) covering all
or any portion of the Underwriters' Unit Warrants and their underlying Units to
permit the public sale thereof after twelve months from the Effective Date. In
connection therewith, the Company shall be obligated to prepare and file such
post-effective amendment (or such new registration statement) under the Act
promptly upon the receipt of the request of the holders of a majority of the
Underwriters' Unit Warrants or Units issued thereunder, and the Company shall
be further obligated to use its best efforts to have such post-effective
amendment (or such new registration statement) rendered effective under the
Act, as it may from time to time be amended hereafter, and Rules and
Regulations promulgated thereunder, as soon as practicable after the filing
date of any such post-effective amendment or such new registration statement,
and the Company shall also be required to take such action as may be necessary
to maintain such post-effective amendment or such new registration statement
effective under the Act for the period, not in excess of nine months, required
to sell such Underwriters' Unit Warrants and their underlying Units in
compliance with the Act and Rules and Regulations promulgated thereunder, and
the Company shall be required to provide the accounting necessary for the
filing of any such post-effective amendment or such new registration statement,
plus any amendments or supplements thereto. In addition to, and not in lieu of,
the obligations of the Company hereinabove recited in this subsection, the
Company hereby further covenants and agrees that if, the Company shall prepare
and file a post-effective amendment to the Registration Statement or a new
registration statement under the Act or notification pursuant to Regulation A
under the Act either of which is to become effective at any time after the
expiration of twelve months from the Effective Date with respect to the public
offering of any equity or debt Units of the Company now or hereafter
authorized, the Company will include in such post-effective amendment or new
registration statement or such notification such number of the Underwriters'
Unit Warrants and their underlying Units as requested by the holders of the
Underwriters' Units Warrants or Units issued thereunder, and neither you nor
such holders shall be under any obligation to bear any of the expenses or
professional fees and disbursements to be incurred by the Company in connection
with the preparation and filing of such post-effective amendment, or new
registration statement or such notification. With respect to any post-effective
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amendment, or new registration statement, or notification filed by the Company
pursuant to this subsection, the selling securityholders offering any
Underwriters' Unit Warrants and their underlying Units thereunder shall be
entitled to the benefits of indemnification by the Company in like manner and
to the same extent as the Company indemnifies the Underwriters pursuant to
Section 6(a) hereof.
(k The Company will not, without the prior written consent of the
Representative, for a period of six months after the effective date of the
Registration Statement, sell any Units of the Company or sell or grant options,
warrants or rights with respect to any Units of the Company, or permit or cause
a public offering of any Units of the Company except in accordance with the
provisions of the Registration Statement.
(l) For a period of five years after the effective date of the
Registration Statement, the Representative shall have the right to designate
one person as an advisor to the Company's Board of Directors, who will receive
compensation equal to that received by any other director as well as
reimbursement of expenses for attending meetings, but who will have no power to
vote as a director. Such person shall be indemnified by the Company against any
claim arising out of his participation at meetings of the Board of Directors to
the same extent as any director. During such five year period, the Company will
hold at least four meetings per year of its Board of Directors. In the event
the Company maintains a liability insurance policy with coverage for the acts
of its officers and directors, the Company agrees, if possible, to include the
Representative and its designee as an insured under the policy.
(m) At the Closing, the Company shall enter into a consulting
agreement ("Consulting Agreement") retaining the Representative as financial
consultant to the Company for a two-year period commencing as of such closing,
at a fee of $48,000 per year, the total amount of which shall be paid at the
Closing. The Company and the Representative shall also enter into an agreement
which will provide for a finder's fee, ranging from 7% of the first $1,000,000
down to 2-1/2% of the excess over $9,000,000 of the consideration involved in
any transaction (including mergers and acquisitions) consummated by the Company
in which the Representative introduced the other party to the Company during
the five-year period commencing on the Effective Date.
(n) The Company shall cooperate with the Underwriters in making
available to their representatives such information as they may request in
making an investigation of the Company and its affairs.
(o) Until such time as the Units of the Company are listed on the New
York Stock Exchange or the American Stock Exchange but in no event more than
three years from the effective date, the Company shall retain Compliance
Management Company or a similar company, to prepare a post registration blue
sky market survey for the Representative for distribution to market makers.
Such survey shall be provided to the Representative annually with the first
survey delivered to it promptly after the completion of the public offering
hereunder. The cost of the first year's survey will not exceed $4,000. In lieu
of the foregoing, the Company may cause its legal counsel to provide the
Representative with a survey to be updated at least annually.
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(p) At all times, so long as any of the warrants referred to herein
are outstanding, the Company will have reserved authorized but unissued shares
of stock and underlying warrants, available for immediate issuance in amounts
necessary for the exercise of all warrants then outstanding. The Company agrees
to qualify the Units for listing on the NASDAQ System Small-Cap Issues on the
Effective Date and will take all necessary and appropriate action so that the
Units and after separate of the Units, their underlying Units will be listed
for trading in the NASDAQ System Small-Cap Issues for at least five years from
the Effective Date provided the Company otherwise complies with the prevailing
maintenance requirements of NASDAQ System Small-Cap. In addition, at such time
as the Company qualifies for listing its Units on the National Market System of
NASDAQ, the Company will take all steps necessary to have the Units and after
separation of the Units, their underlying Units will thereof listed on the
National Market System of NASDAQ in lieu of listing as Small-Cap Issues. The
Company shall comply with all periodic reporting and proxy solicitation
requirements imposed by the Commission pursuant to the 1934 Act, and shall
promptly furnish you with copies of all material filed with the Commission
pursuant to the 1934 Act or otherwise furnished to shareholders of the Company.
(q) The Company will register the Units and components thereof
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended,
not later than the Effective Date.
(r) The Company will pay the fees and expenses (but not transfer
taxes, if any) of the Company's transfer agents, warrant agents, and registrars
(if any), without charge to stockholders and warrantholders, for not less than
five years after the effective date of the Registration Statement.
(s) The Representative shall receive a fee of 10% of the proceeds as
and when received by the Company from time to time upon the exercise of any
Warrants after one year from the Effective Date, provided that such fee shall
be paid only in accordance with the rules of the NASD and any applicable Units
laws and rules and regulations. The Representative will not be eligible to
receive the aforementioned warrant exercise fee as a result of transactions of
the following nature: (i) the exercise of Warrants when the market price of the
Company's Common Stock is lower than the exercise price; (ii) the exercise of
Warrants held in any discretionary account; (iii) the exercise of Warrants
where documents disclosing the compensation arrangements (e.g., the Prospectus)
have not been provided to the warrantholder; (iv) the exercise of Warrants in
unsolicited transactions; and (v) the exercise of any warrants during the one
year period commencing on the Effective Date, and further provided that no
broker shall be paid a fee unless such broker is designated in writing by the
customer as the soliciting broker. In addition, it will be a condition to the
receipt by the Representative of such fee that it shall not, in the ten days
immediately preceding the solicitation of the exercise or the date of such
exercise, have bid for or purchased the Common Stock of the Company (or any
Units of the Company convertible into or exchangeable for such Common Stock,
including the Warrants) or otherwise have engaged in any activity that would be
prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as amended,
by one participating in a distribution of the Company's Units whether as
underwriter or otherwise. The Company will not solicit warrant exercises except
through the Representative.
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(t) Immediately following the closing, the Company shall exercise its
best efforts to have the Units listed in the appropriate Standard & Poor's
manual in order to comply with the requirements of the so-called "standard
manuals exemption" of various blue sky authorities.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The Underwriters' obligations
to purchase and pay for the Units, as provided herein, shall be subject to the
accuracy, as of the date hereof and as of the Closing Date (as if made on the
Closing Date), of the representations and warranties of the Company herein, to
the accuracy of statements made in each certificate delivered pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 P.M., New York City time, on the day following the date of this Agreement,
unless a later time and date be agreed to by you; and no stop order suspending
the effectiveness of the Registration Statement, or order preventing or
suspending the use of any Preliminary Prospectus or of the Prospectus, shall
have been issued and no proceedings for such purpose shall have been instituted
or be pending or, to the knowledge of the Company or you, shall be contemplated
by the Commission; and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of the Underwriters' Counsel.
(b) On the Closing Date the Underwriters shall have received an opinion of
Cohen & Cohen, counsel for the Company, dated the Closing Date, to the effect
that:
(i) The Company has full corporate power and authority to enter into
this Agreement and this Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, subject to bankruptcy,
insolvency or similar laws governing the rights of creditors generally and to
the discretion of courts in granting equitable remedies, except insofar as
rights to indemnity or contribution hereunder may be limited by Federal
Securities laws.
(ii) The Warrant Agreement, the Consulting Agreement and the Mergers
and Acquisitions Agreement have been duly authorized, executed and delivered by
the Company and constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their terms (except insofar as
enforcement of the indemnification provisions thereof may be limited by
applicable federal Securities laws or principles of public policy and subject
to bankruptcy, insolvency, moratorium, reorganization and similar laws
affecting creditors' rights generally and to general principles of equity). The
Company has full corporate power and authority to enter into the Warrant
Agreement and the Consulting Agreement and to sell, issue and deliver the
Shares, Warrants, Underwriters' Stock Warrants, Underwriters' Warrants and the
Units underlying all warrants;
(iii) The Company has authorized and outstanding capital stock as set
forth under "Capitalization" in the Prospectus; all of the Company's
outstanding shares have been duly authorized and validly issued, and are fully
paid and nonassessable; all of the Units, Series A Preferred Stock,
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Warrants, Underwriters' Unit Warrants sold pursuant to this Agreement have been
duly authorized, validly issued and delivered and are fully paid and
nonassessable, and conform to the descriptions thereof in the Prospectus and
such descriptions conform to the rights duly set forth in the Certificate of
Incorporation of the Company, the Warrant Agreement, the Underwriters' Unit
Warrants and this Agreement; the Warrants, the Underwriters' Unit Warrants are,
and the warrants underlying the Underwriters' Warrants will, when issued in
accordance with the provisions of the Warrant Agreement, the Underwriters' Unit
Warrants and this Agreement be, valid and legally binding obligations of the
Company in accordance with their respective terms (subject to bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization and similar laws
affecting creditors' rights generally and to general principles of equity); the
Units underlying the Warrants and the Underwriters' Unit Warrants have been
validly authorized and reserved for issuance, and any shares when issued in
accordance with the terms of the Warrants or Underwriters' Unit, will be
validly issued and will be fully paid and non-assessable; the holders of the
Units, Series A Preferred Stock, Warrants and Underwriters' Unit Warrants, and
the Units underlying the Warrants are not, and will not be, subject to any
personal liability for liabilities of the Company by reason of being holders
thereof; and none of such Units which have been issued, have been issued in
violation of the preemptive rights or any other rights of any stockholder of
the Company and no stockholder of the Company has any preemptive right to
subscribe for or to purchase any of the Units, Series A Preferred Stock,
Warrants, Underwriters' Unit Warrants or Units underlying the Warrants;
(iv) The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware, has full
corporate power and authority to conduct its business as presently conducted
and as described in the Prospectus and to own its properties and is duly
qualified to do business and is in good standing in each jurisdiction wherein
the property owned or leased, or the conduct of business, by it makes such
qualification necessary (except where failure to so qualify would not have a
material adverse effect on the Company);
(v) The Registration Statement has become effective under the
Securities Act and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is pending or
contemplated by the Commission;
(vi) The Registration Statement and the Prospectus, and any amendment
or supplement thereto, comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations thereunder
(except that such counsel need express no opinion as to the financial
statements and schedules and financial data included therein or omitted
therefrom);
(vii) Such counsel has assisted in the preparation of the Registration
Statement and the Prospectus and no fact has come to the attention of such
counsel which leads such counsel to believe that, either as of the Effective
Date or the date of the opinion, (A) either the Registration Statement or the
Prospectus or any amendment or supplement thereto (except for the financial
statements and schedules and financial data included therein or omitted
therefrom, as to which such counsel need express no opinion) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (B)
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there is any material legal, governmental or administrative proceeding pending,
threatened or contemplated to which the Company is or may become a party or to
which any of its property is or may become subject, or any basis for any legal,
governmental or administrative proceeding, required to be described in the
Prospectus under the Act which is not described as required, or (C) there is
any contract or document of a character required to be described in the
Registration Statement or the Prospectus, or to be filed as an exhibit to the
Registration Statement, under the Act which is not described or filed as
required.
(viii) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated therein do
not and will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, the Articles of
Incorporation or By-Laws of the Company or any indenture, mortgage, deed of
trust, note agreement or other agreement or instrument known to such counsel to
which the Company is a party or by which it is bound or to which any of its
property is subject, or any Federal, state or other statute, law, rule or
regulation, or any judgment, order or decree of any court or governmental
agency or body known to such counsel having jurisdiction over the Company or
any of its property;
(ix) No consent, approval, authorization or order of, or declaration
or filing with, any government, governmental instrumentality or court, is
required for the valid consummation by the Company of the transactions
contemplated by this Agreement, except such as may be required under the
Securities Act or any state Units or "blue sky" laws in connection with the
purchase, sale and distribution of the Units; and
(x) To the best of such counsel's knowledge, the Company possesses all
material permits, certificates of compliance, approvals, licenses, waivers,
consents and other rights from governmental authorities which are requisite for
the material conduct of its business as presently conducted and as described in
the Prospectus (except such as in the aggregate would not materially affect the
business or operations of the Company), for the consummation of the
transactions contemplated in this Agreement and for the offering contemplated
by the Prospectus, and each such permit, certificate of compliance, approval,
license, waiver, consent and right is valid and in full force and effect.
(xi) Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Units
hereunder as counsel for the Underwriters may reasonably request. In rendering
the opinions set forth above, such counsel may rely upon certificates of
officers of the Company and public officials as to matters of fact, and may
rely as to all matters of law other than the laws of the United States or the
corporate laws of the State of Delaware upon opinions of counsel satisfactory
to you, in which case the opinion shall state that they have no reason to
believe that you and they are not entitled to so rely. Additionally, in
rendering such opinion, counsel shall not be required to opine upon the
availability of equitable remedies, including but not limited to, the remedies
of specific performance and injunctive relief.
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(c) At the time this Agreement is executed by the parties hereto and on
the Closing Date (and on the Additional Closing Date, if any), the Underwriters
shall have received from BDO Seidman, LLP, a letter dated as of each such date,
to the effect that:
(i) They are independent accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and
Regulations thereunder;
(ii) In their opinion, the financial statements (including the
schedules, if any) in the Registration Statement examined by such firm, comply
as to form in all material respects with the applicable accounting requirements
of the Act and the published Rules and Regulations thereunder with respect to
registration statements on Form SB-2;
(iii) On the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of reading
the minutes of meetings of the stockholders and the Board of Directors of the
Company since the date of the latest audited balance sheet as set forth in the
minute books through a specified date not more than five business days prior to
the date of the letter, reading the unaudited interim financial statements (if
any), including the schedules (if any), of the Company included in the
Registration Statement and making inquiries of certain officials of the Company
who have responsibility for financial and accounting matters regarding the
specific items for which representations are requested below, nothing has come
to their attention as a result of the foregoing procedures that caused them to
believe that (A) the unaudited financial statements (if any), including the
schedules (if any), of the Company included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act and the published Rules and Regulations thereunder; (B)
said financial statements, including the schedules (if any), are not presented
fairly, in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements;
(C) during the period from the date of the latest balance sheet covered by
their report(s) included in the Registration Statement to a specific date not
more than five business days prior to the date of the letter, there has been
any change in the capital stock or long-term debt of the Company as compared
with the amounts shown in the balance sheet included in the Registration
Statement, except as set forth in or contemplated by the Registration
Statement; or (D) for the period from the date of the last balance sheet
contained in the Prospectus to a specified date not more than five days prior
to the date of such letter, there has been any decrease, except as described in
such letter and previously discussed with you, in consolidated gross revenues,
net income, consolidated assets or total stockholders' equity as compared with
the amounts shown on such balance sheet, except for such changes or decreases
which the Registration Statement discloses have occurred or may occur; and
(iv) In addition to the examination referred to in their report
included in the Registration Statement and the limited procedures referred to
in clause (iii) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information which are included in the Registration Statement and Prospectus and
which are specified by you, and have found such amounts, percentages and
financial information to be in agreement with the relevant accounting and
financial records of the Company and its subsidiaries identified in such
letter.
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(d) The Representative shall have received a certificate or
certificates, dated the Closing Date and the Additional Closing Date, executed
by at least two officers of the Company, including the Chairman of the Board or
the President and the principal financial or accounting officer of the Company,
to the effect that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(ii) Neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth;
(iii) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Company has not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transaction,
not in the ordinary course of business, and there has not been any material
change in the capital stock or funded debt of the Company, or any material
adverse change in the condition (financial or other) or results of operations
of the Company;
(iv) There are no legal proceedings pending or threatened against the
Company of a character affecting the validity of this Agreement or required to
be disclosed in the Prospectus which are not disclosed therein; there are no
transactions or contracts which are required to be summarized therein which are
not so summarized; and there are no material contracts or documents required to
be filed as exhibits to the Registration Statement which are not so filed;
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or damage to its properties, whether or not
insured; and
(vi) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the date of the letter;
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the date of
the letter.
(e) The Company shall have furnished to you such certificates, in
addition to those specifically mentioned herein, as you may have reasonably
required in a timely manner as to the accuracy and completeness, at the Closing
Date, of any statement in the Registration Statement or the Prospectus; as to
the accuracy, at the Closing Date, of the representations and warranties of the
Company herein and in each certificate and document contemplated under this
Agreement to be delivered to you; as to the performance by the Company of its
respective obligations hereunder and
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under each such certificate and document; or as to the fulfillment of the
conditions concurrent and precedent to your obligations hereunder.
(f) All corporate proceedings and related matters in connection with
the organization of the Company and the qualification, authorization, issuance,
sale and delivery of the Units shall be satisfactory to Henry C. Malon, Esq.,
counsel for the Underwriters, and such counsel shall have been furnished with
such papers and information as he may reasonably have requested in this
connection.
(g) Certain holders of outstanding Units of the Company shall have
agreed not to sell or transfer their Units under Rule 144 under the Act or
otherwise for certain periods of time following the Effective Date of the
offering, as set forth in the Prospectus, without the prior written consent of
the Representative.
(h) All such opinions, letters, certificates and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Underwriters and to their counsel.
(i) If any condition to the Underwriters' obligations hereunder to be
satisfied at or prior to the Closing Date is not so satisfied, the Underwriters
may terminate this Agreement without liability on their part or on the part of
the Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Section 4(a)(v) of this Agreement and except for any liability
under Sections 6 and 7 of this Agreement.
6. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls each Underwriter within
the meaning of the Act against any losses, claims, damages or liabilities,
joint or several, to which it or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Units under the Units laws
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse it and each such
controlling person for any legal or other expenses reasonably incurred by it or
such controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus, the Prospectus or such
amendment or supplement, or in such blue sky application or such other
document, in reliance upon and in conformity with written information furnished
to the Company by an Underwriter specifically for use in the preparation
thereof; and provided, further, that the Company will not be liable under this
indemnity agreement, insofar as it relates to any Preliminary Prospectus, to
the extent that any such loss, claim, damage, liability or action results from
the fact that an Underwriter sold Units to a person
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to whom there was not sent or given, at or prior to the written confirmation of
such sales, a copy of the Prospectus (or of the Prospectus as then amended or
supplemented if the Company had previously furnished copies thereof to you).
This indemnity agreement will be in addition to any liability which the Company
and the Selling Stockholders may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company to
such Underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer or controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any blue sky
application or other document executed by the Company specifically for that
purpose filed in any state or other jurisdiction in order to qualify any or all
of the Units under the Units laws thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, such Preliminary Prospectus, the Prospectus or such
amendment or supplement, or in such blue sky application or such other
document, in reliance upon and in conformity with written information furnished
to the Company by such Underwriter specifically for use in the preparation
thereof; and will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action. This indemnity agreement will be in addition to any liability which an
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 6. In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party, similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall be liable for any
settlement of any action effected without its written consent.
7. CONTRIBUTION. (a) In order to provide for just and equitable
contribution under the Act in any case in which (i) an Underwriter (or any
person who controls the Underwriter within the meaning of
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the Act) makes claim for indemnification pursuant to Paragraph 6(a) hereof but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Paragraph 6(a) provides for
indemnification in such case or (ii) contribution under the Act may be required
on the part of an Underwriter or any such controlling person in circumstances
for which indemnification is provided under Paragraph 6(b), then, and in each
case, the Company and the Underwriters shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Underwriters are
responsible for an aggregate of 10% (being the amount of the Underwriter's
commission) and the Company are responsible for the remaining portion;
provided, however, that, in any such case, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(b) Promptly after receipt by any party to this Agreement of notice of
the commencement of any action, suit or proceeding, such party will, if a claim
for contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution under the Act. In case any such action, suit or proceeding is
brought against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified.
8. SUBSTITUTION OF UNDERWRITERS. (a) If one or more Underwriters shall
default in its or their obligations to purchase and pay for the Units hereunder
and if the aggregate number of such Units which all Underwriters so defaulting
shall have agreed to purchase does not exceed 10% of the aggregate number of
Units to be purchased by the Underwriters, each non-defaulting Underwriter
shall have the right and is obligated, severally, to purchase and pay for (in
addition to the Units set forth opposite its name in Schedule A) that portion
of the Units agreed to be purchased by all such defaulting Underwriters which
the Units set forth opposite its name in Schedule A bears to the aggregate
Units so set forth opposite the names of all such non-defaulting Underwriters.
In such event, you as Representative, for the accounts of the several
non-defaulting Underwriters, shall take up and pay for all or any part of such
additional Units to be purchased by each such Underwriter under this Section
8(a), and may postpone the Closing Date to a time not exceeding three full
business days after the Closing Date determined as provided in Section 3 hereof
during which time the Company will prepare and file any amendments to the
Registration Statement and take any other action which the Representative or
its counsel shall deem necessary or appropriate to reflect such event; or
(b) If one or more Underwriters default in its or their obligations to
purchase and pay for Units hereunder and if the aggregate number of such Units
which all Underwriters so defaulting shall have agreed to purchase shall exceed
10% of the aggregate number of Units to be purchased by the Underwriters, or if
one or more Underwriters for any reason permitted hereunder cancel its or their
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obligations to purchase and pay for Units hereunder, the non-canceling and
non-defaulting Underwriters (hereinafter called the "remaining Underwriters")
shall have the right to purchase such Units in such proportion as may be agreed
among them, at the Closing Date determined as provided in Section 3 hereof. If
the remaining Underwriters do not purchase and pay for such Units at such
Closing Date, the Closing Date shall be postponed for twenty-four hours and the
remaining Underwriters shall have the right to purchase such Units or to
substitute another person or persons, to purchase the same, or both, at such
postponed Closing Date. If by such postponed Closing Date the remaining
Underwriters have not exercised such right to purchase or obtained a substitute
purchaser or purchasers, the Closing Date shall be postponed for a further
twenty-four hours and the Company shall have the right to substitute another
person or persons, satisfactory to the Representative, to purchase such Units
at such second postponed Closing Date. If the Company shall not have found such
purchasers for such Units by such second postponed Closing Date, then this
Agreement shall automatically terminate and neither the Company nor the
remaining Underwriters shall be under any obligation under this Agreement
except that the Company shall remain liable for the full amount of expenses
incurred as provided in Section 4(a)(v) and to the extent provided in Sections
6(a) and 7 hereof and the Underwriters shall remain liable to the extent
provided in Sections 6(b) and 7 hereof. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability
for its default or obligate any Underwriter to purchase or find purchasers for
any Units in excess of those agreed to be purchased by such Underwriter under
the terms of Sections 3 and 8(a) hereof.
9. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. All
representations and warranties of the Company contained herein and in the
certificate or certificates delivered pursuant to Section 5(d) hereof, and the
indemnity and contribution agreements contained in Sections 6 and 7 hereof,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling
person, or by or on behalf of the Company or any officer, director or
controlling person, or of any termination of this Agreement, and shall survive
delivery of and payment for the Units.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF. (a) This
Agreement shall become effective at 9:00 A.M., New York City time, on the first
full business day after the Registration Statement has become effective, or at
such earlier time after the Registration Statement has become effective as you
in your discretion shall first release the Units for sale to the public. For
the purposes of this Section 10, the Units shall be deemed to have been
released for sale to the public upon release by you of the publication of a
newspaper advertisement relating to the Units or upon release by you of
telegrams or facsimile transmissions offering the Units for sale, whichever
shall first occur. You or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except as noted
below, by giving the notice hereinafter specified at or before the time this
Agreement becomes effective; provided however, that the provisions of this
Section, Section 4(a)(v), Section 6 and Section 7 shall at all times be
effective.
(b) You shall have the right to terminate this Agreement by giving the
notice hereinafter specified at any time at or prior to the Closing Date if (i)
the Company shall have failed, refused or been unable,
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at or prior to the Closing Date, to perform any agreement on its part to be
performed hereunder, or because any other condition precedent to the
Underwriters' obligations hereunder required to be fulfilled by the Company
have not fulfilled, or if (ii) trading on the New York Stock Exchange shall
have been generally suspended, or minimum or maximum prices for trading shall
have been generally fixed, or maximum ranges for prices for Units shall have
been generally required, on the New York Stock Exchange, by the New York Stock
Exchange or by order of the Commission or any other governmental authority
having jurisdiction, or if there has been a substantial adverse change in
general market or economic conditions, or if a banking moratorium shall have
been declared by Federal or New York authorities, or if an outbreak of
hostilities or other national or international calamity of such nature as to
disorganize the Units markets in the United States shall have occurred since
the execution hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10, you shall notify the
Company promptly by telephone or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, the Company shall
notify you promptly by telephone or telegram, confirmed by letter.
11. NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to the Underwriters
shall be mailed, delivered or telegraphed and confirmed to you as
Representative at 1 Battery Park Plaza, New York, New York 10004, or if sent to
the Company, shall be mailed, delivered or telegraphed and confirmed to it at
445 Park Avenue, 15th floor, New York, N.Y. 10022 marked to the attention of
the President.
12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon you and the Company and the several Underwriters and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person or corporation, other than
the parties hereto and their respective successors and assigns and the
controlling persons and the officers and directors referred to in Section 6
hereof, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective successors and
assigns and said controlling persons and said officers and directors, and for
the benefit of no other person or corporation. No purchaser of any of the Units
from any Underwriter shall be construed a successor or assign by reason merely
of such purchase.
13. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in the
last paragraph on the cover page, in the stabilization legend, under the
caption "Underwriting" and the statements regarding counsel for the
Underwriters under the caption "Legal Matters" in any Preliminary Prospectus
and in the Prospectus and in blue sky reports of sales, if any, constitute the
written information furnished by or on behalf of any Underwriter referred to in
Sections 2(b), 6(a) and 6(b) hereof.
14. MISCELLANEOUS. In all dealings hereunder, you shall act on behalf of
each of the Underwriters, and the Company shall be entitled to act and rely
upon any statement, request, notice or agreement
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on behalf of any Underwriters made by you as the Representative. This Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, and the Company hereby consents and will submit
to the jurisdiction of the courts of the State of New York and of any federal
court sitting in the City of New York with respect to controversies arising
under this Agreement.
If the foregoing correctly sets forth the understanding between the
Company and the several Underwriters, please so indicate on behalf of the
Underwriters in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement between the Company and each of the
Underwriters.
Very truly yours,
EUROWEB INTERNATIONAL CORP.
By:_________________________________
Accepted as of the date first above written:
J.W. BARCLAY & CO., INC.
Acting on behalf of the several
Underwriters named in Schedule A hereto.
By:_____________________________
21
<PAGE>
SCHEDULE A
EUROWEB INTERNATIONAL CORP.
UNDERWRITING AGREEMENT DATED ______________________, 1998
This Schedule sets forth the name and address of each Underwriter and the
number of Shares to be purchased by each Underwriter from the Company and the
Selling Stockholders.
NAME ADDRESS NUMBER OF UNITS
---- ------- ---------------
J.W. Barclay 1 Battery Park Plaza
& Co., Inc. New York, NY 10004
---------
Total.................................. 800,000
---------
22
Exhibit 1(a)
800,000 UNITS
EUROWEB INTERNATIONAL CORP.
(EACH UNIT CONSISTING OF
ONE SHARE OF SERIES A CONVERTIBLE CUMULATIVE REDEEMABLE PREFERRED STOCK
AND ONE COMMON STOCK PURCHASE WARRANT)
SELECTED DEALER AGREEMENT
Dat , 1998
Dear Sirs:
The Underwriters named in the prospectus mentioned below (the
"Underwriters") have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from
EuroWeb International Corp. (the "Company") at the price set forth on the cover
of said prospectus, an aggregate of 800,000 Units (the "Units"). The Units are
more particularly described in the enclosed prospectus (the "Prospectus"),
additional copies of which will be supplied in reasonable quantities upon
request.
Some or all of the Underwriters are severally offering a part of the Units
for sale to selected dealers (the "Selected Dealers"), among whom they are
pleased to include you, at the public offering price, less a concessions in the
amount set forth in the Prospectus under "Underwriting". This offering is made
subject to delivery of the Units and their acceptance by the Underwriters, to
the approval of all legal matters by counsel, and to the terms and conditions
herein set forth and may be made on the basis of the reservation of Units or an
allotment against subscription.
We have advised you by telegram of the method and terms of the offering.
Acceptances should be sent to J.W. Barclay & Co., Inc., 1 Battery Park Plaza,
New York, New York 10004. We reserve the right to reject any acceptances in
whole or in part.
Any of the Units purchased by you hereunder are to be offered by you to
the public at the public offering price, except as herein otherwise provided
and except that a reallowance from such public offering price of not in excess
of the amount set forth in the Prospectus under "Underwriting" may be allowed
to dealers who are members in good standing of the National Association of
Securities Dealers, Inc., or foreign banks, dealers or institutions not
eligible for membership in said Association who represent to you that they will
promptly reoffer such Units to unrelated persons at the public offering price
and will abide by the conditions with respect to foreign banks, dealers and
institutions set forth in the confirmation below.
We, acting as Representative, and, with our consent, any Underwriter may
buy Units from, or sell Units to, any Selected Dealer or any other Underwriter,
and any Selected Dealer may buy Units from, or sell Units to, any other
Selected Dealer or any Underwriter at the public offering price less all or any
part of the concession.
1
<PAGE>
You agree to pay us on demand for the accounts of the several Underwriters
an amount equal to the concession on any Units purchased by you hereunder
which, prior to the termination of this Agreement, we may purchase or contract
to purchase for the account of any Underwriter or which may be delivered
against purchase contracts made prior to the termination of this Agreement.
Units purchased by you hereunder shall be paid for on such date as we
shall determine, on one day's notice to you, by certified or official bank
check payable in New York Clearing House funds to the order of J.W. Barclay &
Co., Inc., 1 Battery Park Plaza, New York, New York 10004, or at such other
place as instructed. Delivery to you of certificates for Units will be made as
soon as is practicable thereafter. Unless specifically authorized by us,
payment by you may not be deferred until delivery of certificates to you.
The Underwriters have been advised by the Company that a Registration
Statement for the Units, filed under the Securities Act of 1933, has become
effective. You agree that in selling Units purchased pursuant hereto (which
agreement shall also be for the benefit of the Company) you will comply with
the applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934. No person is authorized by the Company or by the
Underwriters to give any information or make any representations not contained
in the Prospectus in connection with the sale of Units. You are not authorized
to act as agent for the Company or any of the Underwriters in offering Units to
the public or otherwise. Nothing contained herein shall constitute the Selected
Dealers partners with any of the Underwriters or with one another.
Upon application to us, we will inform you as to the advice we have
received from counsel concerning the jurisdictions in which Units have been
qualified for sale or are exempt under the respective securities or blue sky
laws of such jurisdictions, but we have not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealer to sell
Units in any such jurisdiction.
As Representative, we shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. Neither we, acting as Representative, nor any of the
Underwriters shall be under any obligation to you except for obligations
expressly assumed by us in this Agreement.
Each of the Underwriters has authorized us to overallot in arranging for
sales of the Units to the Selected Dealers and to purchase and sell Units for
long or short account and has also authorized us to stabilize or maintain the
market prices of the Units.
You agree, upon our request, at any time or times prior to the termination
of this Agreement, to report to us the number of Units purchased by you
pursuant to the provisions hereof which then remain unsold.
Selected Dealers will be governed by the conditions herein set forth until
this Agreement is terminated. This Agreement will terminate at the close of
business on the 30th day after the date hereof but, in our discretion, may be
extended by us for a further period not exceeding 30 days and in our
discretion, whether or not extended, may be terminated at any earlier time.
Notwithstanding
2
<PAGE>
the termination of this Agreement, you shall remain liable for your
proportionate amount of any claim, demand or liability which may be asserted
against you alone, against you together with other dealers purchasing Units
upon the terms hereof, or against us, based upon the claim that the Selected
Dealers, or any of them, constitute an association, an unincorporated business
or other entity.
This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, and you consent and
will submit to the jurisdiction of the courts of the State of New York and of
any federal court sitting in the City of New York with respect to controversies
arising under this Agreement.
In the event that you agree to purchase Units in accordance with the terms
hereof, kindly confirm such agreement by completing and signing the form
provided for that purpose on the enclosed duplicate hereof and returning it to
us promptly, even though you may have previously advised us of your acceptance
by telephone or telegraph.
3
<PAGE>
All communications from you should be addressed to J.W. Barclay & Co.,
Inc., 1 Battery Park Plaza, New York, New York 10004. Any notice from us to you
shall be deemed to have been fully authorized by the Underwriters and to have
been duly given if mailed or telegraphed to you at the address to which this
letter is mailed.
Very truly yours,
J.W. BARCLAY & CO., INC.
As Representative of the several
Underwriters
By _________________________
4
<PAGE>
J.W. Barclay & Co., Inc.
As Representative of the several Underwriters
1 Battery Park Plaza
New York, New York 10004
Dear Sirs:
We hereby confirm our agreement to purchase ___________ Units of EuroWeb
International Corp. allotted to us subject to the terms and conditions of the
foregoing agreement and your telegram to us referred to therein. We hereby
acknowledge receipt of the Prospectus relating to the Units, and we confirm
that in purchasing Units we have relied upon no statements whatsoever, written
or oral, other than the statements in such Prospectus. We have made a record of
our distribution of preli minary prospectuses and, when furnished with copies
of any revised preliminary prospectus, we have promptly forwarded copies
thereof to each person to whom we had theretofore distributed preliminary
prospectuses. We hereby represent that we are a member in good standing of the
National Association of Securities Dealers, Inc. and agree to comply with the
Rules of Fair Practice of said Association, and in particular, Sections 8, 24,
25 and 36 of Article III thereof, or, if we are not such a member, we are a
foreign bank, dealer or institution not eligible for membership in said
Association and agree to make no sales within the United States, its
territories or possessions or to persons who are citizens thereof or residents
therein, and in making any sales to comply with said Association's Rules and
Interpretations to the extent applicable to us.
................................
Name of Selected Dealer
By .............................
(Authorized Signature)
................................
(Print name and title)
Address:
.................................
.................................
Dated as of the date first above written.
5
Exhibit 4(f)
---------------------------------------
EuroWeb International Corp.
and
American Stock Transfer & Trust Company
--------------
Warrant Agreement
--------------
Dated as of _____________, 1998
---------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
PARTIES...................................................... 1
RECITALS..................................................... 1
Sec. 1. Appointment of Warrant Agent....................... 1
Sec. 2. Form of Warrant.................................... 1
Sec. 3. Countersignature and Registration................... 1
Sec. 4. Transfers and Exchanges............................. 2
Sec. 5. Exercise of Warrants................................ 2
Sec. 6. Payment of Taxes.................................... 3
Sec. 7. Mutilated or Missing Warrants....................... 3
Sec. 8. Reservation of Common Stock......................... 3
Sec. 9. Warrant Price....................................... 4
Sec. 10. Adjustments......................................... 4
Sec. 11. Fractional Interest................................. 8
Sec. 12. Notices to Warrantholders........................... 8
Sec. 13. Disposition of Proceeds on Exercise of Warrants..... 9
Sec. 14. Merger or Consolidation or Change of Name of
Warrant Agent..................................... 9
Sec. 15 Redemption.......................................... 10
Sec. 16. Duties of Warrant Agent............................. 10
Sec. 17. Change of Warrant Agent............................. 12
Sec. 18. Identity of Transfer Agent.......................... 12
Sec. 19. Notices............................................. 12
Sec. 20. Supplements and Amendments.......................... 13
Sec. 21. Successors.......................................... 13
Sec. 22. Governing Law....................................... 13
Sec. 23. Benefits of this Agreement.......................... 13
Sec. 24. Counterparts........................................ 14
TESTIMONIUM................................................... 14
SIGNATURES.................................................... 14
EXHIBIT A - (Form of Common Stock Purchase Warrant, prior to
Separation Date, including Election to Purchase
and Assignment)
EXHIBIT B - (Form of Common Stock Purchase Warrant, after
Separation Date, including Election to
Purchase and Assignment)
<PAGE>
WARRANT AGREEMENT dated as of ________________, 1998, between EuroWeb
International Corp., a Delaware corporation, (hereinafter called the "Company")
and American Stock Transfer & Trust Company, as warrant agent (hereinafter
called the "Warrant Agent"); and
WHEREAS, the Company proposes to issue and sell up to 1,250,000 Common
Stock Purchase Warrants, each Warrant entitling the registered holder thereof to
purchase one share of Common Stock of the Company, (the "Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT.
The Company hereby appoints the Warrant Agent to act as Agent for the
Company in accordance with the instructions hereinafter set forth in this
Agreement and the Warrant Agent hereby accepts such appointment.
Section 2. FORM OF WARRANT.
The Warrants are to be initially issued as components of Units, each
Unit consisting of one share of Preferred Stock and one Warrant, and the shares
of Preferred Stock and the Warrants will not be separable, and the Warrants will
not be exercisable or redeemable, prior to _________________, 1999 or such
earlier date after _______________, 1998 as designated by J.W. Barclay & Co.,
Inc. (herein referred to as the "Separation Date"). Until the Separation Date,
the Warrants shall be evidenced by Unit certificates in the form annexed hereto
as Exhibit A, and after the Separation Date, the Warrants may be represented by
such certificates or by certificates in the form annexed hereto as Exhibit B.
The per share warrant price and the number of shares issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, all as hereinafter provided. The Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the present or any
future Chairman, President or Vice President of the Company, attested by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
Warrants shall be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange.
Section 3. COUNTERSIGNATURE AND REGISTRATION.
The Warrant Agent shall maintain books for the transfer and
registration of the Warrants. Upon the initial issuance of the Warrants, the
Warrant Agent shall issue and register the Warrants in the names of the
respective holders thereof. The Warrants shall be countersigned manually or by
facsimile by the Warrant Agent (or by any successor to the Warrant Agent then
acting as warrant agent under this Agreement) and shall not be valid for any
purpose unless so countersigned. Warrants may be so
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<PAGE>
countersigned, however, by the Warrant Agent (or by its successor as warrant
agent) and be delivered by the Warrant Agent, notwithstanding that the persons
whose manual or facsimile signatures appear thereon as proper officers of the
Company shall have ceased to be such officers at the time of such
countersignature or delivery, provided such persons were proper officers of the
Company at the time of such original signing.
Section 4. TRANSFERS AND EXCHANGES.
The Warrants cannot be transferred separately from the Preferred Stock
with which they are to be issued prior to the Separation Date. The Warrant Agent
shall transfer, from time to time after the Separation Date, any outstanding
Warrants upon the books to be maintained by the Warrant Agent for that purpose,
upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer. Upon any such transfer, a new Warrant
shall be issued to the transferee and the surrendered Warrant shall be canceled
by the Warrant Agent. Warrants so canceled shall be delivered by the Warrant
Agent to the Company from time to time upon request. Warrants may be exchanged
at the option of the holder thereof, when surrendered at the office of the
Warrant Agent, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of shares of Common Stock.
Section 5. EXERCISE OF WARRANTS.
Subject to the provisions of this Agreement, each registered holder of
Warrants shall have the right, which may be exercised commencing at the opening
of business New York City time on the Separation Date and terminating at 5:00
p.m., New York City time, on _____________, 2003 (the "Expiration Date"), to
purchase from the Company (and the Company shall issue and sell to such
registered holder of Warrants) the number of fully paid and non-assessable
shares of Common Stock specified in such Warrants, upon surrender to the Company
at the office of the Warrant Agent of such Warrants, with the form of election
to purchase on the reverse thereof duly filled in and executed, and upon payment
to the Company of the Warrant Price, determined in accordance with the
provisions of Sections 9 and 10 of this Agreement, for the number of shares in
respect of which such Warrants are then exercised. Payment of such Warrant Price
shall be made in cash or by check, bank draft or postal or express money order
payable, in United States dollars, to the order of the Company in New York
Clearing House funds. No adjustment shall be made for any dividends on any
shares of Common Stock issuable upon exercise of a Warrant. Subject to Section
6, upon such surrender of the Warrants and payment of the Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch, upon the written order of the registered holder of such Warrants, and
in such name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. No fractional shares of Common Stock will be issued;
any fraction of a share issuable upon exercise shall be purchased in accordance
with section 11. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such shares as of the date of the surrender of such
Warrants and payment of the Warrant Price as aforesaid; provided, however, that
if, at the date of surrender of such Warrants and payment of such Warrant Price,
the transfer books for the shares of Common Stock or other class of stock
purchasable upon the exercise of such Warrants shall be closed, the certificates
for the shares in respect to which such Warrants are then exercised shall be
deemed to have been issued as of the date on which such books shall be opened
(whether before, on or after the Expiration Date) and until such date the
Company shall be under no duty to deliver any certificate for such shares;
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<PAGE>
provided, further, however, that such transfer books, unless otherwise required
by law or by applicable rule of any national securities exchange, shall not be
closed at any one time for a period longer than 20 days. The rights of purchase
represented by the Warrants shall be exercisable, at the election of the
registered holders thereof, either as an entirety or from time to time for part
only of the shares specified therein and, in the event that any Warrant is
exercised in respect of fewer than all of the shares specified therein at any
time prior to the Expiration Date, a new Warrant or Warrants will be issued to
such registered holder for the remaining number of shares specified in the
Warrant so surrendered, and the Warrant Agent is hereby irrevocably authorized
to countersign and to deliver the required new Warrants pursuant to the
provisions of this Section and of Section 3 of this Agreement; and the Company,
whenever requested by the Warrant Agent, will supply the Warrant Agent with
Warrants duly executed on behalf of the Company for such purpose. After the
respective Expiration Dates of the Warrants any such Warrants which have not
been exercised shall be void.
Section 6. PAYMENT OF TAXES.
The Company will pay any documentary stamp taxes attributable to the
issuance of Common Stock upon the exercise of the Warrants by the registered
holder thereof; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect to any transfer of a Warrant or
in respect to any transfer involved in the issue or delivery of any certificates
for shares of Common Stock in a name other than that of the registered holder of
Warrants in respect of which such shares are issued, and in such case neither
the Company nor the Warrant Agent shall be required to issue or deliver any
certificate for shares of Common Stock or any Warrant until the person
requesting the same has paid to the Company or Warrant Agent the amount of such
tax or has established to the Company's and to the Warrant Agent's satisfaction
that such tax has been paid.
Section 7. MUTILATED OR MISSING WARRANTS.
In case any of the Warrants shall be mutilated, lost, stolen or
destroyed, the Company may in its discretion issue, and the Warrant Agent shall
then countersign and deliver, in exchange and substitution for and upon
cancellation of the mutilated Warrant, or in lieu of and substitution for the
Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing
an equivalent right or interest, but only upon receipt of evidence satisfactory
to the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant and, in the case of a lost, stolen or destroyed Warrant, indemnity, if
requested, also satisfactory to them. Applicants for such substitute Warrants
shall also comply with such other reasonable regulations and pay such reasonable
charges as the Company or the Warrant Agent may prescribe.
Section 8. RESERVATION OF COMMON STOCK.
There has been reserved, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrants; and the Transfer Agent for the shares of Common
Stock and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid are hereby irrevocably authorized and directed at all times to reserve
such number of authorized and unissued shares as shall be requisite for such
purpose. The Company agrees that all shares of Common Stock issued upon exercise
of the Warrants shall be, at the time of delivery of the certificates for such
shares of Common Stock, duly authorized, validly issued and
3
<PAGE>
outstanding, fully paid and non-assessable and listed on any national securities
exchange upon which the other shares of Common Stock are then listed. So long as
any unexpired Warrants remain outstanding, the Company will file such
post-effective amendments to the Registration Statement (File No.________) filed
pursuant to the Securities Act of 1933 with respect to the Warrants (or such
other registration statements or post-effective amendments or supplements) as
may be necessary to permit it to deliver to each person exercising a Warrant, a
Prospectus meeting the requirements of such Act and otherwise complying
therewith, and will deliver such a Prospectus to each such person. The Company
will keep a copy of this Agreement on file with the Transfer Agent for the
shares of Common Stock and with every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is hereby irrevocably
authorized to requisition from time to time from such Transfer Agent stock
certificates required to honor outstanding Warrants. The Company will supply
such Transfer Agent with duly executed stock certificates for such purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
canceled by the Warrant Agent and shall thereafter be delivered to the Company,
and such canceled Warrants shall constitute sufficient evidence of the number of
shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the Expiration Date, the Warrant Agent shall certify to
the Company as to the total aggregate amount of Warrants then outstanding, and
thereafter no shares of Common Stock shall be subject to reservation in respect
of such Warrants which shall have expired.
Section 9. WARRANT PRICE.
The Warrant Price at which Common Stock shall be purchasable pursuant
to the Warrants shall be $_____ per share. The Warrant Price is subject to
adjustment, as provided in Section 10 hereof.
Section 10. ADJUSTMENTS.
Subject and pursuant to the provisions of this Section 10, the Warrant
Price and number of shares of Common Stock subject to the Warrants shall be
subject to adjustment from time to time as follows:
(a) If the Company shall issue or sell either any of its shares of
Common Stock or any rights, options, warrants or obligations or securities
containing the right to subscribe for or purchase any shares of Common Stock
("Options") or exchangeable for or convertible into shares of Common Stock
("Convertible Securities"), at a price per share, as determined pursuant to
Section 10(b) herein, less than the Warrant Price of the Warrants then in effect
on the date of such sale or issuance, then the number of shares of Common Stock
thereafter purchasable upon exercise of each Warrant shall be determined by
multiplying the number of shares of Common Stock theretofore purchasable upon
exercise of the Warrant by a fraction, (x) the numerator of which shall be the
number of shares of Common Stock outstanding immediately following the issuance
of such shares of Common Stock, Options or Convertible Securities plus the
number of shares of Common Stock obtainable upon the exercise of the Options and
the conversion or exchange of the Convertible Securities and (y) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
preceding the issuance of such shares of Common Stock, Options, or Convertible
Securities plus the number of shares of Common Stock which the aggregate consid
eration received by the Company upon such issuance would purchase on such date
at the Warrant Price then in effect.
(b) The following provisions, in addition to other provisions of this
Section 10, shall be applicable in determining any adjustment under Section
10(a).
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<PAGE>
(1) If the Company shall at any time after the date hereof
issue any Options or Convertible Securities, the following provisions shall
apply in making any adjustment pursuant to this Section 10:
(i) The price per share for which Common Stock is
issuable upon the exercise of the Options or upon conversion or exchange of the
Convertible Securities shall be determined by dividing (A) the total amount, if
any, received or receivable by the Company as consideration for the issuance of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible Securities, by
(B) the aggregate maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of such Convertible
Securities.
(ii) In determining the price per share for which
Common Stock is issuable upon exercise of the Options or conversion or exchange
of the Convertible Securities as set forth in Section 10(b) (1) (i) and in
computing any adjustment pursuant to Section 10(a), (A) the aggregate maximum
number of shares of Common Stock issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities shall be considered to
be outstanding at the time such Options or Convertible Securities were issued
and to have been issued for such price per share as determined pursuant to
Section 10(b)(1) (i), and (B) consideration for the issuance of such Options or
Convertible Securities and the amount of additional consideration payable to the
Company upon exercise of such Options or upon the conversation or exchange of
such Convertible Securities shall be determined in the same manner as the
consideration received upon the issuance or sale of shares of Common Stock as
provided in paragraph 10(b) (1) and 10(b) (2).
(iii) On the expiration of such Options or the
termination of any right to convert
or exchange any Convertible Securities, the number of shares of Common Stock
issuable upon exercise of the Warrants shall forthwith be readjusted to such
number of shares of Common Stock as would have been obtained had the adjustments
made upon the issuance of such Options or Convertible Securities been made upon
the basis of the delivery of only that number of shares of Common Stock actually
delivered and the consideration actually paid upon the exercise of such Options
or upon conversion or exchange of such Convertible Securities.
(iv) If the minimum purchase price per share of
Common Stock provided for in any Option or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock shall change or
a different purchase price or rate shall become effective at any time or from
time to time (other than pursuant to any antidilution provision of such Options
or Convertible Securities), then, upon such change becoming effective the number
of shares of Common Stock subject to the Warrants shall forthwith be increased
or decreased to such number of shares as would have been obtained had the
adjustments made upon the granting or issuance of such Options or Convertible
Securities been made upon the basis of (A) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such Options
or upon the conversion or exchange of such Convertible Securities, and the total
consideration received therefor, and (B) the granting or issuance at the time of
such change of any such Options or Convertible Securities then still outstanding
for the consideration, if any, received by the Company therefor and to be
received on the basis of such changed price or rate of exchange or conversion.
(2) Except as otherwise specifically provided herein, the date
of issuance or sale of shares of Common Stock shall be deemed to be the date the
Company is legally obligated to issue such shares of Common Stock, or pursuant
to paragraph 10(b)(1), the date the Company is legally obligated to issue any
5
<PAGE>
"Option" or "Convertible Security". If at any time the Company shall take a
record date for the purpose of determining the holders of Common Stock entitled
(A) to receive a dividend or other distribution payable in Common Stock or in
Options or Convertible Securities, or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be deemed
to be the date of issue or sale of the shares of Common Stock, Options or
Convertible Securities deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the granting of
such right of subscription or purchase, as the case may be.
(3) The number of shares of Common Stock outstanding at any
given time shall not include treasury shares and the issue or sale of any such
treasury shares shall be considered an issue or sale of Common Stock for the
purposes of this Section 10.
(4) Notwithstanding any provision herein to the contrary, no
adjustment to the Warrant Price or in the number of Common Shares subject to the
Warrants shall be made pursuant to paragraph 10(a) upon:
(i) the issuance or sale of shares of Common Stock
pursuant to the exercise of the Warrants or upon the exercise of Options or
conversion or exchange of Convertible Securities hereafter issued for which an
adjustment has been made pursuant to the provisions of Section 10 hereof;
(ii) the increase in the number of shares of Common
Stock subject to any Warrant, Option or Convertible Security referred to in
subsections 10(b)(4)(i) hereof pursuant to antidilution provisions of such
Warrant, Option or Convertible Security;
(iii) the sale or issuance of shares for a
consideration consisting, wholly or partly, of other than cash; or
(iv) the issuance or sale of Common Stock for assets
or acquisitions, to key employees or advisors of the Company or pursuant to any
stock options outstanding, or any stock option plan that is in effect, on the
date hereof.
(c) If the Company shall at any time issue any shares of Common Stock
as a stock dividend to the holders of its Common Stock or subdivide its
outstanding shares of Common Stock by recapitalization, reclassification or
split-up thereof, the number of shares of Common Stock subject to the Warrants
immedi ately prior to such subdivision shall be proportionately increased, and
if the Company shall at any time combine the outstanding shares of Common Stock
by recapitalization, reclassification or combination thereof, the number of
shares of Common Stock subject to the Warrants immediately prior to such
combination shall be proportionately decreased. Any such adjustment and any
adjustment to the Warrant Price pursuant to Section 10(f) shall become effective
at the close of business on the record date for such subdivision or combination.
(d) If the Company after the date hereof shall distribute to all of the
holders of its shares of Common Stock any securities or other assets (other than
shares of Common Stock as to which an adjustment is made pursuant to Section 10
hereof or a distribution made as a dividend payable out of earnings or out of
any earned surplus legally available for dividends under the laws of the
jurisdiction of incorporation of the Company), the Company shall make such
equitable adjustment in the Warrant Price in effect immediately prior to the
record date of such distribution as may be necessary to preserve to the
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holders of the Warrants rights substantially proportionate to those enjoyed
hereunder by such holders immediately prior to the happening of such
distribution. Any such adjustment shall become effective as of the day following
the record date for such distribution.
(e) No adjustment in the number of shares of Common Stock issuable upon
the exercise of the Warrants shall be required under Section 10 unless such
adjustment would require an increase or decrease in such number of shares of at
least 2% of the then adjusted number of shares of Common Stock issuable upon the
exercise of the Warrants; provided, however, that any adjustments which by
reason of the foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount of any
subsequent adjustment; and provided further, however, that in case the Company
shall at any time subdivide or combine the outstanding shares of its Common
Stock said percentage shall forthwith be proportionately increased in the case
of a combination or deceased in the case of a subdivision of shares of its
Common Stock so as to appropriately reflect the same. If the Company shall make
a record of the holders of its shares of Common Stock for the purpose of
entitling them to receive any distribution and shall thereafter and before the
distribution legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the number of shares of Common Stock subject
to the Warrants shall be required by reason of the taking of such record.
(f) Whenever the number of shares of Common Stock purchasable upon the
exercise of the Warrants is adjusted, as provided in Section 10, the Warrant
Price shall be adjusted (to the nearest cent) by multiplying such Warrant Price
immediately prior to such adjustment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock purchasable upon the exercise of
the Warrants immediately prior to such adjustment, and (y) the denominator of
which shall be the number of shares of Common Stock so purchasable immediately
thereafter.
(g) In case of any reclassification of the outstanding shares of Common
Stock, other than a change covered by Section 10(c) hereof or which solely
affects the par value of such shares of Common Stock, or in the case of any
merger or consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or capital
reorganization of the outstanding shares of Common Stock), or in the case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety in connection with which the Company is
dissolved, the holders of the Warrants shall have the right thereafter (until
the Expiration Date or until thirty (30) days after notice is given pursuant to
Section 12 if the Company is to be dissolved) to receive upon the exercise
thereof, for the same aggregate Warrant Price payable hereunder immediately
prior to such event, the kind and amount of shares of stock or other securities
or property receivable upon such reclassification, capital reorganization,
merger or consolidation, or upon the dissolution following any sale or other
transfer, by a holder of the number of shares of Common Stock of the Company
obtainable upon exercise of the Warrants immediately prior to such event; and if
any reclassification also results in a change in shares of Common Stock covered
by Section 10(c), then such adjustment shall be made pursuant to both Section
10(c) and this Section 10(g). The provisions of this Section 10(g) shall
similarly apply to successive reclassifications, or capital reorganizations,
mergers or consolidations, sales or other transfers.
If the Company after the date hereof shall take any action affecting
the shares of its Common Stock, other than action described in this Section 10,
which, in the good faith opinion of the Board of Directors of the Company, would
materially affect the rights of the holder of the Warrants, then the Warrant
Price and the numbers of shares of Common Stock obtainable upon exercise of the
Warrants shall
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be adjusted in such manner, if any, and at such time as the Board of Directors
of the Company, in good faith, may determine to be equitable in the
circumstances.
(h) The form of Warrants need not be changed because of any change
pursuant to this Section, and Warrants issued after such change may state the
same Warrant Price and the same number of shares as is stated in such Warrants
initially issued pursuant to this agreement. However, the Company may at any
time in its sole discretion (which shall be conclusive) make any change in the
form of Warrants that the Company may deem appropriate and that does not affect
the substance thereof; and any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise, may
be in the form as so changed.
Section 11. FRACTIONAL INTEREST.
The Company shall not be required to issue fractions of shares of
Common Stock on the exercise of the Warrants. If more than one Warrant shall be
surrendered for exercise at one time by the same holder, the number of full
shares which shall be issuable upon exercise thereof shall be computed on the
basis of the aggregate number of Warrants so exercised. If a fraction of a share
is issuable upon exercise of a Warrant, the Company shall purchase such fraction
based upon the then current market value of the Common Stock.
Section 12. NOTICES TO WARRANTHOLDERS.
(a) Upon any adjustment of the Warrant Price and the number of shares
issuable on exercise of a Warrant, then and in each such case the Company shall
give written notice thereof to the Warrant Agent and to J.W. Barclay & Co.,
Inc., which notice shall state the Warrant Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares purchasable at
such price upon the exercise of a Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
The Company shall also publish such notice once in an Authorized Newspaper. For
the purposes of this Agreement, an Authorized Newspaper shall mean a newspaper
customarily published on each business day, in one or more morning editions or
one or more evening editions, or both (and whether or not it shall be published
in Saturday and Sunday editions or on holidays), printed in the English language
and of general circulation in the City of New York, State of New York. Failure
to give or publish such notice, or any defect therein, shall not affect the
legality or validity of the subject adjustments.
(b) In case at any time:
(1) the Company shall pay any dividends payable in stock upon
its Common Stock or make any distribution (other than regular cash dividends) to
the holders of its Common Stock;
(2) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(3) there shall be any capital reorganization or
reclassification (other than a reclassification involving merely the subdivision
or combination of outstanding Common Stock) or merger or consolidation of the
Company with, or sale of all or substantially all of its assets to, another
corporation; or
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(4) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
then, in any one or more of such cases, the Company shall give written notice
and publish the same in the manner set forth in this Section 12 hereinabove.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution, or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up, as the
case may be. Such notice shall be given and published at least twenty (20) days
prior to the action in question and not less than twenty (20) days prior to the
record date or the date on which the Company's transfer books are closed in
respect thereof. Failure to give or publish such notice, or any defect therein,
shall not affect the legality or validity of any of the matters set forth in
this section 12 inclusive.
(c) The Company shall cause copies of all financial statements and
reports, proxy statements and other documents as it shall send to its
stockholders to be sent by first-class mail of the United States Postal Service,
postage prepaid, on the date of mailing to such stockholders, to each registered
holder of Warrants at his address appearing on the Warrant register as of the
record date for the determination of the stockholders entitled to such
documents.
Section 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
(a) The Warrant Agent shall promptly forward to the Company all monies
received by the Warrant Agent for the purchase of shares of Common Stock through
the exercise of Warrants.
(b) The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours.
Section 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF
WARRANT AGENT.
Any corporation or company which may succeed to the business of the
Warrant Agent by any merger or consolidation or otherwise to which the Warrant
Agent shall be a party, or any corporation or company succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Warrant Agent under
the provisions of Section 17 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned; and in case
at that time any of the Warrants shall not have been countersigned, any
successor to the Warrant Agent shall countersign such Warrants in its own name;
and in all such cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and in case at that time any of the
Warrants shall have been countersigned, the Warrant Agent may countersign such
Warrants either
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in its prior name or in its changed name; and in all such cases such Warrants
shall have the full force provided in the Warrants and in this Agreement.
Section 15. REDEMPTION.
(a) Subject to notice as hereinafter set forth, the Warrants may be
redeemed at the option of the Company beginning two months after the Separation
Date at a redemption price of $____ per Warrant (the "Redemption Price"),
provided that the closing sale price, or if none, the closing bid price, of the
Common Stock issuable upon exercise the Warrants as reported by any stock
exchange on which the Common Stock is listed or by NASDAQ, exceeds $____ per
share on at least 20 days of the 30 consecutive trading days ending within 15
days of the date of mailing of notice of redemption.
(b) Not less than 30 days nor more than 60 days prior to the date fixed
for any redemption of Warrants, the Company shall mail a notice specifying the
time and place thereof and the Redemption Price to the registered holders of the
Warrants called for redemption at their respective addresses as shown on the
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a holder (i) to whom the Company has failed to
mail such notice or (ii) whose notice was defective. An affidavit of the Warrant
Agent or of the Secretary or an Assistant Secretary of the Company that notice
of redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(c) From and after the date specified for redemption, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by the holder of Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such holder a sum in cash
equal to the Redemption Price of such Warrants. From and after the date fixed
for redemption and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
certificates. except the right to receive payment of the Redemption Price, shall
cease.
Section 16. DUTIES OF WARRANT AGENT.
The Warrant Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Warrants, by their acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company; and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any
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holder of any Warrant in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel.
(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the Warrant
Agent's negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expenses unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery or judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights or
interests may appear.
(g) The Warrant Agent and any stockholder, director, officer, partner
or employee of the Warrant Agent may buy, sell or deal in the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not the Warrant Agent under
this Agreement. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, willful misconduct or bad faith.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from such neglect or
misconduct, provided reasonable care had been exercised in the selection and
continued employment thereof.
(j) Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its President or Vice President or its
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Secretary or an Assistant Secretary or its Treasurer or an Assistant Treasurer
(unless other evidence in respect thereof be herein specifically prescribed);
and any resolution of the Board of Directors may be evidenced to the Warrant
Agent by a copy thereof certified by the Secretary or an Assistant Secretary of
the Company.
Section 17. CHANGE OF WARRANT AGENT.
The Warrant Agent may resign and be discharged from its duties under
this Agreement by giving to the Company notice in writing, and to the holders of
the Warrants notice by mailing such notice to the holders at their addresses
appearing on the Warrant register, of such resignation, specifying a date when
such resignation shall take effect. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company and by like mailing of notice to
the holders of Warrants. If the Warrant Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by the registered holder of a Warrant (who shall,
with such notice, submit his Warrant for inspection by the Company), then the
registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor warrant agent, whether appointed by the Company or by such a court,
shall be a bank or trust company, in good standing, incorporated under the laws
of any state in the United States of America. After appointment, the successor
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to
the successor warrant agent all canceled Warrants, records and property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to file or mail any
notice provided for in this Section, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Warrant
Agent or the appointment of the successor warrant agent, as the case may be.
Section 18. IDENTITY OF TRANSFER AGENT.
Forthwith upon the appointment of any Transfer Agent for the shares of
Common Stock or of any subsequent transfer agent for shares of Common Stock or
other shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by the Warrants, the Company shall file with the
Warrant Agent a statement setting forth the name and address of such Transfer
Agent.
Section 19. NOTICES.
Any notice pursuant to this Agreement to be given or made by the
Warrant Agent or by the registered holder of any Warrant to or on the Company
shall be sufficiently given or made if sent by first-class mail of the United
State Postal Service, postage prepaid, addressed (until another address is filed
in writing by the Company with the Warrant Agent) as follows:
EuroWeb International Corp.
445 Park Avenue, 15th floor
New York, New York 10022
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Any notice pursuant to this Agreement to be given or made by the
Company or by the registered holder of any Warrant to or on the Warrant Agent
shall be sufficiently given or made if sent by first-class mail of the United
States Postal Service, postage prepaid, addressed (until another address is
filed in writing by the Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Any notice pursuant to this Agreement to be given or made by the
Company or by the Warrant Agent to or on J.W. Barclay & Co., Inc. shall be
sufficiently given or made if sent by first-class mail of the United States
Postal Service, postage prepaid, addressed (until another address is filed in
writing by J.W. Barclay & Co., Inc. with the Company and the Warrant Agent) as
follows:
J.W. Barclay & Co., Inc.
1 Battery Park Plaza
New York, New York 10004
Section 20. SUPPLEMENTS AND AMENDMENTS.
The Company and the Warrant Agent may from time to time supplement or
amend this Agreement in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provision in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not be inconsistent with the provisions
of the Warrants and which shall not adversely affect the interest of the holders
of Warrants.
Section 21. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrant Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
Section 22. GOVERNING LAW.
This Agreement and each Warrant issued hereunder shall be deemed to be
a contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the internal laws of said State applicable
to agreements and instruments made and to be performed entirely in such state
without giving effect to the conflicts of laws principles thereof.
Section 23. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Warrant Agent and the registered holders
of the Warrants any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent and the registered holders of the Warrants.
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Section 24. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
EUROWEB INTERNATIONAL CORP.
By________________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
By________________________________
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Exhibit 4(h)
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT
TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, EXCEPT AS PROVIDED HEREIN NEITHER THE WARRANTS NOR SUCH SECURITIES CAN
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, (ii) A NEW REGISTRATION STATEMENT, OR (iii) AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN
No. UWU-__
UNIT WARRANT CERTIFICATE
Dated: _______________, 1998
VOID AFTER 5:00 P.M., NEW YORK, NEW YORK LOCAL TIME
ON ______________________, 2003
EUROWEB INTERNATIONAL CORP.
_______ Warrants to Purchase _________ Units,
each Unit consisting of
one (1) share of Series A Convertible
Cumulative Redeemable Preferred Stock
and one (1) Common Stock Purchase Warrant
EuroWeb International Corp., a Delaware corporation,
(hereinafter referred to as the "Company") hereby certifies that
- ------------------- -
or registered assigns, is entitled to purchase from the Company at any time
after _______________, 1998 and before 5:00 P.M. New York, New York local time
on ______________, 2003, _________________ (________) Units (hereinafter
referred to as the "Units") of the Company (the number and character of such
units being subject to adjustments as provided herein) in accordance with the
number of Warrants indicated on the face hereof at the purchase price of $_____
per Unit (hereinafter referred to as the "Unit Exercise Price"). This Warrant
was issued pursuant to a certain Underwriting Agreement dated _____________,
1998 between the Company and J.W. Barclay & Co., Inc. ("Barclay") providing for
the issuance of an
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aggregate of 80,000 Warrants (herein referred to as "Warrants") entitling
Barclay to purchase an aggregate of 80,000 Units of the Company, each Unit
consisting of one (1) share of Series A Convertible Cumulative Redeemable
Preferred Stock ("Preferred Stock") and one (1) Common Stock Purchase Warrant
("Common Stock Warrants"). Each Common Stock Purchase Warrant shall be
exercisable for one (1) share of Common Stock. Such Units, Preferred Stock and
Common Stock Warrants are further described in the Company's registration
statement (the "Registration Statement") (File No. _____________) filed with,
and declared effective by, the Securities and Exchange Commission.
1. EXERCISE OF WARRANTS. Upon presentation and surrender of this Warrant
Certificate, with the attached Purchase Form duly executed, at the principal
office of the Company, together with a certified or bank cashier's check payable
to the Company in the amount of the Unit Exercise Price times the number of
Units of the Company being purchased, the Company shall deliver to the holder
hereof, as promptly as practicable, certificates representing the Units being
purchased (the Units to be comprised of one share of Preferred Stock and one
Common Stock Purchase Warrant, and being identical to the Units sold to the
public pursuant to the terms of the aforesaid underwriting agreement). This
Warrant may be exercised in whole or in part; and, in case of exercise hereof in
part only, the Company, upon surrender hereof, will deliver to the holder a new
Warrant Certificate or Warrant Certificates of like tenor entitling said holder
to purchase the number of Units as to which this Warrant Certificate has not
been exercised.
2. EXCHANGE AND TRANSFER. This Warrant may be exchanged at any time prior
to the exercise hereof, upon presentation and surrender to the Company, alone or
with other Warrants of like tenor registered in the name of the same holder, for
another Warrant or other Warrants of like tenor in the name of such holder
exercisable for the same aggregate number of Units as the Warrant or Warrants
surrendered. This Warrant may not be sold, transferred, hypothecated or assigned
before ______________, 1999 except to officers of Barclay or to other members of
the underwriting group or dealers in the selling group or to partners or
officers of such members or such dealers in the selling group, with respect to
the offering described in the Registration State ment, and after such date, it
may be sold, transferred, hypothecated or assigned only subject to the
provisions of Section 5 hereof.
3. RIGHTS AND OBLIGATIONS OF WARRANTHOLDERS. The holder of this Warrant
Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of the Company's Preferred
Stock is issued to the holder hereof upon exercise of some or all of the
Warrants represented hereby, such holder shall, for all purposes, be deemed to
have become the holder of record of such stock on the date on which this Warrant
Certificate, together with a duly executed Purchase Form, was surrendered and
payment of the purchase price was made, irrespective of the date of delivery of
such share certificate, except that if at the date of surrender of such Warrant
Certificate and payment of the purchase price, the transfer books for the shares
of Preferred Stock shall be closed, the holder of this Warrant Certificate shall
not be deemed to have become the holder of record of such stock until the date
on which such books shall be opened. Unless required by law or by applicable
rule of any national securities exchange such transfer books shall not be closed
at any one time for a period longer than 40 days. The rights of the holder of
this
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Warrant Certificate are limited to those expressed herein and the holder of this
Warrant Certificate, by his acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Warrant Certificate,
including without limitation all the obligations imposed upon the holder hereof
by Section 5. In addition, the holder of this Warrant Certificate, by accepting
the same, agrees that the Company and its warrant agent, if any, may, prior to
any presentation for registration of transfer, deem and treat the person in
whose name this Warrant Certificate is registered as the absolute, true and
lawful owner for all purposes whatsoever, and neither the Company nor the
warrant agent shall be affected by notice to the contrary.
4. PREFERRED STOCK AND COMMON STOCK WARRANTS.
(a) The Company covenants and agrees that all shares of Preferred Stock
delivered as part of the Units upon exercise of this Warrant Certificate will,
upon delivery, be duly authorized, validly issued, fully-paid and
non-assessable, and free from all stamp taxes, liens, and charges with respect
to the purchase thereof. In addition, the Company agrees at all times to reserve
and keep available an authorized number of shares of its Preferred Stock
sufficient to permit the exercise in full of all outstanding Warrants.
(b) The Company covenants and agrees that all Common Stock Warrants
delivered upon exercise of this Warrant Certificate will, upon delivery, be duly
authorized and validly issued, and free from all stamp taxes, liens, and charges
with respect to the purchase thereof. In addition, the Company agrees at all
times to reserve and keep available an authorized number of shares of its Common
Stock sufficient to permit the exercise in full of all Common Stock Warrants to
be issued as a result of the exercise of this Warrant Certificate.
5. DISPOSITION OF WARRANTS OR UNITS. The holder of this Warrant Certificate
and any transferee hereof or of the Units or the components of the Units (which
term shall include the shares of Preferred Stock and Common Stock Warrants
comprising the Units as well as the shares of Common Stock issuable upon the
conversion of shares of Preferred Stock and upon the exercise of the Common
Stock Warrants), by their acceptance thereof, hereby agree that (a) no public
distribution of the Warrants or the Units or components thereof will be made in
violation of the provisions of the Securities Act of 1933, or the Rules and
Regulations promulgated thereunder (such Act and Rules and Regulations being
hereinafter referred to as the "Act") and (b) during such period as delivery of
a prospectus with respect to the Warrants or the Units or components may be
required by the Act, any public distribution of the Warrants or Units or
components will be preceded or accompanied by, and made in a manner or on terms
set forth in, a prospectus then meeting the requirements of Section 10 of the
Act and in compliance with all applicable state laws. The holder of this Warrant
Certificate and any such transferee hereof further agree that if any
distribution of any of the Warrants or Units or components is proposed to be
made by them otherwise than by delivery of a prospectus meeting the requirements
of Section 10 of the Act as set forth above, such action shall be taken only
after submission to the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed distribution will not be in violation of the Act or of applicable
state law.
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Furthermore, it shall be a condition to the transfer of the Warrants that any
transferee thereof deliver to the Company his or its written agreement to accept
and be bound by all of the terms and conditions of this Warrant Certificate.
6. REGISTRATION. The Company further covenants and agrees as follows:
(a) Upon receipt by the Company at any time during the period from
____________, 1999 to ____________, 2003 of a written request from Barclay or
the holders of not less than fifty percent of the Warrants to qualify or
register the Warrants and/or the Units and the components thereof, in whole or
in part, under the Act, the Company will, as promptly as practicable but in no
event later than 60 days after receipt of such written request, at the Company's
sole cost and expense: (i) prepare and file under the Act, a registration
statement relating to such Warrants and/or Units and the components thereof to
enable the holders thereof to offer and sell such securities in a public
offering, (the term "registration statement" as used in this Section 6(a) being
deemed to include any form which may be used to register a distribution of
securities to the public for cash, a post-effective amendment to a registration
statement, or a notification and offering circular pursuant to Regulation A when
necessary to perfect an exemption thereunder), (ii) prepare and file with the
appropriate state securities regulatory bodies ("Blue Sky" authorities) the
necessary documents to register or qualify such Warrants and/or Units and the
components thereof for public offering, (iii) deliver to each of the other
holders of Warrants and Units and the components thereof written notice of its
intention to register such Warrants and/or Units and components thereof at least
30 days prior to the anticipated filing date, (iv) if requested by any of such
other holders of Warrants or Units or components thereof in writing delivered to
the Company within twenty (20) days of the receipt of such written notice from
the Company, include in such registration statement all, or any part, of the
Warrants and/or Units and components thereof then held by such other holder, and
(v) use its best efforts to cause such registration statement to become
effective as promptly as possible and to keep such registration statement and
Blue Sky filings current and effective until such time as an amendment is
required to be filed pursuant to the provisions of Section 10(a)(3) of the Act.
In the event the registration statement is not filed within the period specified
herein, the expiration date of the Warrants and the Common Stock Warrants shall
be extended by a period of time equal to the delay in filing, and in the event
the registration statement is not declared effective under the Act prior to
______________, 2003, the Company shall extend the expiration date of the
Warrants and the Common Stock Warrants to a date not less than ninety (90) days
after the effective date of such registration statement. In the event not all of
the Warrants and Units and components thereof shall have been registered as
provided above, the Company shall be obligated to file additional registration
statements in ac cordance with the terms set forth in this Section 6(a) to
register the remaining balance of the Warrants or Units and components thereof
not so registered, except that the expenses therefor shall be borne by the
holders of the Warrants and Units and components thereof in the event that the
Company has previously borne the expenses in connection with the registration of
the Warrants or the Units and components thereof pursuant to this Section 6(a).
(b) In addition to the provisions in Section 6(a), in the event the Company
shall at any time
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during the period described in Section 6(a) seek to further register or qualify
any of its securities or the securities holdings of any of its controlling
shareholders under the Act or "Blue Sky" laws, on each such occasion it shall
furnish the holders of the Warrants and/or the underlying Units and components,
with at least 30 days' written notice thereof and such holders shall have the
option, without cost or expense, to include their Warrants and Units and the
components thereof in such registration or qualification. Such holders shall
exercise the "piggy-back rights" under this Section 6(b) by giving written
notice to the Company within twenty (20) days from the receipt of the written
notice from the Company.
(c) All expenses in connection with preparing and filing any registration
statement under Sections 6(a) and (b) hereof (and any registration or
qualification under the securities or "Blue Sky" laws of states in which the
offering will be made under such registration statement) shall be borne in full
by the Company, subject to the last sentence of Section 6(a).
7. INDEMNIFICATION AND NOTIFICATION.
(a) The Company will indemnify and hold harmless each holder of Warrants or
Units (including the components thereof), and each person, if any, who controls
such holder within the meaning of Section 15 of the Act, from and against any
and all losses, claims, damages, expenses and liabilities caused by any untrue
statement of a material fact contained in any registration statement, or
contained in a prospectus furnished thereunder or caused by any omission to
state a material fact therein necessary to make the statements therein not
misleading provided, however, that the foregoing indemnification and agreement
to hold harmless shall not apply insofar as such losses, claims, damages,
expenses and liabilities are caused by any such untrue statement or omission
based upon information furnished in writing to the Company by any such holder
expressly for use in any registration statement or prospectus.
(b) Each holder of Warrants or Units (including the components thereof)
will indemnify the Company, and each person who controls the Company within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses and liabilities caused by an untrue statement of a material
fact contained in any registration statement, or contained in a prospectus
furnished thereunder or caused by an omission to state a material fact therein
necessary to make the statements therein not misleading insofar as such losses,
claims, damages, expenses and liabilities are caused by such untrue statement or
omission being based upon information furnished in writing to the Company by any
such holder expressly for use in any registration statement or prospectus.
(c) Promptly after the receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
7, notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to the indemnified party otherwise
than under this Section 7. In case any such action is brought against any
indemnified party, and
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it notifies the indemnifying party of the commencement thereof as provided
herein, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to the indemnified party of its election so to assume the defense thereof,
the indemnifying party will not be liable under this Section 7 for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation.
8. ADJUSTMENT. The number of shares of Preferred Stock and the terms of the
Common Stock Warrants included in the Units purchasable upon the exercise of the
Warrants are subject to adjustment from time to time upon the occurrence of any
of the events enumerated below:
(a) Definition of "Shares". As used herein, "Shares" shall mean shares of
the Company's Series A Convertible Cumulative Redeemable Preferred Stock.
(b) Change in Preferred Stock. If the Company shall at any time subdivide
its outstanding Shares by recapitalization, reclassification or split-up, the
number of Shares per Unit issuable upon exercise of this Warrant immediately
prior to such subdivision shall be proportionately increased, and if the Company
shall at any time combine the outstanding Shares by recapitalization,
reclassification or combination, the number of Shares per Unit issuable upon
exercise of this Warrant immediately prior to such combination shall be
proportionately decreased.
(c) Distribution of Securities or Other Assets. If the Company shall
distribute to all of its holders of Shares any securities (which do not
otherwise require any adjustment in the number of Shares issuable upon exercise
of this Warrant) or other assets (other than a cash distribution made as a
dividend payable out of earnings or out of earned surplus legally available for
dividends under the laws of the jurisdiction of incorporation of the Company),
the Board of Directors shall be required to make such equitable adjustment in
the Shares per Unit issuable upon exercise of this Warrant and the exercise
price thereof prior to the record date of such distribution as may be necessary
to preserve to the holders of the Warrants rights substantially proportionate to
those enjoyed hereunder immediately prior to the happening of such distribution.
Any such adjustment made by the Board of Directors reasonably made in good faith
shall be final and binding on the holder hereof. Any such adjustment shall
become effective as of the record date for distribution.
(d) Effect of Sale, Merger or Consolidation. If any capital reorganization
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected after the date hereof, then as a
condition of such reorganization, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder of each Warrant shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant Certificate and in lieu of the
Shares and Common Stock Warrants to be included in the Units underlying the
Warrant, such shares of stock, securities or assets as the holder of the Warrant
would have been entitled to receive if such holder had exercised the Warrant
immediately prior
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thereto. The Company shall not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume, by written
instrument executed and delivered to the holder of each Warrant, the obligation
to deliver to the holder of each Warrant, such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase.
(e) Notice to Warrantholders of Adjustment. Whenever the number of Shares
per Unit is adjusted as herein provided, the Company shall cause to be mailed to
the holders of Warrants in accordance with the provisions of this Section 8 a
notice (i) stating that the number of Shares purchasable upon exercise of
Warrants has been adjusted, (ii) setting forth the adjusted number of Shares
purchasable upon the exercise of a Warrant, and (iii) showing in reasonable
detail the computations and the facts, including the amount of consideration
received or deemed to have been received by the Company, upon which such
adjustments are based.
(f) Notice to Warrantholders of Stock Dividends, Reorganizations, etc.. In
case at any time after the date hereof:
(1) there shall be any capital reorganization or reclassification of the
capital stock of the Company (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result of the
subdivision or combination of Shares), or any conversion of the Shares into
securities of another corporation, or a sale of all or substantially all of the
assets of the Company, or a consolidation or merger of the Company with another
corporation (other than a merger with a subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification
or change of the Units issuable upon exercise of the Warrants); or
(2) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the holders of Warrants, not less than 45 days before any record date or other
date set for definitive action, written notice of the date upon which the books
of the Company shall close or a record shall be taken for purposes of such
dividend, distribution or subscription rights or upon which such reorganization,
reclassification, conversion, sale, consolidation, merger, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also set forth facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the number of
Shares per Unit and the kind and amount of the shares of stock and other
securities and property deliverable upon exercise of the Warrants. Such notice
shall also specify the date as of which the holders of the shares of record
shall participate in said dividend, distribution or subscription rights or shall
be entitled to exchange their Shares for securities or other property
deliverable upon such reorganization, reclassification, conversion, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be (on which date
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in the event of voluntary or involuntary dissolution, liquidation or winding up
of the Company, the right to exercise the Warrants shall terminate).
(g) Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of Warrants. If more than one Warrant
shall be surrendered for exercise at one time by the same holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Warrants so exercised. If any fractional
interest in a Share shall be deliverable upon the exercise of any Warrant or
Warrants, the Company shall make an adjustment therefor in cash equal to such
fraction multiplied by the average closing price, or if none, by the average
closing bid price, of the Shares on the business day next preceding the day of
exercise.
(h) Adjustment of Common Stock Warrants. The exercise price and the number
of shares of Common Stock purchasable upon the exercise of the Common Stock
Warrants shall be determined by the anti-dilution and other adjustment
provisions provided for by the terms of a certain Warrant Agreement dated
_____________, 1998 between the Company and American Stock Transfer & Trust
Company (the "Warrant Agreement"); such adjustments to be made to the same
extent and in the same fashion as the adjustments, if any, made in the Common
Stock Purchase Warrants sold to the public pursuant to the Registration
Statement.
9. SURVIVAL. The various rights and obligations of the holder hereof and of
the Company as set forth in Sections 5, 6 and 7 hereof shall survive the
exercise of the Warrants represented hereby and the surrender of this Warrant
Certificate, and upon the surrender of this Warrant Certificate and the exercise
of all the Warrants represented hereby, the Company shall, if requested by the
holder, deliver to the holder hereof its written acknowledgment of its
continuing obligations under said Sections. The holders of the Warrants shall,
if requested by the Company, deliver to the Company their written acknowledgment
of their continuing obligations under said Sections.
10. NOTICE. All notice required by this Warrant Certificate to be given or
made by the Company shall be given or made by first class mail of the United
States Postal Service, postage prepaid, addressed to the registered holder
hereof at the address of such holder as shown on the books of the Company;
provided that where notice is to be given pursuant to Sections 6, 7 and 8 hereof
to holders of Units or components thereof who are not holders of Warrant
Certificates, such notice shall be given or made in the manner noted above to
the record owner of such Units or components at the address of such owner as
shown on the books of the Company.
11. LOSS OR DESTRUCTION. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of this Warrant Certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant Certificate of like tenor.
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EUROWEB INTERNATIONAL CORP.
By:__________________________________
President
ATTEST:
- --------------------------------
Secretary
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ASSIGNMENT
(To be executed by the registered holder to effect a transfer of
the within Warrant)
FOR VALUE RECEIVED, .... hereby sell, assign and transfer unto
------------------------------------
(Name)
------------------------------------
(Address)
the right to purchase .................... Units of Series A Convertible
Cumulative Redeemable Preferred Stock and Common Stock Purchase Warrants of
EuroWeb International Corp. evidenced by the within Warrant, together with all
right, title and interest therein, and do irrevocably constitute and appoint
attorney to transfer the said right on the books of said Corporation with full
power of substitution in the premises.
Dated, ..........................., 19 ....
Signature ................................
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PURCHASE FORM
(To be executed upon exercise of Warrant)
To: EUROWEB INTERNATIONAL CORP.
The undersigned hereby exercises the right to purchase ..... Units of
Series A Convertible Cumulative Redeemable Preferred Stock and Common Stock
Purchase Warrants of EuroWeb International Corp. according to the terms and
conditions thereof, and herewith makes payment of the purchase price in full.
Dated: ...................... , 19...
SIGNATURE ................................
11
Exhibit 10(y)
AGREEMENT dated as of the 20th day of April, 1998 between Euroweb
International Corp., a Delaware corporation (the "Company") and Eurus Capital
Corporation, a Delaware corporation (the "Consultant").
WITNESSETH;
WHEREAS, the Company is engaged in the Internet business in Hungary and
desires to expand its business into other Central European countries and in
particular, into Poland; and
WHEREAS, the Consultant maintains a general consulting business in
Poland and has heretofore provided to the Company initial research services
regarding the Internet business in Poland, and
WHEREAS, the Company wishes to retain the services of the Consultant as
its consultant upon the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. The Consultant shall provide research and advisory services to the
Company with respect to the planning of an Internet service provider in Poland.
Such services will include a preliminary market survey; advice regarding the
general political, economic and regulatory conditions in Poland; consideration
of possible funding sources for the Company in Poland; seeking potential joint
venture partners; identifying potential acquisitions; and advice as to
structuring and financing such business in Poland. Such services will be
performed by Eurus Capital Corporation and/or any of its subsidiary
corporations.
2. The Consultant shall not disclose to any third party any
confidential information obtained during the course of providing its services
under this Agreement without the written consent of the Company.
3. The Consultant shall provide the services covered by this Agreement
as a consultant only and shall have no authority to bind or commit the Company
to any contract, agreement, obligation, employment arrangement, license
application, license agreement, purchase order, or any arrangement that may
create any obligation for the Company.
4. The Consultant will perform its services for the Company (including
all affiliates of the Company) in respect of all Internet of the Company
projects for a period of two years from the date of this Agreement.
<PAGE>
Euroweb International Corp
Agreement
page 2
5. This Agreement is not transferable and all services to be provided
hereunder shall be performed by officers and employees of the Consultant
(including its affiliates)
6. As consideration for such services, including all services which
have been preformed heretofore, the Company shall issue options, in the form
annexed hereto as Exhibit A, to the Consultant to purchase 300,000 shares of its
Common Stock at a price of $1.l25 per share for a period of three years from the
date hereof
7. The Consultant shall not be required to devote any minimum amounts
of time to its services hereunder.
8. The Consultant shall not be entitled to reimbursement of any
expenses except such actual incurred expenses as may be approved by the Company
in advance,
9. This Agreement shall be governed by the laws of the State of New
York.
10. This Agreement shall have a term of two years except in respect of
any considerations of confidentiality, which conditions shall remain in effect
for three years from the date of this Agreement.
11. Modifications or amendments to this Agreement shall only be
considered effective if in writing and executed by duly authorized officers of
both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EUROWEB INTERNATIONAL CORP.
By:
EURUS CAPITAL CORPORATION
Exhibit 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
EuroWeb International Corp.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 10, 1998, relating to the
consolidated financial statements of EuroWeb International Corp. and
subsidiaries, which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/BDO Seidman, LLP
--------------------
BDO Seidman, LLP
New York, New York
May 15, 1998
