SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________to_________________
COMMISSION FILE NUMBER 1-1200
EUROWEB INTERNATIONAL CORP.
(Exact Name of Registrant as specified in its charter)
DELAWARE 13-3696015
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
445 PARK AVENUE, 15TH FLOOR, NEW YORK NY 10022
----------------------------------------------
(Address of principal executive offices)
The Registrant's telephone number, including area code: (212) 758-9870
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value NASDAQ SMALL CAP
$.001 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant had revenues of $1,270,135 for the year ended December 31, 1997. As
of April 9, 1998, 5,178,249 shares of Common Stock were outstanding of which
5,078,249 were held by non-affiliates of the Company. The aggregate market value
of the Common Stock held by non-affiliates of the Company as of April 9, 1998,
was $5,644,291 (based upon the closing bid price on such date on NASDAQ of 1
3/32.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company is a Delaware corporation which was organized on November 9,
1992. It was a development stage company through December 31, 1993. Its
wholly-owned Hungarian subsidiary, Teleconstruct Epitesi Kft ("Teleconstruct"),
a limited liability company, was organized on March 19, 1993 with the intention
to contract with community-sponsored telecom companies in Hungary to construct
and maintain local telephone exchanges in their areas. The Company had two
operating business segments: (1) building of condominium apartments and building
renovation and (2) design and civil engineering, and laying of underground fiber
optic telephone and cable lines. The latter segment was discontinued in 1994.
The Company built in Budapest two luxury 14-unit condominium buildings.
During 1996 and 1997, the Company sold 13 of the 14 apartments in one of the
buildings ("Building A") prior to their completion to its former president,
subject to receipt of move-in permits, who agreed also to finance the completion
of the other building. The Company completed the second building in April 1998
by receiving move-in permits. It then net leased Building B to an unaffiliated
person for a five year term at a net rental of $22,000 per month with an option
to purchase the building so long as the lease is in effect for $2,000,000, plus
applicable VAT taxes. It further transferred Building A to its former president
and received the balance of the purchase price in April 1998. (See "Certain
Transactions").
On January 2, 1997, the Company entered the Internet Service Provider
business in Hungary by acauiring three Hungarian Internet service companies
("Internet providers") from unrelated parties, namely, EUNET, E-Net and MS
Telecom for a purchase price of approximately $1,913,000, consisting of 204,000
shares of common stock of the Company, $1,225,000 in cash, $356,000 of notes
payable, and assumption of approximately $128,000 of liabilities.
EUNET was the leading provider of leased line Internet services in
Hungary. E-Net was recognized as the premier developer of Web sites in Hungary,
providing content, design and database functions, as well as Web site hosting
services. MS Telecom was a provider of dial-up Internet access services in
Hungary.
The combined companies were merged into a new Hungarian company known as
Euroweb.
The Internet industry consists of three primary functions: 1) providing
access to the Internet; 2) developing content, including graphics and database
functions, for Web sites on the Internet; and 3) maintaining ("hosting") the
computers, known as "servers," which store, and allow for access to, Web sites.
Euroweb provides services in all three areas.
Access to the Internet can be either through a leased line, which
maintains an open connection to the Internet at all times, or through a dial-up
service, which requires subscribers to dial a telephone number to connect to the
Internet. Dedicated lines and dial-up connections can provide access to the
Internet at varying speeds (bandwidths). Faster connections move data more
quickly and are more expensive.
Euroweb offers a variety of access options, including leased-line, dial-up
and ISDN (Integrated Services Digital Network) lines. There are also plans to
eventually offer access via cable modem, which can provide
1
<PAGE>
extremely high bandwidth connections to the Internet using the same coaxial
cable used by cable television.
Providing content for the Internet can include graphic design for Web
sites as well as software applications to provide subscribers with tools, such
as calculators or databases, they can use over the Internet. Value added
services such as these will be provided on an exclusive basis to Euroweb
subscribers. The first of these value added services, recently completed by the
Company, will be a searchable database of Hungarian corporations, which the
Company believes will attract corporate clients doing, or seeking to do,
business in Hungary.
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 of the Fornex
service through the Internet. The division is negotiating with POSTA Bank,
Hungary's second largest bank, to help develop software for home banking use by
customers of the bank to enable the customers to transfer funds on deposits at
the bank electronically to third parties. The Company is also working on
developing software for credit card processing and transaction validation and is
considering acquiring software companies engaged in phases of Electronic Banking
and Electronic Transaction Processing, but it has not yet identified any
particular acquisition as of this date.
The Company also added fax services for its customers in 1998. These
services enable customers to send faxes anywhere in the world at a cost up to
30% 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 knows as GRIC (Global Research Internet Connection).
Euroweb further expanded its services in 1998 by leasing satellite space
on a MCI Vsat and reselling portions of this space to small users. The Company
is currently negotiating to lease additional space to satisfy its current demand
from small users and intends to continue to lease additional space so long as it
has users willing to release the space.
Web site content on the Internet is stored on computers known as servers
(they "serve" information to Internet users). The business of "Web site hosting"
includes maintaining these computers as well as making certain that the
computers are always connected to the Internet (one of the benefits of the
Internet is that required information is available 24 hours a day, seven days a
week). Web hosting services are provided for a monthly fee which varies
depending on the bandwidth of the connection to the Internet and certain other
factors.
Euroweb's strategy is to target the corporate leased line market,
emphasizing quality of service. Management believes that leased line
subscribers, who are almost exclusively corporations, are willing to pay more
for quality service yet require relatively less customer service expense than
dial-up subscribers. Corporations which initially purchase access often want Web
sites developed for their business as well as a reliable, experienced company to
"host" the site. Euroweb provides all of these Internet services.
Currently, Euroweb has approximately seventy-five (75) leased line,
thirty-six (36) ISDN and approximately one thousand (1,000) dial-up subscribers.
Approximately eighty percent (80%) of the dial-up subscribers are corporations.
Revenues are currently approximately US$150,000 per month.
The Company plans to compete by offering more reliable Internet
connections, higher quality and more
2
<PAGE>
comprehensive services and certain value added services which will be available
exclusively through Euroweb.
GOVERNMENT REGULATIONS
The Company is not subject to direct regulation other than regulation
applicable to businesses generally. However, changes in the regulatory
environment relating to the telecommunications and media industry could have an
effect on the Company's business. The Company cannot predict the impact, if any,
future regulation may have on its business.
COMPETITION
Competition in the Internet Access Service industry is significant and is
based largely on price and service. The principal competitors of the Company are
the Internet division of the Hungarian national telephone company known as
MATAV, Pantell which was recently formed by a consortium consisting of Unisource
and several state owned companies, and two privately owned Internet Service
Providers - Data Com and Ellender. The Company believes it is competitive and
can remain competitive in this industry. Electronic banking and transaction
processing is a new industry in Hungary with no large competitors at this time.
Management believes it is competitive and will be able to compete in this
industry on the basis of price and service. Web design and web hosting are also
new industries in Hungary with no large competitors. The Company believes it is
competitive and can remain competitive in this industry on the basis of quality
of service, price and services.
EMPLOYEES
The Company employs 36 persons; four in management, thirteen in sales and
marketing, eight in graphics and Web development, seven in networking operations
and four administrative persons. None of the Company's employees are represented
by a labor organization. The Company believes that it's relations with its
employees are excellent.
ITEM 2. 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 $140,000 per year under a five year lease expiring March 31, 2002.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is currently a party
or to which any of its property is subject, and the Company knows of no legal
proceedings pending or threatened against either the Company or any director or
officer of the Company in his capacity as such.
3
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded in the over-the-counter market on the
National Association of Securities Dealers' Automated Quotation System
("NASDAQ") under the symbol "EWEB".
Trading on both the Boston Stock Exchange and on NASDAQ commenced on July
29, 1993. Trading on the Boston Stock Exchange was discontinued at the request
of the Company on February 26, 1997.
The Company has been advised by NASDAQ that NASDAQ has adopted new
financial tests and Market related criteria for a NASDAQ Small Cap listed
Company to continue to be listed on the NASDAQ Small Cap Market and that if the
Company is unable to satisfy all of the new tests and criteria, it may be
delisted from trading on the Small Cap Market and be transferred to the
Electronic Bulletin Board ("Pink Sheets") to record its trades. The Company
further was advised by NASDAQ that the Company is not in compliance with the new
minimum bid price requirement of $1 per share which became effective February
23, 1998 and that the Company has until May 28, 1998 to regain compliance with
this standard. The Company may regain compliance if its Common Stock trades at
or above $1 per share (the "Minimum Requirement") for at least 10 consecutive
trade days. As of the date of this report, the Company has not yet regained
compliance. The Company has been trading on NASDAQ at or above $1 per share
since April 7, 1998, but there can be no assurance that it will trade at or
above $1 per share for 10 consecutive days and thus regain compliance.
The following table sets forth the high and low bid prices for the Common
Stock during the periods indicated as reported by NASDAQ. The prices reported
reflect inter-dealer quotations, and may not represent actual transactions and
do not include retail mark-ups, mark-downs or commissions.
HIGH LOW
------ ------
QUARTER ENDING:
1995
- ----
March 31, 1995 ............................ 13 3/4 4 5/8
June 30, 1995 ............................. 6 1/2 4
September 30, 1995 ........................ 7 3 3/4
December 31, 1995 ......................... 5 2 5/8
1996
- ----
March 31, 1996 ............................ 3 7/8 3 1/4
June 30, 1996 ............................. 3 3/4 2 3/4
September 30, 1996 ........................ 5 1/4 2 7/8
December 31, 1996 ......................... 3 1/8 1 3/8
4
<PAGE>
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
On April 9, 1998 the closing bid price on the NASDAQ for the Common Stock was
$1 3/32.
HOLDERS OF COMMON STOCK
As of March 31, 1998, the Company had 5,178,249 shares of Common Stock
outstanding and 57 shareholders of record. The Company believes that it has
approximately 1,500 beneficial owners who hold their shares in street names.
DIVIDENDS
It is the present policy of the Company to retain earnings, if any, to
finance the development and growth of its business. Accordingly, the Board of
Directors does not anticipate that cash dividends will be paid until earnings of
the Company warrant such dividends, and there can be no assurance that the
Company can achieve such earnings or any earnings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company was organized on November 9, 1992. The Company was in the
development stage through December 31, 1993 and has been unprofitable to date,
Through its wholly-owned Hungarian subsidiary Teleconstruct Epitesi Rt.
("Teleconstruct") the Company built in Budapest two luxury 14-unit condominium
buildings. During 1996 and 1997, the Company sold 13 of the 14 apartments in one
of the buildings prior to their completion to its former president, who agreed
to finance the completion of the other building. The Company completed the
second building in March 1998 and net leased it to an unaffiliated person for a
five year term at a rental of $22,000 per month with an option to purchase the
building so long as the lease is in effect for $2,000,000. Prior to completion,
the Company received no revenues from the building operation.
In January 1997, the Company acquired three operating Internet service
provider businesses and has consolidated the three businesses under one roof.
Revenues from the Internet business for the year ended December 31, 1997
amounted to $1,270,135.
Effective July 9, 1997, the Company changed its name to Euroweb
International Corp. and increased the authorized number of shares of capital
stock from 10,000,000 shares of common stock to 15,000,000 shares of common
stock and 5,000,000 shares of preferred stock. In addition, one of the three
Internet subsidiaries changed its name to Euroweb Rt. and the accounts of the
three subsidiaries were consolidated into this company.
In February 1997, the Company's Chairman of the Board resigned as an
officer, director and employee,
5
<PAGE>
and agreed to a cancellation of his employment agreement upon payment of
$50,000. which represented the approximate amount owed to him with respect to
1996 salary. In addition, 125,000 stock options which were granted to him under
his employment agreement will not terminate as a result of the resignation, but
will continue to be governed by the original terms of the options. Compensation
of $100,000 has been charged to the 1997 operations relating to the period of
exercisability of the options.
In February 1997, the former President of the Company was retained as a
consultant to the Company to oversee the Company's real estate interests. 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.
On August 26,1997, the Board of Directors extended the term of the
employment agreement with its Chairman of the Board to December 31, 2005 and
included a provision in the contract to provide the Chairman with a split dollar
life insurance policy with a face amount of up to $2,000,000. The policy is to
be structured so that the premiums paid by the Company in connection with the
policy would be recovered by the Company out of the proceeds of the policy.
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 of the Fornex
service through the Internet. The division has also been retained by Postal
Bank, Hungary's second largest bank, to help develop software for home banking
use by customers of the bank to enable the customers to transfer funds on
deposits at the bank electronically to third parties. The Company is also
working on developing software for credit card processing and transaction
validation and is negotiating to acquire software companies engaged in phases of
Electronic Banking and Electronic Transaction Processing, but it has not yet
identified any particular acquisition as of this date.
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.
6
<PAGE>
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 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 (subsequently reduced to $1.25 per share) 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.
In November and December 1996, the Company sold $792,500 convertible
debentures due in September 1998 to foreign investors outside the United States
in private placements, receiving aggregate net proceeds of approximately
$693,500 after deducting placement agent fees and offering expenses of
approximately $99,000. During the year December 31, 1997, the Company sold an
additional $850,000 of 10% convertible debentures due from January 1999 through
September 1999. receiving approximately $696,000 after deducting financing costs
of $154,000.
During December 1996, $307,500 of debentures and accrued interest of
$3,907were converted into 263,979 shares of common stock, during the year ended
December 31, 1997, an additional $1,185,000 of debentures and accrued interest
of $42,252 were converted into 2,413,667 shares of common stock, and during
1998, an additional $50,000 of debentures were converted into 228,310 shares of
common stock.
On August 26, 1997, the Board of Directors approved an increase in the
number of shares of common stock to be available under the Company's 1993
Incentive Stock Option Plan from 350,000 to 700,000. This action is subject 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 and received final move-in
permits from the Building Department of the City of Budapest. In April 1998, the
Company also 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 contained an option
to purchase Building B for the sum of $2,000,000, plus VAT taxes, if any, during
any time during the lease.
The Company believes that its revenues from operations, together with the
funds already raised will meet the Company's cash requirements to the end of
1998.
THE YEAR 2000
The Company is currently evaluating the impact of the Year 2000 on its
management and information systems. At this time, management believes that the
impact of the Year 2000 will have no material effect on its operations or
financial results.
7
<PAGE>
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. Since the
Company uses the U.S. dollar as the functional currency for its Hungarian
subsidiaries, the Hungarian inflation does not have a material effect on
Financial condition and results of operations.
Internet operations are not seasonal or dependent on weather conditions.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information provided in the Management's Discussion
and Analysis, statements made throughout this document are forward-looking and
contain information about financial results, economic conditions, trends and
known uncertainties. The Company cautions the reader that actual results could
differ materially from those expected by the Company, depending on the outcome
of certain factors (Some of which are described with the forward-looking
statements) including: 1) heightened competition, particularly price
competition, reducing margins; and 2) slower growth than expected in the market
for Internet services in Hungary.
ITEM 7. FINANCIAL STATEMENTS
Reference is made to the Consolidated Financial Statements of the Company,
beginning with the index thereto on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
8
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
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, Chief Executive
Officer
Secretary, Treasurer, Director
Richard G. Maresca 57 Director
Donald K. Roberton 57 Director
Herschel Krasnow 74 Director
Robert Genova 57 Director
Frank R. Cohen, age 77, has been a Director and Secretary of the Company
since its inception in 1992, and has been Chairman of the Board and Chief
Executive Officer 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 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.
Herschel 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.
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 so that he can devote full time to his investment banking business, but was
appointed to the Board again in February 1998.
Board members are reimbursed for their expenses for each meeting
attended but do not receive fees for attendance at meetings.
9
<PAGE>
Directors are elected annually and hold office until the next annual
meeting of the stockholders of the Company and until their successors are
elected and qualified. Officers are elected annually and serve at the discretion
of the Board of Directors.
MEETINGS OF THE BOARD OF DIRECTORS; SECURITIES AND EXCHANGE COMMISSION FILINGS
During the Company's last fiscal year, its Board of Directors held four
meetings. Each of the foregoing incumbent directors attended at least 75% of the
meetings of the Board of Directors which were held while he was serving as a
director during the Company's last fiscal year.
The Company has a standing audit and compensation committees.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more then 10
percent of the Company's Common Stock, to file with the SEC the initial reports
of ownership and reports of changes in ownership and reports of changes in
ownership of common stock, officers, directors and greater than 10 percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Specific due dates for such reports have been established by the
Commission and the Company is required to disclose in this Annual Report any
failure to file reports by such dates during fiscal 1997. Based solely on its
review of the copies of such reports received by it, or written representations
from certain reporting persons that no Forms 5 were required for such persons,
the Company believes that during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and ten
percent shareholders were complied with.
POLICY WITH RESPECT TO SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that, unless an appropriate exemption applies, a tax deduction
for the Company for compensation of certain executive officers names in the
Summary Compensation Table will not be allowed to the extent such compensation
in any taxable year exceeds $1 million. As no executive officer of the Company
received compensation during 1996 approaching $1 million, and the Company does
not believe that any executive officer's compensation is likely to exceed $1
million in 1998, the Company has not developed an executive compensation policy
with respect to qualifying compensation paid to its executive officers for
deductibility under Section 162(m) of the Code.
ITEM 10. 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
$100,000 for services in all capacities to the Company during the Company's
1995, 1996, and 1997 fiscal years:
10
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
Bonus and Securities
Name and Year Ended Other Annual Underlying
Principal Position December 31, Salary($) 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 dated as of
February 17, 1994, which was amended and extended as of May 6, 1997 and August
26, 1997. The amended employment agreement expires December 31, 2005 and
provides for an annual salary of $150,000. The agreement also extended the grant
to Mr. Cohen made in 1994 of 35,000 options to purchase 35,000 shares of Common
Stock of the Company at $1.00 per share to the termination of the employment
agreement. The Company has further agreed to provide a split dollar life
insurance policy on the life of Mr. Cohen in the face amount of up to $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.
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 remaining payments due on the split dollar life insurance
policy.
The Company has no pension or profit sharing plan or other contingent
forms of remuneration with any officer, director, employee or consultant.
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:
11
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED "IN-
ACQUIRED ON VALUE OPTIONS HELD AT THE-MONEY" OPTIONS HELD AT
NAME EXERCISE REALIZED FISCAL YEAR-END FISCAL 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).
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 and 260,000 options 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.
OUTSTANDING STOCK OPTION AWARDS
The benefits to be awarded to and received by the officers, directors,
employees, and consultants of the Company under the Stock Option Plan in the
future are not presently determinable. All shares currently subject to Options,
as well as any additional shares that may become subject to future Options,
under the Stock Option Plan are comprised of authorized but unissued shares of
Common Stock. Accordingly, the exercise of any such Options and the issuance of
shares pursuant thereto will have the effect of diluting the interests of
existing stockholders to the extent of such issuance.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of the Common Stock as of December 31, 1997 by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock; (ii) each director of the Company; and (iii) all executive
officers and directors as a group. Except as otherwise indicated below, each of
the entities or persons named in the table has sole voting and investment powers
with respect to all shares of Common Stock beneficially owned by it or him as
set forth opposite its or his name.
12
<PAGE>
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED(1) OWNED(7)
- ---------------- ------------- ----------
Peter E. Klenner 340,000(2) 6.19%
1118 Budapest
Kelenhegyi ut 39
Hungary
Robert Genova 180,000(3) 3.28%
227 Route 206, Unit 11
Flanders, NJ 07836
Frank R. Cohen 120,000(4) 2.18%
445 Park Avenue
New York, NY 10022
Donald K. Roberton 40,000(5) *
38 Campbell Drive
Stamford, CT 06903
Richard Maresca 20,000(6) *
1111 Wyoming Drive
Mountainside, NJ 07082
Herschel Krasnow 0 *
1111 Kane Concourse
Suite 501
Bay Harbor Island FL 33154
All Officers and Directors as a 360,000 6.55%
Group (4 Persons)
- -------------------------------
* 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 acquire within 60 days after December 31, 1997. For
purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on December 31, 1997, any security
which such person or group of persons has the right to acquire within 60
days after such date is deemed to be outstanding for the purpose of
computing the percentage ownership for such person or persons, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Resigned as President and Director of Company on October 30, 1996. Includes
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 125,000 currently exercisable options to purchase 125,000 shares
at $1 per share pursuant to Mr. Genova's employment agreement, which
provision survives the termination of his employment agreement.
(4) Includes 110,000 currently exercisable options to purchase 35,000 shares at
$1 per share pursuant to his employment agreement and 75,000 shares at
$1.25 per share pursuant to the Company's 1993 Stock Option Plan.
(5) Includes 40,000 options granted to Mr. Roberton exercisable at $1.25
per share pursuant to the Company's 1993 Stock Option Plan.
(6) Includes 20,000 options granted to Mr. Maresca exercisable at $1.25 per
share pursuant to the Company's 1993 Stock
Option Plan.
(7) 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, 175,000 shares issuable upon
exercise of
13
<PAGE>
consultant warrants, or the possible issuance of an indeterminate number of
shares upon conversion of $150,000 of outstanding convertible notes.
ITEM 12. CERTAIN TRANSACTIONS
1. On November 28, 1994, the Company entered into a loan agreement with
Hungarian Broadcasting Corp. ("HBC") which provided for the Company to lend HBC
$800,000 at 6% interest per annum, repayable the earlier of December 31, 1995 or
the completion of an IPO by HBC. The agreement provides for the following
additional consideration to the Company: (1) issuance of 100,000 shares of HBC's
common stock which shares shall be deemed fully paid and nonassessable; (2) an
option exercisable until April 30, 1995 to purchase an additional 150,000 shares
of HBC's common stock at $3 per share; and (3) three years right of first
refusal to act as general contractor for all broadcast facilities to be built by
companies controlled by HBC. The Company exercised its option and purchased the
150,000 shares at $3 per share. On January 2, 1996, HBC repaid $400,000 of the
loan receivable together with accrued interest of $24,000. 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 dated November 28, 1994. On
October 29, 1997, the Company sold the 250,000 shares it owned of HBC for
$625,000, realizing a gain of $524,000 on the entire transaction.
2. In October 1996, the Company's President, Peter E. Klenner, agreed to
resign as an officer, director and employee and agreed to a cancellation of his
employment agreement (which provided for a $168,000 salary per annum until
February 1999), upon payment of $372,000. It was further agreed that the stock
options which were granted to the President under his employment agreement and
pursuant to the Company's Incentive Stock Option Plan of 1993 will not terminate
but will continue to be governed by the original terms of the option agreements.
The aforementioned $372,000 relating to the cancellation of the President's
employment agreement and $600,000 relating to the extension of the period of
exercisability of the President's options were charged to compensation and
related costs during the fourth quarter of 1996.
3. In October 1996, the Board of Directors also approved the sale of one of
the condominium buildings, Building A, under construction to a company
controlled by the Company's former President and Chief Executive Officer. The
building to be sold contained four units for which deposits for the full sales
price previously had been received by the Company. The purchaser purchased the
remaining units in the building, subject to receiving move-in permits, for
$1,164,197 from which was deducted the $372,000 contract settlement and $702,197
previously loaned by the purchaser to the Company and $90,000 payment received
in April, 1998. The sale was consummated upon the receipt of the move-in permits
in April 1998.
4. 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 1996 salary. In addition, 125,000
stock options which were granted to him under his employment agreement will not
terminate as a result of the resignation, but will continue to be governed by
the original terms of the options. Compensation of $100,000 has been charged to
the 1997 operations relating to the period of exercisability of the options. In
February 1998, Mr. Genova was appointed a director of the Company and serves
without compensation except for reimbursement of expense.
5. 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. Commencing 45 days after issuance, the original principal amount
of the debentures is convertible into the Company's shares of common stock at a
conversion price of 50% of the market price, as defined, of the Company's common
stock. The unconverted debentures of $150,000 at December 31, 1997 are due from
January through September 1999. Except in the case
14
<PAGE>
of the occurrence of one or more "events of default" as described in the
debenture, the debentures may be immediately due and payable. During 1998, 1997
and 1996, debentures of $100,000, $1,185,000 and $307,500 and accrued interest
of $0, $42,252 and $3,907, respectively, have been 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.
6. 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
$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.
7. 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.
8. See employment agreement of Mr. Cohen, Chairman of Board above.
15
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits* (numbers below reference Regulations S-B)
(3) (a) Certificate of Incorporation filed November 9, 1992*
(b) Amendment to Certificate of Incorporation filed July 9, 1997
(c) By-laws*
(4) (a) Form of Common Stock Certificate*
(b) Form of Underwriters' Warrants to be sold to Underwriters*
(c) Placement Agreement between Registrant and J.W. Barclay & Co.,
Inc. and form of Placement Agent Warrants issued in connection
with private placement financing*
(d) Form of 10% Convertible Debenture used in connection with
offshore private placement financing pursuant to Regulation
S***
(e) Form of Common Stock Purchase Warrant in connection with
private placement financing under Section 506 of Regulation
D***
(10) (a) Consulting agreement between Registrant and Klenner Securities
Ltd.*
(b) Consulting agreement between Registrant and Robert Genova*
(c) Consulting agreement between Registrant and Laszlo Modransky*
(d) 1993 Incentive Stock Option Plan* (e) Sharing
agreement for space and facilities between Registrant and
Hungarian Telephone and Cable Corp.*
(f) Articles of Association (in English) of Teleconstruct Building
Corp.*
(g) Articles of Association (in English) of Termolang
Engineering and Construction Ltd.* (h) Letter of Intent
between Teleconstruct Building Corp. and Pilistav*
(i) Employment agreement between Registrant and Robert Genova**
and termination agreement dated February 5, 1997***
(j) Employment agreement between Registrant and Peter E. Klenner**
and termination agreement dated October 30, 1996, and
agreement for sale of condominium unit to M&A as amended***
(k) Employment agreement between Registrant and Frank R. Cohen**
and modification of employment agreement***
(1) Letter of Intent agreement between Registrant and Raba-Com
Rt.***
(m) Letter of Intent agreement between Registrant and
Kelet-Nograd Rt.***
(n) Letter of Intent agreement between Registrant and 3 Pilistav
villages for installation of cable in those areas***
(o) Lease agreement between Registrant's subsidiary EUNET Kft.
and Varosmajor Passage, Kft. for office space***
(p) Acquisition agreement between Registrant and KFKI Computer
Systems Corp. dated December 13, 1996***
(q) Acquisition agreement between Registrant and E-Net Hungary***
(r) Acquisition agreement between Registrant and MS Telecom Rt.***
(s) Employment Agreement between Registrant and Imre Kovats***
(t) Employment Agreement between Registrant and Csaba Toro***
(u) Promissory Note from Registrant to HBC***
(v) Communication Services Agreement between Registrant and
MCI Global Resources, Inc.****
(w) Lease and Option Agreement for Building B as of April
1, 1998 with Hafisa Kft.*****
(x) License Agreement between Gric Communications, Inc. and
EuroWeb International Corp.*****
* All Exhibits are incorporated by reference to Registrant's
Registration Statement on Form SB-2 dated
May 12, 1993 (Registration No. 33-62672-NY, as amended)
** Filed with Form 8-K as of February 17, 1994
16
<PAGE>
*** Filed with Form 10-KSB for year ended December 31, 1996
**** Filed with Form 10-QSB for quarter ended September 30, 1997.
***** Filed herewith
B. No reports on Form 8-K have been filed during the last quarter covered by
this report on Form 10-K.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 15 day of April 1998.
EUROWEB INTERNATIONAL CORP.
By /S/FRANK R, COHEN
-------------------
Frank R. Cohen
Chairman of the Board
In accordance with the requirements of the Exchange Act, this Report has
been signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- -----
/S/FRANK R. COHEN Chairman of the Board, April 15, 1998
- ----------------- Principal Executive Officer
Frank R. Cohen Officer and Principal
Accounting Officer
April 15, 1998
/S/RICHARD G. MARESCA Director April 15, 1998
- --------------------
Richard G. Maresca
/S/DONALD K. ROBERTON Director April 15, 1998
- ---------------------
Donald K. Roberton
/S/ROBERT GENOVA Director April 15, 1998
- ----------------
Robert Genova
/S/HERSCHEL KRASNOW Director April 15, 1998
- -------------------
Herschel Krasnow
<PAGE>
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-21
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)) 153,965 125,000
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 713,570 363,472
- --------------------------------------------------------------------------------------------------------------
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.
(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.
F-8
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
(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-9
<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-10
<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.
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.
F-11
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 prior 9.7% interest in HBC (a public company),
represented by 250,000 shares of common stock, was subject to a lock-up
agreement through February 7, 1999 in favor of the HBC underwriters. On
October 29, 1997, the Company sold the 250,000 shares to the HBC
underwriters for $649,000, approximately 40% of the then market price.
The Company 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)).
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.
F-12
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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-13
<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-14
<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-15
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions involving options granted under the Plan 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>
F-16
<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-17
<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-18
<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-19
<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-20
<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-21
<
Exhibit 10(w)
LEASE AND OPTION AGREEMENT
concluded between Hafisa Kft. (H-1118 Budapest, Kelenhegyi ut 43. "B" Building)
as Lessee, hereinafter referred to as the "Lessee", and Teleconstruct Epitesi
Kft (H-1122 Budapest, Va rosmajor U. 13.) as Lessor, hereinafter referred to as
the "Lessor", jointly referred to as the "Parties", at the undersigned place and
time, upon the following terms and conditions.
I. DEFINITIONS
1. In this Agreement
"tax" shall be construed as to include tax, levy, impost, duty or other charge
of a similar nature (including, without limitation, any penalty or interest
payable in connection with any failure to pay or any delay in paying any of the
same).
"VAT" shall be construed as a reference to value added tax including any similar
tax which may be imposed in place thereof from time to time.
"Building" is the building indicated under the sign "8" in the map segment;
"Land Registry Office of Metropolitan Districts" is the state administrative
authority keeping the land register of the real estates in Budapest;
"topographical lot number" or "top.No." means the administrative identification
number established for the identification and official indication of real
estates;
"winding-up", "dissolution" or "administration" of a company, corporation or
person shall be construed so as to include any equivalent or analogous
proceedings under the law of jurisdiction in which such company, corporation or
person is incorporated, constituted, existent, operative or extant or any
jurisdiction in which such company, corporation or person winding-up,
reorganization, dissolution, administration, arrangement, adjustment, protection
or relief of debtors.
"Map segment" means the document issued by the Land Registry Office of
Metropolitan Districts for the official assessment of the location of the Real
Estate;
"right of purchase" or "option" means the right thus defined in ss. 375 of the
Hungarian Civil Code;
"USD" and "dollars" denote lawful currency of the United States of America and
""HUF" and "forint" denote lawful currency of Republic of Hungary.
.2. Save where the contrary is indicated, any references in this Agreement to:
(i) this Agreement or any other agreement or document shall be construed as a
reference to this Agreement or document as the same may have been, or may from
time to time be, amended, varied novated or supplemented; (ii) a statute shall
be construed as a reference to such statute as the same may have been, or may
from time to time be, amended or re-enacted; and (iii) a time of day shall be
construed as a reference to Budapest time.
<PAGE>
3. Unless the context otherwise requires, words (including words defined herein)
denoting the singular number only shall include the plural, and vica versa. The
words "written" and "in writing" include any means of visible reproduction.
References to "Clauses", "Parts" and "Appendices" are to be construed as
references to clauses, parts and appendices of this Agreement. Any reference to
a subclause or point is, unless otherwise stated, a reference to sub-clauses or
point of the same clause in which such reference appears.
II INTRODUCTORY PROVISIONS
1. Lessor declares that on the date of the signature of this agreement, is the
owner in 1/2 proprietary proportion of the residential park real estate
registered at the Land Registry Office of Metropolitan Districts on property
sheet No.7933. and under to No.5396, having an area of 5983 m , which is located
in 43. Kelenhegyi St., H-I 118 Budapest, Hungary, (hereinafter referred to as
the "Real Estate").
2. According to the terms and conditions of the sales agreement concluded
between the Lessor as Seller and M&A Management Ltd (H-1118 Budapest, Kelenhegyi
ut 39.) as Buyer on 30 June, 1997, and the amendment thereto concluded on 1
April, 1998. which constitutes Appendix No. 2. (hereinafter referred to as the
"Sales Agreement") the owner of the Real Estate is M&A Management Ltd in 1/2
proprietary proportion. On the basis of point 1. of the Sales Agreement, M&A
Management Ltd as Buyer has ownership on the superstructure indicated as
building "A" on the Map Segment, and the following parts: old tower, transformer
station house, common park, and 13 parking plots of the roofed parking house.
3. M&A Management Ltd declares that sales agreements have been concluded
relating certain parts of its 1/2 proprietary proportion. M&A Management Ltd
warrants that it will provide for all present or future co-owners' waiver of
right of first refusal. By signing the last page of the present Agreement, M&A
Management Ltd as the Co-owner of the Real Estate acknowledges that all the
other co-owners know and approve of the terms and conditions of the present
Agreement and surrender their right of first refusal. M&A Management Ltd's
signature is a condition precedent to the entering into force of this agreement.
M&A Management Ltd shall be responsible towards Lessor and Lessee for all
damages if Lessee can not exercise its option right contained in the present
Agreement as a consequence of the right of first refusal of any present or
future co-owner or any other event imputable to M&A Management Ltd.
III. THE OBJECT OF THE LEASE
1. From April 1, 1998, the Lessor lets on lease and the Lessee takes on lease
the Building indicated as building "B"on the Map segment forming a part of the
Real Estate, which includes the independent residential parts found in the
Building, , the other premises of the Building, and the street, pavement and lot
needed for the proper use of the Building, and the proportional part of the
common park and 12 parking plots of the roofed parking house -hereinafter
jointly referred to as: Leased Property.
The right-of-way, the right of connecting up of public utilities and other
servitudinal rights, that the Lessee leases, which are borne by the real estate
registered under top.No. 5397/1. in favor of the Real Estate, belong free of
charge to the Condominium.
2. The Lessee shall have the exclusive right to use (for living or other
purposes) the Leased Property
<PAGE>
during the effectiveness of the present Agreement. The Lessor is aware of the
fact that the Lessee desires to use the Leased Property as well as by sublease.
3. The Parties state that in respect of the following flats being a part of the
Leased Property, lease agreement was concluded between the Lessor and Lessee,
which agreement, upon the terms and conditions of the present Agreement, become
void or for the leases of the flats concerned the terms and conditions of the
present Agreement are to be applied.
Flat No. Area
2. Flat 55,26 m2
6. Flat 105,39 m2
7. Flat 86,57 m2
8. Flat 86,57m2
IV. CONDITIONS OF THE LEASE
1. The Parties conclude the present Agreement for a definite period of time,
which starts on the day of entering into force (April 1,1998), and terminates at
the end of the 5 year from this date.
2. The Lessor hands over the flats and other premises equipped with kitchen
furniture, equipment and facilities, other furniture and built-in wardrobes and
lessee accepts premises in an "As Is" condition.
3. All (TAX, VAT) duties and costs no~ mentioned in point V./5., and those in
relation to the maintenance and upkeep of the Leased Property, and the damages
occurring outside the sphere of interest of the Lessee shall be borne by the
Lessee.
4. The Lessee shall provide for and cover incurred expenses in respect the
following:
protection of substance and maintenance of the whole area of the Leased Property
including the garden;
constant good working order of the central services of the building;
replacement of the fixtures and furnishings, equipment of the property and of
the building damaged due to natural disaster or dilapidated despite proper and
careful use by the Lessee;
repair of defects in the electric, water, gas, sewage and heating system within
the leased property
whitewashing of walls, cleaning or changing of wallpaper, if deemed necessary,
with a maximum of one such treatment in 5 years.
The Lessee shall notify the Lessor if works charging the Lessor are required and
shall permit the Lessor to carry these out and to take measures necessary for
preventing damages.
Any repairs or architectural changes that would serve the protection or
restoration of the Leased Property's condition should be done by the Lessor
through reconciliation with the Lessee.
5 The Lessee hereby obliges himself that he will use the Leased Property
as well as its exterior
<PAGE>
facilities carefully, in accordance with their purpose, and with the generally
expectable diligence furthermore he will select and control the Sublessees of
the Leased Property with proper diligence and will give it back to the Lessor
upon the termination of the lease empty.
6. The Lessee has a responsibility towards the Lessor for any damages caused by
himself, his Sublessees, or any of the subcontractors, technicians or suppliers
employed by him after the technical delivery of the Leased Property
7. The Lessee is obliged to use the Leased Property in a proper way, and is
responsible for any deterioration caused by improper use, and the Lessee is
obliged to restore any damages originating from improper use prior to giving
back the Leased Property to the Lessor..
8. The Lessee and the Sublessees entering into contract with Lessee are entitled
to execute architectural changes in the Leased Property, provided that these
represent any harm to the Leased Property, under the following conditions and
restrictions. a./ The architectural changes that affect only the Leased Property
and do not need official building permission, may be executed without any
notification to the Lessor or approval of the Lessor.
<PAGE>
b./ In order to execute architectural changes that affect the Leased Property
but need official building permission or should be reported to the authorities,
a previous written approval of the Lessor is necessary.
V. RENTAL FEE, EXPENSES
1. As the countervalue for the exclusive use of the Leased Property the Lessee
shall pay to the Lessor the HUF equivalent of total USD 22.000/month i.e.
twenty-two thousand US dollars per month calculated by the daily exchange rate
of the Hungarian National Bank which is the rental fee.
2. The rental fee is due monthly on the first working day of the month following
the respective month, which amount shall be paid by the Lessee following the
reception of the invoice from the Lessor by transfer to the Lessor's convertible
forint account No 1090001 1-00000002-14050226 held with Creditantstalt Rt bank.
The first rental fee shall be paid by the Lessee on the first working day of the
second calendar month following the date of signature of the take-over protocol.
3. The rental fee shall be considered as paid, when the bank account of the
Lessee is charged with the amount of the rental fee by the Bank keeping his
account.
4. The Lessee, as a security for the payment of the rental fee and for the
obligations referred to in points IV./7., JV.!8. And IV./9., shall transfer to
the Lessor the HUF equivalent of USD 44.000,- calculated by the daily exchange
rate of the Hungarian National Bank within 15 days from the signing of the
present Agreement, which amount shall be kept by the Lessor as a deposit. The
deposit includes the amounts given by the Lessee to the Lessor or to Euroweb
based on the lease agreement referred to in point 111.13., which reduce the
amount of deposit transferred by the Lessee on the basis of the present
Agreement.
5. The Lessee shall bear the costs and expenses necessary for the proper
operation and use of the Leased Property. Such operating costs are the
following:
The costs of heating, electricity, water, gas, sewage, telephone, and garbage
delivery;
The costs and fees of the comprehensive property and liability insurance as
described in chapter VI. of the present Agreement;
The costs of necessary light-bulb changes, elimination costs of minor power
disturbances (short circuits, fuse changes, etc.);
The costs of safeguarding (and of the security service of the Real Estate;
Operation and maintenance costs of the equipment belonging to the building, the
cleaning costs (including exterior surfaces), as well as occasional
snowploughing and - in the case of slippery roads salting costs;
Costs of parasite extermination, elimination of drainpipe cloggings.
<PAGE>
VI. SUBLEASE
1. The Lessee is entitled to let on sublease the Leased Property or parts
thereof (free-hold flat or parts thereof, other premises or parts of building)
to third persons for use for living or other purposes with the Lessor's written
consent but lessor cannot withhold written consent unreasonably. Lessor hereby
consents to the sublease of Hungarian Broadcasting Corporation or HBC Televizios
Rt. The Sublessees -if the absence of different agreement between the Lessee and
Sublessee concerned - have the same rights and obligations as the Lessee has on
the basis of the present Agreement.
2. Upon sublease the Lessee cannot transfer more rights and obligations than
those originating for him from the present Agreement.
3. It is a condition of the sublease of the Leased Property that the proper use
and operation by the Sublessee shall also be performed with expectable
diligence, not being indecent, and which does not result in permanent loss in
value of the Leased Property. The Lessee is totally responsible for the person
and activity of the chosen Sublessee.
VII. OPTION
1. The Lessor, in respect of the Leased Property, provides free of charge a
right of purchase (option) for the Lessee for a period of 5 years from the
entering into force of the present Agreement, which the Lessee can exercise at
any time during the 5-year period.
2. The Parties state that on the date of conclusion of the Agreement, with
respect to the exercise of the option, the Leased Property consists of the 1/2
proprietary proportion of the Real Estate defined in point ll./1.and detailed in
point 111.11.,
<PAGE>
3. The Lessor shall take every necessary declarations and actions, so that the
Lessee can obtain the unencumbered ownership of the Leased Property by
exercising his right of purchase.
4. The Lessee can exercise his right of purchase by notifying the Lessor in a
unilateral declaration of the purchase of the Leased Property, and paying the
purchase price of the Leased Property determined in point VIII.14.b to the
credit of the account of the Lessor referred to in point V.12.
5. In case of exercising the right of purchase determined in the present
Agreement, the purchase price of the Leased Property shall be the HUF equivalent
of USD 2.000.000, i.e. two million US dollars calculated by the daily exchange
rate of the Hungarian National Bank on the payment day..
6. The Lessor irrevocably approves to the registration of the right of purchase
determined in the present Agreement in favor of the Lessee, and further approves
that in case of the Lessee exercising his right of purchase the ownership of the
Lessee in respect of the Leased Property determined in point VIII./2. of the
present Agreement shall be registered by virtue of purchase.
VIII. WARRANTY, COVENANTS
1. The Lessor shall warrant that the Leased Property shall be suited for use in
conformity with the contract during the whole period of the lease, and that it
shall be in other respects in conformity with the stipulations of the contract.
The Lessor shall expressly warrant that the technical state, quality and
standards of the Leased Property and the facilities belonging thereto are in
conformity with the regulations of the authorities.
<PAGE>
2. The Lessor shall warrant that no third person has any right on the Leased
Property that would restrict or prevent the Lessee or any Sublessee in the use
thereof.
3. In connection with the right of purchase stipulated in the present Agreement,
the Lessor shall warrant that during the whole period of the Agreement the
Leased Property is free of any suit or claim and is unencumbered, and is not
burdened by any tax or other liabilities or public utility fees recoverable as
taxes.
4. The Lessor assumes the obligation to initiate the division of the Condominium
in order for the Leased Property shall be registered in the land registry as a
separate real estate. During the division of the Real Estate the Lessor shall
work in close co-operation with the Lessee and assumes the obligation to provide
the rights determined in the present Agreement for the Lessee in respect of the
Leased Property registered as a separate real estate for the whole of the period
defined in the present Agreement.
5. The exclusive owner or the Lessor, Euroweb International Corp. (445 Park
Avenue New York, NY 10022) jointly and severally assumes the obligations of the
Lessor under this Agreement, and undertakes that if the Lessor does not fulfil
any of his obligations under this Agreement, upon the direct notice from the
Lessee he shall completely satisfy the demands of the Lessee without the need to
present claim towards the Lessor.
6. Lessee will grant a charge on its quota to the Lessor to secure the interests
of the Lessor in case of major breach of this contract in a separate agreement
within thirty days.
IX. THE TERMINATION OF THE AGREEMENT
1. The Parties state, that during the period acc. The point IV./1. of this
Agreement, they are not entitled to terminate it with ordinary cancellation.
2. The lease shall be automatically terminated with the date stipulated in point
lV./1. 3. The Lessor is entitled to cancel the present Agreement unilaterally,
without notice and with immediate effect in the following events:
The Lessee fails to perform any of his obligations including the rent payment
under the present Agreement despite a written at least 10 days prior reminder
(notice of default) received by the Lessee to perform the respective obligation;
the Lessee is or may become insolvent, or bankruptcy or winding up procedures
are initiated against the Lessee;
4. The Lessee is entitled to cancel the present Agreement - independent from
exercising other remedies -unilaterally, without notice and with immediate
effect in the following events:
the Lessor fails to perform any of his obligations under the present Agreement
despite a written at least 10 days prior reminder received by the Lessee to
perform the respective obligation.
5. The present Agreement also shall be terminated if
a) the Parties terminates it in mutual agreement;
<PAGE>
b) the Leased Property gets destroyed wholly or in significantly part
or distracted otherwise.
6. The cancellation of any Party shall be valid only in a written form. The date
of cancellation shall be the date of receiving the respective letter of
cancellation at the afore location of other Party, but latest 5 days after the
date of delivery.
7. The Lessee shall transfer the vacated Leased Property with fixtures and
furniture defined in point IV./2. to the Lessor on the day of termination the
lease.
8. The Lessee is entitled to remove and take away the equipment and furnishment
fitted in the Leased Property at his own cost, having reestablished the original
condition of the status.
X. MISCELLANEOUS
1. All agreements, modifications, supplements connected to the present Agreement
are valid only in written form.
2. The conditions of entering into force of the present Agreement are the
following:
a) the certified copy of the Map defined in Appendix No. 1.
Is available to the Parties;
b) the copy of the Sales Agreement defined in Appendix No.2. is
available to the Parties.
c) the certified copy of the property sheet of the Real Estate
defined in Appendix No.3. is available to the Parties.
The present agreement shall enter into force when the conditions specified in
points a)-c) are all met.
3. Should any stipulation of the present Agreement prove to be void, this will
not affect the other provisions of the present Agreement. The Parties agree that
in case the cause of the voidness may be eliminated on the occasion of a
subsequent change of legislation, they shall do their best to keep that part of
the contract valid and/or in force, and shall regard the present Agreement as
reconfirmed with respect to those parts. The same applies to the case where upon
the execution of the Agreement a deficiency shows itself that needs amendment.
4. The Parties shall primarily try to settle disputed matters by mutual consent.
in case such attempts prove to be unsuccessful, the Parties stipulate the
exclusive competence of the arbitral tribunal. in respect of any disputes
between the Parties, the Permanent Court of Arbitration attached to the
Hungarian Chamber of Commerce and Industry has exclusive jurisdiction. In
respect of any disputes between the Lessor and Euroweb International Corp., the
arbitration shall take place in London, England and shall be conducted by three
arbitrators two of whom shall be nominated by the respective Parties and the
third to be agreed between the two arbitrators appointed and in default he shall
be appointed by the London Court of International Arbitration. Any judgement of
arbitral tribunal rendered shall be final and binding on the Parties thereto and
my be entered in any court having jurisdiction or application may be made to
such court for an order or enforcement.. The present Agreement, with respect to
Act No. LXXI of 1994 on Arbitration, should be regarded as an arbitration
agreement.
<PAGE>
5. Regarding any matters not covered by the present contract, the Parties shall
consider the relevant provisions of the Hungarian Civil Code as guiding. The
PRESENT contract has been originally written in the English language, and
translated into Hungarian. Should any legal disputes arise between the Parties
the English text shall be considered as prevailing.
6. The present Agreement has been made in 8 (eight) original copies, all of them
signed by both Parties.
7. The Parties have duly signed the present Agreement as an approval, in a form
that is in accordance with their deed of foundation, expressing that it conforms
to their will in every respect and by signing they state that they have all the
necessary authorizations to conclude the present contract, and that no further
licenses (of the owners or the authorities) are needed thereto.
8. The Lessee undertakes the obligation to enter into adequate insurance
policies including third party liability insurance for the building.
THE ANNEXES OF THE PRESENT CONTRACT
1. the certified copy of the Map
2. the certified copy of the Sales Agreement with M and A Kft. which can be
modified if it has no any detrimental effect on the Lessee
3. the certified copy of the property sheet of the Real Estate
Dated: New York March 23, 1998
/s/Lessor/Berbeado
- --------------------------
/s/Lessee/Berlo
- --------------------------
/s/Peter Klenner
- --------------------------
M&A Management Kft.
/s/Frank R. Cohen
- ---------------------------
EuroWeb Internation Corp.
<PAGE>
Agreement in Hungarian
BERLETI ES OPCIOS SZERZQDES
amelyet a Hafisa Kif. (H-1118 Budapest, Kelenhegy ut 43. "B" epulet)
mint Be rlo, a tovabbiakban "Berlo" es a
Teleconstruct Epitesi Kft. (H-i 122 Budapest, Va rosmajor U. 13.)
mint Be' rbead6 a tova'bbiakbn "Be' rbeadb", egyuttesen mint Felek,
tova'bbiakban "Felek" kotottek alulirott helyen es idoben az ala bbi
felte'telekkel.
FOGALOMMEGHATA'ROZA'SOK
1. A jelen szerzade'sben
az "ad6"; akk6nt erielmezendo, hogy az magba foglal mindenfajta ad6t,
illete'ket, dijat, vamot vagy ma's hasonlo' jelegu kote!eze'st (belee'rtve, de
nem korla'tozva az ezek elmulaszta'sa'b61 vagy kesedelmes fizete'se'b61 ered8en
fizetendo birsagra vagy kamatra);
az 'AFA" Altalanos Forgaimi Ad6ke'nt, illetve a mindenkor hely6be Iep6 hasonl6
ado' nemk6nt e'rtelmezenda;
az "pu..let" a Te'rke'pszel've'nyen "B" jel alatt megielbit epuletet jelenti;
a "Favarosi kew'letek Fb.Idhivatala" a Budapest ingatlanok
ingatlannyilva'ntarta'sa't vezeto- allami kbzigazgata'si szerv;
a "helyrajzi sza'm" vagy "hrsz." az ingatlanok azonositasara es hivatalos
megjelole'se're e'tuehozo ko.zigazgata's azonositasi sza'mot jelenti;
a "megszQns", "feloszla's" vagy "adminisztra'ci" egy adolt tarsasag, ceg vagy
szemely vonatkoza' sa' ban ugy ertelmezendo, hogy az maga'ba fograrja az adott
ta'rsasa'g, ce'g vagy szeme'Iy szkheIye szeripti vagy az uzletviteIe helye
szerinti jogrendszere'nek, illetve olyan egye'b jogrendszerek hasonl6 fogalmait,
ahol az adott tarsasag, ceg vagy szeme'Iy uzieti vagy ba'rmilyen egye'bteve
kenyse get folytat idee'rtve a felsza'mola'st, megszu ne' St, reorganiza'ci6t,
megszuntete'st, adminisztra'cidt vagy ehhez hasonl6 joghata'su' egye'b
eija'ra'st.
a "Te rke' pszelv6ny" a Fovarosi Keruletek Fbldhivatala a'ltaI az Ingatlan tern
let elhe!yezkede'se'nek hivatalos felmereserol kiadott okiratot jelenti;
a "ve tell jog" vagy 'opci6" a Magyar Polgan Torve'nykonyv 375 a ban ekkent meg
hatarozott jogot jelenti.
a "USD" es "dollar" az Amerika Egyesult Ailamok to-rv6nyes fizetoeszkoze't
jeIoIi a "HUF" es "forint" a Magyar koztarsasa'g torvenyes fizetoeszkozet
jeloIi.
Jelen Szerz6de'sben hivatkoza's, az ellenkezo hianya ban:
(I) brmely megjelols jefen S:"erzode'sre vagy ma szerzade'srevagy
dokumentumraakke'nt e'rielmezend6, hogyaz hivatkoza'sajelen Szerzode'sre vagy,
az esett6l fuggaen, ma's szerzo-de's vagy
<PAGE>
dokumentumido-r61id5re to rte'nt vagy torte'nhet6 m6dosa'sa'ra;
(ii) jogszaba'lyra e'rtelmezenda, hivatkoza's hatalyos vagy a j'ogszaba'lyra;
akke'nt hogy az a mindenkor adott jogszaba'lyra helye'be epo ij (iii) egy napon
betuli idapontra akkent e'rtelmezend6, hogy az budapesti idore vonatkozik.
3. Amennyiben a szovegosszefu gge's maskent nem kivanja, az egyessza mu szavak
magukba foglalja'k azok to~bbessza'mt) formajat is, es forditva. Azok a sza"ak,
hogy; "iroti" es "irva" minden Ia' that6 eszkozzel to rte'n5 reprodukc1.6t
magukba fogfalnak. A Bekezde's, Fejezet es Melfeklet cimszavak a jelen
Szerz5de's bekezde'sere, fejezetere es mellekeltere vonatkoz6 hivatkoza'st
jelentenek. Atbekezde'sre vagy pontra val6 hivatkoza's egy adott Bekezde's
Albekezde'se're vagy pontja'ra von atkozo' hivatkozast jelent.
1. BEVEZETO RENDELKEZESEK
Be' rbead6 kijelenti, hogy a Szerz6de's ala ira sa nak id6pontja' ban 112
tulajdoni ara'nyban tulajdonosa a F6va'rosi Kern~letek Fo~ldhivatala'na'l 7933.
Sz. tulajdoni lapon felvett 5396 hrsz. alaft nyilva'ntartott 5983 m2
alapte~u~letu es terme'szetben a 1118 Budapest, Kelenhegyl u't 43. sza'm alatt
tala'lhat6 lak6parkingatlannak-atova'bbiakban; Ingatlan.
2. A jelen Szerzode's 2. sz. mellekietet kepezo a Be' rbead6 mint elad6 e's az
M&A Management Kft. (H-1118 Budapest, Keienhegyi ut 39.) mint vev6 kzott 1997.
unius 30-an Ie'trejo~tt ada sve' tell szerzade's es az 1998. a'pnlis 1-en
megkotott ada' sve' tell szerzo"ds m6dosita's- a tovabblakban Ada' sve' tell
Szerzode's -feltetelel szerint az Ingatlannak 1/2 tutajdoni aranyban az M&A
Management kft. a tulajdonosa. Az Ada' sve' tell szerzade's 1. Pontja alapja'n
az M&A Management az Ingatlanb6l a Te'rke'pszelve'nyen "A" jelu e'puletke'nt
megjeIolt feIule'pitmeyre valamint a k~vetkezo lngatlanre'szletekre vonatkozo'an
rendelkezik tulajdonjogi lge'nnyel: regi torony, transzforrna'torha'z, ko~zo~s
park, valamint a fedett parkol6ha'z 13 parkol6helye.
3. M&A Management Ltd kijelenti, hogy
az ingatlan o"t meglllet6 ""'2 tulajdonl hanyad egyes reazeire vonatkoz6an ada'
sve' tell szerz6d~seket ktott. M&A Management Ltd vallaIja, hogy minden
jelenlegi vagy kesabbi tulajdonosta'rs el6va'sa'rla'sl jogr6l emond6
nyllatkozata't megszerzi.Az M&A Management Ltd mint az Ingatlan t~rstulajdonosa
a jelen Szerz5de's ala ira sa val igazoija, hogy minden tulajdonosta'rs ismeri
es j6va'hagyja a jelen Szerz5de's felte'telelt ~s lemond el6va'sa'rla'si
joga'r61.M&A Management Ltd ala ira sa a jelen szerzade's hatalyba
lepesenekfeltetele.M&A Management Ltd teijeskarterite's felel6sse'ggel tartozik
Be' rbead6nak es, Be' rl6nek,amennyibenBe' r16e szerz6de'sben meghata'rozott ve
tell joga't b~rmeIy jelenlegi vagy jb'vabeli tulajdonosta'rs el6va'sa'rla'si
joga miatt vagy ma's neki felr6hat6 okb6l nem gyakorolhatja.
III. A BE RLET TARGYA
1. 1998 ~prills 1 -t61 a Be' rbead6 be rbe adja a Be' r16 be' 'be veszi az
Ingatlan re'sze't kepeza es a Te'rke'pszelve'nyen "B" jelu e'puletke'nt
megjelo~lt E'pu~letet, amely maga' ban foglaija az E'pu~letben tala'lhato'
o~nall6 lakre'szel:et az ~pu let egye'b helyisegelt valamint
azEprendeltete'sszeru'haszna'lata'hoz szu~kse'ges ut, ja'rda 6s foldre'szletet,
valamint a kbzo's kert aranyos re'sze't e's egy fedett parkolahazb6l 12
parkol6helyet - a tova'bbiakban egyu~ttesen: Be rleme ny. ABedeme'nyhez te'
rite' smentesen hozzatartozik az ingatlannyilvan tartasban5397/1.HRSZ. alatt
bejegyzett ingatlant az Ingatlan javara terhelo-u'tszolgalmi jog,
ko~zmua'tvezete'si szolgalml jog e's egye'b szolgalmi jog, amelyet Be' rl6
szinte'n be' rbe vesz.
<PAGE>
2. A Be'rleme'ny (laka's vagy nem laka's ce'lu') haszna'lata'ra a Be' r16 jelen
Szerzades hata'Iya alatt kiza'r6Iagos jogot szerez. A Be' rbead6 tudomassal bir
arr6l, hogy a Be rio- a Be' rIem~nyt alberlet u'tja'n Is kiva'nja hasznosltanl.
3. A Felek ro'gzitik, hogy a Be' rbead6 es Be rio- kbzo~tt a Be'rleme'ny re'sz6t
ke'pez6 ala' bbiakban meghata'rozott Iaka'sok tekintete ben 1998. januar 15-6n
be neti szerzade's jo~tt letre, amely szerzade's a jelen szerzade's felte'telei
szerint hata'lya't veszti, llletve az e'nntett lakasok be'rlete're a jelen
Szerz6de's feltetelel valnak ira'nyad6va'.Laka's sza' Terulet
2. laka's 55,26 m2
6. laka's 105,39
7. laka's 86 57m2
8. laka's 86,57m
IV. A BE RLET FELTE'TELEI
1 .A Felek a jelen Szerzode'st hata'rozott idatartamra k6tik, amely a
jelen Szerzo des hatalyba le'pe'se'nek a napian (1998 a'prilis 1.) kezdadik 6s e
napt6l sza'm~ott 5-1k e'v ve'gen szunik meg.
2. A Be' rbead6 az lakasokat e's egye'b helyisegeket konyhabutorral es
konyhal ge'pekkel, berendeze'sekkel bu'torokkal es bee' p~ett szekre'nyekkel es
a Be rib' elfogadja azt az ai~apotot, ahogy amiben azok jelenleg vannak.
3. Az V.15. Pontban felsoroitakon kivu~Ii e's a Be'rleme'ny
fenntarta'sa'val e' karbantartasaval kapcsolatos valamennyl feladat es ko~!ts~g
(ad6, forgalmi ado'), valamint nem a Be na e'rdekko~re'be eso ka'rosoda's a Be'
riot terheli.
4. A Be' na a saja't ko~itse'ge'n ko~teles gondoskodni:
a Be'rleme'ny ege'sz teru'lete'nek belee'rtve a kertet is
karbantarta'sa'r61 gondoza'sa'ri;
az e'pulet kzponti berendeze'seinek a'Iland6 u'zemke'pes a'ilapota'r6i
elemi csapa's, vagy a Be na rendeitete'sszew es gondos hasznalat
mellett term~szetes elhaszna'lo'da's ko~ vetkezte' ben haszna'lhatalanna' va'lt
berendeze'sek, targyak, butorok e's egye'b lakasfelszerelesi targyak
po'tia'sa'rn'I; az elektromos-, viz-, ga'z-, csatorna es futesi ha' !6zat
lakason beluli szakaszan keletkezett hibak javitasaro'16;
a falak sztikse'g szerinti, de 5 e'vne'l nem gyakoribb fest6seral, a
tapeta tisztitasar6l, ill. szu..kse'g szerinti csere'je'rol.
A Be rio ko~teIes a Be' rbead6t ertesiteni, ha a Berbead6t terhela
munkalatok szukse'gesse'ge meru~l fel, C's ko'~teles megengedni, hogy a Be'
rbead6 azokat elvegezze, tova'bba' a karok elha'rita'sa'hoz sztikse'ges
inte'zkede'seket megtegye.
A Be' rbead6 barmilyen javita'st es e'pite'szeti va'Itoztatast, mely a
Berlemeny a'llagmeg6rze'se't illetve javita'sa't szolga'lja, Be' rI6vel
egyeztetve ve'gez el.
5. A Be' r15 ko..telezl. magat, hogy a Be' rJeme' nyt valamint a ku..1s
le'tesitme'nyeit rendeltete'se'nek rnegfelelo-en elva'rhat gondossaggal
haszna'Ija, illetve a Be riemeny Albe'rlait megfelel6 gondossa'ggal va'Iasztja
ki e's ellenarzi, tovabba' hogy a be rieti jogviszony megszOne'sekor kiu'ritve
<PAGE>
bocsa'tj a Be' rbead6 rendelkezesere.
6. A Be' na a Be rbead6val szemben felelas azokert a ka'roke'rt,
ameiyeket azada's ~tve'telt ko~veto-en maga vagy az a'ltala kiva'lasztott
AIbe'rlak vagy az aitala igenybe vett alva'llalkoz6k sza'IIit6k vagy egye'b
iparosok okoznak.
7. A Be na felelos a Be'rleme'ny eltete'sszeru'haszna'Iatot meghalad6
elhasznda'sa'e'rt es ko~teIes az ebbal ered6 karokat a rleme'n
visszaszolga'ltata'sa't megelazaen helyreallitani.
8. A Be' rio- illetve a Be' navel szerzado~tt AIbe'rl6k jogosultak a
Be' rieme' nyen az ala bbi feltetelek szerint epite'szeti va'ltoztata'sokat
ve'grehajtani, felte've hogy azoknak nincs karos hatasuk a Be Tieme nyre. al
Azon e'pite'szeti va'ltoztata'sok, amelyek csak a Be' rieme' nyt e'rintik e's
amelyekhez nincs szu~kse'g epitesi hat6sa'gi engede lyre a Be' rbead6 ertesitese
vagy jo'va'hagya'sa ne'Iku~I ve'grahajthat6k. bl Azon e'pite'szeti
va'Itoztata'sokhoz, amelyekhez epitesi hat6sa'gi engede lyre van szu~kse'g vagy
amelyek a hat6sa'gnak bejelentendak a Be' rbead6 eazetes ra sos j6va'hagya'sa
szu~kse'ges.
V. BE RLETI DI'J, KO'LTSE'GEK
1 Berleme kiza'r6lagos haszna'Iatanak ellene'rtekeke'nt a Be' r16
brutt6 USD 22.000/h6 azaz ha~onke'nt IHuszkett6ttezer dollar osszegnek megfelel6
az esede'kesse'g napja'n ira' nyad6 Magyar Nemzeti Bank arfolyamon sza' molt
forinl bsszeget mint be' rleti dijat ko'~teIes Be' rbeado' resze're megfizetni.
2. A be deti dij havonke'nt a ta'rgyho't ko..vet6 h6nap eis6
munkanapja'n esedekes, amelyet a Be' r16 a Be' rbead6 sza'mla'ja'nak ke'zhez
ve'tele't ko'~vetoen a'tutala'ssal fizet meg a Be rbeado' Creditanstalt Bankna'I
vezett 1090001 1-00000002-14050226 sz. konvertibilis forintsza'mla'ja Java' ra.
A IBerIa attal az eIsa be' neti dij fizete'se az a' tada' s-a' tve' tell
jegyzako..nyv ala' ira' sat kbveta masodik napta'ri h6nap eIs6 munkanapja'n
to"rte'nik.
3. A be net dij megfizetese akkor tekintheta teljesitettnek, ha a Be'
d~ banksza'mla'ja't vezeta hitelinte'zet a be neti dij b.sszege'vel a
Be d~ banksza'mla'ja't megtehelte.
<PAGE>
4. A IBerIa a be rleti dij flzete'se'nek valamint a IV./7., IV./8. es
IV./9. pontokban foglalt katelezettse'geinek biztosite'ka'uI a fizete's napian
ira' nyad6 Magyar Nemzeti Bank a'rfolyamon sza'mitott USD 44.000,- o~sszegnek
megfelela forintot utal a't Be' rbead6 javara a jelen szerzade's ala' ira' sa'
t61 sza'mitott 15 napon beIu~I, amely o~sszeget a Be' rbead6 Iete'tke'nt
ko~teIes kezelni. A letet o~sszege'be belesza'rnit a Berla altal a 111.13.
Pontban megjeIo~It berleti szerzade'sek alapja'n Berbead6 vagy Euroweb re'sze're
a'tadott pe'nzo~sszegek, amelyekkel a Beda a jelen szerzades alapja'n
atutala'sra kerulo- leteti b~sszeget cso~kkentl.
5. A Berlemeny rendeltete'sszerO uzemeltete'se'hez szukseges
Ozemeltete'si kaltse'gek ra'fordfta'sok a Berlat terhelik. Ezen
uzemeltetesi ko~Itsegek az ala' bbiak:
A futes-, villamos a'ram,- viz-, ga'z-, szennyviz-, telefon- es
szemetsza'Ilita's ko~ Itse' gel; A VI. fejezetben re'szletezett
biztosita'sok megko~tese'nek ko~Itsegei es dijal;
A vila'g'it6testek szokse'ges csere'je'nek kaltsegel, az
a'ramszolga'Itata's kisebb zavarainak (rn~vidza'rIat, biztositek csere stb.)
eIha'rit~si kaltsegei;
Az Ingatlan arzesenek (kamera's figyeles es Iegala'bb 1 ar 24 6ra's
szolga'lata) es biztonsa'gi szolga'Iata'nak ko'~Itsegel;
Az epoletet szolga'l6 berendezesek uzerneltetesi es karbantarta's
ko.~Itsegei, a takarita's (a kulsa feluleteke' Is), valamint a h6eltakarita's es
sikossa'g eseten a felsz6ra's
kaltsegei;
Ugyancsak ide tartoznak a ka'rtevak
irta'sa'nak kOItse'gei, a
csatornadugula's elha'rita'sa.
<PAGE>
VI.
1. A Be' d~ jogosult a Be' deme' nyt vagy annak re'szeit
(o'~rn~kIaka'st vagy annak re'szeit, egye'b helylsegeket vagy e'puIetre'szeket)
a Be' rbead6 engede' lye' vel ma's harmadik szeme'Iynek laka's vagy nem laka's
ce'Iu' hasznosita's e'rdeke'ben aIb~rIetbe adni, de az enede'Iy csak alapos e's
me' Ita' nyolhat6 okb6l tagadhat6 meg. Be' rbead6 hozzajarul, Hungarian
Broadcasting Corporation HBC Televizi6s Rt. albe'rlete'hez. Az Albe'rIo-ket a
IBerIa e's az adott AIbe'rla elte'rn mega'llapoda'sa hia' nya' ban ugyanazok a
jogok illetik meg, illetve ugynazok a katelezettse'gek terhelik mint amelyek a
jelen szerzade's alapja'n Be rlat jogositja'k illetve ko~teIezik.
2. A B~rIa a Be'rleme'ny alberletbe adasa sora'n nem adhat ~t to~bb
jogot ~s kbtelezettse' get, mint ami sza'ma'ra a jelen szerzade'sbal
ered. 3. A Be'rleme'ny albe'rletbe ada' sa' nak feite'tele, hogy az
Alberla altali
rendeltete'sszer0 u~zemeItete's elva'rhat6 gondossaggal t6rte'njen, amely nem
jar a Berlemeny tart6s e'rte'kveszte's~veI. Be' rla a kiv~Iasztott AIb6ria
szeme' lye' e'rt es teve'kenyse'ge'e'rt felelas.
VE TELL JOG
VLL
I.
A Be' rbead6 a jelen szerzade's hatalyba Ie'pe'se't ko~veta 5 eves
idatartamra a B~rIeme'nyre vonatkoz6an ve'teli jogot biztosit t~rite'smentesen a
Be' na re'sz~re, amelyet B~rJa az 5 e'ves idatartamon beIu~I barmikor jog osult
gyakorolni.
ALBE'RLET
szerzade's ~ napja'n a veteli jog gyakorla'sa szernpontja'b6I a
Be'rleme'ny a 11.11. pontban meghata'rozott es a 111./i. pontban
r~szletezett Be' rbead6 tulajdona' ban a'116 az Ingatlan 1/2 tulajdoni
<PAGE>
3. A Be' rbead6 ko~teIes megtenni minden olyan jognyilatkozatot
es cselekme'nyt, hogy a IBeria ve' tell joganak
gyakorla'sa'val tehermentesen megszerezze a Be'rleme'ny
tulaidonjogat.
4. A IBeria a ve tell jogat akke'nt gyakoroihatia, hogy egyoldalu'
nyilatkozata' ban e'rtesitl a Be' rbead6t a Be'rleme'ny megve'tele'ral e's
megfizeti a Be' neme' fly VII 1.14. pont szerinti ve'tela'ra't a Be' rbead6
V.12. pont szerinti banksza'mla'ja Java' ra.
5. A jelen szerzade's szerinti ve' tell jog gyakorla'sa eseten a
Be'rleme'ny ve'tela'ra USD 2.000.000 azaz K6tmiIli6 dollar
o'~sszege'nek megfelela A flzete's napja'n ir~nyad6 es a Nemzetl Bank
a'r'olyama'n sza' molt forint ellene'rt6ke.
6. A Be' rbead6 visszavonhatatlanul hozzaja'rula'sa't adja, hogy az
lngatlannyilva'ntartasba a B~rIa java'ra a jelen szerzade's szerinti ve
tell jog bejegyze'sre kerLIIjo'~n e's tovabba' visszavonhatatlanul
hozza'ja'rul ahhoz, hogy amennylben a IBerIa a ve tell joga't
gyakoroija akkor a jelen szerzade's VIII./2. pontja szerinti Be rlerne
nyre a Be' rianek vetel jogcime'n a tulajdonjoga bejegyzesre
keru'~ljo"n.
VILI SZAVATOSSAG,
KO"TELEZETTSE'GVALLASOK
1. A B6rbead6 szavatol aze'rt, hogy a berleme'ny a szerzade's ege'sz
tartama alatt szerzadesszeru haszna'Iatra alkalmas es egye'bke'nt is megfelel a
szerzade's elairasainak. A Be' rbead6 kifejezetten szavatol aze'rt, hogy a
Be'rleme'ny es a hozza' tartoz6 berendeze'sek mu~szakl allapota minase'ge e's
szabva'nya megfelel a hat6sa'gl elaira'soknak.
<PAGE>
2. A BE' RBEAD6 szavatoj azert, hogy harmadik szeme'Iynek nics a Be'
rieme' nyre vonatkoz6an olyan joga, amely a Be rlat vagy be rinelyik Albe riot A
Be'rleme'ny haszna' lata' ban korla'tozza vagy megakadalyozza.
3. A jelen szerzade'sben kiko~to~tt ve'teli joggal o~sszefu~gg6sben a
Be' rbead6 szavatol, hogy a szerzade's ege'Sz tartama alatt a Berlemeny per-,
tehere's ige'nymentes. AZ Elad6 szavatolia tov~bba', hogy a Be' rleme' nyt ad6,
vagy ad6k m6dja'ra behajtand6, illetve mas kozuzemi dij tartoza'sok nem
terhelik.
4. A Be' rbead6 katelezettse' get va'llaI arra, hogy a Ta' rsasha'z
megoszta' sat kezdeme'nyezi, annak erdekeben, hogy a B~rlerne'ny o"na'116
ingatlankent keru'~ljb'n az lngatlannyllva'ntarta'sban feItu'~ntet6sre. Az
Ingatfan megoszta'sa soran a Be rbead6 a Be navel egyu"ttmu'kadve kb'teles elja'
ml es ko"telezettse' get vallal, hogy az o'na'116 ingatlanke'nt bejegyzett Be'
rieme' nyre a jelen szerzade'sben meghata'rozott idatartam alatt is biztositja a
jelen szerzade's szerinti jogokat a IBerIa re'sze're.
5. A Be' rbead6nak a jelen szerzade'sben vallalt kbtelezettse'geiert a
Be' rbead6 kiza' rn' lagos tulajdonosa a Euroweb International Corp. (445 Park
Avenue New York, Ny 10022) egyetemlegesen ko"telezettse' get vallal es vallaija,
hogy amennyiben a Be' rbead6 vajamely a jelen Szerz6desben felsorolt
kb'telezettse'ge'nek nern tesz eleget a IBerIa ko"zvetlen felsz6lita'sa'ra
ane'lku'I, hogy a Be' rlanek azt megelozoleg a Be' rbead6to'l kbvetelnie
kellene, a IBerIa igenyeit marade'ktalanul kieleg itj.
6. A B6rla 30 napon belu~I ku~Io'~n szerz:"de'sben za'Iogjogot fog
engedni a u'zletre'sze're a be' rbead6nak, hogy biztositsa annak erdekeit arra
az esetr ha a jelen szerzad6st jelentasen megszegi.
<PAGE>
IX. A SZERZODE'S MIEGSZCJNIESE
1. A Felek ro~gziUk, hogy a jelen szerzade's IV./ 1. pontja' ban
megjelo~lt idatartam alatt Felek jelen szerzade'st rendes felmonda's u'tja'n nem
mondhatjak fel.
2. A berlet a IVIL. Pontban meghata'rozott idatartam eltelte'vel
automatikusan megszunik.
3. A B6rbead6 jogosult jelen szerzade'st felmonda's dare tekintet
nelkul, azonnali hatallyal, egyoldalu' nyilatkozattal felmondani, ha:
IBerIa elmulasztja jelen szerzade'sbal ereda kbtelezettse'ge belere'tve
a be neti dij fizetesi katelezettse' get teljesite'se't, annak ellen~re, hogy
mar legala'bb 10 napja ke'zbesitette'k sza'ma'ra a ko~teIesse'ge teljesitesere
vonatkoz6 ira' sbeli felszalitast (ertesite's a szerzadesszege'sral);
A Be rla fizete'ske'ptelen vagy azza valik, ha csadelja' ra's vagy
felsza'mola'si elja' ra's indul ellene;
4. A B~rIa jogosult jelen szerzade'st felmonda's idare tekintet
n~lku..I, azonnali hata'llyaI az egye'b jogorvoslatok mellett egyoldalu'
nyilatkozattal felmondani, ha:
Be' rbead6 elmulasztja jelen szerzade'sbal ereda ko~teIezettse'ge
teljesite set, annak e~lene're, hogy ma'r legala'bb 10 napia ke'zbesitette'k
sza'ma'ra a katelessege teljesitesere vonatkoz6 irasbeli felsz6lita'st.
5. A jelen szerzades megszu'nik akkor is ha
a) a Felek jelen Szerz5de'st kazas megegyeze'ssel megszu~ntetik;
b) a Berlemeny ege'szben vagy jelentas re' sze' ben elpusztul,
vagy egye'bke'nt megsernmisu~I.
6. A ~eIeK TeImon~a~d ~I~DIUIDY
forma' ban 6rve'nyes. A felmonda's idapontia a felmonda levelnek a ma'
sik fel fenti telephelyare tartena beerkezesenek idapontia, de Iegkesabb a
felmond6 level postara ada sa nak napja't6l sza'mitott 5. nap.
<PAGE>
7. A be rieti jogviszony megszu'ne's~nek napja'n a IBeria a IV.12.
pontban feltu~ntetett berendezesekkel egyu'tt kateles a Be' rIem~nyt a Be'
rbeado' nak visszaszolga'ltatni.
8. Azt a berendeze'st vagy felszerele'st, amelyet a Be' na a Be' rieme'
nyben a saja't ko..ltse'ge'n szereltetett fel, jogosult az eredeti a'llapot
visszaa'lli'ta'sa mellett leszere;tetni es magaval vinni.
X. 1. VEGYES RENDELKEZESEK Jelen szerzadessel kapcsolatos
mega'Ilapoda'sok, m6dosita'sok, kiege'szite'sek kiza' rn' lag Ira sos forma' ban
e'rve'nyesek.
2. Jelen szerzades hata'lybale'pe'se'nek felte'telei a ko..vetkezak: A)
A JELEN szerzades 1. sz. melle'kleteke'nt meghata'rozott
Te'rke'pszelve'ny hiteles ma' solata a Felek resze're rendelkeze'sre a'
II. b) a jelen szerzade's 2. sz. melle'kleteke'nt meghata'rozott Ada' sve'teli
szerz:ade's ma solata Felek reszere rendelkezesre all. c) a jelen szerzades 3.
sz. mellekietekent meghata'rozott az Ingatlan tulajdoni Iapj~nak hiteles
m~solata Felek re'sze're rendelkeze'sre A' II.
Jelen szerzade's akkor lep hatalyba, ha az a)-c) pontokban foglalt
feltetelek egyu~ttesen teljesu~lnek.
<PAGE>
Amennyiben jelen szerzade's ba'rmely kikbte'se e'rv6nytelennek
bizonyulna, az a szerzade's egyeb rendelkeze'seit nem e'rinti. Felek
mega'llapodnak, hogy amennyiben az e'rve'nytelense'g okat egy kesabbi
jogszaba'ly va'ltoza's kapcsa'n orvosolni lehet, ugy mindent megtesznek az adott
szerzodesre'Sz e'rve'nyben, illetve hata'~yban tarta'sa e'rdeke'ben es ezen
szerzade'sre'szek tekintete ben jelen szerzade'st kulo.~n megerasitettnek
tekintik. Ugyanez vonatkozik arra az esetre is, ha a
szerzade's ve'grehajta'sakor,
kiege'szite'sre szorul6 hianyossag mutatkozik.
4 Felek a vita's ke'rde'seket elsasorban ko~zo~s megegyeze's u'tja'n
pr6ba'lja'k rendezni, ennek sikertelensege eset~n a va'Iasztottbiras~g
kiz~ralagos illete'kesse'ge't kbtik ki. A Felek ko~zatti jogvita'ra a Magyar
kereskedelmi es Iparkamara mellett szervezett AIland6 Va' l~sztottbir6sa'g
kizaralagos illete' kesse' get kb.tik ki. A IBerIa 6s a Euroweb International
Corp kazo~tti jogvita'ra illetekes va'~asz:tottbir6sa'g londoni sz6khellyel
mu'ko~da ha rom tagu' blr6s~g, amelynek ke't tagja't a Felek egyenke'nt jelb Ilk
ki es a harmadik tagot egyben a va'Iasztottblr6s~g elno'ke't ez a ket tag
jelo.~li ki ennek hi~nya' ban a Londofli Nemzetko.~zi Va' Iasztottbir6sa'g
jeIbli ki A va'~asztottbirn'sa'gi elj a' ra's nyelve az angol. A
~a'lasztottbir6Sa'g minden hatarozata vegleges ~s a Felekre ne'zve kbteleza
e'rvenyu, amely barmely hata'skbrrel rendelkeza bir6sa'g elatt vegrehajthat6nak
minasu~l. Jelen szerzade's a va'~asztott bira'skoda'5r61 sz616 1994. e'vi LXXI.
tarveny szempontja'b61 egyben ~a'lasztottbir6sa'gi szerzad~snek is minasci~.
<PAGE>
5. Jelen szerzade'sben nem szaba'lyozott kerdesek tekintete ben Felek a
Magyar Polgari Tb rve'nyko'nyv vonatkoz6 rendelkezeseit tekintik Ira' nyad6nak.
Jelen szerzade's angol nyelven ir6dott es rola magyar nyel"u fordita's ke'szult.
Felek ko.~zb.tti esetleges jogvita eseten az angol szbvegeze's az ira nyado.
6. A jelen szerzade's mindke't fel altal pe Ida nyban k6szu~l. 8, azaz
nyolc ala' irt eredeti
7. Jelen szerzade'st Felek, mint akaratukkal mindenben egyezat, az
alapito okiratuknak megfelelaen ce' gszeru" en j6va'hagy6lag ala' irta'k, es
ala' ira' sukkal akke'nt nyilatkoznak, hogy jelen szerzade's megkb'te'se'hez
minden szu~kse'ges felhatalmazassal rendelkeznek, ahhoz semmi)yen tovabbi
(tulajdonosi vagy hat6sa'gi) engede lyre FLINGS Szu'kse'g.
8. A Be r(6 ko'~telezettse' get vallal, hogy megfelela biztos'ita'st
belee'rtve a felelb'sse'g biztposita'st kbt az e'pu~let biztosita'sa'ra.
JELEN SZERZO" DES
MELLE'KLETEI:
Te'rke'pszelve'ny hiteles ma solata
Ada' sve' tell Szerz5de's M and A Kft-vel hiteles ma solata, ami
m6dosithat6, ha semmilyen ha tranyos hatasa nincs a be dare
1.
2.
3. az lngatlantulajdoni lapianak hiteles ma solata
Dated: NEW York March 23,
Exhibit 10(x)
GRIC COMMUNICATIONS, INC.
GR1CFAX(trademark) LICENSE AGREEMENT
This Agreement is entered into at Milpitas, California as of March 19,
1998 (the "EFFECTIVE DATE") by and between GRIC COMMUNICATIONS, INC., a
California corporation with offices at 1421 McCarthy Boulevard, Milpitas, CA
95035 USA ("GRIC COMMUNICATION."), and EuroWeb Internet Service Provider Co., a
Hungarian corporation with offices at Varosmajor U.13., 1122 Budapest, Hungary
("Licensee"), and is as follows:
I. DEFINITIONS
The capitalized terms set forth in this Section I have the meanings
ascribed to them as set forth in this Section 1. Capitalized terms used in this
Agreement that are not set forth in this Section 1 have the meanings ascribed to
them elsewhere in this Agreement.
"GRICFAX(trademark) " means the GRICfax(trademark) Software and the
Documentation.
"GRICFAX(TRADEMARK) SOFTWARE" means the hardware listed on Exhibit A
hereto for which Licensee has paid the purchase price described in EXHIBIT C
hereto.
"GRICFAX(TRADEMARK) SOFTWARE" means the software program described on
EXHIBIT B in Executable Code for which Licensee has paid the license fees
described in EXHIBIT C of this Agreement and which is identified by its serial
number on EXHIBIT D hereto. The GRlCfax(trademark) Software does not include any
Derivatives unless this Agreement otherwise provides.
"DERIVATIVES" means specific instructions or sets of instructions in
Executable Code that are not included in the GRICfax(trademark) Software, but
which, when used alone or with the GRICfax(trademark) Software, constitute a
modification, enhancement, correction, update, translation, interpretation,
listing, compilation, or derivative of the GRICfax(trademark) Software, and all
copies and portions thereof in any media.
"DESIGNATED PLATFORM" means Licensee's central Internet service
provider server(s) on which Licensee will install GRICfax(trademark) ,
identified in EXHIBIT D hereto.
"DOCUMENTATION" means manuals, user guides, and other documentation
relative to the GRlCfax(trademark) Software, including all modifications,
updates, derivations, and changes thereto, whether in written, graphical, human
readable, or machine readable form and in any media.
"EXECUTABLE CODE," sometimes also referred to as object code, means the
machine executable form of the GR1Cfax(trademark) Software or any copy thereof
in any media.
"GLOBAL REACH INTERNET CONNECTION(TRADEMARK) " (or "GRIC(trademark) ")
means a worldwide alliance of Internet Service Providers ("ISPs") coordinated by
GRIC Communications, Inc. with the objective of providing telecommunications
services and other value-added services through the Internet.
"INTELLECTUAL PROPERTY RIGHTS" means patent rights, copyright rights
(including, but not limited to, rights in audiovisual works and moral rights),
trade secret rights, and any other intellectual property rights recognized by
the law of each applicable jurisdiction.
1
<PAGE>
"Site" means the location(s) of the central processing unit(s) of the
Designated Platform, identified on EXHIBIT D hereto.
"TERRITORY" means Hungary.
"TRADEMARKS" means the various trademarks, service marks and logos
owned or licensable by GRIC Communications, Inc. as described on EXHIBIT E
hereto.
2. TRADEMARKS
Licensee recognizes the value of the goodwill associated with GRIC
Communications, Inc.'s Trademarks~ GRIC Communications, inc.'s ownership of the
Trademarks, and the reservation by GRIC Communications, Inc. of all rights to
the trade marks. Licensee agrees to use the GRICfax(trademark) mark solely to
refer to and identify GRlCfax(trademark) and GRIC Communications, Inc's
technology, and to use the Global Reach Internet Connection(trademark) and
GRIC(trademark) marks solely to refer to and indicate Licensee's membership in
the GRIC organization and that such usage shall be in accordance with GRIC
Communications, Inc.'s usage guidelines as revised from time to time. Such marks
shall be used in the text of any press releases issued regarding Licensee's
Internet faxing capabilities or services. In all written text (whether in
electronic or paper form), ownership of the Trademarks shall be attributed to
GRIC Communications, Inc. as follows: "GRlCfax(trademark) ", Global Reach
Internet Connection(trademark) and GRIC(trademark) are trademarks of GRIC
Communications, Inc.." Licensee further agrees not to make any other use of,
challenge the validity of, or file applications to register, any name or mark
containing any of GRIC Communications, Inc.'s trademarks, whether or not such
trademarks are listed herein, without GRIC Communications, Inc.'s advance
written permission. Licensee agrees that all goodwill associated with GRIC
Communications, Inc.'s Trademarks shall inure to the sole benefit of GRIC
Communications, Inc..
3. INSTALLATION AND ACCEPTANCE
3.1. Pre-Delivery Activities and Delivery. Before delivery and
installation, Licensee shall prepare the Site and/or the Designated Platform for
installation of the GRICfax(trademark) Software and Hardware according to GRIC
Communications, Inc.'s instructions. Within thirty (30) days after Licensee
orders and pays for the GR1Cfax(trademark) Software and Hardware, GRIC
Communications, Inc. shall deliver the GRlCfax(trademark) Software and Hardware
to the Designated Platform at the Site, and shall deliver to the Site one (1)
copy of the applicable Documentation. GR1Cfax(trademark) and GRICfax(trademark)
Hardware are shipped F.O.B. from GRIC Communications, Inc.'s office in Milpitas,
California. Licensee shall be responsible for installing the GRICfax(trademark)
Software and Hardware on the Designated Platform at the Site, but GRIC
Communications, Inc. will assist Licensee in the installation process as
reasonably requested by Licensee.
3.2. Acceptance.
3.2.1. Hardware Acceptance and Returns. The GRICfax(trademark) Hardware
shall be deemed accepted upon receipt by Licensee. In the event that any
GRlCfax(trademark) Hardware is defective, Licensee may contact GRIC
Communications, Inc. for a return materials authorization ("RMA") and, only upon
receipt of an RMA, Licensee may return the defective GRICfax(trademark) Hardware
to GRIC Communications, Inc.. If GRIC Communications, Inc. determines that such
GRlCfax(trademark)
2
<PAGE>
Hardware is defective, GRIC Communications, Inc. will repair or replace such
GRICfax(trademark) Hardware.
3.2.2. Software Testing and Acceptance. Licensee shall have thirty (30)
days from delivery of the GRICfax(trademark) Software to the Site during which
to test the GRICfax(trademark) Software according to the test plan provided by
GRIC Communications, Inc. to determine that the GRlCfax(trademark) Software
performs materially in accordance with the criteria set forth in tire test plan
arid the Documentation. Licensee shall promptly notify GRIC Communications, Inc.
in writing of any failure(s) of the GRICfax(trademark) Software to perform
materially in accordance with the test plan or tire Documentation ("Deficiency")
within five (5) days after expiration of tire testing period. If Licensee fails
to notify GRIC Communications, Inc. of Deficiencies within such period, Licensee
shall have no further right to reject tire GRICfax(trademark) Software or
exercise other remedy with respect to any such alleged non-conformance, subject
to GRIC Communications, Inc.'s support obligation under Section 8.
3.2.3. Modification. Promptly upon receiving notice of any Deficiency
in tire GRICfax(trademark) Software within tire time period specified under
Section 3.2.2, GRIC Communications, Inc. shall use its best efforts to correct
tire deficiencies in an expeditious manner and to provide Licensee with a
revised version within thirty (30) days. Licensee shall then test the revised
software iii the manner provided in subsection 3.2.2.
3.2.4. Rejection of GR1Cfax(trademark) Software and Hardware. If the
third or any subsequent revision of the GRICfax(trademark) Software provided by
GRIC Communications, Inc. fails to perform materially in accordance with the
criteria of the test plan or the Documentation, and GRIC Communications, Inc. is
unable to give Licensee adequate assurances that GRIC Communications, Inc. will
revise the GRICfax(trademark) Software to meet such requirements within a
reasonable time, Licensee may reject the GRICfax(trademark) Software, terminate
tins Agreement, and receive a refund of any amounts paid with respect to the
rejected GRICfax(trademark) Software. In the event that Licensee chooses to
reject the GRICfax(trademark) Software, Licensee will also return to GRIC
Communications, Inc. the GRICfax(trademark) Hardware and GRIC Communications,
Inc. will refund the purchase price of such returned GRICfax(trademark)
Hardware. Such Rejection, termination and refund rights will be Licensee's sole
and exclusive remedy for such non-conformance of tire GRICfax(trademark)
Software during the Acceptance Period set forth in this Section 3.
4. LICENSE GRANTS
4.1. Scope of License.
4.1.1 Current License. Subject to the terms and conditions of this
Agreement, and effective upon payment (if the amounts specified in Section
9.1.1, GRIC Communications, Inc. hereby grants to Licensee a non-exclusive,
non-transferable, fee-bearing, perpetual license to use (without the right to
sub-license or distribute) GRICfax(trademark) Software and any Derivatives
delivered by GRIC Communications, Inc., in Executable Code, and Documentation
for Licensee's internal use only, solely on the Designated Platform at the Site
in connection with Licensee's services in the Territory.
4.1.2 Future Purchases. During the Term of this Agreement, Licensee may
license additional copies of GR1Cfax(trademark) at GRIC Communications, Inc.'s
then-current pricing by issuing a purchase order to GRIC Communications, Inc.
containing the Designated Platform and Site for each such copy of
GRICfax(trademark) . All such purchase orders are subject to approval by GRIC
Communications, Inc., and no terms or conditions of such purchase orders shall
modify or add to the
3
<PAGE>
terms of this Agreement. Exhibit E hereto shall be modified to include the
serial number of each copy of GRICfax(trademark) licensed to Licensee and the
Designated Platform and Site for such copies. All such additional copies of
GRICfax(trademark) shall be deemed GRICfax(trademark) as defined in Section I of
this Agreement and all terms and conditions of this Agreement shall apply to
Licensee's use of such additional copies except for Sections 3.2.2, 3.2.3, and
3.2.4.
4.2. Right to Make Back-up Copy. Licensee may make one archival back up
copy of the GRICfax(trademark) Software (and any Derivatives delivered by GRIC
Communications, Inc.) and the Documentation.
4.3. License Restrictions. Licensee shall not copy or knowingly permit
any other person to copy any portion of GRICfax(trademark) except for the
purposes authorized in this Agreement, or by end-users of Licensee's on-line
services in the Territory for back-up and archival purposes. Licensee shall not,
and shall not allow others to, reverse engineer, reverse compile, or disassemble
any of the GRICfax(trademark) Software, any Derivative, or any portion of the
foregoing. Licensee shall notify GRIC Communications, Inc. if Licensee becomes
aware of attempt to reverse engineer, reverse compile, or disassemble the
GRICfax(trademark) Software, any Derivative, or any portion of the foregoing.
Licensee shall not provide the GRICfax(trademark) Software to third parties on a
rental or time-sharing basis.
4.4. Reservation. GRIC Communications, Inc. reserves all rights and
licenses not expressly granted to licensee pursuant to this Agreement.
5. DELIVERABLES
Upon payment of the license fee and purchase price referenced in
Section 9.1.1, GRIC Communications, Inc. shall provide Licensee with the items
specified as deliverables on EXHIBIT B, and the hardware specified on EXHIBIT A.
6. LICENSEE COMMITMENTS
6.1. Licensing of GRICfax(trademark) Licensee agrees (i) to install and
use the GRICfax(trademark) Software only as provided in this Agreement, subject
to the terms and conditions hereof, and (ii) to install and use any updates of
the GRICfax(trademark) Software provided to Licensee promptly upon receipt
thereof.
6.2. Commitment to Cooperate in Providing GRIC Member Services. The
licensing and use of GRICfax(trademark) implies a commitment by and agreement of
Licensee to be a member of GRIC during the term of this Agreement and to
cooperate with other GRIC members under rules promulgated by GRIC
Communications, Inc. in offering Internet faxing and other services, as
applicable with respect to GRICfax(trademark) and other products licensed to
Licensee by GRIC Communications, Inc.. As such, Licensee agrees that it will
carry all Internet fax traffic generated by the end user customers of all other
GRIC members. The GRICfax(trademark) license herein granted shall immediately
and automatically terminate if the Licensee withdraws from GRIC or refuses to
provide Internet faxing services enabled by GRICfax(trademark) to customers of
other GRIC members. If, however, GRIC Communications, Inc. determines that
Licensee is unable for technical reasons to offer to customers of other GRIC
members high quality Internet faxing services enabled by GRICfax(trademark) ,
then GRIC Communications, Inc. will have the option, in its discretion, of
allowing Licensee to continue using GRICfax(trademark) to enable Licensee's own
customers to utilize the Internet faxing services enabled by GRICfax(trademark)
but terminating Licensee's ability to
4
<PAGE>
provide the Internet faxing services enabled by GRICfax(trademark) to customers
of other GRIC members. Each GRIC member will be responsible for handling service
or other claims made by its own customers, whether or not relating to the use of
other GRIC members networks. Disputes among GRIC members will be resolved
according to settlement and operational procedures provided from time to time by
GRIC Communications, Inc..
6.3. Licensee Expenses. Licensee agrees to pay all Licensee-incurred
out-of-pocket expenses for GRIC meetings and related participation.
6.4. Technical Support. Licensee agrees to provide local support and
network management for the Designated Platform on which the GRICfax(trademark)
Software runs, and to exercise commercially reasonable efforts with respect to
maintaining GRIC-related services in substantially the same way Licensee
maintains its other services, including, but not limited to, providing immediate
response and action to cooperate with GRIC Communications Inc.'s,'s Network
Operation Center to remedy any failure of any server used to provide
GRIC-related services. Licensee agrees to maintain hardware and software on an
GRIC Communications, Inc.-supported release. For high severity problems, which
could cause loss of data, data corruption, system failure or a potential
security breach, the Licensee agrees to implement an GRIC Communications,
Inc.-provided fix within 48 hours of receipt of the fix. Licensee will also
provide GRIC Communications, Inc. authorization for remote access to an
administrative account on all Designated Platforms on which the GRICfax software
runs in order to perform GRICfax administrative functions.
6.5. The logo "GRIC(trademark) Member" shall be placed on the
licensee's home page.
6.6. Terminating Licensee agrees to strive to provide sufficient
capacity to allow at least 95% of all incoming fax requests in any given
calendar month to have dial-out transmission initiated within five minutes.
7. GRIC COMMUNICATIONS, INC. COMMITMENTS
As provided in this Agreement, GRIC Communications, Inc. will reconcile
all Internet and fax traffic activity logs, and collect and redistribute all
fees related to GR1Cfax(trademark) related Internet and fax traffic activity due
from one GRIC member to another. GRIC Communications, Inc. will take the lead
role in expanding the global services network using GRICfax(trademark) and other
GRIC Communications, Inc. products by marketing GRIC and signing up new members.
GRIC Communications, Inc. will schedule GRIC meetings for the purpose of
distributing information and seeking member input on technical developments and
implementation strategies.
GRIC Communications, Inc. agrees that commencing on the Effective Date, and so
long thereafter as Licensee provides the quality of service described in Section
6.2 of this Agreement, GRIC Communications, Inc. will not enter into an
arrangement with any third party in which GRIC Communications, Inc. grants such
third party a license to use GRICfax(trademark) to receive facsimile traffic in
Hungary from other GRIC(trademark) Members.
8. MAINTENANCE AND SUPPORT
8.1. GRIC Communications, Inc. Maintenance. During the term of this
Agreement, GRIC Communications, Inc.'s. shall provide Licensee with periodic
updates the GRIC Software that may incorporate (I) corrections of any
substantial defects, (ii) fixes of any minor bugs, and (iii) at the sole
discretion of GRIC Communications, Inc., enhancements to the GRICfax(trademark)
Software, in each
5
<PAGE>
case where practicable.
8.2. GRIC Communications, Inc. Software Error Correction. During the
term of this Agreement, GRIC Communications, Inc. will use reasonable efforts to
correct errors that are reported by Licensee and reproducible by GRIC
Communications, Inc.. "Errors" are material failures of the GRICfax(trademark)
Software to perform in substantial conformity with the Documentation. GRIC
Communications, Inc. shall provide E-mail and fax support between the hours of
9:00 am. and 5:00 p.m., California time, Monday through Friday, excluding GRIC
Communications, Inc. holidays.
8.3. Customization. GRIC Communications, Inc. may provide additional
software engineering services to customize the GRICfax(trademark) Software to
meet Licensee's requirements as agreed between GRIC Communications, Inc. and
Licensee. GRIC Communications, Inc. shall own any such customized versions of
GRICfax(trademark) Software and other Derivatives so created. GRIC
Communications, Inc. shall provide the software engineering services at GRIC
Communications, Inc.'s standard hourly rates at the time of agreement (plus
materials costs and expenses).
8.4. Training. GRIC Communications, Inc. may provide training services
to Licensee's personnel at such times and at such places as GRIC Communications,
Inc. and Licensee may agree. GRIC Communications, Inc. shall provide the
training at GRIC Communications, Inc.'s standard hourly rates (plus materials
costs and all related expenses including travel costs) at the time of the
agreement.
9. FEES, BILLING AND SETTLEMENT
9.1. Fees
9.1.1. Up-front Licensing Fee and Hardware Purchase. Licensee shall pay
GRIC Communications, Inc. the Up-Front Licensing fee and Hardware Purchase Price
(due and payable upon execution of this Agreement) described on EXHIBIT C.
9.1.2. Maintenance Fees. Licensee shall pay GRIC Communications, Inc.
the Annual Maintenance Fee (due and payable upon execution of this Agreement and
each anniversary thereof). and the Technical Support Fee (due and payable upon
execution of this Agreement, both as described on EXHIBIT C.
9.1.3. Additional Financial Arrangements. Licensee agrees to the
additional financial arrangements specified on EXHIBIT C, which arc incorporated
by reference into this Section 9.1.3.
9.2. Billing.
9.2.1 Billing Statement. Al the end of each billing period (calendar
month), GRIC Communications, Inc. will generate for Licensee one consolidated
statement of all Internet traffic enabled by GRIC Communications, Inc. products
(including GR1Cfax(trademark) ) licensed to Licensee (the "PRODUCTS"). This
statement will bear the date on which it was generated (the "Statement Date"),
and will detail and reconcile all Products-related Internet and fax traffic
activities between the Licensee and all other GRIC members, and will show an
aggregate amount owed or amount due which will be paid to or received from GRIC
Communications, Inc..
9.2.2 Billing Calculations. The billing to the Licensee shall be
calculated as a thirty (30) seconds minimum transmission time and six (6)
seconds increments thereafter for the remaining
6
<PAGE>
duration of the transaction. Each six (6) second increment is calculated as one
tenth of a minute and the last remaining seconds are rounded up to the nearest
one tenth of a minute
9.3. Settlement. GRIC Communications, Inc. will settle GRIC member
accounts as set forth in this Section 9, EXHIBIT C, and the then-current GRIC
Communications, Inc. Settlement Operational Plan. In the event of any conflict
between the terms of this Agreement and the Settlement Operational Plan or a
similar document, the terms of this Agreement shall control.
9.3.1 Payment by Licensee. In the billing statement set forth in
Section 9.2. GRIC Communications, Inc. will reconcile all GRICfax(trademark)
related Internet traffic activity logs and determine the aggregate "amount owed"
or "amount due" for all GRICfax(trademark) related Internet traffic activities
for Licensee. GRIC Communications, Inc. nets the debits and credits owed or due
from all GRIC services. based on the financial terms set forth in EXHIBIT C. Any
amounts owed by Licensee are due and payable upon Licensee's receipt of the
statement, but shall not be considered overdue until thirty (30) days after the
Statement Date (the "grace period"). Payments received during such grace period
will not incur a late charge. If payments are received after the grace period
GRIC Communications, Inc. may assess a late charge of 1.5% per month from
Statement Date of the amount due with a minimum charge of 1.5%. Licensee
understands and agrees that it is required to provide payment security as set
forth in Section 9.6. GRIC Communications, Inc. reserves the right to suspend
service if the Licensee is over 30 days delinquent in their payment amount.
9.3.2 Redistribution of Funds by GRIC Communications, Inc.. GRIC
Communications, Inc. will collect all amounts received from Licensee and from
other GRIC members for each billing statement under Section 9.2, and will
redistribute collected amounts within sixty (60) days of the Statement Date. In
the event that GRIC Communications, Inc. is to pay Licensee certain amounts
based upon a certain statement under Section 9.2, GRIC Communications, Inc.
agrees to pay Licensee such amounts owed within such sixty (60) day period even
if such amounts are owed but unpaid to GRIC Communications, Inc. by other GRIC
members.
9.3.3 Set-Off and Overpayment. GRIC Communications, Inc. may set off
from any amounts to be paid to Licensee an amount equal to: any amount then owed
by Licensee and past due. Any amount mistakenly overpaid to Licensee will
immediately be refunded upon discovery or upon demand by GRIC Communications,
Inc. and forwarded to the GRIC member entitled thereto, and GRIC Communications,
Inc. may set off amounts overpaid from the next payment due Licensee should
Licensee have failed to refund any overpaid amounts prior to such payment.
9.3.4 Fee Disputes. Any disputed amounts may be questioned within sixty
(60) days of the Statement date. After such sixty (60) day period, the billing
becomes final. Licensee must transmit any questions regarding billing to GRIC
Communications, Inc. in writing with specific reference as to why the billing
"log" is considered incorrect. Licensee acknowledges and agrees that any amounts
owed by Licensee attributable to fraudulent usage of Licensee's
GRICfax(trademark) services are Licensee's sole responsibility and shall not be
disputable. GRIC Communications, Inc. will exercise reasonable efforts to
resolve a disputed billing within sixty (60) days of such notification. In the
event of a dispute, GRIC Communications ions, Inc.'s log will be considered the
system record and shall be considered accurate regardless of any inconsistent
logs maintained by Licensee or any other GRIC member.
9.3.5 Rate Changes. GRIC Communications, Inc. may change the prices and
terms included or incorporated into this Section 9 upon thirty (30) days written
notice to Licensee. Such
7
<PAGE>
charges shall be applied equally to all similar members of GRIC.
9.4. Taxes and Duties. Prices and payments due to GRIC Communications,
Inc. are exclusive of any sales, use, excise, value-added, withholding or
similar tax of any kind. Licensee agrees to pay, and to indemnify and hold GRIC
Communications, Inc. harmless from any sales, use, excise, value-added,
withholding or similar tax levied outside of the United States on the licenses
arising out of the sale or use of GRICfax(trademark) by Licensee (including
taxes which may be due as a result of the termination of faxes sent by Licensee)
and/or fees payable by Licensee as described herein, other than taxes measured
by GRIC Communications, Inc.'s income, corporate franchise, or personal property
ownership. Prices and payments due to Licensee from GRIC Communications, Inc.
for its own account shall be exclusive of any sales, use, excise, value-added,
withholding or similar tax of any kind. GRIC Communications, Inc. will require
each GRIC member making payments to GRIC Communications, Inc. that are to be
passed through to the other GRIC members to agree to make any such payments net
of any sales, use, excise, value-added, withholding or similar tax of any kind.
9.5. Method of Payment. All payments to GRIC Communications, Inc. shall
be as set forth below or as to such subsequent accounts and addresses as GRIC
Communications, Inc. may provide upon written notice. All payments to GRIC
Communications, Inc. shall be made via wire transfer and be made payable to GRIC
Communications, Inc.. Remit payment to Bank of America located at 530 Lytton
Avenue, Palo Alto, CA 94301 with the following account number references: ABA
No.121000358 and Account No. 14934-04689. All payments shall be made in United
States currency. Licensee agrees to notify GRIC Communications, Inc. Billing
Department by E-mail at [email protected] upon transfer of funds.
9.6. Payment Security. Licensee shall provide payment security to GRIC
Communications, Inc. in the form of a cash prepayment, made as stipulated in
Section 9.5 in the amount established by GRIC Communications, Inc., set forth in
Exhibit F. Licensee agrees that GRIC Communications, Inc. shall retain the right
to adjust the amount of the payment security as needed. Licensee agrees to pay
the adjusted amount within 10 days. GRIC Communications, Inc. may draw on the
payment security as necessary to pay amounts owed hy Licensee to GRIC members or
GRIC Communications, Inc.. GRIC Communications, Inc. reserves the right to
suspend service if the Licensee fails to adjust the payment security within 20
days of notice.
9.7 Fraud Minimization. GRIC Communications, Inc. and Licensee shall
cooperate and confer in good faith with each other and with other GRIC members
to work out procedures to identify and prevent fraud in the usage of
GRICfax(trademark) -enabled Internet services, and to work out mutually agreed
liability limitations on fraudulently incurred charges incurred on one GRIC
member's network and sought to be charged hack to another GRIC member through
the settlement process. Such limitations shall act to reduce a GRIC member's
liability only if it has applied the agreed upon fraud provision measures.
10. EXPORT
GRIC Communications, Inc.'s obligation to deliver any portion of
GRlCfax(trademark) is subject to compliance by GRIC Communications, Inc. and
Licensee with applicable laws, rules, and regulations of the United States
Department of Commerce and other applicable governmental agencies concerning the
export of goods or technology from the United States. Before Licensee uses any
portion of GRlCfax(trademark) outside the United States, Licensee shall: (a)
fully comply with all then current regulations of the United States Department
of Commerce and other applicable governmental agencies; (b) fully comply with
all then current and applicable regulations of the government of the Territory;
8
<PAGE>
and (c) take reasonable precautions to protect the proprietary rights of GRIC
Communications, Inc. in the Territory.
11. DISCLAIMER
11.1. GRICfax(trademark) As-Is, With All Faults. GRIC Communications,
Inc. licenses GRICfax(trademark) on an "as is,", with all faults" basis. GRIC
Communications, Inc.'s sole obligation and Licensee's sole remedy with respect
to any failure of the GRICfax(trademark) Software to perform to Licensee's
requirements is as set forth in Sections 3.2 and 8.2.
11.2. Hardware Warranty. The GRICfax(trademark) Hardware is subject to
the terms and conditions, including warranties, if any, provided with the
GRlCfax(trademark) Hardware by the manufacturers thereof.
11.3. NO WARRANTY BY GRIC COMMUNICATIONS, INC.. GRIC COMMUNICATIONS,
INC. MAKES NO WARRANTY, EXPRESS OR IMPLIED, WRITTEN OR ORAL, STATUTORY,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF NONINFRINGEMENT,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, REGARDING
GRICFAX(trademark) OR THE GRICFAX(trademark) HARDWARE OR THEIR USE ALONE OR IN
COMBINATION WITH ANY OTHER PRODUCTS. NO EMPLOYEE OR AGENT OF GRIC
COMMUNICATIONS, INC. IS AUTHORIZED TO MAKE ANY OTHER REPRESENTATION, WARRANTY,
OR PROMISE WITH RESPECT TO GRICFAX(trademark) OR FILE GR1CFAX(trademark)
HARDWARE.
12. TITLE AND PROPRIETARY RIGHTS
12.1. Title. Title to GRICfax(trademark) and Derivatives and know-how
and all Intellectual Property Rights pertaining thereto, shall at all times be
vested in GRIC Communications, Inc. or its suppliers. Licensee shall have no
ownership of GRICfax(trademark) or any Derivatives, or any portion thereof other
than ownership of the physical media on which permitted copies of the
GRICfax(trademark) and any Derivatives may be present.
12.2. Confidential Information.
12.2.1. Definition. "Confidential Information" means: (i) business or
technical information concerning the products, customers, customer data,
marketing and business plans, operations, research, development or know-how;
(ii) any other information disclosed in written or other tangible form and is
marked "Confidential," "Proprietary," or in some other manner to indicate its
confidential nature; or (iii) oral information which is designated as
confidential at the time of disclosure and is later reduced to writing within 30
days; "Confidential Information" does not include information that: (i) in its
aggregate form, is in or enters the public domain through no fault of the
receiving party; (ii) is known to the receiving party, without restriction on
its use or disclosure, at the time of disclosure; (iii) is independently
developed by the receiving party without any use of the Confidential Information
of the other party, as demonstrated by documentation created concurrently with
such development.
12.2.2. Restrictions on Confidential Information. Each party will
maintain the Confidential Information of the other party in strict confidence
and will exercise due care with respect to the handling and protection of such
Confidential information, consistent with its own policies concerning protection
of its own Confidential Information of like importance. Each party will use the
9
<PAGE>
Confidential Information of the other party only as expressly permitted herein,
and will disclose such Confidential Information only to its employees and
consultants as is reasonably required in connection with the exercise of its
rights and obligations under this Agreement (and only subject to binding use and
disclosure restrictions at least as protective as those set forth herein
executed in writing by such employees and consultants). However, each party may
disclose Confidential Information of the other party pursuant to the order or
requirement of a court, administrative agency, or other governmental body,
provided that the receiving party gives reasonable notice to the other party to
contest such order or requirement. Any such disclosure by the receiving party of
the Confidential Information of the disclosing party. will, in no way, be deemed
to change, affect or diminish the confidential and proprietary status of such
Confidential Information. Licensee expressly agrees not to use Confidential
Information to form an Internet services network that competes with GRIC and
will not solicit GRIC members to join a competing Internet services network.
12.3. Notification. Each party shall notify the other immediately upon
discovery of any unauthorized use or disclosure of the other's Confidential
Information, or any other breach of this Agreement by such party, and shall
fully cooperate with the other party to help regain possession of Confidential
Information and prevent the further disclosure of Confidential Information.
12.4. Prohibition on GRIC Member Information Distribution. Licensee
shall not itself knowingly, or permit any other person to, release or distribute
the names of business contacts or technical contacts or other relevant business
information of any other GRIC members other than the names and Internet access
phone numbers of those GRIC members.
13. INFRINGEMENT INDEMNITY
13.1. Indemnification. Subject to the conditions of Section 13.2, GRIC
Communications, Inc. shall defend or settle any claim. proceeding, or suit
("Claim") against Licensee for infringement of any United States patent,
copyright, or misappropriation of a trade secret arising from the sale or use of
GRICfax(trademark) , subject to the limitations set forth ill this Section 13.
GRIC Communications, Inc. shall have sole control of any action or settlement
and shall pay any final judgment entered against Licensee on such issue in any
claim that GRIC Communications, Inc. defends. GRIC Communications, Inc. will
also have the right to control any litigation involving GRIC Communications,
Inc.'s trademarks and service marks and logotypes. GRIC Communications, Inc.
shall not be liable for any cost, expense, or settlement incurred without GRIC
Communications, Inc.'s prior written authorization.
13.2. Notice and Cooperation. Licensee shall (a) notify GRIC
Communications, Inc. promptly in writing of any Claim, (b) give GRIC
Communications, Inc. all information in Licensee's actual knowledge with respect
to the Claim, (c) cooperate with GRIC Communications, Inc. in all reasonable
respects, and (d) at GRIC Communications, Inc.'s request give GRIC
Communications, Inc. any additional authority GRIC Communications, Inc. needs to
defend or settle such Claim.
13.3. Remedies. If GRIC Communications, Inc. determines that there is a
material risk that GRICfax(trademark) may incur a Claim that would give rise to
a right of indemnification under this Agreement, GRIC Communication, Inc. may at
GRIC Communications, Inc.'s sole option and expense (a) procure for the Licensee
the right to use GRICfax(trademark) ; (I)) provide a non-infringing product that
performs comparably to GRICfax(trademark) ; or (c) terminate the license granted
by this Agreement as to GRICfax(trademark) and all further obligation of
Licensee to pay fees as provided under this Agreement with respect to
GRICfax(trademark) , and refund to Licensee the unamortized portion of the
license fees paid by Licensee to GRIC Communications, Inc. for
GRICfax(trademark) based upon a three (3) year straight-line depreciation with a
commencement date as of the Effective
10
<PAGE>
Date.
13.4. Exclusions. Notwithstanding anything to the contrary in this
Agreement, GRIC Communications, Inc. shall have no liability for (a)
infringement caused by use of GRICfax(trademark) in combination with any other
good, method, or process if the infringement is caused by the combination; (b)
infringement involving any trademark, service mark, or logo type other than
trademarks or oilier marks that refer to GRIC Communications, Inc.; (c)
infringement resulting from modification of GRICfax(trademark) by a person other
than GRIC Communications, Inc.; (d) infringement resulting from compliance with
any plans, specifications, or designs provided by Licensee; or (e) any claim of
infringement of a right in which Licensee or any affiliate of Licensee has a
direct or indirect interest.
13.5. No Other Liabilities or Remedies. This Section 13 states the
entire liability of GRIC Communications, Inc. and the exclusive remedy of
Licensee for any claim that GRlCfax(trademark) infringes any patent, trademark,
copyright, or otherwise. The total obligation of GRIC Communications, Inc.
pursuant to this Section 13 shall not at any time exceed tile total amounts paid
to GRIC Communications, Inc. pursuant to this Agreement during the preceding 12
calendar months.
13.6. Indemnification by Licensee. Except for the foregoing Claims,
Licensee shall defend, indemnify, and hold harmless GRIC Communications, Inc.
against all expenses and damages arising out of any claims against GRIC
Communications, Inc. as a result of any use by Licensee of GRICfax(trademark) ,
including without limitation, the fact or content of a facsimile transmission by
Licensee or Licensee's end users.
14. TERM AND TERMINATION
14.1. Term. The initial term of this Agreement is two (2) years from
the Effective Date, and is automatically renewed on an annual basis thereafter
unless sooner terminated as provided below,
14.2. Termination for Breach. Either party may terminate this Agreement
if the other party breaches ally material term or condition of this Agreement
and fails to cure that breach within thirty (30) days after receiving written
notice of the breach. Except for any failure to pay money, in the event it takes
more than thirty (30) days to cure the breach and the breaching party has begun
substantial corrective action to remedy the breach within the initial thirty
(30) day period and diligently continues to pursue such remedy, termination
shall not be effective until six(y (60) days have expired since receipt of
written notice of the breach if the breach has not been cured within such sixty
(60) day period.
14.3. Effect of Termination for Breach. Upon termination for breach of
this Agreement, except as expressly provided herein, (a) the rights and licenses
granted to Licensee pursuant to this Agreement automatically terminate, and (b)
Licensee shall, within thirty (30) days, ship to GRIC Communications, Inc. or
destroy (including purging from any system or storage media) all items in its
possession proprietary to GRIC Communications, Inc., including but not limited
to all copies of GRICfax(trademark) , and an officer of Licensee shall certify
in writing to GRIC Communications, Inc. that all copies of GRICfax(trademark)
and other Confidential Information of GRIC Communications, Inc. have been
returned to GRIC Communications, Inc. or destroyed.
14.4. Termination by Choice. Either party may terminate the License
Agreement by providing written notice at least sixty (60) days in advance of tie
renewal date described in Section 14.1 above.
11
<PAGE>
14.5. Effect of Termination by Choice. Upon termination by choice under
Section 14.4, Licensee retains the right to use the current version of the
GRICfax(trademark) Software in its current form. whether or not Licensee chooses
to continue using GRICfax(trademark) Software, any fees owed prior to
termination by choice remain due and are subject to the provisions in Section 9.
In the event that Licensee continues to use GRICfax(trademark) , the provisions
of Section 9 relating to ongoing payments shall survive the termination of this
Agreement.
14.6. No Liability Upon Termination. Neither party shall be liable to
the other for any lost revenue, lost profit, or expenses incurred or investment
made in connection with the establishment, development, or maintenance of the
business of either party, or for any other damages, losses, costs, or expenses
of any kind whatsoever, other than the obligations to pay amounts accrued under
the Agreement before the date of termination.
14.7. Survival. The provisions of Sections 11, 12, 13,14, and 15 shall
survive the expiration, cancellation, or termination of this Agreement.
15. GENERAL PROVISIONS
15.1. LIMITATION ON DAMAGES. GRIC COMMUNICATIONS, INC. SHALL NOT BE
LIABLE FOR THE COSTS OF PROCURING SUBSTITUTE GOODS OR SERVICES, OR FOR ANY
SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL, OR PUNITIVE DAMAGES, OR OTHERWISE,
NOTWITHSTANDING ANY FAILURE OF GRICFAX(trademark) OR ANY GOOD FAITH ERROR IN
RENDERING CLEARING HOUSE SERVICES HEREUNDER, EVEN IF GRIC COMMUNICATIONS, INC.
IS AWARE OF THE CONSEQUENCES OF LATE DELIVERY, UNAVAILABILITY, OR NON
PERFORMANCE. IN NO EVENT WILL GRIC COMMUNICATIONS, INC.'S MAXIMUM LIABILITY
UNDER THIS AGREEMENT AT ANY TIME EXCEED THE AMOUNTS PAID TO GRIC COMMUNICATIONS,
INC. UNDER THIS AGREEMENT DURING THE PRECEDING 12 CALENDAR MONTHS.
15.3. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns.
Licensee shall not assign any of its rights or delegate any of its obligations
under this Agreement without the prior written consent of GRIC Communications,
Inc., which GRIP Communications, Inc. shall not withhold unreasonably. For the
purpose of this Agreement, an assignment by Licensee shall include any
transaction or series of related transactions in which ownership of more than
50% of the combined voting power of all ownership interests of Licensee is
transferred. Licensee expressly agrees that GRIC Communications, Inc. may assign
its rights and obligations under this Agreement.
15.4. Force Majeure. Neither party shall be liable for any breach of
this Agreement or delay in performance, except for the failure to pay money due,
resulting from a strike, lockout, or other labor dispute, fire, earthquake,
flood, civil commotion, war, riot, act of God, casualty, accident, shortage of
transportation facilities, detention of goods by custom authorities, loss of
goods in public or private warehouse, delay in the delivery of energy, raw or
finished materials, paris, or completed merchandise by suppliers thereof, or
other cause beyond the reasonable control of or occurring without the fault of
such party ("FORCE MAJEURE"). Any deadline or time within which a party must
perform under this Agreement shall automatically be extended upon the occurrence
of any such Force Majeure for a period equal to the time lost because of such
event, but not for more than 90 days. If such Force Majeure continues for more
than 90 days, then the party not in breach of contract as a result of the Force
Majeure, or either party if both are in breach of contract as a result of the
Force Majeure, may
12
<PAGE>
terminate this Agreement upon written notice to the other.
15.5. No Third-Party Beneficiaries. Licensee acknowledges and agrees
that certain of GRIC Communications, Inc.'s suppliers are third party
beneficiaries of this Agreement and nay enforce it directly against Licensee.
Except as expressly set forth in this Section 15.5, nothing in this Agreement
shall (a) confer any rights or remedies on any persons other than the parties
and their respective successors and assigns, (b) relieve or discharge the
obligation of any third person to any party, or (c) give any third person any
right of subrogation or action against any party.
15.6. Amendments, Waivers, and Consents. This Agreement shall not be
amended except in a writing signed by the parties. No waiver or consent shall be
binding except in a writing signed by the party making the waiver or giving the
consent. No waiver of any provision or consent to any action shall constitute a
waiver of any other provision or consent to any other action, whether or not
similar. No waiver or consent shall constitute a continuing waiver or consent
except to the extent specifically set forth in writing.
15.7. Official Language. English is the official language of this
Agreement. The English language version of this Agreement or any document or
notice contemplated by this Agreement shall control in any conflict with any
version of such writing that is not in English.
15.8. Notice. Any notice, instruction, or communication required or
permitted to be given under this Agreement to any party shall be in writing
(which may include telecopier or other similar form of reproduction followed by
a mailed hard copy, but not electronic mail) and shall be deemed given when
actually received or, if earlier, five days after deposit in the United States
Mail by certified or express mail, return receipt requested, postage prepaid (or
for foreign addresses by Federal Express, DHL, or other comparable delivery
service), addressed to the current residence or business address of the party or
to such other address as such party may request by written notice. Each party
shall make an ordinary, good faith effort to ensure that tile person to be given
notice actually receives such notice. Each party shall ensure that the other
parties to this Agreement have a current address, fax number, and telephone
number for the purpose of giving notice. The parties principal offices are
presently located at the following addresses.
GRIC Communications, Inc.: GRIC Communications, Inc.
1421 McCarthy Boulevard
Milpitas, CA 95035 USA
Attn: Hong Chen, Ph.D., President &
CEO
(408) 955-1920 (Voice)
(408)955-1968 (FAX)
Licensee: EuroWeb Internet Service Provider Co.,
a Hungarian Corporation
By: /s/Krista Hollo
----------------
Kriszta Hollo
Director of Development
13
<PAGE>
A party may change its address for purposes of this Section 15.7 by
giving the other party written notice of the new address in the manner set forth
above.
15.9. Dispute Resolution.
15.9.1. Notice. A party who desires money damages or equitable relief
from the other party because of a Claim relating to the subject matter of this
Agreement shall give written notice to the other party of the facts constituting
the breach or default (a"DISPUTE NOTICE"). This Section 15.9 is intended to
cover all aspects of the relationship between the parties with respect to the
subject matter of this Agreement, including any claims based on tort or other
theories. Any additional claims the parties have against each other shall also
be subject to this Section
15.9.2. Negotiation. For fifteen (15) days following delivery of a
Dispute Notice (the "NEGOTIATION PERIOD") the parties shall negotiate to resolve
the dispute in good faith.
15.9.3. Mediation. After the end of the Negotiation Period, either
party may request non binding mediation with the assistance of a neutral
mediator from a recognized mediation service. The party requesting the mediation
shall arrange for the mediation services, subject to the approval of the other
party which the other party shall not withhold unreasonably. Mediation shall
take place in Santa Clara County, California. Mediation may be scheduled to
begin any time after expiration of the Negotiation Period, but with at least 10
days notice to all parties. The parties shall participate in the mediation in
good faith and shall devote reasonable time and energy to the mediation so as to
promptly resolve the dispute or conclude that they cannot resolve the dispute.
The party requesting the mediation shall bear the cost of mediation except as
provided elsewhere in this Agreement.
15.9.4. Arbitration. If thirty (30) days after beginning mediation the
parties have not resolved the dispute, either party may submit the dispute to
final and binding arbitration pursuant to the Commercial Arbitration Rules of
the American arbitration Association. The arbitrator(s) shall apply the
substantive law of the State of California to the dispute, and shall have the
power to interpret such law to the extent it is unclear. At the request of any
party, the arbitrators, attorneys, parties to the arbitration, witnesses,
experts, court reporters, or other persons present at the arbitration shall
agree in writing to maintain the Strict confidentiality of the arbitration
proceedings. At the election of any party, arbitration shall be conducted by a
three neutral arbitrators appointed in accordance with the Commercial
Arbitration Rules of the American Arbitration Association if (a) the amount in
Controversy is greater than $50,000 (exclusive of interest and attorney's fees),
or (b) a party sought to be enjoined disputes that he or it has engaged in, or
asserts that lie or it should be able to engage in, the actions sought to be
enjoined. In all other cases, the matter shall be arbitrated by a single neutral
arbitrator. The parties surrender and waive the right to submit any dispute to a
court or jury, or to appeal to a higher court. There shall be no arbitration of
any claim that would otherwise be barred by a statute of limitations if the
claim were to be brought in a court of law. The arbitrator shall not have the
power to award punitive, consequential, indirect, or special damages.
15.9.5. Arbitrability. The arbitrators shall have the power to
determine what disputes between the parties arc the proper subject of
arbitration.
15.9.6. Preliminary Remedies. Notwithstanding this Section 15.9, a
party may apply to a court of competent jurisdiction for prejudgment remedies
and emergency relief in the form of a temporary restraining order pending final
determination of a claim through arbitration in accordance with this Section
15.9.
14
<PAGE>
15.9.7. Costs and Attorney's Fees. If the arbitrator determines that
the actions of a party or its counsel have unreasonably or unnecessarily delayed
tire resolution of the matter, the arbitrator may in its discretion require such
party to pay all or part of cost of the mediation arid arbitration proceedings
payable by the other party and may require such party to pay all or part of the
attorney's fees of the other party. This provision permits an award of
attorney's fees against a party regardless of which party is the prevailing
party.
15.9.8. Enforcement. The award of the arbitrator shall be enforceable
according to the applicable provisions of the California Code of Civil
Procedure, sections 1280 et seq. A party who fails to participate in a
negotiation, mediation, or arbitration instituted under this Section 15.9, or
who admits to liability and the amount of damage, shall be deemed to have
defaulted. Such default may be entered and enforced the same manner as a default
in a civil lawsuit.
15.10. Remedies Cumulative. All remedies, whether under this Agreement,
provided by law, or otherwise, shall be cumulative and not alternative.
15.11. Attorney's Fees. The prevailing party in any suit, action,
counterclaim, or arbitration arising out of this Agreement (including without
limitation enforcement of any award or judgment obtained with respect to this
Agreement) shall be entitled to recover a reasonable allowance for attorney's
fees, litigation expenses, and the Cost of arbitration in addition to Court
costs. "Prevailing party" within the meaning of this Section 15.11 includes
without limitation a party who agrees to dismiss an action or proceeding upon
the other's payment of the sums allegedly due or performance of the Covenants
allegedly breached, or who obtains substantially the relief sought by it.
15.12. Governing Law; Jurisdiction and Venue. The rights and
obligations of the parties shall be governed by, and this Agreement shall be
construed and enforced in accordance with, the laws of the State of California,
without reference to the principles of conflict of laws thereof. Except for
disputes to be resolved under Section 15.9, the parties hereto Consent to the
personal jurisdiction of all federal and state Courts in California, and agree
that venue shall lie exclusively in Santa Clara County, California.
15.13. Entire Agreement. This Agreement and the documents and
agreements contemplated in this Agreement constitute the entire agreement
between the parties with regard to subject matter hereof. This Agreement
supersedes all previous agreements between or among the parties. There are now
no agreements, representations, or warranties between or among the parties other
than those set forth in this Agreement or the documents and agreements
contemplated in this Agreement.
15.14. Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstances, is held invalid or
unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall continue in full force without being impaired or
invalidated.
15.15. No Partnership, Etc. This Agreement does not make the parties
partners or joint venturers with each other or with any other GRIC members, nor
does it create any principal and agent or trustee and beneficiary relationship
or other association between any of the parties or with any other GRIC members
No action taken by any party pursuant to this Agreement shall create any such
relationship in the absence of express language in this Agreement to the
contrary. The relationship of the parties to each other and of all GRIC members
to each other and with GRIC Communications, Inc.
in each case is that of independent contractors.
15
<PAGE>
I 5.16. Authority of Executing Parties. The undersigned represent that
they are authorized to execute and deliver this Agreement on behalf of the
respective parties hereto. Each party has relied upon the authority of the other
in executing and delivering this Agreement.
15.17. Titles, Captions, and Recitals. Section, and subsection titles
and captions contained in this Agreement are inserted as a matter of convenience
and for reference and in no way define, limit, extend, or describe the scope of
this Agreement or the intent of any of its provisions. If there is any conflict
between the Recitals at the beginning of this Agreement and the substantive
provisions of this Agreement, the substantive provisions shall control.
15.18. Exhibits. All Exhibits hereto shall be deemed to be a part of
this Agreement and are fully incorporated in this Agreement by this reference.
15.19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. A party may deliver this Agreement by
transmitting a facsimile copy of the signed signature page to the other party or
parties. A party who transmits a facsimile copy of the party's signed signature
page shall at the same time forward a signed original hard copy of the signature
page by mail or personal delivery.
IN WITNESS WHEREOF, the undersigned have executed this
GRICfax(trademark) License Agreement as of the date first referenced above.
"GRIC COMMUNICATIONS, INC." "LICENSEE"
GRIC COMMUNICATIONS, INC., EuroWeb Internet Service Provider Co.,
a California corporation a Hungarian Corporation
By:/S/HONG CHEN By: /S/KRISZTA HOLLO
----------- ----------------
Hong Chen, President Kriszta Hollo
Director of Development
(SIGNATURE PAGE TO GRIC COMMUNICATIONS, INC. GRICFAX(trademark) LICENSE
AGREEMENT)
16
<PAGE>
EXHIBIT A
GRICFAX(TRADEMARK) HARDWARE
AFCPi/lOO - GRICfax Fax Card I Port Qty = 50
AFCP4/40O - GRICfax Fax Card 4 Port Qty 2 =$5,391
AFDialer - GRlCfax Data/Call Data Router Qty 9 =$1,125
AFDiaIer- Configuration Kit Qty I = $15(0
17
<PAGE>
EXHIBIT B
Description of GRlCfax(trademark) Software
GRICfax(trademark) Client/server software application that enables
INTERNET FAXING when properly configured on appropriate hardware to integrate
with other GRICfax servers.
Deliverable. One object code copy of GRICfax(trademark) on floppy disk
or CD ROM plus a user manual.
18
<PAGE>
EXHIBIT C
FEES AND FINANCIAL ARRANGEMENTS
I. Up-front Licensing Fee.
GRICFax Server Software- $9,775 (number of ports = 8)
GRICFax Manager $2,550
HP Openview- $2,040
2. Hard ware Purchase Price.
$6,666
3. Annual Maintenance Fee.
$2,954.67
Licensee will have one year office GRICfax maintenance for the
second year of service.
4. Other Financial Arrangements.
1. When Licensee is Providing Faxing Services. Licensee shall
give to GRIC Communications, Inc., a rate table setting forth for each
country in which Licensee terminates faxes for GRIC members the per
minute of transmission time rate for such termination ("to terminate"
means to accept Internet faxes from GRIC member networks, convert those
faxes to standard facsimile transmission, and transmit them to a
standalone fax machine or PC). The terminating fax rates will be
mutually agreed between the Licensee and GRIC Communications, Inc..
Licensee may revise the rates it charges only according to the
procedure set forth in paragraph 3 of this EXHIBIT C and with the
consent of GRIC Communications, Inc.. GRIC Communications, Inc. will
pay Licensee termination fees based on this rate table.
2. When Other GRIC Members are Providing Internet Fax
Services. When other GRIC members provide Internet fax services to
Licensee by receiving faxes from Licensee or Licensee's customers and
transmitting such faxes over GRIC member networks, the per minute of
transmission time rate charged to Licensee is set as the rate table
which is provided by GRIC Communications, Inc.. Licensee may, in its
discretion, establish a retail rate to charge to its customers as a
"markup" from the rate set forth immediately above in this paragraph 2.
Licensee expressly acknowledges and agrees that the rate charged for
the use of GRIC member networks may change from time to time as GRIC
Communications, Inc. may decide. GRIC Communications, Inc. may revise
such rates only according to the procedure set forth in paragraph 3 of
this Exhibit C. The billing to the Licensee shall be calculated as
thirty (30) seconds minimum transmission time and six (6) seconds
increments thereafter for the remaining duration of the transaction.
Each six (6) second increment is calculated as one tenth of a minute
and the last remaining seconds are rounded up to the nearest one tenth
of a minute.
19
<PAGE>
3. Revision of Rates by Licensee. Licensee may revise the rate table it
gives to GRIC Communications, Inc. under paragraph I of this Exhibit C,
effective as of the first day of any calendar month by notifying GRIC
Communications, Inc. of the rate change in writing at least 45 days
therefore the effective date. No proposed Licensee rate change shall be
effective if not delivered in accordance with this paragraph 3.
Licensee may revise its rates not more than once each calendar month.
GRIC Communications, Inc. may revise the rate table under paragraph 2
of this Exhibit C, effective as of the first day of any calendar month
by publishing the rate change at least 30 days before the effective
date. GRIC communications, Inc. may revise its rates not more than once
each calendar month.
20
<PAGE>
EXHIBIT D
TRADEMARKS
GRICfax(trademark)
GRIC(trademark)
Global Reach Internet Connection(trademark)
GRIC Member(trademark) logo
21
<PAGE>
EXHIBIT E
DESIGNATED PLATFORMS AND SITES
GRICFAX(TRADEMARK) Serial No. 97051034 0205536696040074181
DESIGNATED PLATFORM WINDOWS NT 4.0
SERVER MODEL: IBM PC
SERVER ID No.:
Site Address: 193.226.220.13
GRICFAX(TRADEMARK) SERIAL NO.
Designated Platform
Server Model:
Server ID No.:
SITE ADDRESS:
GRICFAX(TRADEMARK) SERIAL NO.
DESIGNATED PLATFORM
SERVER MODEL:
Server ID No.:
Site Address:
22
<PAGE>
EXHIBIT F
AMOUNT OF PAYMENT SECURITY
The amount of the cash prepayment security shall be $0.00
23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 697,948
<SECURITIES> 0
<RECEIVABLES> 211,653
<ALLOWANCES> 39,216
<INVENTORY> 0
<CURRENT-ASSETS> 1,519,511
<PP&E> 343,289
<DEPRECIATION> 102,402
<TOTAL-ASSETS> 6,640,304
<CURRENT-LIABILITIES> 1,349,079
<BONDS> 0
0
0
<COMMON> 4,950
<OTHER-SE> 3,546,622
<TOTAL-LIABILITY-AND-EQUITY> 6,640,304
<SALES> 1,270,135
<TOTAL-REVENUES> 1,270,135
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,031,363
<LOSS-PROVISION> 350,000
<INTEREST-EXPENSE> 370,166
<INCOME-PRETAX> (2,077,228)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,077,288)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,077,228)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
