<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER , 1996
REGISTRATION NO. 333-13371
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- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HUNGARIAN BROADCASTING CORP
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
----------------
DELAWARE 4833 13-36787223
(STATE OR JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL IDENTIFICATION NO.)
ORGANIZATION) CLASSIFICATION CODE
NUMBER)
445 PARK AVENUE, 15TH FLOOR, NEW YORK, NEW YORK 10022 (212) 758-9870
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
----------------
PETER E. KLENNER
445 PARK AVENUE, 15TH FLOOR, NEW YORK, NEW YORK 10022, (212) 758-9870
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
FRANK R. COHEN, ESQ. HENRY C. MALON, ESQ.
COHEN & COHEN 1 BATTERY PARK PLAZA, 3RD FLOOR
445 PARK AVENUE, 15TH FLOOR NEW YORK, NY 10004
NEW YORK, NEW YORK 10022 TEL: (212) 483-9600
TEL: (212) 758-9870
----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective. If any of the Securities
being registered on this form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units each consisting of one
share of Preferred
Stock, $.001 par value, and one
Common Stock Purchase
Warrant(2)..................... 560,000 $12.00 $ 6,720,000 $2,317.00
- ------------------------------------------------------------------------------------------
Common Stock, ($.001 par
value)(3)...................... 840,000 -- -- --
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Common Stock, ($.001 par
value)(4)...................... 560,000 $ 6.00 $ 3,360,000 $1,159.00
- ------------------------------------------------------------------------------------------
Underwriter's Unit Warrants(5).. 50,000 $ .001 $ 50 $ 0.00
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Units underlying Underwriters
Unit Warrants, each consisting
of one share of Preferred
Stock, $.001 par value, and one
Common Stock Purchase
Warrant(6)..................... 50,000 $12.00 $ 600,000 $ 207.00
- ------------------------------------------------------------------------------------------
Common Stock, ($.001 par
value)(7)...................... 75,000 -- -- --
- ------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(8)....................... 50,000 $ 6.00 $ 300,000 $ 103.00
- ------------------------------------------------------------------------------------------
Total registration Fee.......... $10,980,010 $ 3,786
</TABLE>
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(1) Estimated solely for the purpose of computing the registration fee.
(2) Includes 60,000 Units subject to the Underwriter's over-allotment option.
(3) Issuable upon conversion of Preferred Shares.
(4) Represents shares of Common Stock issuable upon the exercise of Warrants.
The Registration Statement also covers any additional shares which may
become issuable pursuant to antidilution provisions in the aforementioned
warrants.
(5) To be issued to the Underwriter.
(6) Issuable upon exercise of the Underwriter's Unit Warrants.
(7) Issuable upon coversion of Preferred Shares underlying Underwriter's Unit
Warrants.
(8) Issuable upon exercise of Warrants included in the Units issuable upon
exercise of the Underwriter's Unit Warrants. The Registration Statement
also covers any additional shares which may become issuable pursuant to
antidilution provisions in the aforementioned warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER , 1996
PROSPECTUS
HUNGARIAN BROADCASTING CORP.
500,000 Units
----------------
Each unit (the "Units") consists of one share of Series A Convertible
Cumulative Redeemable Preferred Stock (the "Preferred Shares") and one Common
Stock Purchase Warrant (the "Warrants"). The Warrants are exercisable
commencing nine months after the date hereof or such earlier date as J.W.
Barclay & Co., Inc. (the "Underwriter") may determine (the "Separation Date").
The Warrants are neither detachable nor separately transferable until the
Separation Date. Each Warrant entitles the holder to purchase one share of
Common Stock at a price of $6 per share until December 20, 2000. The Warrants
may be redeemed by the Company afterApril 20, 1997 under certain circumstance.
Each Preferred Share is convertible into one and one half shares of Common
Stock commencing on November 1, 1997 or such earlier date as may be designated
by the Underwriter, and pays a cumulative annual dividend of $1.20 per share
payable on September 15 of each year.
Of the 500,000 Units offered hereby, 400,000 Units are being sold by the
Company and 100,000 are being sold by certain stockholders of the Company (the
"Selling Securityholders"). See "Selling Securityholders." The Company will
not receive any proceeds from the sale of the Units by the Selling
Securityholders.
(Continued on page 2)
----------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
----------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SECURITYHOLDERS(4)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Unit........................ $10.00 $1.00 $9.00 $9.00
- -----------------------------------------------------------------------------------------
Total(3)........................ $4,000,000 $400,000 $3,600,000 $900,000
</TABLE>
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- -------------------------------------------------------------------------------
(1) Does not reflect additional compensation to the Underwriter, including (a)
a nonaccountable expense allowance equal to 3% of the aggregate purchase
price of the Units; and (b) issuance of Unit Warrants to the Underwriter
entitling the Underwriter to purchase up to 50,000 Units from the Company,
for a period of five years commencing on the effective date of the
offering, at an exercise price equal to 120% of the public offering price
of the Units. The Company and the Underwriter have also agreed to
indemnify each other against certain civil liabilities including
liabilities under the Securities Act of 1933, (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the offering estimated at $340,000 which
includes the Underwriter's nonaccountable expense allowance.
(3) The Company has granted an option to the Underwriter exercisable within 30
days after the date of this Prospectus, to purchase up to an additional
60,000 Units, on the same terms, solely to cover over-allotments, if any.
If the over allotment option is exercised in full, the total "Price to
Public," "Underwriting Discounts and Commissions", "Proceeds to Company",
and "Proceeds to Selling Securityholders" would be $4,600,000, $460,000,
$4,140,000 and $900,000, respectively. See "Underwriting."
(4) None of the expenses of the offering are payable by the Selling
Securityholders. See "Principal and Selling Securityholders."
----------------
The Units are being offered by the Underwriter on a "firm commitment" basis,
subject to prior sales, receipt and acceptance, the approval of certain legal
matters by counsel and certain other conditions. The Underwriter reserves the
right to reject orders in whole or in part. It is expected that delivery of
the certificates representing the Units will be made at the offices of J.W.
Barclay & Co., Inc., One Battery Park Plaza, New York, New York 10004 on or
about December , 1996.
J.W. BARCLAY & CO., INC.
The date of this Prospectus is , 1996
<PAGE>
(Continued from Cover Page)
Dividends on the Preferred Shares may be paid in shares of Common Stock or
cash at the Company's option. For the foreseeable future, the Company expects
to make dividend payments in shares of Common Stock to the extent it may
legally do so. The Company has been operating at a loss since its commenced
operations. In the period ended June 30, 1995, the year ended June 30, 1996,
and the three month period ended September 30, 1996, the Company had losses of
$560,333, $4,149,682 and $1,096,529, respectively. Unless previously redeemed
by the Company, Each Preferred Share is redeemable by the Company commencing
on November 1, 1997 or such earlier date as may be designated by the
Underwriters on not less than 30 nor more than 60 days' written notice to the
registered holders, at $12 per share plus accumulated dividends, provided the
Company may not redeem any Preferred Share unless the closing price of the
Common Stock for 20 of the 30 days prior to the date of the redemption notice
is more than $10 as adjusted. See "Description of Securities."
The Company's Common Stock and the Common Stock Purchase Warrants (the
"Warrants") are traded on the NASDAQ Small-Cap Market under the symbols HBCO
and HBCOW, respectively. There has been no market for the Units prior to the
subject offering. It is expected that after this offering, the Units will
trade on the NASDAQ Small-Cap Market under the symbol HBCOU, but there can be
no assurance that a market will develop for the Units. See "Underwriting." On
November 25, the closing bid prices of the Common Stock and Warrants, as
reported by NASDAQ were $5 1/4 and $1 3/8, respectively. See "Price Range of
Securities."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933 (the
"Act") with respect to the securities to which this Prospectus relates. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the
exhibits thereto, which may be obtained, together with other information about
the Company, from the Public Reference Section of the Commission upon payment
of the prescribed fees.
The Company will provide without charge to any person who receives a copy of
this Prospectus, upon written or oral request of such person, a copy of any of
the information that is incorporated by reference in this Prospectus. Any such
request should be directed to the attention of Frank R. Cohen, Secretary,
Hungarian Broadcasting Corp. at 445 Park Avenue, New York, New York 10022,
telephone number: (212) 758-9870.
The Company furnishes its stockholders after the close of each fiscal year,
annual reports containing financial statements audited by its independent
certified public accountants. The Company will also furnish other reports as
it may determine or as may be required by law.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance with
Section 12(g) thereunder, files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at its Regional Offices located at 7 World Trade Center, New York,
New York 10048 and 500 West Madison Street, Chicago, Illinois 60601.
The Commission maintains a Web Site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
requirements, such as the Company, that file documents electronically with the
Commission.
FORWARD-LOOKING STATEMENTS
This prospectus includes certain forward-looking statements within the
meaning of the private securities litigation reform act of 1995 with respect
to the financial condition, results of operations and business of the company.
Such statements reflect significant assumptions and subjective judgments by
the Company's management concerning anticipated results. These assumptions and
judgments may or may not prove to be correct. Moreover, such forward-looking
statements are subject to risks and uncertainties that may cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see "Risk Factors." investors are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Underwriter has not attempted to
verify the basis for any such statements independently and neither the
Underwriter nor the Company undertakes any obligation to release publicly any
revisions to these forward-looking statements to reflect events occurring or
circumstances arising after the date hereof or to reflect the occurrence of
unanticipated events.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this prospectus. Except as otherwise noted (i) the information in
this prospectus assumes that the Underwriter's over-allotment option will not
be exercised, and (ii) all statistical and financial information presented in
this Prospectus has been converted into United States Dollars using exchange
rates as of September 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Foreign Currency." All
references to $ or Dollars are to United States Dollars; all references to
"HUF" are to Hungarian Forints. As of September 30, 1996, the Exchange Rate was
HUF 158.35 to $1.
THE COMPANY
Hungarian Broadcasting Corp. ("HBC") was incorporated in the State of
Delaware on September 14, 1994 to acquire interests in companies that have
commercial broadcasting licenses to own, develop, expand and operate television
stations in Hungary.
The Company acquired an 80% equity interest in a film studio company known as
DNTV Kft. ("DNTV") as of May 30, 1995 and a 90% equity interest in a film
studio company known as VI-DOK video es Filmgyarto Studio Kft. ("VI-DOK") as of
June 16, 1995. Both DNTV and VI-DOK held studio licenses which permitted them
to produce films and other television programs. In April 1994 each studio was
granted a frequency license which permitted them to broadcast over Budapest
Television Channel AM-micro A3 which name was changed to MSAT ("MSAT") from
July 1, 1994 through July 1, 2000 daily between 6 a.m. and 5 p.m. and between
7:30 p.m. and 6 a.m. by the Hungarian Cultural Ministry (the "Ministry"). An
unaffiliated studio company, NAP TV Kft., received the license for broadcasting
between 5 p.m. and 7:30 p.m. on A3. Hereinafter, DNTV and VI-DOK will be
sometimes referred to as the "Licensees." HBC Kft., a Hungarian company wholly
owned by HBC, conducts the Company's operations in Hungary. Broadcasting on A3
commenced in September 1994. In September 1996, the Company began broadcasting
throughout Hungary via satellite. This method of distribution carries 24 hours
per day of programming. In October 1996, the Company changed its broadcasting
name to MSAT.
The two basic methods of television transmission in Hungary are over-the-air
(terrestrial) broadcasting, which can be either local or national in scope, and
satellite-to-cable broadcasting. In over-the-air broadcasting, the station
operator obtains a license from the appropriate regulatory authority to
broadcast its signal at an established frequency and power via one or more
land-based transmitters, each with a limited geographic range. This signal can
be picked up by the conventional rooftop antennae and by cable heads in the
area. In satellite-to-cable broadcasting, the station operator transmits its
programming signal to a satellite which redirects the signal to either a land
based transmitter which retransmits the signal to a cable system head or
directly to a home that has installed a dish.
MSAT's signal is carried over-the-air through a microwave network in an area
with a radius of 50 miles and currently reaches approximately 350,000
households. In addition, the signal reaches approximately 500,000 households
through cable networks in the signal's area. The Company has contracts with
approximately 25 owners of cable networks in its cachement (reach) area and
pays these owners an average $.05 per month per subscriber for carrying its
signal. In September 1996, the Company began broadcasting throughout Hungary
via satellite. The Company does not pay cable operators who retransmit MSAT's
satellite signals to their subscribers.
On January 29, 1996, both VI-DOK and DNTV were issued licenses from the
Ministry to distribute their TV programs nationwide on satellite.
Prior to April 1994, all radio and television broadcasting stations in
Hungary were owned and operated by the State. The State permitted limited
commercial advertising commencing in 1990 on State owned stations.
4
<PAGE>
Based on a report prepared by Saatchi & Saatchi/Zenith Media World Wide, TV
advertising expenditures in Hungary increased from $45 million in 1991, to $107
million in 1992, to $128 million in 1993, to $138 million in 1994, and to $157
million in 1995. Most of this television advertising money is spent on three
state owned stations. The Company expects TV advertising expenditures to
continue to grow in Hungary as advertisers increasingly use television as an
integral part of their advertising strategy and as consumer oriented multi-
national companies market their products to satisfy the emerging demand for
basic goods as well as convenience products. The Company's operating results
are primarily dependent upon the sale of commercial advertising time.
In April 1996, the Company introduced new programming for the hours 7:30 p.m.
to 11 p.m. featuring American, United Kingdom and Australian syndicated series
that had been successful in prime time in their home countries. The Company
dubbed these programs into the Hungarian language. Generally, the audience
acceptance of these programs has been favorable and viewership has been high
and has increased over time.
On September 6, 1996, MSAT began transmitting its signal from the Astra IE
Satellite. As of November 1, 1996, 88 cable operators had installed downlink
satellite equipment adding 190,000 subscribers to the Company's distribution.
Over the next five months it is anticipated that Hungarian Broadcasting Corp.
will increase its distribution to approximately 1.8 million households, or 49%
of all TV households, throughout Hungary.
Advertising billing is determined by the specific program ratings provided by
AGB-Hungaria Meter System, an independent audience rating service. As the
Company's distribution more than doubles, its advertising rates should more
than double. And as the coverage broadens, the station is of increasing
interest to national and international advertisers. As a result of
conversations with advertisers and media buying groups together with booked
advertising and the improving trend of bookings, Management believes that it
should begin generating positive cash flow on a monthly basis prior to the end
of fiscal 1997. Nevertheless, since its inception, the Company has run at a
deficit in each month of its operations and should continue to run deficits for
the next few months. There can be no assurance that the Company can generate
enough revenues to cover its expenses in fiscal year 1998 or ever.
The Company has entered into a ten year agreement with Nethold Electronic
Media B.V. ("Nethold"), a satellite owner located in the Netherlands to rent to
the Company space on its satellite known as "Hot Bird 2," for the distribution
of its programs to cable systems and home television sets that receive cable
programs. It is anticipated that Hot Bird 2 will be launched in the fall of
1996 and be fully operational or about January 1, 1997. Until this launching,
the Company will continue to broadcast on the Astra IE satellite on a month-to-
month basis.
Specific goals of the Company's operating strategy with respect to its
existing and proposed new markets include (i) utilizing regular and consistent
scheduling of programming, (ii) promoting programming effectively, (iii)
controlling station operating costs, and increasing advertising sales by
expanding, motivating and training the sales force using techniques widely
practiced in the commercial television industry in the United States.
Unless the context otherwise requires, when used herein, the term "Company"
shall include Hungarian Broadcasting Corp., the Delaware corporation, and its
Hungarian subsidiaries VI-DOK, DNTV, and HBC, Kft. HBC Kft. is a wholly owned
subsidiary, which administers the Company's operations in Hungary. The office
of the Company in the United States is c/o Cohen & Cohen, 445 Park Avenue, New
York, NY 10022; Telephone number: (212) 758-9870. The office in Hungary is 1118
Budapest, Kelenhegyi ut 39; Telephone number: (361) 185-3001.
5
<PAGE>
THE OFFERING(1)
Securities Offered by the Company and
by Selling Securityholders........... 400,000 Units offered by the Company
and 100,000 Units offered by Selling
Securityholders, each unit consists of
one Preferred Share and One Warrant.
The Underwriter has an option to
purchase up to 60,000 additional Units
to cover over-allotments. See
"Underwriting." The Preferred Shares
and the Warrants are not detachable or
separately transferable until nine
months from the date of this Prospectus
except in certain circumstances (the
"Separation Date"). See "Description of
Securities."
Rights of the Preferred Shares:
Dividends......................... Cumulative annual dividends of $1.20
are payable on September 15 of each
year beginning September 15, 1997.
Unpaid dividends will accumulate and be
payable prior to the payment of
dividends on the Common Stock. The
Company may, at its option, pay
dividends in shares of Common Stock, in
lieu of cash. Shares used for such
purpose will be valued at the average
closing bid price during the ten
trading days ending on the tenth day
before the dividend payment date,
subject to certain conditions. For the
foreseeable future, the Company expects
to make dividend payments on the
Preferred Shares in shares of Common
Stock. See "Description of Securities."
Conversion Rights................. Unless previously redeemed, Preferred
Shares are convertible at any time at
the option of the holder, commencing on
November 1, 1997 or such earlier date
as may be designated by the Underwriter
at the rate of one and one half (1 1/2)
shares of Common Stock for each
Preferred Share, subject to adjustment
under certain circumstances. No
fractional shares of Common Stock will
be issued but in lieu thereof, the
Company shall "round up" any fractional
shares over 50% of a share to a full
share of Common Stock and round down
any fractional share under 50% of a
share.
Redemption........................ The Preferred Shares are redeemable
beginning on November 1, 1997 or such
earlier date as may be designated by
the Underwriter at the option of the
Company, on not less than 30 nor more
than 60 days' written notice to
registered holders at the redemption
price of $12 per share plus accumulated
dividends, provided the Company may not
redeem Preferred Shares unless the
closing price of the Common Stock for
20 of the 30 days prior to the date of
the redemption notice is more than $10.
6
<PAGE>
Voting Rights..................... Preferred Shares will be entitled to
one vote per share voting together with
the Common Stock, as one class except
as otherwise provided by the Delaware
General Corporation Law or in
connection with certain other matters.
Warrants:
Exercise Price.................... $6.00 per share subject to adjustment
in certain circumstances. See
"Description of Securities--Warrants."
The Warrants may be exercised at any
time commencing on the Separation Date.
Expiration Date................... December 20, 2000.
Redemption........................ Redeemable by the Company at any time
commencing April 20, 1997 (or earlier
with the consent of the Underwriter) at
a price of $.25 per Warrant, upon not
less than 30 days' prior written notice
to the holders of Warrants, provided
that the closing bid price per share of
the Common Stock on the NASDAQ SmallCap
Market, or the last sale price per
share if listed on the NASDAQ National
Market or a national exchange, has been
at least $8.50 per share for 20 of the
immediate prior 30 trading days ending
within 15 days of the date on which the
Company gives notice of redemption. See
"Description of Securities--Warrants."
Common Stock Outstanding
Prior to Offering................. 2,583,600 shares of Common Stock.
After Offering(2)................. 2,583,600 shares of Common Stock.
Preferred Stock Outstanding
Prior to the Offering............. 100,000 Preferred Shares.
After the Offering(3)............. 500,000 Preferred Shares.
Warrants Outstanding
Prior to the Offering............. 1,703,900 Warrants
After the Offering................ 2,103,900 Warrants
Use of Proceeds..................... The net proceeds of the offering will
be used to purchase equipment for
Broadcasting Studio and Dubbing Studio,
to pay for programming and for working
capital (see "Use of Proceeds").
Risk Factors........................ The securities offered hereby involve a
high degree of risk and immediate
substantial dilution. See "Risk
Factors."
7
<PAGE>
NASDAQ SmallCap Market Symbols:
Common Stock...................... HBCO
Warrants.......................... HBCOW
Units (Proposed).................. HBCOU
- --------
(1) Unless otherwise indicated, all information in this Prospectus assumes that
no portion of the Over-allotment Option is exercised.
(2) Does not include an aggregate of 3,365,000 shares of Common Stock, reserved
as follows: (i) 350,000 shares reserved for outstanding options granted or
to be granted pursuant to the Company' Stock Option Plan; (ii) 1,703,900
shares reserved to cover exercise of outstanding Common Stock Purchase
Warrants; (iii) 100,000 shares reserved upon exercise of Underwriter's
Stock Warrants and 140,000 shares reserved upon exercise of Underwriter's
warrants, which were issued on December 20, 1995; (iv) 840,000 shares
issuable upon conversion of the Preferred Shares including shares issuable
on exercise of the over-allotment option and of outstanding Preferred
Shares; (v) 125,000 shares issuable upon conversion of the Preferred Shares
and exercise of the Warrants underlying the Underwriter's Unit Warrants;
(vi) 50,000 shares issuable on exercise of options granted to a director;
and (vii) approximately 100,000 shares of Common Stock which may be
issuable upon payment of dividends on the Preferred Shares per year,
assuming a market price of $6 per share of Common Stock.
(3) Does not include 60,000 units reserved to cover Underwriter's Over-
Allotment Option.
8
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
The following table summarizes certain selected consolidated financial data
derived from the financial statements of the Company, and is qualified in its
entirety by the more detailed consolidated financial statements included
elsewhere herein.
OPERATING STATEMENT DATA
<TABLE>
<CAPTION>
FOR THE PERIOD THREE MONTHS
SEPTEMBER 14, 1994 ENDED SEPTEMBER 30,
(DATE OF INCEPTION) YEAR ENDED ----------------------
THROUGH JUNE 30, 1995 JUNE 30, 1996 1995 1996
--------------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Operating revenues...... $ 72,043 $ 672,108 $ 207,637 $ 353,315
Operating expenses...... $ 560,393 $ 4,351,869 $ 420,595 $ 611,355
Net loss after minority
interest............... $(560,333) $(4,149,682) $(848,430) $(1,096,529)
Net loss per share...... $ (0.39) $ (2.01) $ (0.59) $ (0.42)
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
JUNE 30, 1996 --------------------------
ACTUAL ACTUAL AS ADJUSTED(1)
------------- ---------- --------------
<S> <C> <C> <C>
Current assets...................... $2,319,652 $1,367,691 $4,627,691
Current liabilities................. 2,269,757 2,068,673 2,068,673
Working capital..................... 49,895 (720,882) 1,559,018
Total assets........................ 4,252,051 3,366,676 6,626,676
Stockholders' equity................ 1,941,968 1,283,843 5,083,843
</TABLE>
- --------
(1) Adjusted for the Units to be sold by the Company in this offering.
9
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other things, the
following factors concerning the business of the Company and this offering, as
well as all other information set forth elsewhere in this Prospectus.
1. Limited Operating History; Risks of New Industry. The Company was
incorporated in Delaware on September 14, 1994. The broadcast license under
which it operates in Budapest (MSAT) was originally awarded to two
unaffiliated Hungarian companies (the "Licensees") in April 1994 and
broadcasting commenced on MSAT in September 1994. The Company loaned funds
to the original Licensees to finance operating costs which included
programming costs, from November 1994 until it acquired majority interests
in the Licensees in May and June 1995. Commercial television supported by
advertising revenues represents a new industry in Hungary, the viability of
which is unproven, and there can be no assurance that the Company will be
successful in achieving its objectives. See "The Company."
2. Accumulated Deficit; Operating Losses. At September 30, 1996, the Company
had an accumulated deficit of $6,076,567 representing a consolidated net
loss for the period from its inception through September 30, 1996. The
consolidated loss was caused primarily by the costs involved in producing
live programming, purchasing programming and in operating costs and in
seeking customer identification. The Company's cash flow since inception
has been principally the result of equity and debt financing and not the
result of profitable operating activities by the Company. The Company's
ability to achieve profitability is dependent upon its ability to realize
revenues from advertising that exceed costs. See "Financial Statements."
3. Government Regulation. Broadcast operations in Hungary are subject to
extensive government regulation. Regulations govern the issuance, renewal,
transfer and ownership of station licenses, and the timing, content and
amount of commercial advertising permitted. There are also regulations
requiring that certain percentages of programming be produced or originated
in local markets. These regulations are substantially different from
regulations relating to television broadcast operations in the United
States. While the Company believes that it is, and the station it controls
is, in compliance in all material respects with applicable laws, rules and
regulations, there can be no assurance that in fact it is in compliance,
that it will be able to continue to comply with all such laws, rules and
regulations or that more restrictive laws, rules, regulations or
enforcement policies will not be adopted in the future which could make
compliance more difficult or expensive or otherwise adversely affect the
Company's business or prospects. See "The Company."
4. Business is Subject to Substantial Competition. The Company encounters, and
expects to continue to encounter, substantial competition in the television
broadcasting industry and from other media which compete for advertising
revenues. The Company believes that it will be able to compete effectively
against its existing and future competitors but there can be no assurance
that it will be able to continue to compete effectively. See "The Company."
5. Dependence on Key Personnel and Lack of Experience of Management. The
success of the Company is particularly dependent upon the active
involvement of Peter E. Klenner, President and Chief Executive Officer of
the Company. The loss of the services of Mr. Klenner could have a material
adverse effect on the Company. The Company has not obtained and does not
intend to obtain key-man life insurance on the life of Mr. Klenner or any
other officer of the Company. The Company has an employment agreement with
Mr. Klenner which expires December 20, 2000. See "Management--Employment
Agreements." None of the directors or officers of the Company has had
experience in operating a television broadcasting company other than Justin
Bodle, a director and consultant to the Company, who has 16 years
experience with broadcasting.
6. Future Sales of Common Stock Could Have an Adverse Effect on the Market
Value. 1,427,500 of the 2,583,600 shares of Common Stock outstanding as of
the date of this offering are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act of 1933, as
amended. In general,
10
<PAGE>
under Rule 144 as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company,
who has owned restricted shares of Common Stock beneficially for at least
two years, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the sale, as
reported by all national securities exchanges on which the Common Stock is
traded and/or the automated quotation system of a registered securities
association. A person who has not been an affiliate of the Company for at
least the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least three years is
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. Of the 1,427,500 restricted shares, the
holders of 910,000 shares have entered into agreements with the
Underwriters not to sell or otherwise dispose of such shares until December
20, 1997 without the written consent of the Underwriter. Of the remaining
547,500 shares, holders of 165,000 will satisfy their holding period in
November 1996, holders of 182,500 will satisfy their holding period in July
1997 and holders of 200,000 will satisfy their holding period in August
1997. The possibility that substantial amounts of Common Stock may be sold
in the public market may have an adverse effect on prevailing market prices
for the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities. See "Description of
Securities."
7. Possible Conflict of Interest with Affiliates. The Company has engaged in
certain transactions with companies in which directors of the Company are
also officers, directors or shareholders. Such transactions include
issuance of capital stock and the borrowing of money to finance the
operations of the Company. The Company has no arrangement, understanding or
intention to enter into any transaction or participate in any business
opportunity with any officer, director or principal stockholder or with any
firm or business organization with which they are affiliated, whether by
reason of stock ownership, position as officer or director, or otherwise,
that poses a conflict of interest. However, should the Company enter into
any affiliated transaction with any officer, director or principal
stockholder of the Company, such transaction will be approved by a
resolution of at least a majority of the independent members of the board
of directors of the Company. The Company believes that all transactions
with affiliates prior to the date of this offering were on terms no less
favorable to the Company than could be obtained from an independent third
party. Any transactions with an affiliate in the future will be on terms no
less favorable to the Company than could be obtained from an independent
third party. Failure of the Company and its management to conduct the
Company's business in its best interests may result in liability to the
Company and its management. See "Management" and "Certain Transactions."
8. No Prior Sustained Public Market; Determination of Offering Price. Prior to
the offering, there has been no public market for the Units, and there can
be no assurance that an active trading market will develop or continue
after the completion of the offering. The initial public offering price of
the Units has been determined by negotiations between the Company and the
Underwriter and may not be indicative of the market price for the Units
after the offering. Since December 20, 1995, however, the Common Stock and
the Common Stock Purchase Warrants have traded on the NASDAQ SmallCap
Market.
9. Risks Inherent in Foreign Investment. The Company has invested substantial
resources in operations in Hungary. Risks inherent in foreign operations
include loss of revenue, property and equipment from expropriation,
governmental royalties and fees and involuntary renegotiation of contracts
with or licenses from foreign governments. The Company is also exposed to
the risk of changes in foreign and domestic laws, regulations and policies
that govern operations of overseas-based companies. In addition, in the
event the Company had profitable operations in Hungary, it would be subject
to a 40% tax on all profits earned in Hungary, which will necessarily erode
profits and returns to the investors. See "Republic of Hungary."
10. Inflation and Local Currency Devaluation. The Hungarian economy has been
characterized by high rates of inflation and devaluation of the Hungarian
Forint against the U.S. Dollar and certain European currencies. In 1993,
1994 and 1995, the annual reported inflation rate in Hungary (measured by
the national consumer price index) was approximately 23%, 19% and 30%,
respectively and 9% in the first three months of 1996.
11
<PAGE>
The Hungarian Forint was devalued against the U.S. Dollar in 1992, 1993,
1994 and 1995 by 5.4%, 14.2%, 15.9%, and 26.7%, respectively. In March 1995,
an immediate 9% devaluation of the Hungarian Forint was announced together
with a new policy of daily or "crawling peg" devaluation. This involved
daily devaluations amounting to 1.9% monthly in the second quarter of 1995
and 1.3% monthly during the second half of that year. During 1996 the
monthly devaluation rate was established pursuant to governmental decree at
1.2% for the first half of the year. The monthly rate is presently expected
to be further decreased, subject to Hungary's economic condition. The
exchange rate for the Hungarian Forint, as set by the National Bank of
Hungary, declined from 100.70 Forints per U.S. Dollar at December 31, 1993
to 158.35 Forints per U.S. Dollar at September 30, 1996. See "Republic of
Hungary." The Company believes that United States investors seek a return on
investment based upon the dollar value of the Hungarian operating results.
Significant inflation in Hungary or significant future devaluation of the
Forint would decrease the dollar value of the Company's investments.
11. Foreign Currency and Exchange Risks and Regulation. The Company is subject
to significant foreign exchange risk. There are currently no meaningful
ways to hedge currency risk in Hungary. Therefore, the Company's ability
to limit its exposure to currency fluctuations is significantly
restricted.
Although the Forint has recently become exchangeable outside Hungary, there
is not yet a completely freely convertible exchange market in place for the
Forint. In addition, Hungarian law permits the repatriation of foreign
currency only for dividends to the extent of capital investment and
earnings, as determined under applicable Hungarian law. There can be no
assurances as to the future exchangeability or convertibility of Forints.
See "Republic of Hungary."
12. Regulatory and Tax Aspects of Dividends Paid in Common Stock; Loss of
Dividends Upon Conversion of Preferred Shares. The Dividends payable on
the Preferred Shares are cumulative and may be paid either in cash or in
shares of Common Stock or partly in cash and partly in shares of Common
Stock. The first dividend is scheduled to be paid on September 15, 1997.
Dividends on the Preferred Shares are payable, at the option of the
Company, in either cash or shares of Common Stock. The Company expects to
make dividend payments in shares of Common Stock for the foreseeable
future to the extent it may legally do so. The Company will be unable to
legally issue Common Stock as dividend payments on the Preferred Shares
unless it has sufficient authorized shares of Common Stock and has surplus
available for such purpose. Payment of dividends in shares of Common Stock
will create federal income tax liability, equivalent to the then current
market price of such Common Stock, to the recipient without the receipt by
such recipient of any cash to pay such tax liability.
For federal income tax purposes, distributions of Common Stock with respect
to Preferred Shares are treated as taxable distributions of property. The
fair market value of such shares of Common Stock distributed will be treated
as a taxable dividend (to the extent of the Company's current or accumulated
earnings and profits) or a taxable gain (if the excess of the fair market
value of such shares over the Company's current or accumulated earnings and
profit per share exceeds the shareholder's tax basis in his Preferred
Shares). The cash portion of the dividend, if any, may not be sufficient to
pay the total federal income tax payable on the cash portion of the dividend
and on shares of Common Stock treated as a taxable dividend or taxable gain.
13. Possible Negative Effects of Preferred Stock. The Company has authorized
5,000,000 shares of Preferred Stock, the designation, rights and preferences
of which (including voting, dividend, redemption and liquidation rights) may
be fixed by the Company's Board of Directors, from time to time, without
further shareholder action. Shares of this Preferred Stock could be issued
in the future with such rights and preferences as could make the possible
takeover of the Company or the removal of management of the Company more
difficult or could otherwise adversely impact the rights of holders of
Common Stock. Further, under current regulations, if any such Preferred
Stock were issued by the Company with such voting rights as had the effect
of nullifying, restricting or disparately reducing the per share voting
rights of holders of Common Stock, such issuance could result in the
disqualification of the Company's securities from listing on NASDAQ or on a
securities exchange.
12
<PAGE>
14. Dividends. The Company has not previously paid any dividends on its
Common Stock and intends to follow a policy of retaining all of its cash
flow from operations, if any, to finance the development and expansion of
its business. The Company intends to pay dividends on the Preferred
Shares in Common Stock, to the extent legally permissible.
15. Voting Rights of Preferred Shares. Until conversion, the Preferred Shares
will be entitled to only one vote per share voting together with the
Common Stock as one class on all matters except as otherwise provided by
Delaware law and with respect to the issuance of certain additional
shares of Preferred Stock. Each Preferred Share is convertible into one
and one-half (1 1/2) shares of Common Stock, each of which is entitled to
one vote.
16. Necessity of Continuing Post-Effective Amendments to the Company's
Registration Statement and State Blue Sky Registration; Exercise of
Warrants. Although the Warrants will not knowingly be sold to purchasers
in jurisdictions in which the Warrants are not registered or otherwise
qualified for sale, purchasers may buy Warrants in the after-market or
may move to jurisdictions in which the Warrants and the Common Stock
underlying the Warrants are not so registered or qualified. In this
event, the Company would be unable to issue Common Stock to those persons
desiring to exercise their Warrants unless and until the Warrants and the
underlying Common Stock are qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in
such jurisdictions. There can be no assurance that the Company will be
able to effect any required qualification. Moreover, the Warrants will
not be exercisable unless the Company maintains a current Registration
Statement on file with the Commission through post-effective amendments
to the Registration Statement containing this Prospectus. Although the
Company has agreed to file appropriate post-effective amendments to the
Registration Statement containing this Prospectus, and to maintain a
current Registration Statement on file with the Commission relating to
the Warrants that are offered hereby, there can no assurance that such
will be accomplished or that the Warrants will continue to be so
registered. See "Description of Securities--Warrants."
17. Risk of Inclusion of Forward-Looking Statements. This Prospectus includes
certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the financial
condition, results of operations and business of the Company. Such
statements reflect significant assumptions and subjective judgments by
the Company's management concerning anticipated results. These
assumptions and judgments may or may not prove to be correct. Moreover,
such forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially from those
contemplated in such forward-looking statements. Investors are cautioned
not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Underwriter has not attempted to
verify the basis for any such statements independently and neither the
Underwriter nor the Company undertakes any obligation to release publicly
any revisions to these forward-looking statements to reflect events
occurring or circumstances arising after the date hereof or to reflect
the occurrence of unanticipated events.
18. Possible Delisting and Risk of Low-Priced Securities. The Common Stock
and Warrants are currently being quoted on the NASDAQ SmallCap Market
under the symbols "HBCO" and "HBCOW." The Units have been approved for
listing, subject to official notice of issuance, on the NASDAQ SmallCap
Market. New proposed NASDAQ maintenance rules may affect continued
listing on NASDAQ. If the Company is unable to satisfy the NASDAQ
SmallCap Market maintenance criteria in the future, its Units, Common
Stock and Warrants may be delisted from trading on the NASDAQ SmallCap
Market. If it did not qualify for such listing, trading, if any, would
thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. ("NASD"), and consequently an
investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the price of the Company's securities.
20. The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
13
<PAGE>
regulations generally define a penny stock to be an equity security that has
a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on NASDAQ and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000, if such issuer has been in continuous
operation for less than three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the
risks associated therewith.
In addition, if the Company's securities are not quoted on NASDAQ, or the
Company does not have $2,000,000 in net tangible assets, trading in the
Common Stock would be covered by Rule 15g-9 promulgated under the Exchange
Act for non-NASDAQ and non-exchange listed securities. Under such rule,
broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Securities also are exempt
from this rule if the market price is at least $5.00 per share.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Company's securities could be
severely affected. In such an event, the regulations on penny stocks could
limit the ability of broker/dealers to sell the Company's securities and
thus the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
21. Additional Financing May be Required. The Company believes that the net
proceeds of this offering of approximately $3,260,000 will be sufficient
to satisfy its cash requirements for the coming 12 months. However, funds
generated from operations, as well as any proceeds realized from this
offering (including those allocated to working capital), may prove
insufficient for the Company's ongoing operational and debt service needs.
For example, on June 30, 1997, the Company is obligated to make payments
with respect to certain indebtedness incurred to persons who supplied
bridge financing in the amounts of $975,412 plus accrued interest. In the
event that the funds of the offering together with funds from operations
are insufficient to meet its obligations, the Company will be required to
seek additional equity capital or bank financing to support its ongoing
operations and to satisfy its debt obligations. The Company has no current
arrangements for additional financing. No assurance can be given that such
additional financing, if required, will be available on terms that are
satisfactory to the Company, if they are available at all. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
22. Material Portion of the Proceeds of this Offering are
Unallocated. Approximately $1,760,000 (53%) of the net proceeds of this
offering will be applied to working capital. Accordingly, management will
have broad discretion in the rights of application of the proceeds of this
offering for purposes different from those specified in the use of
proceeds section.
23. Directors and Officers Liability Limited. The Company's Certificate of
Incorporation provides that directors (but not officers) of the Company
shall be relieved of liability for monetary damages to the Company or its
stockholders for any breaches of their fiduciary duty to the fullest
extent permitted by applicable law. In addition, the Company's Bylaws
provide that the Company shall indemnify any and all of its Directors and
Officers against expenses actually and necessarily incurred by them in
connection with the defense of any action in which they are made parties
by reason of being an Officer or Director except as to matters in which
the Director or Officer is adjudged to be liable for misconduct or
negligence in the performance of duty.
24. Pending Litigation. On January 3, 1996, the Company commenced an action
again Coleman and Company, Inc. ("Coleman") and Starr Securities, Inc.
("Starr") for breach of an underwriting agreement.
14
<PAGE>
On January 19, 1996, Starr commenced an action against the Company and its
former Chairman of the Board for libel and defamation of character for
stating to the street that Starr walked away from a public offering and
breached an underwriting agreement. Although management believes that the
Starr action lacks merit and that it has valid defenses to the action, if
Starr were to succeed in its claim and procure a final judgment against the
Company, the financial condition of the Company would be materially
adversely affected.
15
<PAGE>
PRICE RANGE OF SECURITIES
Effective December 20, 1995, the Company's Common Stock and certain Common
Stock Purchase Warrants commenced trading on NASDAQ Small-Cap Market under the
symbols HBCO and HBCOW respectively. Prior to December 20, 1995, there was no
established public trading market for the Company's Common Stock or Warrants.
The following table sets forth the range of high and low bid prices as
reported by NASDAQ. Bid quotations reflect interdealer prices without retail
mark-up, mark-down or commission transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
-------------- -------------
HIGH LOW HIGH LOW
------- ------ ------ ------
<S> <C> <C> <C> <C>
1995
Fourth Quarter (December 20-31)................. $ 8.375 $5.500 $4.000 $1.000
1996
First Quarter................................... $11.850 $7.625 $5.750 $2.500
Second Quarter.................................. $11.250 $9.000 $5.125 $3.000
Third Quarter................................... $ 9.125 $5.375 $3.375 $1.500
Fourth Quarter (to November 11)................. $ 7.375 $6.250 $2.625 $1.500
</TABLE>
As of November 1, 1996, there were 65 holders of record of the 2,583,600
outstanding shares of Common Stock, thirteen holders of the 1,603,900
outstanding Warrants and seven holders of Preferred Shares. As of November 1,
1996, the Company had an estimated 1500 beneficial shareholders. The closing
bid prices of the Common Stock and Warrants on November 25, 1996 was 5 1/4 and
1 3/8 respectively. There is presently no market for the Units, and there can
be no assurance that a public trading market for the Units will develop after
this offering. The Underwriter has advised the Company that it intends to make
a market for the Units immediately after the public offering of these
securities but may discontinue these activities at any time.
The average daily trading volume of the Company's Common Stock and Common
Stock Purchase Warrants for the month of October 1996 was 1,571 shares and
7,710 warrants.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, and adjusted to give effect to the sale of 400,000 Units
offered by the Company and the application of the proceeds therefrom as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
AS
ACTUAL ADJUSTED(1)
----------- -----------
<S> <C> <C>
Bridge Notes......................................... $ 996,559 $ 996,559
Stockholders' equity:
Common Stock, $.001 par value; 15,000,000 shares
authorized; 2,583,600 issued; as adjusted
2,583,600......................................... 2,583 2,583
Series A Convertible
Cumulative Redeemable Preferred Stock $.001 par
value, 5,000,000 shares authorized; issued
100,000 shares; as adjusted 500,000............. 100 500
Additional paid-in capital(1)...................... 7,154,950 10,414,950
Deficit............................................ (6,076,567) (6,076,567)
Currency translation adjustments................... 202,775 202,775
Total Stockholders' Equity......................... $ 1,283,843 $ 4,543,843
</TABLE>
- --------
(1) Unless otherwise indicated, all information in this Prospectus assumes
that no portion of the Over-allotment Option is exercised.
DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock. The
Company anticipates that in the foreseeable future, earnings, if any, will be
retained for use in the business or for other corporate purposes, and it is
not anticipated that cash dividends will be paid either on the Preferred
Shares or Common Stock. Dividends on the Preferred Shares will be paid in
Common Stock if the Company is legally able to do so. The Company is dependent
upon payment of dividends from its Hungarian subsidiary companies as the
source of its own cash dividends.
Hungarian companies are permitted to pay annual dividends out of profits,
determined on the basis of Hungarian accounting principles, following
recommendation of its Board of Directors and a declaration by the Annual
General Meeting which must be held in the first four months of each year.
Dividends are payable to foreign investors, such as the Company, in Forints,
which may be converted into U.S. Dollars at the official rate of exchange set
by the National Bank of Hungary.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units (after deduction
of underwriting discounts and commissions and other expenses of this offering)
are estimated to be approximately $3,260,000 (or $3,800,000 if the over-
allotment option is exercised in full). The Company intends to use such net
proceeds as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
APPLICATION OF NET PROCEEDS NET PROCEEDS NET PROCEEDS
--------------------------- ------------ -------------
<S> <C> <C>
Purchase Equipment for Broadcasting Studio and
Dubbing Studio................................... $ 520,000 16.4%
Six Months Payment Satellite Fees................. 380,000 11.9%
Payment for Certain Programming for Calendar
1997............................................. 600,000 18.6%
Working Capital and General Corporate Purposes.... 1,760,000 53.1%
---------- -----
Total........................................... $3,260,000 100.0%
========== =====
</TABLE>
17
<PAGE>
Any additional net proceeds received from the exercise of the Underwriter's
Over-allotment Option will be added to working capital.
The Company is obligated to pay to the holders of Bridge Notes $996,559 at
September 30, 1997. The Company intends to pay this obligation out of proceeds
of its litigation against Coleman and Company, Inc. (see "Business-Legal
Proceedings") or out of broadcasting revenues. If funds are not available for
either of these sources, the Company will be required to seek additional
equity capital or bank financing to satisfy this obligation. The Company has
no current arrangement for additional financing. No assurance can be given
that such additional financing will be available when required or at all.
Pending expenditure of the proceeds from the offering, the Company may make
temporary investments in interest bearing savings accounts, certificates of
deposit, or short term United States government obligations. In the opinion of
management, the above proceeds should be sufficient for the Company's
operations together with internally generated funds to provide the Company's
working capital needs at least until December 31, 1997.
SELECTED FINANCIAL DATA
The financial information set forth below for the period ended June 30,
1995, for the year ended June 30, 1996 and for the three month periods ended
September 30, 1995 and September 30, 1996 respectively should be read in
conjunction with the Company's audited financial statements and accompanying
notes appearing elsewhere in this Prospectus.
OPERATING STATEMENT DATA
<TABLE>
<CAPTION>
FOR THE PERIOD THREE MONTHS ENDED
SEPTEMBER 14, 1994 SEPTEMBER 30,
(DATE OF INCEPTION) YEAR ENDED ----------------------
THROUGH JUNE 30, 1995 JUNE 30, 1996 1995 1996
--------------------- ------------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenues...... $ 72,043 $ 672,108 $ 207,637 $ 353,315
Operating expenses...... $ 560,393 $ 4,351,869 $ 420,595 $ 611,355
Net loss after minority
interest............... $(560,333) $(4,149,682) $(848,430) $(1,096,529)
Net loss per share...... $ (0.39) $ (2.01) $ (0.59) $ (0.42)
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------
1995 1996 SEPTEMBER 30, 1996
----------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets................ $ 471,033 $2,319,652 $1,367,691
Current liabilities........... 1,856,314 2,269,757 2,068,673
Working capital............... (1,385,281) 49,895 (720,882)
Total assets.................. 2,790,735 4,252,051 3,366,676
Stockholders' equity.......... 43,582 1,941,968 1,283,843
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company was organized in September 1994 and in October it commenced
exploring opportunities to own, operate and develop a regional private
commercial television station in Hungary. In November, it obtained a six month
option to acquire majority interests in DNTV and VI-DOK, two Hungarian
corporations (the "Licensees") that were granted licenses in March 1994 for a
six year term commencing July 1, 1994 to operate Channel MSAT. The Licensees
commenced their broadcasting on MSAT on a limited basis in September 1994, and
increased their broadcasting to 21 1/2 hours per day in December, 1994. During
the option period, the Company loaned approximately $2,100,000 to the
Licensees, which was used by the Licensees principally to produce and purchase
programming.
During the option period, the Company incurred significant costs in
preparing business plans and developing an advertising sales staff, a station
management team and a program format.
In May and June 1995, the Company acquired majority interests in the two
Licensee companies by purchasing 80% of DNTV at a cost of $176,000 and 90% of
VI-DOK at a cost of $83,200 and assumed operational control of the two
companies.
The Company's revenues are derived principally from the sale of television
advertising to national, international and local advertisers. Although the
Company's television broadcasting activities have begun only recently, the
experience of the television industry is that advertising sales tend to be
lowest during the third quarter of each calendar year, which includes the
summer holiday schedule (typically July and August) and highest during the
fourth quarter of each calendar year.
The primary expenses incurred in operating television stations are employee
salaries, programming costs, broadcast studio and transmission expenses and
selling, general and administrative expenses.
In Management's opinion, the Company emerged from the development stage
effective during the three months ended December 31, 1995.
For the year ended June 30, 1996 and for the three month period ended
September 30, 1996, the Company had consolidated revenues of $672,108 and
$353,315 respectively, (primarily from the sale of advertising time) and
incurred a net loss for the year ended June 30, 1996 and for the three moth
period ended September 30, 1996 of $4,149,682 and $1,102,393 respectively.
For the period from September 14, 1994 (date of inception) to June 30, 1995,
the Company incurred a net loss of $635,672. Station expenses aggregated
$560,393. Net interest expense was $71,983.
MSAT broadcasts only video music clips prior to June 1995 when the Company
assumed control. After changing to a civic events format in June 1995, the
Company returned to the video music clips format in October 1995 which was
less expensive to produce.
On December 28, 1995 the Company received the proceeds from the sale of
shares and warrants in its Initial Public Offering and determined to relaunch
Channel MSAT as a Western style station. In April 1996, the Company introduced
new programming for the hours 7:30 to 11 p.m. featuring American, United
Kingdom and Australian syndicated series that had been successful in prime
time in their home countries. The Company dubbed these programs into the
Hungarian language. Generally, the audience acceptance of these programs has
been favorable and viewership has been high and has increased over time.
On September 6, 1996, MSAT began transmitting its signal from the Astra IE
Satellite. Over the next five months it is anticipated that Hungarian
Broadcasting Corp. will increase its distribution to approximately 1.8 million
households throughout Hungary. In October 1996, the Company renamed its
broadcasting station MSAT.
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Advertising billing is determined by the program ratings provided by AGB, an
independent audience rating service. As the Company's distribution more than
doubles, its advertising rates should more than double. And as the coverage
broadens, the station is of increasing interest to national and international
advertisers. As a result of conversations with advertisers and media buying
groups together with booked advertising and the improving trend of bookings,
Management believes that it should begin generating positive cash flow on a
monthly basis prior to the end of fiscal 1997.
Nevertheless, since its inception, the Company has run at a deficit in each
month of its operations and should continue to run deficits for the next few
months. There can be no assurance that the Company can generate enough
revenues to cover its expenses in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through December 1, 1995, the Company sold 1,647,500
shares of Common Stock in a series of private transactions for proceeds of
$1,913,622, net of issuance costs and, in addition, issued promissory notes in
the aggregate amount of $2,120,000. On December 6, 1995, 220,000 shares owned
by three officers of the Registrant were contributed to the Company for no
consideration.
On December 20, 1995, the Company completed an Initial Public Offering of
1,150,000 shares of its common stock at $5 per share and 1,610,000 redeemable
common stock purchase warrants at $.15 per warrant. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of $6.00 per
share during the five-year period ending December 20, 2000. The warrants will
be redeemable, commencing April 20, 1997. The Company also issued to the
Underwriter warrants for the purchase of 100,000 shares of common stock at
$8.25 per share and 140,000 common stock purchase warrants at $0.225 per
warrant. The proceeds of this offering amounted to approximately $4,841,000,
net of underwriting commission and expenses.
In September 1996, the Company sold 100,000 Units at $4.50 per unit for
proceeds of $354,500 net of issuance costs.
The Company believes that its existing cash balance, cash from future
operations and the net proceeds of this offering will be sufficient to fund
the Company's operations at least until December 31, 1997 including satellite
costs, repayment of the balance of the remaining Bridge Notes of $975,412 plus
interest and advance expenses incurred for the purchase or production of
programming and the dubbing of programming.
FOREIGN CURRENCY
The Company's broadcasting operations in Hungary incur both general revenues
and operating expenses in Forints. Asset and liability accounts are translated
from foreign currencies into U.S. Dollars at the period-end exchange rate;
income and expense accounts are translated at the average exchange rate for
the period. The resulting translation adjustments are reflected in a component
of shareholders' equity. Currency translation adjustments relating to
transactions of the Company and its subsidiaries in currencies other than the
functional currency of the entity involved are reflected in the operating
results of the Company.
Since virtually all revenues and most expenses are in local currency, the
Company does not hedge against foreign currency exchange risks.
BUSINESS
INDUSTRY OVERVIEW
Private commercial television stations (those which derive the majority of
their revenues from the sale of advertising and are owned by entities other
than government entities) generally began broadcasting in the United States in
the 1940s, in parts of Western Europe in the 1950s, in Germany in the 1980s,
and in Scandinavia and
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Central Europe (including Hungary) in the 1990s. Austrian TV channels are
still owned by the state. Commercial television has become an important medium
for advertisers in the more developed advertising markets. For example, in
1994, television advertising expenditures totaled $30.6 billion in the United
States and an aggregate of $18.3 billion in 16 countries of Western Europe.
An advertising industry has been developing in Hungary since 1991. Based on
a report published by Saatchi & Saatchi/Zenith Media World Wide, TV
advertising expenditure increased from $45 million in 1991, to $107 million in
1992, to $128 million in 1993, to $138 million in 1994, and to $157 million in
1995.
The Hungarian Parliament enacted a Media Law on December 21, 1995 which
provided for the privatization through a tender process of one of the two
state owned TV channels (MTV 2) and the sale of a currently dormant frequency.
The Company believes that it is currently operating in compliance with the
provisions of the Media Law.
The two basic methods of television transmission in use in Hungary are (i)
over-the-air television broadcasting, which can be either local or national in
scope (these operations are often referred to as "terrestrial" broadcast
operations) and (ii) satellite-to-cable broadcasting. In over-the-air
broadcasting, the station operator obtains a license from the appropriate
regulatory authority with a limited geographic range. In satellite-to-cable
broadcasting, the station operator transmits its programming signal to a
satellite which redirects the signal to either a ground based antenna which is
connected to a cable system or to a home television via a satellite dish
("direct-to-home").
While over-the-air broadcasters can typically be received by virtually all
of the television households in the geographic area covered by their broadcast
signal, satellite-to-cable broadcasters can only be received by television
households connected to a cable system or households that have satellite
dishes positioned to receive the broadcast signal. Cable television growth in
Hungary initially occurred in the most heavily populated areas and has been
extended to less populated areas. Households with cable service in the most
heavily populated areas in Hungary are sought after by advertisers because
these households tend to have higher disposable incomes and greater access to
advertised goods and services.
GENERAL
The Company was formed in September 1994 to acquire majority interests in
companies owning broadcasting licenses and becoming the operator of the
licensed broadcasting stations.
Hungary has three state owned and operated television channels--Magyar
Television I ("MTV 1"), which started broadcasting in 1957, and Magyar
Television 2 ("MTV 2"), which started broadcasting in 1972 and DUNA TV, which
started to broadcast via satellite in 1993. The signals of MTV 1, MTV 2 and
the microwave signal of MSAT (the Company's channel which was formerly called
"A-3") are over-the-air (terrestrial) and are transmitted by Antenna Hungaria,
a state owned company which built, owns and operates a trunk network of
transmitter stations consisting of 19 transmitter stations and 90 relay
stations. The signals of MTV 1 reaches over 96% of the households of Hungary
and MTV 2 reaches approximately 80% of the households of Hungary. To receive
the signals of MTV 1 and MTV 2, a household merely needs a pair of "ears" or
antennae and does not require any dish.
A household requires a dish to receive signals from channels transmitting
over a microwave frequency or directly via satellite.
The AM Micro system is a low cost system for consumers. The receiving
equipment is limited to a dish (smaller than a comparable satellite receiver)
and a receiving head (converter). The equipment costs average $100 per
household. However, equipment for one household can service four households if
they are located in the same building. Equipment for cable networks costs $150
per household and for satellite antenna systems $300 per household. The
monthly fee transmission charged directly to households by Antenna Hungaria is
$1 for AM-Micro access as compared to $4 to $8 for cable and a higher rate for
direct to home satellite.
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In 1994, based on a decree enacted by the Hungarian Parliament in July 1993,
the Hungarian Ministry of Culture and Education made a tender offer to open
only to holders of studio licenses for a license to broadcast over Channel A3
using AM-Micro technology over an area of Budapest plus 30 km (18 miles).
Fourteen contenders applied for the license. The license was given to three of
the contenders as follows, each for the time period from July 1, 1994 to July
1, 2000.
VI-DOK: Mondays, Wednesdays, Fridays and Sundays from 6:00 a.m. to 5:00
p.m. and 7:30 p.m. to 6 a.m.
DNTV: Tuesdays, Thursdays and Saturdays from 6:00 a.m. to 5:00 p.m. and
7:30 p.m. to 6 a.m.
NAP TV: Daily from 5:00 p.m. to 7:30 p.m.
VI-DOK and DNTV had no prior television broadcasting experience. DNTV was
organized on February 14, 1994 and VI-DOK was organized on December 10, 1991.
The Ministry granted licenses to DNTV and to VI-DOK on March 29, 1994. VI-DOK
then organized Pest-Buda Televizio Kft ("Pest-Buda") on March 31, 1994 as a
vehicle from which to conduct the broadcasting operations under the license.
Between the date of grant and the commencement of broadcasting on A3 in
September 1994, DNTV and VI-DOK devoted their energies to seeking an equity
partner. The two companies started broadcasting in September 1994 as a music
channel using the broadcasting facilities of Land Studios rather than their
own studios to provide programming and technical personnel.
VI-DOK and DNTV, acting jointly thereafter sought an equity partner. In
November 1994, the Company commenced negotiations to acquire majority
interests in each of the two licensed companies. At the same time, the Company
agreed to provide loans aggregating approximately $2,000,000 to the Licensees
to help finance their operating and programming costs (which loans were to be
deemed capital contributions in the event the acquisitions were completed)
until it could complete its due diligence in connection with the acquisitions.
The Company then recruited a management staff, a sales staff and a station
operating staff and completed its acquisition as to DNTV in May 1995, and in
June 1995, as to VI-DOK. The Company acquired 90% and 80% of the capital
interests of VI-DOK and DNTV for $240,000 and $176,000, respectively, from the
existing owners of VI-DOK and DNTV and contributed the loans to the capital of
the two licensee companies as additional acquisition costs, and assumed the
operational control of A3 in May 1995.
In September 1996, the Company added satellite-to-cable broadcasting, and
began broadcasting 24 hours per day, including the hours of 5:00 p.m. to 7:30
p.m. daily, to its cable networks. It still broadcasts 21 1/2 hours per day
through its Am-Micro network. In October 1996, the Company changed its
broadcasting name to MSAT.
NATURE OF HUNGARIAN CORPORATIONS
The three subsidiaries of the Company were organized under the Hungarian Law
on Business Organizations as limited liability companies ("KFT"). Those
persons who provide the capital own percentages of the companies in proportion
to their respective capital contributions. All the capital of HBC Kft., which
was formed on November 29, 1994, was provided by the Company. The Company, on
May 30, 1995, purchased 80% of the ownership interest from each of the three
owners of DNTV and, on June 16, 1995, purchased 90% of the ownership interests
from each of the two owners of VI-DOK. The owners of each of the two companies
then held membership meetings to approve the transfer of the interests and to
appoint Peter E. Klenner and Imre Kovats as the managing directors of each
company. The ownership interests and the names of the managing directors are
registered by the Municipal Court of Budapest in a registry that is available
for public inspection. The Media Act of 1996 provides that all broadcasting
companies have to be converted from limited liability companies (Kft's) to
share capital corporations, "Reszveny Tarsasag" (RT's) by to the end of 1996.
The Company is currently in the process of converting each of its subsidiaries
from Kft to a RT. Accordingly, the owners will hold shares in the subsidiaries
instead of interests.
POPULATION REACH AND DEMOGRAPHICS
MSAT's signal is carried over-the-air and currently reaches approximately
350,000 households through the AM Microwave network and approximately 500,000
households through cable networks located in Budapest and
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its environs. As of November 1, 1996, additional cable companies have received
MSAT's satellite transmission and their 650,000 subscribers receive MSAT's 24
hour per day programming. Of these new cable subscribers, as many as 100,000
have replaced the previously mentioned cable subscribers which formerly
received their signal via AM Micro.
The Company entered into a ten year agreement with Nethold to rent to the
Company space on its satellite known as "Hotbird 2", commencing on January 1,
1997. This satellite will enable the Company to reach approximately 1.8
million TV households or 49% of the 3.7 million TV households (3.9 million
total households) in Hungary. This includes the cable systems operated by
Kable Com Kft, the Hungarian affiliate of HBO, which reaches in the aggregate
of 350,000 households. The Company intends to increase its reach in calendar
year 1997 to up to 60% of all TV households by equipping small cable networks
with decoders and by reaching individual TV homes that are equipped with
decoders through direct-to-home broadcasting. The Company also entered into a
ten year agreement with Banknet to provide uplink and downlink facilities for
satellite broadcasting.
The Company has contacted cable companies that serve virtually all of the
cable customers in Hungary. Nearly all desire to carry MSAT's transmission and
plan to purchase and install the necessary downloading equipment. This cable
universe plus customers of AM Micro should expand MSAT's distribution to
approximately 1.8 million television households over the next few months. This
dramatic increase in distribution is welcome by major advertisers and should
result in substantial increases in pricing for each individual advertisement.
The Company intends to use part of the proceeds of this offering to finance
its portion of its satellite costs.
The Company designs its program schedule to appeal to and attract viewers in
the 14 to 35 year old age group.
STRATEGY
The Company's strategy is to improve the operating results and market share
of MSAT. Specific elements of the Company's operating strategy include:
. Utilize Viewer-Oriented Scheduling--make it easier for viewers to find
the programs they prefer to watch by regular and consistent scheduling of
programming
. Promote Programs--advertise and promote both on MSAT and in other media
its programming to increase ratings and viewer identification
. Control Station Operating Costs--institute fundamental cost controls and
operating efficiencies
. Increase Advertising Sales--expand, motivate and train the sales force.
BROADCASTING FACILITIES
The Company entered into a five year lease as of July 1, 1996 for
approximately 12,000 square feet on four floors at 1118 Budapest, Kelenhegyi
ut 39, Hungary at a rental of $144,000 per year plus a 25% VAT fee and
maintenance fees. The Company is using the third floor for its executive
offices, the second floor for sales and other offices, the first floor as a
broadcast studio and offices for the production group, and the basement floor
as a dubbing studio and as a post production studio. The basement floor also
houses the master control. Live broadcast signals are transmitted from the
broadcast studio using uplink facilities leased from Banknet to the back haul
satellite Orion Atlantic. These signals are received in the Netherlands and
retransmitted on the Astra IE satellite (Hotbird 2 satellite as of January 1,
1997) using downlink facilities leased from Banknet to the cable system heads
and eventually to direct-to-home subscribers.
PROGRAMMING
The Company's programming strategy is to broadcast cost-effective programs
that are capable of achieving high rating thresholds and targeted to its 14 to
35 year old viewer audience. In addition, the Company believes
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that its strategy of emphasizing programming in Hungarian will lead to an
increase in market share among key demographic groups and improve the image of
the station among advertisers and viewers.
The Company's strategy in purchasing international programs for broadcasting
in Hungary is to acquire programs that were successful on United States,
United Kingdom or Australian prime time television. These programs are dubbed
into Hungarian by the Company and include television series, serials and soap
operas. Movies previously dubbed into Hungarian are also acquired. Popular
international programs currently broadcast by the Company include Beauty and
the Beast, Pacific Blue, LA Law, Murder One, Pacific Drive, Homicide, and The
Benny Hill Show. The Company also produces or plans to produce variety shows,
magazine format shows, talk shows and game shows.
The Company is currently the only television station in Hungary that
broadcasts a number of western series in the Hungarian language.
MSAT programming, from 12:00 a.m. to 5:00 p.m. consists principally of
computerized music clips of Western and Hungarian recording artists plus
generally a movie in the afternoon. From 5:00 p.m. to 7:30 p.m., MSAT
broadcasts primarily music clips to its viewers who receive the Company's
signal via satellite. From 7:30 p.m. to 12:00 a.m., the programming features
acquired programming dubbed into Hungarian, locally produced shows and movies
dubbed into Hungarian. The key target audience of MSAT is the 14 to 35 age
group. Of the 168 hours of programming broadcast by the Company, approximately
90 hours (54%) is Hungarian production.
The Company receives video music clips directly from recording companies
such as Sony or EMI, or music publishing companies without charge to the
Company. If and when the Company broadcasts a composition, the Company pays a
royalty on the use of the composition to the Hungarian Association of Record
Producers ("HARP"). In the case of its own productions, the Company's staff
selects the program and oversees the production. The Company believes its
production programming staff of 25 persons together with approximately 62
professionals employed on an as needed basis is adequate to produce its
programming. The Company acquires rights to international sitcoms and other
series for a limited number of showings together with video-tapes and scripts
of the shows. The Company dubs the video-tapes into the Hungarian language.
The Company believes its part-time staff of 21 persons is adequate for this
activity.
From time to time, MSAT broadcasts a special sporting or cultural event and
replaces the regularly scheduled program with this event.
The Company is continually working on new ideas for programming and intends
to change its schedule from time to time to increase "audience flow," which
involves consecutively scheduling programs with similar audience demographics
so as to retain as many viewers as possible from one program to the next.
These scheduling practices are used widely in the United States and help build
viewer loyalty and overall market share. The Company also advertises and
promotes its programming on MSAT.
The Company has not and does not expect to conduct, or to expend any funds
on, research or development activities.
ADVERTISING SALES
Advertising sales to national, international and local advertisers is the
principal source of revenue for the Company. The Company has been able to
implement a number of sales practices that have been effectively used in the
United States market and in other more developed television broadcasting
markets. First, the Company has cooperated with other broadcasters to
implement accurate, independent rating surveys in each of its markets. Second,
the Company's sales efforts focus on educating the media buying market on how
to use television as an effective advertising medium.
In Hungary, AGB-Hungaria Meter System began providing ratings information
since 1993 on a national basis and has been providing rating information for
certain local areas including Budapest since 1996. The
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Company believes that more accurate ratings information accelerates the
development of commercial television markets because advertisers with more
accurate ratings information are more willing to allocate a greater percentage
of their advertising budget to television advertising.
The Company employs an experienced advertising sales force under the
direction of a sales manager. The Company's executive vice president of sales
and marketing, Mr. Imre Kovats, interacts on a regular basis with the sales
force in each market.
COMPETITION
MSAT competes with MTV1 and MTV2, both government owned and operated
national television terrestrial stations and with DUNA-TV, a government owned
and operated national television satellite station for audience, for
programming and advertising. It also competes with TV3 and SZIV TV, privately
owned commercial stations with AM-Micro licenses similar to that of the
Company, and with other localized stations in Budapest including NAP TV that
broadcast to parts of the Budapest area sporadically and have insignificant
audiences. TV3 recently began to broadcast nationally on satellite and SZIV
sends some of its programs to cable operators via video tapes that are played
on a time delayed basis.
Competition for viewers also comes from stations transmitting through cable
and satellite TV. These stations broadcast in either English, German or
French. Currently, none broadcast in Hungarian.
MSAT also competes for revenues with other media, such as newspapers, radio
magazines, outdoor advertising, telephone directory advertising, and direct
mail.
REGULATION
On December 21, 1995, the Media Act was enacted by Parliament. Under the
Act, A3 is required to comply with a number of restrictions on programming and
advertising. The Company believes that currently A3 is complying with all the
restrictions provided for in the Act and that none of the restrictions has a
material adverse effect on A3. These restrictions include that 30% of A3's
broadcast time must be programming of Hungarian origin, which includes the
news, events, talk shows, and sports. If Hungary becomes a member of the
European Union, A3 will be subject to additional program content regulation.
The Company currently devotes approximately 54% of its broadcasting time to
programming of Hungarian origin. The Media Act also provides rules and
regulations pertaining to renewing or extending licenses.
There is no specific environmental regulation in Hungary to which the
Company is subject, and the Company has not expended and does not expect to
expend any funds on environmental compliance costs.
EMPLOYEES
As of June 30, 1996, the Company had three executive officers and a central
staff of 33 full-time employees, consisting of 25 in production and in
programming, four in sales and four in finance and administration. None of the
Company's employees are covered by a collective bargaining agreement. The
Company also employs from time to time, on an as-needed basis, additional
temporary personnel drawn from a pool of approximately 62 production
professionals, such as directors, camera or lighting operators, and engineers
and 21 dubbing and voice over professionals. The Company believes that its
relations with its employees are good.
LEGAL PROCEEDINGS
Prior to November 20, 1995, the Company filed a Registration Statement with
the Securities and Exchange Commission on Form SB-2 for an Initial Public
Offering of 1,000,000 of its shares of Common Stock at $7 per share, which
Registration Statement became effective at 5:30 p.m. on Friday, November 17,
1995. On Monday,
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November 20, 1995, the Company entered into a firm commitment underwriting
agreement with Coleman and Company, Inc. ("Coleman") for sale of 1,000,000 of
its shares at $7 per share. Starr Securities Inc. ("Starr") was named as a co-
underwriter in the Registration Statement and in the underwriting agreement.
Trading of the shares on NASDAQ commenced soon thereafter with a contract
closing scheduled for November 27, 1995. At the Closing, Coleman advised the
Company that it did not have the funds to close; that it was unilaterally
rescinding the contract; and that it would request NASDAQ to cancel all trades
made since November 20, 1995.
On January 3, 1996, the Company commenced an action against Coleman and
Starr in the United States District Court of the Southern District of New York
for breach of contract demanding judgment of the full contract price of the
public offering together with such other compensatory and consequential
damages in an amount to be determined at trial.
On January 19, 1996, Starr commenced an action in the Supreme Court of New
York against the Company and its former Chairman of the Board, Robert Genova,
for libel and defamation of Starr's character, and for threatening to continue
to defame Starr's character by stating that Starr "walked away" from the
Initial Public Offering deal and breached its contract with the Company unless
Starr made a bridge loan to or a private placement for the Company. The
Complaint further alleged that when Starr did not accede to the Company's
demands, the Company continued to vilify Starr in the financial community by
stating that Starr walked away from the Initial Public Offering deal and
breached its contract with the Company and by commencing an action in the U.S.
District Southern District of New York on January 3, 1996, falsely accusing
Starr of breach of contract. Starr further included a cause of action on the
same facts for prima facie tort. The Company had this action removed to the
U.S. District Court, Southern District of New York. Starr moved to remand both
actions to the New York Supreme Court on the ground of lack of diversity of
citizenship, which motion was granted. The Company then recommenced its action
in the New York Supreme Court and consolidated its action with the Starr
proceeding. The Company believes its action has merit and that it has valid
defenses to the action brought by Starr.
INVESTMENT CONSIDERATIONS--POLITICAL, ECONOMIC AND OTHER FACTORS REGARDING
HUNGARY
Investment in the Company involves certain special investment considerations
not usually associated with investing in securities of U.S. companies,
including risks related to (a) greater social, economic and political
uncertainty; (b) certain restrictions on foreign investment and repatriation
of capital; (c) exchange control regulations; (d) currency exchange rate
fluctuations, which may increase the costs associated with conversion of
investment principal and income from one currency to another; (e) higher rates
of inflation; and (f) greater governmental involvement in the economy.
The value of the Company's assets may be adversely affected by political,
economic and social factors, changes in the law or regulations of Hungary, and
the status of political and economic foreign relations of Hungary.
Developments in the region may also affect the value of the Company's assets.
In addition, the economy of Hungary may differ favorably or unfavorably from
the U.S. economy in such respects as the rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Actions of the government of
Hungary in the future may affect the local economy, which may affect private
sector companies, market conditions and general economic stability.
Until 1988, the economy of Hungary was tightly controlled by Communist
governments and composed almost exclusively of state-owned enterprises.
Accordingly, this country faces many challenges arising from decades of
Communist rule. Although Hungary has begun to initiate a number of market-
oriented reforms, there can be no assurance that these reforms will persist.
Hungary lacks a recent history of operating in a market-oriented system.
Geography
Hungary is located in the Danubian Basin in East Central Europe. In terms of
square kilometers, Hungary ranks 18th amongst the European countries, with a
territory of about 93,033 square km (36,296 square miles,
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about the size of the state of Indiana). According to the latest population
census of January 1995, Hungary has a population of 10.4 million. Currently,
about 3.2 million people are living in Budapest and environs, the capital of
Hungary. Budapest is the administrative, cultural, industrial, commercial and
economic center of the country. No other urban area in Hungary has over
220,000 people.
Political and Economic Environment
The nobility, landowners and middle class was virtually wiped out during
World War II, leaving the industrial proletariat and peasants to run the
government. Hungary was physically occupied by Soviet military forces after
World War II. A coalition government took over consisting of four political
parties besides the Communists. The government enacted a new electoral law and
in 1948 the Communists declared themselves victorious. In 1956, an uprising
against the communist system was crushed with the aid of Russian troops. The
Soviet Union installed Janos Kadar in 1956 as head of the "revolutionary
workers-peasant" government and Kadar remained in control until 1988. In 1956
Khrushchev was the leader in Russia. Kadar eased the Communist dictatorship,
allowing more personal freedom and travel to the West, and introduced limited
market economy including the production of consumer goods and block houses.
In order to improve communication with the populace, the state commenced
building a trunk network of television transmitter stations in 1956. Since the
opening of the Budapest transmitter station in 1957, 17 transmitter stations
were built with 19 main transmitters in operation. The state subsidized the
sale of television sets and made it easy for households to purchase them so
that the households could watch the two state owned stations--MTV1 and MTV2,
which broadcast very few programs that were of interest to the general
population and fewer that were of interest to the 14 to 35 year old age group.
The State also started to experiment with satellite broadcasting transmission
and commenced building an AM-microwave network in the 1970s and encouraged and
subsidized cities and towns to build local cable systems throughout Hungary so
that they could receive programs broadcast over AM microwave frequencies and
by satellite transmission. As a result, most of the Hungarian cities and towns
currently have operating cable systems.
Beginning in 1968, Kadar introduced a series of economic reforms known
collectively as the New Economic Mechanism aimed at easing restrictions on
private enterprise and reducing the role of central planning in the economy,
and trying to combine a market economy with the Socialist system. Chief among
these changes were reforms to the banking system, which introduced a two-
tiered banking system modeled after Western Europe, and the Companies Act,
which allowed for non-state ownership of business organizations, liberalized
prices and wages, substantially reduced government subsidies, and provided for
a more advanced Western style legal system. Occupying Russian forces started
departing from Hungary in 1988, with the last units departing Hungary in July
1991. Kadar was dismissed as leader by the governing Communist party in 1988.
In 1989, the governing party amended the Hungarian Constitution so as to
provide for free elections every four years and separating powers among
executive, legislative and judiciary branches.
In the elections of March and April 1990, the Hungarian Democratic Forum
emerged as the strongest parliamentary party. Prime Minister Jozsef Antall
formed a coalition government with two smaller conservative parties, the
Independent Smallholders Party and the Christian Democrats. The Communist
Party consequently lost control of the government. In the elections of 1994, a
Socialist Party was the strongest parliamentary party and formed a coalition
with the Free Democrats to form a government.
Current economic policy identifies a number of key steps to establish the
institutional framework for a market economy by 1998. Its main goals include
reduction of the inflation rate, privatization of state owned enterprises,
currency convertibility and integration into Western trade flows. The
government is actively inviting tenders for the privatization of public
utilities, the energy sector, and TV broadcasting. In connection with this
privatization program, the government is seeking to attract foreign capital
investments.
Foreign Relations
Hungary joined the United Nations in 1955 and became a member of the
International Monetary Fund and the World Bank in 1982. In 1985, Hungary
joined the International Finance Corporation, an affiliate of the World
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Bank and the International Development Association. Hungary is also a
signatory to the General Agreement on Tariffs and Trade ("GATT").
Hungary's association with the Council of Mutual Economic Aid ("COMECON")
and the Warsaw Pact ended when both these organizations were disbanded in
1991. An Association Agreement between the EC and Hungary was signed on
December 16, 1991. Under the Agreement, all customs duties, quantitative
restrictions and other trade barriers in areas other than agriculture will be
eliminated by both sides by December 1, 2000. The EC lifted some customs
duties immediately and the rest will be removed over the next nine years.
Hungary was given a three year grace period and began reducing customs duties
and quantitative restrictions in 1994.
The Hungarian government has undertaken measures to replace communist
alliances with alliances with Western European countries and the United
States. Hungary is a member of the Council of Europe, and has been an
Associate Member of the European Union since February 1994. The government
applied for full membership of the European Union in April 1994. Hungary is a
member of the United Nations, International Monetary Fund, the World Bank, the
International Finance Corporation and the European Bank for Reconstruction and
Development. It also takes part in NATO's Partnership for Peace initiative,
and the government has expressed its desire to eventually join NATO.
FOREIGN INVESTMENT, FOREIGN EXCHANGE AND INFLATION IN HUNGARY
Foreign Investment
Act XXIV of 1988 on the Investments of Foreigners in Hungary (the "Foreign
Investment Act"), effective January 1, 1989, provided for significant tax
benefits to foreigners investing in Hungarian companies. These benefits have
since been reduced by an amendment to the Foreign Investment Act which went
into effect on January 1, 1991. Generally, the profits of Hungarian companies
are subject to tax at the rate of 40 percent of their profits.
The Foreign Investment Act provides for the benefit of foreign investors:
--a state indemnity against any damage resulting from expropriation or
nationalization of investments with compensation at "actual value" in the
currency of investment;
--for direct investment in Hungarian business organizations, whether new or
existing; and
--for free repatriation in the currency of investment of any dividends,
share of profits and share of capital from the sale or winding-up of any
investment. There are no restrictions or limitations in the amount of
Forints that a company can convert or on the amount of currency that can
be removed from Hungary.
--any conversion of Forints into foreign currency and vice-versa must be
made at the rate of exchange officially quoted by the National Bank of
Hungary.
Foreign Exchange and Revaluation
The Hungarian Forint is a convertible currency in Hungary, but not
internationally at this time. Its exchange rate is set by the National Bank of
Hungary against a basket of convertible currencies. Any devaluation exceeding
5% requires government approval. The National Bank of Hungary has announced
that its policy in the future will be to adjust the Forint on a continual
floating basis, thereby avoiding large devaluations. As of date of this
prospectus, the exchange rate of the Forint is based on a ratio consisting of
70% European Currency Union ("ECU") and 30% United States Dollars. The
Hungarian Forint has been devalued against the U.S. Dollar in 1992, 1993,
1994, and 1995 by 5.4%, 14.2%, 15.9% and 20.7%, respectively. In March 1995,
an immediate 9.0% devaluation of the Hungarian Forint was announced together
with a new policy of daily or "crawling peg" devaluation. This involved daily
devaluations amounting to approximately 1.9% monthly in the second quarter of
1995 and 1.3% monthly during the second half of 1995, and 1.2% for the first
half of 1966. The amount of monthly devaluation is presently expected to be
decrease further, subject to Hungary's economic and financial
28
<PAGE>
condition. The exchange rate for the Hungarian Forint, as set by the National
Bank of Hungary, declined from approximately 100.70 Forints per U.S. Dollar at
December 31, 1993 to 158.35 Forints per U.S. Dollar at September 30, 1996.
Inflation
The Hungarian economy is characterized by high inflation as measured by the
consumer price index (23 percent in 1993, 19 percent in 1994, 30% in 1995 and
9% for the first three months of 1996) and slow or negative growth in gross
domestic product. Prices have been rising rapidly in recent years mainly
because of reduction or removal of subsidies and price controls, not because
of expansionist monetary policies. The Company believes that, as the removal
of price controls and subsidy programs is completed, the inflation rate may
decline in the future. If the inflation rate exceeds the rate of increase in
advertising rates, the Company's profits could be adversely affected.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter E. Klenner........ 37 President, Chief Executive Officer, and Director
Imre M. Kovats.......... 40 Executive Vice President and Director
Frank R. Cohen.......... 75 Secretary and Treasurer, Director
Justin Bodle............ 35 Director
James H. Season......... 52 Chief Financial Officer
</TABLE>
Peter E. Klenner, a German national, has served as President, Chief
Financial Officer and a director of the Company since its inception in 1994.
Mr. Klenner has also served as President, Chief Executive Officer and a
director of Hungarian Teleconstruct Corp. ("Teleconstruct"), a publicly traded
construction corporation from 1993 to October 1996 when he resigned as an
officer and director to devote his full time to broadcasting. In February
1992, Mr. Klenner founded Hungarian Telephone and Cable Corp. ("HTCC"), an
owner of local telephone exchanges, and served as President, Chief Executive
Officer, and Chief Financial Officer from February 1992 until May 1995, when
he resigned in order to devote his time to the Broadcasting Company. From June
1991 to May 1992 he served as Chairman of the Board of Montavid Engineering
AG, a Budapest based building and engineering firm. Mr. Klenner attended the
University of Munich. Mr. Klenner devotes 90% of his time to the affairs of
the Company, with the balance of his time devoted to private investment.
Imre M. Kovats, of Austro-Hungarian nationality, has been Executive Vice
President of the Company since 1995 and a director since August 1995. In 1990,
he founded the Saatchi & Saatchi Group Hungary and was Group Chairman until
1994. The Saatchi & Saatchi Group Hungary engaged in its business of buying
time from broadcasting companies for their clients and in producing
commercials for their clients for use in broadcasting stations. Mr. Kovats
graduated from the University of Translators and Interpreters at Vienna and
attended the University of Law of Vienna. Mr. Kovats devotes his full time to
the affairs of the Company.
Frank R. Cohen has served as Secretary, Treasurer, and director since the
Company's inception in 1994. He has been practicing law in the City of New
York since 1946. Since 1985 he has been a member of the law firm of Cohen &
Cohen, counsel to the Company. He also serves as Secretary-Treasurer and a
director of Teleconstruct. Mr. Cohen is a graduate of Columbia University Law
School. Mr. Cohen devotes such time to the affairs of the Company as he deems
necessary to perform his duties.
Justin Bodle, has been a director since June 1996. Since 1992, he has been
managing director of Power Television Limited, his own company, specializing
in distributing and licensing television programs. Power TV is the largest
syndication company serving Central Europe. From 1989 to 1992, he was Managing
Director and Board Member of Carat Entertainment, the largest media buying
company in Europe. Prior to 1989, he was Sales Director for all of Jim Henson
international productions. Mr. Bodle is a graduate of Eton and Sandhurst. Mr.
Bodle devotes such time to the affairs of the Company as he deems necessary to
perform his duties.
James H. Season was appointed Chief Financial Officer in August 1996. Mr.
Season was managing director with RHL Management Group, Inc., since 1990,
where he has been involved in financial consulting, crisis management,
investment banking, and merger and acquisition work. From 1986 to 1990, Mr.
Season was a Group Vice President and Chief Investment Officer of Golodetz
Trading Corporation, an international trading firm. Prior to 1986, Mr. Season
was a Managing Director of Chase Manhattan Bank, N.A. He also serves as a
director of Hungarian Telephone and Cable Corp. Mr. Season holds a J.D. degree
from the University of Virginia and an M.B.A. from the University of Michigan.
Mr. Season devotes his full time to the affairs of the Company.
30
<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. Officers do not receive any compensation for serving as
directors.
REMUNERATION
Prior to January 1996, no officer or director received any compensation from
the Company, and no officer received compensation of $100,000 or more during
the last fiscal year.
The following table sets forth summary concerning compensation earned by or
paid to the President of the Company for the fiscal years ending June 30, 1996
and 1995:
SUMMARY
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
LONG TERM
NAME AND COMPENSATION AWARDS
PRINCIPAL POSITION YEAR SALARY BONUS SECURITIES UNDERLYING OPTIONS
------------------ ---- ------ ----- -----------------------------
<S> <C> <C> <C> <C>
Peter E. Klenner
President 1996 $60,000 -0- 50,000
1995 -0- -0- -0-
</TABLE>
In July 1995, the Company entered into a five year employment agreement with
Peter E. Klenner effective January 1, 1996 at a monthly salary of $10,000. He
is entitled to receive reimbursement of ordinary and necessary business
expenses. In July 1995, the Company also entered into a two year employment
agreement with Imre M. Kovats effective January 1, 1996 at a monthly salary of
$10,000. He also is entitled to receive reimbursement of ordinary and
necessary business expenses.
In July 1996, the Company retained Justin Bodle as a consultant to supervise
programming and station management for the Company at a fee of 1,000 shares of
Common Stock per month for a two year period beginning in such month. Mr.
Bodle also received an option to purchase 25,000 shares of the Company's
Common Stock at $10 per share, exercisable at any time until September 16,
2001 subject to the Company's operations reflecting a profit for at least one
quarter during the period ending June 30, 1997, and an additional option for
25,000 shares so exercisable, subject to the Company's operations reflecting a
profit for an additional quarterly period thereafter and prior to January 1,
1998 after the second profitable quarter before December 31, 1997.
In August 1996, the Company retained James H. Season as its Chief Financial
Officer at a fee of $6,500 per month through December 1996 and thereafter at a
fee of $8,000 per month on a month to month basis plus living expenses.
LIMITATION OF LIABILITY FOR DIRECTORS
The Company's Certificate of Incorporation provides that its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders as a director except in the case
of (i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) payments of
dividends or approvals of stock repurchases or redemptions that are unlawful
under Delaware law, or (iv) any transactions from which the directors derived
an improper personal benefit. Currently under Delaware law, such provisions do
not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of relief will remain available
under Delaware law. This provision does not affect a director's
responsibilities under federal securities laws. Pursuant to the Company's
Certificate of Incorporation, current and former directors and officers are
indemnified to the maximum extent permitted, from time to time, by the
Delaware General Corporation Law.
In addition, the By-laws of the Company provide that the Company shall
indemnify any and all of its Directors and Officers or former Directors and
Officers or any person who may have served at its request as a
31
<PAGE>
Director or Officer of another Corporation in which it owns shares of capital
stock or of which it is a creditor against expenses actually and necessarily
incurred by them in connection with the defense of any action, suit or
proceeding in which they, or any of them, are made parties, or a party, by
reason of being or having been Directors or a Director or Officer of the
Company, or such other corporation, except, in relation to matters as to which
any such Director or Officer or person shall be adjudged in such action, suit
or proceeding to be liable for negligence or misconduct, in the performance of
duty.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and persons controlling the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable.
STOCK OPTION PLAN
In 1994 the Company adopted a Stock Option Plan (the "Plan"). An aggregate
of 350,000 shares of Common Stock are authorized for issuance under the Plan.
The Plan provides that incentive and non-qualified options may be granted to
officers, employees, directors and consultants to the Company for the purpose
of providing an incentive to those persons to work for the Company. The Plan
will be administered by a Committee of the Board of Directors. The Committee
determines, among other things, the persons to whom stock options are granted,
the number of shares subject to each option, the date or dates upon which each
option may be exercised and the exercise price per share.
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options terminate upon the optionee's
termination of employment or consulting arrangement with the Company, except
that under certain circumstances an optionee may exercise an option within the
three-month period after such termination of employment. An optionee may not
transfer any options except that an option may be exercised by the personal
representative of a deceased optionee within the three-month period following
the optionee's death. Incentive options granted to any employee who owns more
than 10% of the Company's outstanding Common Stock immediately before the
grant must have an exercise price of not less than 110% of the fair market
value of all underlying stock on the date of the grant and the exercise term
may not exceed five years. The aggregate fair market value of Common Stock
(determined at the date of grant) for which any employee may exercise
incentive options in any calendar year may not exceed $100,000. In addition,
the Company will not grant a non-qualified option with an exercise price less
than 85% of the fair market value of the underlying Common Stock on the date
of the grant. Options to purchase an aggregate of 335,000 shares of Common
Stock have been granted under the Plan including options to purchase 145,000,
30,000, 40,000 and 10,000 shares granted to Messrs. Klenner, Kovats, Bodle and
Cohen, respectively. The options granted to Messrs. Klenner and Cohen cannot
be exercised until December 20, 1996. The other options are exercisable
currently.
The Company also granted an option to Mr. Robert Genova, former Chairman of
the Board, for 40,000 shares of Common Stock, which option expired upon his
leaving the Company.
As of the date of this prospectus, approximately 315,000 options are
outstanding under the plan.
The following table sets forth information regarding options granted to the
President of the Company during the fiscal year ended June 30, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR PRICE PER SHARE DATE
---- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Peter E.
Klenner December 20,
President 50,000 50% $5.00 2000
</TABLE>
32
<PAGE>
The following table sets forth information regarding exercised options and
the value of unexercised options held by the President of the Company as of
June 30, 1996:
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS
SHARES ACQUIRED YEAR-END AT FISCAL YEAR-
NAME ON EXERCISE UNEXERCISABLE(1) END UNEXERCISABLE
---- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Peter E. Klenner -0- -0- $162,500
</TABLE>
- --------
(1)Not exercisable until December 20, 1996
The Company has no pension or profit sharing plan or other contingent forms
of remuneration. The Company has not obtained and does not intend to obtain
any key-man life insurance covering the life of Mr. Klenner or any of its
other officers.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of September 30, 1996, and as adjusted to
reflect the sale of the Units offered hereby (assuming (1) no exercise of the
Underwriter's over-allotment option; and (2) the Preferred Shares included in
the Units had been immediately and fully converted as of the date of this
offering) by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock; (ii) each director of the Company;
and (iii) all directors and officers as a group. Except as otherwise indicated
below, each of the entities or persons named in the table has sole voting and
investment powers with respect to all shares of Common Stock beneficially
owned by it or him as set forth opposite its or his name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
NAME AND ADDRESS PRIOR TO OFFERING AFTER OFFERING
- ---------------- ----------------------- ----------------------
NUMBER PERCENT NUMBER PERCENT
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Peter E. Klenner(1)........... 535,000 16.55% 535,000 13.43%
Szamado u. 19
Budapest, Hungary
Hungarian Teleconstruct
Corp......................... 250,000 7.75% 250,000 6.28%
Szamado u. 19
Budapest, Hungary
Frank R. Cohen(1)............. 40,000 1.24% 40,000 1.02%
445 Park Avenue
New York, NY 10022
Imre Kovats................... 35,000 1.07% 35,000 0.84%
Szamado u. 19
Budapest, Hungary
Justin Bodle.................. 40,000 1.24% 40,000 1.02%
Szamado u. 19
Budapest, Hungary
All officers and directors as
a group (5 persons).......... 650,000 20.10% 650,000 16.31%
</TABLE>
- --------
(1) Messrs. Klenner and Cohen may be deemed to be the "promoters" or "parents"
of the Company, as those terms are defined in the rules and regulations as
adopted under the Securities Act of 1933, as amended.
33
<PAGE>
CERTAIN TRANSACTIONS
On September 14, 1994, the Company sold 480,000 shares to Peter E. Klenner,
president of the Company for $4,800 ($.01 per share); 320,000 shares to Robert
Genova, formerly Chairman of the Board for $3,200 ($.01 per share); and 50,000
shares to Frank R. Cohen, Secretary, Treasurer, Director and Counsel to the
Company for $500 ($.01 per share) for an aggregate of $8,500.
In December 1994 and March 1995, the Company borrowed $800,000 from Hungarian
Teleconstruct Corp. ("HTEL"), at 6% per annum interest. Fifty percent of the
loan was repaid in January 1996. As an additional consideration, the Company
(1) issued 100,000 shares of its Common Stock to HTEL; (ii) granted HTEL an
option to purchase 150,000 additional shares of Common Stock at $3 per share
from the Company exercisable until April 30, 1995. HTEL exercised its option to
purchase 150,000 additional shares in March 1995. Messrs. Klenner and Cohen,
officers and directors of the Company, own approximately 17.2% and 2.3%,
respectively, of the outstanding shares of the Common Stock (including shares
subject to exercisable options) of HTEL.
In connection with the July 1995 private placement in which the Company sold
182,500 shares at $3 per share, Peter E. Klenner purchased 30,000 shares on the
same terms as the other investors.
In December 1995, Messrs. Klenner, Genova and Cohen contributed 100,000
shares, 100,000 shares, and 20,000 shares, respectively to the Company without
cost to the Company for cancellation as a condition to the Underwriter agreeing
to underwrite the offering.
The Company granted options under its Stock Option Plan to Messrs. Klenner,
Genova and Cohen for 50,000 shares, 40,000 shares and 10,000 shares,
respectively as of December 20, 1996, exercisable at $5.00 per share until
December 20, 2000. Mr. Genova's options lapsed after he resigned from the
Company.
In September 1996, the Company sold 100,000 shares of Preferred Stock for
$450,000 in a private offering. (See "Selling Securityholders."). Subsequently,
the Company agreed to issue (for no additional consideration) 100,000 Common
Stock Purchase Warrants to the purchasers in such offering on the basis of one
warrant for each share of Preferred Stock purchased in order to permit the
purchasers to own and offer Units identical to those being offered by the
Company in the subject offering.
In connection with such private offering, the Company paid to J.W. Barclay &
Co., Inc., the Underwriter of the subject offering, a private placement fee of
$45,000.
The Company does not intend in the future to have any transactions with
affiliates. The Company has no arrangement, understanding or intention to enter
into any transaction or participate in any business opportunity with any
Officer, Director or principal stockholder or with any firm or business
organization with which they are affiliated, whether by reason of stock
ownership, position as Officer or Director, or otherwise, that poses a conflict
of interest. However, should the company enter into any affiliated transaction
with any Officer, Director or principal stockholder of the company, such
transaction will be approved by a resolution of at least a majority of the
independent members of the Board of Directors of the company. Any transaction
with an affiliate will be on terms no less favorable to the Company than could
be obtained from an independent third party. Failure of the Company and its
management to conduct the Company's business in its best interests may result
in liability to the Company and its management.
The Company licensed for $750,000 the exclusive rights to programming for
MSAT for the period April through December 1996 from Power Telecom Limited
("Powtel"), a company managed by Justin Bodle, one of the Company's directors.
The programming included rights to TV series "Beauty and the Beast," "Sirens,"
"Pacific Blue," "Benny Hill Shows" and others. In July 1996, the Company agreed
to license for $1,183,000 the exclusive rights to programming for the period
October 1, 1996 through December 31, 1997 from Power TV. The programming
included rights to such series as "LA Law," "Murder One," "Cops" and
"Homicide." The Company believes the terms of the transaction were no less
favorable to the Company than could be obtained from an independent third
party.
34
<PAGE>
The Company granted options for 30,000 shares to Imre Kovats under its Stock
Option Plan, which is exercisable at $6.00 per share until September 16, 2001.
In October 1996, in order to provide working capital to the Company pending
the completion of this offering, Mr. Klenner loaned the Company $200,000 at
bank interest rates and Mr. Bodle deferred payments for the programming until
this offering is closed. In consideration of the foregoing, Messrs. Klenner and
Bodle were granted 95,000 and 40,000 options respectively from the Company's
1994 Stock Option Plan exercisable at $5 per share which was the closing price
of the shares of Common Stock on the date of grant.
See "Management--Remuneration" for details of employment agreements with
Peter E. Klenner and Imre M. Kovats, and the consulting agreement with Justin
Bodle.
SELLING SECURITYHOLDERS
An aggregate of 100,000 Units are being registered for possible sale for the
account of Selling Securityholders. The Company will not realize any proceeds
from the sale of Units by the Selling Securityholders except for proceeds, if
any, that may be realized in the event of the exercise of the Warrants included
in the Units offered by them. All expenses of the registration of Units on
behalf of Selling Securityholders are being borne by the Company. The shares
included in such Units were acquired by the Selling Securityholders in a
private offering by the Company in September 1996. (See "Certain
Transactions").
The name of each Selling Securityholder and the number of Units currently
owned, the number which may be offered and the number to be owned upon
completion of the offering if all Units offered are sold, are as follows:
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
AMOUNT OF AMOUNT OF UNITS TO BE UNITS TO BE
NAME UNITS OWNED UNITS OFFERED OWNED OWNED
---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Dean Rivera........... 10,000 10,000 0 0
Patricia Weremeychik.. 10,000 10,000 0 0
Mark Lyons............ 10,000 10,000 0 0
Joan Downey........... 20,000 20,000 0 0
Louis Spadafora....... 10,000 10,000 0 0
Matthew Langdon....... 20,000 20,000 0 0
John Delgaizo......... 20,000 20,000 0 0
</TABLE>
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 15,000,000 shares of
Common Stock, par value $.001 per share and 5,000,000 shares of Preferred
Stock, par value $.001 per share, which may be issued in one or more series. As
of the date of this prospectus, the Company had 2,583,600 of Common Stock
outstanding and 100,000 Preferred Shares outstanding. The following is a
summary description of the Units, Common Stock, Common Stock Purchase Warrants
and Preferred Shares. All securities are qualified in their entirety by
reference to the Company's Certificate of Incorporation, as amended.
UNITS
The Company is offering 500,000 Units hereby, 400,000 on behalf of the
Company and 100,000 on behalf of certain Selling Securityholders. Each Unit
offered hereby consists of one share of Series A Convertible Cumulative
Redeemable Preferred Stock and one Common Stock Purchase Warrant. The
components of the Units will not be separately transferable until nine months
from the date of this prospectus, or such earlier date as may be determined by
the Underwriter or by the Company calling the Preferred Shares for redemption
or redeeming the Warrants.
35
<PAGE>
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by Shareholders. The holders of shares of Common Stock are
entitled to dividends when and as declared by the Board of Directors from funds
legally available therefor, and, upon liquidation, are entitled to share pro
rata in any distribution to stockholders after payments to creditors and after
paying or providing for any liquidation preferences to the Preferred Stock.
There are no conversion or redemption privileges, nor sinking fund provisions
with respect to the Common Stock, and stockholders have no preemptive rights to
acquire shares of Common Stock issued by the Company in the future. All of the
outstanding shares of Common Stock are validly issued, fully paid and non-
assessable.
The Common Stock is traded on NASDAQ SmallCap Market under the symbol HBCO.
PREFERRED STOCK
The Preferred Stock may be issued in one or more series, to be determined and
to bear such title or designation as may be fixed by resolution of the Board of
Directors prior to the issuance of any shares thereof. Each series of Preferred
Stock will have such voting powers, if any, preferences, and other rights as
determined by the Board of Directors, with such qualifications, limitations or
restrictions as may be stated in the resolutions of the Board of Directors
adopted prior to the issuance of any shares of such series of Preferred Stock.
The Preferred Shares being offered hereby are the first series of Preferred
Stock designated by the Board of Directors. The Board has no present plans to
issue any other series of Preferred Stock. However, purchasers of the Preferred
Shares offered hereby should be aware that the holders of any series of the
Preferred Stock which may be issued in the future could have voting rights,
rights to receive dividends or rights to distribution in liquidation superior
to those of holders of the Preferred Shares or Common Stock, thereby diluting
or negating the voting rights, dividend rights or liquidation rights of the
holders of the Preferred Shares or Common Stock; provided, however, that
without the approval of the holders of a majority of the Preferred Shares, no
other shares of Preferred Stock shall be given voting rights greater than the
higher of one vote per share or one vote for each share of Common Stock into
which it is convertible, if any, nor rank superior to the Preferred Shares with
respect to the receipt of the respective dividends or liquidation preferences,
if any, to which such shares are entitled.
Because the terms of each series of Preferred Stock may be fixed by the
Company's Board of Directors without shareholder action, the Preferred Stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the
market price of the Preferred Shares, the publicly held Warrants, and the
Common Stock. Management of the Company is not aware of any such threatened
transaction to obtain control of the Company.
SERIES A CONVERTIBLE CUMULATIVE PREFERRED STOCK
The Board of Directors has filed a Certificate of Designation designating
1,000,000 shares of Preferred Stock as "Series A Convertible Cumulative
Preferred Stock" with the following rights, preferences and privileges:
Conversion. Unless previously redeemed by the Company, the holders of the
Preferred Shares are entitled beginning November 1, 1997 or such earlier date
as designated by the Underwriter, to convert each Preferred Share into one and
one-half (1 1/2) shares of Common Stock subject to adjustment described below.
No fractional shares of Common Stock will be issued but in lieu thereof the
Company shall pay an equivalent amount in cash. No adjustment for dividends
will be made on conversion of any Preferred Shares. Accordingly, accrued
dividends will not be paid on a Preferred Share if it is converted between a
dividend payment date and the next record date for dividend payments. If any
holder surrenders a Preferred Share for conversion after the close of business
on the record date for the payment of a dividend and prior to the opening of
business on the next dividend payment date, then, notwithstanding such
conversion, the dividend payable on such dividend date will be paid to the
registered holder of such share on such record date. In such event, such share,
when surrendered
36
<PAGE>
for conversion, must be accompanied by payment of an amount equal to the
dividend payable on such dividend payment date on the share so converted. In
the case of Preferred Shares called for redemption, conversion rights will
expire at the close of business on the redemption date.
The conversion rate is subject to adjustment upon the occurrence of certain
events, including the issuance of stock of the Company as a dividend or
distribution on the Common Stock but not as dividends on the Preferred Shares;
sub-divisions and combinations of Common Stock; certain reclassifications,
consolidations, mergers and sales of property of the Company; the issuance to
all holders of Common Stock of certain rights or warrants; and the distribution
to all holders of Common Stock of evidence of indebtedness of the Company or of
assets (excluding cash dividends or distributions from retained earnings).
Except as stated above, the Conversion Price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock, or carrying the right to purchase any of the foregoing, in
exchange for cash, property or services.
Dividends. Each Preferred Share is entitled to cumulative annual dividends of
$1.20 payable on September 15 of each year commencing September 15, 1997.
Unpaid dividends will accumulate and be payable prior to the payment of
dividends on the Common Stock. The Company may, at its option, pay dividends in
shares of Common Stock, in lieu of cash. Shares used for such purpose will be
valued at the average closing bid price during the ten trading days ending on
the tenth day before the dividend payment date, subject to certain conditions.
For the foreseeable future, the Company expects to make dividend payments on
the Preferred Shares in shares of Common Stock.
Redemption. The Preferred Shares are redeemable after November 1, 1997 or
such earlier date as may be designated by the Underwriter at the option of the
Company, on not less than 30 days' written notice to registered holders at the
redemption price of $12 per share plus accumulated dividends, provided the
Company may not redeem the Preferred Shares unless the closing price of the
Common Stock for 20 of the 30 days prior to the date of the redemption notice
is more than $10.
Voting Rights. Preferred Shares are entitled to one vote per share voting
together with the Common Stock as one class, except as otherwise provided by
the Delaware General Corporation Law provided, however, that the Company shall
not (i) issue any new series of Preferred Stock with rights superior to the
Preferred Shares on liquidation or to dividends or having class voting rights,
other than as provided by the Delaware General Corporation Law, or a number of
votes per share greater than the higher of one vote per share or one vote for
each share of Common Stock into which each share of such series may be
converted, or (ii) issue shares of any new series of Preferred Stock ranking
equal to the Preferred Shares whenever the Company is in arrears in the payment
of dividends on the Preferred Shares without, in either case, the affirmative
vote of a majority of the outstanding Preferred Shares.
Preference on Liquidation. Preferred Shares will be entitled to a preference
on liquidation equal to $10 per share, plus accumulated unpaid dividends.
No Sinking Fund. The Company is not required to provide for the retirement or
redemption of the Preferred Shares through the operation of a sinking fund.
COMMON STOCK PURCHASE WARRANTS
The Company has outstanding 1,703,900 Common Stock Purchase Warrants (the
"Warrants"). Each Warrant entitles the holder to purchase until December 20,
2000 one share of Common Stock at an exercise price of $6.00. The Warrants are
subject to redemption by the Company at any time after April 20, 1997 on 30
days notice at $.25 per Warrant provided that the closing high bid price of the
Common Stock on the NASDAQ SmallCap Market, or the last sale price per share of
the Common Stock if listed on the NASDAQ National Market or on a national
exchange is at least $8.50 per share for a period of 20 of the immediate prior
30 trading days ending within 15 days of the date on which the notice of
redemption is given. Holders of Warrants shall have exercise rights until the
close of the business day preceding the date fixed for redemption.
37
<PAGE>
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends and distributions, stock splits, recapitalizations, mergers and
consolidations. No adjustment exists for the issuance of shares of Common
Stock, among other circumstances, upon exercise of any of the Warrants or
options granted under any stock option plan or the Underwriter's Warrant. The
Company is not required to issue fractional shares. The holder of a Warrant
does not possess any rights as a stockholder of the Company unless he exercises
his Warrant and obtains Common Stock. The Warrants have been issued in
registered form under a Warrant Agreement dated as of December 20, 1995 and
amended by agreement dated as of December , 1996, between the Company and
American Stock Transfer & Trust Company as Warrant Agent. The shares of Common
Stock issued upon exercise of a Warrant, will be fully paid and non-assessable.
A Warrant may be exercised upon the surrender of a duly completed warrant
certificate on or prior to its expiration, accompanied by cash or certified
bank check for the exercise price.
The Warrants are traded on the NASDAQ SmallCap Market under the symbol HBCOW.
UNDERWRITER'S WARRANTS
In December 1995, the Company sold to J.W. Barclay & Co., Inc. (the
underwriter in the Public Offering in December 1995 and underwriter in this
offering) at a price of $.001 per Warrant 100,000 warrants (the "Underwriter's
Stock Warrants") to purchase a like number of shares of Common Stock of the
Company and 140,000 warrants (the "Underwriter's Warrants") to purchase a like
number of Common Stock Purchase Warrants. The Underwriter's Stock Warrants are
exercisable at a price of $8.25 per share and the Underwriter's Warrants are
exercisable at a price of $0.225 per Common Stock Purchase Warrant for a period
ending December 20, 2000. In connection with this offering, the Company has
agreed to sell to the Underwriter, for a nominal consideration, 50,000 Unit
Warrants to purchase a like number of Units at an exercise price of $ per
Unit. Any profit realized upon any resale of the Underwriter's Unit Warrants or
securities underlying same may be deemed to be additional Underwriter's
compensation. The Company has agreed to register (or file a post-effective
amendment with respect to any registration statement registering) the
Underwriter's Unit Warrants and their underlying securities under the
Securities Act at its expense on one occasion, and at the expense of the
holders thereof on another occasion, upon the request of a majority of the
holders thereof. The Company has also agreed to certain "piggy-back"
registration rights for the holders of the Underwriter's Unit Warrants and
their underlying securities.
BRIDGE FINANCINGS
From November 1994 to March 1995, the Company sold 53 Units (including 20
Units sold to Hungarian Teleconstruct), each Unit consisting of one $40,000
principal amount of 6% Promissory Notes and 5,000 shares of Common Stock at a
price of $40,000 per Unit (the "Private Placement") for an aggregate of
$2,120,000. The net proceeds of such Private Placement was used for acquiring
and financing the Company's Hungarian subsidiaries and for operational funds
for the Company. A portion of the net proceeds from the December 1995 Offering
was used to repay one-half of the 6% Promissory Notes.
In September 1996, the Company sold 100,000 Units at $4.50 per Unit realizing
proceeds of $354,500 net of issuance costs, which proceeds were and are being
used by the Company for working capital purposes. The 100,000 Units are being
registered for resale in this offering. (See, "Selling Securityholders")
CERTAIN TAX CONSIDERATIONS
The following discussion sets forth what the Company believes are the
material federal income tax consequences, under current law, of a purchase of
the Units which include Preferred Shares and Common Stock Purchase Warrants.
However, the Company has not requested a ruling from the Internal Revenue
Service or a formal tax opinion from its counsel. Prospective purchasers of the
Units should consult their own tax advisors with respect to the consequences to
them of the purchase and holding of such securities including the Preferred
Shares and the applicability and effect of federal, state and other tax laws.
38
<PAGE>
The sale of a Unit or any of its components, will result in the recognition
of gain or loss to the holder in an amount equal to the difference between the
amount realized and his adjusted basis therein. Such a sale will result in
capital gain or loss, provided the security is a capital asset in the hands of
the holder. Such capital gain or capital loss will be long-term gain or loss if
the Unit or component being sold has been held for more than one year at the
time of such sale of exchange. Shares of Common Stock received on conversion of
Preferred Shares will have the same tax basis and holding period as the
Preferred Shares converted into such shares and will be accorded the same tax
treatment on sale as the Preferred Shares.
Dividends paid on the Preferred Shares will be includable in income, for
federal income tax purposes, by the holders thereof. If the dividend is paid in
Common Stock (rather than in cash) the amount of dividend so includible will be
equal to the fair market value of the Common Stock on the date of payment
(which is expected to be equal to the amount of cash that otherwise would have
been paid as a dividend), and the amount so includible will become the holder's
tax basis in the Common Stock. The holding period of any Common Stock paid as a
dividend will commence on the date of payment.
A holder of Units, Preferred Shares or Common Stock may be subject to backup
withholding at the rate of 20% with respect to interest or dividends paid on
the Preferred Shares or the Common Stock, respectively and with respect to the
gross proceeds of amounts paid to redeem the Preferred Shares if such proceeds
are received by the holder's broker, unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a current taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
The Company will report to the holders of the Units, Preferred Shares and the
Common Stock and to the Internal Revenue Service the amount of any "reportable
payments" for each calendar year and the amount of tax withheld, if any, with
respect to payments on the securities.
The tax consequences referred to in the preceding paragraphs are based on the
current provisions of the Internal Revenue Code of 1986, as amended, and the
currently applicable regulations, in final and proposed form, promulgated
thereunder. In addition to the foregoing, the Internal Revenue Code of 1986, as
amended, provides that (i) for taxable years commencing in 1988 for
individuals, and (ii) for taxable years commencing on or after July 1, 1987 for
corporations, gain from the sale of long term capital assets will be taxed at
the same rates as ordinary income. There can be no assurance, however, that any
such provisions may not change in the future, either retroactively or
prospectively, resulting in changes in such tax consequences.
There may, in addition, be other federal, state, local or foreign tax
considerations applicable to the circumstances of a prospective investor.
BECAUSE THE MATTERS DISCUSSED ABOVE ARE NOT, AS A MATTER OF FEDERAL INCOME
TAX LAW, FREE FROM DOUBT, AND APPLICABLE PROPOSED REGULATIONS OF THE INTERNAL
REVENUE SERVICE ARE SUBJECT TO VARYING INTERPRETATIONS, PURCHASERS OF THE
SECURITIES OFFERED HEREBY ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THIS OFFERING, AS WELL AS WITH RESPECT TO OTHER FEDERAL, STATE AND
LOCAL TAX CONSIDERATIONS WHICH MAY BE RELEVANT TO THEIR SITUATIONS.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the persons who
purchased 265,000 shares of its Common Stock in the November 1995 Private
Placement. These investors have the right to include their shares in any
registration statement filed by the Company ("Piggy Back Registration Rights")
unless, in the reasonable opinion of the managing underwriter of the offering
so registered, such registration would adversely affect the plan of
distribution contemplated.
39
<PAGE>
TRANSFER AGENT
The transfer agent for the Common Stock and for the Preferred Shares is
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm and intends to furnish other reports as it may determine or may
be required by law.
APPLICATION FOR LISTING
It is anticipated that after this offering, the Units will be quoted on
NASDAQ SmallCap under the symbols "HBCOU." The Common Stock and the Warrants
are currently being quoted on the NASDAQ SmallCap Market under the symbols
"HBCO" and "HBCOW." No assurance can be given that a trading market for the
Company's Units will develop or be sustained.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 2,583,600 shares of Common Stock outstanding. Of
these shares, 1,150,000 are freely tradeable and 1,427,500 are restricted
securities as that term is defined under Rule 144 under the Securities Act of
1933 (the "Act") and may not be resold except in compliance with the
registration requirements of the Securities Act, or pursuant to Rule 144 or
pursuant to some other exemption from registration. See "Certain Transactions."
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated under the terms of Rule
144), who has beneficially owned restricted shares of Common Stock for at least
two years is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of
outstanding shares of the same class, or the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the sale. A person
who has not been an affiliate of the Company for at least the three months
immediately preceding the sale and who has beneficially owned shares of Common
Stock for at least three years is entitled to sell such shares under Rule 144
without regard to the volume limitations described above. The Private Placement
stockholders who acquired 165,000 shares from November 1994 through March 1995,
cannot sell or otherwise dispose of any of these shares under Rule 144 until
November 1996 through March 1997. The Private Placement stockholders who
acquired 182,500 shares in July 1995, cannot sell or otherwise dispose of any
of these shares under Rule 144 until July 1997 and the Private Placement
stockholders who acquired 200,000 shares in August 1995, cannot sell or
otherwise dispose of any of their shares under Rule 144 until August 1997.
Current stockholders of the Company owning 880,000 shares, including all
current and former directors and officers of the Company and affiliates, have
agreed not to sell or otherwise dispose of any of their shares of Common Stock
prior to December 20, 1997 without the prior written consent of the
Underwriter.
The Company is unable to predict the effect that sales of the Company's
securities made under Rule 144, pursuant to future registration statements or
otherwise, may have on the then prevailing market price of securities of the
Company, although it is likely that sales of a large number of shares would
depress such market prices.
The Company currently has outstanding 100,000 Units, all of which are being
sold in this offering.
40
<PAGE>
UNDERWRITING
J. W. Barclay & Co., Inc., the Underwriter, has agreed, subject to the terms
and conditions of the underwriting agreement (the "Underwriting Agreement"), to
purchase from the Company and the Selling Securityholders, and the Company and
the Selling Securityholders have agreed to sell to the Underwriter, on a firm
commitment basis, 500,000 Units, (each Unit consisting of one Preferred Share
and one Common Stock Purchase Warrant.
The Underwriter is committed to purchase all Units offered hereby, if any of
such Units are purchased.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the offering prices set forth on the cover page of this
Prospectus and that it may allow to certain dealers who are members in good
standing of the National Association of Securities Dealers, Inc. ("NASD")
concessions, not in excess of $ per Unit. The Underwriter may allow, and such
dealers may reallow, a concession not in excess of $ per Unit to certain
other dealers. After the Initial Public Offering, the public offering price,
concession and reallowance to dealers may be changed by the Underwriter.
The Company has granted the Underwriter an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 60,000 Units from it at the
public offering prices less the underwriting discounts set forth on the cover
page of this Prospectus. The Underwriter may exercise this option, solely to
cover over-allotments in the sale of the Units offered hereby.
The Company and the Selling Securityholders have agreed to pay to the
Underwriter a non-accountable expense allowance equal to 3% of the gross
proceeds of the Units sold by the Company and the Selling Securityholders in
the offering.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain civil liabilities, including
liabilities under the Securities Act.
The Underwriter acted as a placement agent for the September 1996 Bridge
Financing for which it received selling commissions of $45,000 and a non-
accountable expense allowance of $13,500. See "Description of Securities--
Bridge Financings."
The Company has agreed to sell to the Underwriter or its designees, at a
price of $.001 per warrant, a total of 50,000 warrants (the "Underwriter's
Warrants") to purchase a like number of Units of the Company. The Underwriter's
Warrants will be exercisable at a price equal to 120% of the initial offering
price set forth on the cover page of this Prospectus for a period of five
years, and will not be transferable for one year from the date hereof except to
selected dealers and officers and partners of the Underwriter and selected
dealers. Any profit realized upon any resale of the Underwriter's Warrants or
upon any sale of the shares underlying same may be deemed to be additional
Underwriter's compensation. The Company has agreed to register (or file a post-
effective amendment with respect to any registration statement registering) the
Underwriter's Warrants and their underlying securities under the Act at its
expense on one occasion, and at the expense of the holders thereof on another
occasion, upon the request of a majority of the holders thereof. The Company
has also agreed to certain "piggy-back" registration rights for the holders of
the Underwriter's Warrants and their underlying securities.
The Underwriter has informed the Company that it does not expect sales of the
Securities to be made to any discretionary accounts.
41
<PAGE>
LEGAL MATTERS
The validity of the Units (including the Preferred Shares and the Common
Stock Purchase Warrants) offered hereby will be passed upon for the Company by
Cohen & Cohen, 445 Park Avenue, New York, New York 10022. (Cohen & Cohen will
rely upon Simon, Buros & Partners of Budapest, Hungary, special Hungarian
counsel for the Company, as to certain matters of Hungarian law). Frank R.
Cohen, a partner in Cohen & Cohen, owns 30,000 shares of the Common Stock and
holds options to purchase an additional 10,000 shares of Common Stock and is
Treasurer, Secretary and a director of the Company. Certain legal matters in
connection with this offering are being passed upon for the Underwriter by
Henry C. Malon, Esq., 1 Battery Park Plaza, New York, NY 10004.
EXPERTS
The consolidated balance sheet as of June 30, 1996 and the consolidated
statement of operations, stockholders' equity and cash flows for the year then
ended appearing in this Prospectus have been included herein in reliance on the
report, which includes an explanatory paragraph related to the Company's
further public offering, of Coopers & Lybrand, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The consolidated balance sheet as of June 30, 1995 and the consolidated
statement of operations, stockholders' equity and cash flows for the year then
ended appearing in this Registration Statement have been included herein in
reliance on the report of Todman & Co., CPAs, P.C., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The discussion contained in the Prospectus under the headings "Business," and
"Dividends" relating to Hungarian laws and conditions and the legal proceedings
involving the broadcast licenses have been reviewed by the law firm of Simon,
Buros & Partner, of Budapest, Hungary, Hungarian special counsel to the
Company.
CHANGE IN ACCOUNTANTS
On April 11, 1996, the Board of Directors of the Company selected Coopers &
Lybrand, as its new independent auditor. Todman & Co., CPAs, P.C. had served as
the Company's independent auditor until that time. The Company made the change
because Coopers & Lybrand has an auditing staff in the Republic of Hungary,
while Todman & Co., CPAs, P.C. does not. The Company believes that such a local
auditing presence in Hungary will serve the Company better during its
anticipated growth period. The Board of Directors approved the decision to
change public accountants based on the reasons stated above. The Board of
Directors did not dismiss Todman & Co., CPAs, P.C., nor did Todman & Co., CPAs,
P.C. resign or decline to serve if reappointed. None of Todman & Co., CPAs,
P.C. reports on the financial statements for any year contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principle. There were no disagreements
with Todman & Co., CPAs, P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure in
connection with the audits of the Company at any time.
42
<PAGE>
HUNGARIAN BROADCASTING CORP.
FINANCIAL STATEMENTS
INDEX
<TABLE>
<S> <C>
Report of Independent Accountants.................................. F-1
Consolidated balance sheets as of June 30, 1996, June 30, 1995, and
September 1996 (unaudited)........................................ F-2
Consolidated statements of operations for the year ended June 30,
1996, and the period September 14, 1994 (date of inception)
through June 30, 1995 and for the three months ended September 30,
1996 and September 1995 (unaudited)............................... F-3
Consolidated statements of stockholders' equity for the year ended
June 30, 1996, and the period September 14, 1994 (date of
inception) through June 30, 1995 and for the three months ended
September 30, 1996 and September 1995 (unaudited)................. F-4
Consolidated statements of cash flows for the year ended June 30,
1996, and the period September 14, 1994 (date of inception)
through June 30, 1995 and for the three months ended September 30,
1996 and September 1995 (unaudited)............................... F-5
Notes to consolidated financial statements......................... F-6 - F-17
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Hungarian Broadcasting Corp.
We have audited the consolidated balance sheet of Hungarian Broadcasting
Corp. and subsidiaries (the "Company") as of June 30, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. 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 audit. The financial statements of the
Company as of June 30, 1995, were audited by other auditors whose report dated
August 30, 1995 (and December 19, 1995, as to notes 5 and 12) included an
explanatory paragraph that described two restatements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hungarian
Broadcasting Corp., as of June 30, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles in the United States.
We draw to your attention, as described in Note 14, that the Company plans a
further public offering to finance its continued development and operations.
COOPERS & LYBRAND
Budapest, Hungary
September 19, 1996
F-1
<PAGE>
HUNGARIAN BROADCASTING CORP.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995, JUNE 30, 1996
AND SEPTEMBER 30, 1996 (UNAUDITED)
(EXPRESSED IN US$)
<TABLE>
<CAPTION>
JUNE 30
----------------------- SEPTEMBER 30
1995 1996 1996
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 3)..... 295,006 1,462,379 569,867
Accounts receivable, net of allowance
for doubtful accounts of $82,536 (June
30, 1995); $89,057 (June 30,1996)..... 87,598 191,715 409,075
VAT receivable (Note 4)................ 83,429 123,175 82,842
Deferred program costs, less
accumulated amortization of $250,000
(Note 5).............................. -- 500,000 250,000
Prepaid expenses and other current
assets................................ 5,000 42,383 75,907
---------- ----------- -----------
Total Current Assets................. 471,033 319,652 1,387,691
Investments............................ -- 653 632
Office and transportation equipment,
less accumulated depreciation of
$14,067 (1995: $7,310) (Note 6)....... 58,562 136,296 346,808
Broadcast license costs, less
accumulated amortization of $458,405
(1995: $35,453) (Note 7).............. 2,115,061 1,692,109 1,586,351
Other deferred financing and other
expenses, less accumulated
amortization of $98,460 (1995:
$46,655).............................. 146,079 103,341 65,396
---------- ----------- -----------
Total Assets......................... $2,790,735 $ 4,252,051 $ 3,386,878
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of notes payable (Note
8).................................... 959,156 975,412 996,559
Accounts payable....................... 264,112 479,047 438,018
Accrued expenses....................... 89,627 129,271 199,765
Due to related parties................. 495,995 454,720 404,784
Other.................................. 47,424 231,307 29,447
---------- ----------- -----------
Total Current Liabilities............ 1,856,314 2,269,757 2,068,573
---------- ----------- -----------
Long-term Liabilities
Notes payable, less current portion
(Note 8).............................. 890,839 -- --
Minority Interest........................ -- 40,326 34,462
---------- ----------- -----------
Total Liabilities.................... 2,747,153 2,310,083 2,103,035
---------- ----------- -----------
Commitments and Contingencies (Note 12);
(Notes 8 and 9: September 30, 1996)
Stockholders' Equity
Preferred stock, $.001 par value-shares
authorized 5,000,000 (June 30, 1996;
5,000,000); issued and outstanding
100,000 (June 30, 1996:0)............. -- -- 100
Common stock, $.001 par value--shares
authorized 15,000,000 (1995:
5,000,000); issued and outstanding
2,583,600 (1995: 1,265,000) (Note 9).. 1,265 2,583 2,585
Additional paid-in capital (Note 9).... 862,545 6,789,029 7,154,950
Accumulated deficit (Note 9)........... (830,358) (4,980,040) (6,076,567)
Currency translation adjustment (Note
9).................................... 10,130 130,396 202,775
---------- ----------- -----------
Total Stockholders' Equity (Note 9).. 43,582 1,941,968 1,283,843
---------- ----------- -----------
$2,790,735 $ 4,252,051 $ 3,386,878
========== =========== ===========
</TABLE>
The notes on pages 6 to 15 are an integral part of these financial statements.
F-2
<PAGE>
HUNGARIAN BROADCASTING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996, AND THE
PERIOD SEPTEMBER 14, 1994 (DATE OF INCEPTION)
THROUGH JUNE 30, 1995 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995 (UNAUDITED)
(EXPRESSED IN US$)
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------
1994/1995 1995/1996 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................... 72,043 672,108 207,837 353,315
Expenses
Operating costs and
expenses................ 185,469 2,038,828 420,596 611,355
Amortization of broadcast
license costs........... 35,453 423,052 96,292 105,763
Amortization of deferred
program costs........... -- 250,000 -- 250,000
Selling, general and
administrative
expenses................ 339,471 1,639,989 414,993 353,848
---------- ----------- ---------- -----------
560,393 4,351,869 931,881 1,320,966
---------- ----------- ---------- -----------
Operating loss........... (488,350) (3,679,761) (724,044) (967,651)
Interest and other income.. 2,327 49,671 8,766 25,951
Interest expense........... (74,310) (481,238) (131,152) (65,453)
Exchange rate loss......... -- (95,240)
---------- ----------- ---------- -----------
Net loss................... (560,333) (4,111,328) (846,430) (1,102,393)
Minority interest.......... -- (38,354) -- 5,864
---------- ----------- ---------- -----------
Net loss after minority
interest................ $ (560,333) $(4,149,682) $ (846,430) $(1,096,529)
========== =========== ========== ===========
Net loss per share......... $ (0.39) $ (2.01) $ (0.59) $ (0.42)
Weighted average number of
common shares
outstanding............... 1,427,500 2,067,008 1,427,500 2,583,933
</TABLE>
The notes on pages 6 to 15 are an integral part of these financial statements.
F-3
<PAGE>
HUNGARIAN BROADCASTING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE TWELVE MONTHS ENDED JUNE 30, 1996 AND
THE PERIOD SEPTEMBER 14, 1994 (DATE OF INCEPTION)
THROUGH JUNE 30, 1995 (EXPRESSED IN US$) AND FOR THE
THREE MONTHS ENDING SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CURRENCY
----------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
--------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PERIOD TO JUNE 30, 1995
Initial issuance of
common stock--
September, 1994........ 850,000 $ 850 $ 7,650 $ -- $ --
Sale of common stock to
private placement
investors--Nov. and
Dec. 1994.............. 265,000 265 405,045
Issuance of common
stock--March 1995...... 150,000 150 449,850
Net losses for period... (830,358)
Foreign currency
translation
adjustment............. 10,130
--------- ------ ----------- ----------- --------
BALANCE, JUNE 30, 1995.. 1,265,000 1,265 862,545 (830,358) 10,130
YEAR ENDED JUNE 30, 1996
Issuance of common
stock--July 1995....... 182,500 182 499,818
Issuance of common
stock--August 1995..... 200,000 200 549,612
Shares contributed by
officers for
cancellation in
December 1995.......... (220,000) (220) 220
Initial public offering
in December 1995....... 1,150,000 1,150 5,990,590
Public Offering Costs... (1,150,286)
Exercise of warrants
during year............ 6,100 6 36,530
Foreign currency
translation
adjustment............. 120,266
Net loss................ (4,149,682)
--------- ------ ----------- ----------- --------
BALANCE, JUNE 30, 1996.. 2,583,600 $2,583 $ 6,789,029 $(4,980,040) $130,396
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL CURRENCY
---------------- ----------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
--------- ------ --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
SEPTEMBER 30, 1996
BALANCE, JUNE 30, 1996.. 2,583,600 $2,583 $6,789,029 $(4,980,040) $130,396
Issuance of preferred
stock.................. 100,000 100 354,400
Issuance of common
stock--August 1996..... 1,000 1 4,999
Issuance of common
stock-- September
1996................... 1,000 1 4,999
Net loss for period..... (1,096,529)
Foreign currency
translation
adjustment............. 82,905
Balance, September 30,
1996................... 2,585,600 2,585 100,000 100 7,153,427 (6,076,569) 212,905
</TABLE>
The notes on pages 6 to 15 are an integral part of these financial statements.
F-4
<PAGE>
HUNGARIAN BROADCASTING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996, AND
THE PERIOD SEPTEMBER 14, 1994 (DATE OF INCEPTION) THROUGH JUNE 30, 1995
AND FOR THE THREE MONTHS ENDING SEPTEMBER 1996 AND SEPTEMBER 1995(UNAUDITED)
(EXPRESSED IN US$)
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1994/1995 1995/1996 1995 1996
---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net loss......................... (560,333) (4,149,682) (846,430) (1,096,529)
---------- ---------- -------- ----------
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of deferred
financing costs and
organization................ 213,650 51,805 91,560 20,294
Amortization of program costs.. -- 250,000 250,000
Amortization of broadcast
license costs............... 35,453 422,952 96,292 105,763
Depreciation of fixed
assets...................... 1,786 13,798 7,747 7,180
Currency translation
adjustment.................. -- 120,266 95,240
Changes in operating assets and
liabilities:
Increase in accounts
receivable.................. (87,598) (104,117) (775) (217,360)
Increase in VAT receivable... (83,429) (39,746) (61,100) 40,333
Increase in prepaid expenses
and other assets............ (5,000) (37,383) (12,024) (33,524)
Increase in accounts
payable..................... 264,112 214,935 (171,330) (41,029)
Increase in accrued
expenses.................... 89,627 39,644 16,373 70,494
Increase in other
liabilities................. 15,734 183,883 11,427 (201,860)
Net cash used in operating
activities...................... (115,998) (3,033,645) (868,260) (1,000,998)
---------- ---------- -------- ----------
Cash Flows from Investing
Activities
Payment for broadcast license
cost.......................... (2,146,744) -- -- --
Purchase of office and
transportation equipment net
of disposal................... (105,872) (91,532) -- (218,692)
Payment for organizational
costs......................... (40,165) -- -- --
Investments.................... -- (653) -- --
Purchase of programs........... -- (750,000) -- --
Net increase in deferred timing
costs......................... -- (9,067) -- --
Net cash used in investing
activities.................... (2,292,781) (851,252) -- (218,692)
---------- ---------- ----------
Cash Flows from Financing
Activities
(Decrease)/Increase in advances
from related parties.......... 160,285 (41,275) 53,360 (49,936)
Proceeds from issuance of
common stock.................. 458,500 5,927,802 949,812 10,000
Proceeds from issuance of
preferred stock............... -- -- -- 450,000
Proceeds from issuance of notes
payable....................... 2,120,000 --
Payments of notes payable, net
of issue discount............. -- (874,583) -- --
Payments for offering costs.... (35,000) -- (99,446) (95,500)
Increase in liability to
minorities.................... -- 40,326
---------- ----------
Net cash provided by financing
activities...................... 2,703,785 5,052,270 903,726 314,564
---------- ---------- -------- ----------
Effect of translation adjustment
on cash......................... 12,788 12,614
Increase in Cash and Cash
Equivalents..................... 295,006 1,167,373 53,254 (892,512)
---------- ---------- -------- ----------
Cash and cash equivalents at
beginning of period............. -- 295,006 295,006 1,462,379
---------- ---------- -------- ----------
Cash and cash equivalents at end
of period....................... 295,006 1,462,379 348,260 569,867
========== ========== ======== ==========
</TABLE>
The notes on pages 6 to 15 are an integral part of these financial statements.
F-5
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Hungarian Broadcasting Corp. (the "Company") which was incorporated in the
State of Delaware on September 14, 1994, was organized to acquire interests in
companies that have commercial broadcasting licenses to own, develop, expand
and operate television stations in Hungary. The Company operates in Hungary
through a wholly-owned subsidiary known as HBC (Hungary) Kft. ("HBC") which
was organized in November 1994. As disclosed in the financial statements drawn
up as at June 30, 1995, the Company acquired a 90% interest in VI-DOK Video es
Filmgyarto studio Kft. ("VI-DOK") as of June 16, 1995, and an 80% interest in
DNTV Kft. ("DNTV") as of May 30, 1995, two Hungarian companies (the
"Licensees") which had been granted television licenses by the Hungarian
Cultural Ministry in April to broadcast over Budapest Channel AM-micro A3
("A3") from July 1, 1994 through July 1, 2000, daily between 6 a.m. and 5 p.m.
and between 7.30 p.m. and 6 a.m. with a maximum advertising time of 20%.
Broadcasting on A3 commenced in September 1994. The 90% interest in VI-DOK was
acquired for $240,000 and the 80% interest in DNTV for $176,000. The
acquisitions were accounted for by the purchase method of accounting; the
acquisitions and purchase price allocation were computed as follows:
The Company acquired a 90% interest in VI-DOK's assets of $76,471 and
assumed 90% of its liabilities of $1,437,328. The excess of VI-DOK's
liabilities over its assets acquired was $1,224,771 (90% of $1,360,857).
The Company acquired an 80% interest in DNTV's assets of $7,409 and assumed
80% of its liabilities of $744,707 for an excess of liabilities over assets
acquired of $589,838 (80% of $737,298). The Company paid $416,000 ($240,000
plus $176,000) for the excess of the two companies' liabilities over assets
acquired ($1,224,771 plus $589,838) for a total consideration of $2,230,609.
After applying a valuation allowance of $80,095, the Company assigned the
balance of $2,150,514 to the acquired broadcast license costs; this amount is
being amortized over approximately five years. Prior to September 14, 1994,
when broadcasting began, VI-DOK had been in the business of producing and
editing motion picture films on a contract by contract basis. From its
organization in December 1991 until September 14, 1994, VI-DOK worked on three
primary contracts. On March 31, 1994 (two days after acquiring the broadcast
license) VI-DOK organized Pest-Buda as a division to conduct its broadcasting
activities. Pest-Buda was dissolved as division on June 16, 1995, the date VI-
DOK was acquired by the Company. DNTV, organized in February 1994, broadcast
from September 1994 through May 30, 1995 (date of acquisition). The Licensees
effectively ceased operations shortly after their acquisition and the
Company's wholly-owned subsidiary HBC continued the broadcasting thereafter.
From the date of inception through September 30, 1995, the Company's
consolidated financial statements reflected nominal revenues and the Company
was considered to be in the development stage. In management's opinion, the
Company emerged from the development stage during the three months ended
December 31, 1995.
The operations of the Company are essentially in Hungary where the majority
of revenues and expenditures are incurred. With the exception of cash and cash
equivalents amounting to $1,375,532 and notes payable of $975,412, the assets
and liabilities of the company relate to Hungary.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Use of Estimates
The consolidated financial statements include the accounts of the Company
and all its subsidiaries (which are all majority owned by the Company), from
their respective acquisition dates. All material intercompany transactions and
balances have been eliminated.
F-6
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The subsidiaries of the Company are as follows:--
<TABLE>
<CAPTION>
NAME COUNTRY OF INCORPORATION PERCENTAGE OWNED
---- ------------------------ ----------------
<S> <C> <C>
HBC Kft............................ Hungary 100%
VI-DOK Kft......................... Hungary 90%
DNTV Kft........................... Hungary 80%
</TABLE>
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.
(b) Fiscal Year
The Company's reporting period is the fiscal year ending June 30.
(c) Revenue Recognition
Revenues result from the sale of advertising time. Advertising revenue is
recognized at the time the commercials are broadcast.
(d) Barter Transactions
Revenues from barter transactions (television advertising in exchange for
goods and services) are recognized when advertisements are broadcast;
merchandise or services received are charged to expense (or capitalized, as
appropriate) when received or used.
Receivables and payables arising from barter transactions are offset when
the services have been rendered to the customer and the merchandise or
services are received from the vendor.
(e) Program and Film Rights
Program and film rights acquired under license agreements and the related
obligations incurred are recorded as assets and liabilities when the license
period begins, the cost of each program is determinable, and the program is
available for telecast. The capitalized costs are amortized using the
straight-line method based upon the estimated period of usage.
(f) Production Costs
Production costs for self-produced programs are capitalized and expensed
when the program is first broadcast, except where the program has potential to
generate future revenues. In that case, production costs are capitalized and
amortized on the same basis as programming obtained from third parties.
(g) Office and Transportation Equipment
Property and equipment are carried at cost and depreciated on a straight-
line basis using the shorter of estimated useful lives, or, if applicable, the
underlying lease period.
(h) Broadcast License Costs
The costs of acquiring licenses to broadcast are capitalized and amortized
over the life of the related licenses. It is the Company's policy to value
broadcast licenses at the lower of amortized cost or fair value. As
F-7
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
part of an ongoing review of the valuation and amortization of such assets,
management assesses the carrying value of such assets if facts and
circumstances suggest that they may be impaired. If this review indicates that
the assets will not be recoverable based on a cash flow analysis, the carrying
value of these assets would be reduced to its estimated fair market value.
(i) Organization Costs
The Company has capitalized organization costs, which are being amortized
over five years.
(j) Income Taxes
At June 30, 1996, the Company sustained a net loss of approximately
$4,110,000. Such loss may be carried over and applied to reduce taxable income
over a period of up to 15 years, ending in the year 2010. Under SFAS 109,
"Accounting for Income Taxes", due to the uncertainty as to the realizability
of such loss, the Company has set up a full valuation allowance against any
future tax benefit that may accrue from the net operating loss, and no
deferred tax asset has been recognized. In addition, income taxes have not
been recorded in the accompanying financial statements as no tax is due for
this period due to the incurred losses.
(k) Deferred Financing Expenses
Deferred financing expenses represent the costs associated with the debt
portion of a consummated private placement financing and are being amortized
on a straight-line basis over the expected term of the related borrowing.
(l) Foreign Currency Translation and Transactions
The assets and liabilities of the foreign subsidiaries were translated using
the exchange rate in effect at the balance sheet date. Income and expense
accounts were translated at the average rates in effect during the period.
Translation adjustments are included in the stockholders' equity section in
the accompanying balance sheets.
Foreign currency transaction gains and losses are recorded for changes in
exchange rates affecting cash denominated in U.S. dollars held in Hungarian
bank accounts.
(m) 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.
(n) Dividend Policy
The Company has never paid and does not anticipate paying any cash dividends
on its common stock in the foreseeable future. The Company is dependent upon
payment of dividends by its Hungarian subsidiary companies as the source of
its own dividends. Hungarian companies are permitted to pay annual dividends
out of profits determined on the basis of Hungarian accounting principles,
which differs from U.S. generally accepted accounting principles ("GAAP").
Significant differences between U.S. GAAP and Hungarian accounting principles
include the accounting for long term investments, which, under Hungarian
accounting principles are valued at the lower of cost or market value. In
addition, deferred taxes are not presented on the face of Hungarian financial
statements, although note disclosure may be required. Leases are not
capitalized and unrealized foreign currency translation gains are not
reflected in financial statements of Hungarian entities. Dividends are payable
to foreign investors such as the Company in forints, which may be converted
into U.S. dollars at the official rate of exchange set by the National Bank of
Hungary. As at June 30, 1996, there were no significant distributable reserves
in the Hungarian subsidiaries of the Company.
F-8
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(o) Loss Per Share
Net loss per share has been calculated based on the weighted average number
of common shares outstanding during each period.
3. CASH AND CASH EQUIVALENTS
At June 30, 1996, cash of $1,375,532 denominated in U.S. dollars was on
deposit with a major U.S. money center bank. In addition, $86,847 (denominated
partly in U.S. dollars and partly in Hungarian forints) was on deposit with a
Hungarian bank.
4. VAT RECEIVABLE
Value-added taxes paid in Hungary for which a reimbursement claim was
submitted by the Company, have been included in current assets.
5. DEFERRED PROGRAM COSTS
During the year, the Company purchased program rights for a total of
$750,000. These are being amortized over the life of the related rights of
nine months.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes television broadcasting and
production equipment, vehicles and office equipment, fixtures and fittings.
These are being depreciated on a straight line basis over their estimated
useful lives, being between three and ten years.
7. BROADCAST LICENSE COSTS
Broadcast license costs acquired for $2,150,514 are being amortized over the
life of the relevant licenses which terminate in July 2000.
8. NOTES PAYABLE
From November 1994 through March 1995, the Company sold (in a private
placement) units consisting of $2,120,000 aggregate principal amount of
unsecured promissory notes and 265,000 shares of common stock for an aggregate
purchase price of $2,120,000. The Company incurred $153,789 of financing
expenses relating to the private placement, of which $122,100 and $31,689 has
been allocated to debt and equity, respectively. The $153,789 includes legal
fees of $28,200 paid to the Company's secretary/stockholder. The notes bear
interest at 6% per annum and were originally due upon the earlier of December
31, 1995 or the successful consummation of the IPO, which was rescinded during
November 1995 (See Note 13(b)). The revised terms require that only one-half
of the notes were due upon the earlier of December 31, 1995 or the successful
consummation of the subsequent IPO. The balance of the notes are due on June
30, 1997. Consequently, the amortization expense relating to the original
issue discount and deferred financing expenses were recomputed over the
revised expected term of the notes. Total original issue discount of $437,000
(an imputed interest rate of 19% per annum) has been recorded and is being
amortized over the expected term of the notes, along with the $122,100 of
financing expenses related to the debt portion of the private placement. The
remaining unamortized original issue discount and deferred financing expenses
totaled $84,588, and $23,640, respectively, as of June 30, 1996. During
January 1996, $1,060,000 of the notes were repaid. Should the remaining notes
be repaid before June 30, 1997, any unamortized portion of the original issue
discount and deferred financing expenses will be charged to operations.
F-9
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable of $975,412 at June 30, 1996 (all short-term liability)
consist of the original $2,120,000 principal amount of the notes, less notes
of $1,060,000 repaid during the year ended June 30, 1996, less the unamortized
portion of the original issue discount of $84,588.
The private placement investors have the right to include their shares in
any registration statement filed by the Company after the IPO to the extent
that the managing underwriter of the public offering advises the Company that
such inclusion would not interfere with the orderly sale of the securities to
be publicly offered.
9. COMMON STOCK
(a) In July 1995, the Company sold 182,500 of common stock at a price of $3
per share for an aggregate of $547,500 ($500,000 net) of which 30,000 shares
were sold to a director and officer of the Company. In August 1995, the
Company sold 200,000 shares of common stock at a price of $3 per share for an
aggregate of $600,000 (approximate $550,000 net). The remaining stock
subscription receivable at September 30, 1995, of $100,000, was received on
October 4, 1995. On December 6, 1995, three of the Company's officers, Messrs.
Klenner, Genova and Cohen, contributed to the Company for cancellation
100,000, 100,000 and 20,000 common shares, respectively, for no consideration.
(b) The Company made a public offering of 1,000,000 shares of common stock
at $7 per share in November 1995. The offering was rescinded after the shares
offered traded below $7 per share between the effective date and the scheduled
closing date of the offering. The Company incurred $129,631 of expenses in
connection with that offering, which were shown as deferred offering costs in
the financial statements at September 30, 1995 and were charged to operations
during the three months ended December 31, 1995.
(c) On December 20, 1995 the Company completed an IPO of 1,150,000 shares of
its common stock at $5.00 per share and 1,610,000 redeemable common stock
purchase warrants at $0.15 per warrant. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $6.00 per share
during the five-year period ending December 20, 2000. The warrants will be
redeemable, commencing April 20, 1997. The Company also issued to the
underwriter warrants for the purchase of 100,000 shares of common stock at
$8.25 per share and 140,000 common stock purchase warrants at $0.225 per
warrant. The proceeds of this offering amounted to $4,995,338, net of
underwriting commissions and expenses.
(d) On June 21, 1996, the Company increased the number of authorized shares
of Common Stock from 5,000,000 to 15,000,000; authorized the issuance of up to
5,000,000 shares of preferred stock; and increased the number of shares of the
Common Stock available under the Company's 1994 Incentive Stock Option Plan,
as amended, from 100,000 shares to 350,000 shares for use as incentive awards
to certain key employees, directors and consultants.
10. STOCK OPTION PLAN
The Company has adopted a Stock Option Plan (the "Plan"). The Plan provides
that incentive and non-qualified options may be granted to officers,
employees, directors and consultants to the Company for the purpose of
providing an incentive to those persons to work for the Company. The Plan will
be administered by the compensation committee of the Board of Directors (the
"Committee"). The 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-10
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options granted under the Plan are exercisable for a period of up to ten
years from the date of the grant. Options terminate upon the optionee's
termination of employment or consulting arrangement with the Company, except
that, under certain circumstances, an optionee may exercise an option within
the three-month period after such termination of employment. An optionee may
not transfer any options except that an option may be exercised by the
personal representative of a deceased optionee within the three-month period
following the optionee's death. Incentive options granted to any employee who
owns more than 10% of the Company's outstanding common stock immediately
before the grant must have an exercise price of not less than 110% of the fair
market value of all underlying stock on the date of the grant and the exercise
term may not exceed five years. The aggregate fair market value of common
stock (determined at the date of the grant) for which any employee may
exercise incentive options in any calendar year, may not exceed $100,000. In
addition, the Company will not grant a non-qualified option with an exercise
price less than 85% of the fair market value of the underlying common stock on
the date of the grant. On December 20, 1995, the Company granted to certain
directors options to purchase an aggregate of 100,000 shares of common stock
at $5.00 per share, not exercisable before December 20, 1996.
The following table is a summary of all stock options as of June 30, 1996:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTION PRICE PER SHARE
------------------- ----------------------
<S> <C> <C>
July 1, 1995...................... -- --
Granted in 1995................... 100,000 $5.00
-------
Balance at June 30, 1996.......... 100,000 $5.00
=======
</TABLE>
As of June 30, 1996, none of the stock options were exercisable.
11. RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company control a company (the
"related party") that purchased $800,000 of unsecured promissory notes and
100,000 shares of common stock in a November 1994 private placement (Note 8).
As additional compensation, the related party received an option (which was
exercised in March 1995) to purchase 150,000 shares of common stock at $3 per
share and the right of first refusal for a three-year period to act as general
contractor for all broadcast facilities to be built by the Company. In
addition, the related party had advanced approximately $120,000 to the Company
amounts which were repaid in January 1996.
12. COMMITMENTS AND CONTINGENCIES
(a) Consulting and Compensation Agreements
The Company has a five-year employment agreement with its President and
Chief Financial Officer effective beginning in January 1996, at a monthly
salary of $10,000. The employment agreement also permits reimbursement of
ordinary and necessary business expenses.
The Company has a two-year employment agreement with its Executive Vice
President effective beginning in January 1996, at a monthly salary of $10,000.
He is also entitled to receive reimbursement for ordinary and necessary
business expenses.
The Secretary is a partner in a firm which has a two-year retainer agreement
to provide all SEC related legal services for the Company for a fee of
$100,000 per year, beginning in 1996.
F-11
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A financial and management consultant receives a fee of $3,000 per month for
a two-year term, beginning in January 1996.
As compensation to outside directors, the Company pays directors' fees equal
to $2,000 per meeting, minimum of four meetings per year, and reimburses their
travel and other out-of-pocket expenses. Officers do not receive any
compensation for serving as directors.
(b) Leases
The Company has a lease for office facilities in Budapest, Hungary, with
minimum monthly payments including taxes of $3,125, expiring May 30, 2000,
cancelable by the Company upon 90 days notice.
13. LEGAL PROCEEDINGS
(a) License Proceeding
TV 3, a competitor of A3, which was granted a six year, 24 hour per day
microwave license, applied to the Ministry of Culture to overturn the grant of
the A3 license to the Licensees and NAP TV made on March 29, 1994 on the
ground that proper procedures were not followed because the authority of the
committee that awarded the licenses had expired prior to the date the licenses
were granted. The Ministry of Culture denied the application and held that
even if a new committee were acting, it would also have granted the A3 license
to the Licensees and to NAP TV. TV 3 thereafter instituted a legal action on
December 1, 1994 against the Ministry of Culture, but not against either of
the Licensees, to overturn its decision in awarding the A3 broadcast license
in the Metropolitan Court of Budapest. At a hearing held on December 1, 1994,
the Municipal Court ordered the Ministry to follow prescribed procedures and
make a new decision. The Ministry appealed this decision to the Appeals Court
of Budapest. On April 25, 1995, the Company received a letter from the
Ministry confirming that the license had been granted to the Licensees and the
Licensees may operate in accordance with the terms of the license. On November
6, 1995, the Appeals Court vacated the decision of the Metropolitan Court on
the ground that no notice of the hearing had been given to the Licensees
(which had not had an opportunity to appear at that hearing). The Appeals
Court ruled that the only issue to be decided by the Metropolitan Court is
whether the Ministry's committee was properly constituted to grant the
licenses and remanded the matter for a hearing in the Fall 1996 term. In
particular, the Appeals Court ruled that the Metropolitan Court does not have
jurisdiction to revoke the grant of the licenses or otherwise modify the
decision of the Ministry's committee and, accordingly, the Licensees may
continue to operate under the licenses, pending a final determination by the
Ministry committee. In its ruling dated June 24, 1996, the Metropolitan Court
has now ruled in favor of the Company.
(b) Claim regarding underwriters
Prior to November 20, 1995, the Company filed a Registration Statement with
the Securities and Exchange Commission of Form SB-2 for an Initial Public
Offering of 1,000,000 of its shares of Common Stock at $7 per share, which
Registration Statement became effective at 5.30 p.m. on Friday, November 17,
1995. On Monday, November 20, 1995, the Company entered into a firm commitment
underwriting agreement with Coleman and Company Inc. ("Coleman") for sale of
1,000,000 of its shares at $7 per share. Starr Securities Inc. ("Starr") was
named as a co-underwriter in the Registration closing schedule for November
27, 1995. At the Closing, Coleman advised the Company that it did not have the
funds to close, that it was unilaterally rescinding the contract; and that it
would request NASDAQ to cancel all trades made since November 20, 1995.
On January 3, 1996, the Company commenced an action against Coleman and
Starr in the United States District Court of the Southern District of New York
for breach of contract demanding judgment of the full contract price of the
public offering together with such other compensatory and consequential
damages in an amount to be determined at trial.
F-12
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On January 19, 1996, Starr commenced an action in the Supreme Court of New
York against the Company and its former Chairman of the Board, Robert Genova,
for libel and defamation of Starr's character, and for threatening to continue
to defame Starr's character by stating that Starr "walked away" from the
Initial Public Offering deal and breached its contract with the Company unless
Starr made a bridge loan to or a private placement for the Company. The
complaint further alleged that when Starr did not accede to the Company's
demands, the Company continued to vilify Starr in the financial community by
stating that Starr walked away from the Initial Public Offering deal and
breached its contract with the Company and by commencing an action in the U.S.
District Court, Southern District of New York on January 3, 1996, falsely
accusing Starr of breach of contract. Starr further included a course of
action on the same facts for prima facie tort. The Company had this action
removed to the US. District Court, Southern District of New York. Starr moved
to remand both actions to the New York Supreme Court on the ground of lack of
diversity of citizenship, which motion was granted. The Company then
recommenced its action in the New York Supreme Court and consolidated its
action with the Starr proceeding. The Company believes its action has merit
and that it has valid defenses to the action brought by Starr.
Management believes that the outcome of the above litigation matters will
not have a material adverse effect on the consolidated financial position,
liquidity or results of operations of the Company.
14. SUBSEQUENT EVENT
In September 1996, the Company sold 100,000 Preferred Shares at $4.50 per
share and 100,000 common stock purchase warrants with the same terms as
warrants sold with the initial public offering. Proceeds were $354,500, net of
issuance costs.
The Company intends to issue further securities to the public in the near
future to fund the continued development and operations of the Company. On
September 18, 1996, J.W. Barclay & Co. signed a letter of intent to underwrite
this issue. Under the terms of this letter of intent, it is anticipated that
the proceeds to the company upon completion of the issue will be between
$2,880,000 and $4,320,000. In the event that this issue is not completed, the
Company would be required to seek alternative sources of financing to fund the
continued development and operations of the Company.
F-13
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BUSINESS
Hungarian Broadcasting Corp. (the "Company") which was incorporated in the
State of Delaware on September 14, 1994, was organized to acquire interests in
companies that have commercial broadcasting licenses to own, develop, expand
and operate television stations in Hungary. The Company operates in Hungary
through a wholly-owned subsidiary known as HBC (Hungary) Kft. ("HBC") which
was organized in November 1994. The Company acquired a 90% interest in VI-DOK
Video es Filmgyarto studio Kft. ("VI-DOK") as of June 16, 1995, and an 80%
interest in DNTV Kft. (DNTV) as of May 30, 1995, two Hungarian companies (the
"Licensees") which had been granted television licenses by the Hungarian
Cultural Ministry in April 1994 to broadcast Channel AM-micro A3 ("A3") from
July 1, 1994 through July 1, 2000, daily between 6 a.m. and 5 p.m. and between
7.30 p.m. and 6 a.m. with a maximum advertising time of 20%. Broadcasting on
A3 (subsequently renamed M SAT) commenced in September 1994. The 90% interest
in VI-DOK was acquired for $240,000 and the 80% interest in DNTV for $176,000.
In September 1996 the Company began broadcasting throughout Hungary and
renamed its station "M SAT".
From the date of inception through September 30, 1995, the Company's
consolidated financial statements reflected nominal revenues and the Company
was considered to be in the development stage. In management's opinion, the
Company emerged from the development stage during the three months ended
December 31, 1995.
The operations of the Company are essentially in Hungary where the majority
of revenues and expenditures are incurred. With the exception of cash and cash
equivalents amounting to $549,539 and notes payable of $996,559, the assets
and liabilities of the company relate to Hungary.
2. INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements for the three months
ended September 30, 1996, and the three months ended September 30, 1995 are
unaudited but, in the opinion of management, include all adjustments,
consisting mainly of normal recurring accruals necessary for the fair
presentation. Results for the interim periods are not necessarily indicative
of the results for a full year.
3. INCORPORATION BY REFERENCE
Reference is made to the Company's consolidated financial statements, and
the notes thereto, which were included in Form 10-KSB filed with the U.S.
Securities and Exchange Commission in September 1996, and which are
incorporated herein by reference.
4. NOTES PAYABLE
From November 1994 through March 1995, the Company sold (in a private
placement) units consisting of $2,120,000 aggregate principal amount of
unsecured promissory notes and 265,000 shares of common stock for an aggregate
purchase price of $2,120,000. The Company incurred $153,789 of financing
expenses relating to the private placement, of which $122,100 and $31,689 has
been allocated to debt and equity, respectively. The $153,789 includes legal
fees of $28,200 paid to the Company's secretary/director. The notes bear
interest at 6% per annum and were originally due upon the earlier of December
31, 1996 or the successful consummation of the IPO, which was rescinded during
November 1995 (See Note 9: "Legal Proceedings"). The revised terms required
that only one-half of the notes were due upon the earlier of December 31, 1995
or the successful consummation of the subsequent IPO. The balance of the notes
are due on June 30, 1997. Consequently, the amortization expense relating to
the original issue discount and deferred financing expenses were recomputed
over the revised expected term of the notes. Total original issue discount of
$437,000 (an imputed interest rate
F-14
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
of 19% per annum) has been recorded and is being amortized over the expected
term of the notes, along with the $122,100 of financing expenses related to
the debt portion of the private placement. The remaining unamortized original
issue discount and deferred financing expenses totaled $63,441 and $17,730,
respectively, as of September 30, 1996. During January 1996, $1,060,000 of the
notes were repaid. Should the remaining notes be repaid before June 30, 1997,
any unamortized portion of the original issue discount and deferred financing
expenses will be charged to operations at the time of repayment.
Notes payable of $996,559 at September 30, 1996 consist of the remaining
notes due of $1,060,000, less the unamortized portion of the original issue
discount of $63,441.
The private placement investors have the right to include their shares in
any registration statement filed by the Company to the extent that the
managing underwriter of the public offering advises the Company that such
inclusion would not interfere with the ordinary sale of the securities to be
publicly offered.
5. COMMON STOCK
(a) In July 1995, the company sold 182,500 shares of common stock at a price
of $3 per share for an aggregate of $547,500 ($500,000 net) of which 30,000
shares were sold to a director/officer of the Company. In August 1995, the
Company sold 200,000 shares of common stock at a price of $3 per share for an
aggregate of $600,000 (approximately $550,000 net). $100,000 representing the
remaining stock subscription receivable at September 30, 1995, was received on
October 4, 1995. On December 6, 1995, three of the Company's officers, Messrs.
Klenner, Genova, and Cohen, contributed to the Company for cancellation
100,000, 100,000 and 20,000 common shares, respectively, for no consideration.
(b) The Company made a public offering of 1,000,000 shares of common stock
at $7 per share in November 1995. The offering was rescinded after the shares
offered traded below $7 per share between the effective date and the scheduled
closing date of the offering. The company incurred $129,631 of expenses in
connection with that offering, which were shown as deferred offering costs in
the financial statements at September 30, 1995 and were charged to operations
during the quarter ended December 31, 1995.
(c) On December 20, 1995 the Company completed an IPO of 1,150,000 shares of
its common stock at $5 per share and 1,610,000 redeemable common stock
purchase warrants at $.15 per warrant. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $6.00 per share
during the five-year period ending December 20, 2000. The warrants will be
redeemable beginning April 20, 1997. The Company also issued to the
underwriter warrants for the purchase of 100,000 shares of common stock at
$8.25 per share and 140,000 common stock purchase warrants at $0.225 per
warrant. The proceeds of this offering amounted to approximately $4,995,338
net of underwriting commissions and expenses.
(d) On June 21, 1996, the Company increased the number of authorized shares
of Common Stock from 5,000,000 to 15,000,000; authorized the issuance of up to
5,000,000 shares of Preferred Stock; and increased the number of shares of
Common Stock available under the Company's 1994 Incentive Stock Option Plan,
as amended, from 100,000 shares to 350,000 shares for use as incentive awards
to certain key employees, directors and consultants.
(e) As of August 1996 the Company hired a consultant ( a director of the
Company) for a two year period at a fee of 1,000 shares of non-registered
Common Stock per month. The Company has determined the value of these
securities to be $5 per share.
F-15
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. UNITS; PREFERRED STOCK
In September 1996 the Company sold in a private placement 100,000 Units at a
price of $4.50 per Unit. Each unit consists of one preferred share
(convertible into one and one-half shares of Common Stock) and one Common
Stock Purchase Warrants with the same terms as the warrants issued with the
Initial Public Offering. Proceeds to the Company after expenses were $354,500.
7. RELATED PARTY TRANSACTIONS
On June 30, 1995, the minority stockholders were owed $416,000, as a result
of the Company's purchase of their stock. On February 5, 1996, $189,800 was
paid, leaving a balance due of $226,200 at September 30, 1996. The amount due
to related parties at September 30, 1996 also includes $145,000 due to an
officer/director.
8. COMMITMENTS
(a) Consulting and Compensation Agreements
The Company has a five-year employment agreement ending December 31, 2000
with its President and Chief Executive Officer at a monthly salary of $10,000.
He is also entitled to reimbursement for ordinary and necessary business
expenses.
The Company has a two-year employment agreement ending December 31, 1997
with its Executive Vice President at a monthly salary of $10,000. He is also
entitled to reimbursement for ordinary and necessary business expenses.
The Company's Secretary is a partner in a firm which has a two-year retainer
agreement ending December 31, 1997 to provide all SEC. related legal services
for the Company, except for services in connection with private placements or
public offerings, for a fee of $100,000 per year, beginning in 1996.
A financial and management consultant receives a fee of $3,000 per month for
a two-year term ending December 31, 1997. Another consultant (a director of
the Company) receives 1000 shares of common stock as a monthly fee ending July
31, 1998.
As compensation to outside directors, the Company pays directors' fees equal
to $2,000 per meeting, minimum of four meetings per year, and reimburses their
travel and other out-of-pocket expenses. Officers do not receive any
compensation for serving as directors.
(b) Leases
The Company has a five year lease for broadcasting and office facilities in
Budapest, Hungary, with minimum monthly payments before value added taxes of
$12,000, ending June 30, 2001.
9. LEGAL PROCEEDINGS
Prior to November 20, 1995, the Company filed a Registration Statement with
the Securities and Exchange Commission on Form SB-2 for an Initial Public
Offering of 1,000,000 of its shares of Common Stock at $ 7 per share, which
Registration Statement became effective on November 17, 1995. On November 20,
1995, the Company entered into a firm commitment underwriting agreement with
Coleman and Company Inc. ("Coleman") for the sale of 1,000,000 of its shares
at $7 per share. Starr Securities Inc. ("Starr") was named as a co-underwriter
in the Registration Statement with closing scheduled for November 27, 1995. At
the Closing,
F-16
<PAGE>
HUNGARIAN BROADCASTING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Coleman advised the Company that it did not have the funds to close, that it
was unilaterally rescinding the contract; and that it would request NASDAQ to
cancel all trades made since November 20, 1995.
On January 3, 1996, the Company commenced an action against Coleman and
Starr in the United States District Court, Southern District of New York for
breach of contract demanding judgment of the full contract price of the public
offering together with such other compensatory and consequential damages in
amounts to be determined at trial.
On January 19, 1996, Starr commenced an action in the Supreme Court of New
York against the Company and its former Chairman of the Board, Robert Genova,
for libel and defamation of Starr's character, and for threatening to continue
to defame Starr's character by stating that Starr "walked away" from the
Initial Public Offering and breached its contract with the Company unless
Starr made a bridge loan to or private placement for the Company. The
complaint further alleged that when Starr did not accede to the Company's
demands, the Company continued to vilify Starr in the financial community by
stating that Starr walked away from the Initial Public Offering and breached
its contract with the Company and by commencing an action in the U.S. District
Court, Southern District of New York on January 3, 1996, falsely accused Starr
of breach of contract. Starr further included a cause of action on the same
facts for prima facie tort. The Company had this action removed to the U.S.
District Court, Southern District of New York. Starr moved to remand both
actions to the New York Supreme Court on the ground of lack of diversity of
citizenship, which motion was granted. The Company then recommenced its action
in the New York Supreme Court and consolidated its action with the Starr
proceeding. The Company believes its action has merit and that it has valid
defenses to the action brought by Starr.
Management believes that the outcome of the above litigation will not have a
material adverse effect on the financial position, liquidity or results of
operations of the Company.
10. SUBSEQUENT EVENTS
The Company has filed a draft registration statement in anticipation of a
public offering of securities over the next few weeks.
An officer/director has advanced $200,000 of short-term financing to the
Company.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
UNITS OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE UNITS OR FROM ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO CHANGE IN THE BUSINESS OR AFFAIRS OF THE COM-
PANY SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS PROSPECTUS IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................................. 3
Prospectus Summary..................................................................... 4
Risk Factors........................................................................... 10
Price Range of Securities.............................................................. 16
Capitalization......................................................................... 17
Dividend Policy........................................................................ 17
Use of Proceeds........................................................................ 17
Selected Financial Data................................................................ 18
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 19
Business............................................................................... 20
Management............................................................................. 30
Principal Stockholders................................................................. 33
Certain Transactions................................................................... 33
Selling Securityholders................................................................ 35
Description of Securities.............................................................. 35
Shares Eligible for Future Sale........................................................ 40
Underwriting........................................................................... 40
Legal Matters.......................................................................... 41
Experts................................................................................ 41
Change in Accountants.................................................................. 42
Index to Financial Statements.......................................................... F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
500,000 UNITS
HUNGARIAN BROADCASTING CORP.
----------------
PROSPECTUS
----------------
J.W. BARCLAY & CO., INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General corporation Law of the State of Delaware ("DGCL")
provides, in general, that a corporation incorporated under the laws of the
State of Delaware, such as registrant, may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than a derivative action by or in
the right of the corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonable
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such director, officer, employee or agent of the corporation
person's conduct was unlawful. In the case of a derivative action, a Delaware
corporation may indemnify any such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or any other court in which such action was brought determines such
person is fairly and reasonably entitled to indemnity for such expenses.
Section 10 of the Company's Certificate of Incorporation, and Article X of the
Company's By-laws provide that the Company shall indemnify its officers,
directors, employees and agents to the extent permitted by the DGCL. In
addition, Section 9 of the company's Certificate of Incorporation provides, in
general, that no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for beach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL (which provides that under certain
circumstances, directors may be jointly and severally liable for willful or
negligent violations of the DGCL provisions regarding the payment of dividends
or stock repurchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the registrant, other than underwriting discounts and
commissions, to be incurred in connection with the issuance and distribution
of the securities being registered hereby are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 3,724.00
NASD registration fee......................................... 1,580.00
The NASDAQ SMALLCAP Market listing fee........................ 1,000.00
Printing and engraving expenses*.............................. 30,000.00
Accounting fees and expenses*................................. 40,000.00
Legal Fees and expenses*...................................... 100,000.00
Blue sky fees and expenses (including counsel fees and
expenses)*................................................... 25,000.00
Transfer agent fees and expenses*............................. 4,000.00
Miscellaneous*................................................ 14,696.00
-----------
Total*...................................................... $220,000.00
===========
</TABLE>
- --------
* Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has sold securities to a limited
number of persons, as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith. The purchasers of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the certificates for the securities issued in such transactions. All
purchasers of securities in each such transaction had adequate access to
information about the Registrant.
(1) On September 14, 1994, Registrant sold 850,000 Shares at $.01 per share
to Peter E. Klenner, (480,000), to Robert Genova, (320,000), and to Frank R.
Cohen (50,000). In July 1995, Mr. Genova transferred 30,000 shares to an
unaffiliated person and Mr. Klenner transferred 20,000 shares to two
unaffiliated persons. The issuances of these securities were considered to be
exempt from registration under Section 4(2) of the Securities Act of 1933 and
the regulations promulgated thereunder.
(2) In December 1994 and March 1995, Hungarian Teleconstruct Corp. ("HTEL"),
an affiliated corporation purchased 20 Units in a private placement, each Unit
consisting of the Company's 6% Bridge Note in the principal amount of $40,000
($800,000 aggregate) and 5,000 shares (100,000 aggregate) of Common Stock, for
a total purchase price of $800,000. This purchase was deemed part of the
"November Bridge Financing." As additional consideration for the purchase,
registrant granted to HTEL an option to purchase 150,000 shares exercisable at
$3 per share. In March 1995, HTEL exercised its option and was issued 150,000
shares against payment of $450,000. HTEL is an affiliate of Registrant. The
issuances of these securities were considered to be exempt from registration
under Section 4(2) of the Securities Act of 1933, and the regulations
promulgated thereunder.
(3) From November 1994 to March 1995, Registrant sold to 31 persons an
aggregate of 33 units (the "Units"), each Unit consisting of the Company's 6%
Bridge Note in the principal amount of $40,000 and 5,000 shares of Common
Stock for a purchase price of $40,000 per Unit, or an aggregate of $1,320,000
(the "November Bridge Financing") and 165,000 shares. Adding the 20 units
referred to in paragraph 2 above to the 33 units referred to herein, a total
of 53 units were sold to private investors in the November Bridge Financing,
for an aggregate purchase price of $2,120,000. One-half of the 6% Bridge Notes
was repaid with a portion of the proceeds of the December 20, 1996 Offering.
In connection with the November Bridge Financing, the Registrant paid selling
commissions of $114,000 to unaffiliated NASD brokers. Officers and directors
who effected sales received no compensation for their services. Each of the
purchasers signed a letter indicating an agreement to hold the shares for
investment. The issuance of such securities was exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder. The names of the persons purchasing units pursuant to
the private placement are as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF NUMBER OF AMOUNT
NAME NOTES SHARES PAID
---- --------- --------- -------
<S> <C> <C> <C>
Walter W. Mathews................................. $40,000 5,000 $40,000
Elias J. Lehaf.................................... $40,000 5,000 $40,000
Arie and Bonnie Seidler Joint Tenants with Rights
of Survivorship.................................. $20,000 2,500 $20,000
Richard G. David.................................. $20,000 2,500 $20,000
Arthur Inden...................................... $40,000 5,000 $40,000
Peter Rosenbauer.................................. $40,000 5,000 $40,000
Ara Vermogensverwaltung GmbH...................... $40,000 5,000 $40,000
Dr. Barbara A. Lenehan............................ $80,000 10,000 $80,000
Ben L. Berg....................................... $40,000 5,000 $40,000
W.L. Abt Inc...................................... $40,000 5,000 $40,000
Peter P. Smigowski................................ $60,000 7,500 $60,000
CP Baker Venture Fund I LP........................ $40,000 5,000 $40,000
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF NUMBER OF AMOUNT
NAME NOTES SHARES PAID
---- --------- --------- --------
<S> <C> <C> <C>
Lawrence Auriana................................. $120,000 15,000 $120,000
Dezso J. Ladanyi and Alice R. Ladanyi, Joint
Tenants with Rights of Survivorship............. $ 80,000 10,000 $ 80,000
Peter Lerner..................................... $ 60,000 7,500 $ 60,000
James G. Schindler............................... $ 40,000 5,000 $ 40,000
John A. Miller................................... $ 20,000 2,500 $ 20,000
Lifelines Care, Inc.............................. $ 20,000 2,500 $ 20,000
David C. Palmer.................................. $ 40,000 5,000 $ 40,000
Stephen N. Gibbs................................. $ 40,000 5,000 $ 40,000
Dr. Paul H. Drugel............................... $ 20,000 2,500 $ 20,000
Gerald Greenberg................................. $ 40,000 5,000 $ 40,000
Joseph H. Dowling................................ $ 40,000 5,000 $ 40,000
Thomas J. Kramer................................. $ 20,000 2,500 $ 20,000
NFC ABW Trading Ltd. Edward M. Rose, Director.... $100,000 12,500 $100,000
Robert N. and Verena Erickson Joint Tenants with
Right of Survivorship........................... $ 20,000 2,500 $ 20,000
Christopher P. Baker............................. $ 40,000 5,000 $ 40,000
Martin T. Orne................................... $ 40,000 5,000 $ 40,000
Les C. Vinney.................................... $ 40,000 5,000 $ 40,000
Mildred J. Geiss................................. $ 20,000 2,500 $ 20,000
IRA F/B/O Christopher P. Baker DLSSC as
Custodian....................................... $ 20,000 2,500 $ 20,000
</TABLE>
(4) In July 1995, Registrant sold 182,500 shares to 11 persons at a price of
$3 per share, totaling $547,500 (the "July Bridge Financing"). One of the
persons purchasing shares was Peter E. Klenner who purchased 30,000 shares for
$90,000 and no commissions were paid in connection with this sale. Sales of
the shares were made by an unaffiliated NASD broker who received $1,500 as
commissions and by a European company which acted as a finder and received a
fee of $30,000. Each of the purchasers signed a letter indicating an agreement
to hold the shares for investment. The issuance of such securities was exempt
from registration under the Securities Act of 1933 pursuant to Section 4(2)
thereof and Regulation D promulgated thereunder. The names of the persons
purchasing shares pursuant to the private placement are as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
NAME PURCHASED PAID
---- --------- --------
<S> <C> <C>
Joseph H. Dowling...................................... 5,000 $ 15,000
John A. Miller......................................... 7,500 22,500
Christopher P. Baker................................... 10,000 30,000
CP Baker Venture Fund I LP............................. 5,000 15,000
Dr. Elias J. Lehaf..................................... 5,000 15,000
Walter Abt............................................. 5,000 15,000
James Schindler........................................ 5,000 15,000
Peter Rosenbauer....................................... 10,000 30,000
Arabella S.A. ......................................... 66,667 200,000
World Media Group Limited.............................. 33,333 100,000
Peter E. Klenner....................................... 30,000 90,000
</TABLE>
(5) In August 1995, Registrant sold 200,000 shares to three persons for a
price of $3 per share ($600,000 aggregate) (the "August Bridge Financing").
Sales of these shares were effected in Europe through a European broker who
received a 10% commission. Each of the purchasers signed a letter indicating
an agreement to hold the shares for investment. The issuance of these
securities were considered exempt from registration under
II-3
<PAGE>
Section 4(2) of the Securities Act of 1933, and the regulations promulgated
thereunder. The names of the three investors and the number of shares purchase
and the amounts paid are as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
NAME PURCHASED PAID
---- --------- --------
<S> <C> <C>
M.M. Warburg & Co. KgaA................................ 140,000 $420,000
European Value Fund LP................................. 50,000 20,000
Stephan Eilesbrecht--Kemena............................ 10,000 30,000
</TABLE>
In September 1996, the Company sold 100,000 Shares of Series A Convertible
Cumulative Redeemable Preferred Stock (the "Preferred Stock") to seven persons
for a price of $4.50 per share ($450,000 aggregate). Each of the purchasers
signed a letter indicating an agreement to hold the shares for investment. The
issuance of these securities were considered exempt from registration under
Section 4(2) of the Securities Act of 1933, and the Regulation D promulgated
thereunder. The names of the seven investors, the number of shares of
Preferred Stock purchased and the amounts paid are as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
NAME PURCHASED PAID
---- --------- -------
<S> <C> <C>
Dean Rivera.............................................. 10,000 $45,000
Patricia Weremeychik..................................... 10,000 $45,000
Mark Lyons............................................... 10,000 $45,000
Joan Downey.............................................. 20,000 $90,000
Louis Spadafora.......................................... 10,000 $45,000
Matthew Langdon.......................................... 20,000 $90,000
John Delgaizo............................................ 20,000 $90,000
</TABLE>
J.W. Barclay & Co., Inc. was the underwriter of such offering and received a
fee of $45,000 for its services in the offering. Such shares were sold to
accredited investors only in an aggregate offering limited to 100,000 shares
without any form of general advertising, who acquired such securities for
themselves with knowledge that such securities cannot be resold without being
registered under the Securities Act or unless and exemption from registration
is then available. Exemption from any registration was claimed in reliance
upon the Rule 506 of Regulation D as well as Section 4(6) of the Securities
Act of 1933. The Company subsequently issued one Common Stock Purchase Warrant
to such purchasers for each share purchased for no additional cash
consideration in order to permit them to own and offer Units as described
under "Certain Transactions" in the Prospectus.
The certificates representing all of the aforesaid shares bear appropriate
legends restricting their sale and have stop transfer orders placed thereon.
ITEM 27. EXHIBITS(1)
<TABLE>
<C> <C> <S>
(1) (a) Form of Underwriting Agreement(1)
(b) Selected Dealer Agreement(1)
(3) (a) Certificate of Amendment to Certificate of Incorporation filed June
28, 1996(4)
(b) Certificate of Incorporation filed September 14, 1994(3)
(c) Proposed Corrected Certificate of Designation Relating to the Series
A Convertible Preferred Stock(1)
(d) By-laws(3)
(4) (a) Form of Warrant Agreement(3)
(b) Amendment to Warrant Agreement, including Form of Common Stock
Purchase Warrant Certificate(1)
(c) Form of Series A Preferred Stock Certificate(1)
(d) Form of Underwriter's Unit Warrant(1)
(5) (a) Opinion of Cohen & Cohen as to legality of shares being offered(1)
(10) (a) Employment agreement between Registrant and Peter E. Klenner(3)
(b) Employment agreement between Registrant and Imre M. Kovats(3)
(c) Financial Consultant agreement between Registrant and Robert Genova(3)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <C> <S>
(d) 1994 Incentive Stock Option Plan(3)
(e) Sharing agreement for space and facilities between Registrant and
Hungarian Telephone & Cable Corp.(3)
(f) Agreement to Purchase Shares in DNTV(3)
(g) Agreement to purchase shares in VI-DOK(3)
(h) Letter of intent with Kable Com(3)
(i) Offer from OKK Kft to Registrant to rent satellite space to Company(3)
(j) Agreement with Land Studios Kft.(3)
(k) Lease agreement with HAKON Ltd. for space at Szamado, Budapest(3)
(l) Form of 6% Bridge Note(3)
(m) License to broadcast on A3(3)
(n) Consulting Agreement with J.W. Barclay & Co., Inc., dated December ,
1996(1)
(o) Amendment to Mergers and Acquisitions Agreement with J.W. Barclay &
Co., Inc.(1)
(p) Contracts for purchase of programming between Power TV Ltd. and
Registrant dated February 28 and July 29, 1996(4)
(q) Lease for satellite space between Nethold Central Europe BV and
Registrant dated July 5, 1996(4)
(r) Management consulting agreement between Registrant and Justine Bodle
dated June 15, 1996(4)
(s) Agreement to set up uplink and downlink between Registrant and
Banknet dated June 26, 1996(4)
(t) Rental lease between Registrant and Investor Holding RT dated June
25, 1996(4)
(16) Letter from prior accountants Todman & Co.(5)
(21) Subsidiaries of the Registrant(3)
(a) Consent of Cohen & Cohen (included in their opinion filed as Exhibit
(23) 5(a))(1)
(b) Consent of Simon, Buros & Partners(2)
(c) Consent of Coopers & Lybrand(2)
(d) Consent of Todman & Co.(3)
(25) Power of Attorney (included on signature page)(3)
</TABLE>
- --------
(1) Filed herewith.
(2) Filed with original filing of this Registration Statement.
(3) Incorporated by reference to corresponding exhibit in the Company's
Registration Statement on Form SB-2 (SEC file No. 33-80177).
(4) Incorporated by reference to the corresponding exhibit in the Company's
report on form 10K for the year ended June 30, 1996.
(5) Incorporated by reference to exhibit in the Company's report on Form 8-K
dated April 11, 1996.(5)
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) to include any additional or changed material on the plan of
distribution.
(2) That, for determining any liability under the Securities Act, it will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering;
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-5
<PAGE>
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For determining any liability under the Securities Act it will treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as
of the time it was declared effective.
(2) For determining any liability under the Securities Act, it will treat
each post-effective amendment that contains a form of prospectus as to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time as the initial bona fide
offering of these securities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS OF FILING ON FORM SB-2, AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF NEW YORK, STATE OF NEW YORK, ON NOVEMBER , 1996.
Hungarian Broadcasting Corp.
/s/ Frank R. Cohen
By: ____________________________
FRANK R. COHEN SECRETARY-TREASURER
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
President and
- -------------------------------------
Director (Principal
PETER E. KLENNER* Executive Officer)
Executive Vice
- -------------------------------------
IMRE KOVATS*
Secretary, Treasurer
- -------------------------------------
and Director
FRANK R. COHEN
Director
- -------------------------------------
JUSTIN BODLE*
Principal Financial
- -------------------------------------
Officer and
JAMES H. SEASON* Principal
Accounting Officer
</TABLE>
* Frank R. Cohen, pursuant to a Power of Attorney executed by each of the
officers and directors noted above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and
execute this Amendment No. 1 on behalf of each of the persons noted above,
in the capacities indicated, and does hereby sign and execute this Amendment
No. 1 on his own behalf as Secretary, Treasurer and Director.
/s/ Frank R. Cohen
By: ____________________________
FRANK R. COHEN SECRETARY-TREASURER
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. EXHIBIT INDEX NO.
------- ------------- ----
<C> <C> <S> <C>
(1) (a) Form of Underwriting Agreement(1)
(b) Selected Dealer Agreement(1)
(a) Certificate of Amendment to Certificate of Incorporation
(3) filed June 28, 1996(4)
(b) Certificate of Incorporation filed September 14, 1994(3)
(c) Proposed Corrected Certificate of Designation Relating to
the Series A Convertible Preferred Stock(1)
(d) By-laws(3)
(4) (a) Form of Warrant Agreement(3)
(b) Amendment to Warrant Agreement, including Form of Common
Stock Purchase Warrant Certificate(1)
(c) Form of Series A Preferred Stock Certificate(1)
(d) Form of Underwriter's Unit Warrant(1)
(a) Opinion of Cohen & Cohen as to legality of shares being
(5) offered(1)
(a) Employment agreement between Registrant and Peter E.
(10) Klenner(3)
(b) Employment agreement between Registrant and Imre M.
Kovats(3)
(c) Financial Consultant agreement between Registrant and
Robert Genova(3)
(d) 1994 Incentive Stock Option Plan(3)
(e) Sharing agreement for space and facilities between
Registrant and Hungarian Telephone & Cable Corp.(3)
(f) Agreement to Purchase Shares in DNTV(3)
(g) Agreement to purchase shares in VI-DOK(3)
(h) Letter of intent with Kable Com(3)
(i) Offer from OKK Kft to Registrant to rent satellite space to
Company(3)
(j) Agreement with Land Studios Kft.(3)
(k) Lease agreement with HAKON Ltd. for space at Szamado,
Budapest(3)
(l) Form of 6% Bridge Note(3)
(m) License to broadcast on A3(3)
(n) Consulting Agreement with J.W. Barclay & Co., Inc., dated
December , 1996(1)
(o) Amendment to Mergers and Acquisitions Agreement with J.W.
Barclay & Co., Inc.(1)
(p) Contracts for purchase of programming between Power TV Ltd.
and Registrant dated February 28 and July 29, 1996(4)
(q) Lease for satellite space between Nethold Central Europe BV
and Registrant dated July 5, 1996(4)
(r) Management consulting agreement between Registrant and
Justine Bodle dated June 15, 1996(4)
(s) Agreement to set up uplink and downlink between Registrant
and Banknet dated June 26, 1996(4)
(t) Rental lease between Registrant and Investor Holding RT
dated June 25, 1996(4)
(16) Letter from prior accountants Todman & Co.(5)
(21) Subsidiaries of the Registrant(3)
(a) Consent of Cohen & Cohen (included in their opinion filed
(23) as Exhibit 5(a))(1)
(b) Consent of Simon, Buros & Partners(2)
(c) Consent of Coopers & Lybrand(2)
(d) Consent of Todman & Co.(3)
(25) Power of Attorney (included on signature page)(3)
</TABLE>
- --------
(1) Filed herewith.
(2) Filed with original filing of this Registration Statement.
(3) Incorporated by reference to corresponding exhibit in the Company's
Registration Statement on Form SB-2 (SEC file No. 33-80177).
(4) Incorporated by reference to the corresponding exhibit in the Company's
report on form 10K for the year ended June 30, 1996.
(5) Incorporated by reference to exhibit in the Company's report on Form 8-K
dated April 11, 1996.(5)
<PAGE>
EXHIBIT 1(a)
500,000 UNITS
(Each Unit Consisting of One Share of
Series A Convertible Cumulative Redeemable Preferred Stock
and One Common Stock Purchase Warrant)
HUNGARIAN BROADCASTING CORP.
UNDERWRITING AGREEMENT
Dated: December , 1996
J.W. Barclay & Co., Inc.
One Battery Park Plaza
New York, New York 10004
Dear Sirs:
The undersigned, Hungarian Broadcasting Corp., a Delaware corporation (the
"Company"), and the persons listed on Schedule A annexed hereto (the "Selling
Securityholders") hereby confirm their agreement with J.W. Barclay & Co., Inc.
(sometimes the "Underwriter" or "you") as follows:
1. Description of Securities. The Company has authorized by appropriate
corporate action, and proposes to issue and sell to you 400,000 Units and the
Selling Securityholders propose to sell you an aggregate of 100,000 Units, each
Unit consisting of one share of Series A Convertible Cumulative Redeemable
Preferred Stock and one Common Stock Purchase Warrant (said shares of Preferred
Stock and Warrants hereinafter referred to as "Shares" and "Warrants"). Each
Warrant shall be exercisable for one share of Common Stock. An additional
60,000 Units have been authorized by the Company to cover over-allotments as
provided in Section 3 below. The Units, Shares and Warrants shall hereinafter
sometimes be collectively referred to as the "Securities". The Units, Shares
and Warrants are more fully described in the Registration Statement and
Prospectus referred to hereinafter.
2. Representations and Warranties.
(a) The Company and each Selling Securityholder, jointly and severally,
represents and warrants to, and agrees with, you that:
(i) A registration statement on Form SB-2 with respect to the
Securities, including a preliminary prospectus, copies of which have heretofore
been delivered by the Company to you, has
<PAGE>
been carefully prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended, (hereinafter called the "Act") and the
Rules and Regulations of the Securities and Exchange Commission (hereinafter
called the "Commission") under such Act, and has been filed with the Commission
(File No. 333-13371). On or prior to the effective date of such registration
statement, one or more amendments to such registration statement (including a
final prospectus), copies of which have heretofore been or will be delivered to
you, will have been so prepared and filed in the form delivered to you. Such
registration statement (including all exhibits thereto) as amended as of the
effective date thereof and each related preliminary prospectus are herein
respectively referred to as the "Registration Statement", the "Preliminary
Prospectus" and the "Prospectus".
(ii) When the Registration Statement becomes effective (the
"Effective Date") and at all times subsequent thereto up to and at the Closing
Date (as defined in Section 3 hereof) and the Additional Closing Date (as
defined in Section 3 hereof), (i) the Registration Statement and the Prospectus
and any amendments or supplements thereto will contain all statements which are
required to be stated therein by the Act and the Rules and Regulations of the
Commission thereunder and will in all respects conform to the requirements of
the Act and such Rules and Regulations, (ii) neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (iii) all documents which are required to be filed as exhibits to the
Registration Statement will have been so filed; provided however, that the
Company and the Selling Securityholders make no representations or warranties as
to information contained in or omitted from the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by you or any
Underwriter expressly for use in the preparation thereof.
(iii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware with
all corporate and other powers and authority necessary to carry on its
businesses, and it is qualified and in such jurisdictions in which the nature of
its business requires such qualification. The Company's subsidiaries have been
duly incorporated and are validly existing as corporations in good standing
under the laws of Hungary with all corporate powers and authority necessary to
carry on their business.
(iv) The consummation of the transactions herein contemplated will
not result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any of
its
2
<PAGE>
properties is bound, or of its Certificate of Incorporation, or By-laws, or any
order, rule or regulation applicable to the Company or any of its properties, of
any court or other governmental body.
(v) The Company has full power and lawful authority to authorize,
issue and sell the Units, Shares, Warrants, and Underwriter's Unit Warrants (as
defined hereinafter) on the terms and conditions herein set forth, and has taken
all corporate action necessary therefor; no consent, approval, authorization or
other order of any regulatory authority is required for such authorization,
issue or sale, except as may be required under the Act or state securities or
blue sky laws. This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and legally binding agreement of the Company
enforceable in accordance with its terms. The Warrant Agreement between the
Company and American Stock Transfer & Trust Company, dated December 20, 1995 and
as amended by agreement dated _________________, 1996, pursuant to which the
Warrants are being issued (the "Warrant Agreement"), has been duly authorized by
the Company and is a valid and legally binding obligation of the Company,
enforceable in accordance with its terms.
(vi) The Securities and the authorized capitalization of the Company
conform to the descriptions thereof contained in the Registration Statement and
Prospectus. The holders of the Warrants will, upon their exercise, be entitled
to purchase shares in accordance with the terms and conditions set forth in the
Warrant Agreement. The outstanding shares of capital stock are, and the shares
issuable pursuant to the public offering contemplated hereby and upon exercise
of any of the warrants referred to herein will upon such issuance be, duly
authorized, validly issued and fully paid and nonassessable, and the Company has
duly authorized and reserved for issuance upon exercise of said warrants such
number of shares of Common Stock as are initially issuable upon such exercise.
The Warrants, the Underwriter's Unit Warrants, and the warrants underlying the
Underwriter's Unit Warrants will, when issued and delivered in accordance with
the provisions of the Warrant Agreement, the Underwriter's Unit Warrants and
this Agreement, be valid and legally binding obligations of the Company
enforceable in accordance with their respective terms. There are no options,
warrants, rights of conversion, indebtedness or calls on equity of the Company
other than as disclosed in the Prospectus and Registration Statement.
(vii) Except as set forth or contemplated in the Registration
Statement and Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions, not in the ordinary
course of business, and there has not been any material change in the capital
stock or funded debt of the Company, or any material
3
<PAGE>
adverse change in the condition (financial or other) or results of operations of
the Company.
(viii) The financial statements (audited and unaudited) set forth in
the Registration Statement and Prospectus fairly present the financial condition
of the Company and the results of its operations as of the dates and for the
periods therein specified; and said financial statements (including the related
notes and schedules) have been prepared in accordance with generally accepted
accounting principles which have been consistently applied throughout the
periods covered thereby. Such financial statements and the summaries thereof
included in the Registration Statement and the Prospectus conform in all
material respects to the requirements of the Rules and Regulations of the
Commission.
(ix) The accountants whose opinion or opinions is or are included in
the Registration Statement are independent public accountants within the meaning
of the Act and the Rules and Regulations of the Commission thereunder.
(x) Except as set forth in the Prospectus, there is not pending any
action, suit or other proceeding to which the Company is a party or of which any
property of the Company is the subject, before or by any court or other
governmental body, which might result in any material adverse change in the
condition, business or prospects of the Company, or might materially adversely
affect the assets of the Company; and except as indicated in the Prospectus, no
such proceeding is known by the Company to be threatened or contemplated.
(xi) The Company and the Selling Securityholders know of no claim
for services, either in the nature of a finder's fee, brokerage fee or
otherwise, with respect to the financing contemplated hereby, whether or not
heretofore satisfied, for which they or the Underwriter, or any of them, may be
responsible, other than as expressly disclosed in the Prospectus.
(xii) The business and operations of the Company and the ownership
thereof, except as may be disclosed in the Prospectus, comply with all statutes,
ordinances, laws, rules and regulations applicable thereto, the non-compliance
with which could reasonably be expected to have a material, adverse effect on
the Company or its condition (financial or other), business, prospects, net
worth or results of operations; the Company possesses, and is operating in
compliance with the terms, provisions and conditions of, all certificates,
licenses, permits, consents, waivers, approvals, franchises and concessions
required to conduct its business as now conducted, the non-compliance with which
could reasonably be expected to have a material adverse effect on the Company or
its condition (financial or other), business, prospects, net worth or results of
operations; each such certificate, license, permit,
4
<PAGE>
consent, waiver, approval, franchise and concession is valid and in full force
and effect and there is no proceeding pending or threatened (or to the best of
the knowledge of the Company and the Selling Securityholders, any basis
therefor) which may lead to the revocation, termination, suspension or
nonrenewal of any such certificate, license, permit, consent, waiver, approval,
franchise or concession.
(xiii) On the Effective Date of the Registration Statement and
immediately prior to the sale of the Securities, the outstanding capital stock
of the Company will consist of no more than 2,583,600 shares of Common Stock,
par value $.01 per share, and 100,000 shares of Series A Convertible Cumulative
Redeemable Preferred Stock and there shall be no warrants or options to purchase
shares of Stock of the Company except as set forth in the Prospectus.
(b) Each of the Selling Securityholders, severally and not jointly,
represents and warrants to the Underwriter that:
(i) Such Selling Securityholder (A) has the power and authority to
execute and deliver this Agreement and a Power of Attorney Agreement
(hereinafter defined) on the terms and conditions set forth herein and therein;
(B) is, and when the Registration Statement shall become effective and at the
Closing Time will be, the owner of the Units to be sold by such Selling
Securityholder to the Underwriter pursuant to the terms hereof, in each case
free and clear of all liens, charges, encumbrances and restrictions; (C) has
paid to the Company the full purchase price required to be paid for such Units;
and (D) has, and when the Registration Statement shall become effective and at
the Closing Time will have, the power and authority to convey good and valid
title to such Units, in each case free and clear of all liens, charges,
encumbrances and restrictions.
(ii) Such Selling Securityholder has executed an agreement and power
of attorney (the "Power of Attorney Agreement") with ___________________ and
__________________ as attorneys-in-fact, and has delivered to such attorney-in-
fact, pursuant to the Power of Attorney Agreement, certificates in negotiable
form for the Units to be sold by such Selling Securityholder. Copies of each
Power of Attorney Agreement have been delivered to you. Such certificates and
the Units represented thereby are subject to the rights of the Underwriter
hereunder and, to such extent, the Power of Attorney granted by such Selling
Securityholder to such attorney-in-fact is irrevocable and shall not be
terminated by law or upon the occurrence of any event. If any such event shall
occur, with or without notice to such attorneys-in-fact, such attorneys-in-fact
shall deliver such certificates in accordance with the terms and provisions of
this Agreement as if such event had not occurred.
5
<PAGE>
(iii) The Power of Attorney Agreement has been duly authorized,
executed and delivered by such Selling Securityholder, and this Agreement has
been duly authorized, executed and delivered by such Selling Securityholder or
by his or her attorney-in-fact pursuant to the Power of Attorney Agreement. The
Power of Attorney Agreement and this Agreement each constitute valid and binding
agreements of such Selling Securityholder enforceable in accordance with their
respective terms (except as rights to indemnification may be limited by
applicable law).
(iv) Neither the execution and delivery or performance of this
Agreement or the Power of Attorney Agreement or the consummation of the
transactions herein or therein contemplated nor the compliance with the terms
hereof or thereof by such Selling Securityholder will conflict with, or result
in a breach of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, guaranty, purchase agreement or other
agreement or instrument to which such Selling Securityholder or any of such
Selling Securityholder's property is bound, or under any statute or under any
order, rule or regulation applicable to such Selling Securityholder or any of
such Selling Securityholder's property of any court or other governmental
agency; and no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such Selling
Securityholder of the transactions on such Selling Securityholder's part herein
or therein contemplated, except such as may be required under the Act or under
state securities or blue sky laws.
(v) On the Closing Date, all stock transfer or other taxes (other
than income taxes) which are required to be paid in connection with the sale and
transfer of the Shares to be sold by the Selling Securityholders to the
Underwriter hereunder will have been fully paid or provided for by the Selling
Securityholders and all laws imposing such taxes will have been fully complied
with.
(vi) Such Selling Securityholder has not, and at the Closing Time
will not have, taken, directly or indirectly, any action to cause or result in,
or which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Securities to facilitate the
sale or the resale of any of the Units.
3. Purchase, Sale and Delivery of Shares. Subject to the terms and
conditions of this Agreement, and on the basis of the representations,
warranties and agreements herein contained, (A) the Company hereby agrees to
sell to the Underwriter, and the Underwriter agrees to purchase from the
Company, at purchase prices of $______ per Unit, and (B) each of the Selling
Securityholders agree, severally and not jointly, to sell to the Underwriter the
number of Units set forth opposite the name of such Selling Securityholder on
Schedule A hereof, and the Underwriter agrees to purchase from the Selling
Securityholders, such Units at and for a
6
<PAGE>
price of $______ per Unit.
The Company and the Selling Securityholders will deliver the Units to you
at your office, or such other place as you may designate, against payment to the
Company and the Selling Securityholders for the Units by wire transfer or by
certified or official bank check or checks payable in New York Clearing House
funds to the order of the Company and the attorneys-in-fact of the Selling
Securityholders. The Units so to be delivered will be in definitive, fully
registered form in such authorized denominations and registered in such names as
you request by notice to the Company and the Selling Securityholders given not
later than 5:00 P.M., New York City time, on the second business day next
preceding the Closing Date. The date and the time of such delivery and payment
shall be 11:00 A.M., New York City time, on ____________, 1996 (or such other
time and date as you and the Company and the Selling Securityholders may agree
upon). The time and date of such payment and delivery is herein sometimes
referred to as the "Closing Date".
The Company and the Selling Securityholders agree to make the Units
available to you for the purpose of expediting the checking and packaging of the
Units, at the office at which they are to be delivered, not later than 2:00
P.M., New York City time, on the business day next preceding the Closing Date.
The Company hereby grants to you the right, exercisable within 45 days from
the date hereof, to purchase from the Company up to 60,000 additional Units (the
"Additional Units") at a purchase price of $_______ per Unit, for the purpose of
covering over-allotments in the sale of the Underwriter of the Units. You may
exercise your right to purchase Additional Units by giving written notice of
such exercise to the Company.
Such notice shall set forth the aggregate number of Additional Units as to
which such right is being exercised, the names in which Additional Units are to
be registered, the denominations in which Additional Units are to be issued and
the date and time, as determined by you, when the Additional Units are to be
delivered (such date and time being herein sometimes referred to as the
"Additional Closing Date"); provided, however, that the Additional Closing Date
-----------------
shall not be earlier than the Closing Date. The Additional Closing Date may be
on the Closing Date; if not, it shall be no earlier than the third business day
after the date on which the right shall have been exercised nor later than the
twelfth business day after the date on which the right shall have been
exercised.
The Company will deliver the Additional Units to you at your office, or
such other place as you may designate, against payment to the Company for the
Additional Units by wire transfer or by certified or official bank check or
checks payable in New York
7
<PAGE>
Clearing House funds to the order of the Company. The Additional Units so to be
delivered will be in definitive, fully registered form in such authorized
denominations and registered in such names as you request by notice to the
Company given not later than 5:00 P.M., New York City time, on the second
business day next preceding the Additional Closing Date.
The Company agrees to make the Additional Units available to you for the
purpose of expediting the checking and packaging of the Units, at the office at
which they are to be delivered, not later than 2:00 P.M., New York City time, on
the business day next preceding the Additional Closing Date.
It is understood that the Underwriter proposes to offer the Units for sale
to the public upon the terms and conditions set forth in the Registration
Statement, after the Registration Statement becomes effective.
4. Covenants of the Company.
(a) The Company further covenants and agrees with you that:
(i) The Company will use its best efforts to cause the Registration
Statement to become effective and will not at any time, whether before or after
the effective date, file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Act, or the Rules and Regulations
of the Commission thereunder.
(ii) The Company will notify you immediately and confirm in writing
(A) when the Registration Statement and any post-effective amendment thereto
becomes effective, (B) of the issuance of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or of the Prospectus or of the
initiation of any proceedings for such purposes, and (C) of the receipt of any
comments (in writing or orally) from the Commission in respect of the
Registration Statement or requesting the amendment, post-effective amendment or
supplementation of the Registration Statement or Prospectus or for additional
information. If the Commission shall enter a stop order or any order preventing
or suspending the use of any Preliminary Prospectus or of the Prospectus at any
time, or shall initiate any proceedings for such purposes, the Company will make
every reasonable effort to prevent the issuance of such order and, if issued, to
obtain the withdrawal thereof. The Company will provide you with copies of all
written communications received by it from the Commission and any other
regulatory agency with respect to the Registration Statement, and every
amendment and post-effective amendment thereto and copies of all replies thereto
by the Company, its counsel and its
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accountants.
(iii) Within the time during which a prospectus relating to the
Units, Shares and Warrants (or the exercise of any Warrants) is required to be
delivered under the Act, the Company will comply so far as it is able with all
requirements imposed upon it by the Act, as now and hereafter amended, and by
the Rules and Regulations of the Commission thereunder, from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Units, Shares and Warrants (or the shares of stock to be acquired upon the
conversion of Preferred Stock and the exercise of the Warrants) as contemplated
by the provisions hereof and the Prospectus; and if during such period any event
occurs as a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
then existing, not misleading, or if during such period it is necessary to amend
or supplement the Prospectus to comply with the Act, the Company will promptly
notify you and will amend or supplement the Prospectus (in form reasonably
satisfactory to your counsel and at the expense of the Company) so as to correct
such statement or omission or effect such compliance.
(iv) The Company will cooperate with you and will take all necessary
action, and furnish to whomever you may direct such proper information, as may
be lawfully required in qualifying the Securities for offering and sale under
the securities or blue sky laws of such states as you may designate, and in
continuing such qualifications in effect so long as required for the
distribution of Securities by you; provided that the Company shall not be
obligated to qualify as a foreign corporation to do business under the laws of
any such state, consent to general service of process in such state or otherwise
to submit to any requirements which it reasonably deems unduly burdensome.
(v) The Company will pay any and all fees, taxes and expenses
incident to the performance of its obligations under this Underwriting
Agreement, including expenses and taxes incident to the issuance and delivery to
you of the Securities and Additional Securities, if any, to be sold to the
Underwriter pursuant to Section 3 hereof; all fees and disbursements of counsel
and accountants for the Company; expenses and filing fees incident to the
preparation, printing, delivery, shipment and filing with the Commission, the
National Association of Securities Dealers, Inc., and state blue sky authorities
of the Registration Statement and all exhibits thereto and the Prospectus, and
any amendments or supplements thereto, including fees of blue sky counsel (to be
designated by the Underwriter and who may be counsel to the Underwriter)
incident to the qualification for sale of the Securities and Additional
Securities, if any, under blue sky laws. The Company and the Selling
Securityholders will further pay you for your expenses incurred in connection
with this offering, on a
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non-accountable basis, an amount equal to 3% of the public offering price of the
Units sold hereunder, including any Units sold pursuant to the overallotment
option, such reimbursement and payment to be made to you on closing, and may be
deducted by you from the amount due to the Company and the Selling
Securityholders for purchase of the Units pursuant to Section 3 hereof. In the
event that the offering is not consummated, the Representative will be
reimbursed only for its actual, accountable, out-of-pocket expenses.
(vi) The Company will apply the net proceeds from the sale of the
Units substantially as set forth under the caption "Use of Proceeds" in the
Prospectus.
(vii) The Company will deliver to you as promptly as practicable
three signed copies of the Registration Statement and all amendments thereto,
including all exhibits therewith or incorporated therein by reference, and
signed consents, certificates and opinions of accountants and of any other
persons named in the Registration Statement as having prepared, certified or
reviewed any part thereof, and will deliver to you such number of unsigned
copies of the Registration Statement and exhibits, and of all amendments
thereto, as you may reasonably request. The Company will deliver to you or upon
your order, from time to time until the effective date of the Registration
Statement, as many copies of the Preliminary Prospectus as you may reasonably
request. The Company will deliver to you or upon your order, on the effective
date of the Registration Statement and thereafter, subject to the provisions of
Section 4(a)(iii) hereof, from time to time, as many copies of the Prospectus in
final form or as thereafter amended or supplemented, as you may reasonably
request. The Company will deliver to you, promptly after closing, three (3)
bound volumes of all of the documents, papers, exhibits, correspondence and
records forming the materials involved in this public offering.
(viii) The Company will make generally available to its security
holders, as soon as it is practicable to do so (but in no event later than
fifteen months after the effective date of the Registration Statement), an
earnings statement of the Company (which need not be audited) covering a period
of at least twelve months beginning not later than the first day of the fiscal
quarter next succeeding such effective date which shall satisfy the provisions
of Section 11(a) of the Act.
(ix) For a period of at least five years from the date hereof, the
Company will supply to the Representative, (A) as soon as practicable after the
end of each fiscal year, a balance sheet and statement of operations of the
Company and its consolidated subsidiaries (if any) as at the end of and for each
such year, all in reasonable detail and certified by independent certified
public accountants, (B) as soon as practicable after the end of each of
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the first three quarters of each fiscal year, an unaudited statement of
operations of the Company and its consolidated subsidiaries (if any) for such
period, (C) copies of such financial statements and reports as the Company may,
from time to time, furnish generally to holders of any class of its stock, (D)
copies of each report which it shall be required to file with the Commission,
any blue sky authority or any securities exchange at the same time as such
reports are filed and (E) copies of the daily stock transfer sheets of the
Company.
(x) Simultaneously with the purchase and payment by the Underwriter
for the Units on the Closing Date, the Company shall sell, at a price of $0.001
per warrant, and issue and deliver to the Underwriter or to dealers in the
selling group, or to officers or partners of the Underwriter or dealers in the
selling group, 50,000 warrants, in form and substance satisfactory to your
counsel, to purchase 50,000 Units identical to the Units being sold to the
public hereunder at an exercise price of $_______ per Unit ("Underwriter's Unit
Warrants"). The Underwriter's Unit Warrants will be exercisable for a period of
five years commencing on the Effective Date, and will not be transferable for a
period of one year from the Effective Date except to Selected Dealers and
officers and partners of the Underwriter and Selected Dealers. The Underwriter's
Unit Warrants shall have been registered under the Registration Statement and
the holders of a majority of such Underwriter's Unit Stock Warrants or the
securities which may have been issued thereunder shall have the right, at any
one time, to require the Company to prepare and file a post-effective amendment
to the Registration Statement (or a new registration statement, if then required
under the Act) covering all or any portion of the Underwriter's Unit Warrants
and their underlying securities to permit the public sale thereof after twelve
months from the Effective Date. In connection therewith, the Company shall be
obligated to prepare and file such post-effective amendment (or such new
registration statement) under the Act promptly upon the receipt of the request
of the holders of a majority of the Underwriter's Unit Warrants or securities
issued thereunder, and the Company shall be further obligated to use its best
efforts to have such post-effective amendment (or such new registration
statement) rendered effective under the Act, as it may from time to time be
amended hereafter, and Rules and Regulations promulgated thereunder, as soon as
practicable after the filing date of any such post-effective amendment or such
new registration statement, and the Company shall also be required to take such
action as may be necessary to maintain such post-effective amendment or such new
registration statement effective under the Act for the period, not in excess of
nine months, required to sell such Underwriter's Unit Warrants and their
underlying securities in compliance with the Act and Rules and Regulations
promulgated thereunder, and the Company shall be required to provide the
accounting necessary for the filing of any such post-effective amendment or such
new registration statement, plus any amendments or supplements thereto.
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In addition to, and not in lieu of, the obligations of the Company hereinabove
recited in this subsection, the Company hereby further covenants and agrees that
if, the Company shall prepare and file a post-effective amendment to the
Registration Statement or a new registration statement under the Act or
notification pursuant to Regulation A under the Act either of which is to become
effective at any time after the expiration of twelve months from the Effective
Date with respect to the public offering of any equity or debt securities of the
Company now or hereafter authorized, the Company will include in such post-
effective amendment or new registration statement or such notification such
number of the Underwriter's Unit Warrants and their underlying securities as
requested by the holders of the Underwriter's Unit Warrants or securities issued
thereunder, and neither you nor such holders shall be under any obligation to
bear any of the expenses or professional fees and disbursements to be incurred
by the Company in connection with the preparation and filing of such post-
effective amendment, or new registration statement or such notification. With
respect to any post-effective amendment, or new registration statement, or
notification filed by the Company pursuant to this subsection, the selling
securityholders offering any Underwriter's Unit Warrants and their underlying
securities thereunder shall be entitled to the benefits of indemnification by
the Company in like manner and to the same extent as the Company indemnifies the
Underwriter pursuant to Section 6(a) hereof.
(xi) The Company will not, without the prior written consent of the
Underwriter, for a period of six months after the effective date of the
Registration Statement, sell any securities of the Company or sell or grant
options, warrants or rights with respect to any securities of the Company, or
permit or cause a public offering of any securities of the Company except in
accordance with the provisions of the Registration Statement.
(xii) At the Closing, the Company shall enter into a consulting
agreement ("Consulting Agreement") retaining the Underwriter as financial
consultant to the Company for a two-year period commencing as of December 20,
1977, at a fee of $50,000 per year, the total amount of which shall be paid at
the Closing. The Company and the Underwriter shall also enter into an agreement
which will extend the Mergers and Acquisitions Agreement between the Company and
the Underwriter until December __, 2001.
(xiii) The Company shall cooperate with the Underwriter in making
available to its representatives such information as it may request in making an
investigation of the Company and its affairs.
(xiv) Until such time as the securities of the Company are listed on
the New York Stock Exchange or the American Stock Exchange (not including The
Emerging Growth Company List) but in no event more than three years from the
effective date, the Company
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<PAGE>
shall retain Compliance Management Company or a similar company, to prepare a
post registration blue sky market survey for the Underwriter for distribution to
market makers. Such survey shall be provided to the Underwriter annually with
the first survey delivered to it promptly after the completion of the public
offering hereunder. The cost of the first year's survey will not exceed $4,000.
In lieu of the foregoing, the Company may cause its legal counsel to provide the
Underwriter with a survey to be updated at least annually.
(xv) At all times, so long as any of the warrants referred to
herein are outstanding, the Company will have reserved authorized but unissued
shares of stock and underlying warrants, available for immediate issuance in
amounts necessary for the exercise of all warrants then outstanding. The Company
agrees to qualify the Units for listing on the NASDAQ System Small-Cap Issues on
the Effective Date and will take all necessary and appropriate action so that
the Units continue to be listed for trading in the NASDAQ System Small-Cap
Issues for at least five years from the Effective Date provided the Company
otherwise complies with the prevailing maintenance requirements of NASDAQ System
Small-Cap. In addition, at such time as the Company qualifies for listing its
securities on the National Market System of NASDAQ, the Company will take all
steps necessary to have the Company's Securities listed on the National Market
System of NASDAQ in lieu of listing as Small-Cap Issues. The Company shall
comply with all periodic reporting and proxy solicitation requirements imposed
by the Commission pursuant to the 1934 Act, and shall promptly furnish you with
copies of all material filed with the Commission pursuant to the 1934 Act or
otherwise furnished to shareholders of the Company.
(xvi) The Company will register its Units and Shares pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, not later than
the Effective Date.
(xvii) The Company will pay the fees and expenses (but not transfer
taxes, if any) of the Company's stock transfer agents, warrant agents, and
registrars (if any), without charge to stockholders and warrantholders, for not
less than five years after the effective date of the Registration Statement.
(xviii) The Underwriter shall receive a fee of 10% of the proceeds as
and when received by the Company from time to time upon the exercise of any
Warrants after one year from the Effective Date, provided that such fee shall be
paid only in accordance with the rules of the NASD and any applicable securities
laws and rules and regulations. The Underwriter will not be eligible to receive
the aforementioned warrant exercise fee as a result of transactions of the
following nature: (i) the exercise of Warrants when the market price of the
Company's Common Stock is lower than the exercise price; (ii) the exercise of
Warrants held in any discretionary account; (iii) the exercise of Warrants
where
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<PAGE>
documents disclosing the compensation arrangements (e.g., the Prospectus) have
not been provided to the warrantholder; (iv) the exercise of Warrants in
unsolicited transactions; and (v) the exercise of any Warrants during the one
year period commencing on the Effective Date, and further provided that no
broker shall be paid a fee unless such broker is designated in writing by the
customer as the soliciting broker. In addition, it will be a condition to the
receipt by the Underwriter of such fee that it shall not, in the ten days
immediately preceding the solicitation of the exercise or the date of such
exercise, have bid for or purchased the Common Stock of the Company (or any
securities of the Company convertible into or exchangeable for such Common
Stock, including the Warrants) or otherwise have engaged in any activity that
would be prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as
amended, by one participating in a distribution of the Company's securities
whether as underwriter or otherwise. The Company will not solicit warrant
exercises except through the Underwriter.
(xix) The Company continues to be listed in the appropriate Standard
& Poor's manual in order to comply with the requirements of the so-called
"standard manuals exemption" of various blue sky authorities with respect to the
Securities.
(b) Each of Selling Securityholders, severally and not jointly, covenants
and agrees with the Underwriter that:
(i) During the 180 days commencing on the date hereof, such Selling
Securityholder will not, directly or indirectly, take any action designed to or
which will constitute or which might reasonably be expected to cause or result
in the stabilization of the price of the Units to facilitate the sale or the
resale of any of the Units.
(ii) If, subsequent to the date hereof, such Selling Securityholder
shall believe or have any reasonable grounds to believe that the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or that any of the representations
and warranties of the Company or such Selling Securityholder contained herein or
in any certificate or document contemplated under this Agreement to be delivered
to you are false, such Selling Securityholder will immediately notify you to
such effect.
(iii) Such Selling Securityholder will not, without your prior
written consent, sell, contract to sell or otherwise dispose of any Securities
owned or held of record in its name, except the sale of Units to the Underwriter
pursuant to this Agreement, for a
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<PAGE>
period of 180 days after the Effective Date.
(iv) Such Selling Securityholder will furnish the certificates
referred to in subsections (h) and (i) of Section 9 hereof.
(v) Such Selling Securityholder will pay you for your expenses
incurred in connection with the offering, on a non-accountable basis, an amount
equal to 3% of the public offering price of the Units sold on behalf of such
Selling Securityholder.
5. Conditions of Underwriter's Obligations. The Underwriter's obliga-
tions to purchase and pay for the Units, as provided herein, shall be subject to
the accuracy, as of the date hereof and as of the Closing Date (as if made on
the Closing Date), of the representations and warranties of the Company and the
Selling Securityholders herein, to the accuracy of statements made in each
certificate delivered pursuant to the provisions hereof, to the performance by
the Company and the Selling Securityholders of their obligations hereunder, and
to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 P.M., New York City time, on the day following the date of this Agreement,
unless a later time and date be agreed to by you; and no stop order suspending
the effectiveness of the Registration Statement, or order preventing or
suspending the use of any Preliminary Prospectus or of the Prospectus, shall
have been issued and no proceedings for such purpose shall have been instituted
or be pending or, to the knowledge of the Company or you, shall be contemplated
by the Commission; and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of the Underwriter's Counsel.
(b) On the Closing Date the Underwriter shall have received an opinion of
Cohen & Cohen, counsel for the Company, dated the Closing Date, to the effect
that:
(i) The Company has full corporate power and authority to enter
into this Agreement and this Agreement has been duly authorized, executed and
delivered by the Company and duly executed and delivered by each Selling
Securityholder or his or her duly authorized attorneys-in-fact and constitutes a
valid and binding obligation of the Company and each Selling Securityholder
enforceable in accordance with its terms, subject to bankruptcy, insolvency or
similar laws governing the rights of creditors generally and to the discretion
of courts in granting equitable remedies, except insofar as rights to indemnity
or contribution hereunder may be limited by Federal securities laws. Each Power
of Attorney Agreement has been duly authorized, executed and delivered
15
<PAGE>
by each Selling Securityholder and constitutes a valid, binding and legally
enforceable obligation of each Selling Securityholder in accordance with its
terms, subject to bankruptcy, insolvency or similar laws governing the rights of
creditors generally and to the discretion of courts in granting equitable
remedies and validly grants the power of attorney to ______________________ and
______________________ intended to be granted thereby.
(ii) The Warrant Agreement, as amended, the Consulting Agreement and
the Amendment to the Mergers and Acquisitions Agreement have been duly
authorized, executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company enforceable in accordance with
their terms (except insofar as enforcement of the indemnification provisions
thereof may be limited by applicable federal securities laws or principles of
public policy and subject to bankruptcy, insolvency, moratorium, reorganization
and similar laws affecting creditors' rights generally and to general principles
of equity). The Company has full corporate power and authority to said
agreements and to sell, issue and deliver the Units, Shares, Warrants,
Underwriter's Unit Warrants and the securities underlying all warrants;
(iii) The Company has authorized and outstanding capital stock as set
forth under "Capitalization" in the Prospectus; all of the Company's outstanding
shares of capital stock have been duly authorized and validly issued, and are
fully paid and nonassessable; all of the Units, Shares, Warrants, Underwriter's
Unit Warrants sold pursuant to this Agreement have been duly authorized, validly
issued and delivered and are fully paid and nonassessable, and conform to the
descriptions thereof in the Prospectus and such descriptions conform to the
rights duly set forth in the Certificate of Incorporation of the Company, the
Warrant Agreement, the Underwriter's Unit Warrants and this Agreement; the
Warrants, the Underwriter's Unit Warrants, are, and the warrants underlying the
Underwriter's Unit Warrants will, when issued in accordance with the provisions
of the Warrant Agreement, the Underwriter's Unit Warrants, and this Agreement
be, valid and legally binding obligations of the Company in accordance with
their respective terms (subject to bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization and similar laws affecting creditors'
rights generally and to general principles of equity); the securities underlying
the Warrants and the Underwriter's Unit Warrants have been validly authorized
and reserved for issuance, and any shares when issued in accordance with the
terms of the Warrants or Underwriter's Unit Warrants, as the case may be, will
be validly issued and will be fully paid and non-assessable; the holders of the
Units, Shares, Warrants and Underwriter's Unit Warrants, and the securities
underlying the Warrants and the Underwriter's Unit Warrants are not, and will
not be, subject to any personal liability for liabilities of the Company by
reason of being holders thereof; and none of such securities which have been
issued, have been issued in violation of the preemptive rights or
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<PAGE>
any other rights of any stockholder of the Company and no stockholder of the
Company has any preemptive right to subscribe for or to purchase any of such
Units, Shares, Warrants, Underwriter's Unit Warrants, or securities underlying
the Warrants, and the Underwriter's Unit Warrants;
(iv) The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware, has full corporate
power and authority to conduct its business as presently conducted and as
described in the Prospectus and to own its properties and is duly qualified to
do business and is in good standing in each jurisdiction wherein the property
owned or leased, or the conduct of business, by it makes such qualification
necessary (except where failure to so qualify would not have a material adverse
effect on the Company). The Company's subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the laws of
Hungary and have corporate powers and authority necessary to carry on their
business;
(v) The Registration Statement has become effective under the
Securities Act and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is pending or contemplated
by the Commission;
(vi) The Registration Statement and the Prospectus, and any
amendment or supplement thereto, comply as to form in all material respects with
the requirements of the Securities Act and the Rules (except that such counsel
need express no opinion as to the financial statements and schedules and
financial data included therein or omitted therefrom);
(vii) Such counsel has assisted in the preparation of the
Registration Statement and the Prospectus and no fact has come to the attention
of such counsel which leads such counsel to believe that, either as of the
Effective Date or the date of the opinion, (A) either the Registration Statement
or the Prospectus or any amendment or supplement thereto (except for the
financial statements and schedules and financial data included therein or
omitted therefrom, as to which such counsel need express no opinion) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (B) there is any material legal, governmental or administrative
proceeding pending, threatened or contemplated to which the Company is or may
become a party or to which any of its property is or may become subject, or any
basis for any legal, governmental or administrative proceeding, required to be
described in the Prospectus under the Act which is not described as required, or
(C) there is any contract or document of a character required to be described in
the
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Registration Statement or the Prospectus, or to be filed as an exhibit to the
Registration Statement, under the Act which is not described or filed as
required.
(viii) The execution, delivery and performance of this Agreement by
the Company and the Selling Securityholders and the Power of Attorney Agreements
by the Selling Securityholders, and the consummation of the transactions
contemplated therein do not and will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Articles of Incorporation or By-Laws of the Company or any indenture,
mortgage, deed of trust, note agreement or other agreement or instrument known
to such counsel to which the Company or any Selling Securityholder is a party or
by which they are bound or to which any of their property is subject, or any
Federal, state or other statute, law, rule or regulation, or any judgment, order
or decree of any court or governmental agency or body known to such counsel
having jurisdiction over the Company or any Selling Securityholder or any of
their property;
(ix) No consent, approval, authorization or order of, or declaration
or filing with, any government, governmental instrumentality or court, is
required for the valid consummation by the Company or the Selling
Securityholders of the transactions contemplated by this Agreement, except such
as may be required under the Securities Act or any state securities or "blue
sky" laws in connection with the purchase, sale and distribution of the Units;
and
(x) To the best of such counsel's knowledge, the Company possesses
all material permits, certificates of compliance, approvals, licenses, waivers,
consents and other rights from governmental authorities which are requisite for
the material conduct of its business as presently conducted and as described in
the Prospectus (except such as in the aggregate would not materially affect the
business or operations of the Company), for the consummation of the transactions
contemplated in this Agreement and for the offering contemplated by the
Prospectus, and each such permit, certificate of compliance, approval, license,
waiver, consent and right is valid and in full force and effect.
(xi) Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Units
hereunder as counsel for the Underwriter may reasonably request. In rendering
the opinions set forth above, such counsel may rely upon certificates of the
Selling Securityholders, officers of the Company and public officials as to
matters of fact, and may rely as to all matters of law other than the laws of
the United States or the corporate laws of the State of Delaware upon opinions
of counsel satisfactory to you, in which case the opinion shall state that they
have no reason to believe that you and they are not entitled to so rely.
Additionally, in
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rendering such opinion, counsel shall not be required to opine upon the
availability of equitable remedies, including but not limited to, the remedies
of specific performance and injunctive relief.
(c) At the time this Agreement is executed by the parties hereto and on
the Closing Date (and on the Additional Closing Date, if any), the Underwriter
shall have received from Coopers and Lybrand, a letter dated as of each such
date, to the effect that:
(i) They are independent accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
thereunder;
(ii) In their opinion, the financial statements (including the
schedules, if any) in the Registration Statement examined by such firm, comply
as to form in all material respects with the applicable accounting requirements
of the Act and the published Rules and Regulations thereunder with respect to
registration statements on Form SB-2;
(iii) On the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of reading the
minutes of meetings of the stockholders and the Board of Directors of the
Company since the date of the latest audited balance sheet as set forth in the
minute books through a specified date not more than five business days prior to
the date of the letter, reading the unaudited interim financial statements (if
any), including the schedules (if any), of the Company included in the
Registration Statement and making inquiries of certain officials of the Company
who have responsibility for financial and accounting matters regarding the
specific items for which representations are requested below, nothing has come
to their attention as a result of the foregoing procedures that caused them to
believe that (A) the unaudited financial statements (if any), including the
schedules (if any), of the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the published Rules and Regulations thereunder; (B)
said financial statements, including the schedules (if any), are not presented
fairly, in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial statements;
(C) during the period from the date of the latest balance sheet covered by their
report(s) included in the Registration Statement to a specific date not more
than five business days prior to the date of the letter, there has been any
change in the capital stock or long-term debt of the Company as compared with
the amounts shown in the balance sheet included in the Registration Statement,
except as set forth in or contemplated by the Registration Statement; or (D) for
the period from the date of the last balance sheet contained in the Prospectus
to a specified date not more than five days prior to the date of such letter,
there has been any decrease, except as described in such letter and
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previously discussed with you, in consolidated gross revenues, net income,
consolidated assets or total stockholders' equity as compared with the amounts
shown on such balance sheet, except for such changes or decreases which the
Registration Statement discloses have occurred or may occur; and
(iv) In addition to the examination referred to in their report
included in the Registration Statement and the limited procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information which are included in the Registration Statement and Prospectus and
which are specified by you, and have found such amounts, percentages and
financial information to be in agreement with the relevant accounting and
financial records of the Company and its subsidiaries identified in such letter.
(d) The Representative shall have received a certificate or certificates,
dated the Closing Date and the Additional Closing Date, executed by at least two
officers of the Company, including the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, to the effect
that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(ii) Neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; and since the effective date of
the Registration Statement, there has occurred no event required to be set forth
in an amended or supplemented Prospectus which has not been so set forth;
(iii) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Company has not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transaction, not
in the ordinary course of business, and there has not been any material change
in the capital stock or funded debt of the Company, or any material adverse
change in the condition (financial or other) or results of operations of the
Company;
(iv) There are no legal proceedings pending or threatened against
the Company of a character affecting the validity of this Agreement or required
to be disclosed in the Prospectus which are not disclosed therein; there are no
transactions or contracts which
20
<PAGE>
are required to be summarized therein which are not so summarized; and there are
no material contracts or documents required to be filed as exhibits to the
Registration Statement which are not so filed;
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or damage to its properties, whether or not insured;
and
(vi) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the date of the letter;
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the date of
the letter.
(e) The Selling Securityholders shall have performed all of the covenants
contained herein and in any certificate or document contemplated under this
Agreement to be delivered to you and required to be performed by the Selling
Securityholders at or prior to the Closing Date, and you shall have received at
the Closing Date a certificate of the Selling Securityholders, dated as of the
Closing Date, to the effect that the representations and warranties of the
Selling Securityholders contained in this Agreement and in each such certificate
and document are true and correct in all respects on and as of the date of such
certificate as if made on and as of such date, and each of the covenants and
conditions required to be performed or complied with by the Selling
Securityholders on or prior to the date of such certificate has been duly,
timely and fully performed or complied with.
(f) The Company and each of the Selling Securityholders shall have
furnished to you such certificates, in addition to those specifically mentioned
herein, as you may have reasonably required in a timely manner as to the
accuracy and completeness, at the Closing Date, of any statement in the
Registration Statement or the Prospectus; as to the accuracy, at the Closing
Date, of the representations and warranties of the Company and the Selling
Securityholders herein and in each certificate and document contemplated under
this Agreement to be delivered to you; as to the performance by the Company and
the Selling Securityholders of their respective obligations hereunder and under
each such certificate and document; or as to the fulfillment of the conditions
concurrent and precedent to your obligations hereunder.
(g) All corporate proceedings and related matters in connection with the
organization of the Company and the qualification, authorization, issuance, sale
and delivery of the Securities shall be satisfactory to Henry C. Malon, Esq.,
counsel for the Underwriter, and such counsel shall have been furnished with
such papers and information as he may reasonably have requested in this
connection.
21
<PAGE>
(h) Certain holders of outstanding securities of the Company shall have
agreed not to sell or transfer their securities under Rule 144 under the Act or
otherwise for certain periods of time following the Effective Date of the
offering, as set forth in the Prospectus, without the prior written consent of
the Underwriter.
(i) All such opinions, letters, certificates and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Underwriter and to its counsel.
(j) If any condition to the Underwriter's obligations hereunder to be
satisfied at or prior to the Closing Date is not so satisfied, the Underwriter
may terminate this Agreement without liability on its part or on the part of the
Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Section 4(a)(v) of this Agreement and except for any liability under
Sections 6 and 7 of this Agreement.
6. Indemnification. (a) The Company and each of the Selling
Securityholders, jointly and severally, agree to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several, to which it or such controlling person may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any blue sky application or other document executed by
the Company or a Selling Securityholder specifically for that purpose or based
upon written information furnished by the Company or a Selling Securityholder
filed in any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
will reimburse it and each such controlling person for any legal or other
expenses reasonably incurred by it or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company and the Selling Securityholders will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus, the Prospectus or such amendment or supplement, or
in such blue sky application or such other document, in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof; and provided, further, that the
Company and the Selling
22
<PAGE>
Securityholders will not be liable under this indemnity agreement, insofar as it
relates to any Preliminary Prospectus, to the extent that any such loss, claim,
damage, liability or action results from the fact that the Underwriter sold
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sales, a copy of the Prospectus (or of the
Prospectus as then amended or supplemented if the Company had previously
furnished copies thereof to you). This indemnity agreement will be in addition
to any liability which the Company and the Selling Securityholders may otherwise
have. The obligations of each Selling Securityholder to indemnify the
Underwriter and aforesaid controlling persons hereunder shall be limited to the
product of the number of Units sold by such Selling Securityholder and the
initial public offering price set forth on the cover page of the Prospectus.
(b) The Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of the Act,
and each of the Selling Securityholders to the same extent as the foregoing
indemnity from the Company and the Selling Securityholders to the Underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director, officer or controlling person or Selling
Securityholder may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any blue sky
application or other document executed by the Company specifically for that
purpose filed in any state or other jurisdiction in order to qualify any or all
of the Securities under the securities laws thereof, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, such Preliminary Prospectus, the Prospectus or
such amendment or supplement, or in such blue sky application or such other
document, in reliance upon and in conformity with written information furnished
to the Company by the Underwriter specifically for use in the preparation
thereof; and will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer or controlling person or any such
Selling Securityholder in connection with investigating or defending any such
loss, claim, damage, liability or action. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
23
<PAGE>
Section of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 6. In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party, similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall be liable for any
settlement of any action effected without its written consent.
7. Contribution. (a) In order to provide for just and equitable
contribution under the Act in any case in which (i) the Underwriter (or any
person who controls the Underwriter within the meaning of the Act) makes claim
for indemnification pursuant to Paragraph 6(a) hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Paragraph 6(a) provides for indemnification in
such case or (ii) contribution under the Act may be required on the part of the
Underwriter or any such controlling person in circumstances for which
indemnification is provided under Paragraph 6(b), then, and in each case, the
Company, the Selling Securityholders and the Underwriter shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriter is
responsible for an aggregate of 10% (being the amount of the Underwriter's
commission) and the Company and the Selling Securityholders are responsible for
the remaining portion; provided, however, that, in any such case, no person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
(b) Promptly after receipt by any party to this Agreement of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
24
<PAGE>
contribution under the Act. In case any such action, suit or proceeding is
brought against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified.
8. Representations and Indemnities to Survive Delivery. All
representations and warranties of the Company contained herein and in the
certificate or certificates delivered pursuant to Section 5(d) hereof, and the
indemnity and contribution agreements contained in Sections 6 and 7 hereof,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriter or any controlling person,
or by or on behalf of the Company or any officer, director or controlling
person, or of any termination of this Agreement, and shall survive delivery of
and payment for the Units.
9. Effective Date of this Agreement and Termination Thereof. (a) This
Agreement shall become effective at 9:00 A.M., New York City time, on the first
full business day after the Registration Statement has become effective, or at
such earlier time after the Registration Statement has become effective as you
in your discretion shall first release the Units for sale to the public. For
the purposes of this Section 9, the Units shall be deemed to have been released
for sale to the public upon release by you of the publication of a newspaper
advertisement relating to the Units or upon release by you of telegrams or
facsimile transmissions offering the Units for sale, whichever shall first
occur. You or the Company may prevent this Agreement from becoming effective
without liability of any party to any other party, except as noted below, by
giving the notice hereinafter specified at or before the time this Agreement
becomes effective; provided however, that the provisions of this Section,
Section 4(a)(v), Section 6 and Section 7 shall at all times be effective.
(b) You shall have the right to terminate this Agreement by giving the
notice hereinafter specified at any time at or prior to the Closing Date if (i)
the Company or the Selling Securityholders shall have failed, refused or been
unable, at or prior to the Closing Date, to perform any agreement on their part
to be performed hereunder, or because any other condition precedent to the
Underwriter's obligations hereunder required to be fulfilled by the Company and
the Selling Securityholders have not fulfilled, or if (ii) trading on the New
York Stock Exchange shall have been generally suspended, or minimum or maximum
prices for trading shall have been generally fixed, or maximum ranges for prices
for securities shall have been generally required by the New York Stock Exchange
or by order of the Commission or any other governmental authority having
jurisdiction, or if there has been a substantial adverse change in general
market or economic conditions, or if a
25
<PAGE>
banking moratorium shall have been declared by Federal or New York authorities,
or if an outbreak of hostilities or other national or international calamity of
such nature as to disorganize the securities markets in the United States shall
have occurred since the execution hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 9, you shall notify the
Company and the Selling Securityholders promptly by telephone or telegram,
confirmed by letter. If the Company elects to prevent this Agreement from
becoming effective, the Company shall notify you promptly by telephone or
telegram, confirmed by letter.
10. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to the Underwriter shall
be mailed, delivered or telegraphed and confirmed to you as Representative at 1
Battery Park Plaza, New York, New York 10004, or if sent to the Company, shall
be mailed, delivered or telegraphed and confirmed to it at 445 Park Avenue, New
York, New York 10022 marked to the attention of the President.
11. Parties. This Agreement shall inure to the benefit of and be binding
upon you, the Company, the Selling Securityholders, and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person or corporation, other than the
parties hereto and their respective successors and assigns and the controlling
persons and the officers and directors referred to in Section 6 hereof, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective successors and assigns, and
said controlling persons and said officers and directors, and for the benefit of
no other person or corporation. No purchaser of any of the Units from the
Underwriter shall be construed a successor or assign by reason merely of such
purchase.
12. Information Furnished by Underwriter. The statements set forth in the
last paragraph on the cover page, in the stabilization legend, under the caption
"Underwriting" and the statements regarding counsel for the Underwriter under
the caption "Legal Matters" in any Preliminary Prospectus and in the Prospectus
and in blue sky reports of sales, if any, constitute the written information
furnished by or on behalf of the Underwriter referred to in Sections 2(b), 6(a)
and 6(b) hereof.
13. Miscellaneous. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, and the
Company and the Selling Securityholders hereby consent and will submit to the
jurisdiction of the courts of
26
<PAGE>
the State of New York and of any federal court sitting in the City of New York
with respect to controversies arising under this Agreement.
If the foregoing correctly sets forth the understanding between the Company
and the Selling Securityholders and the Underwriter, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement between the Company, the Selling Securityholders and each of
the Underwriter.
Very truly yours,
HUNGARIAN BROADCASTING CORP.
By:
---------------------------------
Selling Securityholders
By:
---------------------------------
, Attorney-in-fact for
the Selling Securityholders
Accepted as of the date first above written:
J.W. BARCLAY & CO., INC.
By:
-----------------------------
27
<PAGE>
SCHEDULE A
SELLING SECURITYHOLDERS
-----------------------
Number of
Name Units
---- -----
Dean Rivera 10,000
Patricia Weremeychik 10,000
Mark Lyons 10,000
Joan Downey 20,000
Louis Spadafora 10,000
Matthew Langdon 20,000
John Delgaizo 20,000
-------
Total 100,000
-------
28
<PAGE>
EXHIBIT 1(b)
500,000 UNITS
(Each Unit Consisting of One Share of
Series A Convertible Cumulative Redeemable Preferred Stock
and One Common Stock Purchase Warrant)
HUNGARIAN BROADCASTING CORP.
SELECTED DEALER AGREEMENT
Dated: December , 1996
Dear Sirs:
We, as the Underwriter named in the prospectus mentioned below (the
"Underwriter"), have agreed, subject to the terms and conditions of the
Underwriting Agreement (the "Underwriting Agreement"), to purchase from
Hungarian Broadcasting Corp. (the "Company") and certain Selling
Securityholders, at the prices set forth on the cover of said prospectus, an
aggregate of 500,000 Units (The "Units"), each Unit consisting of one share of
Convertible Cumulative Redeemable Preferred Stock and one Common Stock Purchase
Warrant. The Units are more particularly described in the enclosed prospectus
(the "Prospectus"), additional copies of which will be supplied in reasonable
quantities upon request.
We, as the Underwriter, are offering a part of the Units for sale to
selected dealers (the "Selected Dealers"), among whom we are pleased to include
you, at the public offering prices, less concessions in the amounts set forth in
the Prospectus under "Underwriting". This offering is made subject to delivery
of the Units and their acceptance by the Underwriter, to the approval of various
legal matters by counsel, and to the terms and conditions herein set forth and
may be made on the basis of the reservation of Units or an allotment against
subscription.
We have advised you by telegram of the method and terms of the offering.
Acceptances should be sent to J.W. Barclay & Co., Inc., 1 Battery Park Plaza,
New York, New York 10004. We reserve the right to reject any acceptances in
whole or in part.
Any of the Units purchased by you hereunder are to be offered by you to the
public at the public offering prices, except as herein otherwise provided and
except that a reallowance from such public offering prices of not in excess of
the amount set forth in the Prospectus under "Underwriting" may be allowed to
dealers who are members in good standing of the National Association of Units
Dealers, Inc., or foreign banks, dealers or institutions not eligible for
membership in said Association who represent to you that they will promptly
reoffer such Units to unrelated persons at the public offering prices and will
abide by the conditions with
<PAGE>
respect to foreign banks, dealers and institutions set forth in the confirmation
below.
We may, and any Selected Dealer may, with our consent, buy Units from, or
sell Units to, any other Selected Dealer at the public offering prices less all
or any part of the concessions.
You agree to pay us on demand an amount equal to the concessions on any
Units purchased by you hereunder which, prior to the termination of this
Agreement, we may purchase or contract to purchase or which may be delivered
against purchase contracts made by us prior to the termination of this
Agreement.
Units purchased by you hereunder shall be paid for on such date as we shall
determine, on one day's notice to you, by certified or official bank check
payable in New York Clearing House funds to the order of J.W. Barclay & Co.,
Inc., 1 Battery Park Plaza, New York, New York 10004, or at such other place as
instructed. Delivery to you of certificates for Units will be made as soon as
is practicable thereafter. Unless specifically authorized by us, payment by you
may not be deferred until delivery of certificates to you.
We have been advised by the Company that a Registration Statement for the
Units, filed under the Units Act of 1933, has become effective. You agree that
in selling Units purchased pursuant hereto (which agreement shall also be for
the benefit of the Company and the Selling Securityholders) you will comply with
the applicable requirements of the Units Act of 1933 and of the Units Exchange
Act of 1934. No person is authorized by the Company or by the Underwriter to
give any information or make any representations not contained in the Prospectus
in connection with the sale of Units. You are not authorized to act as agent
for the Company or the Underwriter in offering Units to the public or otherwise.
Nothing contained herein shall constitute the Selected Dealers partners with the
Underwriter or with one another.
Upon application to us, we will inform you as to the advice we have
received from counsel concerning the jurisdictions in which Units have been
qualified for sale or are exempt under the respective securities or blue sky
laws of such jurisdictions, but we have not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealer to sell
Units in any such jurisdiction.
As Underwriter, we shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. We shall be under no obligation to you except for obligations
expressly assumed by us in this Agreement.
We have been authorized to overallot in arranging for sales of the Units
to the Selected Dealers, to purchase and sell Units for long or short account
and to stabilize or maintain the market prices of the Units.
2
<PAGE>
You agree, upon our request, at any time or times prior to the termination
of this Agreement, to report to us the number of Units purchased by you pursuant
to the provisions hereof which then remain unsold.
Selected Dealers will be governed by the conditions herein set forth until
this Agreement is terminated. This Agreement will terminate at the close of
business on the 30th day after the date hereof but, in our discretion, may be
extended by us for a further period not exceeding 30 days and in our discretion,
whether or not extended, may be terminated at any earlier time. Notwithstanding
the termination of this Agreement, you shall remain liable for your
proportionate amount of any claim, demand or liability which may be asserted
against you alone, against you together with other dealers purchasing Units upon
the terms hereof, or against us, based upon the claim that the Selected Dealers,
or any of them, constitute an association, an unincorporated business or other
entity.
This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, and you consent and
will submit to the jurisdiction of the courts of the State of New York and of
any federal court sitting in the City of New York with respect to controversies
arising under this Agreement.
In the event that you agree to purchase Units in accordance with the terms
hereof, kindly confirm such agreement by completing and signing the form
provided for that purpose on the enclosed duplicate hereof and returning it to
us promptly, even though you may have previously advised us of your acceptance
by telephone or telegraph.
All communications from you should be addressed to J.W. Barclay & Co.,
Inc., 1 Battery Park Plaza, New York, New York 10004. Any notice from us to you
shall be deemed to have been duly given if mailed or telegraphed to you at the
address to which this letter is mailed.
Very truly yours,
J.W. BARCLAY & CO., INC.
By
--------------------------------
3
<PAGE>
J.W. Barclay & Co., Inc.
1 Battery Park Plaza
New York, New York 10004
Dear Sirs:
We hereby confirm our agreement to purchase __________ Units of Hungarian
Broadcasting Corp. allotted to us subject to the terms and conditions of the
foregoing agreement and your telegram to us referred to therein. We hereby
acknowledge receipt of the Prospectus relating to the Units, and we confirm that
in purchasing Units we have relied upon no statements whatsoever, written or
oral, other than the statements in such Prospectus. We have made a record of
our distribution of preliminary prospectuses and, when furnished with copies of
any revised preliminary prospectus, we have promptly forwarded copies thereof to
each person to whom we had theretofore distributed preliminary prospectuses. We
hereby represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. and agree to comply with the Rules of
Fair Practice of said Association, and in particular, Sections 8, 24, 25 and 36
of Article III thereof, or, if we are not such a member, we are a foreign bank,
dealer or institution not eligible for membership in said Association and agree
to make no sales within the United States, its territories or possessions or to
persons who are citizens thereof or residents therein, and in making any sales
to comply with said Association's Rules and Interpretations to the extent
applicable to us.
................................
Name of Selected Dealer
By .............................
(Authorized Signature)
................................
(Print name and title)
Address:
.................................
.................................
Dated as of the date
first above written.
4
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATION RELATING TO THE
SERIES A CONVERTIBLE PREFERRED STOCK,
PAR VALUE OF $.001 PER SHARE
OF
HUNGARIAN BROADCASTING CORP.
The undersigned corporation hereby certifies as follows:
FIRST: The name of the corporation is:
HUNGARIAN BROADCASTING CORP.
SECOND: The Certificate of Designation Relating to the Series A
Convertible Preferred Stock, Par Value of $.001 Per Share, which was filed in
the office of the Secretary of State of the State of Delaware on July 29, 1996,
inadvertently failed to correctly set forth all of the preferences and rights of
said Preferred Stock.
THIRD: The Certificate of Designation Relating to the Series A Convertible
Preferred Stock, Par Value of $.001 Per Share is hereby corrected so that it
shall read in full as follows:
HUNGARIAN BROADCASTING CORP., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to the authority contained in Article Fourth of its Certificate of
<PAGE>
Incorporation, as amended, and in accordance with the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of the Corporation at its meeting on July 28, 1996 duly adopted a resolution
providing for the issuance of a series of 1,000,000 shares of Series A
Convertible Cumulative Redeemable Preferred Stock, which resolution is as
follows:
RESOLVED, that pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation, as amended, of the
Corporation (hereinafter called the "Certificate of Incorporation"), the
Board of Directors does hereby authorize the issuance of a series of
Preferred Stock, par value $.001 per share, to be known as the Series A
Convertible Cumulative Redeemable Preferred Stock and to the extent that
the voting powers, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof, are not set forth in the Certificate of
Incorporation, does hereby fix and herein state and express such voting
powers, designations, preferences and relative, participating, optional and
other special rights, and qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in the
Corporation's Certificate of Incorporation shall have herein the meanings
provided therein):
(A) DESIGNATION AND SIZE OF ISSUE
The distinctive designation of the series shall be "Series A Convertible
Cumulative Redeemable Preferred Stock" (hereinafter referred to as this
"Series"). The number of shares which shall constitute this Series shall be
1,000,000 shares. Each share of this Series shall have a par value of $.001 per
share.
(B) DIVIDENDS
(1) The annual rate of dividends payable on each share of this Series
shall be $1.20 per share.
(2) Dividends shall be payable in cash, annually on the fifteenth day
of September of each year, commencing September 15, 1997 (each such date
hereinafter referred to as a "Dividend Payment Date"), except that if such date
is not a Business Day (as hereinafter defined), then such dividend shall be
payable on the next succeeding calendar
2
<PAGE>
day which is a Business Day. Dividends payable on shares of this Series for the
initial dividend period shall be prorated from the date of original issuance to
June 30, 1997 and shall be computed on the basis of a 360-day year of twelve 30-
day months. Dividends shall be payable to holders of record of the shares of
this Series as they appear on the books of the transfer agent of the Corporation
on such respective dates as may be fixed by the Board of Directors of the
Corporation in advance of the payment of each particular dividend, provided that
holders of shares called for redemption on a redemption date falling between a
dividend payment record date and the Dividend Payment Date shall, in lieu of
receiving such dividend payment on the Dividend Payment Date fixed therefore,
receive such dividend payment together with all other accumulated and unpaid
dividends, if any, on the date fixed for redemption (unless such holders convert
such shares in accordance with this resolution, in which case such holders will
receive such payment on the corresponding dividend payment date; see "Conversion
Rights" below.)
(3) In lieu of cash, the Corporation may, at the option of its Board
of Directors, pay dividends in shares of its Common Stock. Shares of Common
Stock issued for such purpose will be valued at the average closing price during
the ten trading days ending on the tenth day before the dividend payment record
date in accordance with the provisions of paragraph (C)(3).
(4) Dividends payable on shares of this Series will be cumulative and
shall accumulate from date of original issue. Accumulations of dividends shall
not bear interest.
(5) So long as any shares of this Series are outstanding, no dividend
(other than a dividend payable in Common Stock or other stock of the Corporation
ranking junior to this Series as to dividends and upon liquidation
(collectively, the "Junior Stock")) shall be declared or paid or set aside for
payment, and no other distribution shall be declared or made, upon the Junior
Stock or upon any other stock of the Corporation ranking on a parity with this
Series as to dividends or upon liquidation, nor shall any Junior Stock nor any
other stock or the Corporation ranking on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation (except
by conversion into or exchange for Junior Stock of the Corporation), unless, in
each case, the full cumulative dividends on all outstanding shares of this
Series shall
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have been paid or contemporaneously are declared and paid through the last
Dividend Payment Date. Should dividends not be paid in full upon the shares of
this Series and any other preferred stock ranking on a parity as to dividends
with this Series, all dividends declared upon shares of this Series and any
other stock of the Corporation ranking on a parity as to dividends with this
Series shall be declared pro rata, so that the amount of dividends declared per
share on this Series and such other preferred stock shall in all cases bear to
each other the same ratio that accumulated dividends per share on the shares of
this Series and such other stock bear to each other. Holders of shares of this
Series shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of full cumulative dividends, as herein provided, on this
Series. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on this Series which may be in
arrears.
(C) REDEMPTION
(1) The Corporation, at the option of the Board of Directors, may,
subject to the provisions of Sections (C)(2) and (C)(8) hereof, redeem at any
time or from time to time on or after November 1, 1997, or such earlier date as
may be designated by J.W. Barclay & Co., Inc., all or any part of the
outstanding shares of this Series. The redemption price of each share of this
Series called for redemption shall be $12.00, together with accumulated and
unpaid dividends to the date fixed for redemption.
(2) Notwithstanding the provisions of Section (C)(1) above, the
Corporation may not redeem any shares of this Series unless the Closing Price
(as determined in Section (C)(3)) of the Corporation's Common Stock shall have
equaled or exceeded $10 per share for at least twenty (20) Trading Days (as
hereinafter defined) within thirty (30) consecutive Trading Days ending within
five Trading Days prior to the date notice of redemption is mailed. For purposes
of this resolution, Trading Day means, so long as the Common Stock is listed or
admitted to trading on NASDAQ, a day on which NASDAQ is open for the transaction
of business, or, if the Common Stock is not listed or admitted to trading on
NASDAQ, a day on which the principal national securities market on which the
Common Stock is listed is open for the transaction of business.
(3) For purposes of this resolution, the Closing Price of the
Corporation's Common Stock shall be the last sale price as reported on NASDAQ,
or, in case no such sales
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take place on such day, the average of the closing bid and asked prices on
NASDAQ, or, if the Common Stock is not listed or admitted to trading on NASDAQ,
on the principal national securities market on which the Common Stock is traded
or admitted to trading, or, if it is not traded on any national securities
market, the average of the closing bid and asked prices as furnished by member
firm of the NASD selected from time to time by the Board of Directors of the
Corporation for such purpose.
(4) In the event that fewer than all the outstanding shares of this
Series are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors, and the shares to be redeemed shall be
determined by lot or by any other method as may be determined by the Board of
Directors in its sole discretion to be equitable.
(5) In the event the Corporation shall redeem shares of this Series,
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not less than thirty (30) nor more than sixty (60) days prior to the
redemption date, to each record holder of the shares to be redeemed, at such
holder's address as the same appears on the books of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the total number of shares of
this Series to be redeemed and, if fewer than all the shares held by such holder
are to be redeemed, the number of such shares to be redeemed from such holder;
(iii) the redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price and any
requirements as to endorsement of assignment for transfer; (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and (vi)
the conversion rights of the shares to be redeemed, the period within which
conversion rights may be exercised, and the conversion rate at the time
applicable.
(6) If notice shall have been given as provided in Section (C)(5) and
the Corporation shall have provided monies at the time and place specified for
the payment of the redemption price pursuant to such notice, including any
accrued and unpaid dividends to and including the date fixed for redemption,
then from and after the redemption date, dividends on the shares of this Series
so called for redemption shall cease to accrue, such shares shall no longer be
deemed to be outstanding, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the Corporation the
redemption price without interest thereon) shall cease. Upon surrender (in
accordance with the notice) of the certificates for any shares so redeemed
(properly endorsed or assigned for
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transfer, if the Board of Directors of the Corporation shall so require and the
notice shall so state), such shares shall be redeemed by the Corporation at the
redemption price set forth in Section (C)(1). In case fewer than all the shares
represented by any such certificate are to be redeemed, a new certificate shall
be issued representing the unredeemed shares, without cost to the holder
thereof.
(7) Any shares of this Series which have been redeemed shall, after
such redemption, have the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board or Directors.
(8) Notwithstanding the foregoing provisions of this Section (C),
unless the full cumulative dividends on all outstanding shares of this Series
and any other preferred stock ranking on a parity with this Series shall have
been paid or contemporaneously are declared and paid for all past dividend
periods through the last Dividend Payment Date, no shares of this Series shall
be redeemed, and the Corporation shall not purchase or otherwise acquire any
shares of this Series.
(D) CONVERSION RIGHTS
(1) Each holder of a share of this Series shall have the right, at
any time on or after November 1, 1997, or such earlier date as may be designated
by J.W. Barclay & Co., Inc., or, as to any share of this Series called for
redemption, at any time on or after November 1, 1997, or such earlier date as
may be designated by J.W. Barclay & Co., Inc., and prior to the close of
business on the date fixed for such redemption, to convert such share into fully
paid and nonassessable shares of Common Stock of the Corporation at a rate of
one and one-half (1.5) shares of Common Stock for each share of this Series,
subject to adjustment as provided in this Section (D).
(2) If any shares of this Series are surrendered for conversion
subsequent to the record date preceding a Dividend Payment Date but on or prior
to such Dividend Payment Date (except shares called for redemption on a
redemption date between such record date or Dividend Payment Date), the
registered holder of such shares at the close of business on such record date
shall be entitled to receive the dividend payable on such shares on such
Dividend Payment Date notwithstanding the conversion thereof. However, the
shares of this Series so surrendered for conversion subsequent to the record
date and prior to the Dividend
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Payment Date (other than shares called for redemption on a redemption date in
such period) must be accompanied by payment of an amount equal to the dividend
payment to be received on such Dividend Payment Date with respect to such shares
surrendered for conversion, provided, however, no such payment need be made if,
at the time for conversion, dividends payable in the shares of this Series are
in arrears for more than 30 days beyond the previous Dividend Payment Date.
Except as provided above, the Corporation shall make no payment or allowance for
unpaid dividends, whether or not in arrears, on converted shares or for
dividends on the shares of Common Stock issued upon such conversion.
(3) The Corporation shall not be required, in connection with any
conversion of shares of this Series, to issue a fraction of a share of its
Common Stock, but in lieu thereof the Corporation shall, subject to Section
(D)(6)(f), make a cash payment (calculated to the nearest cent) equal to such
fraction multiplied by the Closing Price of the Common Stock on the last Trading
Day prior to the date of conversion.
(4) Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the Transfer Agent therefor (or at such other place
as the Corporation may designate by notice to the holders of shares of this
Series) during regular business hours, duly endorsed to the Corporation or in
blank, or accompanied by instruments of transfer to the Corporation or in blank,
in form satisfactory to the Corporation, and shall give written notice to the
Corporation at such office that such holder elects to convert such shares of
this Series. The Corporation shall, as soon as practicable (subject to Section
(D)(6)(f) hereof) after such deposit of certificates for shares of this Series,
accompanied by the written notice above prescribed and the payment of cash in
the amount required by Section (D)(2), issue and deliver at such office to the
holder for whose account such shares were surrendered, or to his nominee,
certificates representing the number of shares of Common Stock and the cash, if
any, to which such holder is entitled upon such conversion.
(5) Conversion shall be deemed to have been made as of the date of
surrender of certificates for the shares of this Series to be converted, and the
giving of written notice and payment, as prescribed in Section (D)(2) and
(D)(4); and the person entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such Common
Stock on such date. The Corporation shall not be required to deliver
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certificates for shares of its Common Stock while the stock transfer books for
such stock or for this Series are duly closed for any purpose, but certificates
for shares of Common Stock shall be issued and delivered as soon as practicable
after the opening of such books.
(6) The conversion rate shall be adjusted from time to time as
follows:
(a) In case the Corporation shall, at any time or from time to
time while any of the shares of this Series are outstanding, (i) issue
shares of its Common Stock as a dividend or distribution on the Common
Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii)
combine its outstanding shares of Common Stock into a smaller number of
shares, the conversion rate in effect immediately prior to such action
shall be adjusted so that the holder of any shares of this Series
thereafter surrendered for conversion shall be entitled to receive the
number of shares of capital stock of the Corporation which such holder
would have owned or have been entitled to receive immediately following
such action had such shares of this Series been converted immediately prior
thereto. An adjustment made pursuant to this Section (D)(6)(a) shall become
effective retroactively to immediately after the opening of business on the
day following the record date in the case of a dividend and shall become
effective immediately after the opening of business on the day following
the effective date in the case of a subdivision or combination. If, as a
result of an adjustment made pursuant to this Section (D)(6)(a), the holder
of any shares of this Series thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of capital stock
of the Corporation, the Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted conversion rate
between or among shares of such classes of capital stock.
(b) In case the Corporation shall, at any time or from time to
time while any of the shares of this Series are outstanding, issue rights,
options or warrants to all holders of shares of its Common Stock entitling
them to subscribe for or acquire shares of Common Stock (or securities
convertible into or exchangeable for Common Stock) at a price per share
less than the current Market Price per share of Common Stock (as defined in
Section (D)(6)(d)), at such record date, the conversion rate shall be
adjusted so that it shall equal the rate determined by multiplying the
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conversion rate in effect immediately prior to the date of issuance of such
rights or warrants by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the date
of issuance of such rights, options or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the date of issuance of such rights,
options or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such
current Market Price. For the purposes of this Section (D)(6)(b), the
issuance of rights, options or warrants to subscribe for or purchase
securities convertible into Common Stock shall be deemed to be the issuance
of rights, options or warrants to purchase the shares of Common Stock into
which such securities are convertible at an aggregate offering price equal
to the aggregate offering price of such securities plus the minimum
aggregate amount (if any) payable upon conversion of such securities into
shares of Common Stock; provided, however, that if all of the shares of
Common Stock subject to such rights, options or warrants have not been
issued when such rights, options or warrants expire, then the conversion
rate shall promptly be readjusted to the conversion rate which would then
be in effect had the adjustment upon the issuance of such rights or
warrants been made on the basis of the actual number of shares of Common
Stock issued upon the exercise of such rights, options or warrants. An
adjustment made pursuant to this Section (D)(6)(b) shall become effective
retroactively immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
(c) In case the Corporation shall, at any time or from time to
time while any of the shares of this Series are outstanding, distribute to
all holders of shares of its Common Stock evidences of its indebtedness or
securities or assets (excluding cash dividends payable out of consolidated
earnings or retained earnings or dividends payable in shares of Common
Stock) or rights, options or warrants to subscribe for securities of the
Corporation or any of its subsidiaries (excluding those referred to in
Section (D)(6)(b)), then in each such case the conversion rate shall be
adjusted so that it shall equal the rate determined by multiplying the
conversion rate in effect immediately prior to the date of such
distribution by a fraction, the numerator of which shall be the current
Market Price per share (determined
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as provided in Section (D)(6)(d)) of the Common Stock on the record date
referred to below, and the denominator of which shall be such current
Market Price per share of the Common Stock less the then fair market value
(as determined by the Board of Directors of the Corporation, whose
determination shall be conclusive) of the portion of the assets or
evidences of indebtedness or securities or assets so distributed or of such
subscription rights, options or warrants applicable to one share of Common
Stock. Such adjustment shall become effective retroactively immediately
after the record date for the determination of stockholders entitled to
receive such distribution.
(d) For the purpose of any computation under Section (D)(6)(b)
and (D)(6)(c), the current Market Price of a share of Common Stock (the
"Market Price") on any date shall be the average of the daily Closing
Prices for ten (10) consecutive Trading Days before the day in question.
(e) The Corporation shall be entitled to make such additional
adjustments in the conversion rate, in addition to those required by
subsections D(6)(a), D(6)(b) and D(6)(c), as shall be necessary in order
that any dividend or distribution in shares of stock, subdivision or
combination of shares of Common Stock, issuance of rights, options or
warrants, evidences of indebtedness or assets (other than cash dividends
payable out of consolidated earnings or retained earnings) referred to
above, shall not be taxable to the Stockholders.
(f) In any case in which this Section (D)(6) shall require that
an adjustment be made retroactively immediately following a record date,
the Corporation may elect to defer (but only for five (5) Business Days
following the filing of the statement referred to in Section (D)(6)(h))
issuing to the holder of any shares of this Series converted after such
record date (i) the shares of Common Stock and other capital stock of the
Corporation issuable upon such conversion over and above (ii) the shares of
Common Stock and other capital stock of the Corporation issuable upon such
conversion on the basis of the conversion rate prior to adjustment.
(g) Notwithstanding any other provisions of this Section (D)(6),
the Corporation shall not be required to make any adjustment of the
conversion rate unless such adjustment would require an increase or
decrease of at least 1% in such rate. However, an
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adjustment not made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with
any adjustment or adjustments so carried forward, shall amount to an
increase or decrease of at least 1% in such rate.
(h) Whenever an adjustment in the conversion rate is required,
the Corporation shall forthwith place on file with its Transfer Agent a
statement signed by its Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer or a Senior Vice President and by its Secretary,
Assistant Secretary or Treasurer, stating the adjusted conversion rate
determined as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show the reason and
the manner of computing such adjustment. Promptly after the adjustment of
the conversion rate, the Corporation shall mail a notice thereof to each
holder of shares of this Series briefly stating the facts requiring the
adjustment and the manner of computing it.
(i) The term "Common Stock" as used in this resolution means the
Corporation's Common Stock, $.001 par value, as the same exists as of the
date of the Certificate of Designation relating to this Series or any other
class of stock resulting from successive changes or reclassifications of
such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event that
at any time as a result of an adjustment made pursuant to Section
(D)(6)(a), the holder of any share or this Series thereafter surrendered
for conversion shall become entitled to receive any shares of the
Corporation other than shares of its Common Stock, the conversion rate of
such other shares so receivable upon conversion of any share shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock
contained in subparagraphs (a) through (h) of this Section (D)(6), and the
provisions of Section (D)(1) through (5) and (7) through (11) with respect
to the Common Stock shall apply on like or similar terms to any such other
shares.
(7) In case of (a) any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of shares of this Series (other
than a change in par value or from par value to no par value or from no par
value to par value, or as a result of a subdivision or
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combination), or (b) any consolidation or merger of the Corporation with or into
one or more other corporations (other than a consolidation or merger in which
the Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of shares of this Series), or (c) any sale or conveyance to another
corporation or other entity of all or substantially all of the assets of the
Corporation, then, subject to the applicable rights of the holders upon a Change
in Control (as hereinafter defined), the Corporation, or such successor
corporation or other entity, as the case may be, shall make appropriate
provision so that the holder of each share of this Series then outstanding shall
have the right to receive on conversion the consideration that the holder would
have received had he converted immediately prior to such event. The provisions
of this Section (D))(7) shall apply similarly to successive consolidations,
mergers, sales or conveyances.
(8) Any shares of this Series which shall at any time have been
converted shall, after such conversion, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors. The Corporation shall at all times reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the shares of this Series, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of this Series; provided, however, that nothing
contained herein shall preclude the Corporation from satisfying its obligations
in respect of the conversion of the shares by delivery of purchased shares of
Common Stock which are held in the treasury of the Corporation.
(9) If any shares of Common Stock required to be reserved for
purposes of conversion of shares of this Series hereunder require registration
with or approval of any governmental authority before such shares may be issued
upon conversion, the Corporation shall cause such shares to be duly registered
or approved, as the case may be. The Corporation will use its reasonable best
efforts to list the shares of Common Stock required to be delivered upon
conversion of shares of this Series prior to such delivery upon each national
securities exchange and the NASDAQ Stock Market upon which the outstanding
Common Stock is listed at the time of such delivery.
(10) The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of
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shares of this Series pursuant hereto. The Corporation shall not, however, be
required to pay any tax which is payable in respect of any transfer involved in
the issue or delivery of Common Stock in a name other than that in which the
shares of this Series so converted were registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(E) VOTING
(1) Except as otherwise provided by Delaware General Corporation Law
and as may be provided herein, each share of this Series shall be entitled to
one vote per share voting together with the Corporation's Common Stock.
(a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for
two dividend periods, then the holders of shares of this Series shall have
the right, voting separately as a class with any other series of preferred
stock so entitled as provided in the certificate of designation of such
series, to elect two (2) directors of the Corporation, such directors to be
in addition to the number of directors constituting the Board of Directors
immediately prior to the accrual of such right, the remaining directors to
be elected by the other class or classes of stock entitled to vote therefor
at each meeting of stockholders held for the purpose of electing directors.
(b) Such voting right may be exercised initially either at a
special meeting of the holders of this Series having such voting right,
called as hereinafter provided, or at any annual meeting of stockholders
held for the purpose of electing directors, and thereafter at each such
annual meeting. The right of the holders of this Series to vote for the
election of such members of the Board of Directors of the Corporation as
aforesaid shall continue until such time as all dividends accumulated on
the shares of this Series shall have been paid in full, at which time such
voting right of the holders of this Series shall terminate and, if such
voting right of the holders of this Series and all other series of
preferred stock so entitled shall have terminated, subject to the
requirements of the General Corporation Law of Delaware, the term of the
directors elected pursuant to
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Section (E)(1)(a) shall terminate, subject to revesting on the basis set
forth in Section (E)(1)(a).
(c) At any time when such voting right shall have vested in holders
of this Series, and if such right shall not already have been initially
exercised, a proper officer of the Corporation shall, upon the written
request of the record holders of 10% in number of shares of this Series
then outstanding, addressed to the Secretary of the Corporation, call a
special meeting of the holders of this Series and of any other class or
classes of stock having voting power with respect to the election of such
directors. Such meeting shall be held at the earliest practicable date upon
the notice required for annual meetings of stockholders at the place for
holding annual meetings of stockholders of the Corporation or, if none, at
a place designated by the Board of Directors. If such meeting is not called
by the proper officers of the Corporation within 30 days after the personal
service of such written request upon the Secretary of the Corporation, or
within 35 days after mailing the same within the United States of America,
by registered mail, addressed to the Secretary of the Corporation at its
principal office (such mailing to be evidenced by the registry receipt
issued by the postal authorities), then the record holders of 10% in number
of shares of this Series then outstanding may designate in writing one of
their number to call such meeting at the expense of the Corporation, and
such meeting may be called by such person so designated upon the notice
required for annual meetings of stockholders and shall be held at the same
place as is elsewhere provided for in this Section (E)(1)(c) or such other
place as is selected by such designated stockholder. Any holder of this
Series who would be entitled to vote at such meeting shall have access to
the stock books of the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to the provisions of this Section
(E)(1). Notwithstanding the provisions of this Section (E)(1), no such
special meeting shall be called during a period within 90 days immediately
preceding the date fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of this Series shall have the right to elect two
directors as provided herein, the presence in person or by proxy of the
holders of a majority of the then outstanding shares of this Series having
such right shall be required and shall be sufficient to constitute a quorum
of such class for the election of directors by such class. At
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any such meeting or adjournment thereof (i) the absence of a quorum of the
holders of shares of this Series having such right shall not prevent the
election of directors other than those to be elected by the holders of
shares of this Series, and the absence of a quorum or quorums of the
holders of capital stock entitled to elect such other directors shall not
prevent the election of directors to be elected by the holders of shares of
this Series entitled to elect such directors and (ii) except as otherwise
required by law, in the absence of a quorum of the holders of any class of
stock entitled to vote for the election of directors, a majority of the
holders of a class present in person or by proxy of such class shall have
the power to adjourn the meeting for the election of directors which the
holders of such class are entitled to elect, from time to time, without
notice other than announcement at the meeting, until a quorum is present.
(e) Any vacancy in the Board of Directors in respect of a
director elected by holders of shares of this Series pursuant to the voting
right created under this Section (E)(1) shall be filled by vote of the
remaining director so elected, or if there be no such remaining director,
by the holders of shares of this Series entitled to elect such director or
directors at a special meeting called in accordance with the procedures set
forth in Section (E)(1)(c), or, if no such special meeting is called, at
the next annual meeting of stockholders.
(f) So long as any shares of this Series remain outstanding, the
Corporation shall not, either directly or indirectly, without the
affirmative vote at a meeting or the written consent with or without a
meeting of the holders of at least a majority in number of shares of this
Series then outstanding, (i) amend, alter or repeal any of the provisions
of the Certificate of Designation relating to this Series or the
Certificate of Incorporation, or authorize any reclassification of the
shares of this Series, so as in any such case to affect adversely the
preferences, special rights or privileges or voting power of the shares of
this Series, or (ii) authorize or create any class of stock ranking prior
to the shares of this Series as to dividends or distribution of assets on
liquidation, or create, or issue or increase the authorized number of
shares of any series of the Corporation's authorized preferred stock
ranking prior to the shares of this Series as to dividends or distributions
on liquidation.
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(g) In exercising the voting rights set forth in this Section
(E)(1), each share of this Series entitled to such voting right shall have
equal voting power, notwithstanding any greater or lesser general voting
powers of one or more series of preferred stock.
(2) No consent of holders of shares of this Series shall be required
for (i) the creation of any indebtedness of any kind of the Corporation, (ii)
the authorization or issuance of any class of stock of the Corporation junior to
or on a parity to the shares of this Series as to dividends and upon
liquidation, dissolution or winding up of the Corporation or (iii) subject to
Section (E)(1)(f), the issuance of any shares of preferred stock.
(F) LIQUIDATION RIGHTS
(1) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, before any payment or distribution
shall be made on the Common Stock or on any other class of stock ranking junior
to this Series upon liquidation, liquidating distribution in the amount of
$10.00 per share, plus all accumulated and unpaid dividends to the date of final
liquidation.
(2) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all the property and
assets of the Corporation nor the merger or consolidation of the Corporation
into or with any other corporation or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
Section (F).
(3) After the payment to the holders of the shares of this Series of
the full preferential amounts provided for in this Section (F), the holders of
this Series as such shall have no right or claim to any of the remaining assets
of the Corporation.
(4) In the event the assets of the Corporation available for
distribution upon any dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay the full
preferential amounts to which such holders are entitled pursuant to Section
(F)(1), no such distribution shall be made on account of any shares of any other
class or series
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of preferred stock ranking on a parity with the shares of this Series upon such
dissolution, liquidation or winding up unless proportionate distributive amounts
shall be paid on account of the shares of this Series, ratably, in proportion to
the full distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(G) PRIORITY
(1) For purposes of this resolution, any stock of any class or series
of the Corporation shall be deemed to rank:
(i) Prior to the shares of this Series, either as to dividends
or upon liquidation, if the holders of such class or classes shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, as the case may be, in preference or priority to
the holders of shares of this Series;
(ii) On a parity with shares of this Series, either as to
dividends or upon liquidation, whether or not the dividend rates, Dividend
Payment Dates, or redemption or liquidation prices per share or sinking
fund provisions, if any, are different from those of this Series, if the
holders of such stock are entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, in proportion to their
respective dividend rates or liquidation prices, without preference or
priority, one over the other, as between the holders of such stock and the
holders of shares of this Series; and
(iii) Junior to shares of this Series, either as to dividends or
upon liquidation, if such class or series shall be Common Stock or if the
holders of shares of this Series shall be entitled to receipt of dividends
or of amounts distributable upon dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, as the case may be, in
preference or priority to the holders of shares of such class or series.
17
<PAGE>
FOURTH: The correction effected herein is authorized by Section 103(f) of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Hungarian Broadcasting Corp. has caused this
certificate to be signed and attested this ____day of December, 1996.
HUNGARIAN BROADCASTING CORP.
By_________________________________
Title:
Attest:_________________________
Secretary
18
<PAGE>
EXHIBIT 4(b)
AGREEMENT dated as of December __, 1996, between Hungarian Broadcasting
Corp., a Delaware corporation, (hereinafter called the "Company") and American
Stock Transfer & Trust Company (hereinafter called the "Warrant Agent").
WHEREAS, the Company and the Warrant Agent have heretofore entered into a
warrant agreement, dated December 20, 1995 (hereinafter referred to as the
"Warrant Agreement") with respect to the issuance by the Company of up to
1,750,000 Common Stock Purchase Warrants; and
WHEREAS, the Company proposes to issue and sell up to an additional 610,000
Common Stock Purchase Warrants (hereinafter referred to as the "Additional
Warrants"); and
WHEREAS, said Additional Warrants are intended to be identical to the
Common Stock Purchase Warrants heretofore issued by the Company in accordance
with the Warrant Agreement except that the Additional Warrants are to be
initially issued as components of Units, each Unit consisting of one share of
Preferred Stock and one Warrant, and the shares of Preferred Stock and the
Warrants will not be separately transferable, and the Warrants will not be
exercisable or redeemable, prior to _________________, 1997 or such earlier date
as designated by J.W. Barclay & Co., Inc. (hereinafter referred to as the
"Separation Date"); and
WHEREAS, the Company and the Warrant Agent wish to amend the Warrant
Agreement to provide for the issuance of the Additional Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree to amend the Warrant Agreement as
follows:
1. The maximum number of Warrants proposed to be issued and sold shall
be 2,360,000.
2. Until the Separation Date, the certificates representing the
Additional Warrants shall be substantially in the form annexed hereto as Exhibit
B, and after the Separation Date the Additional Warrants may be represented by
certificates substantially in the form annexed to the Warrant Agreement as
Exhibit A.
3. The Additional Warrants cannot be transferred separately from the
Preferred Stock with which they are to be issued, and cannot be exercised or
redeemed prior to the Separation Date.
4. The Additional Warrants are to be issued pursuant to a Registration
Statement under the Securities Act of 1933 filed on October 3, 1996, File No.
333-13371, and the Company will file such post-effective amendments to such
Registration Statement or such other registration statements or post-effective
amendments or supplements as may be necessary to permit it to deliver to each
<PAGE>
person exercising an Additional Warrant, a Prospectus meeting the requirements
of such Act and otherwise complying therewith, and will delivery such a
Prospectus to each such person.
5. Any notice pursuant to the Warrant Agreement to be given or made by
the Warrant Agent or by the registered holder of any Warrant to or on the
Company shall be sufficiently given or made if sent by first-class mail of the
United State Postal Service, postage prepaid, addressed (until another address
is filed in writing by the Company with the Warrant Agent) as follows:
Hungarian Broadcasting Corp.
445 Park Avenue, 15th Floor
New York, New York 10022
Any notice pursuant to this Agreement to be given or made by the Company or
by the registered holder of any Warrant to or on the Warrant Agent shall be
sufficiently given or made if sent by first-class mail of the United States
Postal Service, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Any notice pursuant to this Agreement to be given or made by the Company or
by the Warrant Agent to or on J.W. Barclay & Co., Inc. shall be sufficiently
given or made if sent by first-class mail of the United States Postal Service,
postage prepaid, addressed (until another address is filed in writing by J.W.
Barclay & Co., Inc. with the Company and the Warrant Agent) as follows:
J.W. Barclay & Co., Inc.
1 Battery Park Plaza
New York, New York 10004
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Warrant Agreement to be duly executed, as of the day and year first above
written.
HUNGARIAN BROADCASTING CORP.
By
--------------------------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY
By
--------------------------------------
2
<PAGE>
- -------------- --------------
NUMBER WARRANTS
- -------------- --------------
UHBW
- -------------- --------------
SEE LEGEND ON REVERSE SIDE
VOID AFTER 5:00 P.M. NEW YORK TIME ON DECEMBER 20, 2000
COMMON STOCK PURCHASE WARRANTS
HUNGARIAN BROADCASTING CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
PURCHASE WARRANTS CUSIP 445539 11 7
THIS CERTIFIES THAT
FOR VALUE RECEIVED:
SPECIMEN
- --------------------------------------------------------------------------------
or registered assigns (the "Registered Holder") is the owner of the number of
Common Stock Purchase Warrants ("Warrants") specified above. Each Warrant
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one (1) fully paid and nonassessable share of Common Stock, $.001 par
value, of Hungarian Broadcasting Corp., a Delaware corporation (the "Company"),
at any time prior to the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $6.00 (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to Hungarian Broadcasting Corp. in New York Clearing House funds.
This Warrant Certificate is issued pursuant to and is subject in all
respects to the terms and conditions set forth in the Warrant Agreement (the
"Warrant Agreement"), dated as of December 20, 1995, by and among the Company
and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
December 20, 2000. If such date shall in the State of New York be a holiday or a
day on which the banks are authorized to close, then the Expiration Date shall
mean 5:00 P.M. (New York time) on the next following day which in the State of
New York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment of this Warrant Certificate for
registration of transfer at such office, together with any tax or other
governmental charge imposed in connection therewith, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
- ----------------------------------
DATED:
- ----------------------------------
HUNGARIAN BROADCASTING CORP.
[SEAL OF HUNGARIAN BROADCASTING CORP. APPEARS HERE]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY, NEW YORK, NY
AS WARRANT AGENT
BY:
AUTHORIZED SIGNATURE
/s/ Frank R. Cohen [SIGNATURE APPEARS HERE]
SECRETARY CHAIRMAN OF THE BOARD
<PAGE>
THIS CERTIFICATE HAS BEEN ISSUED AS PART OF A UNIT. THE COMPONENTS OF THE UNITS
MAY NOT BE SEPARATELY TRANSFERRED AND THE WARRANTS MAY NOT BE EXERCISED UNTIL
SEPTEMBER , 1997 OR SUCH EARLIER DATE AS MAY BE DESIGNATED BY J.W. BARKCLAY &
CO., INC.
HUNGARIAN BROADCASTING CORP.
COMMON STOCK PURCHASE WARRANT
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT ACT.......Custodian...........
TEN ENT as tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act..........................
tenants in common. (State)
Additional abbreviations may also be used though not in the above list.
---------------------------------
SUBSCRIPTION FORM
(To be Executed by the Registered Holder in Order to Exercise the Warrants)
The undersigned hereby irrevocably elects to exercise the right to
purchase represented by the within Warrant ("Warrant") for and to purchase
thereunder, ____________ shares of Common Stock provided therein and tenders
herewith payment of the purchase price in full to the order of the Company and
requests that certificates for such shares shall be issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT NAME AND ADDRESS)
- --------------------------------------------------------------------------------
and, if such number of shares shall not be all the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and delivered
to the undersigned at the address stated below:
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT NAME AND ADDRESS)
- --------------------------------------------------------------------------------
Dated:__________________, 19__
----------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
- ------------------------------ face of this Warrant Certificate.)
----------------------------
ASSIGNMENT
(To be Executed by the Registered Holder in Order to Assign Warrants)
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OR ASSIGNEE
- --------------------------------------------------------------------------------
the within Warrant together with all right, title and interest therein and does
hereby irrevocably constitute and appoint
attorney
- ------------------------------------------------------------------------
to transfer said Warrant on the books of the within named Corporation, with full
power of substitution in the premises.
Date:___________________, 19__. ________________________________________
NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the within
instrument in every particular, without
alteration or enlargement or any change
whatever.
<PAGE>
EXHIBIT 4(c)
- --------------- ----------------
NUMBER SHARES
- --------------- ----------------
HBP
- --------------- ----------------
THIS CERTIFICATE HAS BEEN ISSUED AS PART OF A UNIT. THE COMPONENTS OF THE UNITS
MAY NOT BE SEPARATELY TRANSFERRED AND THE PREFERRED STOCK MAY NOT BE CONVERTED
UNTIL SEPTEMBER , 1997 OR SUCH EARLIER DATE AS MAY BE DESIGNATED BY J.W.
BARCLAY & CO., INC.
HUNGARIAN BROADCASTING CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
SERIES A PREFERRED STOCK CUSIP 445539 20 8
This Certifies That:
SPECIMEN
is owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES A CONVERTIBLE CUMULATIVE
REDEEMABLE PREFERRED STOCK OF THE PAR VALUE OF $.001 EACH OF
---------------- ------------------
- ------------------------ HUNGARIAN BROADCASTING CORP. --------------------------
---------------- ------------------
(hereinafter called the "Company"), transferable only on the books of the
Company by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Certificate of Incorporation, as amended, and the By-Laws of the Company, as
amended (copies of which are on file and available at the offices of the
Transfer Agent), to all of which the holder of this certificate by acceptance
hereof assents. The Company will furnish without charge to each stockholder who
so requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Company and the qualifications, limitations or restrictions of such preferences
and/or rights. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
- ---------------------------------
DATED:
- ---------------------------------
[SEAL OF HUNGARIAN BROADCASTING CORP. APPEARS HERE]
/s/ Frank R. Cohen [SIGNATURE APPEARS HERE]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY, NEW YORK, NY
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
................................
(Cust) (Minor)
under Uniform Gifts to Minors
Act.............
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
________________________________________________________________________ Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________
--------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO
FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD
TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES SUCH REQUEST
MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT NAMED
ON THIS CERTIFICATE.
- --------------------------------------------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.
- --------------------------------------------------------------------------------
STOCK MARKET INFORMATION EXCHANGE
http://members.aol.com/cfpco/columbia.htm
COLUMBIA FINANCIAL PRINTING CO.,
P.O. BOX 214, BETHPAGE, NY 11714
<PAGE>
EXHIBIT 4(d)
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT
TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, EXCEPT AS PROVIDED HEREIN NEITHER THE WARRANTS NOR SUCH SECURITIES CAN
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, (ii) A NEW REGISTRATION STATEMENT, OR (iii) AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN
No. UW____________
WARRANT CERTIFICATE
Dated: , 1996
VOID AFTER 5:00 P.M., NEW YORK, NEW YORK LOCAL TIME
ON _______, 2001
HUNGARIAN BROADCASTING CORP.
_______ Warrants to Purchase _______ Units,
each Unit consisting of
one (1) share of Series A Convertible
Cumulative Redeemable Preferred Stock
and one (1) Common Stock Purchase Warrant
Hungarian Broadcasting Corp., a Delaware corporation, (hereinafter referred
to as the "Company") hereby certifies that
or registered assigns, is entitled to purchase from the Company at any time
after December __, 1996 and before 5:00 P.M. New York, New York local time on
December __, 2001, ________________________ (________________) Units
(hereinafter referred to as the "Units") of the Company (the number and
character of such units being subject to adjustments as provided herein) in
accordance with the number of Warrants indicated on the face hereof at the
purchase price of $_____ per Unit (hereinafter referred to as the "Unit Exercise
Price"). This Warrant was issued pursuant to a certain Underwriting Agreement
dated __________, 1996 between the Company and J.W. Barclay & Co., Inc.
("Barclay") providing for the issuance of an aggregate of 50,000 Warrants
(herein referred to as "Warrants") entitling Barclay to purchase an aggregate of
50,000 Units of the Company, each Unit consisting of one (1) share of Series A
Convertible Cumulative Redeemable Preferred Stock ("Preferred Stock") and one
(1) Common Stock Purchase Warrant ("Common Stock Warrants".) Each Common Stock
Purchase Warrant shall be exercisable for one (1) share of Common Stock. Such
Units, Preferred Stock and Common Stock Warrants are further
<PAGE>
described in the Company's registration statement (the "Registration Statement")
(File No. 333-13371) filed with, and declared effective by, the Securities and
Exchange Commission.
1. Exercise of Warrants. Upon presentation and surrender of this Warrant
---------------------
Certificate, with the attached Purchase Form duly executed, at the principal
office of the Company, together with a certified or bank cashier's check payable
to the Company in the amount of the Unit Exercise Price times the number of
Units of the Company being purchased, the Company shall deliver to the holder
hereof, as promptly as practicable, certificates representing the Units being
purchased (the Units to be comprised of one share of Preferred Stock and one
Common Stock Purchase Warrant, and being identical to the Units sold to the
public pursuant to the terms of the aforesaid underwriting agreement). This
Warrant may be exercised in whole or in part; and, in case of exercise hereof in
part only, the Company, upon surrender hereof, will deliver to the holder a new
Warrant Certificate or Warrant Certificates of like tenor entitling said holder
to purchase the number of Units as to which this Warrant Certificate has not
been exercised.
2. Exchange and Transfer. This Warrant may be exchanged at any time prior
----------------------
to the exercise hereof, upon presentation and surrender to the Company, alone or
with other Warrants of like tenor registered in the name of the same holder, for
another Warrant or other Warrants of like tenor in the name of such holder
exercisable for the same aggregate number of Units as the Warrant or Warrants
surrendered. This Warrant may not be sold, transferred, hypothecated or
assigned before December __, 1997 except to officers of Barclay or to other
members of the underwriting group or dealers in the selling group or to partners
or officers of such members or such dealers in the selling group, with respect
to the offering described in the Registration Statement, and after such date, it
may be sold, transferred, hypothecated or assigned only subject to the
provisions of Section 5 hereof.
3. Rights and Obligations of Warrantholders. The holder of this Warrant
-----------------------------------------
Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of the Company's Preferred
Stock is issued to the holder hereof upon exercise of some or all of the
Warrants represented hereby, such holder shall, for all purposes, be deemed to
have become the holder of record of such stock on the date on which this Warrant
Certificate, together with a duly executed Purchase Form, was surrendered and
payment of the purchase price was made, irrespective of the date of delivery of
such share certificate, except that if at the date of surrender of such Warrant
Certificate and payment of the purchase price, the transfer books for the shares
of Preferred Stock shall be closed, the holder of this Warrant Certificate shall
not be deemed to have become the
-2-
<PAGE>
holder of record of such stock until the date on which such books shall be
opened. Unless required by law or by applicable rule of any national securities
exchange such transfer books shall not be closed at any one time for a period
longer than 40 days. The rights of the holder of this Warrant Certificate are
limited to those expressed herein and the holder of this Warrant Certificate, by
his acceptance hereof, consents to and agrees to be bound by and to comply with
all the provisions of this Warrant Certificate, including without limitation all
the obligations imposed upon the holder hereof by Section 5. In addition, the
holder of this Warrant Certificate, by accepting the same, agrees that the
Company and its warrant agent, if any, may, prior to any presentation for
registration of transfer, deem and treat the person in whose name this Warrant
Certificate is registered as the absolute, true and lawful owner for all
purposes whatsoever, and neither the Company nor the warrant agent shall be
affected by notice to the contrary.
4. Preferred Stock and Common Stock Warrants.
------------------------------------------
(a) The Company covenants and agrees that all shares of Preferred Stock
delivered as part of the Units upon exercise of this Warrant Certificate will,
upon delivery, be duly authorized, validly issued, fully-paid and non-
assessable, and free from all stamp taxes, liens, and charges with respect to
the purchase thereof. In addition, the Company agrees at all times to reserve
and keep available an authorized number of shares of its Preferred Stock
sufficient to permit the exercise in full of all outstanding Warrants.
(b) The Company covenants and agrees that all Common Stock Warrants
delivered upon exercise of this Warrant Certificate will, upon delivery, be duly
authorized and validly issued, and free from all stamp taxes, liens, and charges
with respect to the purchase thereof. In addition, the Company agrees at all
times to reserve and keep available an authorized number of shares of its Common
Stock sufficient to permit the exercise in full of all Common Stock Warrants to
be issued as a result of the exercise of this Warrant Certificate.
5. Disposition of Warrants or Units. The holder of this Warrant
---------------------------------
Certificate and any transferee hereof or of the Units or the components of the
Units (which term shall include the shares of Preferred Stock and Common Stock
Warrants comprising the Units as well as the shares of Common Stock issuable
upon the conversion of shares of Preferred Stock and upon the exercise of the
Common Stock Warrants), by their acceptance thereof, hereby agree that (a) no
public distribution of the Warrants or the Units or components thereof will be
made in violation of the provisions of the Securities Act of 1933, or the Rules
and Regulations promulgated thereunder (such Act and Rules and Regulations being
hereinafter referred to as the "Act") and (b) during such period as delivery of
a prospectus with respect to the Warrants or the Units or
-3-
<PAGE>
components may be required by the Act, any public distribution of the Warrants
or Units or components will be preceded or accompanied by, and made in a manner
or on terms set forth in, a prospectus then meeting the requirements of Section
10 of the Act and in compliance with all applicable state laws. The holder of
this Warrant Certificate and any such transferee hereof further agree that if
any distribution of any of the Warrants or Units or components is proposed to be
made by them otherwise than by delivery of a prospectus meeting the requirements
of Section 10 of the Act as set forth above, such action shall be taken only
after submission to the Company of an opinion of counsel, reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed distribution will not be in violation of the Act or of applicable
state law. Furthermore, it shall be a condition to the transfer of the Warrants
that any transferee thereof deliver to the Company his or its written agreement
to accept and be bound by all of the terms and conditions of this Warrant
Certificate.
6. Registration. The Company further covenants and agrees as follows:
-------------
(a) Upon receipt by the Company at any time during the period from
December __, 1997 to December __, 2001 of a written request from Barclay or the
holders of not less than fifty percent of the Warrants to qualify or register
the Warrants and/or the Units and the components thereof, in whole or in part,
under the Act, the Company will, as promptly as practicable but in no event
later than 60 days after receipt of such written request, at the Company's sole
cost and expense: (i) prepare and file under the Act, a registration statement
relating to such Warrants and/or Units and the components thereof to enable the
holders thereof to offer and sell such securities in a public offering, (the
term "registration statement" as used in this Section 6(a) being deemed to
include any form which may be used to register a distribution of securities to
the public for cash, a post-effective amendment to a registration statement, or
a notification and offering circular pursuant to Regulation A when necessary to
perfect an exemption thereunder), (ii) prepare and file with the appropriate
state securities regulatory bodies ("Blue Sky" authorities) the necessary
documents to register or qualify such Warrants and/or Units and the components
thereof for public offering, (iii) deliver to each of the other holders of
Warrants and Units and the components thereof written notice of its intention to
register such Warrants and/or Units and components thereof at least 30 days
prior to the anticipated filing date, (iv) if requested by any of such other
holders of Warrants or Units or components thereof in writing delivered to the
Company within twenty (20) days of the receipt of such written notice from the
Company, include in such registration statement all, or any part, of the
Warrants and/or Units and components thereof then held by such other holder,
and (v) use its best efforts to cause such registration statement to become
effective as
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<PAGE>
promptly as possible and to keep such registration statement and Blue Sky
filings current and effective until such time as an amendment is required to be
filed pursuant to the provisions of Section 10(a)(3) of the Act. In the event
the registration statement is not filed within the period specified herein, the
expiration date of the Warrants and the Common Stock Warrants shall be extended
by a period of time equal to the delay in filing, and in the event the
registration statement is not declared effective under the Act prior to December
__, 2001, the Company shall extend the expiration date of the Warrants and the
Common Stock Warrants to a date not less than ninety (90) days after the
effective date of such registration statement. In the event not all of the
Warrants and Units and components thereof shall have been registered as provided
above, the Company shall be obligated to file additional registration statements
in accordance with the terms set forth in this Section 6(a) to register the
remaining balance of the Warrants or Units and components thereof not so
registered, except that the expenses therefor shall be borne by the holders of
the Warrants and Units and components thereof in the event that the Company has
previously borne the expenses in connection with the registration of the
Warrants or the Units and components thereof pursuant to this Section 6(a).
(b) In addition to the provisions in Section 6(a), in the event the
Company shall at any time during the period described in Section 6(a) seek to
further register or qualify any of its securities or the securities holdings of
any of its controlling shareholders under the Act or "Blue Sky" laws, on each
such occasion it shall furnish the holders of the Warrants and/or the underlying
Units and components, with at least 30 days' written notice thereof and such
holders shall have the option, without cost or expense, to include their
Warrants and Units and the components thereof in such registration or
qualification. Such holders shall exercise the "piggy-back rights" under this
Section 6(b) by giving written notice to the Company within twenty (20) days
from the receipt of the written notice from the Company.
(c) All expenses in connection with preparing and filing any registration
statement under Sections 6(a) and (b) hereof (and any registration or
qualification under the securities or "Blue Sky" laws of states in which the
offering will be made under such registration statement) shall be borne in full
by the Company, subject to the last sentence of Section 6(a).
7. Indemnification and Notification.
---------------------------------
(a) The Company will indemnify and hold harmless each holder of Warrants
or Units (including the components thereof), and each person, if any, who
controls such holder within the meaning of Section 15 of the Act, from and
against any and all losses, claims, damages, expenses and liabilities caused by
any untrue statement of a material fact contained in any registration statement,
or
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<PAGE>
contained in a prospectus furnished thereunder or caused by any omission to
state a material fact therein necessary to make the statements therein not
misleading provided, however, that the foregoing indemnification and agreement
to hold harmless shall not apply insofar as such losses, claims, damages,
expenses and liabilities are caused by any such untrue statement or omission
based upon information furnished in writing to the Company by any such holder
expressly for use in any registration statement or prospectus.
(b) Each holder of Warrants or Units (including the components thereof)
will indemnify the Company, and each person who controls the Company within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses and liabilities caused by an untrue statement of a material
fact contained in any registration statement, or contained in a prospectus
furnished thereunder or caused by an omission to state a material fact therein
necessary to make the statements therein not misleading insofar as such losses,
claims, damages, expenses and liabilities are caused by such untrue statement or
omission being based upon information furnished in writing to the Company by any
such holder expressly for use in any registration statement or prospectus.
(c) Promptly after the receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
7, notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to the indemnified party otherwise
than under this Section 7. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof as provided herein, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to the indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable under this
Section 7 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. Adjustment. The number of shares of Preferred Stock and the terms of
-----------
the Common Stock Warrants included in the Units purchasable upon the exercise of
the Warrants are subject to adjustment from time to time upon the occurrence of
any of the events enumerated below:
(a) Definition of "Shares". As used herein, "Shares" shall mean shares of
the Company's Series A Convertible Cumulative
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<PAGE>
Redeemable Preferred Stock.
(b) Change in Preferred Stock. If the Company shall at any time subdivide
its outstanding Shares by recapitalization, reclassification or split-up, the
number of Shares per Unit issuable upon exercise of this Warrant immediately
prior to such subdivision shall be proportionately increased, and if the Company
shall at any time combine the outstanding Shares by recapitalization,
reclassification or combination, the number of Shares per Unit issuable upon
exercise of this Warrant immediately prior to such combination shall be
proportionately decreased.
(c) Distribution of Securities or Other Assets. If the Company shall
distribute to all of its holders of Shares any securities (which do not
otherwise require any adjustment in the number of Shares issuable upon exercise
of this Warrant) or other assets (other than a cash distribution made as a
dividend payable out of earnings or out of earned surplus legally available for
dividends under the laws of the jurisdiction of incorporation of the Company),
the Board of Directors shall be required to make such equitable adjustment in
the Shares per Unit issuable upon exercise of this Warrant and the exercise
price thereof prior to the record date of such distribution as may be necessary
to preserve to the holders of the Warrants rights substantially proportionate to
those enjoyed hereunder immediately prior to the happening of such distribution.
Any such adjustment made by the Board of Directors reasonably made in good faith
shall be final and binding on the holder hereof. Any such adjustment shall
become effective as of the record date for distribution.
(d) Effect of Sale, Merger or Consolidation. If any capital
reorganization of the capital stock of the Company, or consolidation or merger
of the Company with another corporation, or the sale of all or substantially all
of its assets to another corporation shall be effected after the date hereof,
then as a condition of such reorganization, consolidation, merger or sale,
lawful and adequate provision shall be made whereby the holder of each Warrant
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant Certificate and in lieu of
the Shares and Common Stock Warrants to be included in the Units underlying the
Warrant, such shares of stock, securities or assets as the holder of the Warrant
would have been entitled to receive if such holder had exercised the Warrant
immediately prior thereto. The Company shall not effect any such consolidation,
merger or sale, unless prior to or simultaneously with the consummation thereof,
the successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume,
by written instrument executed and delivered to the holder of each Warrant, the
obligation to deliver to the holder of each Warrant, such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holders may be
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<PAGE>
entitled to purchase.
(e) Notice to Warrantholders of Adjustment. Whenever the number of Shares
per Unit is adjusted as herein provided, the Company shall cause to be mailed to
the holders of Warrants in accordance with the provisions of this Section 8 a
notice (i) stating that the number of Shares purchasable upon exercise of
Warrants has been adjusted, (ii) setting forth the adjusted number of Shares
purchasable upon the exercise of a Warrant, and (iii) showing in reasonable
detail the computations and the facts, including the amount of consideration
received or deemed to have been received by the Company, upon which such
adjustments are based.
(f) Notice to Warrantholders of Stock Dividends, Reorganizations, etc.. In
case at any time after the date hereof:
(1) there shall be any capital reorganization or reclassification of
the capital stock of the Company (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result of the
subdivision or combination of Shares), or any conversion of the Shares into
securities of another corporation, or a sale of all or substantially all of the
assets of the Company, or a consolidation or merger of the Company with another
corporation (other than a merger with a subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification
or change of the Units issuable upon exercise of the Warrants); or
(2) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the holders of Warrants, not less than 45 days before any record date or other
date set for definitive action, written notice of the date upon which the books
of the Company shall close or a record shall be taken for purposes of such
dividend, distribution or subscription rights or upon which such reorganization,
reclassification, conversion, sale, consolidation, merger, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also set forth facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the number of
Shares per Unit and the kind and amount of the shares of stock and other
securities and property deliverable upon exercise of the Warrants. Such notice
shall also specify the date as of which the holders of the shares of record
shall participate in said dividend, distribution or subscription rights or shall
be entitled to exchange their Shares for securities or other property
deliverable upon such reorganization, reclassification, conversion, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be (on which date in the event of voluntary or
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<PAGE>
involuntary dissolution, liquidation or winding up of the Company, the right to
exercise the Warrants shall terminate).
(g) Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of Warrants. If more than one Warrant
shall be surrendered for exercise at one time by the same holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Warrants so exercised. If any fractional
interest in a Share shall be deliverable upon the exercise of any Warrant or
Warrants, the Company shall make an adjustment therefor in cash equal to such
fraction multiplied by the average closing price, or if none by the average
closing bid price of the Shares on the business day next preceding the day of
exercise.
(h) Adjustment of Common Stock Warrants. The exercise price and the
number of shares of Common Stock purchasable upon the exercise of the Common
Stock Warrants shall be determined by the anti-dilution and other adjustment
provisions provided for by the terms of a certain Warrant Agreement dated
December __, 1996 between the Company and American Stock Transfer & Trust
Company (the "Warrant Agreement"); such adjustments to be made to the same
extent and in the same fashion as the adjustments, if any, made in the Common
Stock Purchase Warrants sold to the public pursuant to the Registration
Statement.
9. Survival. The various rights and obligations of the holder hereof and
---------
of the Company as set forth in Sections 5, 6 and 7 hereof shall survive the
exercise of the Warrants represented hereby and the surrender of this Warrant
Certificate, and upon the surrender of this Warrant Certificate and the exercise
of all the Warrants represented hereby, the Company shall, if requested by the
holder, deliver to the holder hereof its written acknowledgment of its
continuing obligations under said Sections. The holders of the Warrants shall,
if requested by the Company, deliver to the Company their written acknowledgment
of their continuing obligations under said Sections.
10. Notice. All notice required by this Warrant Certificate to be given
-------
or made by the Company shall be given or made by first class mail of the United
States Postal Service, postage prepaid, addressed to the registered holder
hereof at the address of such holder as shown on the books of the Company;
provided that where notice is to be given pursuant to Sections 6, 7 and 8 hereof
to holders of Units or components thereof who are not holders of Warrant
Certificates, such notice shall be given or made in the manner noted above to
the record owner of such Units or components at the address of such owner as
shown on the books of the Company.
11. Loss or Destruction. Upon receipt of evidence satisfactory to the
--------------------
Company of the loss, theft, destruction, or mutilation of this Warrant
Certificate and, in the case of any such
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<PAGE>
loss, theft or destruction, upon delivery of an indemnity agreement satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant Certificate, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant Certificate of
like tenor.
HUNGARIAN BROADCASTING CORP.
By:__________________________________
President
ATTEST:
________________________________
Secretary
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<PAGE>
ASSIGNMENT
(To be executed by the registered holder to effect a transfer of
the within Warrant)
FOR VALUE RECEIVED, .... hereby sell, assign and transfer unto
____________________________________
(Name)
_______________________________________________________
(Address)
the right to purchase .................... Units of Series A Convertible
Cumulative Redeemable Preferred Stock and Warrants of Hungarian Broadcasting
Corp. evidenced by the within Warrant, together with all right, title and
interest therein, and do irrevocably constitute and appoint
attorney to transfer the said right on the books of said Corporation with full
power of substitution in the premises.
Dated, ..........................., 19 ....
Signature ................................
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<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
To: HUNGARIAN BROADCASTING CORP.
The undersigned hereby exercises the right to purchase .....
according to the terms and conditions thereof, and herewith makes payment of the
purchase price in full.
Dated: ...................... , 19...
SIGNATURE ................................
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<PAGE>
[LOGO]
November 27, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
RE: HUNGARIAN BROADCASTING CORP.
COMMISSION FILE. NO. 333-13371
Gentlemen:
This opinion is being furnished to you with respect to a public offering and
sale by Hungarian Broadcasting Corp., ("HBCO") (the "Company") of 500,000
units (the "Units"), each Unit consisting of one share of Series A Convertible
Cumulative Redeemable Preferred Stock, (the "Preferred Shares") and one Common
Stock Purchase Warrant (the "Warrants"), which public offering is more fully
described in the Registration Statement on Form SB-2, and Amendments thereto,
No. 333-13371 filed by the Company with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended.
We have acted as legal counsel to the Company in connection with the
preparation of the Registration Statement and in connection with various
related matters. During the course of the preparation of the Registration
Statement, we participated in conferences (telephone and/or in person) with
officers of the Company, with representatives of the Company's independent
accountants and with representatives of J.W. Barclay & Co., Inc., during which
the contents of the Registration Statement and various other related matters
were discussed. We have also examined the Certificate of Incorporation of the
Company as amended (as filed with the Secretary of State of Delaware), the By-
Laws of the Company and such other corporate records and other documents as we
have deemed necessary or desirable as the basis for our opinion hereinafter
set forth:
Based upon and subject to the foregoing, we are of the opinion that:
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware and has full corporate power to own
its properties and to conduct its business as such is described in the
Registration Statement.
(b) The Units and the Preferred Shares and Warrants comprising such Units
have been duly authorized and will, upon payment therefor and delivery
thereof in accordance with the Registration Statement, be validly issued
and fully paid and non-assessable, and all corporate action required to be
taken by the Company for the authorization, issuance and sale of the Units,
Preferred Shares and Warrants has been validly and sufficiently taken and
the certificates representing the Preferred Shares and Warrants are in
proper legal form.
(c) The common stock issuable upon conversion of the Preferred Shares and
upon exercise of the Warrants has been duly and validly authorized and
reserved for issuance upon such conversion and exercise and when issued in
accordance with the terms of the Preferred Shares and the Warrants, will be
validly issued, fully paid and non-assessable.
We consent to the filing of this opinion as an Exhibit to the aforesaid
Registration Statement and further consent to the reference made to this law
firm under the caption "Legal Opinions" in the Prospectus constituting a part
of such Registration Statement.
Very truly yours
Cohen & Cohen
[ART]
Frank R. Cohen
FRC:kc
<PAGE>
EXHIBIT 10(N)
FINANCIAL CONSULTING AGREEMENT
AGREEMENT made the ____ day of December, 1996 by and between J.W. Barclay &
Co., Inc. (herein referred to as "Consultant"), and Hungarian Broadcasting Corp.
(herein referred to as "Client").
WHEREAS, Client desires to obtain Consultant's consulting services in
connection with Client's business and financial affairs, and Consultant is
willing to render such services as hereinafter more fully set forth.
NOW, THEREFORE, the parties agree as follows:
1. Client hereby engages and retains Consultant and Consultant hereby
agrees to use its best efforts, to render to Client the consulting services
hereinafter described for a period of two years commencing as of December 20,
1997, and conditioned upon the closing of the underwriting contemplated in the
Registration Statement on Form SB-2 (No. 333-13371) filed by Client with the
Securities and Exchange Commission.
2. Consultant's services hereunder shall consist of consultations with
Client concerning the management and operations and the financing of Client's
business as Client may from time to time request during the term of this
consulting agreement.
3. Consultant's services may include, at the request of the Client,
attendance at meetings of the Client's Board of Directors and review, analysis
and report on proposed investment opportunities, short term and long term
investment policies, evaluation of the Client's managerial and financial
requirements, assistance in preparation of budgets and business plans, advice
regarding sales and marketing and review and advice with respect to future
public or private financings. Client agrees that Consultant shall not be
prevented or barred from rendering services of similar or dissimilar nature for
or on behalf of any person, firm or corporation other than Client. Nothing
herein shall require the Consultant to provide any minimum number of hours of
consultation services to the Client, and the amount of time to be devoted by
Consultant in performing services hereunder shall be within the discretion of
Consultant. Consultant agrees to keep confidential any nonpublic information
concerning Client which is imparted to Consultant by Client and which is
identified as confidential or proprietary by Client in writing and to use the
same only for the purposes of this agreement. Materials prepared for Client
pursuant to this agreement are to be the property of Client.
<PAGE>
4. Client agrees to pay to the Consultant for its services hereunder the
sum of _______________________________ ($________) Dollars per year for each
year of the term of this Agreement. Said fee shall be paid in full upon the
execution hereof.
This agreement has been executed and delivered in the State of New York and
shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed as of the day and year first above written.
J.W. BARCLAY & CO., INC.
By:
-------------------------------------
HUNGARIAN BROADCASTING CORP.
By:
-------------------------------------
2
<PAGE>
[LETTERHEAD OF J.W. BARCLAY & CO., INC.]
______________________, 1996
Hungarian Broadcasting Corp.
445 Park Avenue
New York, New York 10022
Re: Amendment to Mergers and
Acquisitions Agreement
--------------------------
Gentlemen:
This will acknowledge that we have agreed to extend the term of the Mergers
and Acquisitions Agreement between us, dated December 20, 1995, so that same
shall expire on ________________, 2001.
J.W. BARCLAY & CO., INC.
By:___________________________
John A. Bruno, President
AGREED TO:
HUNGARIAN BROADCASTING CORP.
By____________________________
, President
