SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K-A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: January 5, 1998
(Date of earliest event reported)
HUNGARIAN BROADCASTING CORP.
(Exact name of registrant as specified in its charter)
File No. 0-26808
(Commission File Number)
Delaware 13-378-7223
-------- -----------
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
445 Park Avenue, 15th Floor
New York, New York 10022
(212) 758-9870
----------------------------------------------------
(Address and telephone number of principal executive offices)
<PAGE>
Item 1. Changes in Control of Registrant
(a)
(b)
Item 2. Acquisition or Disposition of Assets
On January 5, 1998, pursuant to the Reorganization Agreement, Registrant
acquired, all of the outstanding common stock of Global in exchange for 3.75
million shares of the Company's Common Stock, 1.25 million of which are to be
held in escrow and delivered only upon Global meeting certain performance
measures. On January 5, 1998 Global and Hungarian Broadcasting Project Kft.
("HBP") purchased 24% and 76%, respectively, of SZIV Television, a national
satellite-to-cable broadcaster currently reaching approximately 1,500,000
television households through the AM Micro transmission system in Budapest and
about 140 cable companies via satellite distribution in Hungary. GTN is entitled
to 99% of all profits from Sziv, and HBP is entitled to the remaining 1%. In
addition, GTN has an option to purchase HBP at any time for $15,000 or to
appoint another investor to hold HBP upon the payment of $15,000. GTN is also a
distributor of paid adult television programming, holding long-term contracts
with United Phillips cable operators in Vienna and Amsterdam and exclusive
long-term contracts with NTV Plus DBS operators in Russia. Details regarding
Global's operating subsidiaries and material contracts are contained in the
Reorganization Agreement.
Item 5. Other Events.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a)
Sziv TV Rt.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Sziv TV Rt.:
We have audited the accompanying balance sheets of Sziv TV Rt. (the "Company")
as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform our audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sziv TV Rt. as of December 31,
1997 and 1996 and the results of its operations for the years then ended, in
conformity with generally accepted accounting principles in the United States of
America.
Coopers & Lybrand Konyvvizsgalo
es Vezetesi Tanacsado Kft.
Budapest, Hungary
May 22, 1998
1
<PAGE>
Sziv TV Rt.
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS December 31, December 31,
1997; 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $220,295 $ 18,761
Accounts receivable (net of allowance
for doubtful accounts of $13,528
and $9,456) 174,964 242,711
Program rights cost (net of accumulated
amortization of $53,052) 121,874 0
Prepaid expenses and other assets 76,293 17,298
VAT receivable 16,040 0
-------- --------
Total current assets 609,466 278,770
-------- --------
Property, plant, and equipment (net of
accumulated depreciation of $89,369
and $43,895) 370,764 345,525
Intangible assets (net of accumulated
amortization of $14,631 and $888) 12,198 12,785
-------- --------
Total assets $992,428 $637,080
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $190,259 $ 0
Accounts payable 273,040 55,924
Accrued expenses 82,050 31,914
VAT payable 0 30,093
Other liabilities 36,053 45,038
-------- --------
Total current liabilities 581,402 162,969
-------- --------
Long term portion of notes payable 0 220,946
Total liabilities 581,402 383,915
-------- --------
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock 6,727 6,727
Retained earnings 419,286 246,438
Cumulative translation adjustment (14,987) 0
-------- --------
Total stockholders' equity 411,026 253,165
-------- --------
Total liabilities and stockholders' equity $992,428 $637,080
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
3
<PAGE>
Sziv TV Rt.
Statements of Operations
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
<S> <C> <C>
Net revenue $ 2,483,572 $ 1,210,157
Operating costs and expenses 1,160,670 755,803
Selling, general and administrative expenses 1,065,314 292,606
----------- -----------
2,225,984 1,048,409
----------- -----------
Operating income 257,588 161,748
----------- -----------
Interest and other income 71,606 142,058
Interest expense (84,421) (17,895)
Exchange rate loss (3,666) 0
----------- -----------
(16,481) 124,163
----------- -----------
Net income before tax 241,107 285,911
Tax provision 68,259 52,450
----------- -----------
N0et Income $ 172,848 $ 233,461
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
1Sziv TV Rt.
Statements of Cash Flows
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 172,848 $ 233,461
Adjustment to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 122,929 34,826
Write-down of fixed assets 63,307 0
Provision for doubtful accounts 15,048 967
(Gain) loss on sale of fixed assets 1,183 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 59,604 (190,799)
(Increase) decrease in VAT receivable (17,564) 0
(Increase) decrease in prepaid and other assets (64,599) (14,499)
Increase (decrease) in accounts payable 114,709 (43,369)
Increase (decrease) in accrued expenses 54,895 0
Increase (decrease) in VAT payable (32,950) 0
Increase (decrease) in other liabilities (9,838) 72,996
--------- ---------
Net cash provided by (used in) operating activities 479,572 93,583
--------- ---------
Cash flows from investing activities:
Purchase of property, plant, and equipment (160,389) (366,981)
Purchase of program rights (68,512) 0
Proceeds from sale of fixed assets 3,597 0
--------- ---------
Net cash provided by (used in) investing activities (225,304) (366,981)
--------- ---------
Cash flows from financing activities:
Proceeds from the issuance of notes payable 208,322 220,946
Payments of notes payable (241,922) 0
Proceeds from the issuance of common stock 0 859
Dividends paid 0 (3,422)
--------- ---------
Net cash provided by (used in) financing activities (33,600) 218,383
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (19,134) 0
Net increase (decrease) in cash 201,534 (55,015)
Cash and cash equivalents, beginning of year 18,761 73,776
--------- ---------
Cash and cash equivalents, end of year $ 220,295 $ 18,761
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 62,378 $ 23,731
Taxes $ 82,108 $ 33,738
Noncash investing and financing activities:
Capitalized program rights costs $ 22,883 $ 0
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Sziv TV Rt.
Statements of Stockholders' Equity
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Cumulative
Common Retained Translation
Stock Earnings Adjustment Total
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 5,868 $ 16,399 $ 0 $ 22,267
Issuance of common stock 859 859
Net income 233,461 233,461
Dividend (3,422) (3,422)
Currency translation adjustment 0 0
--------- --------- -------- --------
Balance, December 31, 1996 6,727 246,438 0 253,165
--------- --------- -------- --------
Net income 172,848 172,848
Currency translation adjustment (14,987) (14,987)
--------- --------- -------- --------
Balance, December 31, 1997 $ 6,727 $ 419,286 $(14,987) $411,026
========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Sziv TV Rt.
Notes to Financial Statements
1. Organization and Operations:
Sziv TV Rt. (the "Company") was formed on November 9, 1990, to operate in
the television and radio business in Hungary. In January 1997, the Company
was transformed to a Rt., a corporate structure for larger companies in
Hungary, in order to meet the requirements of the Hungarian media
legislation. The Company operates a television station, Sziv TV (through a
license granted by the Hungarian government for no consideration), that
broadcasts a satellite-to-cable channel throughout Hungary in addition to
transmission on the MMDS microwave system in Budapest. At December 31,
1997 and 1996, the Company was a closely held, private company.
2. Summary of Significant Accounting Policies:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(a) Revenue Recognition
Revenue primarily results from the sale of advertising time. Advertising
revenue is recognized at the time the commercials are broadcast.
(b) Cash and Cash Equivalents
The Company classifies as cash equivalents all highly liquid investments
with a maturity of three months or less at the time of purchase.
(c) Barter Transactions
Revenue from barter transactions (television advertising time provided in
exchange for goods and services) is recognized when commercials are
broadcast; merchandise or services received are charged to expense (or
capitalized, as appropriate) when received or used. The Company records
barter transactions at the estimated fair market value of the services and
merchandise received unless not readily determinable in which case the
transaction is recorded at the estimated fair market value of the
advertising time provided. If services or merchandise is provided prior to
the broadcast of a commercial, a liability is recorded. Likewise, if a
commercial is broadcast first, a receivable is recorded. There were no
barter gains or losses, receivables or payables as of and for the years
ended December 31, 1997 and 1996.
7
<PAGE>
Notes to Financial Statements, continued
(d) 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
ranging from 3 to 24 months. Program rights are reported at lower of
unamortized cost or estimated net realizable value.
(e) 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.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at historical cost. Depreciation
is recorded following a straight-line method over the estimated useful
lives of the assets, which is five years for television broadcasting and
production equipment, three to five years for office equipment and
fixtures and fittings and five years for automotive equipment. The Company
reviews for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company evaluates recoverability using an undiscounted cash flow approach
over the remaining life of the assets. Leasehold improvements are
amortized over the life of the lease or the related asset, whichever is
shorter. When assets are retired or disposed of, the costs and accumulated
depreciation or amortization are removed from the respective accounts and
any related gain or loss is recognized. Maintenance and repairs are
charged to expense when incurred. Significant expenditures, which extend
useful lives of assets, are capitalized.
(g) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). This Statement requires a liability approach for
measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities
existing at each balance sheet date using enacted rates for the years in
which the taxes are expected to be paid or recovered.
(h) Foreign Currency Translation
The Company's functional currency is the Hungarian forint. Assets and
liabilities in foreign currencies are translated to the Company's
functional currency using the corresponding exchange rate in effect at the
balance sheet date with any resulting gain or loss included in the
statement of operations. Gains and losses resulting from transactions of
the Company in currencies other than
8
<PAGE>
Notes to Financial Statements, continued
their functional currency are included in the statement of operations.
Assets and liabilities are translated into the reporting currency (U. S.
dollar) using the rate in effect at the balance sheet date and equity
accounts using their historical rates. The statement of operations and
cash flows are translated using the weighted average rate in effect for
the period. Gains and losses from translations are recorded in a separate
component of stockholders' equity.
(i) Dividend Policy
As a Hungarian company, the Company must comply with local legislation
regarding the distribution of earnings. Hungarian statutory accounts
prevail in the determination of the amount of profit available for
distribution.
(j) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash. The
Company places its temporary cash and investments with high quality
financial institutions. At times, demand deposits and cash equivalents may
be in excess of the National Depository Insurance Fund in Hungary
insurance limits.
(k) Litigation
The Company provides for contingent liabilities in connection with pending
legal matters when losses are both probable and estimable.
3. VAT Receivable/ Payable:
Value-added taxes paid in Hungary for which a reimbursement claim was
submitted by the Company, have been included in current assets. When at a
period close VAT balances net to a payable, such balances are included in
current liabilities.
4. Property, Plant and Equipment:
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Television broadcasting and production equipment $ 424,231 $ 375,578
Office equipment, fixtures, and fittings 31,827 13,842
Vehicles 4,075 0
--------- ---------
460,133 389,420
Less: Accumulated depreciation (89,369) (43,895)
--------- ---------
$ 370,764 $ 345,525
========= =========
</TABLE>
9
<PAGE>
Notes to Financial Statements, continued
Depreciation expense was $60,147 and $33,593 for the years ended December
31, 1997 and 1996, respectively.
5. Intangible Assets:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Film rights $ 23,704 12,259
Software 3,125 1,414
-------- --------
26,829 13,673
Less: Accumulated amortization (14,631) (888)
-------- --------
$ 12,198 $ 12,785
======== ========
</TABLE>
Amortization expense was $4,693 and $472 for the years ended December 31,
1997 and 1996, respectively.
6. Notes Payable:
On September 26, 1996, the Company issued notes payable (denominated in
Hungarian forints) totaling approximately $220,000, due July 21, 1997, to
finance the purchase of broadcasting and production equipment. The loan
was collateralized by approximately $365,000 of the Company's assets as of
December 31, 1996.
On July 21, 1997, the Company repaid the outstanding notes by issuing
additional notes (denominated in Hungarian forints) for approximately
$220,000, bearing interest at 25%, with equal monthly principal and
interest payments with the remaining loan balance (approximating 70% of
the total loan) due July 21, 1998. The loan is collateralized by
approximately $300,000 of the Company's assets as of December 31, 1997.
7. Capital Stock
The Company's capital stock consists of quota stock of 1,370 THUF (6,727
USD).
8. Commitments and Contingencies
Commitments
The Company had an agreement with Antenna Hungaria ("AH"), commencing on
June 20, 1995, whereby AH provided the Company with AM Micro broadcasting
services at an annual fee of
10
<PAGE>
Notes to Financial Statements, continued
approximately $97,000 for as long as the Company had the legal right to
broadcast its signal in Hungary.
On September 15, 1997, the parties agreed to cancel the existing contract
and replace it with a seven year rental agreement, at a monthly fee of
approximately $45,000, whereby AH would provide the Company with a channel
and satellite up-link service. In addition, the Company is obligated to
pay an annual fee of approximately $75,000 to AH for AM Micro broadcasting
services for as long as the Company has the legal right to broadcast its
signal in Hungary.
Contingencies
In December 1997, Hungarian LP Editors Association ("Mahasz"), a music
production company, filed a copyright claim against the Company to recover
royalties relating to revenues earned while broadcasting music produced by
Mahasz. The case is in a preliminary stage and Mahasz has yet to claim a
specific amount for recovery. Management and the Company's outside legal
counsel are unable to predict at this time the final outcome of this
proceeding. However, it is the opinion of the Company's management, based
on the information available at this time, that the expected outcome of
this matter will not have a material adverse affect on the results of
operations and financial condition of the Company.
9. Subsequent Events:
On January 5, 1998, the Company was purchased by Global Television
Networks, Inc. ("GTN") and Hungarian Broadcasting Project Kft. ("HBP").
GTN and HBP obtained a 24% and 76% interest in the Company, respectively.
GTN is entitled to 99% of all profits from the Company and HBP is entitled
to the remaining 1%. In addition, GTN has an option to purchase HBP at any
time for $15,000 or to appoint another investor to hold HBP upon the
payment of $15,000. Although the legal ownership structure of the Company
indicates HBP having majority ownership, the economic substance of this
structure is that GTN is the controlling shareholder and HBP is a nominee
shareholder. Subsequent to the purchase of the Company, GTN's management
has determined that the former management of Sziv had not fully and
completely accounted for transactions entered into for the period ending
March 31, 1998. Management is currently investigating this situation, but
is confident that no material effect will occur upon the ultimate
resolution of the issue.
11
<PAGE>
Global Television Network, Inc.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Global Television Network, Inc.:
We have audited the accompanying consolidated balance sheet of Global Television
Network, Inc. (the "Company") as of December 31, 1997, and the related
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.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform our 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Global Television
Network, Inc. as of December 31, 1997, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles in the United States of America.
Coopers & Lybrand Konyvvizsgalo
es Vezetesi Tanacsado Kft.
Budapest, Hungary
May 22, 1998
1
<PAGE>
Global Television Network, Inc.
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
ASSETS 1997
--------
<S> <C>
Current assets:
Cash and cash equivalents $ 22,929
Accounts receivable (net of allowance for doubtful accounts of $0) 29,251
Program rights cost (net of accumulated amortization of $0) 8,999
--------
Total current assets 61,179
--------
Total assets $ 61,179
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,319
Income taxes payable 12,233
--------
Total liabilities $ 72,552
--------
Stockholders' equity:
Common stock, $0.01 par value, shares authorized, $ 5
issued and outstanding 500
Accumulated deficit (12,233)
Additional paid in capital 855
--------
Total stockholders' equity (11,373)
--------
Total liabilities and stockholders' equity $ 61,179
========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
Global Television Network, Inc.
Consolidated Statement of Operations
for the year ended December 31, 1997
<TABLE>
<CAPTION>
1997
<S> <C>
Net revenue $355,095
Operating costs and expenses 226,345
Selling, general and administrative expenses 92,863
--------
319,208
--------
Operating income 35,887
--------
Interest and other income 94
--------
Net income before tax 35,981
Tax provision 12,233
--------
Net Income $ 23,748
========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
Global Television Network, Inc.
Consolidated Statement of Cash Flows
for the year ended December 31, 1997
<TABLE>
<CAPTION>
1997
<S> <C>
Cash flows from operating activities:
Net income $ 23,748
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (29,251)
Increase (decrease) in accounts payable 60,319
Increase (decrease) in income taxes payable 12,233
--------
Net cash provided by (used in) operating activities 67,049
Cash flows from investing activities:
Purchase of program rights (8,999)
--------
Net cash provided by (used in) investing activities (8,999)
Cash flows from financing activities:
Proceeds from the issuance of common stock 12,035
Advances to shareholders (47,156)
--------
Net cash provided by (used in) financing activities (35,121)
Net increase (decrease) in cash 22,929
Cash and cash equivalents, beginning of year 0
--------
Cash and cash equivalents, end of year $ 22,929
========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
Global Television Network, Inc.
Consolidated Statement of Stockholders' Equity
for the year ended December 31, 1997
<TABLE>
<CAPTION>
Additional
Common Paid in Retained
Stock Capital Earnings Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 0 $ 0 $ 0 $ 0
Issuance of shares 5 12,030 12,035
Net income 23,748 23,748
Advances to shareholders $(11,175) $(35,981) (47,156)
-------- -------- -------- --------
Balance, December 31, 1997 $ 5 $ 855 $(12,233) $(11,373)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
<PAGE>
Global Television Network, Inc.
Notes to Consolidated financial Statements
1. Nature of Business:
Global Television Network, Inc. (the "Company"), a Delaware corporation,
was incorporated on June 27, 1997. The Company acts as a holding company,
maintaining 100% ownership interests in C.D.I. Productions Corp., a
Delaware corporation; Bare Necessities NV, a Netherlands Antilles
corporation; and Chatline Corp. NV, a Netherlands Antilles corporation.
Bare Necessities in turn maintains a 100% ownership interest in Mersa
Holdings, a Dutch corporation; which in turn maintains a 99% ownership
interest in RPPV Services Ltd., a Cyprus corporation and APPV Services,
Ltd, a Hungarian corporation. These Companies each began operations during
1997. Although the legal structure has Mersa Holdings maintaining a 99%
ownership interest in these entities, the economic substance of this
structure is that Mersa Holdings is the controlling shareholder and the
minority shareholder, the nominee shareholder. Accordingly, the entities
are consolidated as if they were 100% owned by Mersa Holdings. In January
1998, the Company acquired 100% ownership of Sziv TV Rt, a television
station operating in Hungary (See Note 7). Chatline Corp. NV was inactive
for the year ended December 31, 1997.
The Company has two primary lines of business. One is the distribution of
videos to cable and direct broadcasting system operators, which distribute
them to viewers on a subscription or pay-per-view basis, paying the
Company a percentage of all revenues derived from such distributions. The
other business, which was discontinued in 1998, was to act as an agent to
sell advertising time on prerecorded videotapes sold or rented to third
parties. The Company received a percentage of the revenues derived from
the sales of services thus advertised. Following are descriptions of the
Company's operating subsidiaries:
Russia
RPPV Services, Ltd. ("RPPV")
RPPV, in March 1997, signed a ten-year, renewable contract with NTV PLUS
to be the exclusive provider of adult movies for NTV PLUS's direct
broadcasting system monthly subscription television channels in Russia. At
December 31, 1997, the channels had approximately 15,000 paid subscribers.
RPPV receives 25% of all subscriptions paid to NTV PLUS. Two suppliers are
under contract to supply movies to the channel in exchange for 33 1/3% and
20% of RPPV's gross revenues received from NTV PLUS, respectively.
Western Europe
APPV Services, Ltd. ("APPV")
APPV has a long-term contract with United Phillips Corporation ("UPC") to
broadcast movies on an adult channel in Vienna. UPC has approximately
600,000 cable subscribers in this market of which about 6,000 customers
have addressable converters which can receive APPV's pay-per-view
programming. UPC pays APPV 25% of the gross revenues received from each
film. XY Video ("XY") is under contract to supply the movies for the
channel in exchange for 20% of APPV's gross revenues from each film.
6
<PAGE>
Notes to Consolidated financial Statements, continued
Bare Necessities NV ("BN")
BN has a long-term contract with UPC to broadcast movies on an adult
channel in Amsterdam. UPC has about 100,000 cable subscribers in this
market of which approximately 3,000 customers have addressable converters
which can receive BN's pay-per-view programming. UPC pays BN 25% of the
gross revenues it receives from each film. XY is under contract to supply
the movies for the channel in exchange for 20% of BN's gross revenues from
each film.
United States
C.D.I. Productions Corp. ("CDI")
CDI has a contract to advertise chatline commercials on the adult movie
videos produced and distributed by Caballero. Amtec Audiotext provides the
chatline service. Amtec pays CDI 39% of the gross revenue received from
chatline calls. CDI in turn pays 33 1/3% of the gross revenues by Amtec
(85.5% of CDI's revenues) to Caballero. This contract was canceled by the
parties as of December 31, 1997.
2. Summary of Significant Accounting Policies:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(a) Principles of consolidation
During 1997, the beneficial owners of the Company established a number of
separate operations in the field of distribution of television programs.
Various corporate entities in several countries were created to hold the
different operations under the overall ownership of the Company. The
consolidated financial statements have been prepared on the basis that
operations commenced as of January 1, 1997 and that the Company held a
majority investment and control in all operations as from this date as
this reflects the economic substance of their operations for the year
ended December 31, 1997.
(b) Revenue Recognition
The Company recognizes revenues from royalty income, according to the
terms of the license agreements. Revenue is recognized at the time when
the films are broadcast.
(c) Cash and Cash Equivalents
The Company classifies as cash equivalents all highly liquid investments
with a maturity of three months or less at the time of purchase.
7
<PAGE>
Notes to Financial Statements, Continued
(d) Program and Film Rights
Program and film rights, acquired under license agreements, are
capitalized at their cost upon their purchase and expensed upon their
redistribution to cable and direct broadcasting system operators.
(e) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). This Statement requires a liability approach for
measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities
existing at each balance sheet date using enacted rates for the years in
which the taxes are expected to be paid or recovered.
(f) Litigation
The Company provides for contingent liabilities in connection with pending
legal matters when losses are both probable and estimable.
(g) Concentrations of Credit Risk
A significant portion of the Company's operations are outside of the
United States of America. During 1997, approximately 40% of the Company's
revenues and 47% of the Company's expenses were recognized by subsidiaries
operating in Europe. In addition, 49% of the Company's total assets and
100% of its total liabilities were maintained by these foreign
subsidiaries.
3. Advances to shareholders
The amounts distributed to the Company's shareholders during 1997 exceeded
the accumulated profits of the Company. As the advances are not expected
to be recovered, they have been included as a reduction to the Company's
equity.
4. Commitments
The Company's subsidiaries, BN and APPV have three year commitments with
XY, a film distributor, commencing on September 7, 1997 and April 15,
1997, respectively, whereby XY has agreed to supply the subsidiaries with
a predetermined number of films per month in exchange for 5% of the
revenues generated from the films broadcast.
8
<PAGE>
Notes to Financial Statements, Continued
5. Risks and Uncertainties
The Company's operating subsidiaries are reliant upon both a few number of
customers and suppliers of videos. See "Nature of Business" footnote.
6. Related party transactions
During 1997, Top-Line Communications, Inc. ("Top-Line"), a television
production studio, which is majority owned by the current owners of the
Company, financed certain expenses including travel and lodging incurred
in connection with costs of expanding the business. The total amount of
expenses paid by Top-Line, on behalf of the Company, which is included in
selling, general and administrative expenses in the Company's consolidated
statement of operations, was approximately $18,780 for the year ended
December 31, 1997. The outstanding amount payable to Top-Line of $1,858 at
December 31, 1997 has been included in accounts payable in the Company's
balance sheet.
7. Subsequent Events:
On January 5, 1998, the Company was acquired by Hungarian Broadcasting
Corp. ("HBC") for 3.75 million shares in HBC in exchange for all the
outstanding common stock of the Company. 1.25 million of the 3.75 shares
are currently held in escrow and will be delivered only upon the Company
meeting certain performance measures. The value of this sale, exclusive of
the escrowed shares, was approximately $16.5 million.
On January 5, 1998, immediately prior to the above transaction, the
Company purchased a 24% interest in Sziv TV Rt. ("Sziv"). The purchase
agreement entitles the Company to 99% of all profits generated by Sziv and
provides the Company with an option to purchase Hungarian Broadcasting
Project Kft.'s ("HBP") 76% interest in Sziv at anytime for $15,000 or to
appoint another investor to hold HBP upon the payment of $15,000. Although
the legal ownership structure of Sziv indicates HBP with majority
ownership, the economic substance of this structure is that the Company is
the controlling shareholder and HBP is a nominee shareholder.
In January 1998, the operations of CDI, which comprised 60% of the
Company's revenue and approximately 50% of the Company's operating profit
in 1997, were terminated.
9
<PAGE>
HUNGARIAN BROADCAST CORP.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The Pro Forma Consolidated Balance Sheet as of December 31, 1997 and the Pro
Forma Consolidated Statement of Operations for the year ended December 31, 1997
are based on the historical consolidated financial statements of Hungarian
Broadcasting Corporation (the "Company"), Sziv TV Rt. (" Sziv"), and Global
Television Network, Inc. ("GTN"). The Pro Forma Consolidated Balance Sheet has
been prepared assuming the acquisition of Sziv by GTN followed by the
acquisition of GTN by the Company occurred on December 31, 1997.
The Pro Forma Consolidated Statement of Operation for the year ended December
31, 1997 has been prepared assuming the acquisitions of Sziv by GTN followed by
the acquisition of GTN by the Company occurred on January 1, 1997. For purposes
of the Pro Forma Consolidated Statement of Operation for the year ended December
31, 1997, the Statements of Operations for the year ended December 31, 1997 for
both Sziv and GTN have been combined with the Consolidated Statement of
Operations of the Company for the year ended December 31, 1997. The Pro Forma
Consolidated Statement of Operation also reflect the issuance of 2,500,000
shares of Common Stock in connection with the acquisition of GTN by the Company.
These shares are assumed to have been issued at the beginning of the period
presented.
The Pro Forma Consolidated Financial Statements do not purport to represent what
the Company's actual results of operations or financial position would have been
had the acquisitions occurred as of such dates, or to project the Company's
results of operations or financial position for any period or date, nor does it
give effect to any matters other than those described in the notes thereto. In
addition, the allocation of the purchase price to the assets and liabilities of
Sziv and GTN, respectively, is preliminary and the final allocation may differ
from the amounts reflected herein. The Pro Forma Consolidated Financial
Statements should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1997 filed on Form 10-KSB
with the Securities and Exchange Commission and the audited financial statements
of Sziv and GTN for the year ended December 31, 1997 included herein.
<PAGE>
HUNGARIAN BROADCAST CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
To date, all of the Company's acquisitions have been accounted for under the
purchase method of accounting with the results of the acquired companies
included in the Company's Statements of Operations beginning on the date of the
acquisition. The pro forma amounts are based upon certain assumptions and
estimates, and do not reflect any benefit from economies of scale which might be
achieved from combined operations. The pro forma results do not necessarily
represent results which would have occurred if the acquisitions had taken place
on the basis assumed below, nor are they indicative of the results of future
combined operations.
(1) Gives effect to the acquisition of Sziv TV Rt. ("Sziv") by Global
Television Network, Inc. ("GTN") for $1.5 million, as if such acquisition
occurred on December 31, 1997. The adjustments reflect: (i) an additional
$1.0 million cash infusion by GTN's major shareholder, (ii) an additional
due from shareholder amount of $1.75 million, (iii) the payment of the
cash portion of the purchase price for the acquisition of Sziv of $1.0
million and (iv) the assumption of $500,000 of additional liabilities
associated with the involuntary termination of Sziv's management. The
allocation of the purchase price to the estimated fair value of the assets
and liabilities assumed will result in the recognition of approximately
$1.1 million in broadcast licenses by GTN.
(2) Gives effect to the acquisition of GTN by Hungarian Broadcasting Corp.
("HBC") for approximately $21.1 million, as if such acquisition occurred
on December 31, 1997. The adjustments reflect: (i) the issuance of 2.5
million common shares with a fair market value of $16.6 million and (ii)
the issuance of 3.0 million warrants with a fair market value of $4.5
million. The allocation of the purchase price to the estimated fair value
of the assets and liabilities assumed will result in the recognition by
HBC of $18.3 million in broadcast licenses.
(3) Gives effect to (i) the amortization of approximately $1.4 million for
the year ended December 31, 1997 of broadcast licenses acquired as part of
the acquisition of Sziv by GTN and the subsequent acquisition of GTN by
HBC. The value assigned to the individual licenses acquired will be based
on the length of term of each license, management's estimate of viewership
for each license and the fact that cable viewers have approximately twice
the value to HBC compared to AM Micro viewers. Broadcast licenses will be
amortized on a straight line basis over the estimated useful lives of the
individual licenses, ranging from 8 to 15 years.
(4) Pro forma basic loss per share was computed by dividing the pro forma
loss attributable to common stockholders for the year ended December 31,
1997 by the pro forma weighted average number of common shares outstanding
for the period. The pro forma loss attributable to common stockholders
includes the effect of preferred stock dividends totaling $2,601,800. Pro
forma weighted average common shares outstanding includes the retroactive
effects as of January 1, 1997 for the issuance of common shares for the
acquisition of GTN by HBC.
<PAGE>
Dilutive earnings per share were not calculated as the effects of
including the common equivalent shares for the warrants issued in
connection with the purchase price of GTN by HBC would be antidilutive for
the period presented.
<PAGE>
HBC Pro Forma
Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
December 31, 1997
================================================================================
Actual
======================================= ============ ============
HBC GTN Sziv TV Acquisition
USD USD USD Adjustments Pro Forma
============ ======== ========= ============ ============
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 406,733 $ 22,929 $ 220,295 $ -- (1) $ 649,957
Accounts receivable, net 469,163 29,251 174,964 673,378
Other receivable -- -- 16,040 16,040
Program rights costs, net 687,614 8,999 121,874 818,487
Prepaid expenses and other current assets 177,026 -- 76,293 253,319
Due from related parties 361,046 -- -- 1,750,000(1) 2,111,046
------------ -------- --------- ------------ ------------
Total current assets 2,101,582 61,179 609,466 1,750,000 4,522,227
Property plant and equipment, net 401,178 -- 370,764 771,942
Production costs 432,886 -- 12,198 445,084
Movie copyrights 401,434 -- -- 401,434
Broadcast license, net 1,057,535 -- -- 18,042,435(1,2,3) 19,099,970
Deferred financing, net 7,683 -- -- 7,683
Other 251,605 -- -- 251,605
------------ -------- --------- ------------ ------------
Total assets $ 4,653,903 $ 61,179 $ 992,428 $ 19,792,435 $ 25,499,945
============ ======== ========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 1,027,306 $ -- $ 190,259 $ $ 1,217,565
Accounts payable 676,191 60,319 273,040 1,009,550
Accrued expenses 945,538 12,233 82,050 1,039,821
Due to related parties 932,123 -- -- 500,000(1) 1,432,123
VAT payable 97,185 -- -- 97,185
Other 247,394 -- 36,053 283,447
------------ -------- --------- ------------ ------------
Total current liabilities 3,925,737 72,552 581,402 500,000 5,079,691
Commitments and contingencies -- -- -- -- --
Stockholders' equity
Preferred stock (non-redeemable) 39 -- -- -- 39
Common stock 3,930 5 6,727 (4,232)(1&2) 6,430
Additional paid in capital 11,693,680 855 -- 21,059,145 (1&2) 32,753,680
Retained earning (accumulated deficit) (11,105,715) (12,233) 419,286 (1,762,478)(3) (12,461,140)
Cumulative foreign currency
translation gain/(loss) 136,232 -- (14,987) -- 121,245
------------ -------- --------- ------------ ------------
Total stockholders' equity 728,166 (11,373) 411,026 19,292,435 20,420,254
------------ -------- --------- ------------ ------------
Total liabilities and stockholders' equity $ 4,653,903 $ 61,179 $ 992,428 $ 19,792,435 $ 25,499,945
============ ======== ========= ============ ============
</TABLE>
<PAGE>
(b) N/A
(c) Exhibits.
Exhibit A Agreement dated December 17, 1997 between the Offer Assis and
Peter E. Klenner*
Exhibit B Loan Agreement and Pledge between Offer Assis and Ami Shafrir
Exhibit C Reorganization Agreement among HBC, Global Television Networks,
Inc. and Offer Assis, Shai Bar-Lavi, Shlomo Kot and Frederick E.
Smithline individually*
Exhibit D Transfer and Distribution Agreement, dated as of November
18, 1997, between the Registrant and Hungarian Satellite
Corporation.**
Exhibit E Press Release dated November 20, 1997.*
Exhibit F Press Release dated January 6, 1998*
* Previously filed
** Amended
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 20th day of
May 1998.
HUNGARIAN BROADCASTING CORP.
By \s\ Peter E. Klenner
-------------------------------------------
Peter E. Klenner
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons in the capacities and on the dates
indicated:
____________________ Chairman , 1998
Peter E. Klenner
<PAGE>
Exhibit B
PROMISSORY NOTE
$3,250,000 New York, New York
December 22, 1997
FOR VALUE RECEIVED, Offer Assis, ("Maker"), promises to pay to Shafrir
Family Trust, a Cook Islands Trust (the "Lender"), or order, the sum of Three
Million Two Hundred Fifty Thousand Dollars ($3,250,000.00) (or such greater
amount as has been loaned by Lender to Makers pursuant to Section 5), in lawful
money of the United States of America, together with interest on the principal
amount outstanding from time to time.
1. Interest shall accrue hereunder at the annual rate of eleven percent
(11%) for so long as such borrowings remain outstanding. Accrued interest shall
be payable on December 22, 1998 and again at maturity. Interest may be paid in
U.S. dollars or in additional shares of Hungarian Broadcasting Corp. ("HBC")
Common Stock, at the election of Maker, which HBC Common Stock shall be valued
at the average of its closing bid prices on the five trading days before such
interest payment is due.
2. Principal and any accrued but unpaid interest shall be due and payable
without further demand on December 22, 2000. Maker may prepay the amount due
hereunder without penalty at any time, and from time to time, with all
prepayments to be credited first to accrued interest and then to the
installments of principal due hereunder, in the reverse order by which they come
due. If Maker shall pay or prepay this Note in full on or before December 22,
2000, then Lender shall receive two hundred thousand (200,000) shares of Common
Stock of HBC from Maker as a loan fee, and Lender shall have no further rights
to any other shares of HBC stock as described in Section 9.
3. Maker also acknowledges his debt to Lender in the aggregate amount of
$100,000 for closing costs of this loan, which sum shall be payable in full,
without interest, on December 22, 1998.
4. As security for the obligation created hereunder and until such time as
Lender shall be paid in full, the Maker hereby grants to Lender a lien and
continuing security interest in, and pledge and assign to Lender, all of Maker's
right, title and interest in 1,000,000 shares of Common Stock of Hungarian
Broadcasting Corp., a Delaware corporation, which Maker is purchasing with the
proceeds of this loan, together with any additional shares or other securities
of HBC which may be issued to Maker as a result of any stock split or stock
dividend by HBC. This note shall be nonrecourse to Maker, and Lender's sole
recourse against Maker, upon default under this Note, shall be to foreclose upon
and sell the pledged stock.
5. Maker and Lender agree and acknowledge that Lender is obligated to loan
Maker an additional $750,000 on or before March 1, 1998, on the same terms and
conditions as this Note, which such further advance shall be deemed an amendment
of this Note. Lender acknowledges that its original loan commitment was for
$5,000,000, and that Maker is now required to seek a third party source to
borrow this final $1,000,000. Accordingly, Lender agrees that its lien on the
1,000,000 shares of HBC Common Stock shall be a second priority lien to the
extent, and only to the extent, that such shares (or a portion of them) are
required to be pledged to such third-party lender as security for its loan of up
to $1,000,000.
6. Should default be made in the payment of any interest or principal when
due, the whole sum of principal and interest shall become immediately due at the
option of the holder of this note.
7. Maker hereby waives demand, presentment, protest, notice of nonpayment,
notice of protest, and any and all lack of diligence or delays which may occur
in the collection of this note.
8. The parties acknowledge that the loan represented by this Note has been
negotiated and agreed to in New York City, New York, and that the laws of the
State of New York shall apply for all purposes, without regard to principles of
conflicts of laws. (CONTINUED)
9. As additional consideration to Lender for making the loan evidenced
hereby, Maker hereby agrees to transfer and assign to Lender outright, one
million (1,000,000) shares of HBC Common Stock, when received from
<PAGE>
HBC, which Maker represents constitutes one-half of the number of shares of HBC
Common Stock to be received by Maker upon the closing of the reorganization of
HBC with Global Television Networks, Inc. This Section 9 shall be subject to the
payment and prepayment provisions of Section 2.
- --------------------------
Offer Assis
Agreed to and accepted:
Shafrir Family Trust,
a Cook Islands Trust
By: Trustcorp Limited,
a Cook Islands corporation,
Trustee
By___________________________
Authorized Signatory
<PAGE>
Exhibit B (con't)
PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Pledge Agreement") is made and entered into as of
December 22, 1997 by and between each of Offer Assis, Shai Bar-Lavi as guardian
for each of Michael Bar-Lavi, Gabriela Bar-Lavi and Daniel Bar-Lavi, Frederick
E. Smithline and Shlomo Kot (collectively "Pledgors"), and Shafrir Family Trust,
a Cook Islands Trust ("Secured Party"), with reference to the following facts:
A. Secured Party loaned Offer Assis the sum of $3,250,000 as of the date
hereof for the purpose of enabling Assis, or a corporation owned solely by
Pledgors, to purchase the common stock of Sziv TV Rt. and to permit Offer Assis
to purchase 300,000 shares of Hungarian Broadcasting Corp. in connection with
the exchange reorganization of Hungarian Broadcasting Corp. with Global
Television Networks, Inc., the parent corporation of Sziv TV Rt. and other
businesses.
B. Pledgors are entering into this Agreement with Secured Party to grant
to Secured Party, and to create, a security interest in certain personal
property of Pledgors, as hereinafter provided, for the benefit of Secured Party,
to secure the repayment of Assis's obligations to Secured Party. The Pledgorss,
other than Assis, are entering into this Agreement solely as an accomodation to
Assis and not as direct obligors of the Obligations, as defined below.
NOW, THEREFORE, in consideration of the premises, covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Grant of Security Interest. Pledgors hereby pledge and grant to Secured
Party a continuing first priority security interest in certificates representing
1,000,000 shares of Hungarian Broadcasting Corp. ("HBC") common stock together
with any additional shares or other securities of HBC which may be issued to
Pledgors as a result of any stock split or stock dividend by HBC (the "Pledged
Shares"), to secure payment and performance of the obligations of Assis to
Secured Party described above (the "Obligations"). Notwithstanding the foregoing
pledge, Secured Party agrees and acknowledges that Assis is required to borrow
the sum of one million dollars ($1,000,000) as a result of Secured Party's
inability to lend such amount to Assis. Accordingly, one or more Pledgors may be
required to pledge some or all of the Pledged Shares to a third party or
parties, and Secured Party agrees that its lien shall be second in priority to
the lien of such third-party lender to the extent, and only to the extent,
required by such third-party lender, and Secured Party shall cooperate with
Pledgors and such third-party lender to perfect the priority of such third-party
lender in the Pledged Shares.
2. Delivery of Pledged Shares. Subject to Section 1, all certificates or
instruments representing or evidencing the Pledged Shares shall be delivered to
and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Secured Party.
3. Representations and Warranties. Pledgors hereby represent and warrant
to Secured Party that:
(a) the Pledged Shares have been duly authorized and validly issued
and are fully paid and non-assessable;
(b) this Pledge Agreement, and the pledge of the Pledged Shares
pursuant to this Pledge Agreement, create a valid and perfected first priority
security interest in the Pledged Shares, securing the payment of the
Obligations;
(c) Pledgors have good and marketable title to their respective
Pledged Shares free and clear of all security interests, encumbrances, liens or
rights of others; and
(d) this Agreement constitutes the legal, valid and binding
obligation each of the Pledgors enforceable against him in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or similar laws affecting the rights of
creditors generally and by the application of general principles of equity
(whether considered in a proceeding in equity or at law).
(e) Secured Party acknowledges that the Pledged Shares have not been
registered under the Securities Act of 1933, as amended, or under any state
securities law, and accordingly, they may not be resold
<PAGE>
except upon registration or the availability of an exemption from registration
under applicable laws. Secured Party further acknowledges that Hungarian
Broadcasting Corp. has no obligation to register any of the Pledged Shares.
4. Sale of Pledged Shares, Etc. Upon the occurrence of an Event of Default
or non-performance by Assis of any Obligations, Secured Party may sell or cause
to be sold in a commercially reasonable manner, in one or more sales or parcels,
and for cash or on credit or for future delivery, without assumption of any
credit risk, such portion of the Pledged Shares, at public or private sale, as
may be necessary to satisfy the Obligations.
5. Application of Proceeds. After the occurrence of an Event of Default,
if required by Secured Party, Pledgors agree to take all steps necessary to
cause all dividends, sums, monies, royalties, fees, commissions, charges,
payments, advances, income, profits and other proceeds, if any, paid to or
derived by or payable to Pledgors on account of the Pledged Shares to be paid
directly by the obligor thereof to Secured Party to be applied to the repayment
of the Obligations. All such amounts received by Secured Party shall be applied
in such order as Secured Party shall, in its sole discretion determine. Any
amounts remaining after such applications shall be remitted to Pledgors except
as otherwise directed by a court of competent jurisdiction.
6. Financing Statements and Payment Directives. Pledgors shall provide
Secured Party upon request with executed financing statements and any amendments
thereto or continuations thereof with regard to the Pledged Shares. Promptly
after the Obligations are paid in full, Secured Party shall provide Pledgors
with executed termination statements for filing in all jurisdictions in which it
has previously filed financing statements pursuant to this Agreement.
7. Administration of the Pledged Shares. In addition to any provisions of
this Pledge Agreement which govern the administration of the Pledged Shares
generally, the following provisions shall govern the administration of the
Pledged Shares:
(a) Until there shall have occurred an Event of Default, Pledgors
shall be entitled to vote or consent with respect to the Pledged Shares, or any
document or instrument delivered or to be delivered pursuant to or in connection
with any thereof and to receive all dividends paid with respect to the Pledged
Shares.
(b) In the event that at any time or from time to time after the
date hereof, Pledgors, as record and beneficial owner of the Pledged Shares,
shall receive or shall become entitled to receive, any dividend or any other
distribution whether in securities, cash or other property by way of stock
split, spin-off, split-up or reclassification, combination of shares or the
like, or in case of any reorganization, consolidation or merger, and Pledgors,
as record and beneficial owner of the Pledged Shares, shall thereby be entitled
to receive securities, cash or other property in respect of such Pledged Shares,
then and in each such case, Pledgors shall deliver to Secured Party and Secured
Party shall be entitled to receive and retain all such securities, cash and
other property as part of the Pledged Shares as security for the payment and
performance of the Obligations.
(c) Upon the occurrence of an Event of Default, Secured Party may
exercise all rights and remedies of Secured Party with respect thereto,
including, without limitation, at any sale of any of the Pledged Shares, if it
deems it advisable to do so, to restrict the prospective bidders or purchasers
to persons or entities who (i) will represent and agree that they are purchasing
for their own account, for investment, and not with a view to the distribution
or sale of any of the Pledged Shares; and (ii) satisfy the offeree and purchaser
requirements, if any, under applicable securities laws. Pledgors agrees that
disposition of the Pledged Shares at any private sale made as provided above may
be at prices and on other terms less favorable than if the Pledged Shares were
sold at public sale, and that Secured Party has no obligation to delay the sale
of any Pledged Shares for the period of time necessary to permit the
registration of the Pledged Shares for public sale under the applicable
securities laws. Pledgors agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
8. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
9. Event of Default. An "Event of Default" hereunder shall mean (i)
failure of Assis to pay Secured Party the sum of $3,250,000 plus interest on or
before December 22, 2000, (ii) the material breach by Pledgors of any term or
condition contained herein and the failure by Pledgors to cure such breach
within a commerically reasonable time after notice of such breach from Secured
Party, (iii) any representation, warranty or covenant herein shall prove to have
been false or misleading in any material respect when made or deemed made, or
(iv) failure of Assis to pay any interest installment when due.
<PAGE>
10. Termination. This Agreement shall terminate when Assis shall have paid
the sum referred to in Section 9(i).
11. Modification and Waiver. No modification or waiver of any provision of
this Agreement and no consent by Secured Party or Pledgors to any departure
therefrom by Pledgors or Secured Party shall be effective unless such
modification or waiver shall be in writing and signed by a duly authorized
officer of Secured Party and Pledgors and the same shall then be effective only
for the period and on the conditions and for the specific instances and purposes
specified in such writing.
12. Governing Law. This Agreement has been fully negotiated and agreed to
in the State of New York between Pledgors and Secured Party (a Cook Islands
Trust). This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, applicable to agreements made and to be performed
entirely in New York and without reference to its choice of law provisions.
13. Notices. Any and all notices, requests, demands and other
communications required herein shall be in writing and shall be deemed to have
been duly given on the date of delivery if delivered personally to the party to
whom notice is to be given, or two (2) days after the date of mailing if mailed
to the party to whom notice is to be given by registered or certified first
class mail, postage prepaid, and addressed as follows:
To Pledgors:
c\o Ronald S. Moss, Esq.
445 Park Avenue
New York, NY 10022
To Secured Party:
c\o Ami Shafrir
fax: (310) 358-5600
Any party may change its address for purposes of this Paragraph 13 by giving the
other party written notice of the new address in the manner set forth above.
14. Captions. The captions of the various sections and paragraphs of this
Agreement have been inserted only for the purpose of convenience; such captions
are not a part of this Agreement and shall not be deemed in any manner to
modify, explain, enlarge or restrict any of the provisions of this Agreement.
15. Benefit of Agreement. This Agreement shall be binding upon and inure
to the benefit of Pledgors, Secured Party and their respective successors and
assigns, and all subsequent participants of or with Secured Party.
Notwithstanding the foregoing, Pledgors shall not assign any of their
obligations hereunder without first having received Secured Party's prior
written consent, which may be granted or denied in Secured Party's sole and
absolute discretion.
16. Counterparts. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall together constitute one and the same
agreement.
IN WITNESS WHEREOF, Pledgors and Secured Party have each caused this
Pledge Agreement to be duly executed and delivered as of the date first above
written.
SECURED PARTY: SHAFRIR FAMILY TRUST,
a Cook Islands Trust
By Trustcorp Limited,
a Cook Islands corporation,
<PAGE>
Trustee
By:
Its:
PLEDGORS:
- ------------------------------- ------------------------------
OFFER ASSIS (__________ SHARES) SHAI BAR-LAVI (_________ SHARES)
- ------------------------------- ------------------------------
FREDERICK E. SMITHLINE SHLOMO KOT (_________ SHARES)
(______________ SHARES)
<PAGE>
Exhibit D
TRANSFER AND DISTRIBUTION AGREEMENT
Dated as of November 18, 1997
between
HUNGARIAN BROADCASTING CORP.
and
HUNGARIAN SATELLITE CORPORATION
TRANSFER AND DISTRIBUTION AGREEMENT, dated as of November 18, 1997, by and
between Hungarian Broadcasting Corp., a Delaware corporation ("HBC"), and
Hungarian Satellite Corporation, a Delaware corporation and a wholly owned
subsidiary of HBC ("HSC").
WHEREAS, HBC has been engaged in the television business in the Republic of
Hungary ("Hungary"); and
WHEREAS, HBC, in the course of conducting its television business HBC has
developed a good working relationship with the government of Hungary, and
specifically with the Hungarian state-owned entity Antenna Hungaria ("AH"); and
WHEREAS, AH is a 50%-50% partner with Israel Aircraft Industries ("IAI") in a
joint venture known as Magyarsat ("MS") to develop a communications satellite to
serve Central and Eastern Europe (the "Satellite"); and
WHEREAS, MS approached HBC for assistance in raising the necessary funds and
managing the Satellite; and
WHEREAS, on November 18, 1997, HBC signed a Letter of Intent (the "Interest")
with MS to form a new company to launch, manage and operate the Satellite, which
company is to be capitalized with $150 million, $40 million in equity and $110
million in debt, with HBC contributing $30 million in exchange for 69% of the
voting equity and MS contributing $10 million in exchange for 31% of the voting
equity and HBC responsible for raising the $110 million in debt; and
WHEREAS, the Board of Directors of HBC has determined that the interests of
HBC's stockholders would be best served by separating its businesses into two
separate companies, one consisting of the satellite business and the other
consisting of HBC's core television business (the "Core Business"); and
WHEREAS, in furtherance of the foregoing, HBC wishes to transfer and assign to
HSC all of its rights in the Interest in exchange for the issuance to HBC by HSC
of 4,000,000 shares of HSC's common stock, par value $.001 per share (the "HSC
Common Stock");
WHEREAS, HSC is willing to issue such shares of HSC Common Stock to HBC in
exchange for the Interest; and
WHEREAS, HBC intends to distribute all of its HSC Common Stock, on a pro rata
basis, to the holders of the common stock of HBC (the "HBC Common Stock") (such
distribution hereinafter referred to as the "Distribution");
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NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and intending to be legally bound hereby, HBC and
HSC hereby agree as follows:
1. HBC hereby transfers to HSC all of HBC's right, title and interest in and to
the Interest free and clear of all liens or encumbrances in favor of HBC.
2. HSC shall issue and deliver to HBC certificates representing an aggregate of
4,000,000 shares of HSC Common Stock.
3. At a time to be determined (the "Distribution Date"), HBC shall deliver to
its Transfer Agent (the "Agent"), for the benefit of holders of record of HBC
Common Stock as of December 31, 1997 (the "Record Date"), a stock certificate
representing, in the aggregate (and rounded down to the nearest whole share), a
number of shares representing one share of HSC Common Stock for every share of
HBC Common Stock outstanding on the Record Date), and shall instruct the Agent
to distribute as promptly as practicable following the Distribution Date to
holders of record of HBC Common Stock on the Record Date one share of HSC Common
Stock for every share of HBC Common Stock (the "Distribution") The Board of
Directors of HBC, in its discretion, shall establish the Distribution Date and
all appropriate procedures in connection with the Distribution.
4. This Agreement has been approved by the Board of Directors of HBC and of HSC.
5. In connection with the transfer, conveyance, assignment and delivery of the
Interest contemplated by this Agreement, HBC and HSC agree to execute or cause
to be executed by the appropriate parties and to deliver to each other, as
appropriate, the requisite conveyancing documents.
6. This Agreement constitutes the entire agreement between HBC and HSC with
respect to the subject matter hereof and supersedes all previous negotiations,
commitments and writings with respect to such subject matter.
7. This Agreement, and any questions, claims, disputes, remedies or procedural
matters shall be governed exclusively by the laws of the State of Delaware,
without regard to the principles of conflicts of law, as to all matters,
including, without limitation, matters of validity, construction, effect,
performance and remedies. The parties agree that Delaware has a substantial
relationship to this transaction, and each Party consents to personal
jurisdiction in the courts of Delaware and further agrees that all such matters
shall be heard in the federal and state courts in Delaware.
8. This Agreement may be amended, modified or supplemented only by written
agreement of the parties.
9. This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either party without the prior
written consent of the other party.
10. This Agreement is solely for the benefit of the parties hereto and is not
intended to confer upon any other person except the parties hereto any rights or
remedies hereunder.
11. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
12. Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered as of the day and year first above written.
HUNGARIAN BROADCASTING CORP.
By: ______________________________
Name: Ronald Scott Moss
Title: Secretary
HUNGARIAN SATELLITE CORPORATION
By: ______________________________
Name: Peter E. Klenner
Title: President
