<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
REGISTRATION NO. 333-24177
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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
------------------------
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 4813 13-3769217
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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780 THIRD AVENUE, SUITE 1600, NEW YORK, NEW YORK 10017
(212) 486-2900
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS AND
TELEPHONE NUMBER)
------------------------
RONALD G. NATHAN
PRESIDENT
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
780 THIRD AVENUE, NEW YORK, NEW YORK 10017
(212) 486-2900
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
STEVEN D. DREYER, ESQ. LAWRENCE G. NUSBAUM III, ESQ.
HALL DICKLER KENT FRIEDMAN & WOOD, LLP GUSRAE, KAPLAN & BRUNO
909 THIRD AVENUE 120 WALL STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10005
TELEPHONE NO. (212) 339-5400 TELEPHONE NO. (212) 269-1400
TELECOPIER NO. (212) 935-3121 TELECOPIER NO. (212) 809-5449
</TABLE>
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of the registration statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 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. [ ]
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
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<CAPTION>
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER SECURITY OFFERING PRICE FEE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.01 Par Value (the
"Common Stock") to be Sold by the
Registrant........................ 1,729,500(1) $ 7.00 $ 12,106,500 $ 3,668.64
- -----------------------------------------------------------------------------------------------------------
Five Year Redeemable Common Stock
Purchase Warrants (the "Warrants")
to be Sold by the Registrant...... 2,530,000(2) .50 1,265,000 383.33
- -----------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Warrants to be Sold by the
Registrant........................ 2,530,000(3) 7.25 18,342,500 5,558.33
- -----------------------------------------------------------------------------------------------------------
Common Stock to be Sold by Certain
Selling Securityholders........... 1,185,000(4) 7.00 8,295,000 2,513.64
- -----------------------------------------------------------------------------------------------------------
Warrants to be Sold by Certain
Selling Securityholders........... 2,462,515 .50(5) 1,231,258 373.11
- -----------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Selling Securityholders'
Warrants.......................... 2,462,515 7.25(6) 17,853,233 5,410.07
- -----------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of an Option Held by a Selling
Securityholder.................... 25,000 2.00(7) 50,000 15.15
- -----------------------------------------------------------------------------------------------------------
Representative's Warrant............ 1 10.00 10 n/a
- -----------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Representative's Warrant....... 153,000(3) 8.40(8) 1,285,200 389.45
- -----------------------------------------------------------------------------------------------------------
Warrants Issuable Upon Exercise of
Representative's Warrant.......... 220,000(3) .60(8) 132,000 40.00
- -----------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Warrants Issuable Upon Exercise
of Representative's Warrant....... 220,000(3) 8.70(8) 1,914,000 580.00
- -----------------------------------------------------------------------------------------------------------
Totals.................... -- -- $ 62,474,701 $18,931.73
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* $18,445.33 was previously paid. Accordingly a further fee payment of $486.40
has been made with respect to the filing of this amendment.
(1) Includes 229,500 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Includes 330,000 Warrants which the Underwriters have the option to purchase
to cover over-allotments, if any.
(3) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may be issued pursuant to the anti-dilution provisions of
the Warrants and the Representative's Warrants.
(4) Includes 30,000 shares of Common Stock which the Underwriters have agreed to
purchase from a selling stockholder, and 1,155,000 shares of Common Stock to
be offered on a delayed basis in non-underwritten transactions by certain
selling securityholders.
(5) Based upon the public offering price of the Warrants.
(6) Based upon the exercise price of the Warrants.
(7) Based upon the exercise price of the Option.
(8) Based upon 120% of the maximum offering price of the Common Stock and the
Warrants, as the case may be.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
EXPLANATORY NOTE
The Registration Statement contains a Prospectus (the "Company Prospectus")
which will be used in connection with the underwritten offering of up to (a)
1,530,000 shares of the Common Stock, $.01 par value, of the Registrant (the
"Common Stock"), 1,500,000 shares of which will be offered by the Registrant and
30,000 shares of which will be offered by a selling securityholder (the "Selling
Stockholder"); and (b) 2,200,000 five year redeemable warrants to purchase
Common Stock (the "Warrants"), all of which are being offered by the Registrant.
Following the Company Prospectus, there are alternate pages to be included in a
second prospectus (the "Alternate Prospectus") which will be used by selling
securityholders (the "Selling Securityholders") in connection with an offering
to be made on a delayed, non-underwritten basis by them for their accounts of
1,155,000 shares of Common Stock, 2,462,515 Warrants and 25,000 shares of Common
Stock to be issued upon exercise of an option held by one of the Selling
Securityholders. The Alternate Prospectus will be identical to the Company
Prospectus, except for the changes indicated by the alternate pages. Such
changes will include alternate front and back outside cover pages (to be
substituted for the cover pages of the Company Prospectus), alternate pages
containing additional information concerning the Selling Securityholders and the
plan of distribution disclosed under the captions "Selling Securityholders" and
"Plan of Distribution." The Alternate Prospectus will omit matters not
applicable to the offering to be made thereby, including "Underwriting" and the
disclosures concerning the counsel to the Representative set forth under the
caption "Legal Matters."
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 3, 1997
PROSPECTUS
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
1,530,000 SHARES OF COMMON STOCK AND
2,200,000 FIVE YEAR REDEEMABLE WARRANTS
Russian Wireless Telephone Company, Inc., a Delaware corporation (the
"Company"), hereby offers (the "Offering") 1,500,000 shares of common stock,
$.01 par value (the "Common Stock") of the Company and 2,200,000 redeemable
common stock purchase warrants (the "Warrants"). The initial public offering
prices of the Common Stock and the Warrants are $7.00 and $.50, respectively.
This Prospectus also relates to the offering (the "Selling Stockholder's
Offering") of 30,000 shares of Common Stock by a selling stockholder (the
"Selling Stockholder"). The Common Stock and Warrants offered hereby will be
separately tradeable immediately upon issuance and may be purchased separately.
Investors will not be required to purchase shares of Common Stock and Warrants
together or in any particular ratio. Each Warrant entitles the holder to
purchase one share of Common Stock, at an exercise price of $7.25 (the "Exercise
Price"), subject to adjustment, commencing two years from the date of this
Prospectus (the "Effective Date") until the fifth anniversary of the Effective
Date (the "Expiration Date").
The Warrants are redeemable, in whole or in part, by the Company at a price
of $.50 per Warrant commencing two years after the Effective Date and prior to
their expiration, provided that (i) prior written notice of not less than 30
days is given to the holders of the Warrants, and (ii) the closing bid price (as
defined) of the Common Stock for the 20 consecutive trading days ending on the
third day prior to the date on which notice of redemption is given shall have
been not less than $14.50 per share. Notwithstanding the foregoing, the Warrants
may be exercised and/or redeemed commencing on the first anniversary of the
Effective Date, upon the express written consent of the Representative. See
"Description of Securities -- Warrants."
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 14 AND "DILUTION".
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prior to this Offering, there has been no market for the Common Stock or the
Warrants. The Company has made application for inclusion of the Common Stock and
Warrants on the Nasdaq SmallCap Market under the symbols RWTC and RWTW,
respectively. There can be no assurance that such application will be granted,
or if any of such application is granted, that an active and liquid market in
such securities will develop. See "Risk Factors" and "Underwriting."
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDER(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $7.00 $.70 $6.30 $6.30
- ---------------------------------------------------------------------------------------------------------------
Per Warrant .50 .05 .45 --
- ---------------------------------------------------------------------------------------------------------------
Total(4) $11,810,000 $1,181,000 $10,440,000 $189,000
</TABLE>
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(1) Does not include (i) a warrant to be issued to the Representative to
purchase 153,000 shares of Common Stock and 220,000 Warrants, at exercise
prices equal to 120% of the respective public offering prices of the Common
Stock and Warrants (the "Representative's Warrant"), (ii) a non-accountable
expense allowance payable to the Representative equal to 3% of the gross
proceeds of the Offering and (iii) a consulting agreement providing for fees
totalling $187,340 which is payable to the Representative in full on the
closing of this Offering. The Company has agreed to indemnify the
Underwriters against, or contribute to losses arising from, certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting" and "Use of Proceeds."
(2) Before deducting estimated expenses of this Offering, including the
Representative's non-accountable expense allowance (net of a $25,000 advance
paid by the Company), of $1,073,000 in the aggregate (or $1,126,145 if the
Underwriters' over-allotment option is exercised in full) payable by the
Company.
(3) Before deducting the Representative's non-accountable expense allowance of
$6,300 payable by the Selling Stockholder.
(4) The Company has granted the Representative an option exercisable for a
period of 45 days from the date of this Prospectus to purchase up to an
additional 229,500 shares of Common Stock and 330,000 Warrants, upon the
same terms and conditions as the Common Stock and Warrants being offered
hereby, solely to cover over-allotments, if any (the "Over-Allotment
Option"). If the Over Allotment Option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to the Selling Stockholder will be $13,581,500, $1,358,150,
$12,034,350 and $189,000, respectively. See "Underwriting."
---------------------
The Common Stock and Warrants are being offered by the several Underwriters
named herein on a firm commitment basis, subject to prior sale, when, as and if
delivered to and accepted by them and subject to certain other conditions. It is
expected that delivery of the certificates representing the Common Stock and
Warrants will be made against payment therefor at the offices of J.W. Barclay &
Co., Inc., One Battery Park Plaza, New York, New York 10004, or through the
facilities of the Depositary Trust Company, on or about , 1997.
J.W. BARCLAY & CO., INC.
---------------------
The date of this Prospectus is , 1997
<PAGE> 5
[INSIDE FRONT COVER OF PROSPECTUS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------------
AVAILABLE INFORMATION
The Company has filed with the Washington, D.C. office of the U.S.
Securities and Exchange Commission (the "Commission" or "SEC") a registration
statement on Form SB-2 (the "Registration Statement") under the Securities Act
which includes this Prospectus. This Prospectus, which constitutes a part of the
Registration Statement is materially complete, but does not contain all the
information set forth in the Registration Statement and exhibits thereto. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
The Company will be subject to the reporting requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"). Reports, proxy and
information statements and other information which the Company will be filing
thereunder may be inspected without charge, and copied at prescribed rates at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W. Washington D.C. 20549; and at the Commission's Regional Offices at
Seven World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. In addition thereto, such reports, proxy
and information statements and other information will be accessible and
retrievable from the Website maintained by the Commission at http://www.sec.gov.
The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq SmallCap Market. Copies of the reports, proxy and information statements
and other information which the Company will file can be inspected and copied at
the public reference facilities maintained by the Nasdaq Stock Market at 1735 K
Street, N.W., Washington, D.C. 20006.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants
approximately five months after the close of each fiscal year, and will
distribute such other periodic reports to its stockholders as the Company may
deem to be appropriate, or as may be required by law. The Company's fiscal year
ends on December 31 of each year.
In addition to (i) the 1,500,000 shares of Common Stock and 2,200,000
Warrants being offered by the Company; and (ii) the 30,000 shares of Common
Stock being offered by the Selling Stockholder, the Registration Statement of
which this Prospectus is a part also covers 1,155,000 shares of Common Stock,
2,450,015 Warrants (and the shares of Common Stock issuable upon exercise
thereof), as well as 25,000 shares of Common Stock issuable upon exercise of an
option, all of which are being offered by certain selling securityholders (the
"Selling Securityholders").
ENFORCEMENT OF CIVIL LIABILITIES
The Company was incorporated in the State of Delaware. However,
substantially all of the assets of the Company are located in the Russian
Federation, and are owned by three closed joint stock companies organized under
the laws of the Russian Federation, Corbina Telecommunications ("Corbina"),
CompTel Ltd. ("CompTel") and Investelektrosvyaz ("Investelektro"). The Company
is the owner and holder of 75% of the outstanding capital stock of Corbina and
CompTel. CompTel is the owner and holder of 51% of the outstanding capital stock
of Investelektro. The balance of the outstanding shares of capital stock of such
companies is owned by individuals and entities domiciled in the Russian
Federation, and by one individual who (a) is a former citizen of the Russian
Federation, (b) is now a citizen of the United States, and (c) in his capacity
as a key employee of the Company, spends the majority of his time outside of the
United States. By reason of the foregoing, it may not be possible for investors
to effect service of process within the United States upon such joint stock
companies, such other stockholders or said key employee, or to enforce in the
United States or outside of the United States judgments obtained against such
joint stock companies, such other stockholders or such key employee in the
United States courts, or to enforce in the United States courts judgments
obtained against such joint stock companies, such other stockholders or key
employee in courts in jurisdictions outside of the United States, in each case,
in any action, including actions predicated upon the civil liability provisions
of the United States securities laws. In addition, it may be difficult for
investors to enforce, in original actions brought in jurisdictions located
outside of the United States, liabilities predicated upon the United States
securities laws. No treaty exists between the United States and the Russian
Federation for the reciprocal enforcement of foreign court judgments. See "Risk
Factors -- Legal Risks."
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. As used in this Prospectus, (i) "Corbina" means Closed Joint
Stock Company Corbina Telecommunications, a closed joint stock company organized
under the laws of the Russian Federation which is 75% owned by the Company and
25% owned by Mikhail Leibov ("Mr. Leibov"), a key executive of the Company; (ii)
"CompTel" means Closed Joint Stock Company CompTel Ltd., a closed joint stock
company organized under the laws of the Russian Federation which is 75% owned by
the Company and 25% owned by Mr. Leibov; and (iii) "Investelektro" means Closed
Joint Stock Company Investelektrosvyaz, a closed joint stock company organized
under the laws of the Russian Federation which is 51% owned by CompTel and 49%
owned by investors who are not employees, directors or stockholders of the
Company. See Appendix A for the definitions of certain terms used in this
Prospectus. See Appendix B for a description of recent historical, political and
economic conditions in the Russian Federation (which is sometimes hereinafter
referred to as "Russia").
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option or the Representative's
Warrant, and all financial statements and data contained in this Prospectus have
been presented in accordance with U.S. generally accepted accounting principles.
See "Underwriting."
THE COMPANY
Russian Wireless Telephone Company, Inc., a Delaware corporation, through
its Russian subsidiaries, Corbina, CompTel and Investelektro (collectively, the
"Subsidiaries"), is a provider of local, domestic and international
telecommunications services, principally in the metropolitan area of the city of
Moscow and the suburban environs of Moscow in the Russian Federation
(collectively, the "Moscow Region").
The Company's goal is to become a preferred provider of telecommunications
services initially to the business community in the Moscow Region, and
subsequently to other markets in the Russian Federation. The Company believes it
can achieve such goal by providing high quality, cost effective local and long
distance telecommunications services in such areas. The Company intends to
provide such services by using the net proceeds of this Offering to, among other
things, construct a state-of-the-art wireless local loop telecommunications
network and to expand its long distance telecommunications operations.
PROPOSED WIRELESS LOCAL LOOP OPERATIONS
The Company, through Investelektro, intends to construct and operate
state-of-the-art wireless local loop telecommunications systems in the cities of
Moscow, St. Petersburg, Novosibirsk, Nizhny Novgorod and Ekaterinburg and the
suburban environs of Moscow (the "Licensed Territory"). Investelektro, has
received a license from the Ministry of Communications (the "MOC") which,
pursuant to a governmental restructuring which occurred on March 17, 1997, has
been renamed as the State Committee of the Russian Federation on Communications
and Information (the "State Communications Committee"), authorizing it to
construct and operate its proposed wireless local loop system in the Licensed
Territory (the "License"), it has received preliminary approval regarding the
assignment of radio frequencies for its use in connection with such operations
and it is awaiting receipt of final approval of such frequency assignments. It
is anticipated that the first wireless local loop system will be constructed in
the Moscow Region.
A wireless local loop system is a radiotelephone system that provides
telecommunications service to fixed locations, such as homes and businesses,
without the traditional network of poles and two-wire copper cables. It utilizes
a conventional telephone handset that is plugged into a radio receiver unit and
operates in exactly the same manner as a conventional telephone. In addition,
the system provides the customer at least limited mobility; the communications
system is fully accessible as long as the subscriber moves around within the
system's coverage area. The primary advantage of a wireless local loop network
over traditional wireline technology is speed of installation. A telephone
switch typically takes several weeks to install, and individual phone lines, in
both remote as well as urban areas, can require several years, depending on the
size of the
3
<PAGE> 7
proposed system. With a wireless local loop system, however, several thousand
customers inside a typical coverage area (with a radius of approximately 18
miles) can obtain instant access to the network when the system is activated.
Deployment of a wireless local loop system drastically reduces installation time
to a few weeks for an entire communications system. See "Business --
Investelektro's Proposed Wireless Local Loop Operations."
LONG DISTANCE TELECOMMUNICATIONS OPERATIONS
Corbina is a switch-based reseller of domestic and international long
distance services primarily to business customers in the Moscow Region. Corbina
began commercial operations in March, 1996. Corbina's long distance operations
consist of reselling the long distance services of Russian long distance
carriers including Rustelnet and Global One ("Global One"), a joint venture of
Sprint Communications Company, Deutche Telekom AG and France Telecom. Pursuant
to agreements that Corbina has entered into with such primary long distance
carriers, it offers to its customers the long distance services of these
carriers at rates lower than those available directly from the carriers.
RUSSIAN TELECOMMUNICATIONS INDUSTRY OVERVIEW
In the Soviet era, telecommunications in the Russian Federation (and in the
other republics of the former Soviet Union) was viewed as existing principally
to serve the defense and security needs of the state. As a result, the Company
believes that the public telecommunications network in the Soviet Union was
underdeveloped. With the break-up of the Soviet Union and the liberalization of
the economies of its former republics, the demand for telecommunications
services has increased significantly, as evidenced by data published by the
State Communications Committee revealing a waiting list for telephone line
installations of 9.7 million in Russia at year end 1995. Russia and the
governments of the countries of the former Soviet Union do not currently have
the significant capital necessary for the development of the telecommunications
infrastructure. As a result, they have actively encouraged market
liberalization, privatization and foreign investment in the telecommunications
sector. This has resulted in significant development in the area of fixed wire
overlay systems, private networks and cellular and data services. As modern
telecommunications capability is critical to the successful transition to a
market economy, it is expected that the next stage of development will focus on
basic local telecommunications infrastructure.
The Company believes that the lack of highly developed local and long
distance telecommunications systems in Russia has created a significant market
opportunity for the Company. Inadequate investment in public telecommunications
during the Soviet era and restrictions on access to advanced Western technology
have resulted in an underdeveloped telephone system in the Russian Federation.
As private enterprise has developed in the Russian Federation since the break-up
of the former Soviet Union, the demand for quality telecommunications services
has increased dramatically. According to the State Communications Committee,
there were approximately 26 million telephone lines in Russia at year end 1995.
This fact, coupled with the above-mentioned waiting list for telephone line
installation of 9.7 million at year end 1995, has led the Company to conclude
that significant pent-up demand for local and long distance telephone services
exists in Russia, and that the lack of highly developed wireline
telecommunications systems in Russia has resulted in some subscribers looking to
wireless telecommunications systems, primarily cellular, as a substitute, rather
than a supplement, to wireline systems. The Company believes that the high cost
and lengthy time required to build the infrastructure necessary to install and
upgrade local wireline services makes it feasible for the Company to provide
wireless local loop services as a primary form of telecommunications in certain
ares of the Moscow Region where wireline services are inadequate or
non-existent.
The Company believes, based upon its review of population data published by
the State Communications Committee, that the Moscow Region, as the commercial
and political center of the Russian Federation, has the greatest demand for
quality telecommunications services. According to the State Communications
Committee, in the Moscow Region there was a waiting list for line installation
of over 164,000 at December 31, 1995. The Company believes that the Moscow
Region, which has a per capita income level approximately three times the
national average of the Russian Federation, has the ability to support a
significant increase in local telecommunications subscribers.
4
<PAGE> 8
The telecommunications market in the Moscow Region, an area with a
population of approximately twelve million, is characterized by low activated
penetration rates, substantial bottlenecks on the public network and outdated
switching technology. The Company believes the Moscow Region is an attractive
market for the provision of integrated telecommunications services due to the
current inadequacies of the public network as well as the rapid development of
Russian and foreign businesses in the city.
RUSSIAN LONG DISTANCE MARKET
The size of the Russian long distance market, according to data published
by the State Communications Committee, has grown significantly, with
international and long distance services accounting for approximately 57% of the
estimated $4.5 billion market which currently exists for telecommunications
services throughout the Russian Federation. The Company believes that the volume
of international and long distance telephone services will continue to grow as
current and planned improvements to the Russian Federation's long distance
telecommunications network infrastructure are made by Rostelecom, the government
controlled provider of national and long distance telecommunications services,
and other privately held licensed long distance carriers.
COMPANY INFORMATION
The Company was organized in April 1994 under the name Telcom Group USA,
Inc., and was certified by the New York Public Service Commission to operate as
a reseller of all forms of telephone services via landline telephone company or
other common carrier facilities located in the state of New York. The Company
was engaged principally as a provider of long distance telecommunications
services in the New York metropolitan area. With the passage of the Federal
Telecommunications Act of 1996, and the subsequent entry of long distance
carriers into local markets, the Company began to phase out operations in New
York and focused its efforts on the international markets, particularly the
Russian Federation. In July 1996, the Company purchased from Mr. Leibov for
$5,000 an option to acquire 105 of the 140 issued shares (i.e., 75%) of the
capital stock of Corbina for $190,000. On January 28, 1997, the Company
exercised its option, and acquired said 75% ownership interest in Corbina. As of
the date of this Prospectus, the Company's sole operations and revenue source
consists of the long distance reselling activities conducted by Corbina in the
Moscow Region. The Company is wholly dependent on the proceeds of this Offering
to construct its proposed wireless local loop network and to expand its long
distance telecommunications reselling operations in the Moscow Region. During
the year ended December 31, 1996, the Company incurred a net loss of $1,470,878
on total revenues of $8,043, and Corbina incurred a net loss of $209,813 on
total revenues of $1,011,914. During the three month period ended March 31,
1997, the Company (excluding Corbina) incurred a net loss of $1,009,249 on
minimal revenues, and Corbina incurred a net loss of $5,751 on total revenues of
$545,000. See "Risk Factors."
The Company's office is located at 780 Third Avenue, Suite 1600, New York,
New York 10017, and its telephone number is (212) 486-2900. The Subsidiaries'
offices are located at 30/15 Ryazansky Prospect, Moscow, Russian Federation.
RECENT DEVELOPMENTS
In December 1996, the Company borrowed $750,000 from three non-affiliated
persons and issued to such persons an aggregate of 450,000 shares of Common
Stock (the "Bridge Financing"), none of which are being registered for sale in
this Offering. The Company must repay said $750,000, together with interest
thereon accruing at a rate of 8% per annum on the earlier to occur of (i) three
business days following the receipt by the Company of the net proceeds of the
Offering or (ii) October 31, 1998.
In June 1997, the Company negotiated additional borrowings of (i) $150,000
from Inversiones Santa Catalina, N.V. ("ISC"), an unaffiliated former
stockholder to whom it is indebted in the amount of $600,000 which, together
with interest accruing thereon at the rate of 2% per annum, was to become due
and payable in May, 2000; and (ii) $150,000 from an unaffiliated third party. As
of the date of this Prospectus, the Company has not received the $300,000
aggregate principal amount of said loans (the "Additional Financing"). In
5
<PAGE> 9
anticipation of the receipt of such proceeds, the financial information
presented in this Prospectus assumes and accounts for the receipt of the
proceeds of the Additional Financing, as though such financing transactions had
been consummated on June 30, 1997. The aggregate principal amount of the
Additional Financing, together with (a) the interest accruing thereon at the
rate of 15% per annum, and (b) the aforementioned $600,000 and the interest
accruing thereon, shall become due and payable on the date of closing of this
Offering. The proceeds of the Additional Financing shall be used by the Company
as working capital for the payment of lease rents, salaries, general and
administrative expenses and various expenses of the Subsidiaries of a similar
nature. See "Use of Proceeds;" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
THE OFFERING
Securities offered by The Company... 1,500,000 shares of Common Stock and
2,200,000 Warrants
The Selling Stockholder............. 30,000 shares of Common Stock
Common Stock Outstanding Before the
Offering(1)....................... 2,985,000 shares
Common Stock to be Outstanding After
the Offering(2)..................... 4,485,000 shares
Warrants Outstanding Before the
Offering(3)......................... 3,212,515
Warrants to be Outstanding After the
Offering(4)....................... 5,412,515
Term of the Warrants................ The five year period between
[ ] [ ], 1997 and
[ ] [ ], 2002
Exercise Price and Terms............ Each Warrant entitles the holder
thereof to purchase one share of
Common Stock for $7.25 (subject to
adjustment in certain circumstances)
commencing two years after the
Effective Date (or one year after the
Effective Date with the
Representative's prior written
consent) until the Expiration Date.
Expiration Date..................... The fifth anniversary of the Effective
Date.
Redemption.......................... Redeemable by the Company, in whole or
in part, at a price of $.50 per
Warrant commencing two years after
the Effective Date (or one year after
the Effective Date with the
Representative's prior written
consent) and prior to the Expiration
Date, provided that (i) prior written
notice of not less than 30 days is
given to the holders of the Warrants,
and (ii) the closing bid price (as
defined) of the Common Stock for the
20 consecutive trading days ending on
the third day prior to the date on
which notice of redemption is given
shall not have been less than $14.50
per share.
Use of proceeds..................... The net proceeds of the Offering will
be used, among other purposes, to
provide additional capital to
Corbina, to purchase switching
hardware and software for connection
of Investelektro's customers to the
Moscow public telephone system, to
purchase equip-
6
<PAGE> 10
ment and to acquire antenna sites to
be used in connection with the
development and construction of
Investelektro's proposed wireless
local loop telecommunications system
in the Moscow Region, to repay
$4,327,000 of indebtedness and for
working capital. See "Use of
Proceeds;" and "Management's
Discussion and Analysis of Financial
Condition and Results of
Operations -- Liquidity and Capital
Resources."
Proposed Nasdaq Symbols
Common Stock...................... RWTC
Warrants............................ RWTCW
Risk Factors........................ The Offering involves a high degree of
risk including, but not limited to,
(i) risks of a political, economic
and social nature regarding the
Russian Federation; (ii) currency,
and dividend payment restrictions
pertaining to the Company's Russian
subsidiaries; (iii) risks pertaining
to the Russian legal system; (iv)
risks relating to the loss of
Investelektro's wireless local loop
license; (v) risks relating to the
Company, such as its limited
operating history, its dependence on
key management in the US and the
Russian Federation, the Company's
ability to manage the growth and
expansion that will be necessary to
achieve profitability, the
competitive environment for long
distance services in the Russian
Federation, the problems inherent in
introducing new telecommunications
technology such as wireless local
loop service; and (vi) other risks,
such as the absence of a prior market
for the Company's securities, the
large number of shares of the
Company's Common Stock that will be
available for future sale and
substantial immediate dilution. See
"Risk Factors" beginning on page 14.
- ---------------
(1) Does not include up to 4,237,515 shares of Common Stock consisting of (i)
750,000 shares issuable upon exercise of common stock purchase warrants
issued to investors in the Company's first private placement of securities
(the "First Private Placement Warrants"); (ii) 462,500 shares issuable upon
exercise of common stock purchase warrants issued to investors in the
Company's second private placement of securities (the "Second Private
Placement Warrants"), all of which are being offered for sale pursuant to a
separate prospectus by certain Selling Securityholders; (iii) 2,000,015
shares issuable upon exercise of common stock purchase warrants issued to
investors in the Company's third private placement of securities (the "Third
Private Placement Warrants"), all of which are being offered for sale
pursuant to a separate prospectus by certain Selling Securityholders; (iv)
25,000 shares issuable upon exercise of an option issued to Jack W.
Buechner, the Chairman of the Company's Board of Directors (the "Buechner
Option"); and (v) 1,000,000 shares reserved for issuance under the Company's
Omnibus Stock Option Plan (including 250,000 shares thereof issuable to Mr.
Leibov pursuant to his employment agreement with the Company upon the
occurrence of certain events. See "Description of Securities;" "Management;"
and "Concurrent Registration of Securities."
(2) Does not include up to 5,170,015 shares of Common Stock issuable in the
events that (i) all of the 750,000 First Private Placement Warrants, the
462,500 Second Private Placement Warrants and the 2,000,015 Third Private
Placement Warrants are fully exercised; (ii) the Company issues 153,000
shares
7
<PAGE> 11
of Common Stock upon exercise of the Representative's Warrant (and 220,000
shares of Common Stock are issued upon full exercise of the Warrants to be
issued in connection therewith); (iii) the Company issues 229,500 shares of
Common Stock upon full exercise of the Underwriters' over-allotment option
(and 330,000 shares of Common Stock are issued upon full exercise of the
Warrants to be issued in connection therewith); (iv) all 1,000,000 of the
shares of Common Stock which have been reserved for issuance under the
Company's Omnibus Stock Incentive Plan shall be issued (including up to
250,000 shares of Common Stock issuable to Mr. Leibov pursuant to his
employment agreement); and (v) the 25,000 shares of Common Stock underlying
the Buechner Option are issued. See "Management;" "Description of
Securities;" and "Underwriting."
(3) Consists of 750,000 First Private Placement Warrants, 462,500 Second Private
Placement Warrants and 2,000,015 Third Private Placement Warrants which will
be automatically converted into Warrants upon closing of this Offering. See
"Description of Securities."
(4) Consists of (i) 2,200,000 Warrants being offered by the Company in the
Offering; and (ii) 750,000 First Private Placement Warrants, 462,500 Second
Private Placement Warrants and 2,000,015 Third Private Placement Warrants
which will be automatically converted into Warrants upon closing of this
Offering. See "Description of Securities;" "Concurrent Registration of
Securities" and "Underwriting."
8
<PAGE> 12
HISTORICAL AND PROFORMA FINANCIAL DATA
The following historical financial data relating to the Company for the
year ended December 31, 1996 has been derived from the audited financial
statements appearing elsewhere herein. Such information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Financial Statements and notes thereto appearing
elsewhere therein. The income statement data with respect to the three month
period ended March 31, 1997 are derived from the unaudited financial statements
appearing elsewhere herein. In the opinion of management of the Company, such
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation thereof. The income
statement data for the three month period ended March 31, 1997 is not
necessarily indicative of the results which may be expected for any interim
period or the full fiscal year.
The Proforma Combined Company information includes and accounts for the
effects of the merger of Russian Wireless Telephone Company, Inc. ("Russian
Wireless") with and into the Company and the Company's acquisition of a 75%
ownership interest in Corbina (i) on the balance sheet as if the merger and
acquisition had occurred on December 31, 1996; (ii) on the statement of
operations for the year ended December 31, 1996 as if the merger and acquisition
had occurred on December 31, 1995; and (iii) on the statement of operations for
the three months ended March 31, 1997 as if the merger and acquisition had
occurred on December 31, 1996. The aforementioned information does not include
financial results of CompTel or Investelektro, since the effects thereof were
immaterial.
The Proforma as Adjusted information includes and accounts for the effects
of (a) the payment of the principal and accrued interest on certain indebtedness
owed by the Company to two former stockholders and pursuant to the Second
Private Placement, the Third Private Placement, the Bridge Financing and the
Additional Financing, and (b) the anticipated results of the completion of the
sale of 1,500,000 shares of Common Stock and 2,200,000 Warrants offered hereby
(not including 229,500 shares of Common Stock and 330,000 Warrants subject to
the Underwriters' Over-allotment Option) at assumed offering prices of $7.00 per
share and $.50 per Warrant (after deduction of the estimated underwriting
discounts and commissions and the expenses of the Offering) upon (i) the balance
sheet as if the aforementioned events had occurred on December 31, 1996; (ii) on
the statement of operations for the year ended December 31, 1996 as if such
events had occurred on December 31, 1995; and (iii) on the statement of
operations for the three months ended March 31, 1997 as if such events had
occurred on December 31, 1996.
The Company's employment agreement with Mr. Leibov contains certain
performance based compensation provisions which provide, among other things,
that, in the event that Corbina's operating income for any of its fiscal years
ending during the five year term of the employment agreement shall be greater
than $3,400,000, then, the Company shall transfer, subject to certain
restrictions on transfer and a right of first refusal, such number of Corbina
shares held by it equal to 10% of the total number of outstanding shares of
Corbina, thereby reducing the Company's ownership of Corbina to 65%. If
Corbina's revenues exceed $3,400,000 in any fiscal year following the transfer
of such shares to Mr. Leibov, his employment agreement further provides that he
shall be entitled to receive up to 250,000 shares of the Company's Common Stock
calculated by dividing the difference between Corbina's operating income and
$3,400,000 by the share price, as defined. The issuance of any shares to Mr.
Leibov under his employment agreement will be charged to compensation expense
and will be valued at the then present market price of such shares. See "Risk
Factors -- Effect of Minority Ownership Interest Upon Potential Revenues and Net
Income from Subsidiaries" and "Management -- Executive Employment Agreements."
9
<PAGE> 13
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996:
<TABLE>
<CAPTION>
RUSSIAN
WIRELESS
TELEPHONE CORBINA PROFORMA
THE COMPANY, TELECOM- PROFORMA COMBINED TRANSACTION PROFORMA AS
COMPANY INC. MUNICATIONS ADJUSTMENTS COMPANY ADJUSTMENTS ADJUSTED
------- ------------ ----------- ----------- -------- ----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. -- -- $ 1,012 -- $1,012 -- $ 1,012
Cost of Services......... -- -- 827 -- 827 -- 827
------- ------- ------- ------- ------- ------- -------
Gross Profit............. -- -- 185 -- 185 -- 185
Commission Income........ $ 8 -- -- -- 8 -- 8
------- ------- ------- ------- ------- ------- -------
Net Revenues............. 8 -- 185 -- 193 -- 193
Operating Expenses:
Officer's Salaries..... $ 3,150(2)
100 -- -- $ 175(4) 3,425 $ 175(7) 3,600
Selling, General and
Administrative
Expenses............. 483 $ 35 372 (70)(4) 820 60(5) 880
Writedown of
Equipment............ -- --
Depreciation and
Amortization......... 210 65(3) 275 275
------- ------- ------- ------- ------- ------- -------
Total Operating
Expenses............... 793 35 372 3,320 4,520 235 4,755
------- ------- ------- ------- ------- ------- -------
Operating Loss........... (785) (35) (187) (3,320) (4,327) (235) (4,562)
Other (Income) Expenses:
Interest and financing
costs................ 686 -- -- -- 686 (686)(6) 0
Foreign Exchange
Loss................. -- -- (13) -- (13) (13)
------- ------- ------- ------- ------- ------- -------
Loss Before Provision
for Income Taxes and
Extraordinary Items.... (1,471) (35) (200) (3,320) (5,026) (451) (4,575)
Provision for Income
Taxes.................. (9) (9) (9)
------- ------- ------- ------- ------- ------- -------
Loss Before Extraordinary
Items.................. $(1,471) $ (35) $ (209) $(3,320) $(5,035) $(451) $(4,584)
------- ------- ------- ------- ------- ------- -------
Net Loss Per Share....... $ (.64) $ (14.00) $(1,499) $(2.28) $ (2.86)
</TABLE>
10
<PAGE> 14
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997:
<TABLE>
<CAPTION>
CORBINA PROFORMA
THE TELECOM- PROFORMA COMBINED TRANSACTION PROFORMA AS
COMPANY MUNICATIONS ADJUSTMENTS COMPANY ADJUSTMENTS ADJUSTED
------- ----------- ----------- -------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... -- $ 545 -- $ 545 -- $ 545
Cost of Services................. -- 487 -- 487 -- 487
------- ---- ---- ------- ------- -------
Gross Profit..................... -- 58 -- 58 -- 58
Commission Income................ -- -- --
------- ---- ---- ------- ------- -------
Net Revenues..................... -- 58 -- 58 -- 58
Operating Expenses:
Officer's Salaries............. 3,210 -- 832(4) 4,042 175(7) 4,217
Selling, General and
Administrative Expenses...... 225 58 18 301 15(5) 316
Depreciation and
Amortization................. 672 16 688 688
------- ---- ---- ------- ------- -------
Total Operating Expenses......... 4,107 58 866 5,031 190 5,221
------- ---- ---- ------- ------- -------
Operating Loss................... (4,107) -- (866) (4,973) (190) (5,163)
------- ---- ---- ------- ------- -------
Other (Income) Expenses:
Interest and financing costs... 52 -- -- 52 (52)(6) 0
Foreign Exchange Gain.......... (2) -- (2) (2)
------- ---- ---- ------- ------- -------
Loss (Income) Before Provision
for Income Taxes and
Extraordinary Items.......... (4,159) (2) (866) (5,023) (138) (5,161)
Provision for Income Taxes....... -- (7) (7) (7)
------- ---- ---- ------- ------- -------
Net Loss Before Extraordinary
Items.......................... $(4,159) $ (5) (866) $(5,030) $(138) $(5,168)
------- ---- ---- ------- ------- -------
Net Loss Per Share............... $(1.39) $ (41) $ (1.12) $ (1.15)
</TABLE>
- ---------------
Statement of Operations Proforma Adjustments:
(1) Corbina's data is presented for the period from December 1, 1995 (inception)
through December 31, 1996. Corbina commenced business operations in March
1996.
(2) To record increase in compensation expense based on 60% of the assumed
public offering price of the Common Stock.
(3) To record amortization of goodwill in connection with the acquisition of
Corbina. Goodwill is being amortized over a five year period.
(4) To record additional salary expense based upon the Company's employment
agreement with Mr. Leibov. See "Management -- Executive Employment
Agreements."
Transaction Adjustments:
(5) To amortize prepaid consulting fees aggregating $187,340 over a period of
three years. See "Underwriting."
(6) To reduce interest expense based upon an assumed application of a portion of
the proceeds of the Offering to reduce debt. See "Use of Proceeds."
(7) To record issuance of 25,000 additional shares of Common Stock valued at the
assumed $7.00 offering price of the Common Stock pursuant to this
Prospectus. Such shares are issuable pursuant to the Company's employment
agreement with Mr. Leibov. See "Management -- Executive Employment
Agreements."
11
<PAGE> 15
BALANCE SHEET AT MARCH 31, 1997:
<TABLE>
<CAPTION>
TRANSACTION
THE COMPANY ADJUSTMENTS PROFORMA AS ADJUSTED
----------- ----------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents....................... $ 123 $ 11,600(a) $ 5,592
(2,233)(b)
(3,298)(c)
(600)(c)
Accounts Receivable, Net........................ 344 344
Deferred Financing Costs........................ 1,008 (1,008)(d) 0
Prepaid Expenses and Other Current Assets....... 165 165
------- ------- -------
Total Current Assets............................ 1,640 4,461 6,101
Property and Equipment, Net..................... 125 125
Security Deposits............................... 19 19
Deferred Registration Fees...................... 62 (62)(e) 0
Goodwill in Corbina............................. 327 327
Organization Costs.............................. 3 3
------- ------- -------
Total Assets.......................... $ 2,176 $ 4,399 $ 6,575
======= ======= =======
Current Liabilities:
Notes Payable................................. 2,615 (2,615)(c) 0
Accrued Interest Payable...................... 417 (417)(c) 0
Accounts Payable and Accrued Expenses......... 732 732
------- ------- -------
Total Current Liabilities....................... 3,764 (3,032) 732
Long Term Debt.................................. 375 (375)(c) 0
Stockholders' Equity (Deficiency):
Preferred Stock............................... 0 0
Common Stock.................................. 29 15(a) 44
Additional Paid In Capital...................... 5,483 11,585(a) 13,274
(2,233)(b)
(1,008)(d)
(62)(e)
(225)(c)
(266)(c)
Accumulated Deficit............................. (7,475) (7,475)
------- ------- -------
Total Stockholders' Equity (Deficiency)......... (1,963) 7,806 5,843
------- ------- -------
Total Liabilities and Stockholders' Equity
(Deficiency).................................. $ 2,176 $ 4,399 $ 6,575
======= ======= =======
</TABLE>
12
<PAGE> 16
Transaction Adjustments:
(a) To reflect the issuance of 1,500,000 shares of Common Stock at $7.00 per
share and the issuance of 2,200,000 Warrants at $.50 per Warrant.
(b) To record offering costs as follows: offering expenses consisting of
professional fees, Nasdaq Stock Market listing fees, Blue Sky fees and
expenses, printing and engraving costs and miscellaneous charges aggregating
$750,000, the Underwriters' discounts and commissions aggregating $1,160,000
and the Representative's non-accountable expense allowance (net of a $25,000
advance) aggregating $323,000. See "Underwriting."
(c) To record the repayment of debt and accrued interest at March 31, 1997 and
to write off unamortized discounts on notes payable to additional paid in
capital.
(d) To record the write-off of deferred financing costs.
(e) To write-off $62,000 of deferred registration fees, including a $25,000
advance with respect to the Representative's non-accountable expense
allowance against paid in capital.
13
<PAGE> 17
RISK FACTORS
An investment in the Common Stock and Warrants offered hereby involves a
high degree of risk. Prospective investors should carefully consider all of the
information in this Prospectus including the following risk factors.
LIMITED OPERATING HISTORY; NO EXPERIENCE IN OPERATING BUSINESSES LOCATED IN THE
RUSSIAN FEDERATION; EARLY STAGE OF DEVELOPMENT IN RUSSIA; CONTINUING LOSSES AND
STOCKHOLDERS' DEFICIENCIES; COMPANY'S AND CORBINA'S ABILITIES TO CONTINUE AS
GOING CONCERNS
Since 1994, the Company has engaged in limited business activities as a
reseller of long distance telephone services in the United States. Although it
has engaged in such business activities since 1994, it has not heretofore
engaged in any business activities in, and has no experience regarding the
operation of any business in, the Russian Federation. During the past nine
months, the Company's resources have been principally dedicated to identifying
business opportunities in the telecommunications industry in the Russian
Federation. The establishment and operation of a proposed wireless local loop
telecommunications system by the CompTel may require further capital
investments, development and regulatory approvals. The Company may be faced with
problems, delays, expenses and difficulties which are typically encountered by
companies in an early stage of development, many of which may be beyond the
Company's control. These include, but are not limited to, undercapitalization,
unanticipated problems and costs related to development, regulatory compliance,
production, marketing, economic and political factors and competition. There can
be no assurance that the Company will be able to develop, provide at reasonable
cost, or market successfully, any of its products or services. Furthermore,
during the year ended December 31, 1996, the Company incurred losses from
operations of $784,848, had a working capital deficiency of $849,259, a
stockholders' deficiency of $953,610 and an accumulated deficit of $3,316,218;
and Corbina incurred losses from operations of $209,813, had a working capital
deficiency of $214,257 and a stockholders' deficiency of $126,629. Moreover,
during the three months ended March 31, 1997, the Company incurred losses from
operations of $958,912, had a working capital deficiency of $2,123,356
(including Corbina's deficiency of $235,818), a stockholders' deficiency of
$1,962,860 and an accumulated deficit of $4,325,468; and Corbina incurred losses
from operations of $5,751, had a working capital deficiency of $235,818 and a
stockholders' deficiency of $132,380. Such factors raise substantial doubt about
the Company's and Corbina's respective abilities to continue as going concerns.
In this regard, see the Reports of Independent Auditors accompanying the
Company's and Corbina's audited financial statements appearing elsewhere herein
which cite substantial doubts about the Company's and Corbina's abilities to
continue as going concerns. There can be no assurance that the Company or
Corbina will achieve profitability in the future, if at all. If the Company and
Corbina fail to achieve profitability, the Company's growth strategies could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON KEY MANAGEMENT; NO KEY MAN INSURANCE COVERAGE
The Company's various businesses will be managed by a small number of key
management personnel, both expatriate and local. The Company's proposed business
operations are dependent upon Ronald G. Nathan, the Company's Chief Executive
Officer, and Mr. Leibov, the Executive Vice President of the Company and Chief
Executive Officer of Corbina, CompTel and Investelektro, for technical guidance
and management. In 1995, the Company entered into an employment agreement with
Mr. Nathan for a term of two years which has been extended through December
1999. Such agreement provides that Mr. Nathan must devote substantially all of
his time (approximately 40 hours per week) to the Company as its Chief Executive
Officer. The Company has also entered into an employment agreement with Mr.
Leibov which provides for his rendition of services as Executive Vice President
of the Company, and as Chief Executive Officer of Corbina, CompTel and
Investelektro during the five year term which commenced on February 1, 1997. The
Company does not have any agreement with Mr. Leibov which would prohibit him
from competing with the Company upon termination of his employment with the
Company. In the event that Mr. Leibov's services were to become unavailable to
the Company for any reason, the Company's existing and proposed operations in
the Russian Federation would be severely jeopardized. The Company has applied
for key man insurance coverage
14
<PAGE> 18
in the amount of $1,000,000 on each of such individuals. No assurance can be
given that such insurance will be issued covering any or all of such persons.
See "Management -- Executive Employment Agreements."
MINORITY OWNERSHIP OF INVESTELEKTRO; ABSENCE OF CONTROL OF SUBSIDIARIES'
OPERATIONS;
DEPENDENCE ON MR. LEIBOV
The Company's principal assets are its equity interests in Corbina, CompTel
and Investelektro. Through its 75% ownership interest in Corbina and CompTel,
and CompTel's 51% ownership interest in Investelektro, the Company controls the
operations of each of the Subsidiaries. However, by reason of the fact that the
Company's ownership interest in Investelektro is indirect (through its 75%
ownership of CompTel), the Company actually owns only 38.25% of Investelektro,
and only will be entitled to receive 38.25% of any profit distributions
generated by Investelektro. Furthermore, the Company is dependent upon Mr.
Leibov, who owns the remaining 25% of each of Corbina and CompTel, and is in
complete control of the management of the Subsidiaries' operations. In the event
that the Company and Mr. Leibov were to become embroiled in a serious and/or
protracted dispute regarding the management or control of any of the
Subsidiaries, the Company would have to engage in a very time consuming process
to find a suitable replacement for Mr. Leibov. Furthermore, in light of the
uncertainties of enforcement of contractual rights, as well as the rights of
controlling shareholders, under Russian law, no assurance can be given that the
Company would be successful in replacing Mr. Leibov with its chosen successor
within any reasonably foreseeable time frame.
GOVERNMENT REGULATION -- INVESTELEKTRO'S INABILITY TO CONDUCT OPERATIONS IF
CONDITIONS OF LICENSE ARE NOT SATISFIED
In February 1997, Investelektro received a license from the State
Communications Committee authorizing it to construct and operate the proposed
wireless local loop system in the Licensed Territory. It has received
preliminary permission to utilize certain segments of the radio frequency
spectrum in connection therewith, and it is awaiting receipt of final approval
of such frequency assignments. The License requires Investelektro to commence
providing wireless local loop operations no later than February 21, 1998, and to
establish an installed customer base of not less than 20,000 lines by February
2002. In the event that Investelektro fails to satisfy any of such requirements,
its License and/or frequency allocations would be subject to immediate
suspension or revocation. Although the Company believes that Investelektro will
receive final approval of its frequency assignments, and that Investelektro will
not experience difficulties in satisfying the above-mentioned requirements, no
assurance can be given in either regard. Furthermore, no assurance can be given
that Investelektro will be able to maintain its License, that its terms will not
be altered to Investelektro's disadvantage or that it will be renewed upon its
expiration. The failure to receive final approval of frequency allocations, the
non-renewal, or a suspension or revocation of such License and/or frequency
allocations, would jeopardize the Company's entire investment in its proposed
wireless local loop system, and would have a material adverse effect on the
Company's financial condition and its ability to conduct the business it intends
to undertake in the Russian Federation. See "Business -- Proposed Wireless Local
Loop Operations -- Telecommunications License."
USE OF SUBSTANTIAL PORTION OF OFFERING PROCEEDS TO REPAY INDEBTEDNESS
The Company intends to use approximately $4,237,000 (45.2%) of the net
proceeds of the Offering to repay indebtedness to investors. As a result, such
funds will not be available to fund the Company's proposed operations. See "Use
of Proceeds;" "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources;" and "Certain
Relationships and Related Transactions."
EFFECT OF MINORITY OWNERSHIP INTEREST UPON POTENTIAL REVENUES AND
NET INCOME FROM SUBSIDIARIES
By reason of the fact that the Company is the owner of 75% of the
outstanding capital stock of each of Corbina and CompTel, and CompTel is the
owner of 51% of the capital stock of Investelektro, the Company will only be
entitled to report 75% of the revenues and net income, if any, and to receive
75% of any distributions thereof which each of Corbina and CompTel derives from
the operation of its respective business.
15
<PAGE> 19
CompTel's revenues and net income will be primarily, if not completely, derived
from its 51% ownership interest in Investelektro. Thus, the Company's net
indirect share of Investelektro's revenues and net income will be 38.25%. In
addition, the Company's employment agreement with Mr. Leibov contains certain
performance based compensation provisions which provide, among other things,
that, in the event that Corbina's operating income for any of its fiscal years
ending during the five year term of the employment agreement shall be greater
than $3,400,000, then, the Company shall transfer, subject to certain
restrictions on transfer and a right of first refusal, such number of Corbina
shares held by it equal to 10% of the total number of outstanding shares of
Corbina, thereby reducing the Company's ownership of Corbina to 65%. In such
event, the Company's ownership interest in Corbina, its right to report the
revenues and net income derived from Corbina, and its right to receive any
distributions thereof, would be reduced from 75% to 65%. See
"Management -- Executive Employment Agreements."
NEED FOR ADDITIONAL CAPITAL; NO ASSURANCES OF ABILITY TO OBTAIN NEEDED
ADDITIONAL CAPITAL
The Company requires substantial capital to pursue its operating strategy.
The Company does not intend to employ any portion of the net proceeds of this
Offering in connection with the construction of wireless local loop systems in
the cities of St. Petersburg, Novosibirsk, Nizhny Novgorod or Ekaterinburg. The
Company estimates that, in order to fulfill all of the obligations imposed upon
Investelektro pursuant to the License, it will need an aggregate of
approximately $3 million, in addition to the proceeds of this Offering, to build
the basic wireless local loop networks in the cities other than the Moscow
Region which comprise the Licensed Territory, and that it may need as much as
$20 - 30 million, in the aggregate, to build wireless local loop systems capable
of handling all of the telecommunications traffic which could be generated by
all of the potential subscribers for such services located throughout the
Licensed Territory. The Company expects to obtain the capital necessary to
undertake such activities from projected operating profits and/or from other
financing sources. The Company's management believes that the net proceeds of
the Offering will enable it to undertake its proposed business activities
described herein during the 12 month period after the closing of the Offering.
However, any number of unanticipated events, over many of which the Company will
have no control, could increase the Company's projected operating costs and/or
decrease the number of potential and actual subscribers for its Subsidiaries'
services, which would decrease its projected available cash flow. Moreover, as
of the date of this Prospectus, the Company has no commitment from any person or
entity to provide additional capital to the Company following this Offering.
Inasmuch as there can be no assurance that the Company's business interests will
generate sufficient cash to satisfy current or future projected capital
requirements, or that the Company will be able to obtain any other financing,
either for the purpose of carrying out or expanding its proposed business
operations, there can not be any assurance that such additional financing will
be available when needed or, if available, that the terms upon which it is
available will be favorable or acceptable to the Company. Furthermore, if such
additional financing can be obtained on terms acceptable to the Company, such
financing may result in dilution to stockholders, or a diminution in the value
of the Company or both and, consequently, a reduction in the fair market value
of the Common Stock. See "Use of Proceeds;" and "Business -- Proposed Wireless
Local Loop Operations -- Network Build-Out."
POLITICAL AND ECONOMIC SITUATION IN THE RUSSIAN FEDERATION; LACK OF POLITICAL
RISK INSURANCE
A favorable political climate in the Russian Federation and the openness of
its markets to United States trade is essential to the success of the Company.
The Russian Federation appears to have embraced political reforms and market
economies. However, there are no local procedures for such vast changes; the
region has known only totalitarianism and a centrally-planned economy for most
of this century. Any reversal in such perceived new political and economic
trends and policies, or in international trade policy generally, could
materially adversely affect the Company's operations. Moreover, the political
situation in the Russian Federation, where the Company expects to generate all
of its revenues in the near future, remains in constant transition. Since the
arrival of the Yeltsin government in December 1991, the Russian Federation has
experienced a proliferation of political parties, an increase of nationalist
sentiment, and a fragmentation of its economic and political institutions. In
addition, there has been a dramatic increase in crime, including organized crime
which may target businesses in the Russian Federation. The viability of the
Russian government has been tested by various political factions gaining
strength and unsuccessful coup d'etats; there
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<PAGE> 20
can be no assurance that a coup d'etat will not again be attempted or that any
future attempts will not be successful. In addition, the privatization process
in the Russian Federation has been sporadic.
Because the Russian Federation is in the early stages of development of a
market economy, its commercial framework in still developing. New
market-oriented laws are being enacted, but their application is still
uncertain. Although the Company believes that the Russian Federation has
advanced in the area of commercial law, Russian laws and courts are not well
tested in contract enforcement. Similarly, although Russian law regarding
foreign investment provides protection against nationalization and confiscation,
there is little or no judicial precedent in this area. In addition, a
Presidential Decree issued in September 1993 provides certain other guarantees
to foreign companies and Russian companies with foreign investments that
detrimental changes in Russian regulations which come into effect following the
date of registration of a company will not apply to that company for a period of
three years, and that only Russian laws and decrees of the Russian President may
place restrictions on the activities of foreign investors. However, the position
of the Russian authorities has been that this decree applies only to changes
that are directed specifically at foreign investors, and no foreign company has
been able to obtain an official exemption from detrimental changes under the
decree. There can be no assurance that additional detrimental changes in Russian
regulations will not occur.
The various government institutions and the relations between them, as well
as the government's policies and the political leaders who formulate and
implement them, are subject to rapid and potentially violent change. The
Constitution of the Russian Federation (the "Russian Constitution") gives the
President of the Russian Federation substantial authority, and any major changes
in, or rejection of, current policies favoring political and economic reform by
the President may have a material adverse effect on the Company and the
operations of its Subsidiaries.
The Russian Federation is constituted as a federation of republics,
territories, regions (one of which is an autonomous region), cities of federal
importance and autonomous areas, all of which are equal members of the Russian
Federation. The delineation of authority among the regions, the internal
republics and the federal governmental authorities is, in many instances,
uncertain, and in some instances, contested. In Chechnya, for example, regional
and local authorities openly defied the powers of the federal government,
resulting in a protracted military confrontation. Lack of consensus between
local and regional authorities and the federal government often results in the
enactment of conflicting legislation at various levels and may result in
political instability. This lack of consensus may have negative economic
effects, which could be material to the Company and its Subsidiaries.
Furthermore, the political and economic changes in Russia in recent years
have resulted in significant dislocations of authority, as previously existing
structures have collapsed and new structures are only beginning to take shape.
The local press and international press have reported that significant organized
criminal activity has arisen, particularly in large metropolitan centers.
Moreover, the combination of the sudden loss of the tight social control that
was characteristic of the Soviet Union, a large but poorly paid police force, an
increase in unemployment, an influx of unemployed persons from outlying areas to
metropolitan centers and a decline in real wages has led to a substantial
increase in property crime in large cities. In addition, the local press and
international press have reported high levels of official corruption in the
Moscow Region, and elsewhere in the Russian Federation. In an effort to decrease
the levels of criminal activity and corruption, President Yeltsin has issued a
series of decrees granting the security forces very broad powers. It has been
acknowledged that many provisions of these anti-crime decrees violate the
Russian Constitution as well as the Criminal Code of the Russian Federation and
these decrees have been viewed by many as a threat to civil rights. While the
Company and Corbina have not been adversely affected by these factors to date,
no assurance can be given that the depredations of organized or other crime will
not in the future have a material adverse effect on the Company and both of its
Subsidiaries.
The failure of many state-controlled enterprises to pay full salaries on a
regular basis, and the failure of salaries and benefits generally to keep pace
with the rapidly increasing cost of living have led in the past, and could lead
in the future, to labor and social unrest. Such labor and social unrest may have
political, social and economic consequences, such as increased support for a
renewal of centralized authority, increased national-
17
<PAGE> 21
ism (with restrictions on foreign involvement in the economy of the Russian
Federation) and increased violence, any of which could have a material adverse
effect on the Company and its Subsidiaries.
In addition, a lack of consensus exists over the manner and scope of
government control over the telecommunications industry. Because the
telecommunications industry is widely viewed as strategically important to the
Russian Federation, there can be no assurance that, in light of possible changes
in political power, recent government policies liberalizing control over the
telecommunications industry will continue. Any change in or reversal of such
governmental policies could have a material adverse effect on the Company.
The health of Russia's current president, Boris Yeltsin, is poor and, as a
result, he could be forced to step down, could become incapacitated or could
die. In such event, under the Russian Constitution the prime minister would
become acting president and would be required to call new presidential
elections. This could result in a period of political instability that could
have a material adverse effect on companies operating in Russia.
Foreign firms operating in this region may be subject to numerous other
risks that are not present in domestic operations, including political strife,
the possibility of expropriation, inadequate distribution facilities,
restrictions on royalties, dividends and currency remittances, inflation,
fluctuations of foreign currencies, high and unpredictable levels of taxation,
requirements for governmental approvals for new ventures and local participation
in operations. Such problems could have a material adverse effect on the
Company's operations abroad.
CURRENCY RISKS
The recent history of trading in the rouble as against the U.S. Dollar has
been characterized by significant declines in value and considerable volatility.
Although in recent months, the rouble has experienced relative stability against
the U.S. Dollar, there is a risk of further declines in value and continued
volatility in the future. Corbina's tariffs are denominated, and CompTel's
tariffs will be denominated, in U.S. dollars, but charges are and will be
invoiced and collected in roubles, while their respective major capital
expenditures are and/or will be generally denominated and payable in various
foreign currencies, predominantly, roubles. To the extent such major capital
expenditures involve importation of equipment and the like, current law permits
the Subsidiaries to convert their rouble revenues into foreign currency to make
such payments. The rouble is generally not convertible outside Russia. A market
exists within Russia for the conversion of roubles into other currencies, but it
is limited in size and is subject to rules limiting the purposes for which
conversion may be effected. The limited availability of other currencies may
tend to inflate their values relative to the rouble and there can be no
assurance that such a market will continue to exist indefinitely. Moreover, the
banking system in Russia is not yet as developed as its Western counterparts and
considerable delays may occur in the transfer of funds within, and the
remittance of funds out of, Russia. Any delay in converting roubles into a
foreign currency in order to make a payment or delay in the transfer of such
foreign currency could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Currency Translation."
CURRENCY CONTROLS; RESTRICTIONS ON REPATRIATION OF PAYMENTS
While applicable legislation in the Russian Federation currently permits
the repatriation of profits and capital and the making of other payments in hard
currency, the ability of the Company to repatriate such profits and capital and
to make such other payments is dependent upon the continuation of the existing
legal regimes for currency control and foreign investment, administrative
policies and practices in the enforcement of such legal regimes and the
availability of foreign exchange in sufficient quantities in those countries.
The illness of President Yeltsin could result in a change in such
administrative policies in Russia, to the extent that the government and the
Central Bank of the Russian Federation (the "Central Bank") feel constrained (or
may be forced, if there is any risk of significant movements of capital from
Russia in the wake of the elections) to limit the ability of Russian citizens
and foreign investors to transfer capital out of Russia.
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<PAGE> 22
In addition, under current currency regulations in Russia, while there do
not appear to be additional administrative requirements for the payment of
dividends or interest on debt, specific licenses from the Central Bank are
required for the making of equipment lease payments to a foreign lessor and for
repayments of principal on debt with a term of more than 180 days. Failure to
obtain such currency licenses where required can result in the imposition of
fines and penalties. While the requirements for obtaining such licenses largely
involve the production of documentation, not only are the documentary
requirements themselves burdensome, but there can be no assurance that the
entity granting the licenses may not impose additional, substantive requirements
for the grant of a license or deny a request for a license on an arbitrary
basis. Furthermore, the time typically taken by the Central Bank to issue such
licenses varies from two to six months.
Finally, the Company's ability to repatriate distributions and other
payments in hard currency will be dependent upon the ability of the Company's
Subsidiaries to bill their customers in U.S. Dollars or the equivalent amount of
local currency, as well as their ability to freely exchange local currency
receipts into U.S. Dollars.
Accordingly, there can be no assurance that, because of various local
currency regulations, the Company will be able fully and/or timely to realize
benefits from its operations in Russia through the receipt of hard currency
payments.
LEGAL RISKS
Russia lacks a fully developed legal system. Russian law is evolving
rapidly and in ways that may not always coincide with market developments,
resulting in ambiguities, inconsistencies and anomalies, and ultimately in
investment risk that would not exist in more developed legal systems. For
example, the ability of a creditor both to obtain a lien or other similar
priority in payment and to enforce such priority is uncertain. Furthermore,
effective redress in Russian courts in respect of a breach of law and
regulation, or in an ownership dispute, may be difficult to obtain.
Risks associated with the Russian legal system include: (i) the untested
nature of the independence of the judiciary and its immunity from economic,
political or nationalistic influences; (ii) the relative inexperience of judges
and courts in commercial dispute resolution, and generally in interpreting legal
norms; (iii) inconsistencies among laws, presidential decrees and governmental
and ministerial orders and resolutions; (iv) oftentimes conflicting local,
regional and national laws, rules and regulations, particularly in the Russian
Federation; (v) the lack of judicial or administrative guidance on interpreting
the applicable rules; and (vi) a high degree of discretion on the part of
government authorities and arbitrary decision making which increases, among
other things, the risk of property expropriation. The result has been
considerable legal confusion, particularly in areas such as company law,
property, commercial and contract law, securities law, foreign trade and
investment law and tax law. No assurance can be given that the uncertainties
associated with the existing and future laws and regulations of Russia will not
have a material adverse effect on the Company.
In January 1995 and March 1996, respectively, newly legislated provisions
of the First and Second Parts of the Civil Code of the Russian Federation (the
"Civil Code") became effective. Also, in January 1996 and April 1996,
respectively, the Federal Law on Joint Stock Companies and the Federal Law on
the Securities Market became effective. The recent creation of many Russian
laws, the lack of consensus about the scope, content and pace of economic and
political reform and the rapid evolution of the Russian legal system in ways
that may not always coincide with market developments, could lead to
ambiguities, inconsistencies and anomalies, the enactment of laws and
regulations without a clear constitutional or legislative basis, and ultimately
in investment risks that do not exist in more developed legal systems. In
addition, Russian legislation often contemplates implementing regulations that
have not yet been promulgated, leaving substantial gaps in the regulatory
infrastructure. No assurance can be given that, in some instances, the evolution
of Russia's laws and the enactment of new legislation will not have a material
adverse effect on the Company and/or its Subsidiaries.
Disclosure and reporting requirements, and anti-fraud and insider trading
legislation have only recently been enacted and most Russian companies and
managers are not accustomed to such restrictions on their activities. The
concept of fiduciary duties on the part of management or directors to their
companies or
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<PAGE> 23
shareholders is also relatively new and is not well developed. Moreover, Russia
has not yet recognized the concept of class action lawsuits and has only
recently enacted legislation providing for shareholder derivative lawsuits. To
date, Russian courts do not have experience with respect to such derivative
suits.
Both the independence of the judicial system and its immunity from
economic, political and nationalistic influences, remain largely untested.
Judges and courts are generally inexperienced in the area of business and
corporate law, and judicial precedents generally have no binding effect on
subsequent decisions. There is no guarantee that a foreign investor would obtain
effective redress in any court. Substantially all of the assets of the Company
are located in the Russian Federation, and are, or will be, owned by Corbina,
CompTel and Investelektro, three closed joint stock companies organized under
the laws of the Russian Federation. The Company is the owner and holder of 75%
of the outstanding capital stock of Corbina and CompTel. CompTel is the owner
and holder of 51% of the outstanding capital stock of Investelektro. The balance
of the outstanding shares of capital stock of Corbina and CompTel is owned by
Mikhail Leibov, a former citizen of the Russian Federation who is now a citizen
of the United States, and who, in his capacity as a key employee of the Company,
spends the majority of his time outside of the United States. The balance of the
outstanding shares of capital stock of Investelektro is owned by citizens of and
entities organized under the laws of, the Russian Federation. By reason of the
foregoing, it may not be possible for investors to effect service of process
within the United States upon the Company's Subsidiaries, Mr. Leibov or such
Russian citizens or entities, or to enforce in the United States or outside of
the United States judgments obtained against the Company's Subsidiaries, Mr.
Leibov or such Russian citizens or entities in the United States courts, or to
enforce in the United States courts judgments obtained against the Company's
Subsidiaries, Mr. Leibov or such Russian citizens or entities in courts in
jurisdictions outside of the United States, in each case, in any action,
including actions predicated upon the civil liability provisions of the United
States securities laws. In addition, it may be difficult for investors to
enforce, in original actions brought in jurisdictions located outside of the
United States, liabilities predicated upon the United States securities laws. No
treaty exists between the United States and the Russian Federation for the
reciprocal enforcement of foreign court judgments. See "Enforcement of Civil
Liabilities" and "Business -- Proposed Wireless Local Loop
Operations -- Ownership of Investelektro."
Furthermore, the relative infancy of business and legal cultures in Russia
is reflected in the inadequate commitment of local business people, government
officials and agencies, and the judicial system to honor legal rights and
agreements, and generally to uphold the rule of law. Accordingly, the Company
may, from time to time, confront threats of, or actual, arbitrary or illegal
revision or cancellation of its licenses and agreements, and face uncertainty or
delays in obtaining legal redress, any of which could have a material adverse
effect on the Company.
SOCIAL RISKS
The political and economic changes in Russia since the break up of the
former Soviet Union have resulted in significant social dislocations, as
existing structures of authority have collapsed and new ones are only beginning
to take shape. The resulting broad decline in the standard of living has
resulted in substantial political pressure on the government to slow or even
reverse the economic policies currently being pursued.
In addition, the local and international press have reported significant
organized criminal activity, particularly in large metropolitan centers,
directed at revenue-generated businesses, and an increased integration of
Russian organized crime and major international criminal organizations. In
addition, a substantial increase in property crime in large cities has been
reported. Finally, the local and international press have reported high levels
of official corruption in the locations where the Company operates. No assurance
can be given that organized or other crime or claims that the Company or any of
its Subsidiaries has been involved in official corruption will not in the future
have a material adverse effect on the Company.
INFLATION
The Russian economy is in transition and has been characterized by high
rates of inflation. The Russian Government adopted a number of measures in 1995
and 1996 and these have begun to have a favorable impact on inflation rates. In
1994, the average monthly inflation rate was 10.0%. In 1995, the average monthly
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<PAGE> 24
inflation rate decreased to 7.2% and during 1996, the average monthly inflation
rate was 1.8%. The devaluation of the rouble in recent years has not kept pace
with inflation. Corbina prices its services, and CompTel intends to price its
equipment and services in U.S. dollars thereby mitigating the effects of the
devaluation of the rouble. However, the Company believes that such pricing may
not be able to fully offset the effects of inflation because a substantial
portion of all collections will be in roubles. In addition, the Company also
believes that Corbina and CompTel may experience increased costs in hard
currency terms due to the devaluation of the rouble. If the Subsidiaries are
unable to maintain prices in line with inflation, due to competitive pressures
or otherwise, it may have a material adverse effect on the Company.
TAXATION
Generally, taxes payable by Russian companies are substantial. In addition,
taxes payable by Russian companies are numerous, they are charged by federal,
regional and local authorities and they are subject to frequent change. The
profit tax, which is imposed pursuant to federal legislation, is payable at the
rate of 13% to the federal tax authorities, and it is payable to the regional
tax authorities at such rates as they deem to establish, subject to an absolute
ceiling on such rates of 22%. Businesses engaged in commercial operations in
Russia must be registered with the taxing authorities in each location in which
they conduct business, and must submit an annual tax declaration. Social
Security contributions by employers are payable to four different governmental
funds, and aggregate 38.5% of wages and salaries paid to Russian employees. A
value-added tax (the "VAT") is imposed at the rate of 20% of the customs value
of imported goods, on goods supplied within the Russian Federation and on
certain services, including the services provided by Corbina, and which CompTel
intents to provide. At the local level, the Moscow taxing authorities impose an
advertising tax which is currently 5% of the value of advertising services
purchased, transport and education taxes each of which is currently levied at
the rate of 1% of salary expenses and housing and road-users taxes which are
currently levied at the rates of 1.5% and 2.5% of revenues, respectively.
Currently, dividends are taxed at 15% and the payor is required to withhold the
tax when paying the dividend.
The taxation system in Russia is at an early stage of development and is
subject to varying interpretations, frequent changes and inconsistent
enforcement at the federal, regional and local levels. In certain instances, new
taxes have been given retroactive effect. Although the Russian Government has
initiated a revision of the Russian tax system, including the enactment of a tax
code with the assistance of tax experts from throughout the world, no assurance
can be given that this proposed legislation will be enacted and, if enacted,
will result in a reduction of the tax burden on Russian companies and the
establishment of a more efficient tax system. To date, the system of tax
collection has been relatively ineffective, resulting in the continual
imposition of new taxes in an attempt to raise government revenues. This
history, plus the existence of large government budget deficits, raises the risk
of a sudden imposition of arbitrary or onerous taxes, which could adversely
affect investments in Russia, including an investment in the Company.
UNCERTAINTY OF MARKET ACCEPTANCE; LIMITED MARKETING EXPERIENCE;
DEVELOPMENT OF NEW TELECOMMUNICATIONS SYSTEMS
Although the Company believes that there will be a substantial and
receptive market for services and products which it expects to market in the
Russian Federation, wireless local loop services have not, as of the date of
this Prospectus, been offered in the Russian Federation. Given the limited
economic resources of the newly privatized businesses which will encompass a
material portion of the proposed market for the Company's services and products,
there can be no assurance that the wireless local loop services and products to
be offered by the Company will achieve commercial acceptance or that a
sufficient number of customers will be able to afford such services. In
addition, achieving market acceptance for the Company's proposed products and
services will require substantial marketing efforts to inform potential
customers of the distinctive characteristics and benefits thereof. The Company
has limited marketing experience in the United States, and no marketing
experience in the Russian Federation. There can be no assurance that its
proposed products and services will ultimately be accepted by its targeted
Russian customers.
The Company has not previously developed a telecommunications system. The
Company believes that the wireless loop telecommunications system it is planning
to develop through Investelektro, and the long
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<PAGE> 25
distance telephone service that it is planning to expand through Corbina, will
be able to operate effectively. There can be no assurance that such systems will
be able to provide services on a competitive basis. In addition, there can be no
assurance that the Company's estimates of the ultimate costs of such systems
will prove to have been accurate or that the proceeds allocated will be
sufficient to construct and/or expand such systems.
POTENTIAL NEED FOR ADDITIONAL PARTNERS; RELIANCE ON PARTNERS
The Company's strategy for providing telecommunications services in the
Moscow Region and other parts of the Russian Federation may require it, or one
or both of its Subsidiaries, to enter into collaborative arrangements with other
parties. Such arrangements may include the provision of long distance
telecommunications, wireless local loop services and/or technical assistance
through joint ventures with strategic Russian manufacturing conglomerates or
governmental authorities which own or operate, local telecommunications exchange
networks, or with other entities who have contracts to provide such services to
the owners and operators of such local networks. No assurance can be given that
the Company will be able to successfully identify and/or negotiate acceptable
agreements with other parties, or that if such agreements are consummated, that
the Company will be successful in completing the transactions contemplated
thereby.
COMPETITION
Competition for business by Western companies in the Russian Federation is
intense. The Moscow City Telephone Network ("MGTS") has entered into joint
ventures for the provision of long distance telecommunications services to
consumers and businesses located in the Moscow Region with several of the
world's largest telecommunications companies, including AT&T (TelMos), Belgacom
and Alcatel Bell (Combellga), British Telecom (Comstar) and Global Telesystems
(Sovintel). Each of such joint ventures has greater financial, technical and
marketing resources than the Company. Investelektro will not have an exclusive
license to provide telecommunications services in the Moscow Region, and a
number of other entities, including Russian companies and the above mentioned
international joint ventures, may compete with Investelektro for shares of the
local telecommunications market in the Moscow Region. Many of such companies
(and all of the above-mentioned joint ventures) will be larger than
Investelektro and have significantly greater financial and other resources.
There can be no assurance that the Company will be able to compete effectively
in any aspect of its current or proposed business activities or that
developments by others will not render the Company's products and services
noncompetitive. Moreover, the Company may have to compete with unlicensed
businesses or with businesses capitalizing on personal relationships with the
fluid power structure in the Russian Federation. In the Russian Federation, in
addition to competition from private telecommunications companies, the Company
may be competing with partially and wholly state-owned communications
enterprises. There can be no assurance that the implementation of the Company's
strategy of having local partners will give it any competitive advantage. In
addition, there can be no assurances that competition in the Company's targeted
markets will not increase as economic activity grows and that larger, better
capitalized competitors will not enter the market in these areas. See
"Business -- Proposed Wireless Local Loop Operations -- Competition;" and
"-- Corbina's Long Distance Telecommunications Operations -- Competition."
WIRELESS LOCAL LOOP NETWORK CONSTRUCTION AND OPERATIONAL RISKS
General. The proposed development and operation of Investelektro's
wireless local loop network involves a high degree of risk. Investelektro has
completed the selection of the hardware and software components of the equipment
which it intends to employ in connection with the construction of its network in
the Moscow Region and it has determined the location of two of the three antenna
sites that it intends to use for its proposed Moscow Region network.
Investelektro intends to commence marketing efforts and launch commercial
service in 1997 and expects to complete initial construction of its network in
the Moscow Region by the end of 1998. There can be no assurance that
Investelektro will be able to construct its network in accordance with its
current construction plan and schedule. If Investelektro is not able to
implement its construction plan, it may not be able to provide services
comparable to those provided by MGTS and providers
22
<PAGE> 26
of cellular telecommunications services in its market and, as a result,
Investelektro's anticipated subscriber growth may be limited. Failure to comply
with the License's requirements could cause revocation or forfeiture of the
License which has been issued to Investelektro by the State Communications
Committee, or the imposition of fines upon Investelektro by the State
Communications Committee. The construction of Investelektro's wireless local
loop network is subject to successful completion of the network design, site and
facility acquisitions, the purchase and installation of the network equipment
and network testing. Delays in any of these areas could have a material adverse
effect on Investelektro's ability to construct its network in a timely manner.
Location of Base Station Transmitter Equipment. The construction of
Investelektro's wireless local loop network will depend, to a significant
degree, on Investelektro's ability to lease or acquire sites for the location of
the equipment which will receive the radio signals emanating from buildings and
other locations from which Investelektro's customers will be placing and
receiving telecommunications transmissions, and/or re-transmit such signals
directly to other buildings or locations within Investelektro's proposed
network, or through the public telephone network operated by MGTS, or to Corbina
or another provider of long distance telecommunications services. The site
selection process in the Moscow Region will require the negotiation of lease or
acquisition agreements for approximately three sites for the proposed network,
and may require Investelektro to obtain governmental approvals or permits. The
Company expects that the site acquisition process will continue throughout the
construction of Investelektro's network. Each stage of the process involves
various risks and contingencies, many of which are not within the control of
Investelektro and any of which could adversely affect the construction of the
network should there be delays or other problems. No assurance can be given that
Investelektro will be able to obtain such governmental approvals or permits, or
that it will be able to successfully negotiate such site leases or site
acquisition agreements, or that it will be able to obtain such sites, or lease
same at costs which it will be able to afford or within a time frame which will
enable it to establish and commence operations in a timely manner.
Demands on Managerial, Operational and Financial Resources. The
development, construction and operation of Investelektro's wireless local loop
network and the expansion of Corbina's long distance telecommunication services
are expected to place significant demands on the Company's managerial and
operational and financial resources. The Company's future performance will
depend, in part, on the Company's ability to implement and improve its
operational and financial systems and to attract, train and manage its employee
base and those of its Subsidiaries, including customer support and marketing and
sales personnel. There can be no assurance that the Company will be able to
manage planned operations successfully. Any failure to manage growth effectively
(including implementing adequate systems, procedures and controls in a timely
manner) could have a material adverse effect on the Company's financial
condition and the results of current and proposed operations.
Dependence on Interconnect Parties. In order to operate its proposed
network successfully, Investelektro must maintain interconnection agreements
with the telephone companies, including MGTS, operating or providing service in
the areas where it intends to deploy its proposed wireless local loop network.
Although, Investelektro believes that it will be able to negotiate agreements
providing for favorable tariffs for interconnection fees and carrier charges
with MGTS and such other telephone companies, no assurance can be given in this
regard. If Investelektro does not consummate an interconnection agreement with
MGTS providing for reasonable terms and tariffs, or it is completely unable to
obtain such an agreement, it would not be able to connect its subscribers'
telecommunications traffic to the Moscow local public switched telephone
network. Such an eventuality would materially adversely affect Investelektro's
proposed business activities. See "Business -- Proposed Wireless Local Loop
Operations -- Billings, Tariffs and Interconnection Charges."
TECHNOLOGICAL OBSOLESCENCE AND NEW TECHNOLOGY
The telecommunications industry is undergoing rapid and significant
technological change. Future technological advances may result in new services
or products directly competitive with the telecommunications services which the
Company proposes to provide. Large manufacturers have dominated the
technological development of a variety of wireless one-way and two-way
communication technologies, including cellular
23
<PAGE> 27
telephone service, personal communications services, enhanced specialized mobile
radio, low-speed data networks, and mobile satellite services, all of which
currently are in use or under development. There can be no assurance that the
Company would not be adversely affected by further developments of such
technologies, or any changes therein. The Company will need access to improving
technology in order to remain competitive. There can be no assurance that it can
obtain access to such new technology through licensing agreements, joint
ventures or otherwise. The Company does not intend to allocate any of the
proceeds of the Offering to basic research and has not devoted any resources to
research and development thus far. Such technology has generally been available
on an "off-the-shelf" basis, but such technology may not be available to the
Company in the future, or may render the Company's systems obsolete. If such
technology is no longer available on an "off-the-shelf" basis, the Company's
small size may hinder its ability to obtain necessary technology.
SUSCEPTIBILITY TO POLITICAL AND OTHER PRESSURES
Although the governments of the Russian Federation and geographic locales
in which the Company intends to operate (such as the Moscow Region) may be
limited in the extent to which they can legally direct the Company's policies,
in practice they may be able to exercise significant influence. As a
consequence, not only may the Company's activities be restrained if a
governmental entity or instrumentality is not supportive, but the Company may be
forced to take action to support policies or agendas of the government which are
not in its commercial or other interests.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company is not currently considering the acquisition of any business,
or a joint venture with any other business or individual. From time to time in
the future, the Company and/or its Subsidiaries may enter into negotiations with
respect to potential acquisitions or joint ventures, some of which may result in
preliminary agreements. In the course of such negotiations and/or due diligence,
these negotiations and/or preliminary agreements may be abandoned or terminated.
No assurance can be given that the Company and/or its Subsidiaries will find
suitable acquisition or joint venture candidates, or that future acquisitions or
joint ventures will be financed and made on acceptable terms, or if completed,
that such acquisitions or ventures will be successful.
OFFICIAL DATA RELIABILITY
The official data published by the Russian federal, regional and local
governments and federal agencies are substantially less reliable than the
comparable data published in the United States. There can be no assurance that
the official sources from which certain of the information set forth in this
Prospectus has been drawn are reliable. Official statistics may also be produced
on different bases than those used in the United States. Any discussion of
matters relating to the Russian Federation must therefore be subject to
uncertainty due to concerns about the completeness and reliability of available
official and public information.
EFFECT OF CERTAIN SECURITIES TRANSACTIONS UPON THE COMPANY'S EARNINGS
As a result of the Company's issuance of Common Stock to certain of its
stockholders during the 12 month period which preceded the date of initial
filing of the Registration Statement of which this Prospectus forms a part for
consideration which was less than the per share offering price of the Common
Stock in this Offering, the Company incurred deferred financing costs of
$1,890,000, debt discounts of $465,000, and amortization of deferred financing
costs and debt discounts of $416,500. In the event that the Company issues up to
250,000 shares of Common Stock to Mr. Leibov pursuant to the incentive
compensation provisions of his employment agreement, the Company will recognize
a substantial noncash charge to earnings equal to the fair value of such shares
on the date of their issuance. Such charge would have the effect of
significantly increasing the Company's loss or reducing or eliminating earnings,
if any, at such time. The recognition of such expense may have a depressive
effect on the market price of the Company's securities. See "Management --
Executive Employment Agreements;" and "Certain Relationships and Related
Transactions."
24
<PAGE> 28
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends on its Common Stock in the
foreseeable future as it intends to retain future earnings to finance the growth
of the business. The payment of future cash dividends on the Common Stock will
depend on such factors as earnings levels, anticipated capital requirements, the
operating and financial condition of the Company and other factors deemed
relevant by the Board of Directors. See "Dividend Policy."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
The Company will be able to issue shares of its Common Stock upon exercise
of the Warrants only if there is then in effect a current prospectus relating to
such Common Stock, and only if such Common Stock is qualified for sale or exempt
from such qualification under applicable state securities laws of the
jurisdictions in which the various holders of the Warrants reside. Although the
Company has undertaken to, and intends to, file and keep current a prospectus
which will permit the purchase and sale of the Common Stock underlying the
Warrants, there can be no assurance that the Company will be able to do so.
Warrants may not be exercised after [ ], 1998 (nine months after
the date of this Prospectus) unless and until a Post-Effective Amendment has
been filed with the Securities and Exchange Commission ("SEC" or Commission")
and becomes effective. Although the Company intends to seek to qualify for sale
the shares of Common Stock underlying the Warrants in those states in which the
Common Stock and Warrants are to be offered, no assurance can be given that such
qualification will occur. The Warrants may be deprived of any value and the
market for the Warrants may be limited if a current prospectus covering the
Common Stock issuable upon exercise of the Warrants is not kept effective or if
such Common Stock is not qualified or exempt from qualification in the
jurisdictions in which the holders of the Warrants then reside. See "Description
of Securities -- Warrants."
MARKET FOR COMMON STOCK AND WARRANTS; POSSIBLE VOLATILITY OF PRICES
The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq SmallCap Market. Such listing will not provide any assurance that an
active public market for the Common Stock or Warrants will develop or, if one
does develop, that it will be sustained. If an active public market does not
develop or is not sustained, the market price and liquidity of the Common Stock
and/or Warrants may be adversely affected. In addition, the stock market in
recent years has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
companies. These fluctuations as well as general economic and market conditions
may adversely affect the market price of the Common Stock and/or Warrants
prevailing from time to time.
81% DILUTION
Purchasers of the Common Stock offered by this Prospectus will suffer an
immediate and substantial dilution in the net tangible book value per share of
the Common Stock from the initial public offering price. At an assumed initial
public offering price of $7.00 per share, new investors will experience a
dilution of $5.66 per share based upon a pro forma net tangible book value per
share after the Offering. This represents a dilution of 81% from the initial
public offering price. By reason of the fact that the Company's stockholders and
Russian Wireless' stockholders acquired their shares of the Company's Common
Stock at prices which were substantially below the assumed public offering price
of the Common Stock, purchasers of the Common Stock pursuant to this Offering
will be bearing a substantial proportion of the risks which the Company will be
encountering subsequent to the closing of this Offering. See "Dilution."
POSSIBLE REDEMPTION OF WARRANTS
The Warrants may be redeemed by the Company, whether or not a current
prospectus is available, upon 30 days' prior written notice, at any time during
the three year period commencing two years after the date of this Prospectus at
a price of $.50 per Warrant, provided that the closing price of the Common Stock
as quoted
25
<PAGE> 29
on the principal market on which such shares shall then be trading shall be not
less than the $14.50 per share during any period of 20 consecutive trading days
ending on the third day preceding the date of such notice, and further provided,
that with the Representative's prior written consent, the Company may redeem the
Warrants commencing two years after the date of this Prospectus. Although a
Warrant holder has the right to exercise his Warrants through the date of
redemption, he may not be able to exercise because of lack of funds at the time
of redemption or if there is not then in effect a current prospectus relating to
the Common Stock underlying such Warrants. Furthermore, in the event that the
Company timely and properly issues a notice of redemption of the Warrants, no
trading in such securities shall be permitted after the close of business on the
date of redemption. At such time the value of all Warrants which shall not have
been timely exercised prior thereto shall be reduced to the redemption price.
See "Underwriting."
AUTHORIZATION OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
preferred stock with designations, rights and preferences determined from time
to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of Common Stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. The issuance of preferred stock with anti-takeover measures could have
a depressive effect on the market price of the Common Stock (should a market
develop for the Common Stock) and could discourage hostile bids in which
shareholders may receive premiums for their shares. See "Description of
Securities -- Preferred Stock."
IMPACT ON THE MARKET OF EXERCISE OF REPRESENTATIVE'S WARRANTS
The holders of the Representative's Warrants may exercise them at a time
when the Company would, in all likelihood, be able to obtain equity capital by
the sale of securities on terms more favorable than those provided by the
Representative's Warrants. If the Representative's Warrants are exercised, the
dilution of the voting and equity interests of the Company's shareholders which
shall result therefrom could cause a decrease in the market price of the
Company's securities, and may also adversely affect the Representative's ability
to make and maintain an orderly market in the Company's securities. See
"Description of Securities -- Representative's Warrants."
THE REPRESENTATIVE'S INFLUENCE ON THE MARKET FOR THE COMPANY'S SECURITIES
A significant amount of the securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities with the
Representative. Although it has no obligation to do so, the Representative
intends to make a market in the Common Stock and Warrants and may otherwise
effect transactions in such securities. If it participates in the market, the
Representative may exert significant influence on the market, if one develops,
for the securities described in this Prospectus. Such market making activity may
be discontinued at any time. The price and liquidity of the Common Stock and
Warrants may be significantly affected by the degree, if any, of the
Representative's participation in such market. Additionally, the Representative
may participate in the solicitation of the exercise of the Warrants, in which
event, it may be prohibited from engaging in any market making activities with
respect to the Common Stock and Warrants during certain periods while the
Warrants are exercisable. Such restrictions may adversely affect the price and
liquidity of the Common Stock and Warrants. Furthermore, if the Representative
should exercise its registration rights to effect the distribution of the Common
Stock and Warrants underlying the Representative's Warrants, the Representative,
prior to and during such distribution, will be unable to make a market in the
Common Stock and Warrants. If the Representative ceases making a market, the
market and market prices for the Common Stock and Warrants may be adversely
affected, and the holders thereof may be unable to sell such securities.
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<PAGE> 30
SALES OF SHARES BY THREE PRINCIPAL STOCKHOLDERS
Each of Messrs. J.P. Downey, Ernest Ferrante and Paul Signoracci, none of
whom has ever been an employee, officer or director of the Company, is the owner
of 285,000 shares of Common Stock (855,000 shares, in the aggregate). All of
such 855,000 shares are being registered for sale pursuant to the Registration
Statement of which this Prospectus forms a part. The sale of all or a
substantial portion of such shares could adversely affect the pricing of, and/or
any market for, the Company's securities that may develop following the date
hereof. See "Principal Security Holders;" and "Concurrent Offering of
Securities."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of the Common Stock in the public market after this Offering could
adversely affect the market price of the Common Stock. Upon completion of this
Offering, the Company will have outstanding, assuming no exercise of any
outstanding warrants or options, 4,485,000 shares of Common Stock (4,714,500
shares if the Underwriters' over-allotment option is exercised in full). Of
these shares, 1,530,000 shares will be freely tradeable without restriction
under the Securities Act, and 1,155,000 shares will be registered for sale
pursuant to a separate prospectus under the Securities Act, but restricted from
sale pursuant to the lock-up agreements described below. The remaining 1,800,000
shares of Common Stock held by existing shareholders are restricted securities
within the meaning of Rule 144. In accordance with Rule 144, all of such shares
are presently eligible for sale to the public notwithstanding the fact that they
have not been registered under the Securities Act. The Representative has
required, as a condition to the closing of the Offering, that each of the
holders of said 1,155,000 shares which are being registered for sale pursuant to
a separate prospectus, and said 1,800,000 shares, as well as the holders of
warrants and an option to purchase 3,237,515 shares of the Company's Common
Stock execute lock-up agreements with the Representative providing that, for a
period of 24 months from the date of this Prospectus, they shall not offer,
register, sell, contract to sell, grant an option for the sale of, issue,
assign, transfer or otherwise dispose of any of the Company's securities held by
them without the Representative's prior written consent. In the event that the
Representative fails to receive lock-up agreements from all of the
above-described holders of the Company's securities, but nevertheless agrees to
proceed with the closing of this Offering, the ability of the holders of said
securities to sell the shares of Common Stock which are being registered for
sale by them pursuant to a separate prospectus to sell their respective shares
could adversely affect the pricing of, and/or any market for, the Company's
securities that may develop. See "Description of Securities -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
INDEMNIFICATION OF DIRECTORS AND OFFICERS; POSSIBLE INABILITY TO OBTAIN
OFFICERS' AND DIRECTORS' LIABILITY INSURANCE
The Company's Bylaws provide for the indemnification of directors and
officers to the fullest extent permitted by law. The Company has entered into
indemnification agreements with each of its officers and directors which also
provide for their indemnification to the fullest extent permitted by law. The
Company intends to apply for officers' and directors' liability insurance
providing limits of $1,000,000 per occurrence. There can be no assurance that
the Company will be able to obtain or maintain such insurance on acceptable
terms. Failure to maintain such insurance could have a material adverse effect
on the Company's ability to attract and retain directors and officers. Any
amounts which the Company may be required to pay under such indemnification
agreements which are not reimbursed by insurance, either because no insurance
policy is then in effect or because the amount of such required payments exceeds
the policy limit, could have a material adverse effect on the Company. See
"Management -- Indemnification of Directors and Officers."
REGISTRATION RIGHTS HELD BY THE HOLDERS OF THE FIRST PRIVATE PLACEMENT WARRANTS
The holders of the First Private Placement Warrants have the right to
demand on one occasion, that the Company file a registration statement with the
SEC registering the First Private Placement Warrants and the Common Stock
issuable upon exercise thereof for sale under the Securities Act. Such demand
registration rights may be exercised at any time during the five year period
commencing six months from the date of this Prospectus, and must be exercised by
the holders of a majority of the First Private Placement Warrants. If
27
<PAGE> 31
such rights are exercised, the Company must prepare and file a registration
statement on an appropriate form to register for public sale the First Private
Placement Warrants and the Common Stock issuable upon the exercise thereof, and
keep such registration statement effective for a period of nine months. The
Company must bear all costs of such registration, except for filing fees,
underwriter's discounts and commissions, stock transfer taxes and the fees and
expenses of such holders' counsel. The above-described registration rights
pertaining to the First Private Placement Warrants could result in substantial
future expense to the Company and could adversely affect the Company's ability
to complete future equity or debt financings. Furthermore, the registration and
sale of securities of the Company held by or issuable to the holders of such
registration rights, or even the potential of such sales, could have an adverse
effect on the market price of the securities offered hereby. See "Description of
Securities -- Registration Rights."
NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
SYSTEM;
RISKS OF LOW-PRICED STOCKS
The Company has applied to the Nasdaq SmallCap Market for listing of the
Common Stock and Warrants. If the Company is unable to satisfy Nasdaq's listing
criteria for the Common Stock and/or Warrants, or if such securities are listed
on the Nasdaq SmallCap Market, and the Company thereafter fails to satisfy the
maintenance criteria for continued listing of any or all of such securities,
they will be subject to being delisted, and trading, if any, would thereafter be
conducted in the OTC Bulletin Board. As a consequence of such non-listing or
delisting, an investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Common Stock and/or the Warrants.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks. The SEC
regulations generally define a penny stock to be any equity security that has a
market price or exercise 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 (3) 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 during such issuer's last three years of operations.
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. Furthermore, in
connection with any transaction in a penny stock, brokers must also provide
investors with current bid and offer quotations therefor, the compensation of
the broker and its salesperson in connection therewith and monthly account
statements showing the market value of each penny stock in the investor's
account.
Recently, a proposal has been made to increase the continued listing
criteria on the Nasdaq SmallCap Market. If implemented as proposed, stricter
criteria for continued listing on the Nasdaq SmallCap Market would be imposed,
including the implementation of a $2,000,000 net tangible assets test,
requirements for a greater number of publicly held securities and a higher
market value for such securities and the implementation of new corporate
governance criteria. No assurance can be given that such proposal will be
adopted, or, if adopted, will be adopted in its current form.
In addition, if the Common Stock or Warrants are not quoted on Nasdaq, or
the Company does not have $2,000,000 in net tangible assets, trading in the
Common Stock and Warrants would be covered by Rule 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended (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.
As of the date of this Prospectus, the Company believes that the Common
Stock and Warrants will be outside the definitional scope of a penny stock. In
the event the Company's securities were subsequently to become characterized as
penny stocks, the market liquidity for such securities could be adversely
affected. In such an event, the regulations on penny stocks could limit the
ability of broker/dealers to sell the Common Stock and/or the Warrants and thus
the ability of purchasers of the Common Stock and Warrants to sell such
securities in the secondary market would be adversely affected.
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<PAGE> 32
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock and 2,200,000 Warrants offered by the Company hereby at the assumed
initial public offering prices of $7.00 per share and $.50 per Warrant, are
estimated to be $9,367,000 ($10,908,205 if the over-allotment option granted to
the Underwriters is exercised in full) after deducting the underwriting
discounts and commissions, the Underwriters' non-accountable expense allowance
and the other estimated expenses of this Offering. The Company expects to use
the net proceeds, as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
---------- -------
<S> <C> <C>
Contribution of capital to Corbina for its use in connection with the
expansion of its services as a switch-based provider of long distance
telecommunications services in the Moscow Region (see
"Business -- Corbina's Long Distance Telecommunications Operations").... $ 655,000 7.0%
Purchase of switching hardware and software for connection of
Investelektro's customers' telecommunication transmissions to the Moscow
public switched telephone network and to Corbina's long distance
carriers*............................................................... 2,400,000 25.6%
Purchase of equipment (in-building network wiring components, wireless
local loop transmitters and receivers and telephone handsets) to be
employed by Investelektro with respect to the creation and expansion of
its proposed wireless local loop network in the Moscow Region*.......... 500,000 5.3%
Purchase of three antennas and ancillary equipment to be employed by
Investelektro for interconnection of telecommunication transmissions
throughout its proposed wireless local loop network*.................... 250,000 2.7%
Payment of antenna site rents for three antenna sites in the Moscow
Region during first year of Investelektro's operations*................. 60,000 0.6%
Working capital to be employed by Investelektro during the period of
approximately seven-twelve months following the closing of this
Offering*............................................................... 650,000 7.0%
Retirement of promissory notes issued in connection with the Company's
Second and Third Private Placements (including accrued interest) (See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources")............................................................. 2,329,000 24.9%
Retirement of Bridge Financing owed to three non-employee, non-director
stockholders (including accrued interest) (See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources")...................... 780,000 8.3%
Retirement of Additional Financing owed to ISC and an unaffiliated
lender (including accrued interest). (See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources")...................... 304,000 3.2%
Pre-payment of fee due pursuant to a financial consulting agreement to
be entered into by the Company with the Representative at the closing of
the Offering (See "Underwriting")(1).................................... 187,340 2.0%
Final payment due on agreement to cancel and rescind $100,000 investment
made by Colonial Electric Consulting Corp. ("Colonial") pursuant to the
Second Private Placement -- (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources")..................................................... 50,000 0.5%
Retirement of promissory notes issued in connection with the redemption
of Common Stock previously owned by ISC and Harvey Bloch, two former
stockholder (see "Certain Relationships and Related Transactions")...... 774,000 8.3%
Working capital(2)...................................................... 427,660 4.6%
---------- -----
$9,367,000 100.0%
========== =====
</TABLE>
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<PAGE> 33
- ---------------
(1) Such fee will be equal to 2% of the net proceeds derived by the Company from
the sale of the Common Stock and Warrants offered hereby. In the event that
the over-allotment option is exercised in full, the total amount of the net
proceeds will be approximately $10,908,205. In such event, the amount of the
fee to be paid by the Company to the Representative pursuant to the
financial consulting agreement will be approximately $218,164.
(2) If the over-allotment option is exercised in full, the Company will realize
additional net proceeds of approximately $1,541,205. All of such additional
proceeds, except for $30,824 thereof which must be added to the payment to
be made pursuant to the Company's financial consulting agreement with the
Representative, will be used for the following purposes: $400,000 will be
used to purchase additional equipment to be employed by Investelektro with
respect to the creation and expansion of its proposed wireless local loop
network in the Moscow Region, $500,000 will be used to purchase switching
hardware for connection of Investelektro's customers' telecommunication
transmissions to the Moscow public switched telephone network and to
Corbina's long distance carriers which possesses greater capacity than the
switch which the Company will purchase in the absence of the exercise of the
over-allotment option and the balance of such proceeds will be incorporated
into the Company's working capital and used for general corporate purposes.
The proceeds, if any, from the exercise of the Warrants and any outstanding
warrants and options will be added to working capital and used for general
corporate purposes.
Proceeds of the Offering which are not immediately required for the
purposes described above will be invested in United States government
securities, short-term certificates of deposit, money market funds and other
high-grade, short-term interest-bearing investments.
The Company believes that the proceeds from the Offering, together with
cash flow from operations (if any), will be sufficient to fund its operations,
including the proposed expansion of Corbina's operations and the proposed
build-out and operation of Investelektro's wireless local loop operations,
during the 12 month period commencing on the date of this Prospectus. However,
there can be no assurance that events affecting the Company's operations will
not result in the Company depleting its funds before such time. The Company may
need to raise substantial additional capital to continue to fund its proposed
operations. The Company may seek such capital through public or private
financings, corporate collaborations or other sources. However, there can be no
assurance that additional financing will be available through any of such
sources or, if available, that such financing will be on acceptable terms. See
"Risk Factors -- Need for Additional Capital; Limited Sources of Liquidity;" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Allocation of the net proceeds of this Offering by the Company, as set
forth above, represents the Company's best estimate, based upon its present
plans and certain assumptions regarding general economic and industry
conditions. If any of such plans or assumptions should change, the Company may
find it necessary or advisable to reallocate some of the Offering proceeds
within the above-described categories, or to other purposes.
- ---------------
* In the event that Investelektro failed, for any reason, to receive allocations
from the State Communications Committee of the frequencies that it will need
in order to construct and operate its proposed wireless local loop system, the
Company, in lieu of using $3,860,000 of the net proceeds of this Offering to
pay for the items marked above with an asterisk symbol, would use such
proceeds to expand Corbina's long distance telecommunications operations in
the Moscow Region and in the cities of St. Petersburg, Novosibirsk, Nizhny
Novgorod and Ekaterinburg (the "Branch Office Cities"). In connection
therewith, such proceeds would be used, as follows: upgrade of switching
equipment for expansion of business in the Moscow Region -- $300,000; purchase
of switching equipment, antennas, satellite uploading and downloading links
and ancillary equipment for establishment of digitally based fibre-optic
network facilities similar to the facilities employed by Corbina in its Moscow
office in each of the Branch Office Cities -- $1,600,000; acquisition of
office leases, and purchase of office equipment and furnishings in the Branch
Office Cities -- $800,000; working capital for Corbina's Moscow
office -- $400,000; and working capital to finance the start-up phase of
Corbina's operations in the Branch Office Cities -- $760,000.
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<PAGE> 34
DILUTION
The difference between the initial public offering price per share of
Common Stock and the proforma net tangible book value per share of Common Stock
after this Offering constitutes the dilution to investors in this Offering. Net
tangible book value per share is determined by dividing the net tangible book
value of the Company (total tangible assets reduced by the amount of total
liabilities) by the number of outstanding shares of Common Stock. The following
discussion allocates no value to the Warrants.
The proforma net negative tangible book value of the Company, as of March
31, 1997 was approximately $(3,360,000) or $(1.13) per share of Common Stock.
After giving effect to the estimated net proceeds from the sale of the
securities offered by the Company at the assumed initial public offering prices
of $7.00 per share and $.50 per Warrant, the proforma net tangible book value of
the Company as of March 31, 1997 would have been approximately $6,007,000 or
$1.34 per share of Common Stock. This represents an immediate increase in
proforma tangible book value of $2.47 per share to existing common stockholders
and an immediate dilution of $5.66 per share (or 81%) to new investors. The
following table illustrates the per share dilution in proforma net tangible book
value to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................... $7.00
Proforma net tangible book value per share before offering........ $(1.13)
Increase per share attributable to new investors.................. $ 2.47
Proforma net tangible book value per share after offering......... 1.34
Proforma dilution per share to new investors...................... $5.66
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1997,
the differences in the total consideration paid and the average price per share
paid between existing holders of Common Stock and new investors with respect to
the number of shares of Common Stock purchased from the Company assuming an
initial public offering price of $7.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT* PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1).............. 2,985,000 66.6% $ 276,350 2.3% $0.09
New Investors......................... 1,500,000 33.4% 10,500,000 97.4% $7.00
Total (1)............................. 4,485,000 100.0% $10,776,350 100.0% $2.40
</TABLE>
- ---------------
* Prior to deduction of expenses of the Offering.
(1) Adjusted to reflect the effects of the merger of Russian Wireless with and
into the Company.
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<PAGE> 35
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997. The Proforma Offering information includes and accounts for the
effects of the anticipated results of the completion of the sale of 1,500,000
shares of Common Stock and 2,200,000 Warrants offered hereby (not including
229,500 shares of Common Stock and 330,000 Warrants subject to the Underwriters'
over-allotment option) at assumed public offering prices of $7.00 per share and
$.50 per Warrant (after deduction of the estimated underwriting discounts and
commissions, and expenses of the Offering).
<TABLE>
<CAPTION>
OFFERING PROFORMA AS
MARCH 31, 1997 ADJUSTMENTS ADJUSTED
-------------- ----------- -----------
<S> <C> <C> <C>
Notes Payable............................ $ 2,881,000 $(2,881,000) --
Long Term Debt........................... 375,000 (375,000) --
Stockholders' Deficiency
Common Stock -- $.01 par value, 29,850 15,000 $ 44,850
authorized 15,000,000, issued and
outstanding: 2,985,000 shares at Mar.
31, 1997; 4,485,000 shares--Proforma
Offering...............................
Preferred Stock -- $.01 par value, -- -- --
authorized 1,000,000 shares, issued and
outstanding at Mar. 31, 1997: 0..........
Additional Paid in Capital............... 5,483,000 7,791,000 13,274,000
Accumulated Deficit...................... (7,475,000) -- (7,475,000)
-------------- ----------- -----------
Total Stockholders' Equity (1,962,150) (7,806,000) 5,843,850
(Deficiency).............................
-------------- ----------- -----------
Total Capitalization..................... $ 1,293,850 $ 4,550,000 $ 5,843,850
=========== ========== ==========
</TABLE>
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends on its Common Stock in the
foreseeable future as it intends to retain future earnings to finance the growth
of the business. The payment of future cash dividends on the Common Stock will
depend on such factors as earnings levels, anticipated capital requirements, the
operating and financial condition of the Company and other factors deemed
relevant by the Board of Directors.
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<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The discussion set forth below with regard to the Company relates to the
business operations conducted by the Company from the time of its organization
in April 1994, through March 31, 1997. The operations in which the Company
engaged prior to July 1, 1996 were conducted on a limited basis while the
Company's management devoted the bulk of their time and resources to the tasks
of developing what was then anticipated to be the Company's intended business,
i.e., the provision, as a competitive access provider (a "CAP"), of single
source local and long distance telecommunications services to commercial
customers in the New York Metropolitan area. See "Business -- General Overview."
The limited operations which the Company conducted during said period consisted
of the provision of services as an agent to a reseller of long distance
telecommunications services to commercial customers. Since July 1, 1996, the
Company has devoted its efforts to the development of its business operations in
the Russian Federation. Corbina maintains its books and records on the basis of
a fiscal year which ends on September 30. The discussion set forth below with
regard to Corbina relates to the business operations conducted by it during the
period from December 1, 1995 (Corbina's date of organization) through March 31,
1997. Neither CompTel nor Investelektro engaged in anything other than de
minimis activities between their respective dates of organization (November 21,
1996 and October 3, 1996, respectively) and March 31, 1997. Accordingly, no
discussions of the financial condition or results of operations of either of
those two Subsidiaries have been included herein.
RESULTS OF OPERATIONS
The Company
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
The Company generated revenues in the form of commission income earned with
regard to the income generated by long distance telephone service providers for
whom the Company acted as an agent during 1995 and 1996 in the amount of $21,172
and $8,043, respectively. The 62% decrease in such revenues was directly
attributable to the conclusion reached by the Company in mid-1996 that it would
have to re-position the Company in a different segment of the telecommunications
industry.
Operating expenses amounted, in the aggregate, to $851,318 and $792,881
during the years ended December 31, 1995 and 1996, respectively. Although the
comparative difference between the aggregate amounts varied by less than 7%
between 1995 and 1996, the primary components thereof, consisting of officers'
salaries and selling, general and administrative expenses varied significantly
between such years. By reason of a reduction from three executives to one which
took place during and at the end of 1995, officers' salaries were reduced by
approximately 51% from $203,125 in 1995 to $100,000 in 1996. The Company's
employee salary payment obligations began to increase on February 1, 1997, i.e.,
the date of commencement of Mr. Leibov's employment by the Company. See
"Management -- Executive Employment Agreements."
Selling, general and administrative expenses increased by approximately 13%
from $426,228 in 1995 to $482,891 in 1996. Such expenses were incurred by the
Company in 1995 as it undertook to create, with the proceeds of its first and
second private placements of securities, the infrastructure which it would need
to engage in business as a single source local and long distance
telecommunications service provider to commercial customers in the New York
Metropolitan area. Although the Company curtailed expenditures relating to its
originally anticipated business activities by mid-1996, it continued to incur
general and administrative expense obligations while it undertook to explore
opportunities involving the delivery of various categories of telecommunications
products and services in the Russian Federation and other countries which
comprised the former Soviet Union, e.g., Georgia, Khazakstan and Azerbaijan.
During 1995 and approximately the first half of 1996, the Company conducted
business on a limited basis as a reseller of long distance telecommunications
services to commercial customers while it undertook to develop and establish its
anticipated business activities as a competitive access provider of
telecommunications services. By reason of the high level of general and
administrative expenses incurred during such periods, as
33
<PAGE> 37
compared to the minimal revenues generated from the Company's limited long
distance telephone reselling activities, the Company incurred operating losses
of $830,146 and $784,848, respectively, in 1995 and 1996. Such operating losses,
when coupled with the interest expense incurred by the Company in connection
with its outstanding principal indebtedness aggregating $1,724,000 at December
31, 1995 and $3,524,000 at December 31, 1996, resulted in net losses of
$1,227,502 ($.34 per share) in 1995 and, $1,470,878 ($.67 per share) in 1996.
Corbina
PERIOD ENDED DECEMBER 1, 1995 (INCEPTION) THROUGH DECEMBER 31, 1996
Corbina was organized on December 1, 1995 and began providing long distance
telecommunications services to customers in the Moscow Region in March 1996.
During the thirteen month period which ended on December 31, 1996, the first
five of which were primarily devoted to organizational and start-up activities,
Corbina generated revenue of $1,011,914. During the 11 month period between May
1996 and March 1997, Corbina's business has grown from a few customers
purchasing approximately 30,000 minutes of long distance services per month to
approximately 350 customers purchasing approximately 282,000 minutes per month.
During the year ended December 31, 1996, one customer accounted for 22% of
Corbina's revenues, and that same customer accounted for 42% of Corbina's
accounts receivable at December 31, 1996. No customer is currently responsible
for 10% or more of Corbina's revenues or accounts receivable.
By reason of the facts that (a) the efforts of Corbina's management during
the 13 month period ended December 31, 1996 were primarily directed toward (i)
negotiating agreements with Rustelnet and Global One, and (ii) the establishment
of a network of field services representatives to market Corbina's services; and
(b) Corbina's operations were in the early stages of expansion in business
volume that is still taking place, the selling, general and administrative
expenses incurred by Corbina in providing the services purchased by its
customers were $372,203, which was $187,518 greater than the $184,685 gross
profit which Corbina generated from its revenues during said period. By reason
thereof, Corbina sustained a loss from operations, and a net loss for the period
amounting to $200,574 and $209,813, respectively.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1997
The Company
The Company acquired its 75% ownership interest in Corbina in January 1997.
In accordance with applicable accounting rules, the Company recorded, as its
revenues for the three months ended March 31, 1997, the $181,530 of revenues
generated by Corbina during the month of March 1997. During the first three
months of 1996, the Company's sole revenues were commissions of $2,936 received
from long distance telephone service providers for whom the Company acted as an
agent. Inasmuch as the Company only engaged in minimal operations during 1996,
the sources and amounts of such revenues were substantially different from the
sources of revenues the Company began to generate in February 1997 and the
amounts thereof which the Company expects to generate in the future from
Corbina's and Investelektro's operations. Accordingly, there is no meaningful
comparison that can be made from the data regarding the Company's revenues for
the three month periods ended March 31, 1996 and 1997.
Operating expenses amounted to $107,925 and $4,128,095 during the three
months ended March 31, 1996 and 1997, respectively. Such expenses for the period
ended March 31, 1997 consist of a combination of the Company's operating
expenses during the three months ended March 31, 1997 and Corbina's operating
expenses during the month of March 1997. The primary components of such expenses
consisted of officers' salaries, amortization of deferred offering costs and
selling, general and administrative expenses. Officers' salaries increased,
excluding a one time charge of $3,150,000 relating to the merger of Russian
Wireless into the Company, by a factor of 1.4 from $24,999 during the first
three months of 1996 to $3,210,000 during the comparable period of 1997 as a
result of the fact that the Company only paid Mr. Nathan's salary during the
former period, and paid both his and Mr. Leibov's salaries during the latter
period. The twelve fold increase in amortization of deferred offering costs
reflects the significant increase in the costs incurred by the Company with
respect to its financing activities during the first calendar quarter of 1997
when compared to the same period of 1996. Selling, general and administrative
expenses increased by a factor of nine from $28,026 during
34
<PAGE> 38
the first three months of 1996 to $246,095 during the comparable period of 1997.
As discussed above, the comparatively low amount recorded as selling, general
and administrative expenses during the first quarter of 1996 resulted from the
low level of business activity engaged in by the Company during that period as
it undertook to explore opportunities involving the delivery of various
categories of telecommunications products and services in the Russian Federation
and other countries which comprised the former Soviet Union. The major
components of the much higher expenditures incurred during the first three
months of 1997 were: Corbina's March 1997 operating expenses ($20,000); the
commission paid by the Company with respect to the Bridge Financing ($75,000),
international travel expenses ($13,753), licenses and similar fees ($20,471),
office rents and utility expenses ($15,630) and employee compensation expenses
($18,754).
By reason of the significant charges to income with respect to amortization
of the Company's financing costs, and the high level of general and
administrative expenses incurred by the Company in comparison to its revenues
during both three month periods ended March 31, 1996 and 1997, the Company
incurred operating losses of $104,989 and $4,108,913, respectively, during such
periods. Such operating losses, when coupled with the interest expense incurred
by the Company in connection with its outstanding principal indebtedness,
resulted in net losses of $308,642 ($.18 per share) and, $4,159,250 ($1.39 per
share), respectively, during the three months ended March 31, 1996 and 1997.
Corbina
During the three months ended March 31, 1997, Corbina generated pre-tax
income of $1,712 on revenues of $545,000, as compared to the pre-tax loss of
$30,474 which it incurred on revenues of $23,951 during the comparable period of
1996. As indicated above, Corbina's efforts during the first three months of
1996 were primarily devoted to organizational and start-up activities.
Accordingly, its revenues during that period reflected the fact that Corbina was
not then focusing its efforts on revenue generation activities. By contrast,
Corbina's business expansion activities over the 11 month period ended March 31,
1997 resulted in the recordation of the above-mentioned small operating profit.
By reason of the change in Corbina's status from that of a start-up entity
during the three months ended March 31, 1996 to an operating company during the
three months ended March 31, 1997, Corbina's net loss decreased from $30,474
during the first three months of 1996 to $5,751 during the comparable period of
1997.
Corbina's management believes that the investment it has heretofore made in
creating its existing operating infrastructure, coupled with the investment that
it will be making with the proceeds of this Offering, will be sufficient to
support its operations at a profitable level. Corbina's management further
believes that Corbina's business operations, as they are currently being
implemented, will result in an increase in its customer base, and a concomitant
increase in telephone traffic purchased by such customers. However, no
assurances can be given that the growth in Corbina's customer base, and/or the
growth in telephone services purchased by those customers from Corbina will
continue at the rates heretofore experienced, or at all. In the event of a
slowdown or cessation of such growth, Corbina would continue to suffer operating
losses which would have a material adverse effect on Corbina and the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its initial operations, and it has been financing the
activities it has been conducting in the Russian Federation, with the investment
capital that it has raised through three private placements of its securities
and the Bridge Financing.
The Company obtained $750,000 pursuant to its initial private placement
(the "First Private Placement") which was completed in June 1994. In connection
therewith, the Company issued 12% unsecured promissory notes in the aggregate
principal amount of $735,000, and warrants to purchase 750,000 shares of Common
Stock. See "Description of Securities -- Warrants Issued in Private Placements."
The Company obtained $1,000,000 pursuant to its second private placement
(the "Second Private Placement") which was completed in October 1994. In
connection therewith, the Company issued 12% unsecured promissory notes in the
aggregate principal amount of $980,000, and warrants to purchase 500,000
35
<PAGE> 39
shares of Common Stock. The Company used $750,000 of the proceeds of the Second
Private Placement to pay off the indebtedness its owed to the holders of the
promissory notes issued in the First Private Placement. In connection with an
agreement to rescind a $100,000 investment made by Colonial, one of the
investors in the Second Private Placement, the Company agreed to pay $100,000 to
Colonial Electric in four monthly installments of $25,000 each on the 15th day
of each month during the period between February and May, 1997. As a result
thereof, the Company's $98,000 Second Private Placement Note payable to
Colonial, and a 50,000 share Second Private Placement warrant which had been
issued to Colonial were canceled. After paying $50,000 of the $100,000 due and
owing to Colonial pursuant to said agreement, the Company requested Colonial to
modify the provisions of the agreement to provide for payment of the $50,000
balance due thereunder on the closing date of this Offering. In consideration
for Colonial's agreement to such modification, the Company reissued a warrant to
Colonial entitling it to purchase 12,500 shares of Common Stock at an exercise
price of $7.25 per share, the provisions of which were, except for the exercise
price, identical in all other respects to Colonial's original Second Private
Placement warrant. The balance of the Company's indebtedness to the holders of
the promissory notes issued in the Second Private Placement will become due and
payable on October 31, 1997, or the date of closing of this Offering, whichever
first occurs. The Company intends to use a portion of the proceeds of this
Offering to pay such indebtedness in full. See "Use of Proceeds;" and
"Description of Securities -- Warrants Issued in Private Placements."
The Company obtained $1,050,000 pursuant to its third private placement
(the "Third Private Placement") which was completed in February 1996. In
connection therewith, the Company issued 8% unsecured promissory notes in the
aggregate principal amount of $1,050,000, 300,000 shares of Common Stock and
warrants to purchase 2,000,015 shares of Common Stock. The Company's
indebtedness to the holders of the promissory notes issued in the Third Private
Placement will become due and payable on August 1, 1997, or upon closing of this
Offering, whichever first occurs. The Company intends to use a portion of the
proceeds of this Offering to pay such indebtedness in full. See "Use of
Proceeds;" "Description of Securities -- Warrants Issued in Private Placements;"
and "Selling Securityholders."
Pursuant to a private placement transaction in December 1996, the Company
borrowed $250,000 from each of Messrs. L.W. Cave, James Condakes and Howard M.
Pack, none of whom is affiliated with the Company (the "Bridge Financing"). The
Company must repay said $750,000, together with interest thereon accruing at a
rate of 8% per annum on the earlier to occur of (i) three business days
following the receipt by the Company of the net proceeds of the Offering or (ii)
October 31, 1998. As an inducement to such lenders to make such loans, the
Company issued 150,000 shares of Common Stock to each of them, for no additional
consideration. The Company paid a 10% commission ($75,000) to a registered
representative of the Representative in connection with the Bridge Financing.
The Company intends to use a portion of the proceeds of this Offering to pay off
its indebtedness to the Bridge Financing Lenders. See "Use of Proceeds."
In June 1997, the Company negotiated additional borrowings of $300,000 from
two lenders (the "Additional Financing"). The Company has agreed to borrow
$150,000 from each of said lenders pursuant to agreements which provide that
such principal sums, together with interest accruing thereon at the rate of 15%
per annum shall be due and payable on the earlier to occur of (i) the date of
closing of this Offering, or (ii) December 31, 1997. Although neither of such
lenders is an affiliate of the Company, one of them, ISC, is a former
stockholder of the Company to whom the Company presently owes the sum of
$600,000, plus interest accruing thereon at the rate of 2% per annum, in
connection with the May 1995 redemption of all 800,000 shares of Common Stock
then held by ISC. In accordance with the promissory note issued by the Company
in connection with said redemption transaction (the "ISC Note"), the Company was
obligated to pay said $600,000 principal and accruing interest on May 22, 2000.
However, in order to induce ISC to make said $150,000 loan, the Company has
agreed to pay said $600,000 and all of the interest accruing thereon on the date
when said $150,000 shall become due and owing. As of the date of this
Prospectus, the Company has not consummated the Additional Financing
transactions. In anticipation of the receipt of the proceeds thereof, the
financial information presented in this Prospectus assumes and accounts for the
receipt of such proceeds as though such Additional Financing transactions had
been consummated on June 30, 1997. The proceeds of the Additional Financing
shall be used by the Company as working capital for the payment of lease rents,
salaries, general and administrative expenses and various expenses of the
Subsidiaries of a similar nature. The
36
<PAGE> 40
Company intends to use a portion of the proceeds of this Offering to repay the
principal and interest due pursuant to the Additional Financing and the ISC
Note. The Company intends to pay a commission to the Representative in an amount
equal to 10% of the gross proceeds of the Additional Financing. See "Use of
Proceeds"
The Company will rely exclusively upon the proceeds of the Offering to
provide the financing that it will need to expand Corbina's operations, and to
develop Investelektro's proposed wireless local loop network in the Moscow
Region.
BASIS OF PRESENTATION OF FINANCIAL RESULTS
Corbina, CompTel and Investelektro maintain their records and prepare their
statutory financial statements in accordance with Russian accounting principles
and tax legislation. The financial statements presented in this Prospectus have
been prepared from Russian accounting records for presentation in accordance
with U.S. generally accepted accounting principles ("U.S. GAAP"). These
financial statements and results differ from the financial statements issued for
statutory purposes in Russia in that they reflect certain adjustments not
recorded in either Corbina's, CompTel's or Investelektro's Russian accounting
records, which are appropriate to present the financial position, results of
operations and cash flows in accordance with U.S. GAAP. The principal
adjustments relate to: (i) revenue recognition; (ii) recognition of interest
expense and other operating expenses; (iii) valuation and depreciation of
property and equipment; (iv) foreign currency translation; (v) deferred income
taxes; (vi) capitalization and amortization of telephone line capacity; (vii)
valuation allowances for unrecoverable assets; and (viii) capital leases.
Corbina pays, and CompTel and Investelektro will pay, taxes computed on
income reported for Russian tax purposes. This computation is based on Russian
accounting principles which differ substantially from U.S. GAAP. Certain items
that are capitalized under U.S. GAAP are recognized under Russian accounting
principles as an expense in the year paid. See Note 2 to Corbina's Financial
Statements.
INFLATION
The Russian economy is in transition and has been characterized by high
rates of inflation. The Russian Government adopted a number of measures in 1995
and 1996 and these have begun to have a favorable impact on inflation rates. In
1994, the average monthly inflation rate was 10.0%. In 1995, the average monthly
inflation rate decreased to 7.2% and during 1996, the average monthly inflation
rate was 2.0%. The devaluation of the rouble in recent years has not kept pace
with inflation. Corbina prices its services, and Investelektro intends to price
its equipment and services in U.S. dollars thereby mitigating the effects of the
devaluation of the rouble. However, the Company believes that such pricing may
not be able to fully offset the effects of inflation because a substantial
portion of all collections will be in roubles. In addition, the Company also
believes that Corbina and Investelektro may experience increased costs in hard
currency terms due to the devaluation of the rouble. If the Subsidiaries are
unable to maintain prices in line with inflation, due to competitive pressures
or otherwise, it may have a material adverse effect on the Company.
FOREIGN CURRENCY TRANSLATION
Corbina reports, CompTel and Investelektro will report, to the Russian tax
authorities in roubles and its accounting records are maintained in that
currency. The financial statements of Corbina contained elsewhere in this
Prospectus have been prepared in accordance with U.S. GAAP and are stated in
U.S. dollars. Corbina's functional currency is, and Investelektro's functional
currency will be, the U.S. dollar because the majority of their respective
revenues, costs, property and equipment purchased, and debt and trade
liabilities are, or will be in the case of Investelektro, either priced,
incurred, payable or otherwise measured in U.S. dollars. Accordingly,
transactions and balances not already measured in U.S. dollars have been
remeasured into U.S. dollars in accordance with the relevant provision of FAS
No. 52, "Foreign Currency Translation" as applied to entities in highly
inflationary economies. Under FAS No. 52, revenues, costs, capital and
non-monetary assets and liabilities are translated at historical exchange rates
prevailing on the transaction dates. Monetary assets and liabilities are
translated at exchange rates prevailing on the balance sheet date. Exchange
gains and losses
37
<PAGE> 41
arising from remeasurement of monetary assets and liabilities that are not
denominated in U.S. dollars are credited or charged to operations.
The operating currency of Corbina, CompTel and Investelektro is Russian
roubles. This currency is not convertible outside of Russia and has been very
volatile in the past. From 1995 to date, the Russian Government and Central Bank
have successfully kept the rouble trading within a fixed band and as a result
the currency has been declining at a relatively stable rate. Corbina does not
engage, and neither Corbina nor CompTel or Investelektro plan to engage, in
hedging or other transactions intended to manage risks relating to fluctuations
in foreign currency exchange rates, inflation or interest rates. However, to
minimize the risk of rouble fluctuations and consequent devaluation, the
Subsidiaries have adopted a number of measures, including listing tariffs for
customers in U.S. dollars and calculating customers' monthly bills in U.S.
dollars and requesting payment in roubles (in accordance with the applicable
law) based on the exchange rate on the date the bill is sent to the customer.
All invoices include a 1% charge to cover the devaluation exposure for the
15-day payment period. Payments received after 15 days are converted into U.S.
dollars at the prevailing rate of exchange on the date payment is received and
adjustments due to any rouble fluctuations from the date of billing are made to
the customer's account in the next billing period. See "Risk Factors -- Currency
Risks."
38
<PAGE> 42
BUSINESS
GENERAL OVERVIEW
The Company through its Subsidiaries, is a provider of local, domestic and
international telecommunications services, principally in the Moscow Region. It
intends to increase the volume of telecommunications business that it conducts
within the Moscow Region, and expand its business by offering its
telecommunications services in other urban areas of the Russian Federation.
The Company was formed in April 1994 under the name of Telcom Group USA,
Inc. ("Telcom Group"). On August 19, 1994, the Company was certified by the New
York State Public Service Commission to operate as a reseller of all forms of
telephone services via landline telephone company and other common carrier
facilities located in New York. During the period between the Company's
inception and December 31, 1996, the Company conducted business on a limited
basis as a reseller of long distance telecommunications services to commercial
customers. Such services were provided by the Company while it attempted to
finance and establish the business which it originally had intended to
undertake, i.e., the provision, as a CAP, of single source local and long
distance telecommunications services to commercial customers in the New York
Metropolitan area. CAPs enable users of local and long distance telephone
services to connect the network of telephones and other telecommunication
devices which comprise the telephone system employed within the customer's
business via dedicated telephone transmission lines leased by the CAP from the
local exchange carrier (e.g., NYNEX) directly to their long distance carriers,
thereby bypassing all, or most of the local exchange carrier's network and
charges. By integrating local and long distance services on a single network,
the Company believed that its prospective customers would be able to obtain less
expensive local and long distance service through it by reason of its
anticipated ability to make volume purchases of local telephone transmission
lines, and the ability of the long distance carrier to avoid payment of a
portion of the access charges imposed by the local exchange carrier on switched
access long distance telephone traffic. However, with the passage of the Federal
Telecommunications Act of 1996 (and the subsequent entry into the local
telephone markets by long distance carriers) the Company determined that future
growth lay in the international arena -- particularly in the Russian Federation.
In 1996, the Company's management undertook to explore opportunities
involving the delivery of various categories of telecommunications products and
services throughout the former Soviet Union. On January 28, 1997, TelCom Group
exercised an option to purchase 75% of the outstanding capital stock of Corbina
which had been granted to it by Mr. Leibov in July 1996. See "Business -- The
Company's Acquisition of Corbina" and "Certain Relationships and Related
Transactions."
On February 10, 1997, the Company changed its name to Russian Wireless
Telephone Company, Inc. in connection with the merger of a Delaware corporation
with and into the Company which had been known by that name ("Russian
Wireless"). Russian Wireless was formed by Messrs. Nathan and Leibov to provide
wireless local loop telecommunications services to business customers in the
Moscow Region, particularly to subscribers who generate significant amounts of
outgoing domestic and international long distance traffic. Such services will be
provided through CompTel.
TELECOMMUNICATIONS INDUSTRY
General. The Company believes that the current international
telecommunications landscape is being reshaped by the convergence of three major
trends: (i) the accelerating growth in demand for high speed, high capacity
digital telecommunication services, (ii) the deregulation of telecommunications
markets; and (iii) the rapid advances in wireless technologies. The growth in
demand for high speed digital telecommunications services is being driven by the
revolution in microprocessor power and advances in new multimedia and on-line
applications such as the Internet. The ability to access and distribute
information quickly has become critical to business and government users of
telecommunications services. The rapid growth of local area networks ("LANs"),
Internet services, video teleconferencing and other data intensive applications
is significantly increasing the volume of broadband telecommunications traffic.
The inability of the existing infrastructure to meet this demand is creating a
"last mile" bottleneck in the copper wire networks of the
39
<PAGE> 43
incumbent local exchange carriers ("LECs"). This increasing demand, together
with changes in the regulatory environment, is creating, in the Company's view,
an opportunity to offer cost effective, high capacity access using wireless
local loop solutions.
Russia. In the Soviet era, telecommunications in the Russian Federation
(and in the other republics of the former Soviet Union) was viewed as existing
principally to serve the defense and security needs of the state. As a result,
the public telecommunications network in the Soviet Union was underdeveloped.
With the break-up of the Soviet Union and the liberalization of the economies of
its former republics, the demand for telecommunications services has increased
significantly. However, Russia and the governments of the countries of the
former Soviet Union do not currently have the significant capital necessary for
the development of the telecommunications infrastructure. As a result, they have
actively encouraged market liberalization, privatization and foreign investment
in the telecommunications sector. This has resulted in significant development
in the area of fixed wire overlay systems, private networks and cellular and
data services. As modern telecommunications capability is critical to the
successful transition to a market economy, it is expected that the next stage of
development will focus on basic local telecommunications infrastructure.
According to the State Communications Committee, there were approximately
26 million telephone lines in Russia with a waiting list for telephone line
installation of 9.7 million at year end 1995, indicating significant pent-up
demand. The lack of highly developed wireline telecommunications systems in
Russia has resulted in some subscribers looking to wireless telecommunications
systems, primarily cellular, as a substitute, rather than a supplement, to
wireline systems. The Company believes that the high cost and lengthy time
required to build the infrastructure necessary to install and upgrade local
wireline services makes it feasible for the Company to provide wireless local
loop services as a primary form of telecommunications in certain ares of the
Moscow Region where wireline services are inadequate or non-existent.
The Company believes that the Moscow Region, as the commercial and
political center of the Russian Federation, has the greatest demand for quality
telecommunications services. According to the State Communications Committee, in
the Moscow Region there was a waiting list for line installation of over 164,000
at December 31, 1995. The Company believes that the Moscow Region, which has a
per capita income level approximately three times the national average of the
Russian Federation, has the ability to support a significant increase in local
telecommunications subscribers.
The telecommunications market in the Moscow Region, an area with a
population of approximately twelve million, is characterized by low activated
penetration rates, substantial bottlenecks on the public network and outdated
switching technology. The Company believes the Moscow Region is an attractive
market for the provision of integrated telecommunications services due to the
current inadequacies of the public network as well as the rapid development of
Russian and foreign businesses in the city.
PROPOSED WIRELESS LOCAL LOOP OPERATIONS
The Company intends to construct and operate, through Investelektro, a
state-of-the-art wireless local loop telecommunications system in the Moscow
Region.
A wireless local loop system is a radiotelephone system that provides
telecommunications service to fixed locations, such as homes and businesses,
without the traditional network of poles and two-wire copper cables. It utilizes
a conventional telephone handset that is plugged into a radio receiver unit and
operates in exactly the same manner as a conventional telephone. In addition,
the system provides the customer at least limited mobility; the communications
system is fully accessible as long as the subscriber moves around within the
system's coverage area. The primary advantage of wireless local loop network
over traditional wireline technology is speed of implementation. The current
worldwide backlog of telephone service, estimated by the Company at over forty
million lines, is, in the Company's estimation, a direct result of the labor
intensive nature of the traditional deployment process involving laying cables
and hard-wiring each line to the switch. A telephone switch typically takes
several weeks to install, and individual phone lines, in both remote as well as
urban areas, can require several years, depending on the size of the proposed
system. With a wireless local loop system, however, several thousand customers
inside a typical coverage area (with a radius of approximately
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18 miles) can obtain instant access to the network when the system is activated.
Deployment of a wireless local loop system drastically reduces installation time
to a few weeks for an entire communications system.
The "local loop" is the critical segment of a telecommunications network
that connects a customer's premises to the nearest local telephone company
switch or central office. The Company believes that Investelektro's technical
expertise and management capability will enable it to provide subscribers with
fully integrated "bundled" telecommunications services, including access to high
quality local, and cost-effective long distance and international
telecommunications services (through Corbina), cellular and paging (as an agent
for Moscow Region-based providers) as well as value-added services including
prepaid calling cards, Internet, ISDN, voice mail, call-waiting, call-forwarding
and three-way call conferencing features. It is the Company's intention that
Investelektro will provide to its subscribers, primarily telecommunications
intensive Russian and foreign commercial enterprises, non-profit organizations,
diplomatic missions, and governmental authorities "one stop" shopping (and a
single bill) for all telecommunications services and equipment. It will "bundle"
this package of local, long distance and other services in a manner similar to
the integrated services provided by AT&T prior to its divestiture and now
offered in certain cities in the United States by carriers previously designated
as primarily "local" (e.g. Ameritech) or "long distance" (e.g. MCI) carriers.
OWNERSHIP OF INVESTELEKTRO
CompTel, ZAO Kortek ("Kortek"), a private joint stock company organized
under the laws of the Russian Federation, OOO Evrial ("Evrial"), a limited
liability company organized under the laws of the Russian Federation and Mr.
Igor Nikolenko own, respectively, 51%, 20%, 24% and 5% of Investelektro's
outstanding capital stock. Kortek is directly engaged in business as a provider
of telecommunications services in the Moscow Region. Through an agreement that
Corbina has maintained with Kortek, Corbina has acquired access to TelMos' long
distance telecommunications facilities in consideration for which Corbina has
permitted Kortek to route portions of its telecommunications traffic through
Corbina's telecommunications facilities and has agreed to pay Kortek 0.1% of the
revenues generated by Corbina on telecommunications traffic routed over TelMos'
facilities. See "-- Corbina's Long Distance Telecommunications Operations."
Evrial and Mr. Nikolenko are engaged in business as consultants to the
telecommunications industry in the Russian Federation. The Company believes that
Mr. Vladimir Veronin and Ms. Elena Basina are the principal owners of Evrial and
Kortek, respectively. Messrs. Veronin and Nikolenko, and Ms. Basina, none of
whom is an officer, director or employee of the Company or the Subsidiaries (or
a stockholder of the Company or either of the other two Subsidiaries), are
citizens of, and reside in, the Russian Federation. See "Enforcement of Civil
Liabilities" and "Risk Factors -- Legal Risks."
TELECOMMUNICATIONS LICENSE
On February 21, 1997, the State Communications Committee issued the License
to Investelektro granting it permission to construct and operate wireless local
loop telecommunications systems in the Licensed Territory. The License requires
Investelektro to commence providing wireless local loop operations no later than
February 21, 1998. During the term of the License, which, in the absence of its
renewal, will expire on February 21, 2002, Investelektro must establish an
installed customer base of not less than 20,000 lines. The allocation of such
lines among the various geographic subdivisions comprising the Licensed
Territory are, as follows: Moscow, 7,000 lines, St. Petersburg, 2,000 lines,
Novosibirsk, 2,000 lines, Nizhny Novgorod, 2,000 lines, Ekaterinburg, 2,000
lines and the suburban environs of Moscow, 2,000 lines. In addition to the
foregoing, the License authorizes Investelektro to operate its wireless local
loop system on designated radio frequencies in the 330 megahertz band, subject
to issuance by the State Communications Committee of final approval of the
allocation of such frequencies. In the event that Investelektro fails to satisfy
any of the above-described requirements, its License and/or frequency
allocations would be subject to immediate suspension or revocation. Although the
Company believes that Investelektro will not experience any difficulties in
receiving final approval of its frequency allocations, or in satisfying the
above-mentioned requirements, no assurance can be given in either regard.
Furthermore, no assurance can be given that Investelektro will be able to
maintain its License, that its terms will not be altered to Investelektro's
disadvantage or that it will be renewed upon its expiration. The non-renewal, or
a suspension or revocation of such License and/or frequency allocations,
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would jeopardize the Company's entire investment in its proposed wireless local
loop system, and would have a material adverse effect on the Company's financial
condition and its ability to conduct the business it intends to undertake in the
Russian Federation. See "Risk Factors -- Government Regulation --
Investelektro's Inability to Conduct Operations if Conditions of License are Not
Satisfied."
NETWORK BUILD-OUT
Investelektro currently anticipates commencing the initial build-out of its
wireless local loop network in the Moscow Region during the second half of 1997,
and will immediately begin to provide coverage to customers in built-out areas
as such areas come "on-line." The Company expects that Investelektro will
complete its Moscow Region build-out by the last calendar quarter of 1998 or the
first quarter of 1999. The Company anticipates that Investelektro will be able
to provide full wireless local loop service to as many as 3,000 customers within
the Moscow Region by the end of 2000. However, no assurances can be given that
the build-out will be completed within such time frame, or that Investelektro
will be able to attract and maintain as many customers as it is planning to
service.
Investelektro intends to construct its wireless local loop network with
equipment designed by Tadiran Telecommunications, Ltd. ("Tadiran"), a publicly
owned Israeli company which has a class of securities which trades on the Nasdaq
National Stock Market. The Tadiran system is closest in design to a cordless low
power radio system and utilizes small radio ports rather than high power base
stations. In the Company's estimation, it is best suited for deployment in dense
urban areas, such as the Moscow Region. A wireless local loop system utilizing
the Tadiran equipment is currently in place in Ryazan, Russia and Glasgow,
Scotland.
The build-out of Investelektro's network will involve systems design (the
initial stages of which, i.e., the selection of the hardware and software
components of the equipment which it intends to employ in connection with the
construction of its network in the Moscow Region, have been completed by
Investelektro), acquisition of antenna sites (two of the three sites needed for
Investelektro's proposed wireless local loop operations in the Moscow Region
have been identified), equipment procurement (negotiations regarding the
purchase of operating hardware and software have resulted in the receipt of a
written contract proposal from Tadiran), interconnection with other
communications providers, purchase and installation of switches, and the
purchase and implementation of advanced management information and billing
systems. A planning and engineering team, comprised of engineering and
operations employees and independent contractors and consultants, all of whom
will be hired upon, and subject to completion of the Offering, will complete the
design of Investelektro's network based on the marketing and product
requirements necessary to meet the Company's targets for consistency, uniformity
and reliability.
Investelektro's proposed equipment vendor, Tadiran will, in conjunction
with Investelektro's management, oversee the deployment of the network. It is
anticipated that a final contract, based upon the negotiations which Mr. Leibov
has already undertaken with, and the above-mentioned written proposal that he
has already received from, Tadiran, will be executed during the first 30 days
following the closing of this Offering. It is further anticipated that delivery
and installation of such equipment will take place within 30-60 days after
execution of such contract. The initial coverage of the network will include a
major metropolitan area within the Moscow Region. Investelektro expects to
complete the initial build-out of its network by the last calendar quarter of
1998 at which time its network is expected to cover approximately 80% of the
population within the geographic area of the Moscow Region.
The Company intends, in the future, to expand its wireless local loop
operations to the other areas in the Licensed Territory by constructing and
operating, through Investelektro, additional state-of-the-art wireless local
loop telecommunications systems in the cities of St. Petersburg, Novosibirsk,
Nizhny Novgorod and Ekaterinburg. Such expansion plans, however, are contingent
upon the Company's receipt of substantial additional financing following
completion of this Offering. The Company estimates that, in order to fulfill all
of the obligations imposed upon Investelektro pursuant to the License, it will
need an aggregate of approximately $3 million, in addition to the proceeds of
this Offering, to build the basic wireless local loop networks in the cities
other than the Moscow Region which comprise the Licensed Territory, and that it
may need as much as $20-30 million, in the aggregate, to build wireless local
loop systems capable of handling all of the
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telecommunications traffic which could be generated by all of the potential
subscribers for such services located throughout the Licensed Territory.
Although management of the Company has undertaken discussions with several
international banks, to date, the Company has not obtained any commitment from
any person or entity to provide additional capital to the Company following this
Offering, and no assurances can be given that it will ever be able to obtain any
such additional financing on terms acceptable to the Company, if at all.
Inasmuch as there can be no assurance that the Company's business interests will
generate sufficient cash to satisfy current or future projected capital
requirements, or that the Company will be able to obtain any other financing
which will permit it to expand its proposed wireless local loop operations,
there can not be any assurance that the Company will be able to undertake or
complete any expansion of its proposed wireless local loop operations beyond the
Moscow Region. In the event that the Company fails to secure the necessary
capital to complete the buildout of its proposed wireless local loop network in
accordance with the terms of the License, such License may be canceled, or
renewal thereof may be denied. If either of such events were to occur, the
Company's business and financial condition would be substantially and materially
impaired as a result thereof. See "Risk Factors -- Need for Additional Capital;
No Assurances of Ability to Obtain Needed Additional Capital; " -- Wireless
Local Loop Network Construction and Operational Risks;" and " -- Government
Regulation -- Investelektro's Inability to Conduct Operations if Conditions of
License are Not Satisfied." See also "Business -- Proposed Wireless Local Loop
Operations -- Telecommunications License."
PRODUCTS AND SERVICES
Investelektro intends to provide to its customers (i) direct dial local,
i.e., within the cities comprising the Licensed Territory, telecommunications
services utilizing wireless local loop technology; (ii) direct dial interzonal,
i.e.. between the cities comprising the Licensed Territory, and international
long distance services (utilizing, the Company's Corbina subsidiary, as well as
other long distance carriers) for transmission services; (iii) value added
services including prepaid phone cards, Internet, ISDN, voice-mail call waiting,
call forwarding and three-way conferencing; and (iv) access to cellular and
paging services as an agent for Moscow Region-based providers of these services.
Local Telecommunications Services. Investelektro intends to provide
wireless local loop telecommunications services initially to customers in the
Moscow Region, and as and when additional financing becomes available, or
profits from its operations permit, it intends to extend such services to
customers in the cities of St. Petersburg, Novosibirsk, Nizhny Novgorod and
Ekaterinburg. Once "connected," an Investelektro customer will have complete
access to any other telephone -- whether or not on the Investelektro network --
as Investelektro will, in accordance with the provisions of its license, connect
with the local public network for transmission and termination of local and/or
long distance calls, as the case may be, in each of the geographic areas
comprising the Licensed Territory.
Long Distance Services. Investelektro intends to provide its customers
both interzonal and international long distance services through the Company's
Corbina subsidiary as well as through primary long distance carriers. The
telecommunications traffic of Investelektro's customers within the Russian
Federation will be connected at Corbina's switching station in the Moscow Region
for delivery throughout the Russian Federation, usually via the long distance
network owned and operated by Global One. Investelektro intends to route its
customers' international telecommunications traffic through Corbina, or such
traffic will be directed to other carriers via Corbina's existing switching
facility to their final destination. See " -- Corbina's Long Distance
Telecommunications Operations -- Network and Operations."
Value Added Services. Investelektro intends to introduce a number of
value-added services to complement the basic fixed local and long distance
services it intends to provide to its customers. Management believes that the
ability to provide such services on Investelektro's proposed network will be a
key competitive advantage in the Moscow Region marketplace. Planned services
include the following: operator/prepaid calling card services, audiotext
services offering a combination of recorded information and live entertainment,
equipment sales offering Investelektro's customers a wide range of
telecommunications equipment as a means of enhancing its service, including
PBXs, key systems, handsets, and a full range of customer terminals and
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maintenance service for the equipment and Internet access through Corbina which
is currently offering services to its customers as an internet service provider.
BILLING, TARIFFS AND INTERCONNECTION CHARGES
Billing. Investelektro intends to provide monthly and/or semi-monthly
itemized bills to its customers denominated in U.S. Dollars. Installation and
use/number charges, equipment charges, monthly line rental, value added services
and local and domestic long distance call charges will be paid in Roubles at the
U.S. Dollar/Rouble exchange rate on the date when the customer makes payment.
Currency regulations govern the currency in which international call charges may
be paid and, usually, depend on the residency status of the customer. Russian
resident customers are required to pay in Roubles while non-resident companies
may pay in Roubles or U.S. Dollars. By denominating its bills in U.S. Dollars
(and exchanging Roubles at the then current U.S. Dollar/Rouble Exchange rate),
Investelektro will limit the exchange rate risk otherwise associated with
transacting business in a foreign currency. See Risk Factors -- Currency
Controls; Restrictions on Repatriation of Payments.
Tariffs. Currently, there are no specific regulations regarding tariffs
which may be charged by Investelektro for its various proposed product and
service offerings. Investelektro will set its tariffs taking into account those
rates charged by MGTS (and long distance providers) and competitive pressures in
the marketplace. Investelektro will charge its customers separately for
equipment, installation, line/number charges, and for local, domestic long
distance, international long distance and value added services.
Interconnection. Investelektro's proposed network in the Moscow Region
will connect to the Moscow public switched telephone network, (MGTS). Such
interconnection is required to facilitate originating and terminating traffic
between Investelektro's facilities and both MGTS and long distance carriers. In
accordance with its License, Investelektro must connect its customers located in
the cities of St. Petersburg, Novosibirsk, Nizhny Novgorod and Ekaterinburg
through the public switched telephone networks operated in those cities by the
Petersburg Telephone Network Company, the City of Novosibirsk Telephone Network
Company, Svyazinform Company and the City of Ekaterinburg Telephone Network
Company, respectively. Investelektro is negotiating, or intends to negotiate,
interconnection agreements with each of such telephone companies. Investelektro
believes, based upon the tariff structures that other telephone service
providers have been able to negotiate with MGTS, management believes that
Investelektro also will be able to negotiate favorable tariffs for
interconnection fees and carrier charges with MGTS and such other telephone
companies. However, no assurances can be given in that regard. The failure to
obtain an interconnection agreement with MGTS or any of the other
above-mentioned telephone companies would have a material adverse effect on the
Company's business, in general, and Investelektro's proposed business
operations, in particular. See "Risk Factors -- Dependence on Interconnect
Parties."
MARKETING, SALES AND DISTRIBUTION
The Company's marketing objective is to create demand for Investelektro's
services by clearly differentiating its service offerings from those of other
providers of similar services. It is anticipated that Investelektro will use
both mass marketing and specific customer segment marketing. Mass marketing
efforts will emphasize the value of the high-quality, innovative services which
it intends to provide. Investelektro also plans to create marketing programs for
particular customer segments. For each targeted segment Investelektro intends to
create a specific marketing program including a service package, pricing plan,
promotional strategy and distinctive distribution channels. Initially,
Investelektro plans to be positioned as a provider of high quality
telecommunications services to a select group of potential commercial customers
including Russian and foreign businesses, governmental organizations, diplomatic
missions, non-profit groups and wealthy individuals with high monthly
telecommunications expenditures. In addition to these market segments,
substantial demand is expected to come from new customer segments as the number
of small and mid-sized Russian and foreign businesses increase in the Moscow
Region.
Investelektro intends to develop a distribution network to market its
telecommunications services including an in-house sales force as well as
independent dealer/agents. It plans to solicit direct sales from
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entities such as large corporate accounts and embassies with each such account
having a designated account representative. It is anticipated that independent
agents engaged for such purposes will receive a one-time payment per customer
installation as well as ongoing commissions based on the monthly volume of
traffic -- local and long distance -- of the subscribers enrolled by such
dealer/agent.
COMPETITION
The Company believes, based upon Mr. Leibov's experience, that providers of
strictly local telecommunications services in Russia do not currently compete to
attract and retain customers on the basis of services and enhancements offered,
customer service and price. Nevertheless, Investelektro intends to initially
build and operate its business in a highly competitive Moscow Region
environment, as MGTS is an entrenched provider. Investelektro will not have an
exclusive license to provide telecommunications services in the Moscow Region,
and a number of other entities, including Russian companies and international
joint ventures, may compete with Investelektro for shares of the local
telecommunications market in the Moscow Region. Many of such companies will be
(or their joint venture partners are) larger than Investelektro and have
significantly greater financial and other resources. MGTS and Investelektro must
be regarded as competitors inasmuch as MGTS can offer its customers the same
core local services as Investelektro intends to offer to its customers. Although
Investelektro believes that MGTS would require substantial additional capital to
modernize its network, MGTS is free, at any time, to enter into joint venture
arrangements with other foreign partners to modernize its network. See "Risk
Factors -- Competition"
As and when Investelektro undertakes to commence wireless local loop
operations in the other geographic subdivisions of the Licensed Territory it
will face competition from Petersburg Telephone Network Company, the City of
Novosibirsk Telephone Network Company, Svyazinform Company and the City of
Ekaterinburg Telephone Network Company, the main providers of basic telephony
services in each of such cities.
Other local and long distance competitors to Investelektro currently
include: (i) Combellga, a joint venture of Comin Com, BelgaCom, Alcatel Bell and
MGTS which operates an international overlay network in the Moscow Region; (ii)
Global One, which provides national and international voice and data services to
certain destinations; and (iii) Metrocom, which provides local data access in
St. Petersburg and has additional capacity through Comstar in Moscow. In
addition, there are currently three Russian cellular operators in the Moscow
Region who will be competitors of Investelektro as they, too, offer local, long
distance and international access. Potential users of wireless local loop
systems may find their communications needs satisfied by other current and
developing technologies, particularly in the broadband personal communications
services. In the future, cellular service may also compete more directly with
traditional wireline as well as wireless local loop telephone service providers.
Continuing technological advances in telecommunications make it impossible to
predict the extent of future competition. Several consortiums including Motorola
Corporation, Globalstar, Odyssey and ICO, have plans to provide mobile satellite
service in Russia for low-orbit or medium-orbit satellite systems that would
offer a customer worldwide voice and data mobile communications coverage. See
"Risk Factors -- Technological Obsolescence and New Technology."
There can be no assurance that the Company will be able to compete
effectively in any aspect of its current or proposed business activities or that
developments by others will not render the Company's products and services
noncompetitive. Moreover, the Company may have to compete with unlicensed
businesses or with businesses capitalizing on personal relationships with the
fluid power structure in the Russian Federation. In the Russian Federation, in
addition to competition from private telecommunications companies, the Company
may be competing with partially and wholly state-owned communications
enterprises. There can be no assurance that competition in the Company's
targeted markets will not increase as economic activity grows and that larger,
better capitalized competitors will not enter the market in these areas.
CORBINA'S LONG DISTANCE TELECOMMUNICATIONS OPERATIONS
Corbina is engaged primarily as a provider of long distance
telecommunications services to commercial customers in the Moscow Region.
Corbina does not operate on the basis of a telecommunications license, and
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instead, operates through agreements entered into with long distance companies,
primarily Rustelnet and Global One, through which it offers long distance
service via its private telecommunications network. Corbina also operates over
the long distance service facilities of TelMos through an agreement that Corbina
has maintained with Kortek, which, among other things, is engaged in business as
a reseller of long distance telecommunications services provided by TelMos.
Pursuant to such agreement, Kortek has provided Corbina with access to TelMos'
facilities in consideration for which Corbina has permitted Kortek to route
portions of its telecommunications traffic through Corbina's telecommunications
facilities, and has agreed to pay Kortek a commission equal to 0.1% of the
revenues generated by Corbina on telecommunications traffic routed over TelMos'
facilities.
Inasmuch as Corbina contracts with other long distance carriers to provide
network transmission, it has not needed to commit significant capital for its
own network and transmission facilities. As a result, Corbina's ability to
expand has not been limited by the capacity, geographic coverage or
configuration of a particular network. As the volume of its customers' traffic
has reached sufficient levels in certain metropolitan markets, Corbina has
expanded and upgraded its switch capacity to direct call traffic over selected
transmission networks. Such flexibility in the routing of calls (which is
referred to as "least cost routing") enables Corbina to realize higher per call
profit margins by directing a call over the network which, at the particular
time of day, and to the destination in question, costs Corbina the least amount.
Although the long distance resale business in the United States is a major
component of the overall long distance industry with annual revenue estimated in
excess of one billion dollars, in Russia it is still in its infancy. As is the
case in the United States, however, primary carriers in Russia require
alternative means of marketing their long distance services in order to increase
total traffic volume. Providers, such as Corbina, by offering effective and
dedicated marketing efforts, are able to attract customers more effectively (and
with fewer direct costs) than the carriers themselves. In order to attract (and
retain) this new customer base, the primary carriers are willing to accept lower
per-minute rates than the rates offered to their direct customers. Corbina's
customers include numerous offices of major Western and Russian businesses
located within the Moscow Region.
An integral component of long distance telecommunications transmission is
the switching equipment necessary to direct calls or data over the appropriate
transmission line. Facilities-based providers, like Corbina, maintain their own
switches as part of their networks. Smaller non-facilities-based providers
generally contract for the use of switches in connection with their contractual
arrangements for the use of a network.
THE CORBINA ACQUISITION
On July 23, 1996, the Company acquired from Mr. Leibov, the then sole owner
of all of Corbina's 140 shares of outstanding capital stock, an option (the
"Option") expiring on December 31, 1997 to purchase 105, i.e., 75%, of such
shares for $190,000.
Between July 23, 1996, and November 20, 1996, the Company made loans to Mr.
Leibov in the aggregate principal amount of $190,000. Each of said loans was
payable on demand, and bore interest at the rate of 8% per annum. On January 28,
1997, the Company exercised the Option, and paid the $190,000 exercise price by
canceling and returning to Mr. Leibov the promissory notes which had been issued
by him to the Company in the aggregate amount of $190,000.
RUSSIAN LONG DISTANCE TELECOMMUNICATIONS -- INDUSTRY BACKGROUND
The Company believes, based upon Mr. Leibov's experience and observations,
that the Russian long distance market remains relatively underdeveloped, with
poor network infrastructure resulting in limited network capacity. The size of
the Russian long distance market, according to data published by the State
Communications Committee, has grown significantly, with international and long
distance services accounting for approximately 57% of the estimated $4.5 billion
market which currently exists for telecommunications services throughout the
Russian Federation. The Company also believes, based upon Mr. Leibov's
experience and observations, that the volume of international and long distance
telephone services will continue to grow as
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current and planned improvements to the Russian Federation's long distance
telecommunications network infrastructure are made by Rostelecom, and other
privately held licensed long distance carriers.
There are several impediments impacting expansion of long distance
telecommunications services in Russia, among which are: (1) relative
backwardness of the currently installed systems; (2) Soviet style structure and
management of major telephone companies; (3) lack of capital for infrastructure
development; (4) slow development of market-oriented economic environment,
limiting capital investment and the attraction of Western services; and (5)
limited adherence to international telecommunications standards. The Company
believes that significant opportunities exist in the Russian Federation (and the
former Soviet Union) for long distance companies capable of establishing and
maintaining telephone services typically available throughout the United States
and Western Europe.
PRODUCTS AND SERVICES
Through contractual arrangements with facilities-based carriers and other
providers, Corbina offers a wide-variety of long distance telecommunications
services. To date, substantially all of Corbina's revenues have been generated
by basic outgoing long distance services. Corbina offers switched and dedicated
outbound long distance services carried by large national or regional long
distance carriers such as Global One and Rustelnet. The Company believes that
Corbina has been successful as a provider of these basic services because of the
discounts it has been able to negotiate with its underlying carriers, and its
ability to route its customers' traffic over the transmission networks of more
than one carrier. Corbina can direct a single customer's calls among different
carriers' networks to take advantage of the most favorable rates to different
destinations at different times of the day.
Direct Dial. Corbina's primary focus has been the provision of domestic
and international long distance services to business customers in the Moscow
Region including those which generate significant amounts of outgoing
international traffic. Corbina targets both foreign and, increasingly, Russian
businesses which have requirements for high quality and cost-effective long
distance and international telecommunications services. As of March 31, 1997,
foreign businesses represented approximately 52% of Corbina's business customers
and Russian businesses represented the balance. Corbina intends to expand its
provision of direct dial capability by entering into agreements with various
international carriers to lease capacity on private lines (e.g. Moscow -- New
York) which will significantly increase Corbina's gross profit margins on such
traffic. By so doing, it will no longer rely on its present carriers for
transmission, but will, in effect operate its own long distance network and
enhanced switching facilities.
Value Added Services. In addition to basic outgoing services, Corbina has
recently expanded its product line to provide its customers with access to the
Internet. Corbina intends to further expand its product line to provide its
customers with additional value-added services that generally produce higher
margins than basic long distance service including, voicemail and information
services, private lines for voice and data transmission over all-digital
fiber-optic transmission facilities, fax broadcast services that will allow a
user to send a facsimile to many destinations simultaneously, fax mailbox
services which will provide for the storage and retrieval of facsimiles in a
manner similar to electronic mail and prepaid phone cards which will permit
users to place long distance and international calls from touchtone telephones,
eliminating the need for coins and collect calls. Card users will be able to
easily access telephone service by dialing a toll-free number and entering a
personal identification number (PIN) printed on the back of the card.
Corbina intends to use approximately $150,000 of the $655,000 capital
contribution which the Company will be paying to it upon completion of this
Offering to enable it to provide voicemail and information services, fax and
debit card services through its existing switch. Corbina anticipates that it
will be offering such enhanced services during the fourth calendar quarter of
1997. No assurance can be given that the offer of such enhanced services will
increase Corbina's revenues, or that it will derive any profits with respect
thereto. See "Use of Proceeds."
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MARKETING AND SALES
Corbina markets its services by direct sales and through independent
distributors. Corbina targets commercial customers with telecommunications usage
of under $10,000 per month. Corbina's target customers generally do not qualify
for the major carriers' volume discounts or for the level of support services
made available to higher volume users. Corbina intends to use approximately
$155,000 of the $655,000 capital contribution which the Company will be paying
to it upon completion of this Offering to purchase print and other forms of
advertising through which it intends to create greater awareness among potential
customers of Corbina and its services.
Corbina relies heavily on its direct sales and field service
representatives. Typically, businesses become customers of Corbina by purchasing
long distance service from its direct sales representatives, who receive an
initial commission for securing the sale and a trailing commission so long as
that customer remains with Corbina. Thereafter, Corbina's field service
representatives follow up with existing customers by offering them new
value-added services, for which the representatives also receive a commission.
On April 30, 1997, Corbina had eight direct sales and field service
representatives. Corbina's future growth will depend in part on expansion of its
direct sales force.
Corbina intends to supplement its direct sales efforts by increasing to
approximately 20, the number of independent distributors, who solicit customers
for Corbina and receive commissions on the business they generate for Corbina.
Corbina anticipates that some of its new distributors will employ telemarketing
programs, and it is expected that sales through this channel will increase the
number of Corbina's customers with smaller volumes of use. Although there are
higher costs associated with sales to smaller customers, sales to such customers
generally have higher margins. At April 30, 1997, Corbina had seven independent
distributors.
NETWORK AND OPERATIONS
Corbina currently operates an advanced telecommunications network
consisting of a digital switch capable of handling up to 1,000 concurrent
telephone communications, leased fiber-optic transmission lines and
sophisticated network management systems designed to optimize traffic routing.
Corbina's network currently originates traffic within the entire Moscow Region.
Corbina operates an "open network," meaning that any customer within the Moscow
Region can access Corbina's long distance network by dialing one of Corbina's
access codes, or by pre-subscribing to the Company as its long distance service
provider and utilizing its routes.
Switching Facilities. Corbina currently operates a digital
telecommunications switch in Moscow. Switches are digital computerized routing
facilities that receive calls, route calls through transmission lines to their
destination and record information about the source, destination and duration of
the calls. The Company's switch, a Northern Telecom Meridian Model 61 is capable
of handling up to 1,000 simultaneous telephone transmissions. As Corbina's long
distance traffic routing needs increase, it intends to expand its existing
switch and acquire additional switches to increase its call routing capacity.
The Company believes that Corbina's intended acquisition of additional switching
equipment will improve Corbina's gross margins and provide greater control over
its customers.
Leased Fiber-Optic Transmission Lines. Corbina presently leases
fiber-optic transmission lines from the Moscow Area Communications Network
("Macomnet"), an unaffiliated company which has constructed a fiber-optic
telecommunications transmission network in the Moscow Region. Through its
Macomnet lines, Corbina's switching facilities are directly connected to the
international fiber-optic transmission lines operated by Global One. Corbina
also employs its Macomnet-provided fiber-optic lines to establish direct
fiber-optic connections between Corbina's long distance customers and its
switching facilities. Corbina may also lease fiber-optic and wire-based
transmission lines from a variety of facilities-based and long distance
carriers. Corbina will contract with these entities with terms ranging from 12
to 60 months. Corbina may supplement its leased "on-network" capacity with
"off-net" services from a variety of facilities-based long distance carriers.
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Network Management Systems. Once calls are originated over circuits, i.e.,
loops, connecting Corbina's customers to the Moscow public switched telephone
network (MGTS), the calls are routed over the public switched network to
Corbina's switching facility, and then re-routed on a least-cost basis over
leased digital, fiber-optic, e.g., Macomnet's, transmission facilities to one of
Corbina's long distance carriers. Corbina utilizes a state-of-the-art system to
electronically cross-connect circuits thereby increasing call routing and
circuit provisioning efficiency and providing better network monitoring
capabilities. This network protocol reduces connect time delays and provides
additional technical capabilities and efficiencies for call routing.
Network Surveillance and Diagnostics. Macomnet provides, pursuant to its
five year fiber-optic transmission lines lease agreement with Corbina, network
surveillance and diagnostic services which generally enable Corbina to
anticipate and correct problems before they result in service interruption.
Macomnet's technicians monitor Corbina's network 24 hours a day, 7 days a week.
To reduce the potential impact of any equipment or transmission failure, Corbina
intends to use approximately $100,000 of the $655,000 capital contribution which
the Company will be paying to it upon completion of this Offering to purchase or
lease an additional switch which will enable it to which will provide it with
the standby transmission capacity needed to reroute or restore transmissions in
the event that its primary system goes off line. Corbina's technicians monitor
the network for fraud on a real-time basis, using computer systems that detect
unusual or high volume calling patterns. See "Use of Proceeds."
Customer Installation Services. Corbina maintains a staff of installation
technicians who perform the services necessary to enable a customer to route its
long distance calls through Corbina's switching facility. Such services
typically include installation of a pre-programmable routing device at the
customer's premises permits the customer to make long distance calls through
Corbina without having to manually dial an access number or personal
identification number. The routing device can also be programmed to route calls
to other telecommunications providers and to prevent a customer's employee from
attempting to route a call through an unauthorized telecommunications provider.
Such installation services also may encompass the wiring of a customer's
premises or the building housing the customer's business either to provide
access, or increased access to the Moscow public switched telephone network.
Corbina intends to use approximately $250,000 of the $655,000 capital
contribution which the Company will be paying to it upon completion of this
Offering as working capital to be used, among other purposes, for the purchase
of an inventory of the above-described routing devices, and to finance the costs
which it incurs in providing the above-mentioned building and premises wiring
services.
Billing and Management Reports. Corbina is currently able to collect many
call data items for each phone call placed by a customer, including employee
name, call origination point, call destination point, billing code, minutes,
date, time and rate code. From this data, Corbina can organize the customer's
monthly phone calls into a wide variety of report formats. The Company believes
that Corbina's focus on billing as a differentiating service has been and will
continue to be an important factor in its ability to successfully compete for
its targeted customer.
Revenue Management Systems. Corbina has implemented a revenue management
process which enables it to monitor costs and volumes of use for each of its
products and services.
Customer Information. Corbina is able to process customer information from
the initiation of the customer's order by permitting its sales personnel to
enter data about a new customer into the system either from Corbina's field
offices or directly from a customer's office. This capability is intended to
minimize both delays in provisioning and the repetition of tasks that could lead
to error. Corbina has other features designed to minimize error, such as its
ability to recognize and reject inconsistent or incomplete information from
suppliers.
INFORMATION SYSTEMS
The Company believes that maintaining sophisticated and reliable billing
and customer service information systems that integrate billing, accounts
receivable and customer support is a core capability necessary to record and
process the massive amounts of data that are generated by a telecommunications
service provider. Corbina has developed new proprietary information systems
which will integrate customer service, manage-
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ment information, billing and financial reporting. These systems, which are in
the process of being phased in: (i) provide sophisticated billing information
tailored to the requirements of its customer base, (ii) increase the accuracy
and speed of customer billing, (iii) respond promptly to customer needs, (iv)
integrate acquired customer bases, (v) facilitate customer retention by
identifying customers who change their usage patterns, (vi) verify payables to
suppliers, and (vii) support operations and collection efforts.
LONG DISTANCE CARRIERS
Corbina has supply contracts with Rustelnet, Global One and TelMos for long
distance telecommunications services. Corbina determines which carrier to use
for its traffic on the basis of routing costs per unit of time. All of such
costs are programmed into Corbina's switch which makes all routing decisions
instantaneously on the basis of such programmed data.
During 1996, TelMos, Rustelnet and Global One were responsible for carrying
traffic representing approximately 15%, 60% and 25%, respectively, of Corbina's
revenues. During the three months ended March 31, 1997, TelMos, Rustelnet and
Global One were responsible for carrying traffic representing approximately 40%,
5% and 55%, respectively, of Corbina's revenues.
In addition to its contracts with TelMos, Rustelnet and Global One, Corbina
intends to enter into contracts with other carriers. Corbina has not been
required to commit to purchase minimum volumes of long distance services during
stated periods.
Each month Corbina receives invoices from its underlying carriers. Due to
the multitude of billing rates and discounts which must be applied by carriers
to the calls completed by Corbina customers, Corbina has disagreements, at
times, with its carriers concerning the sums invoiced for its customers'
traffic. It has been Corbina's experience that the amounts it is invoiced often
do not precisely reflect actual call traffic. Accordingly, the carrier may
consider Corbina to be in arrears in its payments until the amount in dispute is
resolved. These disputes have generally been resolved on terms favorable to
Corbina, although there can be no assurance that this will continue to be the
case. In accordance with generally accepted accounting principles, Corbina
records as expense amounts in dispute that correspond to the aggregate amount
that the Company believes it will be required to pay and adjusts that amount as
the underlying disputes are resolved.
COMPETITION
The long distance telecommunications industry in Russia is highly
competitive and affected by regulatory and rapid technological change. Many
competitors, including among them, Rostelecom, Sovintel (a joint venture between
Global Telesystems and Rostelecom), Comstar, TelMos, Combellga and Global One,
have considerably greater resources than those of the Company and Corbina, and
there can be no assurance that Corbina will remain competitive in this
environment. The Company believes that the principal competitive factors in
Corbina's business include pricing, customer service, network quality,
value-added services and the flexibility to adapt to changing market conditions.
While the Company believes that Rostelecom and Corbina's other larger
competitors, all of whom are considered by Corbina to be dominant in the Russian
long distance telecommunications industry, historically have chosen not to
concentrate their direct sales efforts at Corbina's target group of customers,
i.e., smaller commercial users, these carriers have recently introduced new
services and pricing options that are attractive to smaller commercial users,
and there can be no assurance that they will not market to these customers more
aggressively.
The Company believes that Corbina currently competes favorably in its
targeted market segment, principally due to its economies of scale, personalized
service and enhanced billing and reporting. The Company also believes that
Corbina's ability to succeed as a competitor in the Russian long distance
telecommunications industry will increasingly depend on its ability to offer on
a timely basis new services based on evolving technologies and industry
standards. There can be no assurance that new technologies or services will be
made available to Corbina on favorable terms.
Regulatory trends in the Russian Federation have had, and may have in the
future, significant effects on competition in the telecommunications industry.
Under current industry conditions, the underlying carriers do
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not have access to information regarding Corbina's customers for which they
provide the actual call transmissions. If this situation were to change and
since these carriers are potential competitors of Corbina, they could use
information about its customers, such as their calling volume and patterns of
use, to their advantage in attempts to gain such customers' business, although
the Company believes that such practices could be unlawful. In addition,
Corbina's future success will depend, in part, on its ability to continue to buy
transmission services from these carriers at a significant discount below the
rates these carriers otherwise make available to Corbina's target customers.
International Telecommunications Services. In providing international
circuits and direct dial services to business customers in the Moscow Region,
Corbina faces competition from a number of operators in the Moscow Region
offering similar services. Such operators, including Comstar, Combellga, Telmos
and Sovintel, all of whom are significantly larger and better capitalized than
Corbina, are primarily targeting Russian and foreign businesses in the Moscow
Region, replicating the services that Corbina is providing. In terms of
providing international circuits, Corbina faces direct competition from
Rostelecom, the state owned operator which transmits calls both to Intelsat and
the Russian satellites, and indirectly from Rostelecom, which also owns capacity
in and operates the international cable facilities connecting the Russian
Federation to the telecommunications networks of the major global carriers.
Russian Long Distance Services. In terms of the Russian long distance
market, Corbina's competition will come from a number of sources both on a
national and regional basis. Nationally, Corbina will face competition from
Rostelecom, as the operator of the terrestrial public long distance network of
the Russian Federation. There are no other commercial national networks of the
same scale as the Rostelecom network, although there are a number of private
networks, including those of the Ministries of Defense and Railways, that could,
if funding were made available, provide further competition to Corbina. In
addition, Sviazinvest has been offered a long distance carrier's license and
may, if it becomes adequately capitalized, become a serious competitor. See
"Risk Factors -- Competition."
Corbina will face satellite-based competition from Russian TeleSystems
("RTS"), an affiliate of Global TeleSystems Group, a privately owned US-Russian
joint venture which has been developing a digital overlay satellite network for
transmission of long distance and international telecommunications traffic
within the countries which comprised the former Soviet Union. Management
believes that RTS has a small number of regional sites in operation offering
connectivity between regions of the Russian Federation and the Moscow Region.
Corbina will also face competition from a number of satellite-based service
providers focusing on providing service in and between specific regions of the
Russian Federation.
EMPLOYEES
As of the date of this Prospectus, the Company had four employees,
including Messrs. Nathan and Leibov, Corbina had 25 full time employees,
including Mr. Leibov, CompTel had three full time employees, including Mr.
Leibov and Investelektro had three employees, including Mr. Leibov. As
Investelektro's proposed network begins to grow over the next three years, it
intends to hire approximately 20 full time employees, 15 of whom will provide
installation services to its customers, three of whom will provide customer
service, and two of whom will be involved in accounting and bill collection
activities. In order to support anticipated increased growth in Corbina's
service offerings, Corbina expects to hire up to five new full time employees
over the next 12 months, three of whom will provide programming and technical
support services, and two of whom will provide customer support services. The
Company's future success will depend in significant part on the continued
service Mr. Leibov, and the key technical sales and service management personnel
employed by its Subsidiaries. There can be no assurance that the Company can
retain such key management, sales and technical employees or that it can
attract, assimilate or retain other highly qualified technical sales and
management personnel in the future. Neither the Company nor either of its
Subsidiaries has experienced any work stoppages, and the Company believes that
its relationships with its employees, and the relationships which its
Subsidiaries have with their respective employees are good.
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FACILITIES
Pursuant to a lease expiring on April 30, 2001, the Company leases
approximately 2,000 square feet of space at 780 Third Avenue, Suite 1600, New
York, New York 10017 which it uses as an executive and administrative office at
an annual rent of approximately $76,000 per year. Corbina leases approximately
186 square meters of space in Moscow at 30-15 Ryazansky Prospect, Moscow,
Russian Federation. In accordance with its lease, Corbina must pay rent of
approximately $38,000 per year during the five year term ending in 2000. CompTel
occupies, as a tenant at will, approximately 182 square meters of space on a
different floor of the same building which houses Corbina's offices in Moscow at
a rental cost of approximately $3,100 per month. Investelektro has entered into
a lease for approximately 40 square meters of space on a different floor of the
same building which houses Corbina's and CompTel's offices in Moscow. Such lease
obligates Investelektro to pay rent of approximately $27,000 per year during the
term of 34 months ending on December 31, 1999.
LITIGATION
Neither the Company nor any of its Subsidiaries is involved in any legal or
administrative proceedings.
REGULATION OF TELECOMMUNICATIONS IN THE RUSSIAN FEDERATION
The provision of telecommunications services in the Russian Federation
falls within federal jurisdiction. The principal legal act regulating
telecommunications in the Russian Federation is the federal Law on
Communications, enacted on February 16, 1995 (the "Communications Law"), which
establishes the legal basis for all activities in the telecommunications sector
and provides, among other things, for licensing to provide communication
services, the requirement to obtain a radio frequency allocation, certification
of equipment, and fair competition and freedom of pricing.
The Communications Law is a framework law which anticipates and references
various regulations to be enacted by the competent supervisory authorities. No
substantial regulations have been promulgated since the enactment of the
Communications Law. The practice in the Russian Federation is for regulations
which were promulgated under a predecessor law to continue to be applied until
new regulations are issued to the extent such pre-existing regulations do not
contradict the newly enacted law. There is no indication that the State
Communications Committee or other regulatory authorities are taking a different
approach at this time.
The Communications Law provides for equal rights of individuals and legal
entities to participate in the telecommunications operations and does not
contain any special restrictions with regard to participation by foreign
persons. All users and operators have access to the Interconnected
Telecommunications Network ("ITN"), a centrally managed complex of
telecommunications networks belonging to different enterprises and governmental
agencies of the Russian Federation, and have the right to interconnect their
networks with ITN in compliance with the connection conditions set forth in
their licenses.
Regulatory Authorities. Prior to March 17, 1997, the MOC and the Federal
Agency of Governmental Communications and Information under the President of the
Russian Federation ("FAPSI") were the federal organizations possessing executive
power over the telecommunications industry. On said date, President Yeltsin
signed Presidential Decree No. 249 "On the Restructuring of the System of
Federal Organs of Executive Power" which, among other things, renamed the MOC as
the State Communications Committee. Such restructuring has resulted in a
downgrading of the status of the former MOC (unlike the government minister who
headed the MOC, the head of the State Communications Committee is not a
minister). The State Communications Committee is responsible for allocating
federal budget resources in the telecommunications industry and has supervisory
responsibility for the technical condition and development of all types of
communications. The role of FAPSI is not clearly defined in the Communications
Law. FAPSI is subordinate to the President of the Russian Federation on matters
within the President's jurisdiction pursuant to the Russian Constitution.
In addition, the State Commission on Radio Frequencies and the State
Supervisory Commission on Communications (the "SSCC") are regulatory agencies
under the State Communications Committee. The
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State Commission on Radio Frequencies is primarily responsible for the
development and implementation of a long-term policy for frequency allocation
and issues frequency permits. The SSCC is responsible for technical supervision
of network and equipment throughout Russia, including supervision of compliance
of network operators with applicable regulations and of licensees with the terms
of their licenses.
Licensing to Provide Services. The Communications Law requires that any
person providing telecommunications services must obtain a license prior to
commencing such services, unless such services are essentially "in house"
(including within an automobile, on a ship, in an airplane or another means of
transportation), or are for internal production or technological purposes, or
are used solely to service public administration, defense, security and law
enforcement authorities.
The Communications Law expressly provides that any person, including
foreign legal entities and citizens, is authorized to own and operate
communication facilities, but equally provides that Russian legislation may
establish a list of communications facilities which may be owned exclusively by
the state. Such a list has not yet been established.
Licenses to provide telecommunications services are issued by the State
Communications Committee on the basis of a decision by the Licensing Commission
of the State Communications Committee. No new licensing regulations have been
issued since the enactment of the Communications Law and in practice the State
Communications Committee continues to issue licenses based on the "Regulations
on Licensing in the field of Telecommunications in the Russian Federation" which
were enacted by decree No. 642 of the Russian Government on June 5, 1994 (the
"Licensing Regulations") prior to the enactment of the Communications Law.
Under the Licensing Regulations, licenses for rendering telecommunications
services may be issued and renewed for periods ranging from 3 to 10 years and
several different licenses may be issued to one person. Renewals may be obtained
upon application to the State Communications Committee and verification by
appropriate government authorities that the licensee has conducted its
activities in accordance with the licenses. Officials of the State
Communications Committee have fairly broad discretion with respect to both the
issuance and renewal procedures. Both the Communications Law and the Licensing
Regulations provide that a license may not be transferred. Thus, a license
cannot be contributed to the capital stock of another person. Furthermore, this
restriction is interpreted to prohibit assignment or pledge of a license to
provide collateral for obligations of the licensee or a third party. however,
pursuant to a letter issued by the Deputy Minister of Communications, a licensee
may enter into agreements with third parties in connection with the provision of
services under the licensee's license.
Licenses to provide telecommunications services may be revoked or suspended
by the State Communications Committee for several reasons. The Licensing
Regulations provide that licenses may be suspended for the following reasons:
- failure to comply with the terms and conditions of the license;
- failure to provide services within three months from the
start-of-service date set forth in the license;
- provision of inaccurate information bout the communication services
rendered to consumers; and
- refusal to provide documents requested by the State Communications
Committee.
Licenses may be revoked for the following reasons:
- failure to remedy the circumstances which resulted in a suspension
of the license within the established time;
- established practices of unfair competition by the license holder in
performing the licensed services; and
- other grounds set forth by Russian law or international treaties.
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The fees for issuing licenses are established as multiples of the monthly
minimum wage ("MMW") (which is currently 85,900 roubles or approximately
US$15.00). Currently, licensing fees vary from 20 times the MMW for local
telephone services, 30 times the MMW for mobile radio-communication services, 40
times the MMW for mobile radiotelephone and cellular communication services to
90 times the MMW for inter-city and international communication services.
Licenses generally contain a number of other detailed conditions, including
a date by which service must begin, requirements for adhering to technical
standards, and often a schedule of the number of lines which must be in service
and percentage of the licensed territory which must be covered by specified
dates.
Corbina has been informed by the State Communications Committee that it
does not need to have a license to conduct operations in the manner which it
currently employs, i.e., as a reseller of long distance services provided by
carriers licensed by the State Communications Committee. Investelektro has
received a license for its proposed wireless local loop activities, which also
includes appropriate licensing for the provision of domestic and international
long distance services.
Radio Frequency Allocation. Regulation of the use of radio frequencies and
spectrum allocation are under the exclusive control of the Russian Government
represented by the State Communications Committee which has for this purpose
established the State Commission on Radio Frequencies within the State
Communications Committee. A frequency allocation by the State Commission on
Radio Frequencies is a preliminary condition to receiving a license for
providing radio telephone communication services. Investelektro has received
preliminary allocations of the frequencies it will require for operation of its
proposed wireless local loop operations, and is awaiting receipt of final
approval of such allocations from the State Commission on Radio Frequencies. The
failure to receive final approval of frequency allocations, the non-renewal, or
a suspension or revocation of the License and/or frequency allocations, would
jeopardize the Company's entire investment in its proposed wireless local loop
system, and would have a material adverse effect on the Company's financial
condition and its ability to conduct the business it intends to undertake in the
Russian Federation. See "-- Proposed Wireless Local Loop Operations --
Telecommunications License" and "Risk Factors -- Government Regulation --
Investelektro's Inability to Conduct Operations if Conditions of License are Not
Satisfied."
Once a licensee receives a license and general frequency allocation from
the State Commission on Radio Frequencies, the licensee must develop its
frequency allocation and site plan, which is subject to approval by the SSCC.
The plan is then reviewed by the SSCC and may be corrected in order to ensure
electromagnetic compatibility of the proposed cellular network with other radio
equipment operating in the area. Based on the results of this study, the SSCC
gives its final approval to use specific frequencies in specific areas.
Each licensee must pay to the SSCC certain fees. No assurance can be given
as to the effect of such fees on the Company's future results of operations.
Equipment Certification Certain telecommunication equipment used in the
Russian Federation is subject to mandatory certification to confirm its
compliance with the established standards and technical requirements.
Certificates of Compliance are issued to the supplier by the State
Communications Committee on the basis of a decision by the Department of
Certification. Certificates of Compliance have been issued by the State
Communications Committee for all of the equipment currently employed by Corbina.
Further, all radio-electronic (high-frequency) equipment (involving
frequencies in excess of 9KHz) manufactured or used in, or imported into, the
Russian Federation require special permission from the SSCC. Such special
permissions are issued to a person for its own use and do not permit use of such
radio-electronic equipment by other persons.
In addition, a Presidential Decree requires a license and equipment
certification from FAPSI to design, produce, sell, use or import encryption
devices. Some commonly-used digital cellular telephones are designed to be
capable of encryption of communications, whether or not this feature is
activated on the network in which they are used, and therefore must be certified
by FAPSI.
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Competition and Pricing The Communications Law requires the federal
regulatory agencies to encourage and promote fair competition in the provision
of communication services and prohibits abuse of a dominant position to hinder,
limit or distort competition. The Communications Law also provides that tariffs
for communication services may be established on a contractual basis between the
provider and the user of telecommunications services, thus confirming the
liberalization of prices for telecommunications services introduced by
Presidential decree in 1992. However, the Communications Law simultaneously
provides that "tariffs may be regulated by the state for some types of
communication services."
Presidential Decree No. 221, dated February 28, 1995, "On Measures for
Streamlining State Regulation of Prices ("Tariffs") and its implementing
Governmental Decree No. 239, dated March 7, 1995, as amended, provide that the
prices and tariffs on certain telecommunications services to be established by
the subjects of the Russian Government are subject to state regulation.
Governmental Decision No. 793, dated August 7, 1995, as amended, has established
that the following communication services are subject to such price controls by
the executive authorities of the Russian Federation: subscription charges,
installation fees, charges for local calls and charges for international calls
using zonal systems.
Further, Presidential Decree No. 220 of February 28, 1995 "On Certain
Measures for the State Regulation of Natural Monopolies in the Russian
Federation" classifies activities in the field of public telecommunications
services as a "natural monopoly" and calls for the creation of a specialized
federal agency to regulate providers of telecommunications services.
Subsequently, the Federal Service of Regulating the Natural Monopolies of
Communications was created and bestowed with responsibility for tariff
regulation in the sector of public. telecommunications.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
Jack W. Buechner.............. 57 Chairman of the Board
Ronald G. Nathan.............. 52 Director and President, Chief Executive
Officer, Treasurer and Chief Financial Officer
Mikhail Leibov................ 47 Executive Vice President and Chief Operating
Officer
Richard N. Holwill............ 51 Director
Steven D. Dreyer.............. 50 Director and Secretary
</TABLE>
Former Congressman Buechner has been a director of the Company since
October 1994, the Chairman of the Board of the Company since January 1995 and
has been a partner in the Washington, D.C. office of Manatt, Phelps and
Phillips, a Los Angeles based law firm since 1994. He specializes in Russian and
Eastern European matters including those dealing with international financial
institutions. Between 1993 and 1994, Mr. Buechner was engaged in various
national and international government and industry related projects as a
Principal of The Hawthorn Group, a Virginia based public affairs firm. Between
1991 and 1993, he served as President of the International Republican Institute,
the international arm of the Republican Party. In that capacity, Mr. Buechner
participated in the development of civil governance programs for countries
located in the former Soviet Union and Eastern Europe. Between 1986 and 1991, he
was a member of the United States House of Representatives from St. Louis
County, Missouri, and served in the leadership of the House as Deputy Minority
Whip and Vice Chairman of the Republican Study Committee. Mr. Buechner received
a B.A from St. Benedict's College in Atchison, Kansas in 1962, and a J.D. from
St. Louis University in 1965. Mr. Buechner is a member of the Audit and
Compensation Committees of the Board.
Mr. Nathan has been the Company's President and Chief Executive Officer,
Treasurer (Chief Financial Officer) and a Director since its inception in April
1994, and was the Company's Chairman of the Board from April 1994 until January
1995. Mr. Nathan received a Masters degree from the London School of Economics
in 1967 and a law degree from the University of Pennsylvania in 1970. He was a
law clerk for the Hon. James Hunter III, at the United States Court of Appeals
for the Third Judicial Circuit from 1970 to 1971, and he was employed as an
associate in the Washington, D.C. law firm of Arnold & Porter from 1971 to 1978.
In 1978, Mr. Nathan was appointed by President Carter (with U.S. Senate
confirmation) to the Board of Directors of the National Railroad Passengers
Association (AMTRAK) on which he served through 1982. From 1982 to the present,
Mr. Nathan has been an independent businessman involved in various business
ventures including, among other things, the structuring and financing of
business opportunities in the telecommunications industry, particularly cellular
telecommunications. In 1993, he formed a telecommunications company to engage
in, among other things, long distance resale, the operations of which were
terminated in 1994 so that he could concentrate his efforts on the business of
the Company. From 1988 until 1993, Mr. Nathan was a principal of Omni
Investments, a privately owned firm which specialized in acquiring energy and
petrochemical assets in addition to being engaged in international petroleum
marketing.
Mikhail Leibov is the Managing Director and Chief Executive Officer of
Corbina, CompTel and Investelektro, and since June 16, 1997, the Company's
Executive Vice President and Chief Operating Officer. Mr. Leibov was born in
Moscow, Russia in 1950, and emigrated to the United States in 1977. In 1972, Mr.
Leibov earned an MS degree in applied mathematics (specializing in
telecommunications and computer sciences) from Moscow University. Between 1972
and 1976, he served as project manager for the Soviet Ministry of Railroad
Transportation in connection with the creation of the first real-time railroad
tracking system built in the USSR. Between 1977 and 1986, Mr. Leibov was
employed by IBM, and served as a member of the software architecture group that
designed and implemented one of the world's first distributed databases. From
1986 to 1987, he was employed by AT&T as project manager with respect to the
design and implementation of large databases. From 1987 to 1994, Mr. Leibov was
employed by Prodigy Corporation as a developer of the Prodigy Information
Services. Between 1994 and 1995, Mr. Leibov was employed by Access
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<PAGE> 60
General Corporation, a corporation he organized as a designer and developer of
specialized tools for tuning very large local and remote databases. In 1995, he
organized Corbina as a provider of long distance telecommunications services in
Moscow, and has been involved in its management on a full time basis since its
inception.
Hon. Richard N. Holwill served as Counsellor to the United States Arms
Control and Disarmament Agency from 1990 to 1993, and as United States
Ambassador to the Republic of Ecuador from 1988 to 1990. From 1983 to 1988, he
served as Deputy Assistant Secretary of State for Inter-American Affairs. During
1985 to 1988, Mr. Holwill also served as a member of the Board of Directors of
the Panama Canal Commission. Since January 1993, Mr. Holwill has been Managing
Director of Pierce Investment Banking, Inc., a privately held investment banking
firm. He graduated from Louisiana State University in 1968 and has undertaken
post-graduate studies in Finance at the University of Missouri and in Economics
at the Wharton School of Business. Mr. Holwill was elected to the Board on
February 10, 1997. Mr. Holwill is a member of the Audit and Compensation
Committees of the Board.
Mr. Dreyer has been a practicing attorney in New York City since 1971, and
has specialized in representing corporations and other business entities in
connection with public and private capital formation, acquisition and
divestiture transactions for the last 15 years. From 1984 to February 1995, he
was a partner in the law firm of Ohrenstein & Brown, and since March 1995, he
has been a partner in the law firm of Hall Dickler Kent Friedman & Wood, LLP,
the Company's corporate and securities counsel. Mr. Dreyer received a B.A. from
the University of California at Los Angeles in 1968, and J.D. and Ll.M.
(Taxation) degrees in 1971 and 1981, respectively, from The New York University
School of Law. He was elected to the Board, and appointed as Secretary of the
Company, on February 10, 1997.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company entered into an employment with Mr. Nathan pursuant to which he
has been employed as the Company's Chief Executive Officer for a term which
commenced on January 1, 1995, and which has been extended from its original
termination date of December 31, 1997 to December 31, 1999. Such agreement, as
extended, provides that Mr. Nathan must perform services consistent with his
position, and must devote substantially all of his time (approximately 40 hours
per week) in the performance of his duties. In accordance with such agreement,
Mr. Nathan receives an annual base salary of $100,000, and is entitled to such
bonuses as the Board of Directors may deem appropriate. The agreement contains a
non-competition covenant which is applicable during the term of the agreement,
and the one year period immediately following such term. The agreement further
provides for a severance payment of two year's salary which is payable to Mr.
Nathan upon termination of his employment due to a change of control of the
Company.
The Company has entered into an employment agreement with Mr. Leibov,
pursuant to which he agreed to serve as chief executive officer of Corbina and
CompTel during the five year term which commenced on February 1, 1997. The
agreement was amended on June 16, 1997 to provide that Mr. Leibov shall also
serve as the Company's Executive Vice President and Chief Operating Officer
during the balance of the term thereof. Such agreement further provides that (i)
between February 1, 1997 and the last day of the month in which the closing of
this Offering occurs, Mr. Leibov shall be paid a base salary by the Company of
$125,000 per annum, less the aggregate amount of the annual salaries which he
shall receive from Corbina and CompTel; (ii) during the balance of the term of
the agreement, his base salary shall be $175,000 per annum, less the aggregate
amount of the annual salaries which he shall receive from Corbina and CompTel;
(iii) he shall be paid such cash bonuses and other additional compensation as
the Company's Board of Directors may, in its absolute discretion, determine to
award to him, (iv) his life shall be insured to the extent of $500,000 which
shall be paid to the beneficiary of his choice; (v) he and his immediate family
will be covered by Company-provided and paid for health insurance; (vi) as soon
after the Offering as is reasonably possible, the Company shall issue 25,000
shares of the Company's Common Stock to Mr. Leibov pursuant to the Omnibus Plan,
subject to such vesting conditions as the Compensation Committee of the
Company's Board of Directors shall reasonably determine; and (vii) Mr. Leibov
shall receive incentive compensation benefits, as follows: 1) in the event that
Corbina's operating income for any of its fiscal years ending during the five
year term (the "Term") of the employment agreement (the "Income"), determined
pursuant to the same US generally acceptable
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<PAGE> 61
accounting principles which would be applicable if Corbina's financial
statements were to be prepared in the same manner as the Company's annual
audited financial statements, shall be greater than US$3,400,000, then, the
Company shall transfer, subject to the restrictions on transfer and right of
first refusal hereinbelow described, a block of the Corbina shares held by it
equal to 10% of the total number of outstanding shares of Corbina (the "Corbina
Incentive Shares"), thereby reducing the Company's ownership of Corbina to 65%;
and 2) if, during any fiscal year of the Term which shall be subsequent to the
fiscal year in which Mr. Leibov shall have earned the Corbina Incentive Shares,
Corbina's Income shall be greater than $3,400,000, Mr. Leibov shall receive from
the Company, pursuant to the Omnibus Plan, shares of the Company's Common Stock,
valued at the mean of the bid and asked prices therefor on the ten trading dates
immediately preceding the issuance thereof, equal to the difference between the
Income and $3,400,000. The number of shares of the Company's Common Stock to be
issued to Mr. Leibov pursuant to the foregoing provisions shall not exceed
250,000, in the aggregate. Mr. Leibov shall not be entitled to transfer any
ownership interest in any of the Corbina Incentive Shares to any person, firm or
entity affiliated or associated with him (a "Related Transferee") unless, prior
to such transfer, the Related Transferee agrees to be bound in writing by the
provisions of the right of first refusal described in the immediately succeeding
sentence. In the event that Mr. Leibov intends to sell any of the Corbina
Incentive Shares to any person, firm or entity who is not a Related Transferee,
and who has made a bona fide offer to purchase such shares for value, the
Company shall have a right of first refusal to purchase such shares subject to
such offer pursuant to the same terms and conditions pertaining thereto.
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid
to the Chief Executive Officer during the three years ended December 31, 1996.
No other officer of the Company earned a salary and bonus of more than $100,000
during such periods. During said three year period, the Company did not grant
any restricted stock awards, options, or pay compensation that would qualify as
"All Other Compensation" and it did not make payments to any executive officer
which may be categorized as "LTIP Payouts."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) SARS(#)
- ------------------------------- ----- --------- -------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald G. Nathan, Pres......... 1996 $ 100,000 -- -- -- --
1995 100,000 -- -- -- --
1994 100,000 $180,000 -- -- --
</TABLE>
OMNIBUS STOCK INCENTIVE PLAN
The Company has adopted an Omnibus Stock Incentive Plan (the "Omnibus
Plan") to permit the grant of awards to employees of the Company (including
officers and directors who are employees of the Company or a subsidiary of the
Company) of restricted shares of the Company's Common Stock, performance shares
of the Company's Common Stock, stock appreciation rights relative to the
Company's Common Stock and both incentive stock options and non-qualified
options to purchase shares of the Company's Common Stock. A maximum of 1,000,000
shares may be issued under the Omnibus Plan. The Omnibus Plan was adopted in
order that the participants in the Omnibus Plan will have financial incentives
to contribute to the Company's growth and profitability, and to enhance the
ability of the Company to attract and retain in its employ individuals of
outstanding ability. As of the date of this Prospectus, no grants or awards have
been made under the Omnibus Plan, except for one option issued to Jack Buechner.
See "-- Option Issued to Non-Employee Director."
OPTION ISSUED TO NON-EMPLOYEE DIRECTOR
On August 22, 1995, the Board of Directors of the Company granted an option
to Mr. Buechner entitling him to purchase 25,000 shares of Common Stock at an
exercise price of $2.00 during the three year period
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<PAGE> 62
ending on August 21, 1998. The shares of Common Stock issuable upon exercise of
said option are being offered for sale, subject to their issuance, on a
non-underwritten basis by Mr. Buechner pursuant to a separate prospectus
included in the Registration Statement of which this Prospectus forms a part.
See "Concurrent Registration of Securities."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws provide that, except as expressly prohibited by the
Delaware Corporation Law, the Company shall indemnify each person made or
threatened to be made a party to any action or proceeding, whether civil or
criminal, by reason of the fact that such person, or such person's testator or
administrator was a director, officer or employee of the Company, against
judgments, fines, penalties, amounts paid in settlement and reasonable expenses,
including attorney's fees, incurred in connection with such action or
proceeding, or any appeal therein. Such By-Laws further provide that no such
indemnification shall be made if (i) a judgment establishes that such person's
acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled, and (ii) a settlement or other
non-adjudicated disposition of a threatened or pending action or proceeding
occurs without the Company's prior consent thereto.
The Company has entered into indemnification agreements with each of its
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of 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 and
is, therefore, unenforceable.
The Company has applied for directors' and officers' liability insurance
providing for limits of $1,000,000 per occurrence.
DIRECTORS' COMPENSATION
Directors do not receive cash compensation for services rendered to the
Company in such capacity.
Non-employee directors are reimbursed for the reasonable costs of travel to
and from meetings of the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's organization in April 1994, Ronald G.
Nathan, the then Chairman of the Board and Chief Executive Officer of the
Company, received 1,178,000 shares of Common Stock for services rendered in the
amount of $11,780. In addition, during December 1994, the Company granted Mr.
Nathan a bonus in the amount of $180,000. In January 1995, the Company issued
600,000 shares of Common Stock to Mr. Nathan as payment for such $180,000
obligation. Such shares were subsequently resold by Mr. Nathan during January
1995 at a price of $.30 per share. In June 1995, 628,000 shares of Common Stock
were contributed back to the Company by Mr. Nathan for no consideration.
A founder and principal stockholder of the Company, Harvey Bloch, received
1,160,000 shares of Common Stock at inception for financial consulting services
rendered prior to inception and for services rendered through June 15, 1994 in
the amount of $11,600. In addition, Mr. Bloch received $74,167 and $40,832
during the period from June 16, 1994 to December 31, 1994 and the five months
ended May 31, 1995, respectively, for consulting services rendered to the
Company. In June 1995, 595,000 shares of Common Stock were contributed back to
the Company by Mr. Bloch for no consideration. In August 1995, the Company
repurchased 488,000 shares of Mr. Bloch's Common Stock in exchange for the
issuance to Mr. Bloch of a promissory note in the aggregate principal amount of
$244,000, bearing interest at the rate of 2% per annum. The Company paid
$100,000 of said obligation in February 1996. The Company intends to
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apply approximately $150,000 of the net proceeds of the Offering to repay the
remaining balance (including accrued interest) of the note. See "Use of
Proceeds."
Mr. Leibov and Mr. Nathan were the sole stockholders of Russian Wireless.
In October 1996, Mr. Nathan subscribed for 250,000 shares of Russian Wireless'
$.01 par value common stock (the "Russian Wireless Common Stock") and agreed to
pay $2,500 therefor, and in January 1997, Mr. Leibov received 500,000 shares of
Russian Wireless Common Stock in consideration for his services rendered during
the period between October 1996 and December 1996 in organizing Russian
Wireless' operations in the Russian Federation. Upon consummation of the merger
of Russian Wireless with and into the Company, Messrs. Leibov and Nathan
received, respectively, 500,000 shares and 250,000 shares of the Company's
Common Stock in exchange for and extinguishment of their shares of Russian
Wireless' common stock.
Although no specific measures to resolve conflicts of interest have been
formulated, the officers and directors of the Company have a fiduciary
obligation to deal fairly and in good faith with the Company. The Company's
management believes that the terms and conditions pertaining to each of the
foregoing transactions were comparable to and competitive with the terms and
conditions which it would have obtained if such transactions had been effected
with persons and entities unaffiliated with the Company. All ongoing and future
transactions between the Company and any of its affiliates will be no less
favorable to the Company than such transactions would be if consummated with
unaffiliated third parties, and will be approved by a majority of the Company's
disinterested directors. The directors intend to exercise reasonable judgment
and take such steps as they deem necessary under all of the circumstances in
resolving any specific conflict of interest which may occur and will determine
what, if any, specific measures, such as retention of an independent advisor,
independent counsel or special committee, may be necessary or appropriate. There
can be no assurance that the Company will employ any of such measures or that
conflicts of interest will be resolved in the best interest of the shareholders
of the Company.
PRINCIPAL SECURITY HOLDERS
The following table sets forth the holdings of the Common Stock of the
Company as of the date of this Prospectus by (1) each person or entity known to
the Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of common stock of the Company; (2) each director and named
executive officer; and (3) all directors and executive officers as a group. All
of the holders of the Company's Common Stock are entitled to one vote per share.
See "Description of Securities."
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------
NUMBER OF SHARES PERCENT OWNED PERCENT OWNED
BENEFICIALLY PRIOR TO AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING(1) OFFERING(2)
- ------------------------------------------------ ---------------- ------------- -------------
<S> <C> <C> <C>
Ronald G. Nathan(3)............................. 800,000 26.8% 17.8%
Mikhail Leibov(4)............................... 500,000 16.8% 11.1%
Paul Signoracci(5).............................. 285,000 9.5% none(6)
J. P. Downey(7)................................. 285,000 9.5% none(6)
Ernest Ferrante(8).............................. 285,000 9.5% none(6)
Howard M. Pack(9)............................... 160,000 5.4% 3.6%
Royal Bank of Scotland International Ltd.(10)... 150,000 5.0% 3.3%
James Condakes(11).............................. 150,000 5.0% 3.3%
L. W. Cave(12).................................. 150,000 5.0% 3.3%
Jack W. Buechner(3)............................. 25,000(13) * *
All Directors and Executive Officers as a Group
(4 Persons)................................... 1,325,000(13) 44.0% 29.4%
</TABLE>
- ---------------
* Represents less than one percent
(1) Based on 2,985,000 shares of Common Stock outstanding as of the date of
this Prospectus.
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<PAGE> 64
(2) Based upon 4,485,000 shares of Common Stock outstanding after the Offering.
Does not include up to 7,370,015 shares of Common Stock issuable in the
events that (i) all of the 2,200,000 Warrants, 750,000 First Private
Placement Warrants, the 462,500 Second Private Placement Warrants and the
2,000,015 Third Private Placement Warrants are fully exercised; (ii) the
Company issues 229,500 shares of Common Stock upon full exercise of the
Underwriters' over-allotment option (and 330,000 shares of Common Stock are
issued upon full exercise of the Warrants to be issued in connection
therewith); (iii) all 1,000,000 of the shares of Common Stock which have
been reserved for issuance under the Company's Omnibus Stock Incentive Plan
shall be issued; (iv) the Company issues 153,000 shares of Common Stock
upon exercise of the Representative's Warrant (and 220,000 shares issuable
upon exercise of the Warrants to be issued in connection therewith); and
(v) the 25,000 shares of Common Stock underlying the Buechner Option are
issued. See "Management;" and "Underwriting."
(3) The address of Messrs. Nathan and Buechner is 870 Third Avenue, Suite 1600,
New York, NY.
(4) Mr. Leibov's address is c/o Corbina, Ryazansky Prospect 30/15, Moscow,
Russian Federation.
(5) The address of Mr. Signoracci is 2716 Grand Avenue, Belmore, NY.
(6) The shares of Common Stock held by Messrs. Signoracci, Downey and Ferrante
have been registered for sale by them under the Securities Act, pursuant to
a separate prospectus in connection with an offering to be made on a
delayed, non-underwritten basis by the Selling Securityholders. See
"Concurrent Registration of Securities."
(7) The address of Mr. Downey is 29 Hewlett Road, Towaco, NJ.
(8) The address of Mr. Ferrante is 88A Bay Terrace, Staten Island, NY.
(9) The address of Mr. Pack is 12 Herkimer Road, Scarsdale, NY.
(10) The address of the Royal Bank of Scotland International Ltd. is c/o Ryder
Capital Limited, 102 The Chambers, London SW10 OXF, England.
(11) The address of Mr. Condakes is 100 Everette Avenue, Chelsea, MA.
(12) The address of Mr. Cave is 3800 Airport Boulevard, Suite 201, Mobile, AL.
(13) Includes 25,000 shares of Common Stock which Mr. Buechner has the right to
acquire within 60 days from the date hereof upon the exercise of options
held by him. Such shares are being offered for sale by Mr. Buechner,
subject to their issuance, on a non-underwritten basis pursuant to a
separate prospectus included in the Registration Statement of which this
Prospectus forms a part. See "Concurrent Registration of Securities."
SELLING STOCKHOLDER
The Cam Neely Foundation, the Selling Stockholder, is, as of the date
immediately preceding the date of this Prospectus, the beneficial and record
holder of 30,000 shares of Common Stock, all of which are being offered for sale
by the Selling Stockholder. Upon completion of the offering of such shares, the
Selling Stockholder will not own any shares of the Company's Common Stock.
Neither the Selling Stockholder, nor any employee or director thereof, was an
officer, director, or employee of the Company during the past three years, or
had any other relationship with the Company during such period, other than as an
investor. See "Underwriting."
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this Offering, 2,462,515 Warrants (and the shares of
Common Stock issuable upon exercise thereof), and 1,180,000 shares of Common
Stock, 25,000 of which are issuable upon exercise of the Buechner Option, have
been registered for sale under the Securities Act for immediate resale. Except
for Mr. Buechner, who is Chairman of the Company's Board of Directors, none of
the holders of such securities or their affiliates has ever held any position or
office with the Company or had any material relationship with the Company. The
holders of such securities have agreed with the Representative not to sell any
of the registered
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<PAGE> 65
securities for a period of 24 months from the date of this Prospectus without
the prior written consent of the Representative.
DESCRIPTION OF SECURITIES
GENERAL
The Company, a Delaware corporation, is authorized to issue 15,000,000
shares, of which 14,000,000 may be Common Stock, $.01 par value, and 1,000,000
may be preferred shares, $.01 par value, which may be authorized for issuance by
the Board and issued without further action by the shareholders in classes or
series possessing such designations, powers, preferences and relative,
participating, optional or other special rights within each class or series, and
further possessing such qualifications, limitations and restrictions as the
Board may determine, subject to any limitations imposed thereon by the Company's
Certificate of Incorporation.
COMMON STOCK
As of the date of this Prospectus, 2,985,000 shares of Common Stock are
issued and outstanding.
Except as otherwise required by law, each holder of Common Stock is
entitled to one vote per share on all matters on which shareholders are entitled
to vote. There are no cumulative voting rights regarding elections of directors.
Holders of shares of Common Stock are entitled to share pro rata in dividends,
if any, as may lawfully be declared on the Common Stock from time to time by the
Company's Board of Directors.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including divided rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series and the
designation of such series. The issuance of preferred stock could, among other
things, adversely affect the voting power of holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company.
As of the date of this Prospectus, no shares of preferred stock of any
class or series have been issued, or have been authorized to be issued by the
Board. The Company has no present intention to issue any preferred shares in the
foreseeable future. However, no assurance can be given regarding the change of
such intentions in the event that the Board deems it appropriate to issue such
securities in connection with any transaction or other circumstance which is not
presently known to the Board.
WARRANTS
The Warrants will be exercisable at a price of $7.25 per share at any time
during the three year period commencing [on the second anniversary of the date
of this Prospectus] until [ ] [the day immediately preceding the
fifth anniversary of the date of this Prospectus], provided, that, the Warrants
may be exercised during the one year period between [the first anniversary of
the date of this Prospectus] and [the second anniversary of the date of this
Prospectus] upon the express written consent of the Representative. Commencing
on [the second anniversary of the date of this Prospectus], the Warrants are
subject to redemption at $.50 per Warrant, upon 30 days' prior written notice,
if the closing bid price of the Common Stock as quoted on the principal market
on which it shall then be trading shall be not less than $14.50 per share during
any period of 20 consecutive trading days ending on the third day preceding the
date of such notice, provided, that, with the Representative's express written
consent, the Warrants may be redeemed commencing on [ ] [the first
anniversary of the date of this Prospectus] at the aforementioned redemption
price, subject to the aforementioned trading price conditions, if the Warrants
shall have been exercisable for a period of not less than 30 days prior to the
date upon which notice of redemption shall be given.
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<PAGE> 66
The Warrants contain protections against dilution affecting both the
exercise price of, and number of shares of Common Stock purchasable under, such
warrants. Such protections shall become operative upon (a) any issuance of
Common Stock, warrants or other securities convertible into Common Stock at a
price below the then market value of the Common Stock during a period of five
years from the date of this Prospectus; (b) any issuance of Common Stock,
warrants or other securities convertible into Common Stock as a dividend; or (c)
a subdivision or combination of the outstanding Common Stock, warrants or other
securities convertible into Common Stock as the result of a merger,
consolidation, spin-off or otherwise.
The holders of the Warrants have no right to vote on matters submitted to
the shareholders of the Company and have no right to receive dividends. The
holders of the Warrants are not entitled to share in the assets of the Company
in the event of liquidation, dissolution, or the winding up of the Company's
affairs.
The Warrants issued pursuant to this Prospectus may not be exercised unless
the Company maintains an effective registration statement covering the shares of
Common Stock issuable upon exercise of the Warrants with the SEC and the various
securities administrators for the states in which the Warrant holders reside, or
unless issuance of such shares of Common Stock is exempt from registration.
Although the Company will make every reasonable effort to maintain the
effectiveness of such registration, no assurances can be given that the Company
will be successful in this regard.
The Warrants may not be exercised after [nine months after the date of this
Prospectus] unless and until a Post-Effective Amendment has been filed with the
SEC and becomes effective. Although the Company has undertaken and intends to
file and keep current a prospectus that will permit the purchase and sale of the
Common Stock underlying the Warrants, there can be no assurance that the Company
will be able to do so.
The Warrants, which will be issued pursuant to a warrant agreement between
the Company and American Stock Transfer & Trust Company, will be in registered
form and will be saleable, assignable, and conveyable separately and apart from
the Common Stock. American Stock Transfer & Trust Company, as warrant agent,
will be responsible for all record keeping and administrative functions in
connection with the Warrants. A copy of the form of Warrant Agreement is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The discussion of the Warrants herein does not purport to be complete and
is qualified in its entirety by reference to the Warrant Agreement.
WARRANTS ISSUED IN PRIVATE PLACEMENTS
The Company issued warrants to purchase 3,200,015 shares of its Common
Stock to investors who participated in three private placements during 1994 and
1995. In accordance with the documents which governed each of such placements,
such warrants will be automatically converted into Warrants on the date of
closing of this Offering.
First Private Placement In June 1994, the Company successfully completed a
$750,000 private placement of 7.5 units, each of which consisted of an unsecured
12% promissory note in the principal amount of $98,000, and a warrant to
purchase 100,000 shares of Common Stock (750,000 shares in the aggregate) at an
exercise price of $1.00 per share during the three year period ending on
December 14, 1998 (the "First Private Placement Warrants"). In accordance with
the provisions of the First Private Placement Warrants, if a Registration
Statement with respect to an initial public offering of securities is filed
under the Securities Act with the SEC by the Company during the term of the
First Private Placement Warrants, then upon the declaration of effectiveness of
such Registration Statement, any unexercised First Private Placement Warrants
would be automatically converted into warrants having terms identical to those
of the Warrants offered hereby. Inasmuch as none of the 750,000 First Private
Placement Warrants has been exercised as of the date of this Prospectus, all of
such First Private Placement Warrants are deemed to have been automatically
converted into Warrants to purchase 750,000 shares of Common Stock at an
exercise price of $7.25 per share, during the same term, and in accordance with
the same provisions which are applicable to the Warrants. None of such warrants
is being registered for sale by the holders thereof.
Second Private Placement In October 1994, the Company successfully
completed a $1,000,000 private placement of 10 units, each of which consisted of
an unsecured 12% promissory note in the principal amount
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<PAGE> 67
of $98,000, and a warrant to purchase 50,000 shares of Common Stock (500,000
shares in the aggregate) at an exercise price of $1.00 per share during the
three year period ending on April 18, 1999 (the "Second Private Placement
Warrants"). Pursuant to a cancellation and rescission agreement, which the
Company executed with Colonial, one of the Second Private Placement investors,
the number of outstanding Second Private Placement Warrants has been reduced to
462,500 warrants. The Company has paid $50,000 of the $100,000 which it owes to
Colonial pursuant to such agreement. The Company intends to use $50,000 of the
proceeds of this Offering to pay the balance of its obligation to Colonial. The
Second Private Placement Warrants contain automatic conversion provisions which
are identical to the conversion provisions of the First Private Placement
Warrants. Inasmuch as none of the 462,500 Second Private Placement Warrants has
been exercised as of the date of this Prospectus, all of such Second Private
Placement Warrants are deemed to have been automatically converted into Warrants
to purchase 462,500 shares of Common Stock at an exercise price of $7.25 per
share, during the same term, and in accordance with the same provisions which
are applicable to the Warrants. All of such Warrants are being offered for sale
by the holders thereof on a non-underwritten basis pursuant to a separate
prospectus included in the Registration Statement of which this Prospectus forms
a part. See "Use of Proceeds;" "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources;" and "Concurrent Registration of Securities."
Third Private Placement In February 1996, the Company successfully
completed a $1,050,000 private placement of 30 units, each of which consisted of
an unsecured 8% promissory note in the principal amount of $35,000, 10,000
shares of Common Stock (300,000 shares in the aggregate) and a warrant to
purchase 66,667 shares of Common Stock (2,000,015 shares in the aggregate) at an
initial exercise price of $5.75 per share during the five year period commencing
on the effective date of the Registration Statement relating to the Company's
initial public offering of securities (the "Third Private Placement Warrants).
The provisions of the Third Private Placement Warrants further provide that upon
consummation of the Company's initial public offering of securities, the Third
Private Placement Warrants will be automatically converted into warrants having
terms identical to those of the Warrants offered hereby. Accordingly, all
2,000,015 Third Private Placement Warrants are deemed to have been automatically
converted into Warrants to purchase 2,000,015 shares of Common Stock at an
exercise price of $7.25 per share, during the same term, and in accordance with
the same provisions which are applicable to the Warrants. All of such Warrants
are being offered for sale by the holders thereof on a non-underwritten basis
pursuant to a separate prospectus included in the Registration Statement of
which this Prospectus forms a part. See "Concurrent Registration of Securities."
REGISTRATION RIGHTS
The Representative's Warrant confers certain registration rights upon the
holders thereof. See "Underwriting -- Representative's Warrant."
The holders of the First Private Placement Warrants were given, pursuant to
the First Private Placement's offering documents, the right to include in this
Offering the Warrants into which their First Private Placement Warrants were
converted, and the shares of Common Stock issuable upon exercise thereof.
However, such registration rights were subject to the right of the
Representative to exclude such warrants and shares from the Offering, subject to
the proviso that an election by the Representative to effect such exclusion
would thereupon confer upon the holders of the First Private Placement Warrants
to demand on one occasion that the Company file a registration statement with
the SEC registering such Warrants and the shares of Common Stock issuable upon
exercise thereof for sale under the Securities Act. Such demand registration
rights may be exercised at any time during the period commencing six months
after the date of this Prospectus and the expiration of the term of the Warrants
into which the First Private Placement Warrants have been converted, and must be
exercised by the holders of a majority of the First Private Placement Warrants.
If such rights are exercised, the Company must prepare and file a registration
statement on an appropriate form to register the Warrants into which the First
Private Placement Warrants of the electing holders have been converted and the
Common Stock issuable upon exercise thereof, so as to permit a public offering
and sale thereof for a period of nine months. The Company must bear all costs of
such registration, except for filing fees, any underwriter's discounts and
commissions, any stock transfer taxes and the fees and expenses of such holders'
counsel.
64
<PAGE> 68
The Representative has elected to exclude from the Registration Statement
of which this Prospectus is a part the shares of Common Stock issuable upon
exercise of the Warrants into which the First Private Placement Warrants have
been converted. Accordingly, the holders of such warrants now possess the above-
described demand registration rights.
In accordance with the provisions of the offering documents pertaining to
the Second Private Placement Warrants and the Third Private Placement Warrants,
(i) the Warrants into which the 462,500 Second Private Placement Warrants have
been converted, and the shares of Common Stock issuable upon exercise of such
warrants; and (ii) the Warrants into which the 2,000,015 Third Private Placement
Warrants have been converted, and the shares of Common Stock issuable upon
exercise of such warrants, have been included in a separate prospectus included
in the Registration Statement of which this Prospectus forms a part, at the
Company's sole cost and expense, except the fees and expenses of the counsel for
the holders of such securities, if any, and any underwriting or selling
commissions or other charges of any broker-dealer acting on behalf of such
holders.
The above-described registration rights pertaining to the First Private
Placement Warrants could result in substantial future expense to the Company and
could adversely affect the Company's ability to complete future equity or debt
financings. Furthermore, the registration and sale of securities of the Company
held by or issuable to the holders of registration rights, or even the potential
of such sales, could have an adverse effect on the market price of the
securities offered hereby.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, serves as the transfer agent and registrar of the Common Stock, and as
warrant agent of the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
4,485,000 shares of Common Stock (4,714,500 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, 1,530,000 shares
will be freely tradeable without restriction under the Securities Act, and
1,155,000 shares will be registered for sale pursuant to a separate prospectus
under the Securities Act, but restricted from sale pursuant to the lock-up
agreements hereinbelow described. The remaining 1,800,000 shares of Common Stock
held by existing shareholders are restricted securities within the meaning of
Rule 144. In accordance with Rule 144, all of said 1,800,000 shares are
presently eligible for sale to the public notwithstanding the fact that they
have not been registered under the Securities Act.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year, but less than two
years, will be entitled to sell in any three month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (approximately 44,850 shares immediately after the Offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least two years is entitled to sell
such shares pursuant to Rule 144(k) without regard to the limitations described
above. Rule 144A under the Act as currently in effect permits the immediate sale
of restricted shares to certain qualified institutional buyers without regard to
volume restrictions.
The Representative has required, as a condition to the closing of the
Offering, that each of the directors and officers of the Company and its
Subsidiaries, each of the holders of said 1,155,000 shares being registered
pursuant to a separate prospectus and said 1,800,000 shares, as well as the
holders of warrants and an option to purchase 3,237,515 shares of the Company's
Common Stock must execute written lock-up agreements
65
<PAGE> 69
providing that, for a period of 24 months from the date of this Prospectus, they
shall not offer, register, sell, contract to sell, grant an option for the sale
of, issue, assign, transfer or otherwise dispose of any of the Company's
securities held by them without the Representative's prior written consent.
Except for the possibility that the Representative might, in the exercise of its
sole discretion, grant a request for relief from the provisions of the lock-up
agreement, the Company is not aware of any circumstance under which the
Representative would permit any of the existing stockholders or warrantholders
to sell his respective securities prior to the end of the lock-up period. In
determining whether or not to grant such a request, the Representative's primary
concern will be the potential adverse effects on the markets for the Common
Stock and Warrants that may result from an increase in the amount of the pool of
publicly tradeable securities of the Company. In the event that the
Representative does modify, shorten or waive any of the restrictions imposed
pursuant to the lock-up agreements, the Company will file a post-effective
amendment to the Registration Statement of which this Prospectus forms a part if
such action by the Representative affects 10% or more of the Selling
Securityholders' securities, or it will add a sticker to this Prospectus if such
action by the Representative affects more than 5%, but less than 10% of the
Selling Securityholders' securities. The lock-up agreements will have no effect
on the date on which shares become eligible for sale pursuant to Rule 144.
There has been no prior market for the Common Stock or the Warrants, and
there can be no assurance a significant public market for such securities will
develop or be sustained after the offering. Sales of substantial amounts of
Common Stock or Warrants in the public market could adversely affect the market
prices of the Company's securities.
66
<PAGE> 70
UNDERWRITING
The underwriters named below, for whom J.W. Barclay & Co., Inc. is acting
as the Representative (the "Underwriters"), have severally agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company and the Selling Stockholders, and the Company and the Selling
Stockholders have agreed to sell to the Underwriters, the respective numbers of
shares of Common Stock and Warrants set forth opposite each Underwriter's name
below:
<TABLE>
<CAPTION>
NUMBER OF
-----------------------
UNDERWRITERS SHARES WARRANTS
-------------------------------------------------------------- --------- ---------
<S> <C> <C>
J.W. Barclay & Co., Inc.......................................
--------- ---------
Total............................................... 1,530,000 2,200,000
========= =========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock and
Warrants offered hereby through the Representative, if any are purchased.
The Company and the Selling Stockholders have been advised by the
Representative that, the Underwriters propose initially to offer the Common
Stock and Warrants to the public on the terms set forth on the cover page of
this Prospectus. The Underwriters may allow concessions of not more than
$[ ] and $[ ] per share of Common Stock and Warrant, respectively, to
selected dealers; and the Underwriters may allow, and such dealers may reallow,
concessions of not more than $[ ] and $[ ] per share of Common Stock and
Warrant, respectively, to certain other dealers. After the consummation of the
Offering, the concessions to selected dealers and the reallowances to other
dealers may be changed by the Underwriters. The Common Stock and Warrants are
offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted to the Underwriters an option to purchase up to
229,500 additional shares of Common Stock and/or up to 330,000 additional
Warrants solely to cover over-allotments, if any. The option is exercisable
within 45 days from the date of this Prospectus at the prices to public, less
the underwriting discounts and commissions set forth for such securities on the
cover page of this Prospectus. To the extent the Underwriters exercise the
option, the Underwriters will be committed, subject to certain conditions, to
purchase the additional shares of Common Stock and/or Warrants.
See "Shares Eligible For Future Sale" for a description of certain lock-up
agreements.
Upon the exercise of any Warrants, which exercise was solicited by the
Representative, and to the extent not inconsistent with the guidelines of the
NASD and the Rules and Regulations of the Commission, the Company has agreed to
pay the Representative a commission which shall not exceed the maximum amount
permitted by the NASD at the time of exercise (currently 5% of the aggregate
exercise price of such Warrants) in connection with bona fide services provided
by the Representative relating to any Warrant solicitation. In addition, the
solicited individual must state in writing (either within or accompanying the
warrant exercise notice) whether the exercise of the individual's warrants was
solicited by the Representative in order for the Representative to be entitled
to such Warrant solicitation fee. Pursuant to the Warrant Agreement, the warrant
agent will monitor the warrant exercise notices to determine whether a Warrant
67
<PAGE> 71
holder's exercise was solicited by the Representative. However, no compensation
will be paid to the Representative in connection with the exercise of the
Warrants if (a) the market price of the Common Stock is lower than the exercise
price; (b) the Warrants were held in a discretionary account; or (c) the
Warrants are exercised in an unsolicited transaction. The Company has agreed not
to solicit the exercise of any Warrants other than through the Representative
unless the Representative is legally unable to solicit such exercise, in which
event the Company may solicit such exercise, either by itself or with the
assistance of a third party.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against, or contribute to the losses arising from, certain
liabilities, including liabilities arising under the Securities Act.
The Company and the Selling Stockholders have agreed to pay the
Underwriters a non-accountable expense allowance equal to 3% of the aggregate
offering price of the Common Stock and Warrants to be sold in the Offering. The
Company has paid the Representative a $25,000 advance with respect to its
expense allowance obligation.
The Company has agreed to sell to the Representative or its designees, at a
price of $10, the Representative's Warrants, which entitle the Representative to
purchase up to 153,000 shares of Common Stock of the Company and 220,000
Warrants to purchase up to an additional 220,000 shares of Common Stock of the
Company, respectively. The Representative's Warrants will be exercisable at a
price of $[ ] per share and $[ ] per Warrant, respectively, for a period
of four years commencing one year from the date of this Prospectus, and will not
be transferable except to selected dealers and officers and partners of the
Representative and such selected dealers. The Company has agreed, that on one
occasion during the period of five years from the date of this Prospectus, it
will file a post-effective amendment to the Registration Statement of which this
Prospectus forms a part with respect to the registration of the Representative's
Warrants and the underlying securities under the Securities Act at its expense,
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 Representative's
Warrants and the underlying securities. Such piggy-back registration rights will
expire seven years from the date of this Prospectus.
The Representative has informed the Company that it does not expect sales
to be made to discretionary accounts to exceed 1% of the shares of Common Stock
and Warrants offered hereby.
The Underwriting Agreement also provides that the Company, its current or
future subsidiaries, if any, and its officers, directors and principal
stockholders, or their respective affiliates, will for a period of three years
from the Effective Date provide the Representative with a right of first refusal
with respect to any public or private offering of securities to raise capital.
The Representative must agree to undertake any such financing on the same or
better terms as any other financing proposal.
The Company has agreed for itself, and for its current and future
subsidiaries, and its officers, directors and its 5% or greater stockholders
have agreed that, during the five year period commencing on the date of closing
of the Offering, the Representative shall have a right of first refusal with
respect to any public or private offering of their respective securities.
The Company has agreed that, during the five year period commencing on the
date of closing of the Offering, the Representative shall have the right to
engage a designee of the Representative to serve as an advisor to the Company's
Board of Directors who shall receive notice of, and have the right to attend,
all meetings of the Board. Such advisor shall be entitled to receive
compensation equal to the entitlement of all non-employee directors, and shall
be entitled to reimbursement of all costs incurred in attending such meetings.
In lieu of the designation of an advisor to the Board, the Representative shall
have the right, during the same five year period, to designate one person for
election to the Company's Board of Directors. The Company must utilize its best
efforts to obtain the election of such person, and if he or she is elected, such
director shall be entitled to receive the same compensation and the same rights
of reimbursement enjoyed by all other non-employee directors of the Company. The
Representative has advised the Company that, as of the
68
<PAGE> 72
date of this Prospectus, the Representative has not made any determination as to
whether, and if so, when, it may exercise either of the above-described rights.
The Company has entered into an agreement with the Representative providing
that, during the three year period which commenced on [ ], 1997,
it will pay the Representative a sum equal to 2% of the net proceeds derived by
the Company from the sale of the Common Stock and Warrants offered hereby, i.e.,
$187,340. In the event that the over-allotment option is exercised in full, such
fee will be approximately $216,163.
The foregoing is a summary of the principal terms of the Underwriting
Agreement, in which all material terms have been disclosed, and does not purport
to be complete. Reference is made to the forms of Underwriting Agreement and
Representative's Warrant Agreement, copies of which are on file as exhibits to
the Company's Registration Statement of which this Prospectus forms a part. See
"Additional Information."
LEGAL MATTERS
The validity of the Common Stock and Warrants being offered hereby will be
passed upon for the Company by Hall Dickler Kent Friedman & Wood, LLP, New York,
New York. Steven D. Dreyer, Esq., a partner of said firm, is a director of the
Company. Certain legal matters concerning Russian law will be passed upon by
Irina uIgitova, Esq., Moscow, Russian Federation, Russian counsel for the
Company. Certain legal matters in connection with this Offering will be passed
upon for the Representative by Gusrae, Kaplan & Bruno, New York, New York.
EXPERTS
The financial statements of Russian Wireless Telephone Company, Inc. at
December 31, 1996, and for each of the two years in the period ended December
31, 1996 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon (which contains an explanatory paragraph with respect to the going
concern mentioned in Note 1 to the financial statements) appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of said firm as an expert in accounting and auditing.
The financial statements of Corbina Telecommunications at December 31,
1996, and for the period December 1, 1995 (inception) through December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young (CIS) Limited, independent auditors, as set forth in their report
thereon (which contains an explanatory paragraph with respect to the going
concern mentioned in Note 1 to the financial statements) appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of said firm as an expert in accounting and auditing.
69
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Auditors.................................................. F-2
Balance Sheet at December 31, 1996.............................................. F-3
Statement of Operations for the years ended December 31, 1996 and 1995.......... F-4
Statement of Shareholders' Deficiency for the years ended December 31, 1996 and
1995.......................................................................... F-5
Statement of Cash Flows for the years ended December 31, 1996 and 1995.......... F-6
Notes to Financial Statements................................................... F-8
</TABLE>
UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheet at March 31, 1997................................................. F-16
Statement of Operations for the three months ended March 31, 1997 and 1996...... F-17
Statement of Shareholders' Deficiency for the period January 1, 1997 to March
31, 1997...................................................................... F-18
Statement of Cash Flows for the three months ended March 31, 1997 and 1996...... F-19
Notes to Financial Statements................................................... F-20
</TABLE>
CORBINA TELECOMMUNICATIONS
AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.................................................. F-25
Balance Sheet at December 31, 1996.............................................. F-26
Statement of Operations for the period December 1, 1995 through December 31,
1996.......................................................................... F-27
Statement of Shareholders' Deficiency for the period December 1, 1995 through
December 31, 1996............................................................. F-28
Statement of Cash Flows for the period December 1, 1995 through December 31,
1996.......................................................................... F-29
Notes to Financial Statements................................................... F-30
</TABLE>
UNAUDITED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets at December 31, 1996 and at March 31, 1997....................... F-35
Statements of Operations for the three months ended March 31, 1997 and 1996..... F-36
Statements of Cash Flows for the three month periods ended March 31, 1997 and
1996.......................................................................... F-37
Notes to Financial Statements................................................... F-38
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Russian Wireless Telephone Company, Inc.
We have audited the accompanying balance sheet of Russian Wireless
Telephone Company, Inc. (formerly Telcom Group USA, Inc., "the Company") as of
December 31, 1996, and the related statements of operations, stockholders'
deficiency, and cash flows for each of the two years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Russian Wireless Telephone
Company, Inc. (formerly Telcom Group USA, Inc.) at December 31, 1996, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations, a working capital deficiency and shareholders'
deficiency raise substantial doubt about its ability to continue as a going
concern. Management's plans as to those matters are also described in Note 1.
The 1996 financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
ERNST & YOUNG LLP
New York, New York
February 28, 1997
F-2
<PAGE> 75
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 487,772
Due from affiliate......................................................... 30,000
Deferred financing costs, net of accumulated amortization of $210,000...... 1,680,000
Prepaid expenses and other current assets.................................. 79,445
-----------
Total current assets............................................................ 2,277,217
Loan receivable................................................................. 190,000
Equipment, net of accumulated depreciation of $15,851........................... 19,596
Security deposits and other assets.............................................. 47,053
-----------
Total assets.................................................................... $2,533,866
===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Notes payable, net of discounts of $266,000................................ $2,658,000
Accrued interest payable................................................... 358,813
Accounts payable and accrued expenses...................................... 109,663
-----------
Total current liabilities....................................................... 3,126,476
Long-term debt, net of discount of $239,000..................................... 361,000
Commitments and contingencies
Shareholders' deficiency:
Preferred stock, par value $.01; 1,000,000 shares authorized;
none issued and outstanding
Common stock, par value $.01; 15,000,000 shares authorized;
2,235,000 shares issued and outstanding.................................. 22,350
Additional paid-in capital................................................. 2,340,218
Accumulated deficit........................................................ (3,316,218)
-----------
Total shareholders' deficiency.................................................. (953,610)
-----------
Total liabilities and shareholders' deficiency.................................. $2,533,866
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 76
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995
---------- ---------
<S> <C> <C>
Commission income............................................ $ 8,043 $ 21,172
----------- ---------
Operating expenses:
Officers' salaries...................................... 100,000 203,125
Selling, general and administrative..................... 482,891 426,228
Amortization of deferred financing costs................ 210,000 221,965
----------- ---------
Total operating expenses..................................... 792,891 851,318
----------- ---------
Operating loss............................................... (784,848) (830,146)
Interest, including $497,500 ($36,500 in 1995) of
amortization of discount on notes payable, and
financing expenses, net.................................... 686,030 397,356
----------- ---------
Net loss..................................................... $(1,470,878) $(1,227,502)
=========== ===========
Net loss per common share.................................... $ (.67) $ (.34)
=========== =========
Weighted average number of shares outstanding................ 2,210,000 3,603,614
=========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... 4,707,000 $ 47,070 $ 31,538 $ (617,838) $ (539,230)
Contribution of shares............. (2,834,000) (28,340) 28,340
Issuance of common stock for
services rendered in January
1995............................. 600,000 6,000 174,000 180,000
Issuance of common stock........... 300,000 3,000 27,000 30,000
Repurchase and retirement of common
stock in exchange for promissory
note in May 1995................. (800,000) (8,000) (277,000) (285,000)
Repurchase and retirement of common
stock in exchange for promissory
note in August 1995.............. (488,000) (4,880) (201,120) (206,000)
Net loss........................... (1,227,502) (1,227,502)
--------- -------- ---------- ---------- ----------
Balance at December 31, 1995 1,485,000 14,850 (217,242) (1,845,340) (2,047,732)
Issuance of common stock and
warrants in connection with a
private placement in February
1996............................. 300,000 3,000 645,000 648,000
Issuance of common stock in
connection with a private
placement in December 1996....... 450,000 4,500 1,912,500 1,917,000
Net loss........................... (1,470,878) (1,470,878)
--------- -------- ---------- ---------- ----------
Balance at December 31, 1996....... 2,235,000 $ 22,350 $2,340,258 $(3,316,218) $ (953,610)
========= ======== ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(1,470,878) $(1,227,502)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 6,604 6,490
Amortization of organization costs..................... 1,227 1,229
Amortization of deferred financing costs............... 210,000 221,965
Write-off of deferred underwriting costs............... -- 61,652
Amortization of discount on notes payable.............. 486,500 36,500
Changes in operating assets and liabilities:
Due from affiliate................................ (30,000) --
Prepaid expenses and other current assets......... (66,984) 8,742
Security deposits................................. (12,828) 7,315
Accounts payable and accrued expenses............. (210,870) 242,815
Accrued interest payable.......................... 198,377 142,061
---------- ----------
Net cash used in operating activities....................... (888,852) (498,733)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of stock option.................................... (5,000) --
Acquisition of property and equipment....................... (14,832) (2,403)
Deferred registration fees.................................. (25,000) --
---------- ----------
Net cash used in investing activities....................... (44,832) (2,403)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable................................. 1,800,000 100,000
Loan receivable............................................. (190,000) --
Repayment of notes payable.................................. (200,000) --
Proceeds from issuance of common stock...................... -- 30,000
---------- ----------
Net cash provided by financing activities................... 1,410,000 130,000
---------- ----------
Net increase (decrease) in cash and cash equivalents........ 476,316 (371,136)
Cash and cash equivalents at beginning of year.............. 11,456 382,592
---------- ----------
Cash and cash equivalents at end of year.................... $ 487,772 $ 11,456
========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of 600,000 shares of common stock for services
rendered...................................................... $ -- $180,000
Repurchase and retirement of 1,288,000 shares of common stock in
exchange for promissory notes payable......................... -- 491,000
Contribution of 2,834,000 shares of common stock................ -- 28,340
Issuance of 300,000 shares of common stock and 2,000,000
warrants in connection with a private placement offering...... 648,000 --
Issuance of 450,000 shares of common stock in connection with a
private placement offering.................................... 1,917,000 --
</TABLE>
See accompanying notes.
F-7
<PAGE> 80
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Description of Business
Telcom Group USA, Inc. ("Telcom") was incorporated on April 26, 1994 under
the laws of the State of Delaware. On August 19, 1994, Telcom obtained the
required State of New York Public Service Commission Certification allowing it
to operate as a reseller of all forms of telephone services via landline
telephone company or other common carrier facilities located in New York State.
Telcom was engaged primarily as a provider of long distance telecommunications
services to commercial customers, initially in the New York metropolitan area.
With the passage of the Federal Telecommunications Act of 1996 and the
subsequent entry into the local markets by long distance carriers, Telcom began
to phase out operations in New York State and focused its efforts on the
international markets, particularly the Russian Federation.
In 1996, Telcom's management began exploring opportunities involving the
delivery of various categories of telecommunications products and services
throughout the former Soviet Union including Russia, Georgia, Latvia and
Aberbaijan. In July 1996, Telcom purchased an option for $5,000 to purchase for
$190,000, 75% of Corbina Telecommunications, ("Corbina"), a closed joint stock
company organized under the laws of the Russian Federation which has been
providing long distance telephone services to businesses located in the Moscow
metropolitan area since March 1996. Corbina does not operate on the basis of a
telecommunication license but, rather, through agreements entered into with long
distance companies, primarily Rustelnet, Global One and TelMos, through which it
offers long distance service features through its private telecommunications
network. In connection with this option purchase, during 1996, Telcom loaned
Corbina's sole shareholder $190,000 bearing interest at 8% per annum, receivable
on demand.
On February, 10, 1997, Telcom changed its name to Russian Wireless
Telephone Company, Inc.("Russian Wireless") in connection with the merger of a
Delaware corporation with and into Telcom which had been known by that name
(Telcom and Russian Wireless collectively the "Company"). Russian Wireless was
formed on October 21, 1996 by Telcom's chief executive officer and by Corbina's
sole shareholder to provide wireless local loop telecommunications services to
business customers in Moscow, particularly to subscribers who generate
significant amounts of outgoing domestic and international long distance
traffic. The shareholders of Russian Wireless exchanged all of the issued and
outstanding shares for 750,000 shares of Telcom's common stock valued at $4.20
per share (60% of the projected IPO price (see Note 10)). Accordingly, on
February 10, 1997, the Company recorded an expense of $3,150,000. Russian
Wireless has had minimal activity from the date of inception (October 21, 1996)
through December 31, 1996. At December 31, 1996 and for the period from the date
of inception through December 31, 1996, Russian Wireless' financial position and
result of operations were as follows:
<TABLE>
<S> <C>
Total Assets............................................... $ 68
Shareholder's Deficiency................................... $34,932
Net Loss................................................... $35,032
</TABLE>
On January 28, 1997, Telcom exercised its option to purchase 75% of Corbina
and the $190,000 loan to Corbina's sole shareholder was exchanged for the shares
of Corbina.
F-8
<PAGE> 81
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
1. ORGANIZATION -- (CONTINUED)
In October 1996, CompTel Ltd. ("CompTel") a closed joint stock Company
organized under the laws of the Russian Federation was formed to operate a
wireless local loop network in the Russian Federation. In March 1997, the
Company acquired a 75% interest in CompTel.
Basis of Presentation
During the years ended December 31, 1996 and 1995, the Company incurred
losses from operations aggregating $784,848 and $830,146, respectively, and had
a working capital deficiency and stockholders' deficiency of $659,259 and
$953,610, respectively, at December 31, 1996. Such losses and the
above-described deficiencies were primarily attributable to the facts that, (i)
from the time of its organization in April 1994, through December 31, 1996, the
Company conducted operations on a limited basis while the Company's management
devoted the bulk of their time and resources to the tasks of developing what was
then anticipated to be the Company's intended business, i.e., the provision, as
a competitive access provider of single source local and long distance
telecommunications services to commercial customers in the New York Metropolitan
area; and (ii) by reason of the passage of the Federal Telecommunications Act of
1995 (and the subsequent entry into the local telephone markets by long distance
carriers), the Company undertook during 1996 to explore other opportunities in
the telecommunications industry, particularly in international venues. In order
to meet its obligations and finance the activities it undertook during the two
year period ended December 31, 1996 in the absence of any meaningful revenues
generated from operations, the Company made use of funds obtained through
private placement financing transactions. The foregoing factors have resulted in
a deterioration of the Company's financial condition and raise substantial doubt
about its ability to continue as a going concern. These financial statements
have been prepared assuming the Company will continue as a going concern and do
not include any adjustments that may result form the outcome of this
uncertainty.
In order for the Company to strengthen its financial condition and to
operate profitably in future periods, (a) its 75% owned Russian subsidiary,
Corbina, must attain a sustaining level of profitability from operations through
expansion of its service offerings and continued increases in the
telecommunications traffic purchased from it by its existing and new customers,
(b) the Company's other 75% owned Russian subsidiary, CompTel must successfully
construct and then operate profitably the wireless local loop telecommunications
network which it proposes to establish in the Moscow metropolitan area, and ( c)
both subsidiaries must provide the Company with sufficient distributions from
the income that they intend to derive from such operations so that the Company
will be able to finance its activities solely from such distributions. The
Company intends to provide its subsidiaries with the finances necessary for them
to achieve the requisite levels of operations through an IPO transaction which
it intends to commence during 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
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 reported period. Actual
results could differ from those estimates.
F-9
<PAGE> 82
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Equipment
Equipment is stated at cost and depreciated using the straight-line method
over the estimated useful lives (five years) of the underlying assets.
Deferred Financing Costs
Deferred financing costs, related principally to the issuance of debt, are
amortized over the period of the related debt.
Organization Costs
Organization costs are being amortized over a period of five years.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At December 31,
1996, the Company has substantially all of its cash in one financial
institution.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Notes Payable: The carrying amounts of the Company's notes payable
approximate their fair value due to the short-term nature of these instruments.
Long-Term Debt: The fair value of the Company's long-term debt is
estimated using discounted cash flow analysis, based on the Company's
incremental borrowing rate for similar types of borrowing arrangements and
approximates fair value.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for all fiscal years beginning
after December 15, 1995 and prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company is accounting for its stock-based compensation plans in
accordance with the provisions of APB 25.
F-10
<PAGE> 83
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes
Income taxes are recorded pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109
prescribes the liability method of accounting for deferred income taxes, which
bases such deferred income taxes on the temporary differences between the
financial reporting and income tax bases of assets and liabilities, using
currently-enacted income tax rates and regulations.
Revenue Recognition
The Company recognizes commission income in its capacity as a reseller of
long distance telephone service when the customers they have contracted with on
behalf of long distance carriers are billed for usage.
Net Loss Per Share
Net loss per share computations are based upon net loss divided by the
weighted average number of shares of common stock outstanding during the
respective periods. The weighted average number of common stock outstanding have
been calculated in accordance with Staff Accounting Bulletin 83 ("SAB 83") of
the Securities and Exchange Commission. SAB 83 requires that shares of common
stock, warrants and options issued one-year prior to the initial filing of a
registration statement relating to an initial public offering at amounts below
the public offering price be considered outstanding for all periods presented in
the Company's registration statement.
3. DUE FROM RUSSIAN WIRELESS
Amounts due from Russian Wireless represent non-interest bearing advances
receivable on demand which were advanced to by Telcom prior to the merger.
4. RELATED PARTY TRANSACTIONS
In December 1994, the Company granted its Chief Executive Officer a bonus
in the amount of $180,000. In January 1995, the Company issued 600,000 shares of
its common stock as payment of the $180,000 obligation.
5. NOTES PAYABLE
Pursuant to a Second Private Placement (the "Second Placement") which
closed on October 19 and November 3, 1994, the Company sold to five accredited
investors, an aggregate of ten units of 12% interest bearing notes aggregating
$980,000 and 500,000 warrants for an aggregate of $20,000. Each unit was
comprised of a $98,000 12% interest bearing note and 50,000 warrants.
The principal and interest on the promissory notes is payable at the
earlier of (i) June 19, 1997 or (ii) the Company's consummation of a public or
private financing of its equity securities raising net proceeds equal to or
greater than the gross proceeds raised in the Second Placement. The Company
received net proceeds of $870,000 after payment of $100,000 in commissions and
$30,000 in other costs paid to the placement agent. The $130,000 in commissions
and placement agent fees were amortized over the original maturity of the
F-11
<PAGE> 84
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
5. NOTES PAYABLE -- (CONTINUED)
promissory notes (February 19, 1996). The Company used $765,447 of the proceeds
from the Second Placement to repay in full the notes and accrued interest
outstanding under the first private placement.
On February 6, 1997, the Company and one of the accredited investors agreed
to rescind the purchase of one unit. In consideration thereof, the Company is to
pay the sum of $100,000, without any interest, to the investor in four equal
monthly installments of $25,000 commencing February 15, 1997. As part of this
rescission, 50,000 warrants were immediately canceled.
On August 29, 1995, the Company purchased and retired 488,000 shares of its
common stock from a shareholder in exchange for a $244,000 note payable. The
note accrues interest at 2% per annum. The Company recorded a discount on this
note payable in the amount of $38,000 based on its incremental borrowing rate at
the time of the transaction. The discount is being amortized as interest expense
over twenty months. The unamortized balance at December 31, 1996 is $7,500.
Proceeds from the Third Private Placement on February 2, 1996 (the "Third
Placement") were used to repay $100,000 of this note with the balance payable at
consummation of the Company's Initial Public Offering (the "IPO").
Pursuant to the Third Placement, the Company sold to sixteen accredited
investors 30 units of 8% interest bearing notes aggregating $1,050,000. Each
unit was comprised of (i) the Company's promissory note in the principal amount
of $35,000 (ii) 10,000 shares of the Company's common stock and (iii) 66,667
warrants; each warrant entitles the holder to purchase one share of common stock
at $5.75 per share (or such other exercise price as will be the exercise price
of the warrants to be issued in conjunction with the Company's IPO). The Company
recorded a discount on these notes payable in the aggregate amount of $648,000
based on its incremental borrowing rate at the time of the transaction and
management's estimate of the value of the common stock issued. The discount is
being amortized as interest expense over fourteen months (through the
anticipated IPO date). The unamortized balance at December 31, 1996 is $237,000.
The promissory notes and accrued interest are due and payable on the earlier of
eighteen months from the date of issuance, or the consummation of the Company's
IPO. If the Company's IPO is not consummated by August 2, 1997 based upon the
Company's decision not to proceed with the IPO, the notes payable (including all
accrued interest) will become immediately due and payable and each warrant will
convert into one share of common stock. If the Company's IPO is not consummated
for any other reason by August 2, 1997, the promissory notes (including all
accrued interest) will become immediately due and payable and each warrant will
become null and void.
On December 19, 1996, the Company issued promissory notes to three
accredited investors in the aggregate amount of $750,000. The notes bear
interest at 8% per annum and are due upon the earlier of consummation of the
Company's IPO or October 31, 1998. If the Company fails to file a Registration
Statement with the Securities and Exchange Commission relating to the Company's
IPO by March 31, 1997, the notes will become due and payable immediately. The
Company recorded a discount on these notes payable in the amount of $27,000
based on its incremental borrowing rate at the time of the transaction. The
discount is being amortized over four and one-half months (through the
anticipated IPO date). The unamortized balance at December 31, 1996 is $21,500.
In connection with the December 19, 1996 promissory notes, the Company issued
150,000 shares of common stock to each of the three accredited investors. The
Company valued these shares of common stock at $4.20 per share, representing 60%
of the anticipated IPO price. As a result, the Company incurred deferred
financing costs of $1,890,000 which are being amortized over four and
F-12
<PAGE> 85
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
5. NOTES PAYABLE -- (CONTINUED)
one-half months (through the anticipated IPO date). During 1996, $210,000 was
amortized into expense leaving an unamortized balance at December 31, 1996 of
$1,680,000.
6. LONG-TERM DEBT
On May 22, 1995, the Company repurchased and retired 800,000 shares of its
common stock from a shareholder in exchange for a $600,000 note payable. The
note accrues interest at 2% per annum and is due on May 22, 2000. The Company
recorded a discount on this note payable in the amount of $315,000, based on its
incremental borrowing rate at the time of the transaction, which is being
amortized as interest expense over the life of the note.
7. STOCK OPTIONS AND WARRANTS
In May 1995, the Company under its 1995 Director's Stock Option Plan (the
"Directors Plan") granted to each of its two Directors, at that time, options to
purchase 25,000 shares of the Company's common stock at an exercise price of
$2.00 per share. These options are currently exercisable and expire in May 1998.
As of December 31, 1996, an aggregate of 50,000 shares of the Company's common
stock are reserved for issuance. The Directors Plan has been replaced by the
options issued under the Omnibus Plan.
Pursuant to the Company's First Private Placement (the "First Placement")
on June 15, 1994, the Company sold to eleven accredited investors an aggregate
of 750,000 warrants for $15,000. Each warrant entitles the holder to purchase
one share of the Company's common stock at $1.00 per share. The warrants are
exercisable for a period of three years commencing on December 15, 1995.
On October 19, and November 3, 1994, pursuant to the Second Placement, the
Company granted to five accredited investors warrants to purchase 500,000 shares
of common stock at a price of $1 per share. The warrants are exercisable for a
period of three years commencing on February 19, 1996.
On February 2, 1996, pursuant to the Third Placement, the Company granted
to sixteen accredited investors warrants to purchase 2,000,015 shares of common
stock at a price of $5.75 per share or such other exercise price as will be the
exercise price of the warrants to be issued in conjunction with the IPO. The
warrants are exercisable during the period commencing on the effective date of
the registration statement to be filed by the Company in connection with its IPO
and terminating on the close of business on the five-year anniversary of the
effective date.
In accordance with the terms of the offering documents of the First, Second
and Third Placements, upon completion of the IPO, all of the aforementioned
warrants will be replaced by warrants setting forth the same terms as the
warrants the Company intends to issue in its IPO.
As of December 31, 1996, no warrants have been exercised and an aggregate
of 3,250,015 shares of the Company's common stock are reserved for issuance
under the warrants. On February 6, 1997, 50,000 warrants were canceled.
Subsequent to December 31, 1996, the Company has adopted an Omnibus Stock
Incentive Plan (the "Omnibus Plan") to permit the grant of awards to employees
of the Company (including officers and directors who are employees of the
Company or a subsidiary of the Company) of restricted shares of the Company's
common stock, performance shares of the Company's Common Stock, stock
appreciation rights relative to the
F-13
<PAGE> 86
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
7. STOCK OPTIONS AND WARRANTS -- (CONTINUED)
Company's common stock and both incentive stock options and non-qualified
options to purchase shares of the Company's common stock. A maximum of 1,000,000
shares may be issued under the Omnibus Plan. No grants or awards have been made
under the Omnibus Plan, except for one option issued to the Company's Chairman.
8. INCOME TAXES
The significant components of deferred tax assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Start-up expenditures........................ $ 70,000 $ 98,000
Net operating loss carryforwards............. 1,446,000 730,000
----------- -----------
Total deferred tax assets.................... 1,516,000 828,000
Valuation allowance.......................... (1,516,000) (28,000)
----------- -----------
Net deferred taxes........................... $ 0 $ 0
=========== ===========
</TABLE>
The Company has a net operating loss carryforward of $3.2 million as of
December 31, 1996 of which $338,000 expires by 2009; $1,285,000 expires by 2010
and $1,580,000 expires by 2011.
The difference between the statutory federal income tax rate of 34% and the
income taxes reported in the Statement of Operations are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net loss..................................... ($1,534,378) ($1,227,502)
----------- -----------
Statutory benefit............................ (521,689) (417,351)
Loss for which no benefit was provided....... 521,609 417,351
----------- -----------
Total taxes.................................. $ 0 $ 0
=========== ===========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has entered into an employment agreement with its Chief
Executive Officer for a term of five years commencing January 1, 1995. The
agreement provides for an annual base salary of $100,000 per year and further
provides for a severance payment of two years salary upon termination of
employment due to a change of control of the Company.
The Company entered into an employment agreement dated September 30, 1994
pursuant to which an individual was employed as the Executive Vice President of
Sales and Marketing of the Company for a term of three years commencing October
21, 1994. The employment agreement provided for an annual base salary of
$100,000. The Company terminated the employment agreement on June 13, 1995 for
cause.
F-14
<PAGE> 87
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
In connection with the Company's exercise of its option to acquire a 75%
ownership interest in Corbina, the Company has entered into an employment
agreement with Corbina's minority stockholder pursuant to which he has agreed to
serve as Chief Executive Officer of Corbina and CompTel (collectively the
subsidiaries) for a five year term commencing on February 1, 1997. Such
agreement further provides a base salary of $125,000 per annum (prior to the
date of closing at the IPO, and $175,000 per annum thereafter), less the
aggregate amount of the annual salary to be paid by the subsidiaries; (ii) cash
bonuses and other additional compensation as the Company's Board of Director
may, in its absolute discretion, determine to award to him, (iii) life insurance
to the extent of $500,000 which shall be paid to the beneficiary of his choice,
(iv) he and his immediate family to be covered by Company-provided and paid for
health insurance; (v) as soon after the IPO as is reasonably possible, the
Company shall issue 25,000 shares of the Company's Common Stock to the minority
stockholder pursuant to the Omnibus Plan; subject to such vesting conditions as
the Compensation Committee of the Company's Board of Directors shall reasonably
determine and (vi) should Corbina's operating income during any of the years of
the agreement exceed $3,400,000, the Company will transfer 10% of the
outstanding shares of Corbina to the Chief Executive Officer. Additionally,
should Corbina's revenue after the aforementioned fiscal year exceed $3,400,000,
the Chief Executive Officer will be entitled to shares of the Company's stock
equal to the difference between operating income less $3,400,000 divided by the
share price, as defined. Shares of the Company's stock issued to the Chief
Executive Officer will be limited to 250,000 shares. Such amounts, if any, will
be expensed when incurred based on the fair value of the shares at that time.
The Company leases office space for its operations under an operating
lease. Future minimum rent payments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.................................. $ 76,000
1998.................................. 76,000
1999.................................. 76,000
2000.................................. 76,000
2001.................................. 25,000
--------
$329,000
========
</TABLE>
Total rent expense incurred for the years ended December 31, 1996 and 1995
amounted to approximately $32,000 and $43,000, respectively.
10. INITIAL PUBLIC OFFERING
The Company intends to enter into an underwriting agreement for an initial
public offering ("IPO") of its common stock.
F-15
<PAGE> 88
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 122,656
Accounts receivable, net................................................... 344,481
Deferred financing costs, net of accumulated amortization of $882,000...... 1,008,000
Prepaid expenses and other current assets.................................. 165,417
-----------
Total current assets............................................................ 1,640,554
Equipment, net of accumulated depreciation of $32,951........................... 123,768
Goodwill in Corbina............................................................. 327,380
Deferred registration fees...................................................... 62,302
Security deposits............................................................... 18,988
Organization costs, net of accumulated amortization of $3,377................... 2,758
-----------
Total assets.................................................................... $2,175,750
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Notes payable, net of discounts of $266,000................................ $2,615,000
Accrued interest payable................................................... 416,733
Accounts payable and accrued expenses...................................... 732,177
-----------
Total current liabilities....................................................... 3,763,910
Long-term debt, net of discount of $225,300..................................... 374,700
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, par value $.01; 1,000,000 shares authorized; none issued
and outstanding........................................................... --
Common stock, par value $.01; 15,000,000 shares authorized; 2,985,000
shares issued and outstanding............................................. 29,850
Additional paid-in capital................................................. 5,482,758
Accumulated deficit........................................................ (7,475,468)
-----------
Total stockholders' deficiency.................................................. (1,962,860)
-----------
Total liabilities and stockholders' deficiency.................................. $2,175,750
===========
</TABLE>
See accompanying notes.
F-16
<PAGE> 89
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commission income................................................. $ 181,530 $ 2,936
Cost of services.................................................. 162,348 --
----------- -----------
Gross profit...................................................... 19,182 2,936
Operating expenses:
Officers' salaries........................................... 3,210,000 24,999
Selling, general and administrative.......................... 246,095 28,026
Amortization of deferred financing costs..................... 672,000 54,900
----------- -----------
Total operating expenses.......................................... 4,128,095 107,925
----------- -----------
Operating loss.................................................... (4,108,913) (104,989)
Interest, including $13,700 ($154,312 in 1996) of amortization of
discount on notes payable, and financing expenses, net.......... 52,053 203,653
Foreign exchange gain............................................. 1,716 --
----------- -----------
Net loss.......................................................... $(4,159,250) $ (308,642)
=========== ===========
Net loss per common share......................................... $ (1.39) $ (.18)
=========== ===========
Weighted average number of shares outstanding..................... 2,985,000 1,685,000
=========== ===========
</TABLE>
See accompanying notes.
F-17
<PAGE> 90
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... 1,873,000 $18,730 $ 59,878 $ (617,838) $ (539,230)
Issuance of common stock for
services rendered in January
1995............................. 600,000 6,000 174,000 -- 180,000
Issuance of common stock............ 300,000 3,000 27,000 -- 30,000
Repurchase and retirement of common
stock in exchange for promissory
note in May 1995................. (800,000) (8,000) (277,000) -- (285,000)
Repurchase and retirement of common
stock in exchange for promissory
note in August 1995.............. (488,000) (4,880) (201,120) -- (206,000)
Net loss............................ -- -- -- (1,227,502) (1,227,502)
--------- ------- ---------- ----------- -----------
Balance at December 31, 1995.......... 1,485,000 14,850 (217,242) (1,845,340) (2,047,732)
Issuance of common stock and
warrants in connection with a
private placement in February
1996............................. 300,000 3,000 645,000 -- 648,000
Issuance of common stock in
connection with a private
placement in December 1996....... 450,000 4,500 1,912,500 -- 1,917,000
--------- ------- ---------- ----------- -----------
Balance at December 31, 1996.......... 2,235,000 22,350 2,340,258 (3,316,218) (953,610)
Issuance of common stock in
connection with merger
(unaudited)...................... 750,000 7,500 3,142,500 -- 3,150,000
Net loss for the three months ended
March 31, 1997 (unaudited)....... -- -- -- (4,159,250) (4,159,250)
--------- ------- ---------- ----------- -----------
Balance at March 31, 1997............. 2,985,000 $29,850 $5,482,758 $(7,475,468) $(1,962,860)
========= ======= ========== =========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE> 91
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(4,159,250) $ (308,642)
Adjustments to reconcile net loss to net cash used in
operating activities:
Compensation charge.................................... 3,150,000 --
Depreciation........................................... 1,858 850
Amortization of organization costs..................... 307 307
Amortization of deferred financing costs............... 672,000 --
Amortization of discount on notes payable.............. 20,700 72,405
Changes in operating assets and liabilities:
Prepaid expenses and other current assets......... 24,048 (25,316)
Security deposits................................. -- (18,988)
Accounts payable and accrued expenses............. (62,378) (224,449)
Accrued interest payable.......................... 57,920 38,091
----------- -----------
Net cash used in operating activities....................... (294,795) (465,742)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan receivable............................................. 190,000 --
Payments made for acquisition of subsidiary................. (195,000) --
Acquisition of property and equipment....................... (2,592) --
Deferred registration fees.................................. (37,302) (25,000)
----------- -----------
Net cash used in investing activities....................... (44,894) (25,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable................................. -- 1,050,000
Repayment of notes payable.................................. (50,000) (200,000)
----------- -----------
Net cash provided by financing activities................... (50,000) 850,000
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 389,689 359,258
Cash and cash equivalent acquired........................... 24,573 --
Cash and cash equivalents at beginning of year.............. 487,772 11,456
----------- -----------
Cash and cash equivalents at end of year.................... $ 122,656 $ 370,714
=========== ===========
SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Net liabilities assumed at acquisition...................... $ 132,380 $ --
=========== ===========
Discount recorded on notes payable.......................... $ -- $ 648,000
=========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 92
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
1. ORGANIZATION
Description of Business
Telcom Group USA, Inc. ("Telcom") was incorporated on April 26, 1994 under
the laws of the State of Delaware. On August 19, 1994, Telcom obtained the
required State of New York Public Service Commission Certification allowing it
to operate as a reseller of all forms of telephone services via landline
telephone company or other common carrier facilities located in New York State.
Telcom was engaged primarily as a provider of long distance telecommunications
services to commercial customers, initially in the New York metropolitan area.
With the passage of the Federal Telecommunications Act of 1996 and the
subsequent entry into the local markets by long distance carriers, Telcom began
to phase out operations in New York State and focused its efforts on the
international markets, particularly the Russian Federation.
In 1996, Telcom's management began exploring opportunities involving the
delivery of various categories of telecommunications products and services
throughout the former Soviet Union including Russia, Georgia, Lativa and
Aberbaijan. In July 1996, Telcom purchased an option for $5,000 to purchase for
$190,000, 75% of Corbina Telecommunications, ("Corbina"), a closed joint stock
company organized under the laws of the Russian Federation which has been
providing long distance telephone services to businesses located in the Moscow
metropolitan area since March 1996. Corbina does not operate on the basis of a
telecommunication license but, rather, through agency agreements entered into
with long distance companies, primarily Rustelnet, Global One and TelMos,
through which it offers long distance service features through its private
telecommunications network. In connection with this option purchase, during
1996, Telcom loaned Corbina's sole shareholder $190,000 bearing interest at 8%
per annum, receivable on demand.
On February 10, 1997, Telcom changed its name to Russian Wireless Telephone
Company, Inc. ("Russian Wireless") in connection with the merger of a Delaware
corporation with and into Telcom which had been known by that name (Telcom and
Russian Wireless collectively the "Company"). Russian Wireless was formed on
October 21, 1996 by Telcom's Chief Executive Officer and by Corbina's sole
shareholder to provide wireless local loop telecommunications services to
business customers in Moscow, particularly to subscribers who generate
significant amounts of outgoing domestic and international long distance
traffic. The shareholders of Russian Wireless exchanged all of the issued and
outstanding shares for 750,000 shares of Telcom's common stock. Russian Wireless
has had minimal activity from the date of inception (October 21, 1996) through
March 31, 1997.
On January 28, 1997, Telcom exercised its option to purchase 75% of Corbina
and the $190,000 loan to Corbina's sole shareholder was exchanged for the shares
of Corbina. The total investment in Corbina on February 21, 1997 is $195,000.
In October 1996, CompTel Ltd. ("CompTel") a closed joint stock Company
organized under the laws of the Russian Federation was formed to operate a
wireless local loop network in the Russian Federation. In March 1997, the
Company acquired a 75% interest in CompTel.
Basis of Presentation
During the three months ended March 31, 1997 and 1996, the Company's
incurred losses from operations aggregating $4,159,250 and $308,642,
respectively, and had a working capital deficiency and stockholders'
F-20
<PAGE> 93
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 1997
1. ORGANIZATION -- (CONTINUED)
deficiency of $2,123,356 and $1,962,860 respectively, at March 31, 1997. Such
losses and the above-described deficiencies were primarily attributable to the
facts that: (i) from the time of its organization in April 1994, through March
31, 1997, the Company conducted operations on a limited basis while the
Company's management devoted the bulk of their time and resources to the tasks
of developing what was then anticipated to be the Company's intended business,
i.e., the provision, as a competitive access provider of single source local and
long distance telecommunications services to commercial customers in the New
York Metropolitan area; and (ii) by reason of the passage of the Federal
Telecommunications Act of 1995 (and the subsequent entry into the local
telephone markets by long distance carriers), the Company undertook during 1996
to explore other opportunities in the telecommunications industry, particularly
in international venues. In order to meet its obligations and finance the
activities it undertook during the two year period ended March 31, 1997 in the
absence of any meaningful revenues generated from operations, the Company made
use of funds obtained through private placement financing transactions. The
foregoing factors have resulted in a deterioration of the Company's financial
condition and raise substantial doubt about its ability to continue as a going
concern. These financial statements have been prepared assuming the Company will
continue as a going concern and do not include any adjustments that may result
from the outcome of this uncertainty.
In order for the Company to strengthen its financial condition and to
operate profitably in future periods: (a) its 75% owned Russian subsidiary,
Corbina Telecommunications ("Corbina"), must attain a sustaining level of
profitability from operations through expansion of its service offerings and
continued increases in the telecommunications traffic purchased from it by its
existing and new customers, (b) the Company's other 75% owned Russian
subsidiary, CompTel Ltd., must successfully construct and then operate
profitably the wireless local loop telecommunications network which it proposes
to establish in the Moscow metropolitan area, and (c) both subsidiaries must
provide the Company with sufficient distributions from the income that they
intend to derive from such operations so that the Company will be able to
finance its activities solely from such distributions. The Company intends to
provide its subsidiaries with the finances necessary for them to achieve the
requisite levels of operations through the date of consummation of an IPO
transaction which it has commenced during the first calendar quarter of 1997.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X as issued by the United States Securities and Exchange Commission and should
be read in conjunction with the Company's 1996 unaudited financial statements.
Accordingly, they do not include all of the information and footnotes required
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal, recurring accruals) considered necessary for a fair
presentation of the financial statements have been included. Operating results
for the three-month period ended March 31, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The Company's Unaudited Financial Statements for the three month periods
ended March 31, 1997 and 1996 have been consolidated with the Condensed
Financial Statements of Corbina for the three month periods
F-21
<PAGE> 94
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ended March 31, 1997 and 1996. No allowance has been made for a minority
interest, with respect to Corbina, as Corbina maintains a shareholder's
deficiency at March 31, 1997 and 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
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 reported period. Actual
results could differ from those estimates.
Equipment
Equipment is stated at cost and depreciated using the straight-line method
over the estimated useful lives (five years) of the underlying assets.
Deferred Financing Costs
Deferred financing costs, related principally to the issuance of debt, are
amortized over the period of the related debt.
Organization Costs
Organization costs are being amortized over a period of five years.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At March 31, 1997,
the Company has substantially all of its cash in one financial institution.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Notes Payable: The carrying amounts of the company's notes payable
approximate their fair value due to the short-term nature of these instruments.
Long-Term Debt: The fair value of the Company's long-term debt is
estimated using discounted cash flow analysis, based on the Company's
incremental borrowing rate for similar types of borrowing arrangements and
approximates fair value.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for all fiscal years beginning
after December 15, 1995 and prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee
F-22
<PAGE> 95
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
stock purchase plans and stock appreciation rights. SFAS 123 requires
compensation expense to be recorded (i) using the new fair value method or (ii)
using existing accounting rules prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company is accounting for its stock-based compensation plans in
accordance with the provisions of APB 25.
Income Taxes
Income taxes are recorded pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109
prescribes the liability method of accounting for deferred income taxes, which
bases such deferred income taxes on the temporary differences between the
financial reporting and income tax basis of assets and liabilities, using
currently-enacted income tax rates and regulations.
Revenue Recognition
The Company recognizes commission income in its capacity as a reseller of
long distance telephone service when the customers they have contracted with on
behalf of long distance carriers are billed for usage.
Net Loss Per Share
Net loss per share computations are based upon net loss divided by the
weighted average number of shares of common stock outstanding during the
respective periods. The weighted average number of common stock outstanding have
been calculated in accordance with Staff Accounting Bulletin 83 ("SAB 83") of
the Securities and Exchange Commission. SAB 83 requires that shares of common
stock, warrants and options issued one-year prior to the initial filing of a
registration statement relating to an initial public offering at amounts below
the public offering price be considered outstanding for all periods presented in
the Company's registration statement.
In February 1997 the Financial Accounting Standards Board issued statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. Statement 128 will not have a
material impact on Pro forma net income per share for the three months ended
March 31, 1996 and 1997.
3. COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has entered into an employment agreement with its Chief
Executive Officer for a term of five years commencing January 1, 1995. The
agreement provides for an annual base salary of $100,000 per year and further
provides for a severance payment of two years salary upon termination of
employment upon a change of control of the Company.
The Company entered into an employment agreement dated September 30, 1994
pursuant to which an individual was employed as the Executive Vice President of
Sales and Marketing of the Company for a term
F-23
<PAGE> 96
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
MARCH 31, 1997
3. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
of three years commencing October 21, 1994. The employment agreement provided
for an annual base salary of $100,000. The Company terminated the employment
agreement on June 13, 1995 for cause.
In connection with the Company's exercise of its option to acquire a 75%
ownership interest in Corbina, the Company has entered into an employment
agreement with Corbina's minority stockholder pursuant to which he has agreed to
serve as Chief Executive Officer of Corbina and CompTel (collectively "the
subsidiaries") for a five year term commencing on February 1, 1997. Such
agreement further provides a base salary of $125,000 per annum (prior to the
date of closing of the IPO, and $175,000 per annum thereafter), less the
aggregate amount of the annual salary to be paid by the subsidiaries; (ii) cash
bonuses and other additional compensation as the Company's Board of Directors
may, in its absolute discretion, determine to award to him; (iii) life insurance
to the extent of $500,000 which shall be paid to the beneficiary of his choice;
(iv) he and his immediate family to be covered by Company-provided and paid for
health insurance; (v) as soon after the IPO as is reasonably possible, the
Company shall issue 25,000 shares of the Company's common stock to the minority
stockholder pursuant to the Omnibus Plan; subject to such vesting conditions as
the Compensation Committee of the Company's Board of Directors shall reasonably
determine; and (vi) should Corbina's operating income during any of the years of
the agreement exceed $3,400,000, the Company will transfer 10% of the
outstanding shares of Corbina to the Chief Executive Officer, which will be
charged as compensation expensed based on the fair market value of the shares at
the time of transfer. Additionally, should Corbina's revenue after the
aforementioned fiscal year exceed $3,400,000, the Chief Executive Officer will
be entitled to shares of the Company's stock equal to the difference between
operating income less $3,400,000 divided by the share price, as defined, which
will be charged to compensation expense based on the fair market value of the
shares at the time of transfer. Shares of the Company's stock issued to the
Chief Executive Officer will be limited to 250,000 shares. Such amounts, if any,
will be expensed when incurred based on the fair value of the shares at that
time.
The Company leases office space for its operations under an operating
lease. Future minimum rent payments at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
----------------------------------------------------------
<S> <C>
1997...................................................... $ 95,000
1998...................................................... 114,000
1999...................................................... 114,000
2000...................................................... 86,000
2001...................................................... 25,000
--------
$434,000
========
</TABLE>
Total rent expense incurred for the three months ended March 31, 1997 and
1996 amounted to approximately $19,158 and $5,865, respectively.
F-24
<PAGE> 97
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Corbina Telecommunications
We have audited the accompanying balance sheet of Corbina
Telecommunications as of December 31, 1996, and the related statements of
operations, shareholder's deficiency, and cash flows for the period December 1,
1995 (inception) through December 31, 1996. These financial statements are the
responsibility of Corbina's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Corbina Telecommunications
as of December 31, 1996, and the results of its operations and its cash flows
for the period December 1, 1995 (inception) through December 31, 1996 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that
Corbina will continue as a going concern. As discussed in Note 1 to the
financial statements, Corbina experienced a net loss of $209,813, has a working
capital deficiency of $214,257 and has a shareholder's deficiency of $126,629.
These matters raise substantial doubt about Corbina's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 1. The accompanying financial statements do not include adjustments to
reflect the possible effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
Moscow, Russian Federation ERNST & YOUNG (CIS) LIMITED
January 24, 1997
F-25
<PAGE> 98
CORBINA TELECOMMUNICATIONS
BALANCE SHEET
DECEMBER 31, 1996
(US DOLLARS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash....................................................................... $ 22,487
Accounts receivable, net of allowance for doubtful accounts of $65,400..... 193,295
Prepaid expenses and other current assets.................................. 88,433
---------
Total current assets............................................................ 304,215
Property and equipment, net................................................... 87,628
---------
TOTAL ASSETS.................................................................... $ 391,843
=========
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
Current liabilities:
Trade payables............................................................. $ 323,230
Other liabilities.......................................................... 195,242
---------
Total current liabilities....................................................... 518,472
Shareholder's deficiency:
Common stock, one million roubles par value, 140 shares authorized, issued
and outstanding........................................................... 30,568
Additional paid-in capital................................................. 52,616
Accumulated deficit........................................................ (209,813)
---------
TOTAL SHAREHOLDER'S DEFICIENCY.................................................. (126,629)
---------
TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIENCY.................................. $ 391,843
=========
</TABLE>
See accompanying notes.
F-26
<PAGE> 99
CORBINA TELECOMMUNICATIONS
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1996
(US dollars)
<TABLE>
<S> <C>
Revenues....................................................................... $1,011,914
Cost of services............................................................... 827,229
----------
Gross profit................................................................... 184,685
Selling, general and administrative expenses................................... 372,203
Foreign exchange translation loss on net monetary items........................ 13,056
----------
Loss before provision for income taxes......................................... 200,574
Provision for income taxes..................................................... 9,239
----------
Net loss....................................................................... $ 209,813
==========
Loss per share................................................................. $ 1,499
==========
Weighted average shares outstanding............................................ 140
==========
</TABLE>
See accompanying notes.
F-27
<PAGE> 100
CORBINA TELECOMMUNICATIONS
STATEMENT OF SHAREHOLDER'S DEFICIENCY
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1996
(US dollars)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID- ACCUMULATED
SHARES AMOUNT IN CAPITAL DEFICIT TOTAL
------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Capital contribution December 1, 1995.......... 140 $30,568 $ 30,568
Capital contributions.......................... $ 52,616 52,616
Net loss....................................... $(209,813) (209,813)
--- ------- ------- --------- ---------
Balance at December 31, 1996................... 140 $30,568 $ 52,616 $(209,813) $(126,629)
=== ======= ======= ========= =========
</TABLE>
See accompanying notes.
F-28
<PAGE> 101
CORBINA TELECOMMUNICATIONS
STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1996
(US dollars)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss....................................................................... $(209,813)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation.............................................................. 14,533
Provision for doubtful accounts........................................... 65,400
Write-down of equipment................................................... 40,000
Foreign exchange loss..................................................... 13,056
Changes in operating assets and liabilities:
Accounts receivable....................................................... (271,751)
Prepaid expenses and other assets......................................... (88,433)
Trade payables............................................................ 323,230
Accrued taxes and other liabilities....................................... 195,242
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................... 81,464
INVESTING ACTIVITIES -- Purchases and advances for property and equipment...... (111,593)
FINANCING ACTIVITIES -- Capital contributions.................................. 52,616
---------
Net increase in cash........................................................... 22,487
Cash at beginning of period.................................................... --
---------
Cash at end of period.......................................................... $ 22,487
=========
</TABLE>
See accompanying notes.
F-29
<PAGE> 102
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1996
(IN US DOLLARS UNLESS OTHERWISE INDICATED)
1. DESCRIPTION OF BUSINESS
Corbina Telecommunications ("Corbina"), a Russian legal entity registered
as a closed joint stock company, was founded on December 1, 1995. Corbina is
engaged primarily as a provider of long distance telecommunications services to
commercial customers in the Moscow metropolitan area. Corbina operates on the
basis of agreements entered into with long distance companies, primarily
Rustelnet, a Russian legal entity, through which it offers long distance service
features through its private telecommunications network.
From March 1996, commencement of operations, through December 31, 1996,
Corbina incurred losses aggregating $209,813, and as of December 31, 1996, its
current liabilities exceeded its current assets by $214,257 and its total
liabilities exceeded total assets by $126,629. These matters raise substantial
doubt about its ability to continue as a going concern. These financial
statements have been prepared assuming Corbina will continue as a going concern
and do not include any adjustments that may result from the outcome of this
uncertainty. In order for Corbina to strengthen its financial condition and to
operate profitably in future periods, it will need to expand its customer base
and continue to increase the telecommunications traffic purchased by its
customers. Such increases are largely dependent upon Corbina's ability to expand
its existing customer base. Corbina intends to achieve these increases through
an enhancement of the product and service offerings made available to its
existing and prospective customers, and through marketing efforts.
In order to acquire the capital needed to be able to provide such enhanced
products and services and to engage in such advertising and marketing
activities, Corbina's original shareholder has entered into an agreement with
Russian Wireless Telephone Company, Inc. ("Russian Wireless"). The agreement
provides, in part, that upon completion of an initial public offering
transaction which Russian Wireless intends to effect during 1997, Russian
Wireless will contribute $655,000 to Corbina's capital.
In January 1997, TelCom Group USA, Inc., an American corporation registered
in the state of Delaware, exercised an option to purchase 75% of the outstanding
capital stock of Corbina which had been granted to it by Corbina's shareholder
in July 1996. In February 1997, TelCom Group USA, Inc. changed its name to
Russian Wireless Telephone Company, Inc.
In October 1996, CompTel Ltd., a closed joint stock company organized under
the laws of the Russian Federation, was formed by Corbina's original shareholder
to obtain and manage the use of telecommunications licenses in the Russian
Federation as well as to construct and operate wireless telecommunications
systems in the Russian Federation. Toward this end, in October 1996, a 51%-owned
subsidiary of CompTel Ltd., Investelectrosvyaz, a closed joint stock company
organized under the laws of the Russian Federation, was formed in order to
exploit the licenses, including those used by Corbina, and to provide
telecommunications services. In March 1997, Russian Wireless Telephone Company,
Inc. acquired a 75% interest in CompTel Ltd.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Corbina maintains its records and prepares its statutory financial
statements in accordance with Russian accounting and tax legislation. The
accompanying financial statements have been prepared from the Russian accounting
records for presentation in accordance with accounting principles generally
accepted in the United States of America ("US GAAP"). The accompanying financial
statements differ from the financial
F-30
<PAGE> 103
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
statements used for statutory purposes in Russia in that they reflect certain
adjustments, not recorded in Corbina's books, which are appropriate to present
the financial position, results of operations and cash flows in accordance with
US GAAP. The principal adjustments relate primarily to foreign currency
translation, revenue and expense recognition, deferred income taxes, valuation
allowances for unrecoverable assets and depreciation and valuation of property
and equipment.
Foreign Currency Translation
Corbina reports to the Russian tax authorities in Russian rubles ("RUR")
and the accounting records are maintained in that currency. The accompanying
financial statements have been prepared in US dollars. Transactions and balances
not already measured in US dollars (primarily Russian rubles) have been
remeasured into US dollars in accordance with the relevant provisions of US
Financial Accounting Standard ("FAS") No. 52, "Foreign Currency Translation", as
applied to entities in highly inflationary economies.
Under FAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Exchange gains and losses arising
from remeasurement of monetary assets and liabilities that are not denominated
in US dollars are credited or charged to operations.
The exchange rates used on ruble denominated transactions and balances for
translation purposes as of December 31, 1996 for one US dollar was RUR 5,560. At
April 18, 1997, the rate had changed to RUR 5,753. The effect of this
devaluation of the ruble on monetary assets and liabilities has not been
determined.
The ruble is not a convertible currency outside the territory of Russia.
Within Russia official exchange rates were determined principally through
trading on the Moscow Interbank Currency Exchange ("MICEX") until May 17, 1996.
Although MICEX rates did occasionally diverge from market rates, they were
generally considered to be a reasonable approximation. Beginning May 17, 1996,
official exchange rates have been determined daily by the Central Bank of the
Russian Federation and have been generally considered to be a reasonable
approximation of market rates. The translation of ruble denominated assets and
liabilities into US dollars for the purpose of these financial statements does
not indicate that the Company could realize or settle in US dollars the reported
values of the assets and liabilities. Likewise, it does not indicate that the
Company could return or distribute the reported US dollar values of capital to
its shareholders.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation is
provided on the straight-line basis over the following estimated useful lives:
<TABLE>
<S> <C>
Network equipment........................................... 7 years
Computers................................................... 5 years
Office furniture and equipment.............................. 5 years
</TABLE>
F-31
<PAGE> 104
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition and Taxes on Revenue
Revenue from telecommunications traffic is recognized in the period in
which the traffic occurs. Revenues are stated net of any value-added taxes
charged to customers. Certain other taxes on revenues were charged at rates
ranging from 1.9% to 3% during the period, and are charged to selling, general
and administrative expenses.
Net Loss Per Common Share
Net loss per common share was determined by dividing net income by the
weighted average number of shares outstanding. Average common equivalent shares
outstanding have not been included, as the computation would not be dilutive.
Income Taxes
Corbina computes and records income tax in accordance with FAS No. 109,
"Accounting for Income Taxes".
Government Pension Funds
Corbina contributes to the Russian Federation state pension, medical
insurance, social and employment funds on behalf of its employees. Corbina's
contribution was 38.5% of the employees' salaries and was expensed as incurred.
Concentration of Credit Risk and Major Customers
Accounts receivable consist of amounts due from customers for services
rendered. Financial instruments that potentially subject Corbina to credit risk
consist primarily of accounts receivable. Corbina's revenue and accounts
receivable are derived from a variety of international and Russian business
customers. During 1996, one customer accounted for 22% of revenues in 1996 and
42% of accounts receivable at December 31, 1996. As of December 31, 1996,
Corbina had no other significant concentrations of credit risk. Corbina deposits
its available cash with a Russian financial institution, which management
constantly monitors.
Fair Value of Financial Instruments
The fair market values of financial instruments, consisting of cash,
accounts receivable and accounts payable, which are included in current assets
and liabilities, are considered to be the carrying values.
3. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Network equipment......................................... $ 51,837
Computers................................................. 47,152
Office furniture and equipment............................ 3,172
--------
102,161
Accumulated depreciation.................................. (14,533)
--------
$ 87,628
========
</TABLE>
F-32
<PAGE> 105
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<S> <C>
Current..................................................... $9,239
Deferred.................................................... --
------
Total....................................................... $9,239
======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35% because of the effect of the following items:
<TABLE>
<S> <C>
Tax expense (benefit) at statutory rate................... $(70,200)
Non-deductible expenses, net.............................. 23,628
Deferred tax valuation allowance.......................... 55,811
--------
Provision for income taxes................................ $ 9,239
========
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income taxes purposes. Corbina's deferred tax
balance consists of a deferred tax asset resulting from accruals and reserves
recorded for financial reporting purposes, but not deductible in the current
period for income tax purposes. A valuation allowance has been provided to
reduce the asset to a net zero balance.
5. COMMON STOCK
Corbina's common stock was issued in exchange for a contribution of
equipment. All items were new at the time of contribution and were valued at
their invoiced costs. Additional paid-in capital represents amounts paid by
Corbina's shareholder to fund the operations of the business. No dividends have
been declared or paid.
6. COMMITMENTS
Corbina has a non-cancelable operating lease for office space with a term
of five years. The total future minimum lease commitments are as follows:
<TABLE>
<S> <C>
1997...................................................... $ 38,000
1998...................................................... 38,000
1999...................................................... 38,000
2000...................................................... 9,586
--------
$123,586
========
</TABLE>
Total rent expense for the period was $33,400.
7. CONTINGENCIES
Legislation and regulations regarding foreign currency transactions and
taxation in the Russian Federation is constantly evolving as the central
government manages the transformation from a command to a market oriented
economy. The various legislation and regulations are not always clearly written
and their interpretation is subject to the opinions of the local tax inspectors,
Central Bank officials and the Ministry of Finance. Instances of inconsistent
opinions between local, regional and national tax authorities and between the
Central Bank and Ministry of Finance are not unusual. Corbina believes that it
has paid or accrued all taxes that are applicable. Where practice concerning the
provision of taxes is unclear, Corbina has accrued tax liabilities based on
management's best estimate.
F-33
<PAGE> 106
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. CONTINGENCIES -- (CONTINUED)
The current regime of penalties and interest related to reported and
discovered violations of Russia's laws, decrees and related regulations are
severe. Penalties include confiscation and/or fines of up to 300% of the amounts
at issue. Interest is assessable at rates of 0.3% to 0.7% per day. As a result,
penalties and interest often result in amounts that are multiples of any
unreported taxes. In addition, the authorities have the right to seize bank
accounts and detain individuals for known or suspected violations.
Corbina's policy is to accrue contingencies in the accounting period in
which a loss is deemed probable and the amount is reasonably determinable. In
this regard, because of the uncertainties associated with the Russian tax and
legal systems, the ultimate tax as well as penalties and interest, if any,
assessed may be in excess of the amount expensed to date and accrued at December
31, 1996. Although such future assessments are possible and may be material, it
is the opinion of Corbina's management that such amounts, if any, will not have
a material effect on the financial condition of Corbina.
Corbina's operations and financial position will continue to be affected by
Russian political developments, including the application of existing and future
legislation and tax regulations. Corbina does not believe that these
contingencies, as related to its operations, are any more significant than those
of similar enterprises in Russia.
F-34
<PAGE> 107
CORBINA TELECOMMUNICATIONS
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
(NOTE 1) (UNAUDITED)
------------ -----------
(IN US DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 22,487 $ 24,573
Accounts receivable, net....................................... 193,295 344,481
Prepaid expense and other current assets....................... 88,433 110,020
--------- ---------
Total current assets................................................ 304,215 479,074
Property and equipment, net......................................... 87,628 103,438
--------- ---------
Total assets........................................................ $ 391,843 $ 582,512
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Trade payables................................................. $ 323,230 $ 472,766
Other liabilities.............................................. 195,242 242,126
--------- ---------
Total current liabilities........................................... 518,472 714,892
Shareholders' deficiency............................................ (126,629) (132,380)
--------- ---------
Total liabilities and shareholders' deficiency...................... $ 391,843 $ 582,512
========= =========
</TABLE>
See accompanying notes.
F-35
<PAGE> 108
CORBINA TELECOMMUNICATIONS
UNAUDITED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1996 1997
-------- --------
(IN US DOLLARS)
<S> <C> <C>
Revenues......................................................... $ 23,951 $545,000
Cost of services................................................. 28,907 487,045
-------- --------
Gross profit..................................................... (4,956) 57,955
Selling, general and administrative expenses..................... 24,912 57,959
Foreign exchange translation loss (gain)......................... 606 (1,716)
-------- --------
(Loss) income before provision for income taxes.................. (30,474) 1,712
Provision for income taxes....................................... -- 7,463
Net loss......................................................... $(30,474) $ (5,751)
======== ========
Loss per share................................................... $ (218) $ (41)
======== ========
Weighted average shares outstanding.............................. 140 140
======== ========
</TABLE>
See accompanying notes.
F-36
<PAGE> 109
CORBINA TELECOMMUNICATIONS
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1997
-------- --------
(IN US DOLLARS)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. $ 73,732 $ 22,842
INVESTING ACTIVITIES -- Purchases and advances for property and
equipment............................................................ (78,000) (20,756)
FINANCING ACTIVITIES -- Capital contributions.......................... 4,715 --
-------- --------
Net increase in cash and cash equivalents.............................. 447 2,086
Cash and cash equivalents at beginning of period....................... -- 22,487
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 447 $ 24,573
======== ========
</TABLE>
See accompanying notes.
F-37
<PAGE> 110
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Corbina Telecommunications (the "Company"), a Russian legal entity
registered as a closed joint stock company, was founded on December 1, 1995 and
commenced operations in March 1996. The Company is engaged primarily as a
provider of long distance telecommunications services to commercial customers in
the Moscow metropolitan area. The Company does not operate on the basis of a
telecommunications license but, rather, through agreements entered into with
long distance companies, primarily Rustelnet, a Russian legal entity, through
which it offers long distance service features through its private
telecommunications network.
From January 1, 1997 through March 31, 1997, Corbina incurred losses of
$5,751, and as of March 31, 1997, its current liabilities exceeded its current
assets by $235,818 and its total liabilities exceeded total assets by $132,380.
These financial statements have been prepared assuming Corbina will continue as
a going concern and do not include any adjustments that may result from the
outcome of this uncertainty. In order for Corbina to strengthen its financial
condition and to operate profitably in future periods, it will need to continue
to increase the telecommunications traffic purchased from it by its customers.
Such increases are largely dependent upon Corbina's ability to expand its
existing customer base. Corbina intends to achieve these increases through an
enhancement of the product and service offerings made available to its existing
and prospective customers, and through marketing efforts.
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared from the Russian accounting records in accordance with accounting
principles generally accepted in the United States of America ("US GAAP") for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X as issued by the United States Securities and Exchange
Commission and should be read in conjunction with Corbina's 1996 audited
financial statements. Accordingly, they do not include all of the information
and footnotes required by US GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal, recurring
accruals) considered necessary for a fair presentation of the financial
statements have been included. Operating results for the three-month period
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by US GAAP for complete financial statements.
Foreign Currency Translation
The Company reports to the Russian tax authorities in rubles ("RUR") and
the accounting records are maintained in that currency. The accompanying
condensed financial statements have been prepared in US dollars. Transactions
and balances not already measured in US dollars (primarily Russian rubles) have
been remeasured into US dollars in accordance with the relevant provisions of US
Financial Accounting Standard ("FAS") No. 52, "Foreign Currency Translation" as
applied to entities in highly inflationary economies.
Under FAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Exchange gains and losses arising
from remeasurement of monetary assets and liabilities that are not denominated
in US dollars are credited or charged to operations.
The exchange rate used on ruble denominated transactions and balances for
translation purposes is the rate set by the Central Bank of the Russian
Federation. The rates at March 31, 1996, December 31, 1996, and
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<PAGE> 111
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED) -- (CONTINUED)
1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
March 31, 1997 for one US dollar were RUR 4,854, RUR 5,560 and RUR 5,726,
respectively. At May 22, 1997, the exchange rate had changed to RUR 5,771. The
effect of this devaluation of the ruble on monetary assets and liabilities has
not been determined.
The ruble is not a convertible currency outside the territory of Russia.
Within Russia, official exchange rates were determined principally through
trading on the Moscow Interbank Currency Exchange ("MICEX") until May 17, 1996.
Although MICEX rates did occasionally diverge from market rates, they were
generally considered to be a reasonable approximation. Beginning May 17, 1996,
official exchange rates are determined daily by the Central Bank of the Russian
Federation and are generally considered to be a reasonable approximation of
market rates. The translation of ruble denominated assets and liabilities into
US dollars for the purpose of these financial statements does not indicate that
the Company could realize or settle in US dollars the reported values of the
assets and liabilities. Likewise, it does not indicate that the Company could
return or distribute the reported US dollar values of capital to its
shareholders.
2. INCOME TAXES
The provision for income taxes varies from expected income tax expense
calculated at the statutory rate of 35% due to certain tax exemptions applicable
under Russian tax legislation (which resulted in pretax profit for Corbina in
the three-month period ended March 31, 1997 as determined under Russian
accounting and tax legislation) and to the non-deductibility of certain expenses
recorded under US GAAP.
3. COMMITMENTS
Corbina has a non-cancelable operating lease for office space with a term
of five years. The total future minimum lease commitments are as follows:
<TABLE>
<S> <C>
1997...................................................... $ 28,500
1998...................................................... 38,000
1999...................................................... 38,000
2000...................................................... 9,586
--------
$114,086
========
</TABLE>
Total rent expense for the period was $8,350.
4. CONTINGENCIES
Legislation and regulations regarding foreign currency transactions and
taxation in the Russian Federation is constantly evolving as the central
government manages the transformation from a command to a market oriented
economy. The various legislation and regulations are not always clearly written
and their interpretation is subject to the opinions of the local tax inspectors,
Central Bank officials and the Ministry of Finance. Instances of inconsistent
opinions between local, regional and national tax authorities and between the
Central Bank and Ministry of Finance are not unusual. Corbina believes that it
has paid or accrued all taxes that are applicable. Where practice concerning the
provision of taxes is unclear, Corbina has accrued tax liabilities based on
management's best estimate.
The current regime of penalties and interest related to reported and
discovered violations of Russia's laws, decrees and related regulations are
severe. Penalties include confiscation and/or fines of up to 300% of the amounts
at issue. Interest is assessable at rates of 0.3% to 0.7% per day. As a result,
penalties and interest often result in amounts that are multiples of any
unreported taxes. In addition, the authorities have the right to seize bank
accounts and detain individuals for known or suspected violations.
F-39
<PAGE> 112
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED) -- (CONTINUED)
4. CONTINGENCIES -- (CONTINUED)
Corbina's policy is to accrue contingencies in the accounting period in
which a loss is deemed probable and the amount is reasonably determinable. In
this regard, because of the uncertainties associated with the Russian tax and
legal systems, the ultimate tax as well as penalties and interest, if any,
assessed may be in excess of the amount expensed to date and accrued at March
31, 1997. Although such future assessments are possible and may be material, it
is the opinion of Corbina's management that such amounts, if any, will not have
a material effect on the financial condition of Corbina.
Corbina's operations and financial position will continue to be affected by
Russian political developments, including the application of existing and future
legislation and tax regulations. Corbina does not believe that these
contingencies, as related to its operations, are any more significant than those
of similar enterprises in Russia.
F-40
<PAGE> 113
APPENDIX A
GLOSSARY OF SELECTED TERMS
Set forth below are certain technical terms defined as they are used in
this Prospectus.
Access: Access refers to the means by which a call is
connected from the end user's telephone to a long
distance carrier (i.e., regular local lines or
dedicated private lines). See Dedicated Access and
Switched Access.
Base Station: Transmitter, receiver, signaling and related
equipment located within an area served by
CompTel's proposed wireless local loop network.
Common Carriers: Companies which own or operate transmission
facilities and offer telecommunication services to
the general public on a nondiscriminatory basis.
Competitive Access
Providers: or CAPs, are businesses that offer local transport,
i.e., telecommunications facilities to other
interconnecting carriers in competition with the
LEC.
Dedicated Access: Access to a long-distance network over private
lines -- analog or digital -- reserved for the
specific use of a single entity.
Digital: A method of storing, processing and transmitting
information through the use of distinct electronic
or optical pulses that represent the binary digits
0 and 1. Digital transmission/switching
technologies employ a sequence of discrete,
distinct pulses to represent information, as
opposed to the continuously variable analog signal.
Exchange: An exchange is a call switching center, or an area
in which a carrier provides services under the
regulations and tariffs for that area.
Facilities-based: A facilities-based provider of telecommunications
services possesses it own call switching equipment
and transmission lines, regionally or nationally.
Facility: A facility is a transmission path between two or
more points provided by a carrier.
Fiber-Optic: A technology using light as a transmission
mechanism.
LATA: Local Access Transport Area -- a geographic area
within which a LEC can provide telephone services,
and between which a long distance carrier provides
services.
LEC: A LEC is a local exchange carrier -- that is, a
carrier which provides local exchange services in a
LATA or LATAs, but not between LATAs.
Local Loop: That portion of the public telecommunications
network which extends from the service provider's
switch to the individual home or business end-user.
Local Loop Services: Local telephony services.
Protocol: An all-inclusive term used to describe the various
control functions, tuning and methodology standards
by which a communications system operates, as well
as any other equipment system characteristics
necessary to ensure compatibility.
A-1
<PAGE> 114
Switch: A switch is equipment that routes local and long
distance telephone calls over communications paths
between geographic points, opens or closes circuits
or selects the paths or circuits to be used for
transmission of voice or data. Switching is the
process of interconnecting circuits to form a
transmission path between users.
Switch-based Reseller: Switch-based resellers lease facilities from
national carriers or large private line networks.
They resell long distance services over those
facilities under their own name and provide sales,
customer service, billing and technical support.
Switch-based resellers own or lease their own call
switching equipment and, in some cases, own their
own transmission facilities. They typically provide
originating telecommunications service on a
regional basis.
Switched Access: Access to long distance carriers via switches over
lines that are provided for public use rather than
over dedicated private lines.
Wireless Local Loop: Wireless Local Loop is a system that eliminates the
need for a wire (loop) connecting users to the
public switched telephone network, which is used in
conventional wired telephone systems, by
transmitting voice messages over radio waves for
the "last mile" connection between the location of
the customer's telephone and a base station
connected to the network equipment.
A-2
<PAGE> 115
APPENDIX B
THE RUSSIAN FEDERATION
The information set forth in this appendix has been derived from various
governmental and private publications which have not been prepared or
independently verified by the Company the Selling Stockholders or the
Underwriters or any of their respective advisors or affiliates. The Company is
not aware of any material misstatement with respect to the information set forth
in this appendix. Statistical data may vary from source to source as a result of
differences in the underlying assumptions or methodology used. Furthermore,
because of significant political, economic and other structural changes in
Russia in recent years, any such historical information presented herein may not
be indicative of future developments. In addition, the Company makes no
representation that any correlation will exist between Russia or its economy in
general and the performance of the Company. Prospective investors should
consider carefully the factors discussed in the Prospectus under "Risk Factors."
GENERAL
The Russian Federation is constituted as a federation of republics,
territories, regions (one of which is an autonomous region), cities of federal
importance and autonomous areas, all of which are equal subjects of the Russian
Federation. It is the largest state to emerge from the former Union of Soviet
Socialist Republics (the "Soviet Union"), covering an area of approximately
17,075,000 square kilometers, which is approximately 76% of the territory of the
former Soviet Union. Spanning eleven time zones, Russia covers one-eighth of the
world's land surface, making it the largest country in the world, almost twice
the size of the United States. The Russian Federation has a population of
approximately 148 million people.
Russia is a member of the United Nations (and a permanent member of its
Security Council), the International Monetary Fund (the "IMF"), the World Bank,
the International Finance Corporation and the European Bank for Reconstruction
and Development. The Russian Federation succeeded to the former Soviet Union's
observer status to the General Agreement on Tariffs and Trade which was granted
in May 1990 and has been granted Most Favored Nation status by some members of
the Organization for Economic Cooperation and Development ("OECD").
Russia and eleven other former Soviet republics joined together to form the
Commonwealth of Independent States (the "CIS") on December 21, 1991. Members of
the CIS have entered into a series of political and economic agreements among
themselves.
POLITICAL STRUCTURE AND RECENT POLITICAL DEVELOPMENTS
The Soviet Union, established in 1922, was a centralized communist system
comprised of 15 republics, including the Russian Soviet Federation Socialist
Republic (the "RSFSR"). In the mid-1980s, then-Soviet President Mikhail
Gorbachev introduced economic reforms under the principles of "glasnost" and
"perestroika." In August 1991, certain high ranking members of the Soviet
military and the Communist Party attempted a military coup which failed and
indirectly led to the disintegration of the Soviet Union.
After the collapse of the Soviet Union, Boris Yeltsin, who had been elected
President of the RSFSR in June 1991, continued to hold office as President of
the Russian Federation (the successor of the RSFSR). The Congress of People's
Deputies and the Supreme Soviet, the members of which were elected under the
Soviet Union, continued to act as the Russian Parliament until it was dissolved
in October 1993 by President Yeltsin. In response to such dissolution, on
October 3, 1993, certain members of the dissolved parliament and their
supporters led an insurrection which failed after President Yeltsin ordered the
military to take over the parliament building in Moscow.
On December 12, 1993, a new constitution (the "Constitution"), drafted
largely by President Yeltsin's administration and approved in a national
referendum, was adopted. The Constitution established a federal democracy with a
strong executive branch. The Constitution provides for a President with broad
powers, and a bicameral parliament. The lower house of parliament, called the
State Duma, comprises 450 deputies, half of
B-1
<PAGE> 116
whom are elected based on their party affiliation. The other half are elected by
a majority of voters in single constituencies. The upper house, the Federation
Council, is comprised of two representatives from each of the country's 89
regions, one from the regional legislative body and one from the regional
executive body. Because the President appoints the head of the regional
executive body, the President can indirectly influence the appointment of
one-half of the upper house. The President appoints the head of government, the
Prime Minister, who must then be approved in a majority vote by the State Duma.
The Prime Minister, in close consultation with the President, then designates a
cabinet of ministers. The President retains considerable power in his ability to
dissolve parliament.
Following the most recent parliamentary vote in December 1995, the
parliament was highly fragmented with the largest party in the State Duma, the
Communist Party of the Russian Federation, failing to achieve an absolute
majority. The next parliamentary vote is due before December 17, 1999.
President Boris Yeltsin, who has served as President of the Russian
Federation since the dissolution of the Soviet Union in December 1991, was
re-elected on July 3, 1996. He will serve a four-year term, with the next
presidential election due in June 2000. In the event that President Yeltsin is
forced to step down due to his poor health, becomes incapacitated or dies, the
Prime Minister would serve as acting head of state for three months, during
which time an election for a new President would be organized. Viktor
Chernomyrdin has served as Prime Minister since December 1992.
Anatoly Chubais and Boris Nemtsov, Mr. Yeltsin's former chief of staff, and
the Governor of Nizhny Novgorod, respectively, have been appointed as First Vice
Prime Ministers. Mr. Nemtsov is considered to be one of the strongest and most
promising young politicians in the Russian Federation, possessing substantial
influence with regard to matters of economic reform.
ECONOMIC CONDITIONS AND RECENT ECONOMIC DEVELOPMENTS
In the aftermath of the dissolution of the Soviet Union, particularly in
1991 and 1992, Russia's centrally planned economy experienced a crisis,
evidenced by a decline in living standards and gross domestic product ("GDP"),
hyperinflation and a rapid devaluation of the rouble.
In order to facilitate the redirection and stabilization of the economy,
the Russian government began in 1991 to implement several new policy
initiatives. Partly as a result of such initiatives, several economic indicators
began to show positive improvements. For example, the budget deficit contracted
from 11.1% of GDP in 1994 to 4.2% of GDP in 1995 and to 3.5% of GDP in 1996; and
inflation declined from 224% in 1994 to 131% in 1995 and to 24% in 1996. In
addition, high real interest rates and a 75% real appreciation of the exchange
rate were accompanied by a current account surplus and a reduction in the GDP
decline, with GDP falling 7% during the third quarter of 1996 as compared to the
comparable period of 1995. Form their peak in April 1996, real interest rates
more than halved to reach levels below 40% by the end of November 1996.
Although certain economic indicators improved, other aspects of the economy
have remained stagnant or worsened over the same period. According to the
Russian State Statistical Committee ("Goskomstat"), reported unemployment rose
to 9.2% by the end of 1996 from 8.2% a year earlier. However, real official
monthly wages increased by 17% by the end of the third quarter of 1996 as
compared to the comparable period of 1995.
Since 1991, the rouble has experienced a substantial devaluation. On
December 31, 1991, the Rouble/Dollar exchange rate set by the Moscow Interbank
Currency Exchange (the "MICEX"), the largest currency exchange in Russia, was
130 roubles per dollar. On July 5, 1995, the Russian Government and the Central
Bank announced their intention to support the rouble within a band of 4,300 to
4,900 roubles per dollar until October 1, 1995 and later extended the band until
December 31, 1995. The policy was subsequently extended to June 30, 1996 within
a new band of 4,550 to 5,150 roubles per dollar, and the policy was re-extended
to December 31, 1996 with the establishment of a new "crawling corridor"
declining from 5,000 to 5,600 roubles per dollar as of July 1, 1996 to 5,500 to
6,100 roubles per dollar as of December 31, 1996. On May 16, 1996, the day the
new "crawling" rouble corridor was announced, the Central Bank
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<PAGE> 117
effectively replaced the daily MICEX exchange rate with a new daily fixing,
known as the Central Bank mid-market rate. On April 30, 1997, the MICEX rate was
5,700 roubles per dollar.
During the first part of 1996, monthly inflation slowed from 4.1% in
January to 0.8% in July. The rouble steadily devalued from 4,689 roubles per
dollar in January to 5,547 roubles per dollar in December, while remaining
within the rouble band. The budget deficit rose from 1.5% of GDP in January to
over 3.5% of GDP by the end of 1996. A Presidential decree in mid-1996 ordered a
transfer of 5 trillion roubles of Central Bank "profits" to cover the budget
deficit. Also, in 1996, an agreement was reached with the Paris Club of
international creditors (a committee of sovereign creditors to Russia) to
reschedule US$40 billion of debt over 25 years with an initial six-year grace
period on principal payments. In November 1996, the Russian Federation made its
Eurobond debut with a successful placement of a five year $1 billion bond
offering bearing interest at the rate of 9.25% per annum.
LEGAL ENVIRONMENT
The Russian Federation has a legal system based on civil law, of which the
fundamental body of legislation is the Civil Code, which has priority over most
other legislation. Bodies of law which were non-existent in the Soviet period
have been adopted in the last few years, covering a wide range of substantive
areas including, among other things, antitrust, banking, bankruptcy, corporate,
privatization, property and securities. For instance, substantial sections of
the First and Second Parts of the Civil Code became effective in January 1995
and March 1996, respectively, the Federal Law on Joint Stock Companies became
effective in January 1996, the Federal Law on the Securities Market in April
1996 and the Federal Law on Banks and Banking Activities became effective in
February 1996.
The Russian judicial system consists of three branches of courts. General
practice cases fall within the jurisdiction of district courts and regional
courts under the supervision of the Supreme Court of the Russian Federation.
Disputes regarding commercial matters fall within the jurisdiction of a system
of civil courts under the supervision of the High Arbitration Court of the
Russian Federation. Constitutional matters are resolved by the Constitutional
Court. In instances involving a foreign party (or a Russian party which has
foreign shareholders) or an economic activity outside the Russian Federation;
parties may submit a dispute to arbitration before the International Commercial
Arbitration Court established under the Chamber of Trade and Industry of the
Russian Federation.
FOREIGN INVESTMENT
Since 1991, the Government has undertaken a number of legal and economic
measures designed to stimulate foreign investment. The first major step was the
adoption of the Law on Foreign Investment in July 1991 (the "Foreign Investment
Law"), which permits a wide range of foreign investment activities in Russia.
The Foreign Investment Law is the primary body of legislation relating to
foreign investment although specific provisions in various other legislation
including the basic corporate, tax, customs, accounting and other laws
applicable to businesses operating in Russia often create practical difficulties
for foreign investors. The Foreign Investment Law allows the repatriation of
profits, duty-free import and export of goods and services for enterprises with
over 30% foreign equity participation and lower tax rates for foreign investment
in certain sectors of the economy. The Foreign Investment Law prohibits
nationalization without quick, adequate and effective compensation.
According to information provided by the State Communications Committee,
the aggregate amount of direct foreign investment (excluding portfolio
investments), including investment credits, in the Russian telecommunications
industry approximated US$520.3 million in 1995. During the first six months of
1996, foreign investment totalled $2 billion.
EXCHANGE CONTROLS AND REPATRIATION
Russian currency exchange legislation limits the exchange of roubles for
foreign currency and the use of foreign currency in Russia. Russian currency
legislation currently permits, and Russian foreign investment legislation
currently guarantees, the right of foreign investors to transfer abroad income
received on
B-3
<PAGE> 118
investments in Russia (including, without limitation, profits, dividends and
interest), provided such income was received in foreign currency and was subject
to payment of all applicable taxes and duties. Russian currency legislation also
permits legal entities to convert roubles into foreign currency for purposes of
making dividend and interest payments.
Foreign currency may be freely exchanged for roubles in Russia, but the
exchange of roubles for foreign currency in Russia is restricted and roubles may
not be exported or exchanged outside of Russia. Residents are required to
convert 50% of all amounts received in foreign currency from export transactions
into roubles, but may exchange roubles for foreign currency if they can document
"current" foreign currency transactions (including payments of interest and
dividends), or have permission from the Central Bank to engage in certain other
transactions. Non-residents may freely convert foreign currency into roubles,
but may only do so through rouble accounts which are subject to strict
regulations.
The currency exchange rules govern transactions in foreign currency and
currency valuables (including foreign currency-denominated securities) between
Russian residents (including citizens, permanent residents and legal entities
established under Russian law) and between residents and non-residents. Russian
currency legislation distinguishes between "current" foreign exchange
transactions and foreign currency transactions involving a "movement of
capital."
"Current" foreign currency transactions generally may be freely carried out
between residents and between residents and non-residents. "Movement of capital"
transactions in foreign currency, including the purchase and sale of securities
and real estate transactions, generally require a license from the Central Bank.
The prevailing view is that the license is only required for Russian residents
involved in such "movement of capital" transactions. Cash transactions in
foreign currency are generally prohibited within the Russian Federation;
however, certain obligations may be paid in foreign currency by means of credit
cards or wire transfers.
Foreign investors which are legal entities may purchase rouble-denominated
shares from, and sell rouble-denominated shares to, Russian residents with
settlement in roubles via a special rouble investment account. Foreign investors
may also use such rouble investment account to receive rouble proceeds from
investments in rouble-denominated shares (profit, dividends and proceeds from
the sale of such rouble-denominated shares). Roubles received into such rouble
investment account may be converted into foreign currency and subsequently may
be repatriated, subject to payment of all applicable taxes and duties. Russian
tax legislation currently requires a foreign investor to register with the tax
authorities prior to opening such a rouble investment account. The Central Bank
recently further relaxed restrictions on the use of roubles by foreign investors
for transactions in government securities.
On January 1, 1996, an import passport was introduced which now extends to
exports as well. Such "passport" must be obtained from the importer's bank for
payments based upon import contracts. The importer has 180 days either to
document the entry of the goods with the Russian Customs Service or to return
the hard currency issued in payment for the goods.
TAXATION AND DUTIES
Entities engaged in commercial activity in Russia must be registered with
the tax inspectorate in each location in which they operate and must submit an
annual tax declaration.
Taxes are charged by federal, regional and local authorities. The profit
tax, which is imposed on the basis of federal legislation, is payable to the
federal tax authorities at the rate of 13% and to the regional tax authorities
at rates which the regional tax authorities establish, but in no case more than
22%. The profit tax is calculated on the basis of a company's net profits,
calculated according to Russian accounting principles, which does not provide
for deduction of certain expenses which would be deductible under U.S. GAAP.
Social security contributions by employers are payable to four different
funds and total 38.5% of wages and salaries paid to Russian employees (or more,
depending on the locality).
B-4
<PAGE> 119
A value-added tax ("VAT") of 20% is imposed on the customs value of
imported goods, on goods supplied within the Russian territory and on certain
services. Exemptions from VAT are available in certain circumstances for goods
imported as contributions to the capital stock of Russian companies. Customs
duties are imposed at high rates on a wide range of imports.
An excise tax is levied on nearly all goods considered to be in a "luxury"
bracket, such as cars, jewelry, alcohol and cigarettes. In March 1995, this tax
was dramatically increased to between 35% and $250%.
In addition to the foregoing taxes and duties, each Russian jurisdiction
may impose certain regional and local taxes. In Moscow, for example, such taxes
include an advertising tax (currently 5% of the value of advertising services
purchased), a transport tax (currently 1% of salary expenses), an education tax
(currently 1% of salary expenses), a housing tax (currently 1.5% of revenues),
and a road-users tax (currently 2.5% of revenues).
CITY OF MOSCOW
Moscow is the largest city of the Russian Federation. According to
Goskomstat, the City of Moscow has a population of nearly 8,717,400, with a
further 6,625,700 in the surrounding region. Moscow is the capital of the
Russian Federation, Russia's principal commercial and financial center and is
also a major Russian industrial center.
Like many other Russian cities, Moscow has experienced a significant
downturn in the industries that were the traditional base of its economy,
including the automobile, heavy equipment, chemicals, pharmaceutical and food
processing industries. Many major companies have been forced to suspend
operations temporarily for various periods. This reduction in economic activity
has been somewhat ameliorated by substantial growth in the financial, tourist
and service sectors in Moscow, the development of the hotel sector and the
growth of private wealth among a small but growing class of entrepreneurs based
primarily on trading activities. Thus, although the purchasing power of most
Moscow residents has fallen since 1991, there is a growing group of
entrepreneurs and individuals employed directly or indirectly by domestic and
international firms and joint ventures in Russia, hotels, banks and investment
institutions that have substantially more purchasing power than they had in
1991. This is evidenced by the rapidly growing market for imported consumer
goods in Moscow.
B-5
<PAGE> 120
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER,
SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THE PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................
Prospectus Summary....................
Risk Factors..........................
Use of Proceeds.......................
Dilution..............................
Capitalization........................
Dividend Policy.......................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Certain Relationships and Related
Transactions........................
Principal Security Holders............
Selling Stockholders..................
Concurrent Registration of
Securities..........................
Description of Securities.............
Shares Eligible for Future Sale.......
Underwriting..........................
Legal Matters.........................
Experts...............................
Financial Statements..................
</TABLE>
Until , 1997 (twenty-five days after the date of this
Prospectus), all dealers effecting transactions in the registered securities,
whether or not participating in the distribution thereof, 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 allotment or subscriptions.
======================================================
======================================================
RUSSIAN WIRELESS
TELEPHONE
COMPANY, INC.
1,530,000 SHARES OF
COMMON STOCK
AND
2,200,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
-------------------------
PROSPECTUS
-------------------------
J. W. BARCLAY & CO., INC.
, 1997
======================================================
<PAGE> 121
[Alternate Prospectus -- Cover Page]
PROSPECTUS
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
1,155,000 SHARES OF COMMON STOCK
2,462,515 FIVE YEAR WARRANTS AND 2,462,515 SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS
25,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF AN OPTION
OFFERED BY CERTAIN SELLING SECURITYHOLDERS
This Prospectus relates to 1,155,000 shares of the Common Stock, $.01 par
value (the "Common Stock"), of Russian Wireless Telephone Company, Inc., a
Delaware corporation (the "Company"), 2,462,515 Five Year Redeemable Common
Stock Purchase Warrants (the "Warrants"), and the shares of Common Stock
issuable upon exercise thereof, as well as 25,000 shares of Common Stock
issuable upon exercise of a three year common stock purchase option held by Jack
W. Buechner, the Chairman of the Company's Board of Directors (the "Buechner
Option"), all of which are being offered by certain selling securityholders (the
"Selling Securityholders"). The Company will not receive any of the proceeds
from the sale of such securities.
Each Warrant entitles the holder to purchase one share of Common Stock, at
an exercise price of $7.25 (the "Exercise Price"), subject to adjustment,
commencing two years from the date of this Prospectus (the "Effective Date")
until the fifth anniversary of the Effective Date (the "Expiration Date"). The
Warrants are redeemable, in whole or in part, by the Company at a price of $.50
per Warrant commencing two years after the Effective Date and prior to their
expiration, provided that (i) prior written notice of not less than 30 days is
given to the holders of the Warrants, and (ii) the closing bid price (as
defined) of the Common Stock for the 20 consecutive trading days ending on the
third day prior to the date on which notice of redemption is given shall have
been not less than $14.50 per share. Notwithstanding the foregoing, the Warrants
may be exercised and/or redeemed commencing on the first anniversary of the
Effective Date, upon the express written consent of the Representative. See
"Description of Securities -- Warrants."
Prior to this offering, there has been no market for either the Common
Stock or the Warrants being offered by the Company concurrently with this
Offering.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 14 AND
"DILUTION".
The Company has made application for inclusion of the Common Stock and
Warrants on the Nasdaq SmallCap Market under the symbols [RWTC] and [RWTW],
respectively. There can be no assurance that such application will be granted,
or if it is granted, that an active and liquid market in such securities will
develop. See "Risk Factors."
In addition to (i) the 1,155,000 shares of Common Stock, 2,450,015 Warrants
(and the shares of Common Stock issuable upon exercise thereof), as well as the
25,000 shares of Common Stock issuable upon exercise of the Buechner Option
which are being offered by the Selling Securityholders, the Registration
Statement of which this Prospectus is a part also covers up to 1,729,500 shares
of Common Stock and up to 2,200,000 Warrants which are being offered by the
Company; and 30,000 shares of Common Stock being offered by a selling
stockholder.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE> 122
[Alternate Prospectus Page]
THE OFFERING
Securities offered by
The Selling Securityholders....... 1,155,000 shares of Common Stock;
2,462,515 Warrants; and 25,000 shares
of Common Stock, subject to issuance
upon exercise of the Buechner Option
Offering Price
per share of Common Stock......... $[ ]
per Warrant....................... $[ ]
Net proceeds to the Company......... The Company will not receive any
proceeds from the sale of shares
offered by the Selling
Securityholders
Common Stock Outstanding
Before the Offering(1)............ 2,985,000 shares
Common Stock to be
Outstanding After
the Offering(2)................... 4,485,000 shares
Warrants Outstanding
Before the Offering(3)............ 3,212,515
Warrants to be Outstanding
After the Offering(4)............. 5,412,515
Exercise Terms...................... Each Warrant entitles the holder
thereof to purchase one share of
Common Stock for $7.25 (subject to
adjustment in certain circumstances)
during the three year period
commencing two years after the
Effective Date.
Expiration Date..................... [ ], 2002 [the fifth
anniversary of the Effective Date].
Redemption.......................... Redeemable by the Company, in whole or
in part, at a price of $.50 per
Warrant commencing two years after
the Effective Date and prior to their
expiration (subject to earlier
redemption with the Representative's
written consent), provided that (i)
prior written notice of not less than
30 days is given to the holders of
the Warrants, and (ii) the closing
bid price (as defined) for the 20
consecutive trading days immediately
prior to the date on which notice of
redemption is given shall have
exceeded $14.50 per share.
Proposed Nasdaq Symbols
Common Stock...................... RWTC
Warrants.......................... RWTCW
<PAGE> 123
[Alternate Prospectus page]
CONCURRENT OFFERING BY THE COMPANY
Securities offered by the
Company:........................... 1,500,000 shares of Common Stock and
2,200,000 Warrants
Offering price per share............ $7.00
Offering price per Warrant.......... $.50
Net Proceeds to the Company......... $9,367,000
Use of proceeds..................... The net proceeds of the Offering will
be used, among other purposes, to
provide additional capital to
Corbina, to purchase switching
hardware and software for connection
of Investelektro's customers to the
Moscow public telephone system, to
purchase equipment and to acquire
antenna sites to be used in
connection with the development and
construction of Investelektro's
proposed wireless local loop
telecommunications system in the
Moscow Region, to repay $4,327,000 of
indebtedness and for working capital.
See "Use of Proceeds;" and
"Management's Discussion and Analysis
of Financial Condition and Results of
Operations -- Liquidity and Capital
Resources."
Risk Factors........................ The Offering involves a high degree of
risk including, but not limited to,
(i) risks of a political, economic
and social nature regarding the
Russian Federation; (ii) currency,
and dividend payment restrictions
pertaining to the Company's Russian
subsidiaries; (iii) risks pertaining
to the Russian legal system; and (iv)
risks relating to the Company, such
as its limited operating history, its
dependence on key management in the
US and the Russian Federation, the
Company's ability to manage the
growth and expansion that will be
necessary to achieve profitability,
the competitive environment for long
distance services in the Russian
Federation, the problems inherent in
introducing new telecommunications
technology such as wireless local
loop service; and (v) other risks,
such as the absence of a prior market
for the Company's securities, the
large number of shares of the
Company's Common Stock that will be
available for future sale and
substantial immediate dilution. See
"Risk Factors" beginning on page 14
- ---------------
(1) Does not include up to 4,237,515 shares of Common Stock consisting of (i)
750,000 shares issuable upon exercise of common stock purchase warrants
issued to investors in the Company's first private placement of securities
(the "First Private Placement Warrants"); (ii) 462,500 shares issuable upon
exercise of common stock purchase warrants issued to investors in the
Company's second private placement of securities (the "Second Private
Placement Warrants"), all of which are being offered for sale pursuant to a
separate prospectus by certain Selling Securityholders; (iii) 2,000,015
shares issuable upon exercise of common stock purchase warrants issued to
investors in the Company's third private placement of securities (the "Third
Private Placement Warrants"), all of which are being offered for sale
pursuant to a
<PAGE> 124
[Alternate Prospectus page]
separate prospectus by certain Selling Securityholders; (iv) 25,000 shares
issuable upon exercise of an option issued to Jack W. Buechner, the Chairman
of the Company's Board of Directors (the "Buechner Option"); and (v)
1,000,000 shares reserved for issuance under the Company's Omnibus Stock
Option Plan (including 250,000 shares thereof issuable to Mr. Leibov
pursuant to his employment agreement with the Company upon the occurrence of
certain events. See "Description of Securities;" "Management;" and
"Concurrent Registration of Securities."
(2) Does not include up to 5,170,015 shares of Common Stock issuable in the
events that (i) all of the 750,000 First Private Placement Warrants, the
462,500 Second Private Placement Warrants and the 2,000,015 Third Private
Placement Warrants are fully exercised; (ii) the Company issues 153,000
shares of Common Stock upon exercise of the Representative's Warrant (and
220,000 shares of Common Stock are issued upon full exercise of the Warrants
to be issued in connection therewith); (iii) the Company issues 229,500
shares of Common Stock upon full exercise of the Underwriters'
over-allotment option (and 330,000 shares of Common Stock are issued upon
full exercise of the Warrants to be issued in connection therewith); (iv)
all 1,000,000 of the shares of Common Stock which have been reserved for
issuance under the Company's Omnibus Stock Incentive Plan shall be issued
(including up to 250,000 shares of Common Stock issuable to Mr. Leibov
pursuant to his employment agreement); and (v) the 25,000 shares of Common
Stock underlying the Buechner Option are issued. See "Management;"
"Description of Securities;" and "Underwriting."
(3) Consists of 750,000 First Private Placement Warrants, 462,500 Second Private
Placement Warrants and 2,000,015 Third Private Placement Warrants which will
be automatically converted into Warrants upon closing of this Offering. See
"Description of Securities."
(4) Consists of (i) 2,200,000 Warrants being offered by the Company in the
Offering; and (ii) 750,000 First Private Placement Warrants, 462,500 Second
Private Placement Warrants and 2,000,015 Third Private Placement Warrants
which will be automatically converted into Warrants upon closing of this
Offering. See "Description of Securities;" "Concurrent Registration of
Securities" and "Underwriting."
<PAGE> 125
[ALTERNATE PROSPECTUS PAGE]
CONCURRENT OFFERING BY THE COMPANY
Concurrently with this Offering, the Company is offering, pursuant to a
separate prospectus included in the Registration Statement of which this
Prospectus forms a part, 1,500,000 shares of Common Stock and 2,200,000 Warrants
(subject to an option granted to the Underwriters to purchase an additional
229,500 shares of Common Stock and 330,000 Warrants to cover over-allotments).
The Common Stock and Warrants offered by the Company will be separately
tradeable immediately upon issuance and may be purchased separately. Investors
will not be required to purchase shares of Common Stock and Warrants together or
in any particular ratio.
<PAGE> 126
[ALTERNATE PROSPECTUS PAGE]
SELLING SECURITYHOLDERS
In accordance with the Company's obligations to the investors who purchased
securities in the Second Private Placement and the Third Private Placement, the
Company has registered for sale, pursuant to this Prospectus, 300,000 shares of
Common Stock and 2,462,515 Warrants for sale by the Selling Securityholders
identified below. The Company has also registered for sale, pursuant to this
Prospectus, 880,000 shares of Common Stock, 855,000 shares of which are being
offered for sale by three of the Company's principal stockholders and 25,000
shares of which shall be issuable to Jack W. Buechner, the Chairman of the
Company's Board of Directors, upon his exercise of a three year option to
purchase such shares at an exercise price of $2.00 per share (the "Buechner
Option"). The Buechner Option will expire on May 21, 1998. Except for Mr.
Buechner, none of the Selling Securityholders was an officer, director, or
employee of the Company during the past three years, or had any other
relationship with the Company during such period, other than as an investor.
Such securities represent each investor's total beneficial holdings of the
Company's Common Stock and Warrants. The Selling Securityholders have agreed
with J.W. Barclay & Co., Inc. (the "Representative"), the representative of the
Underwriters of the concurrent offering being made by the Company, not to sell
any of the securities which have been registered for sale pursuant to the
Registration Statement of which this Prospectus forms a part for a period of 24
months from the date of this Prospectus without the prior written consent of the
Representative. All of the Common Stock and Warrants held by the Selling
Securityholders are being offered for sale pursuant to this Prospectus for their
respective accounts. Accordingly, it is anticipated that none of such securities
will be owned by such Selling Securityholders after completion of the Offering.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Plan of Distribution."
The following table sets forth the name of each Selling Securityholder, and
the number of shares of Common Stock and Warrants that each Selling
Securityholder beneficially owned directly or indirectly on the date of this
Prospectus.
<TABLE>
<CAPTION>
SECURITIES OWNED AND OFFERED
BY EACH SELLING SECURITYHOLDER
----------------------------------
NAME COMMON STOCK WARRANTS
- --------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
J.P. Downey.......................................................... 285,000
Ernest Ferrante...................................................... 285,000
Paul Signoracci...................................................... 285,000
Royal Bank of Scotland............................................... 150,000 1,000,005
Per Eric Dahl........................................................ 350,000
Jerome and Ann Coppola............................................... 40,000 266,668
Harold Singer........................................................ 30,000 200,001
Jack W. Buechner(1).................................................. 25,000
Dale Bertling........................................................ 10,000 66,667
Kenneth Delonge...................................................... 10,000 66,667
Howard M. Pack....................................................... 10,000 66,667
Michael Ciasulli..................................................... 50,000
Wayne and Louella Adams.............................................. 5,000 33,334
Christopher Cirillo.................................................. 5,000 33,334
Boyd Corliss......................................................... 5,000 33,334
Richard David........................................................ 5,000 33,334
Leon Feldan.......................................................... 5,000 33,334
David Hanos, Jr...................................................... 5,000 33,334
Bernard Kolkana...................................................... 5,000 33,334
Charles Leithauser................................................... 5,000 33,334
E. Dale Miller....................................................... 5,000 33,334
Thomas Zenick........................................................ 5,000 33,334
Lawrence Dunn........................................................ 25,000
Slate Daiagi Realty.................................................. 25,000
Colonial Electric Consulting Corp. .................................. 12,500
------- ---------
1,180,000 2,462,515
======= =========
</TABLE>
- ---------------
(1) As of the date of this Prospectus, Mr. Buechner does not own, but does
possess, pursuant to the Buechner Option, the right to purchase such shares
of Common Stock. Such shares are being offered hereby subject to their
issuance upon Mr. Buechner's timely exercise of the Buechner Option.
<PAGE> 127
[Alternate Prospectus page]
PLAN OF DISTRIBUTION
The Selling Securityholders have advised the Company that sales of their
Common Stock and Warrants may be effected from time to time in transactions
(which may include block transactions) in the over-the-counter market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Securityholders may effect such transactions
by selling the their Common Stock and Warrants directly to purchasers or to or
through broker-dealers which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of the
Selling Securityholders' Common Stock and/or Warrants for whom such broker-
dealers may act as agents or to whom they sell as principal, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). The Selling Securityholders and any broker-dealer that acts in
connection with the sale of the Selling Securityholders' Common Stock and/or
Warrants might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act. Each of the Selling Securityholders is obligated to
comply with certain rules promulgated by the SEC designed to prevent
manipulative and deceptive practices, including Rules 10b-2, 10b-6 and 10b-7
promulgated under the Securities Exchange Act of 1934. The Representative does
not currently plan to participate in the sale of securities of the Selling
Securityholders.
At the time any offer of securities is made by or on behalf of a Selling
Securityholder, a prospectus supplement might need to be circulated to disclose
the number of shares being offered and the terms of the offering, the name or
names of any underwriters, dealers or agents participating in the offering, the
purchase price paid by any underwriter for shares purchased from the Selling
Securityholders, and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
The Selling Securityholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of their
securities against certain liabilities, including liabilities arising under the
Securities Act.
All costs, expenses and fees in connection with the registration of the
shares of Common Stock and Warrants offered by the Selling Securityholders will
be borne by the Company. Brokerage commissions, if any, attributable to the sale
of the securities offered by the Selling Securityholders will be borne by the
Selling Securityholders.
<PAGE> 128
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER,
SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THE PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................
Prospectus Summary....................
Risk Factors..........................
Use of Proceeds.......................
Dilution..............................
Capitalization........................
Dividend Policy.......................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Certain Relationships and Related
Transactions........................
Principal Security Holders............
Selling Securityholders...............
Plan of Distribution..................
Description of Securities.............
Shares Eligible for Future Sale.......
Concurrent Offering by the Company....
Legal Matters.........................
Experts...............................
Financial Statements..................
</TABLE>
======================================================
[ALTERNATE PROSPECTUS BACK COVER PAGE]
======================================================
1,155,000 SHARES OF COMMON STOCK
2,462,515 FIVE YEAR WARRANTS
2,462,515 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
OF SUCH WARRANTS
25,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
OF AN OPTION
OFFERED BY CERTAIN
SELLING SECURITYHOLDERS OF
RUSSIAN WIRELESS
TELEPHONE
COMPANY, INC.
--------------------
PROSPECTUS
--------------------
, 1997
======================================================
<PAGE> 129
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the bylaws of Russian Wireless Telephone Company, Inc. (the
"Company") provides for the indemnification of directors and officers to the
fullest extent permitted by law.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
grants corporations the right to limit or eliminate the personal liability of
their Directors in certain circumstances in accordance with provisions therein
set forth. Article 10 of the Company's Certificate of Incorporation, a copy of
which is filed as an exhibit to this Registration Statement, and incorporated
herein by reference, provides for the elimination of personal liability of a
Director to the Corporation or its stockholders for monetary damages for the
breach of the Director's fiduciary duty to the full extent allowable under
Section 102(b)(7).
Section 145 of the General Corporation Law of the State of Delaware grants
corporations the right to indemnify their Directors, officers, employees and
agents in accordance with the provisions therein set forth. Article 8 of the
Company's Bylaws, filed as an exhibit to this Registration Statement, and
incorporated herein by reference, provides for indemnification of such person to
the full extent allowable under applicable law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of 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 and is, therefore, unenforceable.
The Company has applied for directors' and officers' liability insurance
coverage with limits of $1,000,000 per occurrence.
In the Underwriting Agreement relating to the Common Stock and Warrants
being offered hereunder, the underwriters have agreed to indemnify the Company's
directors and certain of its officers, upon the terms and under the
circumstances described therein, as to certain civil liabilities, including
liabilities under the Securities Act. The Company has also entered into
indemnification agreements with each of its directors and officers which provide
for indemnification to the fullest extent permitted by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
Common Stock being registered. All amounts are estimates except the registration
fee, the NASD and Nasdaq SmallCap Market fees.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC Registration fee.............................................. $ 18,932
NASD Filing fee................................................... 6,747
Nasdaq SmallCap Market fees....................................... 10,000
Printing expenses................................................. 100,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 250,000
Blue sky fees and expenses........................................ 95,000
Warrant agent fees................................................ 7,500
Stock and Warrant certificates.................................... 5,000
Miscellaneous..................................................... 6,821
--------
Total................................................... $750,000
--------
</TABLE>
II-1
<PAGE> 130
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the three year period which ended on the date of filing of this
Registration Statement, the Registrant sold the unregistered securities
hereinbelow described.
April 26, 1994 -- issuance of 550,000 shares of Registrant's Common Stock,
$.01 par value (the "Common Stock") to Ronald G. Nathan in consideration for
payment of $11,600. No underwriter, no discounts, no commissions. Exempt from
registration pursuant to Rule 506 of Regulation D promulgated under the
Securities Act ("Rule 506").
June 15, 1994 -- issuance of 488,000 shares of Common Stock to Harvey Block
at inception for financial consulting services rendered prior to inception and
for services rendered through June 15, 1994 in the amount of $11,600. Exempt
from registration pursuant to Rule 506.
June 1994 -- Registrant issued 12% unsecured promissory notes in the
aggregate principal amount of $735,000, and warrants to purchase 750,000 shares
of Common Stock to the investors identified below in connection with a private
placement of 7.5 units consisting of such securities at an offering price of
$100,000 per unit which was exempt from registration pursuant to Rule 506. White
Rock Partners & Co., Inc. served as placement agent in connection with said
placement and received a consulting fee and non-accountable expense allowance of
$75,000 and $22,500, respectively, in connection therewith.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME UNITS WARRANTS
--------------------------------------------------------------- --------- ---------
<S> <C> <C>
Hilda O'Connor................................................. 1/4 25,000
Timothy Martin................................................. 1 1/2 150,000
Elliot Braun................................................... 1/2 50,000
Jeffrey Mulgeier............................................... 1/2 50,000
James Noonan................................................... 1/2 50,000
Jai Guar....................................................... 1/2 50,000
Leah Hammerman................................................. 1/4 25,000
George Rutland................................................. 1 1/2 150,000
Charles Burkridge.............................................. 1/2 50,000
Zoger Investment Corp.......................................... 1 100,000
Sean Leahy..................................................... 1/2 50,000
--- -------
Total................................................ 7 1/2 750,000
</TABLE>
October 1994 -- Registrant issued 12% unsecured promissory notes in the
aggregate principal amount of $980,000, and warrants to purchase 500,000 shares
of Common Stock to the investors identified below in connection with a private
placement of 10 units consisting of such securities at an offering price of
$100,000 per unit which was exempt from registration pursuant to Rule 506. White
Rock Partners & Co., Inc. and CMA Analytical Service, Inc. served as placement
agents in connection with said placement and received a consulting fee and
non-accountable expense allowance of $100,000 and $30,000, respectively, in
connection therewith.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME UNITS WARRANTS
--------------------------------------------------------------- --------- ---------
<S> <C> <C>
Slate Daiagi Realty............................................ 1/2 25,000
Lawrence T. Dunn III........................................... 1/2 25,000
Michael Ciasulli............................................... 1 50,000
Lehman Brothers................................................ 7 350,000
Colonial Electric Consultant Corp.............................. 1 50,000
--- -------
Total................................................ 10 500,000
</TABLE>
December 15, 1994 -- issuance of 600,000 shares of Common Stock to Ronald
G. Nathan in consideration for Registrant in the amount of $180,000. Exempt from
registration pursuant to Rule 506.
II-2
<PAGE> 131
December 19, 1994 -- issuance of 285,000 shares of Common Stock to J.P.
Downey in consideration for services rendered to the Registrant in the amount of
$1,850. Exempt from registration pursuant to Rule 506.
December 19, 1994 -- issuance of 285,000 shares of Common Stock to Ernest
Ferrante in consideration for services rendered to the Registrant in the amount
of $1,850. Exempt from registration pursuant to Rule 506.
December 19, 1994 -- issuance of 285,000 shares of Common Stock to Paul
Signoracci in consideration for services rendered to the Registrant in the
amount of $1,850. Exempt from registration pursuant to Rule 506.
December 23, 1994 -- issuance of 800,000 shares of Common Stock to
Inversiones Santa Catalina, N.V. in consideration for payment in the amount of
$8,000. Exempt from registration pursuant to Rule 506.
December 23, 1994 -- issuance of 25,000 shares of Common Stock to Solomon
Klotz in consideration for payment in the amount of $50.00. Exempt from
registration pursuant to Rule 506.
December 23, 1994 -- issuance of 5,000 shares of Common Stock to James
Staff in consideration for payment in the amount of $50.00. Exempt from
registration pursuant to Rule 506.
December 23, 1994 -- issuance of 5,000 shares of Common Stock to Thomas
Turnure in consideration for payment in the amount of $50.00. Exempt from
registration pursuant to Rule 506.
February 1996 -- Registrant issued 8% unsecured promissory notes in the
aggregate principal amount of $1,050,000, 300,000 shares of Common Stock and
warrants to purchase 2,000,015 shares of Common Stock to the investors
identified below in connection with a private placement of 30 units consisting
of such securities at an offering price of $35,000 per unit which was exempt
from registration pursuant to Rule 506. J.W. Barclay & Co., Inc. served as
placement agent in connection with said placement and received a consulting fee
and non-accountable expense allowance of $105,000 and $31,500, respectively, in
connection therewith.
<TABLE>
<CAPTION>
NAME NO. OF UNITS NO. OF SHARES NO. OF WARRANTS
- ---------------------------------------------------- ------------ ------------- ---------------
<S> <C> <C> <C>
Dale Bertling....................................... 1 10,000 66,667
Howard Pack......................................... 1 10,000 66,667
Thomas Zenick....................................... 1/2 5,000 33,334
Royal Bank of Scotland.............................. 15 150,000 1,000,005
David Hanos, Jr..................................... 1/2 5,000 33,334
Charles Leithauser.................................. 1/2 5,000 33,334
Bernard Kolkana..................................... 1/2 5,000 33,334
Richard Davis....................................... 1/2 5,000 33,334
Leon Feldan......................................... 1/2 5,000 33,334
Jerome and Ann Coppola.............................. 4 40,000 266,668
E. Dale Miller...................................... 1/2 5,000 33,334
Boyd Corliss........................................ 1/2 5,000 33,334
Wayne Adams and Lovella Adams....................... 1/2 5,000 33,334
Kenneth A. DeLonge.................................. 1 10,000 66,667
Harold H. Singer.................................... 3 30,000 200,001
Christopher Cirillo................................. 1/2 5,000 33,334
--
------- ---------
Total..................................... 30 300,000 2,000,015
</TABLE>
December 19, 1996 -- Registrant borrowed the principal amount of $250,000
from each of Messrs. L.W. Cave, James Condakes and Howard M. Pack pursuant to
agreements which provided for the repayment of such principal, together with
interest accruing thereon at the rate of 8% per annum at the time of closing of
the offering being made pursuant to prospectus contained in this Registration
Statement, or October 31, 1998. As an inducement to such lenders to make such
loans, the Registrant issued 150,000 shares of Common Stock to each of them, for
no additional consideration. The Registrant paid a commission of $75,000 to a
registered
II-3
<PAGE> 132
representative of J.W. Barclay & Co., Inc., on behalf of said firm, in
connection with consummation of such financings. Such transactions were exempt
from registration pursuant to Rule 506.
February 10, 1997 -- Registrant issued 250,000 shares of Common Stock to
Ronald G. Nathan and 500,000 shares of Common Stock to Mikhail Leibov pursuant
to the merger of Russian Wireless Telephone Company, Inc. ("Russian Wireless")
with and into the Registrant, and in consideration for the receipt and
cancellation of 250,000 and 500,000 shares, respectively, of the common stock of
Russian Wireless from them. Such transactions were exempt from registration
pursuant to Rule 506.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealers Agreement.
2.1 Certificate of Merger Between the Company and Russian Wireless Telephone Company,
Inc.*
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 The Company's Omnibus Stock Incentive Plan.*
4.2 Specimen Stock Certificate of the Company's Common Stock.*
4.3 Specimen Warrant Certificate.
4.4 Form of Warrant Agreement.
4.5 Form of Lock-up Agreement.
4.6 Form of Representative's Warrant.
4.7 Custodial Agreement and Power of Attorney.
5 Opinion of Hall Dickler Kent Friedman & Wood, regarding the legality of the Common
Stock and the Warrants.
10.1 Option Agreement Between the Company and Mikhail Leibov.*
10.2 Option Exercise Agreement Between the Company and Mikhail Leibov.*
10.3 Employment Agreement Between the Company and Ronald G. Nathan.*
10.4 Extension of Employment Agreement Between the Company and Ronald G. Nathan.*
10.5 Employment Agreement Between the Company and Mikhail Leibov.*
10.6 Lease Between 780 Third Avenue Associates and the Company.
10.7 Lease Between Public Joint Stock Company PKB Proyektenergomash and Corbina
Telecommunications.
10.8 Lease between Public Joint Stock Company PKB Proyektenergomash and
Investelektrosvyaz.
10.9 Financial Consulting Agreement Between the Company and the Representative.
10.10 Form of Indemnity Agreement to be entered into between the Company and its
Directors and Officers.*
10.11 Redemption Agreement between the Company and Harvey Bloch.
10.12 Distributor Agreement between Corbina Telecommunications ("Corbina") and Rustelnet.
10.13 International value added services distributor agreement between Sprint Networks
and Corbina Telecommunications.
10.14 Service Agreement between Macomnet and Corbina.
10.15 Amendment dated June 16, 1997 to employment agreement between the Company and
Ronald G. Nathan.
</TABLE>
II-4
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.16 Amendment dated June 16, 1997 to employment agreement between the Company and
Mikhail Leibov.
10.17 Redemption Agreement and promissory note between the Company and Inversiones Santa
Catalina, N.V.
10.18 Loan Agreement dated as of June 25, 1997 between the Company and Inversiones Santa
Catalina, N.V.
10.19 Loan Agreement dated as of June 25, 1997 between the Company and Joseph Defalco.
10.20 Rescission Agreement dated as of February 6, 1997, between the Company and Colonial
Electric Consulting Corp.
10.21 Amendment dated June 18, 1997 to Rescission Agreement between the Company and
Colonial Electric Consulting Corp.
10.22 Agreement dated March 15, 1996 between Corbina and ZAO Rustelent.
10.23 Agreement dated December 21, 1995 Between Corbina and MACOMNET.
10.24 Agreement between Sprint Networks and Corbina.
10.25 Amendment No. 3 dated as of June 19, 1997 between the Company and Michael Ciasulli
to that certain Promissory Note dated November 3, 1994.
10.26 Amendment No. 3 dated as of June 19, 1997 between the Company and Per Eric Dahl to
that certain Promissory Note dated November 3, 1994.
10.27 Amendment No. 3 dated as of June 19, 1997 between the Company and Larry Dunn to
that certain Promissory Note dated November 3, 1994.
10.28 Amendment No. 3 dated as of June 19, 1997 between the Company and Slate Daiagi
Realty, Inc. to that certain Promissory Note dated November 3, 1994.
10.29 License issued to ZAO Investelektrosvyaz by the Ministry of Communications of the
Russian Federation.
10.30 Agreement between Corbina and ZAO Kortek.
11 Computations of Earnings (Loss) Per Share.
21 Subsidiaries of the Company.
23.1 Consent of Independent Auditors (See Part II, Page 8).
23.2 Consent of Independent Auditors (See Part II, Page 8).
23.3 Consent of Counsel (See Part II, Page 8).
23.4 Consent of Counsel (See Part II, Page 8).
24 Power of Attorney.*
</TABLE>
- ---------------
* Filed on March 28, 1997 as an exhibit to the Company's Registration Statement
on Form SB-2 (Reg. No. 333-24177)
ITEM 28. UNDERTAKINGS.
A. Certificates
The Registrant hereby undertakes to provide to the Underwriter 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.
II-5
<PAGE> 134
B. Rule 415 Offering
The Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells any of the
securities which are the subject of the prospectus included within this
Registration Statement, 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 fundamental change in the information set
forth in the Registration Statement; (iii) to include any additional or changed
material information with respect to the plan of distribution.
(2) For purposes of determining any liability under the Securities Act, the
Registrant will treat each post-effective amendment as a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
C. Request for Acceleration of Effective Date
The Company may elect to request acceleration of the effective date of the
Registration Statement under Rule 461 of the Securities Act of 1933.
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 small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 Securities Act and will be governed by the final adjudication
of such issue.
D. Reliance on Rule 430A
(1) For purposes of determining liability under the Securities Act, the
Registrant 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 under Rule 424(b)(1) or (4) or
497(h) under the Securities Act (sections 230.424(b)(1), (4) or 230.497(h)) as
part of this Registration Statement as of the time the Commission declared it
effective.
(2) For purposes of determining liability under the Securities Act, the
Registrant will treat each post-effective amendment as a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE> 135
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 amendment to its
registration statement to be signed on its behalf by the undersigned, in the
City, County and State of New York on the 3rd day of July, 1997
Russian Wireless Telephone Company,
Inc.
By: /s/ RONALD G. NATHAN
-----------------------------------
Ronald G. Nathan, President
(Principal Executive Officer)
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------------- -------------
<C> <S> <C>
/s/ JACK W. BUECHNER Director, Chairman of the Board July 3, 1997
- ---------------------------------------------
Jack W. Buechner
/s/ RONALD G. NATHAN Director, President, Treasurer July 3, 1997
- --------------------------------------------- (Principal Executive and
Ronald G. Nathan Principal Financial and
Accounting Officer)
/s/ RICHARD N. HOLWILL Director July 3, 1997
- ---------------------------------------------
Richard N. Holwill
/s/ STEVEN D. DREYER Director, Secretary July 3, 1997
- ---------------------------------------------
Steven D. Dreyer
</TABLE>
II-7
<PAGE> 136
CONSENT OF INDEPENDENT AUDITORS
Russian Wireless Telephone Company, Inc.
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 28, 1997 in Amendment No. 1 to the
Registration Statement (Form SB-2, No. 333-24177) and related prospectus of
Russian Wireless Telephone Company, Inc. dated July 3, 1997.
ERNST & YOUNG LLP
New York, New York
July 3, 1997
CONSENT OF INDEPENDENT AUDITORS
Corbina Telecommunications
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 24, 1997 with respect to the financial
statements of Corbina Telecommunications included in Amendment No. 1 to the
Registration Statement (Form SB-2, No. 333-24177) and related prospectus of
Russian Wireless Telephone Company, Inc. dated July 3, 1997.
ERNST & YOUNG (CIS) LIMITED
Moscow, Russian Federation
July 3, 1997
CONSENT OF COUNSEL
We consent to the use of our firm's name and to the statements made with
respect to our Firm, as they appear under the heading "Legal Matters" in the
Prospectus which is included in Part I of this amendment to the Registration
Statement.
HALL DICKLER KENT FRIEDMAN & WOOD LLP
New York, New York
July 3, 1997
CONSENT OF COUNSEL
I consent to the use of my name and to the statements made with respect to
me, as they appear under the heading "Legal Matters" in the Prospectus which is
included in Part I of this amendment to the Registration Statement.
IRINA IGITOVA
Moscow, Russian Federation
July 3, 1997
II-8
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------------------------------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement.
1.2 -- Form of Agreement Among Underwriters.
1.3 -- Form of Selected Dealers Agreement.
4.3 -- Specimen Warrant Certificate.
4.4 -- Form of Warrant Agreement.
4.5 -- Form of Lock-up Agreement.
4.6 -- Form of Representative's Warrant.
4.7 -- Custodial Agreement and Power of Attorney.
5 -- Opinion of Hall Dickler Kent Friedman & Wood, regarding the legality
of the Common Stock and the Warrants.
10.6 -- Lease Between 780 Third Avenue Associates and the Company.
10.7 -- Lease Between Public Joint Stock Company PKB Proyektenergomash and
Corbina Telecommunications.
10.8 -- Lease between Public Joint Stock Company PKB Proyektenergomash and
Investelektrosvyaz.
10.9 -- Financial Consulting Agreement Between the Company and the
Representative.
10.11 -- Redemption Agreement between the Company and Harvey Bloch.
10.12 -- Distributor Agreement between Corbina Telecommunications ("Corbina")
and Rustelnet.
10.13 -- International value added services distributor agreement between
Sprint Networks and Corbina Telecommunications
10.14 -- Service Agreement between Macomnet and Corbina.
10.15 -- Amendment dated June 16, 1997 to employment agreement between the
Company and Ronald G. Nathan.
10.16 -- Amendment dated June 16, 1997 to employment agreement between the
Company and Mikhail Leibov.
10.17 -- Redemption Agreement and promissory note between the Company and
Inversiones Santa Catalina, N.V.
10.18 -- Loan Agreement dated as of June 25, 1997 between the Company and
Inversiones Santa Catalina, N.V.
10.19 -- Loan Agreement dated as of June 25, 1997 between the Company and
Joseph Defalco.
10.20 -- Rescission Agreement dated as of February 6, 1997, between the
Company and Colonial Electric Consulting Corp.
10.21 -- Amendment dated June 18, 1997 to Rescission Agreement between the
Company and Colonial Electric Consulting Corp.
10.22 -- Agreement dated March 15, 1996 between Corbina and ZAO Rustelent.
10.23 -- Agreement dated December 21, 1995 Between Corbina and MACOMNET.
10.24 -- Agreement between Sprint Networks and Corbina.
10.25 -- Amendment No. 3 dated as of June 19, 1997 between the Company and
Michael Ciasulli to that certain Promissory Note dated November 3,
1994.
10.26 -- Amendment No. 3 dated as of June 19, 1997 between the Company and Per
Eric Dahl to that certain Promissory Note dated November 3, 1994.
10.27 -- Amendment No. 3 dated as of June 19, 1997 between the Company and
Larry Dunn to that certain Promissory Note dated November 3, 1994.
10.28 -- Amendment No. 3 dated as of June 19, 1997 between the Company and
Slate Daiagi Realty, Inc. to that certain Promissory Note dated
November 3, 1994.
10.29 -- License issued to ZAO Investelektrosvyaz by the Ministry of
Communications of the Russian Federation.
</TABLE>
II-9
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------------------------------------
<C> <C> <S> <C>
10.30 -- Agreement between Corbina and ZAO Kortek.
11 -- Computations of Earnings (Loss) Per Share.
21 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Auditors (See Part II, Page 8).
23.2 -- Consent of Independent Auditors (See Part II, Page 8).
23.3 -- Consent of Counsel (See Part II, Page 8).
23.4 -- Consent of Counsel (See Part II, Page 8).
</TABLE>
II-10
<PAGE> 1
Exhibit 1.1
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
1,530,000 Shares of Common Stock
and
2,200,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
, 1997
J.W. Barclay & Co., Inc.
As Representative of the several Underwriters
One Battery Park Plaza
New York, New York 10004
Dear Sirs:
Russian Wireless Telephone Company, Inc., a Delaware corporation (the
"Company"), and the stockholder listed in Schedule A (the "Selling Stockholder")
of this Underwriting Agreement (the "Agreement") hereby confirm their agreement
with the Underwriters named in Schedule B of the Agreement (the "Underwriters"),
for whom you are acting as representative (the "Representative"), as follows:
1. Description of the Securities.
The Company proposes to issue and sell and the Selling Stockholder
proposes to sell to the Underwriters an aggregate of 1,530,000 shares of common
stock, $.01 par value per share (the "Common Stock") of the Company, of which
1,500,000 shares are being sold by the Company and 30,000 shares by the Selling
Stockholder; and the Company also proposes to sell 2,200,000 redeemable common
stock purchase warrants of the Company (the "Warrants" and collectively with the
Common Stock, the "Securities") in the amounts set forth on Schedule B hereto.
Each Warrant shall entitle the holder to purchase one share of Common Stock for
$7.25, subject to adjustment. The Company proposes to grant to the Underwriters
(or to the Representative, individually) an option to purchase up to 229,500
additional shares of Common Stock and up to an additional 330,000 Warrants (the
"Additional Securities"). The offering of Securities and Additional Securities
contemplated hereby may sometimes be referred to as the "Offering."
(a) The Warrants.
The Warrants are exercisable beginning two years from the effective date
of the Registration Statement, as defined in Paragraph 2(a) (the "Effective
Date"), and expire five years after the Effective Date, subject to prior
redemption by the Company.
<PAGE> 2
The shares of Common Stock issuable upon the exercise of the Warrants are
hereinafter referred to as the "Warrant Shares."
The Warrants will be redeemable at a price of $.50 per Warrant, commencing
two years after the Effective Date upon at least 30 days prior written notice
provided that the closing bid price of the Common Stock (or closing sales price
if listed on an exchange or on a reporting system that provides last sales
prices) for 20 consecutive trading days ending on the third day immediately
prior to the date on which notice of redemption is given shall exceed $14.50 per
share (subject to adjustment), subject to the right of the holder to exercise
his purchase rights thereunder until redemption. Notwithstanding the foregoing,
the Warrants may be exercised and/or redeemed commencing one year after the
Effective Date with the prior written consent of the Representative.
(b) Representative's Warrants.
The Company will sell to the Representative, for $10, a warrant to
purchase one share of Common Stock and one Warrant for each ten shares of Common
Stock and ten Warrants sold in this Offering excluding the Additional Securities
(a maximum of 153,000 shares of Common Stock and 220,000 Warrants) at a price
equal to $8.40 per share of Common Stock and $.60 per Warrant (the
"Representative's Warrants" and collectively with the Securities underlying the
Representative's Warrants, the "Representative's Securities"). The Warrants
underlying the Representative's Warrants shall be exercisable at a price of
$7.25 per Warrant. The Representative's Securities shall be non-exercisable and
non-transferable (other than to (i) officers of the Underwriters, and (ii)
members of the selling group and their officers or partners) for a period of 12
months following the Effective Date. Thereafter, they are exercisable and
transferable for a period of four years. If the Warrants underlying the
Representative's Warrants are not exercised during their term, they shall, by
their terms, automatically expire. The Representative's Securities shall be
registered for sale to the public and shall be included in the Registration
Statement filed in connection with the Offering.
2. Representations and Warranties of the Company.
A. The Company represents and warrants to the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement on Form SB-2 (File No.
333-24177), including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Securities under the Securities Act of
1933 (the "Act"). The
2
<PAGE> 3
Company will file further amendments to said registration statement in the form
to be delivered to you and will not, before the registration statement becomes
effective, file any other amendment thereto to which you shall have objected in
writing after having been furnished with a copy thereof. Except as the context
may otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, exhibits and all other documents filed as
a part thereof or incorporated therein), is hereinafter called the "Registration
Statement" and the prospectus, in the form filed with the Commission pursuant to
Rule 424(b) of the General Rules and Regulations of the Commission under the Act
(the "Regulations") or, if no such filing is made, the definitive prospectus
used in the Offering, is hereinafter called the "Prospectus." The Company has
delivered to you copies of each Preliminary Prospectus as filed with the
Commission and has consented to the use of such copies for purposes permitted by
the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and has not included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, subject to the provisions set forth below and except as such
untrue statement or omission has been cured in the a subsequent preliminary
prospectus or in the final prospectus.
(c) When the Registration Statement becomes effective under the Act
and at all times subsequent thereto including the Closing Date (hereinafter
defined) and the Option Closing Date (hereinafter defined) and for such longer
periods as in the opinion of counsel for the Underwriters, a Prospectus is
required to be delivered in connection with the sale of the Securities by the
Underwriters, the Registration Statement and Prospectus, and any amendment
thereof or supplement thereto, will contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations,
and will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain 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, in light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by you, for use in connection with the preparation of the
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<PAGE> 4
Registration Statement or Prospectus, or in any amendment thereof or supplement
thereto. It is understood that the statements set forth under the heading
"Underwriting" in the Prospectus with respect to (i) the amounts of the selling
concession and reallowance; (ii) the identity of counsel to the Underwriters
under the heading "Legal Matters"; and (iii) the information concerning the NASD
affiliation of the Underwriters constitute for purposes of this Section the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Registration Statement and Prospectus, as the case may be.
(d) The Company and each of its subsidiaries (each a "Subsidiary")
are, and at the Closing Date and the Option Closing Date will be, corporations
duly organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation. The Company and each of its Subsidiaries
are duly qualified or licensed and in good standing as foreign corporations in
each jurisdiction in which their ownership or leasing of any properties or the
character of their operations requires such qualification or licensing, except
those jurisdictions in which the failure to so qualify would not have a material
adverse effect. The Company and each of its Subsidiaries have all requisite
corporate powers and authority, and, except as set forth in the Registration
Statement, the Company and each of its Subsidiaries and their employees' have
all material and necessary authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental regulatory officials and
bodies to own or lease their properties and conduct their businesses as
described in the Prospectus, and the Company and each of its Subsidiaries are
doing business and have been doing business during the period described in the
Registration Statement in compliance with all such material authorizations,
approvals, orders, licenses, certificates and permits and all material federal,
state and local laws, rules and regulations concerning the businesses in which
the Company or its Subsidiaries are engaged. The disclosures in the Registration
Statement concerning the effects of federal, state and local regulation on the
Company's or its Subsidiaries' businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact. The Company has all corporate power and authority to enter into
this Agreement and carry out the provisions and conditions hereof, and all
consents, authorizations, approvals and orders required in connection therewith
have been obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and executed
by the Company. The Securities (including the Common Stock and the Warrants),
the Warrant Shares, the Representative's Warrants to be issued and sold by the
Company pursuant to this Agreement, the Securities issuable upon exercise of the
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<PAGE> 5
Representative's Warrants and payment therefor, and the Common Stock and Warrant
Shares underlying such Representative's Warrants, have been duly authorized
(and, in the case of the Common Stock and the Warrant Shares, have been duly
reserved for issuance) and, when issued and paid for in accordance with this
Agreement (and, in the case of the Warrant Shares, upon exercise of the Warrants
and payment to the Company of the exercise price therefor), the Common Stock and
Warrant Shares will be validly issued, fully paid and non-assessable; the Common
Stock, Warrants, Warrant Shares, Representative's Warrants, Additional
Securities and Representative's Warrant Shares are not and will not be subject
to the preemptive rights of any stockholder of the Company and conform and at
all times up to and including their issuance will conform in all material
respects to all statements with regard thereto contained in the Registration
Statement and Prospectus; and all corporate action required to be taken for the
authorization, issuance and sale of the Common Stock, Warrants, Warrant Shares
and Representative's Warrants has been taken, and this Agreement constitutes a
valid and binding obligation of the Company, enforceable in accordance with its
terms, to issue and sell, upon exercise in accordance with the terms thereof,
the number and kind of securities called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation, as amended, or Bylaws of the Company or any of
its Subsidiaries or of any evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
properties is bound, or under any applicable law, rule, regulation, judgment,
order or decree of any government, professional advisory body, administrative
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its Subsidiaries or their properties, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of the Company or any of its Subsidiaries; and no consent, approval,
authorization or order of any court or governmental or other regulatory agency
or body is required for the consummation by the Company or any of its
Subsidiaries of the transactions on their part herein contemplated, except such
as may be required under the Act or under state securities or blue sky laws,
except where a breach, violation or failure to obtain such consent would not
have a material adverse effect upon the business or operation of the Company or
its Subsidiaries.
(g) Subsequent to the date hereof, and prior to the Closing Date and
the Option Closing Date, the Company will not
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<PAGE> 6
issue or acquire any equity securities except that the Company may make
short-term investments as contemplated in the "Use of Proceeds" section of the
Prospectus. Except as described in the Registration Statement, the Company does
not have, and at the Closing Date and at the Option Closing Date will not have,
outstanding any options to purchase or rights or warrants to subscribe for, or
any securities or obligations convertible into, or any contracts or commitments
to issue or sell shares of its Preferred Stock, Common Stock or any such
options, warrants, convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the Company
and each Subsidiary are not, and at the Closing Date and at the Option Closing
Date will not be, in violation or breach of, or default in, the due performance
and observance of any term, covenant or condition of any indenture, mortgage,
deed of trust, note, loan or credit agreement, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other agreement
or instrument to which the Company or any of its Subsidiaries are a party or by
which the Company or any of its Subsidiaries may be bound or to which any of the
property or assets of the Company or any of its Subsidiaries are subject, which
violations, breaches, default or defaults, singularly or in the aggregate, would
have a material adverse effect on the Company or any of its Subsidiaries. The
Company and each of its Subsidiaries have not and will not have taken any action
in material violation of the provisions of the Certificate of Incorporation, as
amended, or the Bylaws of the Company or its Subsidiaries or any statute or any
order, rule or regulation of any court or regulatory authority or governmental
body having jurisdiction over or application to the Company or its Subsidiaries,
their businesses or properties.
(j) The Company and each of its Subsidiaries have, and at the
Closing Date and at the Option Closing Date will have, good and marketable title
to all properties and assets described in the Prospectus as owned by them, free
and clear of all liens, charges, encumbrances, claims, security interests,
restrictions and defects of any material nature whatsoever, except such as are
described or referred to in the Prospectus and liens for taxes not yet due and
payable. All of the material leases and subleases under which the Company or any
of its Subsidiaries are the lessor or sublessor of properties or assets or under
which the Company or any of its
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<PAGE> 7
Subsidiaries hold properties or assets as lessee as described in the Prospectus
are, and will on the Closing Date and the Option Closing Date be, in full force
and effect, and except as described in the Prospectus, the Company and its
Subsidiaries are not and will not be in default in respect to any of the terms
or provisions of any of such leases or subleases (which would have a material
adverse effect on the business, business prospects or operations of the Company
or any of its Subsidiaries taken as a whole), and no claim has been asserted by
anyone adverse to rights of the Company or any of its Subsidiaries as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company or any of its
Subsidiaries to continue possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus, and the Company and each of its Subsidiaries owns or leases all
such properties as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted set forth in
the Prospectus (which would have a material adverse effect on the business,
business prospects or operations of the Company or any of its Subsidiaries taken
as a whole).
(k) The authorized, issued and outstanding capital stock of the
Company as of , 1997 is as set forth in the Prospectus under "Capitalization";
the shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been granted or entered into by the Company; and the
Common Stock, the Warrants and all such options and warrants conform in all
material respects, to all statements relating thereto contained in the
Registration Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does not own
or control any capital stock or securities of, or have any proprietary interest
in, or otherwise participate in any other corporation, partnership, joint
venture, firm, association or business organization; provided, however, that
this provision shall not be applicable to the investment, if any, of the net
proceeds from the sale of the Securities sold by the Company in certificates of
deposits, savings deposits, short-term obligations of the United States
Government, money market instruments or other short-term investments.
(m) Ernst & Young LLP, and Ernst & Young (CIS) Limited, who have
given their reports on certain financial statements filed and to be filed with
the Commission as a part of the Registration
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<PAGE> 8
Statement, which are incorporated in the Prospectus, are with respect to the
Company, independent public accountants as required by the Act and the Rules and
Regulations.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money; or (ii) entered into any transaction other than in the
ordinary course of business; or (iii) declared or paid any dividend or made any
other distribution on or in respect to its capital stock.
(o) There is no litigation or governmental proceeding pending or to
the knowledge of the Company or any Subsidiary threatened against, or involving
the properties or business of the Company or any Subsidiary which might
materially adversely affect the value, assets or the operation of the properties
or the business of the Company or any Subsidiary, except as referred to in the
Prospectus. Further, except as referred to in the Prospectus, there are no
pending actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race, nor is the
Company or any Subsidiary charged with or, to its knowledge, under investigation
with respect to any violation of any statutes or regulations of any regulatory
authority having jurisdiction over its business or operations, and no labor
disturbances by the employees of the Company or any Subsidiary exist or, to the
knowledge of the Company or any Subsidiary, have been threatened.
(p) The Company has, and at the Closing Date and at the Option
Closing Date will have, filed all necessary federal, state and foreign income
and franchise tax returns or has requested extensions thereof (except in any
case where the failure to so file would not have a material adverse effect on
the Company), and has paid all taxes which it believes in good faith were
required to be paid by it except for any such tax that currently is being
contested in good faith or as described in the Prospectus.
(q) The Company has not at any time (i) made any contribution to any
candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
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<PAGE> 9
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any of officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
Company's assets or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date and on the Option Closing Date, all transfer
or other taxes, if any (other than income tax) which are required to be paid,
and are due and payable, in connection with the sale and transfer of the
Securities by the Company to the Underwriters will have been fully paid or
provided for by the Company as the case may be, and all laws imposing such taxes
will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company which
are of a character required to be described in the Registration Statement or
Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(u) The Company will apply the net proceeds from the sale of the
Securities sold by it for the purposes and in the manner set forth in the
Registration Statement and Prospectus under the heading "Use of Proceeds."
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specified authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (3) access to assets is permitted only in
accordance with management's general or specific authorizations; and (4) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right to require registration of any
securities because of the filing or effectiveness of the Registration Statement.
(x) The Company has not taken and at the Closing Date will not have
taken, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or
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<PAGE> 10
manipulation of the price of the Common Stock or the Warrants to facilitate the
sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for services in
the nature of a finder's origination fee with respect to the sale of the
Securities hereunder, except as set forth in the Prospectus.
(z) Other than the right of first refusal granted by the Company to
the Representative (as set forth in Section 3(aa) hereof), no right of first
refusal exists with respect to any sale of securities by the Company.
(aa) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to Underwriters was, when made, or as of the
Closing Date or as of the Option Closing Date will be materially inaccurate,
untrue or incorrect.
B. The Selling Stockholder represents and warrants to the Underwriters
that:
(a) It (1) has the full right, power and authority to execute and
deliver this Agreement, the Power of Attorney, and the Custody Agreement,
hereinafter referred to, (2) is, and on the Closing Date will be, the owner of
the Selling Stockholder's Common Stock ("Stock") to be sold pursuant to the
terms hereof, free and clear of all liens, charges, encumbrances and
restrictions, (3) has paid the full purchase price required to be paid for such
Stock, (4) on the Closing Date will have paid or provided for all stock transfer
or other taxes (other than income taxes) required to be paid by such Selling
Stockholder in connection with the sale and transfer of such Selling
Stockholder's Stock and all laws imposing such taxes will have been fully
complied with, and (5) has, and on the Closing Date will have, the full legal
right, power and authority to sell, transfer and deliver such Selling
Stockholder's Stock hereunder and covey good and marketable title to such
Selling Stockholder's Stock, free and clear of all liens, charges, encumbrances,
equities, claims and restrictions, whatsoever.
(b) This Agreement, the Power of Attorney and the Custody Agreement
have been duly authorized, executed and delivered by the Selling Stockholder.
This Agreement, the Power of Attorney and the Custody Agreement constitute the
valid and binding agreements of the Selling Stockholder enforceable in
accordance with their terms.
(c) Neither the execution and delivery of this Agreement, the Power
of Attorney, nor the Custody Agreement nor the consummation of the transactions
herein or therein contemplated nor
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<PAGE> 11
the compliance with the terms hereof or thereof by the Selling Stockholder 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, purchase
agreement or other agreement or instrument to which the Selling Stockholder is a
party or by which the Selling Stockholder is bound and no consent, approval,
authorization or order of any court or governmental agency or body is required
for the consummation by the Selling Stockholder of the transactions on the
Selling Stockholder's part herein contemplated, except such as may be required
under the Act or under state securities or blue sky laws.
(d) The Selling Stockholder has not, and at the Closing Date will
not have, taken, and agrees that it will not take, 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
Common Stock to facilitate the sale or resale of any of the Stock. Other than as
permitted by the Act and the rules and regulations thereunder, the Selling
Stockholder has not distributed and will not distribute any Preliminary
Prospectus, the Prospectus or any other offering material in connection with the
offering and sale of the Stock.
(e) Certificates in negotiable form representing the Selling
Stockholder's Stock to be sold by it have been placed in custody under the
Custody Agreement, in the form heretofore furnished to the Selling Stockholder,
duly executed and delivered by the Selling Stockholder to Hall Dickler Kent
Friedman & Wood, LLP (the "Custodian"), and the Selling Stockholder has duly
executed and delivered a Power of Attorney, in the form heretofore furnished to
you, appointing Steven D. Dreyer as the Selling Stockholder's attorney-in-fact
(the "Attorney-in-Fact") with authority to execute and deliver this Agreement on
behalf of the Selling Stockholder, to authorize the delivery of the Selling
Stockholder's Stock to be sold by the Selling Stockholder hereunder and
otherwise to act on behalf of the Selling Stockholder in connection with the
transactions contemplated by this Agreement and the Custody Agreement.
(f) The Selling Stockholder's Stock represented by the certificates
held in custody for the Selling Stockholder under the Custody Agreement are
subject to the interests of the Underwriters hereunder, and the arrangements
made by the Selling Stockholder for such custody, as well as the appointment by
the Selling Stockholder of the Attorney-in-Fact, are, to that extent,
irrevocable. The Selling Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of such Selling Stockholder or by the occurrence of any other event.
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<PAGE> 12
3. Covenants of the Company.
The Company covenants and agrees that:
(a) It will deliver to the Representative, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to each of the Underwriters, and each
of the Selected Dealers (as hereinafter defined) without charge, as many copies
as have been requested of each Preliminary Prospectus heretofore filed with the
Commission in accordance with and pursuant to the Commission's Rule 430 under
the Act and will deliver to the Underwriters and to others whose names and
addresses are furnished by the Underwriters or a Selected Dealer, without
charge, on the Effective Date of the Registration Statement, and thereafter from
time to time during such reasonable period as you may request if, in the opinion
of counsel for the Underwriters, the Prospectus is required by law to be
delivered in connection with sales by the Underwriters or a dealer, as many
copies of the Prospectus (and, in the event of any amendment of or supplement to
the Prospectus, of such amended or supplemented Prospectus) as the Underwriters
may request for the purposes contemplated by the Act. The Company will take all
necessary actions to furnish to whomever directed by the Underwriters, when and
as requested by the Underwriters, all necessary documents, exhibits,
information, applications, instruments and papers as may be reasonably required
or, in the opinion of counsel to the Underwriters desirable, in order to permit
or facilitate the sale of the Securities.
(c) The Company has authorized the Underwriters to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriters, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriters and all dealers to whom any of such Securities may be sold by the
Underwriters or by any Selected Dealer, to use the Prospectus, as from time to
time amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act, the applicable Regulations
and applicable state law, until completion of the distribution of the Securities
and for such longer period as you may request if the Prospectus is required
under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Securities by the Underwriters or the
Selected Dealers.
(d) The Company will use its best efforts to cause the Registration
Statement to become effective and will notify the
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<PAGE> 13
Representative immediately, and confirm the notice in writing: (i) when the
Registration Statement or any post-effective amendment thereto becomes
effective; (ii) of the issuance by the Commission of any stop order or of the
initiation, or to the best of the Company's knowledge, the threatening, of any
proceedings for that purpose; (iii) the suspension of the qualification of the
Securities and the Representative's Warrants, or underlying securities, for
offering or sale in any jurisdiction or of the initiating, or to the best of the
Company's knowledge the threatening, of any proceeding for that purpose; and
(iv) of the receipt of any comments from the Commission. If the Commission shall
enter a stop order at any time, the Company will make every reasonable effort to
obtain the lifting of such order at the earliest possible moment.
(e) During the time when a prospectus is required to be delivered
under the Act, the Company will comply with all requirements imposed upon it by
the Act and the Securities Exchange Act of 1934 (the "Exchange Act"), as now and
hereafter amended and by the Regulations, as from time to time in force, as
necessary to permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and the Prospectus. If at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or counsel for the Underwriters, the Prospectus as then amended
or supplemented includes an 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, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify you promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act and will furnish to you copies thereof.
(f) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time the Registration Statement becomes effective, to
qualify the Securities for offering and sale under the securities laws or blue
sky laws of such jurisdictions as you may reasonably designate. In each
jurisdiction where such qualification shall be effected, the Company will,
unless you agree that such action is not at the time necessary or advisable,
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction.
(g) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than the first day of the
fifteenth full calendar month following the Effective Date of the Registration
Statement, an earnings
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<PAGE> 14
statement of the Company, which will be in reasonable detail but which need not
be audited, covering a period of at least twelve months beginning after the
Effective Date of the Registration Statement, which earnings statements shall
satisfy the requirements of Section 11(a) of the Act and the Regulations as then
in effect. The Company may discharge this obligation in accordance with Rule 158
of the Regulations.
(h) During the period of five years commencing on the Effective Date
of the Registration Statement, the Company will furnish to its stockholders an
annual report (including financial statements audited by its independent public
accountants), in reasonable detail, and, at its expense, furnish each of the
Underwriters (i) within 90 days after the end of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries and a separate balance sheet of each subsidiary of the Company the
accounts of which are not included in such consolidated balance sheet as of the
end of such fiscal year, and consolidated statements of operations,
stockholders' equity and cash flows of the Company and its consolidated
subsidiaries and separate statements of operations, stockholders' equity and
cash flows of each of the subsidiaries of the Company the accounts of which are
not included in such consolidated statements, for the fiscal year then ended all
in reasonable detail and all certified by independent accountants (within the
meaning of the Act and the Regulations), (ii) within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, similar balance
sheets as of the end of such fiscal quarter and similar statements of
operations, stockholders' equity and cash flows for the fiscal quarter then
ended, all in reasonable detail, and subject to year end adjustment, all
certified by the Company's principal financial officer or the Company's
principal accounting officer as having been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, (iii) as
soon as available, each report furnished to or filed with the Commission or any
securities exchange and each report and financial statement furnished to the
Company's shareholders generally and (iv) as soon as available, such other
material as the Representative may from time to time reasonably request
regarding the financial condition and operations of the Company.
(i) For a period of eighteen months from the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit), the Company's financial statements
for each of the first three quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing of quarterly financial information to stockholders.
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<PAGE> 15
(j) Prior to the Closing Date or the Option Closing Date, the
Company will not issue, directly or indirectly, without your prior written
consent and that of counsel for the Representative, any press release or other
public announcement or hold any press conference with respect to the Company or
its activities with respect to this Offering.
(k) The Company will deliver to you prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date of the Registration Statement and will not file any
such amendment or supplement to which you shall reasonably object after being
furnished such copy.
(l) During the period of 120 days commencing on the date hereof, the
Company will not at any time take, directly or indirectly, any action designed
to, or which will constitute or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Securities to
facilitate the sale or resale of any of the Securities.
(m) The Company will apply the net proceeds from the Offering
received by it in the manner set forth under "Use of Proceeds" in the
Prospectus.
(n) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the opinions,
the letters and the certificates referred to in subsections of Paragraph 9
hereof, and, in the event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Securities or any
amendment or supplement to the Prospectus relating to the offering of the
Securities subsequent to the Effective Date of the Registration Statement, such
counsel, such accountants, such officers and directors, respectively, will, at
the time of such filing or at such subsequent time as you shall specify, so long
as securities being registered by such amendment or supplement are being
underwritten by the Underwriters, furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same nature as the
opinions, the letters and the certificates referred to in said Paragraph 9, as
you may reasonably request, or, if any such opinion or letter or certificate
cannot be furnished by reason of the fact that such counsel or such accountants
or any such officer or director believes that the same would be inaccurate, such
counsel or such accountants or such officer or director will furnish an accurate
opinion or letter or certificate with respect to the same subject matter.
(o) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement in all material respects.
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<PAGE> 16
(p) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants and issuable upon exercise of the
Representative's Warrants (including the underlying securities) outstanding from
time to time.
(q) Following the Effective Date and from time to time thereafter,
so long as the Warrants are outstanding, the Company will timely prepare and
file at its sole cost and expense one or more post-effective amendments to the
Registration Statement or a new registration statement as required by law as
will permit Warrant holders to be furnished with a current prospectus in the
event Warrants are exercised, and to use its best efforts and due diligence to
have same be declared effective. The Company will deliver a draft of each such
post-effective amendment or new registration statement to the Underwriter at
least ten days prior to the filing of such post-effective amendment or
registration statement.
(r) Following the Effective Date and from time to time thereafter so
long as any of the Warrants remain outstanding, the Company will timely deliver
and supply to its warrant agent sufficient copies of the Company's current
Prospectus, as will enable such Warrant Agent to deliver a copy of such
Prospectus to any Warrant or other holder where such Prospectus delivery is by
law required to be made.
(s) So long as any of the Warrants remain outstanding, the Company
shall continue to employ the services of a firm of independent certified public
accountants reasonably acceptable to the Representative in connection with the
preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto (it being understood that Ernst & Young, LLP is acceptable to the
Representative). During the same period, the Company shall employ the services
of a law firm(s) acceptable to the Representative in connection with all legal
work of the Company, including the preparation of a registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto (it being
understood that Hall Dickler Kent Friedman & Wood, LLP is acceptable to the
Representative).
(t) So long as any of the Warrants remain outstanding, the Company
shall continue to appoint a Warrant Agent for the Warrants, who shall be
reasonably acceptable to the Representative.
(u) The Company agrees that it will, upon the Closing Date, for a
period of no less than five (5) years, engage a designee of the Representative
as an advisor (the "Advisor") to its
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<PAGE> 17
Board of Directors where such Advisor shall attend meetings of the Board,
receive all notices and other correspondence and communications sent by the
Company to members of its Board of Directors and shall be entitled to receive
compensation therefor equal to the entitlement of all non-employee directors.
Such Advisor shall also be entitled to receive reimbursement for all reasonable
costs incurred in attending such meetings including, but not limited to, food,
lodging, and transportation. The Company further agrees that during said five
(5) year period, it shall schedule no less than four (4) formal and "in person"
meetings of its Board of Directors in each such year and fifteen (15) days
advance notice of such meetings shall be given to the Advisor. Further, during
such five (5) year period, the Company shall give notice to the Representative
with respect to any proposed acquisitions, mergers, reorganizations or other
similar transactions. In lieu of the Representative's right to designate an
Advisor, the Representative shall have the right during such five-year period,
in its sole discretion, to designate one person for election as a Director of
the Company and the Company will utilize its best efforts to obtain the election
of such person who shall be entitled to receive the same compensation, expense
reimbursements and other benefits set forth above.
The Company agrees to indemnify and hold the Underwriters and such
Advisor or Director harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its of officers and directors, it agrees, if possible, to include
the Representative's designee as an insured under such policy.
(v) Upon the Closing Date, the Company shall have entered into an
agreement with the Representative in form reasonably satisfactory to the
Representative (the "Consulting Agreement"), pursuant to which the
Representative will be retained as a management and financial consultant and
will be paid a fee equal to 2% of the net proceeds derived by the Company from
the sale of the Securities in the Offering, including the net proceeds derived
by the Company from the sale of Securities pursuant to the Underwriters' Option
referred to in Section 5 herein, all of which shall be paid upon the Closing
Date and Option Closing Date, as the case may be.
(w) The Company's Common Stock and Warrants shall be listed on the
Nasdaq SmallCap Market ("Nasdaq") not later than the Effective Date. Prior to
the Effective Date, the Company will make all filings required, including
registration under the Exchange Act, to obtain the listing of the Common Stock
and Warrants on Nasdaq, and will effect and use its best efforts to maintain
such
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<PAGE> 18
listing (unless the Company is acquired) for at least five years from the date
of this Agreement.
(x) The Company will apply for listing in Standard and Poors
Corporation Reports or Moodys OTC Guide and shall use its best efforts to have
the Company included in such publications for at least five years from the
Closing Date.
(y) For a period of twenty-four (24) months from the Closing Date,
no officer, director or holder of any securities of the Company (other than
shares that are currently publicly traded, in the case of stockholders who are
not officers, directors or 5% or greater stockholders) prior to the Offering
will, directly or indirectly, offer, sell (including any short sale), grant any
option for the sale of, acquire any option to dispose of, or otherwise dispose
of any shares of Common Stock, including shares of Common Stock issuable upon
exercise of options, warrants or any convertible securities of the Company,
without the prior written consent of the Representative, other than as set forth
in the Registration Statement. In order to enforce this covenant, the Company
shall impose stop-transfer instructions with respect to the securities owned by
every stockholder prior to the Offering until the end of such period (subject to
any exceptions to such limitation on transferability set forth in the
Registration Statement). If necessary to comply with any applicable Blue-sky
Law, the shares held by such stockholders will be escrowed with counsel for the
Company or otherwise as required.
(z) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of twenty-four (24)
months following the Closing Date, directly or indirectly, offer, sell, issue or
transfer any shares of its capital stock, or any security exchangeable or
exercisable for, or convertible into, shares of the capital stock or register
any of its capital stock (under any form of registration statement, including
Form S-8), without the prior written consent of the Representative. Options
granted pursuant to plans must be exercisable at the fair market value on the
date of grant.
(aa) During the three-year period from the Effective Date, J.W.
Barclay & Co., Inc., individually, and not as Representative of the
Underwriters, shall have a right of first refusal to act as underwriter or agent
of any and all public or private offerings of the securities of the Company, or
any successor to or subsidiary of the Company or any other entity in which the
Company has an equity interest (collectively referred to
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<PAGE> 19
herein as the "Company"), by the Company or any secondary offering of the
Company's securities by any of its officers, directors and 5% or greater
stockholders ("Principal Stockholders"). The Company has caused such Principal
Stockholders to deliver to the Representative on or before the date of this
Agreement, an agreement to this effect, as it relates to any proposed secondary
offering by such Principal Stockholders, in form and substance satisfactory to
the Representative and to counsel for the Representative.
(bb) For so long as any of the Warrants remain outstanding, the
Company shall maintain key person life insurance payable to the Company on each
of the lives of Ronald G. Nathan, its Chief Executive, and Mikhail Leibov, the
Chief Executive of Corbina Telecommunications and Comptel Ltd., the Company's
subsidiaries, each in the amount of $1,000,000, unless his employment with the
Company is earlier terminated. In such event, the Company will obtain a
comparable policy on the life of his successor for the balance of such period.
(cc) The Company will use its best efforts to obtain, as soon after
the Closing Date as is reasonably possible, liability insurance covering its
officers and directors.
(dd) The Company agrees that any conflict of interest arising
between a member of the Company's Board of Directors and the Company in
connection with such Director's dealing with, or obligations to, the Company,
shall be resolved by a vote of the majority of the independent members of the
Board of Directors.
(ee) The Company agrees that it will employ the services of a
financial public relations firm acceptable to the Representative for a period of
at least twelve months following the Effective Date.
4. Sale, Purchase and Delivery of Securities: Closing Date.
(a) The Company and the Selling Stockholder agree to sell to the
Underwriters, and the Underwriters, on the basis of the warranties,
representations and agreements of the Company and the Selling Stockholder
herein, and subject to the terms and conditions herein, agree to purchase the
Securities from the Company and the Selling Stockholder, as the case may be, at
a price of $7.00 per share of Common Stock and $.50 per Warrant, less an
underwriting discount of ten percent (10%) of the offering price for each
security. The Underwriters may allow a concession not exceeding $ per share of
Common Stock and $ per Warrant to Selected Dealers who are members of the
National Association of Securities Dealers, Inc ("NASD"), and to certain foreign
dealers, and such dealers may
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<PAGE> 20
reallow to NASD members and to certain foreign dealers a concession not
exceeding $ per share of Common Stock and $ per Warrant.
(b) Delivery of the Securities and payment therefor shall be made at
10:00 A.M., New York time on the Closing Date, as hereinafter defined, at the
offices of the Representative or such other location as may be agreed upon by
you and the Company. Delivery of certificates for the Common Stock and Warrants
(in definitive form and registered in such names and in such denominations as
you shall request by written notice to the Company delivered at least two
business days prior to the Closing Date), shall be made to you for the account
of the Underwriters against payment of the purchase price therefor by certified
or bank check or wire transfer payable in New York Clearing House funds to the
order of the Company. The Company will make such certificates available for
inspection at least two business days prior to the Closing Date at such place as
you shall designate.
(c) The "Closing Date" shall be , 1997, or such other date not later
than the fourth business day following the effective date of the Registration
Statement as you shall determine and advise the Company by at least three full
business days' notice, confirmed in writing.
(d) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Securities by the Company to the
Underwriters shall be borne by the Company. The Company will pay and hold the
Underwriters, and any subsequent holder of the Securities, harmless from any and
all liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp taxes, if any, which may be payable or determined to be
payable in connection with the original issuance or sale to the Underwriters of
the Securities or any portions thereof.
5. Sale Purchase and Delivery of Additional Securities: Option Closing
Date.
(a) The Company agrees to sell to the Underwriters, and upon the
basis of the representations, warranties and agreements of the Company herein
contained, subject to the satisfaction of all the terms and conditions of this
Agreement, the Underwriters shall have the option (the "Option") to purchase the
Additional Securities from the Company, at the same price per Security as set
forth in Paragraph 4(a) above. Additional Securities may be purchased solely for
the purpose of covering over-allotments made in connection with the distribution
and sale of the Securities.
(b) The Option to purchase all or part of the Additional Securities
covered thereby is exercisable by you at any time and
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<PAGE> 21
from time to time before the expiration of a period of 45 calendar days from the
Effective Date of the Registration Statement (the "Option Period") by written
notice to the Company setting forth the number of Additional Securities for
which the Option is being exercised, the name or names in which the certificates
for such Additional Securities are to be registered and the denominations of
such certificates. Upon each exercise of the Option, the Company shall sell to
the Underwriters the aggregate number of Additional Securities specified in the
notice exercising such Option.
(c) Delivery of the Additional Securities with respect to which
Options shall have been exercised and payment therefor shall be made at 10:00
A.M., New York time on the Option Closing Date, as hereinafter defined, at the
offices of the Representative or at such other locations as may be agreed upon
by you and the Company. Delivery of certificates for Additional Securities shall
be made to you for the account of the Underwriters against payment of the
purchase price therefor by certified or bank check or wire transfer in New York
Clearing House Funds to the order of the Company. The Company will make
certificates for Additional Securities to be purchased at the Option Closing
Date available for inspection at least two business days prior to such Option
Closing Date at such place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than five
business days after the end of the Option Period as you shall determine and
advise the Company by at least three full business days' notice, unless some
other time is agreed upon between you and the Company.
(e) The obligations of the Underwriters to purchase and pay for
Additional Securities at such Option Closing Date shall be subject to compliance
as of such date with all the conditions specified in Paragraph 2 herein and the
delivery to you of opinions, certificates and letters, each dated such Option
Closing Date, substantially similar in scope to those specified in Paragraph 9
herein.
(f) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Additional Securities by the Company to
the Underwriters shall be borne by the Company. The Company will pay and hold
the Underwriters, and any subsequent holder of Additional Securities, harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying federal and state stamp taxes, if any, which may be payable or
determined to be payable in connection with the original issuance or sale to the
Underwriters of the Additional Securities or any portion thereof.
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6. Warrant Solicitation Fee.
The Company agrees to pay J.W. Barclay & Co., Inc. ("Barclay"), in its
individual capacity and not as representative of the underwriters, a fee of five
percent (5%) of the aggregate exercise price of the Warrants if: (i) the market
price of the Common Stock is greater than the exercise price of the Warrants on
the date of exercise; (ii) the exercise of the Warrants are solicited by a
member of the NASD and the customer states in writing that the transaction was
solicited and designates in writing the broker-dealer to receive compensation
for the exercise; (iii) the Warrants are not held in a discretionary account;
(iv) the disclosure of compensation arrangements was made both at the time of
the Offering and at the time of the exercise of the Warrant; and (v) the
solicitation of the Warrant is not in violation of Regulation M promulgated
under the Exchange Act. The Company agrees not to solicit the exercise of any
Warrants other than through Barclay and will not authorize any other dealer to
engage in such solicitation without the prior written consent of the
Representative which will not be unreasonably withheld. The Warrant solicitation
fee will not be paid in a non-solicited transaction. No Warrant solicitation by
Barclay will occur prior to one year from the Effective Date.
7. Representations and Warranties of the Underwriters.
The Underwriters represent and warrant to the Company that:
(a) The Underwriters are each members in good standing of the
National Association of Securities Dealers, Inc., and have complied with all
NASD requirements concerning net capital and compensation to be received in
connection with the Offering.
(b) To the Underwriters' knowledge, there are no claims for services
in the nature of a finder's origination fee with respect to the sale of the
Securities hereunder to which the Company is, or may become, obligated to pay.
8. Payment of Expenses.
(a) The Company will pay and bear all costs, fees, taxes and
expenses incident to and in connection with: (i) the issuance, offer, sale and
delivery of the Securities, including all expenses and fees incident to the
preparation, printing, filing and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement (including all exhibits
thereto), each Preliminary Prospectus, the Prospectus, and amendments and
post-effective amendments thereof and supplements thereto, and this Agreement
and related documents, Preliminary and Final Blue Sky Memoranda, including the
cost of preparing and copying all copies
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<PAGE> 23
thereof in quantities deemed necessary by the Underwriters; (ii) the costs of
preparing and printing all "Tombstone" and other appropriate advertisements;
(iii) the printing, engraving, issuance and delivery of the Common Stock,
Warrants, Warrant Shares, Additional Securities, Underwriters' Warrants and the
securities underlying the Underwriters' Warrant, including any transfer or other
taxes payable thereon in connection with the original issuance thereof; (iv) the
qualification of the Common Stock and Warrants under the state or foreign
securities or "Blue Sky" laws selected by the Underwriters and the Company, and
disbursements and reasonable fees of counsel for the Underwriters in connection
therewith (not to exceed $50,000) plus the filing fees for such states; (v) fees
and disbursements of counsel and accountants for the Company; (vi) other
expenses and disbursements incurred on behalf of the Company (vii) the filing
fees payable to the Commission and the National Association of Securities
Dealers, Inc. ("NASD"); (viii) any listing of the Common Stock and Warrants on a
securities exchange or on NASDAQ.
(b) In addition to the expenses to be paid and borne by the Company
referred to in Paragraph 8(a) above, the Company shall reimburse you at closing
for expenses incurred by you in connection with the Offering (for which you need
not make any accounting), in the amount of 3% of the price to the public of the
Securities and Additional Securities sold in the Offering. This 3%
non-accountable expense allowance shall cover the fees of your legal counsel,
but shall not include any expenses for which the Company is responsible under
Paragraph 8(a) above, including the reasonable fees and disbursements of your
legal counsel with respect to Blue Sky matters. As of the date hereof, $25,000
has been advanced by the Company to the Underwriters with respect to such
non-accountable expense allowance.
(c) In the event that the Company does not or cannot, for any reason
whatsoever other than a default by the Underwriters, expeditiously proceed with
the Offering, or if any of the Company's representations, warranties or
covenants contained in this Agreement are not materially correct or cannot be
complied with by the Company, or business prospects or obligations of the
Company are adversely affected and the Company does not commence or continue
with the Offering at any time or terminates the proposed transaction prior to
the Closing Date, the Company shall reimburse the Underwriters on an accountable
basis for all out-of-pocket expenses actually incurred in connection with the
Underwriting, this Agreement and all of the transactions hereby contemplated,
including, without limitation, your legal fees and expenses, up to an aggregate
total of $100,000 less such sums which have already been paid.
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<PAGE> 24
9. Conditions of Underwriters' Obligations.
The obligations of the Underwriters to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, the accuracy of the statements of the
Company and its officers and directors made pursuant to the provisions hereof,
and to the performance by the Company of its covenants and agreements hereunder
and under each certificate, opinion and document contemplated hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York time, on the date following the date of this Agreement,
or such later date and time as shall be consented to in writing by you and, on
or prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement or the qualification or registration of the Securities
under the securities laws of any jurisdiction shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
to your knowledge or the knowledge of the Company, shall be contemplated by the
Commission or any such authorities of any jurisdiction and any request on the
part of the Commission or any such authorities for additional information shall
have been complied with to the reasonable satisfaction of the Commission or such
authorities and counsel to the Underwriters and after the date hereof no
amendment or supplement shall have been filed to the Registration Statement or
Prospectus without your prior consent.
(b) The Registration Statement or the Prospectus or any amendment
thereof or supplement thereto shall not contain an untrue statement of a fact
which is material, or omit to state a fact which is material and is required to
be stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this Agreement
and the Closing Date, there shall be no litigation instituted against the
Company or any of its officers or directors and between such dates there shall
be no proceeding instituted or, to the Company's knowledge, threatened against
the Company or any of its officers or directors before or by any federal, state
or county commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or proceeding an
unfavorable ruling, decision or finding would have a material adverse effect on
the Company or its business, business prospects or properties, or have a
material adverse effect on the financial condition or results of operation of
the Company.
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(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to you shall be true and correct at the Closing Date
as if made at the Closing Date, and all covenants and agreements contained
herein and in each such certificate and document to be performed on the part of
the Company, and all conditions contained herein and in each such certificate
and document to be fulfilled or complied with by the Company at or prior to the
Closing Date shall be fulfilled or complied with.
(e) At the Closing Date, you shall have received the opinion of Hall
Dickler Kent Friedman & Wood, LLP, counsel to the Company, dated as of such
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to counsel to the Underwriters, to the effect that:
(i) The Company and each of its Subsidiaries are corporations
duly organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation with full corporate power and authority, and
all licenses, permits, certifications, registrations, approvals, consents and
franchises to own or lease and operate their properties and to conduct their
businesses as described in the Registration Statement. The Company and each of
its Subsidiaries are duly qualified to do business as foreign corporations and
are in good standing in all jurisdictions wherein such qualification is
necessary and failure so to qualify could have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company and each of its Subsidiaries;
(ii) The Company has full corporate power and authority to
execute, deliver and perform the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement and the Representative's Warrants and to
consummate the transactions contemplated thereby. The execution, delivery and
performance of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreement and the Representative's Warrants by the Company, the consummation by
the Company of the transactions therein contemplated and the compliance by the
Company with the terms of the Underwriting Agreement, the Consulting Agreement,
the Warrant Agreement and the Representative's Warrants have been duly
authorized by all necessary corporate action, and each of the Underwriting
Agreement, the Consulting Agreement, the Warrant Agreement and the
Representative's Warrants have been duly executed and delivered by the Company.
Each of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreement and the Representative's Warrants is a valid and binding obligation of
the Company, enforceable in accordance with their respective terms, subject, as
to enforcement of remedies, to applicable bankruptcy,
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insolvency, reorganization, moratorium and other laws affecting the rights of
creditors generally and the discretion of courts in granting equitable remedies
and except that enforceability of the indemnification provisions and the
contribution provisions set forth in the Underwriting Agreement may be limited
by the federal securities laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Representative's Warrants by the Company, the consummation by the Company of the
transactions therein contemplated and the compliance by the Company with the
terms of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreement and the Representative's Warrants do not, and will not, with or
without the giving of notice or the lapse of time, or both, (A) result in a
violation of the Certificate of Incorporation, as the same may be amended, or
Bylaws of the Company or any of its Subsidiaries, (B) to the best of our
knowledge, result in a breach of, or conflict with, any terms or provisions of
or constitute a default under, or result in the modification or termination of,
or result in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, any indenture, mortgage, note, contract, commitment or
other material agreement or instrument to which the Company or any of its
Subsidiaries are a party or by which the Company or any of its Subsidiaries or
any of their properties or assets are or may be bound or affected, except where
any of the foregoing would not result in a material adverse effect upon the
Company's or any Subsidiaries business or operations; (C) to the best of our
knowledge, violate any existing applicable law, rule or regulation or judgment,
order or decree known to us of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its Subsidiaries or any
of their properties or businesses; or (D) to the best of our knowledge, have any
effect on any permit, certification, registration, approval, consent, license or
franchise necessary for the Company or any of its Subsidiaries to own or lease
and operate their properties and to conduct their business or the ability of the
Company or any of its Subsidiaries to make use thereof;
(iv) To the best of our knowledge, no authorization, approval,
consent, order, registration, license or permit of any court or governmental
agency or body (other than under the Act, the Regulations and applicable state
securities or Blue Sky laws) is required for the valid authorization, issuance,
sale and delivery of the Securities, the Additional Securities, the Common
Stock, the Warrants, the Warrant Shares, or the Representative's Warrants, and
the consummation by the Company of
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<PAGE> 27
the transactions contemplated by the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement or the Representative's Warrants;
(v) The Registration Statement was declared effective under
the Act on , 1997; to the best of our knowledge, 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, threatened or contemplated
under the Act or applicable state securities laws;
(vi) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which we express no opinion),
comply as to form in all material respects with the requirements of the Act and
Regulations and the conditions for use of a registration statement on Form SB-2
have been satisfied by the Company;
(vii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
To the best of our knowledge, none of the material provisions
of the contracts or instruments described above violates any existing applicable
law, rule or regulation or judgment, order or decree known to us of any United
States governmental agency or court having jurisdiction over the Company or any
of its assets or businesses;
(viii) The outstanding Common Stock and Warrants have been
duly authorized and validly issued. The outstanding Common stock is fully paid
and nonassessable. To the best of our knowledge, none of the outstanding Common
Stock has been issued in violation of the preemptive rights of any stockholder
of the Company. None of the holders of the outstanding Common Stock is subject
to personal liability solely by reason of being such a holder. The authorized
Common Stock conforms to the description thereof contained in the Registration
Statement and Prospectus. To the best of our knowledge, except as set forth in
the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act;
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(ix) The issuance and sale of the Securities, the Additional
Securities, the Common Stock, the Warrants, the Warrant Shares and the
Representative's Warrants have been duly authorized and when issued will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders. Neither
the Securities, the Additional Securities, nor the Common Stock are subject to
preemptive rights of any stockholder of the Company. The certificates
representing the Securities are in proper legal form;
(x) The issuance and sale of the Warrant Shares and the
Representative's Warrants have been duly authorized and, when paid for, issued
and delivered pursuant to the terms of the Warrant Agreement or the
Representative's Warrants, as the case may be, the Warrants, the Warrant Shares
and the Representative's Warrants will constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms, to issue
and sell the Warrants, the Warrant Shares and/or Representative's Warrants. All
corporate action required to be taken for the authorization, issuance and sale
of the securities has been duly, validly and sufficiently taken. The Common
Stock and the Warrants have been duly authorized by the Company to be offered in
the form of the Securities. The Warrants, the Warrant Shares and the
Representative's Warrants conform to the descriptions thereof contained in the
Registration Statement and Prospectus;
(xi) The Underwriters have acquired good title to the
Securities, free and clear of all liens, encumbrances, equities, security
interests and claims, provided that the Underwriters are bona fide purchasers as
defined in Section 8-302 of the Uniform Commercial Code;
(xii) Assuming that the Underwriters exercise the
over-allotment option to purchase the Additional Securities and make payments
therefor in accordance with the terms of the Underwriting Agreement, upon
delivery of the Additional Securities to the Underwriters thereunder, the
Underwriters will acquire good title to the Additional Securities, free and
clear of any liens, encumbrances, equities, security interests and claims,
provided that the Underwriters are bona fide purchasers as defined in
Section 8-302 of the Uniform Commercial Code;
(xiii) To the best of our knowledge, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, foreign or domestic, or before any
private arbitration tribunal, pending or threatened against the Company or any
of its Subsidiaries or involving their properties or businesses, other than as
described in the Prospectus, such description being accurate, and other than
litigation incident to the kind of
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<PAGE> 29
business conducted by the Company or any of its Subsidiaries which, individually
and in the aggregate, is not material, and, except as otherwise disclosed in the
Prospectus and the Registration Statement, the Company and its Subsidiaries have
complied with all federal and state laws, statutes and regulations concerning
its business;
(xiv) All sales of the Company's securities have been made in
compliance with or under an exemption from the registration requirements of the
Act, and no purchaser of such securities in any such sale has a right of action
against the Company for failure to comply with the registration or filing
requirements of any state; and
(xv) We have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although we are not passing upon and do not assume responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, no facts came to our attention which lead us to believe
that (A) the Registration Statement (except as to the financial statements and
other financial data contained therein, as to which we express no opinion), on
the Effective Date, contained any untrue statement of a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which we express no opinion) contains any untrue
statement or a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(f) At the Closing Date, you shall have received the opinion of
Irina Igitova, Esq., special counsel to the Company with respect to the laws of
the Russian Federation, dated as of such Closing Date, addressed to the
Underwriters and in form and substance satisfactory to counsel to the
Underwriters, to the effect that:
(i) Corbina Telecommunications ("Corbina"), CompTel Ltd.
("CompTel") and Investelektrosvyaz ("Investelectro") (the "Russian
Subsidiaries") have been duly organized and are validly existing as closed joint
stock companies in good standing under the laws of the Russian Federation, and
have full corporate power and authority to own their properties and conduct
their businesses as described in the Registration Statement and Prospectus;
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<PAGE> 30
(ii) The Russian Subsidiaries have obtained, or are in the
process of obtaining, all licenses, permits and other governmental
authorizations necessary to conduct their businesses as described in the
Prospectus, and such licenses, permits and other governmental authorizations
obtained are in full force and effect, and the Russian Subsidiaries are in all
material respects complying therewith;
(iii) The Company owns 75% of the issued and outstanding
capital stock of each of Corbina and CompTel, and CompTel owns 51% of
Investelectro; all of the Russian Subsidiaries' outstanding securities have been
duly authorized, are validly issued, fully paid and non-assessable and have not
been issued in violation of the preemptive rights of any security holder;
(iv) Such counsel knows of no pending or threatened legal or
governmental proceedings to which either or the Russian Subsidiaries are a party
which could materially adversely affect the business, property, financial
conduct or operations of either of the Russian Subsidiaries;
(v) Such counsel is familiar with all contracts or other
agreements entered into by the Russian Subsidiaries with other Russian
companies, entities, banking institutions or individuals referred to in the
Registration Statement and Prospectus (collectively, the "Russian Agreements"),
and all such Russian Agreements are valid, binding and enforceable under Russian
law, and to the knowledge of such counsel, neither of the Russian Subsidiaries
is in default under any of the Russian Agreements;
(vi) Neither of the Russian Subsidiaries is in violation of or
in default under its Charter Documents or Bylaws, or to the knowledge of such
counsel, in the performance or observance of any material obligation, agreement,
covenant or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any contract, indenture, mortgage, loan agreement or
instrument to which either Russian Subsidiary is are a party or by which it or
any of its properties may be bound, or in violation of any material order, rule,
regulation, writ, injunction or decree of any government or governmental
instrumentality or court; and
(vii) Pursuant to the laws of the Russian Federation, the
minority stockholders of Corbina, CompTel and Investelectro will not be able to
prevent the Company from carrying out the businesses of such Russian
Subsidiaries or the Company, such as consummating material transactions or
declaring dividends in cash or stock.
30
<PAGE> 31
(g) On or prior to the Closing Date, counsel for the Underwriters
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraphs (e) and (f) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(h) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the
ordinary course of business, entered into by the Company from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is material to the Company, which is either (x)
required to be disclosed in the Prospectus or Registration Statement and is not
so disclosed, or (y) likely to have material adverse effect on the Company's
business or financial condition;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness, except as
described in the Prospectus;
(iv) No material amount of the assets of the Company shall
have been pledged, mortgaged or otherwise encumbered, except as set forth in the
Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or federal
or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
operations, prospects or financial condition or income of the Company, taken as
a whole, except as set forth in the Registration Statement and Prospectus; and
(vi) No stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated or, to the Company's knowledge,
threatened by the Commission.
(vii) Each of the representations and warranties of the
Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you
31
<PAGE> 32
was, when originally made and is at the time such certificate is dated, true and
correct.
(i) Concurrently with the execution and delivery of this Agreement
and at the Closing Date, you shall have received a certificate of the Company
signed by the Chief Executive Officer of the Company and the principal financial
officer of the Company, dated as of the Closing Date, to the effect that the
conditions set forth in subparagraph (h) above have been satisfied and that, as
of the Closing Date, the representations and warranties of the Company set forth
in Paragraph 2 herein and the statements in the Registration Statement and
Prospectus were and are true and correct. Any certificate signed by any of
officer of the Company and delivered to you or for counsel for the Underwriters
shall be deemed a representation and warranty by the Company to the Underwriters
as to the statements made therein.
(j) All proceedings taken in connection with the authorization,
issuance or sale of the Common Stock, Warrants, Warrant Shares, Additional
Securities, the Representative's Warrants and the Representative's Warrant
Shares as herein contemplated shall be satisfactory in form and substance to you
and to counsel to the Underwriters, and the Underwriters shall have received
from such counsel an opinion, dated as the Closing Date with respect to such of
these proceedings as you may reasonably require.
(k) The Company shall have furnished to you such certificates,
additional to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to the accuracy and completeness, at the Closing
Date, of any statement in the Registration Statement or the Prospectus, as to
the accuracy, at the Closing Date, of the representations and warranties of the
Company herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as to the performance by the Company of its
obligations hereunder and under each such certificate and document or as to the
fulfillment of the conditions concurrent and precedent to your obligations
hereunder.
(l) The obligation of the Underwriters to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing Date
and to the satisfaction on and as of the Option Closing Date of the conditions
set forth herein.
(m) On the Closing Date there shall have been duly tendered to you
for your account the appropriate number of shares of Common Stock and Warrants
constituting the Securities.
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<PAGE> 33
10. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriters and each person, if any, who
controls the Underwriters ("controlling person") within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, against any and all
losses, liabilities, claims, damages, actions and expenses or liability, joint
or several, whatsoever (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which it or such controlling persons may become subject under the
Act, the Exchange Act or under any other statute or at common law or otherwise
or under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any Preliminary Prospectus or the Prospectus (as from
time to time amended and supplemented); in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
the Warrant Shares of the Company issued or issuable upon exercise of the
Warrants, or Underwriters' Warrant Shares upon exercise of the Underwriters'
Warrants; or in any application or other document or written communication (in
this Paragraph 10 collectively called "application") executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock, Warrants, Warrant Shares,
Additional Securities, Underwriters' Warrants and Underwriters' Warrant Shares
(including the Shares issuable upon exercise of the Warrants underlying the
Underwriters' Warrants) under the securities laws thereof or filed with the
Commission or any securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), unless such statement or
omission was made in reliance upon or in conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment or supplement thereof, or in
application, as the case may be. Notwithstanding the foregoing, the Company
shall have no liability under this Paragraph 10(a) if any such untrue statement
or omission made in a Preliminary Prospectus, is cured in the Prospectus and the
Underwriters failed to deliver to the person or persons alleging the liability
upon which indemnification is being sought, at or prior to the written
confirmation of such sale, a copy of the Prospectus. This indemnity will be in
addition to any liability which the Company may otherwise have.
33
<PAGE> 34
(b) The Underwriters agree to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriters in Paragraph 10(a), but only with respect to any untrue
statement or alleged untrue statement of any material fact contained in or any
omission or alleged omission to state a material fact required to be stated in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made solely in reliance upon, and in conformity
with, written information furnished to the Company by you specifically expressly
for use in the preparation of such Preliminary Prospectus, the Registration
Statement or Prospectus directly relating to the transactions effected by the
Underwriters in connection with this Offering. This indemnity agreement will be
in addition to any liability which the Underwriters may otherwise have.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this Paragraph 10(b) if any such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus, and the Prospectus is
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
(c) If any action is brought against any indemnified party (the
"Indemnitee") in respect of which indemnity may be sought against another party
pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume the
defense of the action, including the employment and fees of counsel (reasonably
satisfactory to the Indemnitee) and payment of expenses. Any Indemnitee shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel shall have been authorized in writing by the
Indemnitor in connection with the defense of such action. If the Indemnitor
shall have employed counsel to have charge of the defense or shall previously
have assumed the defense of any such action or claim, the Indemnitor shall not
thereafter be liable to any Indemnitee in investigating, preparing or defending
any such action or claim. Each Indemnitee shall promptly notify the Indemnitor
of the commencement of any litigation or proceedings against the Indemnitee in
connection with the issue and sale of the Common Stock, Warrants, Warrants
Shares, Additional Securities, Underwriters' Securities or in connection with
the Registration Statement or Prospectus.
(d) In order to provide for just and equitable contribution under
the Act in any case in which: (i) the
34
<PAGE> 35
Underwriters make a claim for indemnification pursuant to Paragraph 10 hereof,
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the time to appeal has expired or the last
right of appeal has been denied) that such indemnification may not be enforced
in such case notwithstanding the fact that this Paragraph 10 provides for
indemnification of such case; or (ii) contribution under the Act may be required
on the part of the Underwriters in circumstances for which indemnification is
provided under this Paragraph 10, then, and in each such case, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after any contribution from others) in
such proportion so that the Underwriters are responsible for the portion
represented by dividing the total compensation received by the Underwriters
herein by the total purchase price of all Securities sold in the public offering
and the Company is responsible for the remaining portion; provided, 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.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriters. As used in this Paragraph 10,
the term "Underwriters" includes any officer, director, or other person who
controls the Underwriters within the meaning of Section 15 of the Act, and the
word "Company" includes any of officer, director or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriters and each person who controls the Underwriters shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement.
(e) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is 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 it may have to any
other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party or his or its representative
of the commencement thereof within the aforesaid fifteen (15) days, the
contributing party will be
35
<PAGE> 36
entitled to participate therein with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of such contributing party. The indemnification provisions
contained in this Paragraph 10 are in addition to any other rights or remedies
which either party hereto may have with respect to the other or hereunder.
11. Representations Warranties Agreements to Survive Delivery.
The respective indemnity and contribution agreements by the Underwriters
and the Company contained in Paragraph 10 hereof, and the covenants,
representations and warranties of the Company and the Underwriters set forth in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by the Underwriters or on its behalf or by or on
behalf of any person who controls the Underwriters, or by the Company or any
controlling person of the Company or any director or any of officer of the
Company, (ii) acceptance of any of the Securities and payment therefor, or (iii)
any termination of this Agreement, and shall survive the delivery of the
Securities and any successor of the Underwriters or the Company, or of any
person who controls you or the Company or any other indemnified party, as the
case may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements by
the Underwriters and the Company contained in this Paragraph 11 shall be in
addition to any liability which the Underwriters and the Company may otherwise
have.
12. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 10:00 A.M., New York
time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became effective.
(b) This Agreement may be terminated by the Representative by
notifying the Company at any time on or before the Closing Date, if any domestic
or international event or act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, securities markets; or
if trading on the New York Stock Exchange, the American Stock Exchange, or in
the over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the NASD
or NASDAQ or by
36
<PAGE> 37
order of the Commission or any other governmental authority having jurisdiction;
or if a moratorium in foreign exchange trading by major international banks or
persons has been declared; or if the Company shall have sustained a loss
material or substantial to the Company taken as a whole by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in your
opinion, make it inadvisable to proceed with the delivery of the Securities; or
if there shall have been a material adverse change in the conditions of the
securities market in general, as in your reasonable judgment would make it
inadvisable to proceed with the offering, sale and delivery of the Securities;
or if there shall have been a material adverse change in the financial or
securities markets, particularly in the over-the-counter market, in the United
States having occurred since the date of this Agreement.
(c) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Paragraph 12, the Company
shall be notified promptly by you by telephone or facsimile, confirmed by
letter.
(d) If this Agreement shall not become effective by reason of an
election of the Representative pursuant to this Paragraph 12 or if this
Agreement shall not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any undertaking, or to satisfy
any condition of this Agreement by it to be performed or satisfied, the sole
liability of the Company to the Underwriters, in addition to the obligations
assumed by the Company pursuant to Paragraph 8 herein, will be to reimburse the
Underwriters for the following: (i) Blue Sky counsel fees and expenses to the
extent set forth in Paragraph 8(a)(iv); (ii) Blue Sky filing fees; and (iii)
such reasonable out-of-pocket expenses of the Underwriters (including the fees
and disbursements of their counsel), to the extent set forth in Paragraph 8(c),
in connection with this Agreement and the proposed offering of the Securities,
but in no event to exceed the sum of $100,000 less such amounts already paid.
Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement, and whether or not
this Agreement is otherwise carried out, the provisions of Paragraphs 8 and 10
hereof shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
13. Notices.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriters, shall be mailed,
delivered or telegraphed and
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<PAGE> 38
confirmed to the Representative at J.W. Barclay & Co., Inc., One Battery Park
Plaza, New York, New York 10004 Attention: John Cioffoletti, with a copy thereof
to Lawrence G. Nusbaum, III, Esq., Gusrae Kaplan & Bruno, 120 Wall Street, New
York, New York 10005, and, if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed to the Company at 780 Third Avenue, New York, New York
10017, Attention: Ronald G. Nathan, President, with a copy thereof to Hall
Dickler Kent Friedman & Wood, LLP, 909 Third Avenue, New York, New York 10022,
Attention: Steven D. Dreyer, Esq.
14. Parties.
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriters, the Company and the controlling persons, directors and
officers referred to in Paragraph 10 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
15. Construction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company and you relating to the sale of any of the Securities.
16. Jurisdiction and Venue.
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Southern District of New York.
17. Counterparts.
This agreement may be executed in counterparts.
38
<PAGE> 39
If the foregoing correctly sets forth the understanding between you, the
Selling Stockholders and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours,
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
By:______________________________________
Ronald G. Nathan, President
The Selling Stockholder:
THE CAM NEELEY FOUNDATION
By:______________________________________
Accepted as of the date first
above written:
J.W. BARCLAY & CO., INC.
By:_____________________________________
39
<PAGE> 40
SCHEDULE A
Stock to be Sold By the Selling Stockholder
Name Number of Shares
- ---- ----------------
The Cam Neeley Foundation 30,000
------
Total: 30,000
======
<PAGE> 41
SCHEDULE B
Number of Shares Number of
of Common Stock Warrants to
to be Purchased to be Purchased
---------------- ---------------
Underwriter
- -----------
J.W. Barclay & Co., Inc.
--------- ---------
Total: 1,530,000 2,200,000
========= =========
<PAGE> 1
Exhibit 1.2
1,530,000 SHARES OF COMMON STOCK
AND
2,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
AGREEMENT AMONG UNDERWRITERS
New York, New York
________ ___, 1997
J.W. Barclay & Co., Inc.
As Representative of the Several Underwriters
One Battery Park Plaza
New York, New York 10004
Dear Sirs:
1. Underwriting Agreement. We understand that RUSSIAN WIRELESS TELEPHONE
COMPANY, INC., a Delaware corporation (the "Company"), proposes to enter into an
underwriting agreement in the form attached hereto as Exhibit A (the
"Underwriting Agreement") with the underwriters named in Schedule B to the
Underwriting Agreement (the "Underwriters") acting severally and not jointly
with respect to the purchase of (i) 1,530,000 shares of common stock, $.01 par
value per share ("Common Stock") of the Company, of which 1,500,000 shares are
being sold by the Company and 30,000 shares by the stockholders listed in
Schedule A of the Underwriting Agreement (the "Selling Stockholders"); and (ii)
2,200,000 redeemable common stock purchase warrants ("Warrants") of the Company
(the Warrants, collectively with the Common Stock, are referred to herein as the
"Securities"). In addition, the Underwriters (or, at its option, J.W. Barclay &
Co., Inc., the "Representative", individually) have been granted an option to
purchase up to 229,500 additional shares of Common Stock and up to an additional
330,000 Warrants to cover over-allotments, if any, referred to in Section 5 of
the Underwriting Agreement (the "Additional Securities").
This is to confirm that we agree to purchase, in accordance with the terms
hereof and of the Underwriting Agreement, the number of Securities set forth
opposite our name in Schedule B to the Underwriting Agreement, plus such number
of Securities, if any, which we may become obligated to purchase pursuant to
Section 4 hereof ("our Securities"). The ratio which the number of our
Securities bears to the total number of Securities purchased pursuant to the
Underwriting Agreement is herein called "our underwriting proportion".
<PAGE> 2
2. Registration Statement and Prospectus. We have heretofore received and
examined a copy of the registration statement, as amended to the date hereof,
and the related prospectus in respect of the Securities, as filed with the
Securities and Exchange Commission. The registration statement, as amended at
the time it becomes effective, including financial statements and exhibits, is
hereinafter referred to as the "Registration Statement," and the prospectus in
the form first filed with the Securities and Exchange Commission pursuant to
Rule 424(b) after the Registration Statement becomes effective is referred to as
the "Prospectus."
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in such
Registration Statement and we are willing to accept our responsibilities under
the Securities Act of 1933, as a result thereof. We confirm that we have
authorized you to advise the Company on our behalf (a) as to the statements to
be included in any Preliminary Prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We further confirm that, upon request by you, as Representative,
we have furnished a copy of any amended preliminary prospectus to each person to
whom we have furnished a copy of any previous preliminary prospectus, and we
confirm that we have delivered, and we agree that we will deliver, all
preliminary and final prospectuses required for compliance with the provisions
of Rule 15c2-8 under the Securities Exchange Act of 1934.
3. Authority of the Representative. We authorize you, acting as
Representative, to execute and deliver on our behalf the Underwriting Agreement,
and to agree to any variation of its terms (except as to the purchase price and
the number of our Securities) which, in your judgment, is not a variation which
materially and adversely affects our rights and obligations. We also authorize
you, in your discretion and on our behalf, with approval of counsel for the
Underwriters, to approve the Prospectus and to approve of, or object to, any
further amendments to the Registration Statement, or amendments or supplements
to the Prospectus. We further authorize you to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions of the
Underwriting Agreement and to take all such action as you, in your discretion,
may believe desirable to carry out the provisions of the Underwriting Agreement
and of this Agreement, including the extension of any date specified in the
Underwriting Agreement, the exercise of any right of cancellation or
termination, and to determine all matters relating to the public advertisement
of the Securities; provided, however, that, except with the consent of
Underwriters who shall have agreed to purchase in the aggregate 50% or more of
the Securities, no extension of the time by which the
2
<PAGE> 3
Registration Statement is to become effective, as provided in Section 9(a) of
the Underwriting Agreement, shall be for a period in excess of two business
days. We authorize you to take such action as in your discretion may be
necessary or desirable to effect the sale and distribution of the Securities,
including, without limiting the generality of the foregoing, the right to
determine the terms of any proposed offering, the concession to Selected Dealers
(as hereinafter defined) and the reallowance, if any, to other dealers and the
right to make the judgments provided for in Section 12 of the Underwriting
Agreement.
4. Authority of Representative as to Defaulting Underwriters. Until the
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities,
agreed to be purchased by them thereunder, or (b) under this Agreement to take
up and pay for any Securities purchased, or (c) to deliver any Securities sold
or over-allotted by you for the respective accounts of the Underwriters pursuant
to Section 9 hereof, or to bear their respective share of expenses or
liabilities pursuant to Sections 11, 13 and 14 hereof, and to the extent that
arrangements shall not have been made by you for any persons to assume the
obligations of such defaulting Underwriter or Underwriters, we agree to assume
our proportionate share of the obligations of each defaulting Underwriter or
Underwriters (subject in the case of clause (a) above to the limitations
contained in Section 12 of the Underwriting Agreement) without relieving any
such defaulting Underwriter or Underwriters of its liability therefor.
5. Offering of Securities. We understand that you will notify us when the
initial public offering of the Securities is to be made and of the initial
public offering price. We hereby authorize you, in your sole discretion, after
the initial public offering, to change the public offering price, the concession
and the reallowance. The offering price at any time in effect is hereinafter
referred to as the "public offering price". We agree that we will not offer any
of the Securities for sale at a price other than the public offering price or
allow any discount
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<PAGE> 4
therefrom except as herein otherwise specifically provided.
We agree that public advertisement of the offering shall be made by you on
behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We understand
that any advertisement we may then make will be our own responsibility and at
our own expense.
We authorize you to reserve and offer for sale to institutions and other
retail purchasers and to dealers (the "Selected Dealers") to be selected by you
(such dealers may include any Underwriter) such of our Securities as you, in
your sole discretion, shall determine. Any such offering to Selected Dealers may
be made pursuant to a Selected Dealers Agreement, in the form attached hereto as
Exhibit B, or otherwise, as you may determine. The form of Selected Dealers
Agreement attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities from or to
any Selected Dealers or Underwriters at the public offering price, less all or
any part of the concession and, with your consent, any Underwriter may make
purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the public offering price, less all or any part of the
concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail purchasers any Securities retained by an
Underwriter remaining unsold. We agree to notify you, from time to time, upon
request, of the amount of our Securities retained by us remaining unsold. If all
of the Securities reserved for offering to Selected Dealers and retail
purchasers are not promptly sold by you, any Underwriter may, from time to time,
with your consent, obtain a release of all or any Securities of such Underwriter
then remaining unsold, and Securities so released shall thereafter be deemed not
to have been reserved. Securities of any Underwriter so reserved which remain
unsold, or, if sold, have not been paid for at any time prior to the termination
of this Agreement may, in your discretion or upon the request of such
Underwriter, be delivered to such Underwriter for carrying purposes only, but
such Securities shall remain subject to redelivery to you upon demand for
disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the Securities,
if any, made by us outside the United States or its territories or possessions,
(a) we will furnish to each person to whom any such offer or sale is made such
prospectus, advertisement
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<PAGE> 5
or other offering document containing information relating to the Securities or
the Company, as may be required under the laws of the jurisdiction in which such
offer or sale is made and (b) we will furnish to each person to whom any such
offer is made a copy of the then current preliminary prospectus, and to each
person to whom any such sale is made, a copy of the Prospectus referred to in
the Underwriting Agreement (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto). Any prospectus,
advertisement or other offering document (other than any such preliminary
prospectus or Prospectus) furnished by us to any person in accordance with the
preceding sentence and all such additional offering material, if any, as we may
furnish to any person (i) shall comply in all respects with the laws of the
jurisdiction in which it is so furnished, (ii) shall be prepared and so
furnished at our sole risk and expense, and (iii) shall not contain information
relating to the Securities or the Company which is inconsistent in any respect
with information contained in the then current preliminary prospectus or in the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), as the case may be.
We recognize the importance of a broad distribution of the Securities
among bona fide investors and we agree to use our best efforts to obtain such
broad distribution and, to that end, to the extent we deem practicable, to give
priority to small orders.
We agree that we will not sell to any account over which we exercise
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
6. Compensation to Representative. We authorize you to charge to our
account, as compensation for your services as Representative in connection with
this offering, including the purchase from the Company of the Securities and the
management of the offering, an amount equal to $. per share of Common Stock and
$.___ per Warrant in respect to each of our Securities.
7. Payment and Delivery. At or before 9:00 a.m., New York City time, on
the Closing Date as defined in the Underwriting Agreement, we agree to deliver
to you at your office a certified or official bank check payable in New York
Clearing House funds to your order, in an amount equal to the initial public
offering price, less the concession to the Selected Dealers in respect of that
portion of our Securities which has been retained by or released to us for
direct sales.
In the event that our funds are not received by you when required, you are
authorized, in your discretion, but shall not be obligated, to make payment for
our account pursuant to the Underwriting Agreement by advancing your own funds.
Any such payment by you shall not relieve us from any of our obligations
hereunder or
5
<PAGE> 6
under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our Securities
which have been sold or reserved for sale to Selected Dealers or retail
purchasers. Any of our Securities not sold or reserved by you as aforesaid will
be available for delivery to us at your office as soon as practicable after such
Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers, but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
8. Authority to Borrow. We authorize you to arrange loans for our account
and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our Securities,
as you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Securities, and to advance your own funds, charging current
interest rates.
9. Over-allotment; Stabilization. We authorize you, for the account of
each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Underwriters pursuant to this Agreement, (a) to
over-allot in arranging for sales of Securities to Selected Dealers and others
and, if necessary, to purchase Securities (whether pursuant to exercise of the
option set forth in Section 5 of the Underwriting Agreement or otherwise) at
such prices as you may determine for the purpose of covering such
over-allotments, and (b) for the purpose of stabilizing the market in the
Securities, to make purchases and sales of Securities on the open market or
otherwise, for long or short account, on a when-issued basis or otherwise, at
such prices, in such amounts and in such manner as you may determine; provided,
however, that at no time shall our net commitment, either for long or short
account, under this Section 9 exceed 15% of the amount of our Securities. Such
purchases, sales and over-allotments shall be made for the respective accounts
of the several Underwriters as nearly as practicable to their respective
underwriting proportions. We agree to take up on demand at cost any Securities
so purchased for our account and deliver on demand any Securities so sold or
over-allotted for our account. We authorize you to sell for the account of the
Underwriters any Securities purchased pursuant to this Section 9, upon such
terms as you may deem advisable, and any Underwriter, including yourselves, may
purchase such Securities. You are authorized to charge the respective accounts
of the Underwriters with broker's commissions or dealer's mark-up on purchases
and sales effected by you.
6
<PAGE> 7
If pursuant to the provision of the preceding paragraph and prior to the
termination of this Agreement (or prior to such earlier date as you may have
determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
mark-up, if any. In lieu of such action you may, in your discretion, sell for
our account the Securities so purchased and debit or credit our account for the
loss or profit resulting from such sale.
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section 9 or otherwise and will notify us of the
date of termination of stabilization. We agree to file with you any reports
required of us including "Not as Manager" reports pursuant to Rule 17a-2 under
the Securities Exchange Act of 1934 not later than five business days following
the day upon which such stabilization transaction was terminated, and we
authorize you to file on our behalf with the Securities and Exchange Commission
any reports required by such Rule.
10. Limitation on Transactions by Underwriters. Except as permitted by
you, we will not, during the term of this Agreement, bid for, purchase, sell or
attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price, less all or any part of the reallowance to dealers, or
(iii) purchases or sales by us of any Securities as broker or unsolicited orders
for the account of others.
We represent that we have not participated in any transaction prohibited
by the preceding paragraph and that we have at all times complied with the
provisions of Regulation M of the Securities and Exchange Commission applicable
to this offering.
We may, with your prior consent, make purchases of the Securities from and
sales to other Underwriters at the public offering price, less all or any part
of the concession to dealers.
11. Allocation and Payment of Expenses. We understand that all expenses of
a general nature incurred by you, as Representative, in connection with the
purchase, carrying, marketing and sale of the Securities shall be become by the
Underwriters in accordance with their respective share of the
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<PAGE> 8
underwriting obligations. We authorize you to charge our account with our share,
based on our underwriting obligation, of the aforesaid expenses, including all
transfer taxes paid on our behalf on sales or transfers made for our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or for
the accounts of the Underwriters, including any expenses and liabilities
referred to in Sections 13 and 14(b) hereof, which shall be determined as
provided in this Section 11.
12. Termination. Unless this Agreement or any provision hereof is earlier
terminated by you, and except for provisions herein that contemplate obligations
surviving the termination hereof as noted in the next paragraph, this Agreement
will terminate at the close of business on the 30th day after the date hereof,
but in your discretion, may be extended by you for a further period not
exceeding 30 days with the consent of the Underwriters who have agreed to
purchase in the aggregate 50% or more of the Securities. No termination or
suspension pursuant to this Section shall affect your authority under Section 9
to cover any short position under this Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 11, (ii) our obligation to pay any transfer taxes which
may be assessed and paid on account of any sales hereunder for our account,
(iii) our obligation with respect to purchases which may be made by you from
time to time thereafter to cover any short position incurred under this
Agreement, (iv) the provisions of Sections 13 and 14, and (v) the obligations of
any defaulting Underwriter, all of which shall continue until fully discharged.
13. Liability of Representative and Underwriters. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter, nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value of the Securities or the validity of
the form thereof, the Registration Statement, the Prospectus, or agreements or
other instruments executed by the Company or others; or for or in respect of the
delivery of the Securities; or for the performance by the Company or others of
any agreement on its or their part.
8
<PAGE> 9
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim, demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay our underwriting
proportion of expenses approved by you incurred by the Underwriters, or any of
them, in contesting any such claims, demands or liabilities. If the Underwriters
shall be deemed to constitute a partnership for income tax purposes, it is the
intent of each Underwriter to be excluded from the application of Sub-chapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1954, as amended. Each
Underwriter elects to be so excluded and agrees not to take any position
inconsistent with such election. Each Underwriter authorizes you, in your
discretion, to execute and file on behalf of the Underwriters such evidence of
election as may be required by the Internal Revenue Service.
14. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each other
Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreement set forth in this Section
14 shall remain in full force and effect regardless of any investigation made by
or on behalf of such other Underwriter or controlling person and shall survive
the delivery of and payment for the Units and the termination of this Agreement.
(b) In the event that any time any claim or claims shall be asserted
against you, as Representative, or otherwise involving the Underwriters
generally, relating to the Registration Statement or any preliminary prospectus
or the Prospectus, as such may be from time to time amended or supplemented, the
public offering of the Units or any of the transactions contemplated by this
Agreement, we authorize you to take such other action as you shall deem
necessary or desirable under the circumstances, including settlement of any such
claim or claims if such course of action shall be recommended by counsel
retained by you. We agree to pay to you on request, our underwriting proportion
of all expenses incurred by you (including, but not limited to, disbursements
and fees of counsel so retained) in investigating and defending against
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<PAGE> 10
such claim or claims and our underwriting proportion of any liability incurred
by you in respect of such claim or claims, whether such liability shall be the
result of a judgment or as a result of any such settlement.
15. Title to Securities. The Securities purchased by, or on behalf of, the
respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
16. Blue Sky Matters. It is understood that you assume no responsibility
with respect to the right of any Underwriter or other person to offer or to sell
Securities in any jurisdiction, notwithstanding any information which you may
furnish as to the jurisdictions under the securities laws of which it is
believed the Securities may be sold.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
18. Capital Requirements. We confirm that the incurrence by us of our
obligation under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
Securities Exchange Act of 1934 or of any applicable rules relating to capital
requirements of any securities exchange to which we are subject.
19. Miscellaneous. Any notice from you to us shall be deemed to have been
duly given if mailed, telephoned or telegraphed to us at the address set forth
in the Underwriters Questionnaire furnished by us to you. Any notice from us to
you shall be deemed to have been duly given if mailed, telephoned or telegraphed
to you at One Battery Park Plaza, New York, New York 10004.
We understand that you are a member in good standing of the NASD. We
hereby confirm that we are actually engaged in the investment banking or
securities business and are either (i) a member in good standing of the NASD or
(ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions, and not registered as a broker or
dealer under the 1934 Act? who agrees not to make any sales within the United
States, its territories or its possessions, or to persons who are nationals
thereof or residents therein (except that we may participate in sales to
Selected Dealers and others under Section 5 of this Agreement). We hereby agree
to comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and if we are a foreign dealer and not a member of the
NASD, we also hereby agree to comply with the NASD's interpretation with respect
to free-riding and withholding and to comply, as though it were a member of the
NASD, with the provisions of Sections 8 and 36 of Article III of such Rules of
Fair Practice,
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<PAGE> 11
and to comply with Section 25 of Article III thereof as that Section applies to
a non-member foreign dealer. In connection with sales and offers to sell Units
made by us outside the United States, its territories and possessions (i) we
will either furnish to each person to whom any such sale or offer is made a copy
of the then current Preliminary Prospectus or the Prospectus, as the case may
be, or inform such person that such Preliminary Prospectus or Prospectus will be
available upon request, and (ii) we will furnish to each person to whom any such
sale or offer is made such prospectus, advertisement or other offering document
containing information relating to the Units or the Company as may be required
under the law of the jurisdiction in which such sale or offer is made. Any
prospectus, advertisement or other offering document furnished by us to any
person in accordance with the preceding sentence and any such additional
offering material as we may furnish to any person (x) shall comply in all
respects with the law of the jurisdiction in which it is so furnished, (y) shall
be prepared and so furnished at our sole risk and expense and (z) shall not
contain information relating to the Units or the Company which is inconsistent
in any respect with the information contained in the then current Preliminary
Prospectus or in the Prospectus, as the case may be.
We understand that, in consideration of your services in connection with
the public offering of the Securities, the Company has agreed with you
individually and not as Representative of the Underwriters (a) to sell to you
the Representative's Warrant referred to in Section 1(b) of the Underwriting
Agreement for the sum of $10, (b) to pay to you a non-accountable expense
allowance referred to in Section 8(b) of the Underwriting Agreement, (c) to
enter into the Consulting Agreement described in Section 3(v) of the
Underwriting Agreement and (d) to grant you a right of first refusal to act as
underwriter or agent of the Company for future public or private offerings of
the securities of the Company as described in Section 3(aa) of the Underwriting
Agreement. In addition, you may, at your sole discretion, elect to exercise the
over-allotment option described in Section 5, individually. We confirm to you
that we shall make no claim to the Representative's Warrant, any rights related
thereto, the Company's securities underlying the Representative's Warrants, the
non-accountable expense allowance, or, to the over-allotment option, to the
extent you elect to exercise such option individually. You confirm to us that we
shall have no obligations or liabilities with respect to the purchase of the
Representative's Warrant, the exercise thereof, the Company's securities
underlying the Representative's Warrant, or the non-accountable expense
allowance, or, to the over-allotment option, to the extent you elect to exercise
such option individually.
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<PAGE> 12
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
_____________________________________________
By:__________________________________________
(Attorney-in-fact for each of the several
Underwriters named in Schedule B to the
attached Underwriting Agreement.)
Confirmed as of the date
first above written:
J.W. BARCLAY & CO., INC.
as Representative
By:_________________________
<PAGE> 1
Exhibit 1.3
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
1,530,000 shares and of Common Stock
and
2,200,000 Redeemable Common Stock Purchase Warrants
SELECTED DEALERS AGREEMENT
______________ ___, 1997
Dear Sirs:
J.W. Barclay & Co., Inc. is the representative (the "Representative") of
the several underwriters, (collectively with the Representative, the
"Underwriters") named in the Prospectus dated , 1997. The Underwriters have
agreed to purchase, subject to the terms and conditions set forth in the
Underwriting Agreement referred to in the Prospectus, an aggregate of 1,530,000
shares of common stock, par value $.01 per share (the "Common Stock") of Russian
Wireless Telephone Company, Inc. (the "Company"), of which 1,500,000 shares are
being sold by the Company and 30,000 shares are being sold by certain selling
stockholders listed in Schedule A of the Underwriting Agreement (the "Selling
Stockholders"). The Underwriters have also agreed to purchase from the Company
2,200,000 redeemable common stock purchase warrants (the "Warrants") of the
Company, and up to 229,500 additional shares of Common Stock and 330,000
additional Warrants (the "Additional Securities"), pursuant to an option for the
purpose of covering over-allotments (said 1,530,000 shares of Common Stock and
2,200,000 Warrants plus any of said Additional Securities purchased upon
exercise of the option being herein collectively called the "Securities"). The
Securities and the terms upon which they are to be offered for sale by the
Underwriters are more particularly described in the Prospectus.
1. The Securities are to be offered to the public by the Underwriters at a
price of $7.00 per share of Common Stock and $.50 per Warrant (herein called the
"Public Offering Price") and in accordance with the terms of the offering set
forth in the Prospectus.
2. The Underwriters are offering, subject to the terms and conditions
hereof, a portion of the Securities for sale to certain dealers which are
members of the National Association of Securities Dealers, Inc. and agree to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of such Association and to foreign dealers or institutions ineligible
for membership in said Association which agree (a) not to resell Securities (i)
to purchasers located in, or to persons who are nationals of, the United States
of America or (ii) when there is a public demand for the Securities to persons
specified as those to whom members of
<PAGE> 2
said Association participating in a distribution may not sell; and (b) to
comply, as though such foreign dealer or institution were a member of such
Association, with Sections 8, 24, 25 (to the extent applicable to foreign
nonmember brokers or dealers) and Section 36 of such Rules (such dealers and
institutions agreeing to purchase Common Stock and/or Warrants hereunder being
hereinafter referred to as "Selected Dealers") at the Public Offering Price less
a selling concession of $. per share of Common Stock and $. per Warrant, payable
as hereinafter provided, out of which concession an amount not exceeding $. per
share of Common Stock and $. per Warrant may be reallowed by Selected Dealers to
members of the National Association of Securities Dealers, Inc. or to foreign
dealers or institutions ineligible for membership therein which agree as
aforesaid. The Underwriters may be included among the Selected Dealers.
3. The Representative shall act as your representative under this
Agreement and shall have full authority to take such action as the
Representative may deem advisable in respect to all matters pertaining to the
public offering of the Securities.
4. If you desire to purchase any of the Securities, your application
should reach us promptly by telephone or facsimile at the office of the
Representative, and we will use our best efforts to fill the same. We reserve
the right to reject all subscriptions in whole or in part, to make allotments
and to close the subscription books at any time without notice. The shares of
Common Stock and the Warrants allotted to you will be confirmed, subject to the
terms and conditions of this Agreement.
5. The privilege of purchasing the shares of Common Stock and the Warrants
is extended to you by the Representative only if they may lawfully sell the
Securities to dealers in your state.
6. Any of the shares of Common Stock and Warrants purchased by you under
the terms of this Agreement may be immediately reoffered to the public in
accordance with the terms of the offering set forth herein and in the
Prospectus, subject to the securities laws of the various states. Neither you
nor any other person is or has been authorized to give any information or to
make any representations in connection with the sale of Securities other than as
contained in the Prospectus.
7. This Agreement will terminate when we shall have determined that the
public offering of the Securities has been completed and upon telegraphic notice
to you of such termination, but, if not previously terminated, this Agreement
will terminate at the close of business on the 20th full business day after the
date hereof; provided, however, that we shall have the right to extend this
Agreement for an additional period or periods not exceeding 20 full business
days in the aggregate upon telegraphic notice to you. Promptly after the
termination of this Agreement there shall become payable to you the selling
concession on all shares of Common Stock
2
<PAGE> 3
and Warrants which you shall have purchased hereunder and which shall not have
been purchased or contracted for (including certificates issued upon transfer)
by us, in the open market or otherwise (except pursuant to Section 10 hereof),
during the terms of this Agreement for the account of the Underwriters.
8. For the purpose of stabilizing the market in the Common Stock and
Warrants of the Company, we have been authorized to make purchases and sales
thereof, in the open market or otherwise, and, in arranging for sale of the
Securities, to over-allot.
9. You agree to advise us from time to time, upon request, prior to the
termination of this Agreement, of the number of Securities purchased by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Securities shall be needed to make delivery of the Securities
sold or over-allotted for the account of the Underwriters, you will, forthwith
upon our request, grant to us, or such party as we determine for, our account
the right, exercisable promptly after receipt of notice from you that such right
has been granted, to purchase, at the Public Offering Price less the selling
concession as we shall determine, such number of Securities owned by you as
shall have been specified in our request.
10. On becoming a Selected Dealer and in offering and selling the
Securities, you agree to comply with all applicable requirements of the
Securities Act of 1933, the Securities Exchange Act of 1934 and the NASD Rules
of Fair Practice.
11. Upon application, you will be informed as to the jurisdictions in
which we have been advised that the Securities have been qualified for sale
under the respective securities or blue sky laws of such jurisdictions, but we
assume no obligation or responsibility as to the right of any Selected Dealer to
sell the Securities in any jurisdiction or as to any sale therein.
12. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
13. It is expected that public advertisement of the Securities will be
made on the first day after the effective date of the Registration Statement.
Twenty-four hours after such advertisement shall have appeared but not before,
you will be free to advertise at your own expense, over your own name, subject
to any restrictions of local laws, but your advertisement must conform in all
respects to the requirements of the Securities Act of 1933, and we will not be
under any obligation or liability in respect of your advertisement.
14. No Selected Dealer is authorized to act as our agent or to make any
representation as to the existence of an agency relationship otherwise to act on
our behalf in offering or selling the Securities to the public or otherwise.
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<PAGE> 4
15. We shall not be under any liability for or in respect of the value,
validity or form of the certificates for the shares of Common Stock and
Warrants, or delivery of the certificates for the Common Stock or Warrants, or
the performance by anyone of any agreement on his part, or the qualification of
the Securities for sale under the laws of any jurisdiction, or for or in respect
of any matter connected with this Agreement, except for lack of good faith and
for obligations expressly assumed by us in this Agreement. The foregoing
provisions shall be deemed a waiver of any liability imposed under the
Securities Act of 1933.
16. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price, on or about , 1997, or such later date as we may advise,
by certified or official bank check payable to the order of J.W. Barclay & Co.,
Inc., in current New York Clearing House funds at such place as we shall specify
on one day's notice to you against delivery of certificates for the Common Stock
and Warrants.
17. Notice to us should be addressed to us at the office of J.W. Barclay &
Co., Inc., One Battery Park Plaza, New York, New York 10004. Notices to you
shall be deemed to have been duly given if telefaxed or mailed to you at the
address to which this letter is addressed.
18. If you desire to purchase any of the Securities, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith even though you have previously advised us
thereof by telephone or facsimile.
Dated: _____________, 1997
J.W. BARCLAY & CO., INC.
By:______________________________________
Accepted and agreed:
as to _______ shares of Common Stock
and ______ Warrants this ____ day
of _______, 1997.
By:___________________________________
<PAGE> 1
Exhibit 4.3
EXHIBIT A
[Form of Face of Warrant Certificate]
No. W Warrants
VOID AFTER ________ ___,2002
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED__________________________________________
________________________________________________________________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each
Warrant initially 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 fully paid and nonassessable share of Common Stock,
$.01 par value per share ("Common Stock"), of RUSSIAN WIRELESS TELEPHONE
COMPANY, INC., a Delaware corporation (the "Company"), at any time between the
Initial Warrant Exercise Date and 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 $7.25 (the "Purchase Price") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to Russian Wireless Telephone Company, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated , 1997, by and
between 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
modifications or adjustment.
A-1
<PAGE> 2
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 "Initial Warrant Exercise Date" shall mean ________, 1999
(___________, 1998, upon the express written consent of the Representative.
The term "Expiration Date" shall mean 5:00 p.m. New York time) on
________, 2002, or such earlier date as the Warrants shall be redeemed. 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) 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 then
effective. 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 off1ce 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 with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, 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 stockholder 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.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.50 per Warrant any time after_______________, 1999 (or __________,
1998, with the express written consent of the Representative, if the Warrants
shall have been exercisable for a
A-2
<PAGE> 3
period of at least thirty (30) days prior to the date of the notice of
redemption) provided the Market Price (as defined in the Warrant Agreement) for
the securities issuable upon exercise of such Warrant shall equal or exceed
$14.50 per share on each of the twenty (20) consecutive trading days during a
period ending on the third day prior to the date on which notice of redemption
is given. Notice of redemption shall be given not later than the thirtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.50 per Warrant upon
surrender of this Certificate.
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.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
any Warrants represented hereby.
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.
RUSSIAN WIRELESS TELEPHONE
COMPANY, INC.
By:________________________________________
By:________________________________________
A-3
<PAGE> 4
Date:_______________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:____________________________
Authorized Officer
A-4
<PAGE> 5
[Form of Reverse of Warrant Certificate]
NOTICE OF ELECTION TO EXERCISE
To Be Executed by the Registered Holder
in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
and be delivered to
_________________________________________
_________________________________________
_________________________________________
_________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-5
<PAGE> 6
The undersigned represents that the exercise of the Warrants evidenced
hereby was solicited by a member of the National Associaiton of Securities
Dealers, Inc. ("NASD"), whose name appears in the space below. If not solicited
by an NASD member, please write "unsolicited" in the space below. Unless
otherwise indicated, it will be assumed that the exercise was solicited by J.W.
Barclay & Co., Inc.
____________________________________________
(Name of NASD Member, if
other than J.W. Barclay & Co.,
Inc., or "Unsolicited")
____________________________________________
Dated: _______________ ____________________________________________
____________________________________________
Address
____________________________________________
Taxpayer Identification Number
____________________________________________
Signature Guaranteed
____________________________________________
A-6
<PAGE> 7
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns,
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF TRANSFEREE
__________________________________________
__________________________________________
__________________________________________
__________________________________________
(please print or type name and address)
______ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints ______________________________
_____________ Attorney to transfer this Warrant Certificate on the books of the
Company, with full power of substitution in the premises.
Date: _____________ X ____________________________________
Signature Guaranteed
____________________________________
A-7
<PAGE> 8
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
A-8
<PAGE> 1
Exhibit 4.4
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
A DELAWARE CORPORATION
AMERICAN STOCK TRANSFER & TRUST COMPANY
WARRANT AGENT
AND
J.W. BARCLAY & CO., INC.
WARRANT AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
Section Page
1. Appointment of Warrant Agent ......................... 1
2. Form of Warrant ...................................... 1
3. Countersignature and Registration .................... 2
4. Transfers and Exchanges .............................. 2
5. Exercise of Warrants; Payment of Warrant
Solicitation Fee ................................... 3
6. Payment of Taxes ..................................... 5
7. Mutilated or Missing Warrants ........................ 5
8. Reservation of Common Stock .......................... 5
9. Warrant Price; Adjustments ........................... 6
10. Fractional Interests ................................. 11
11. Notices to Warrantholders ............................ 11
12. Disposition of Proceeds on Exercise of Warrants ...... 12
13. Redemption of Warrants ............................... 12
14. Merger or Consolidation or Change of Name of
Warrant Agent .................................... 13
15. Duties of Warrant Agent .............................. 13
16. Change of Warrant Agent .............................. 15
17. Identity of Transfer Agent ........................... 16
18. Notices .............................................. 16
19. Supplements and Amendments ........................... 17
20. New York Contract .................................... 17
21. Benefits of this Agreement ........................... 17
22. Successors ........................................... 18
<PAGE> 3
WARRANT AGREEMENT, dated as of ______________ ___, 1997, by and among
RUSSIAN WIRELESS TELEPHONE COMPANY, INC., a Delaware corporation (the
"Company"), American Stock Transfer & Trust Company, as warrant agent
(hereinafter called the "Warrant Agent"), and J.W. Barclay & Co., Inc., the
representative (the "Representative") of the several Underwriters (the
"Underwriters").
WHEREAS, the Company and the stockholders listed in Schedule A of the
Underwriting Agreement between the Company and the Representative, dated
_____________ ___, 1997 (the "Selling Stockholders") propose to issue and sell
through an initial public offering by the Underwriters pursuant to an
Underwriting Agreement dated ______________ ___, 1997, an aggregate of up to
1,759,500 shares of common stock, $.01 par value per share (the "Common Stock")
of the Company, of which up to 1,729,500 shares are being sold by the Company
and 30,000 shares by the Selling Stockholder; and the Company also proposes to
sell up to 2,530,000 Common Stock Purchase Warrants (the "Warrants") of the
Company; and in connection with such offering the Company has agreed to issue to
the Representative or its designees an option to purchase 153,000 shares of
Common Stock and 220,000 Warrants (the "Representative's Warrant");
WHEREAS, each Warrant will entitle the holder to purchase one share of
Common Stock;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
Section 2. Form of Warrant. The text of the Warrants and of the form of
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto. Each Warrant shall
entitle the registered holder thereof to purchase one share of Common Stock at a
purchase price of $7.25, at any time commencing two years from the effective
date of the prospectus of the public offering ( , 1997) ("Effective Date") until
5:00 p.m. Eastern time, on , 2002. Notwithstanding the foregoing, the Warrants
may be exercisable commencing one year from the Effective Date upon the
1
<PAGE> 4
express written consent of the Representative. The warrant exercise price and
the number of shares of Common Stock issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future President or Vice President
of the Company, and attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the issuance by the Warrant Agent either
upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration dates of the Warrants fall on a
Saturday or Sunday, or on a legal holiday on which the New York Stock Exchange
is closed, then the Warrants shall expire at 5:00 p.m. Eastern time on the next
succeeding business day.
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. The Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer, from
time to time, any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock.
2
<PAGE> 5
Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee.
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, which may be exercised commencing at the opening of the
business on _________ ___, 1999 (or on _________ ___, 1998, upon the express
written consent of the Representative), to purchase from the Company (and the
Company shall issue and sell to such registered holder of Warrants) the number
of fully paid and non-assessable shares of Common Stock specified in such
Warrants upon surrender of such Warrants to the Company at the office of the
Warrant Agent, with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the warrant price,
determined in accordance with the provisions of Sections 9 and 10 of this
Agreement, for the number of shares of Common Stock in respect of which such
Warrants are then exercised. Payment of such warrant price shall be made in cash
or by certified check or bank draft to the order of the Company. Subject to
Section 6, upon such surrender of Warrants and payment of the warrant price, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares of Common Stock as of
the date of the surrender of such Warrants and payment of the warrant price as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the registered holders thereof, either as an
entirety or from time to time for a portion of the shares specified therein and,
in the event that any Warrant is exercised in respect of less than all of the
shares of Common Stock specified therein at any time prior to the date of
expiration of the Warrants, a new Warrant or Warrants will be issued to the
registered holder for the remaining number of shares of Common Stock specified
in the Warrant so surrendered, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrants pursuant to
the provisions of this Section and of Section 3 of this Agreement and the
Company, whenever requested by the Warrant Agent, will supply the Warrant Agent
with Warrants duly executed on behalf of the Company for such purpose. Anything
in the foregoing to the contrary notwithstanding, no Warrant will be exercisable
unless at the time of exercise the Company has filed with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
(the "Act") covering the shares of Common Stock issuable upon exercise of such
Warrant and such registration statement shall have been declared effective, such
shares have been so registered or qualified or deemed to be exempt under the
securities laws of the state of residence of the holder of such
3
<PAGE> 6
Warrant. The Company shall use its best efforts to have all shares so registered
or qualified on or before the date on which the Warrants become exercisable.
(a) If at the time of exercise of any Warrant after _________ ___,
1998 (i) the market price of the Company's Common Stock is equal to or greater
than the then exercise price of the Warrant, (ii) the exercise of the Warrant is
solicited by the Underwriter at such time as it is a member of the National
Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant is not held
in a discretionary account, (iv) disclosure of the compensation arrangement is
made in documents provided to the holders of the Warrants, (v) the Underwriter
is designated in writing as the soliciting broker and (vi) the solicitation of
the exercise of the Warrant is not in violation of Regulation M (as such rule or
any successor rule may be in effect as of such time of exercise) promulgated
under the Securities Exchange Act of 1934, then the Underwriter soliciting such
Warrant shall be entitled to receive from the Company upon exercise of each of
the Warrants so exercised a fee of five percent (5%) of the aggregate price of
the Warrants so exercised (the "Exercise Fee"). The procedures for payment of
the warrant solicitation fee are set forth in Section 5(b) below.
(b) (1) Within five (5) days of the last day of each month
commencing with _________ ___, 1999 (or _________ ___, 1998, as the case may
be), the Warrant Agent will notify the Representative of each Warrant
Certificate which has been properly completed for exercise by holders of
Warrants during the last month. The Company and Warrant Agent shall determine,
in their sole and absolute discretion, whether a Warrant Certificate has been
properly completed. The Warrant Agent will provide the Representative with such
information, in connection with the exercise of each Warrant, as the
Representative shall reasonably request.
(2) The Company hereby authorizes and instructs the Warrant Agent to
deliver to the soliciting Underwriter the Exercise Fee promptly after receipt by
the Warrant Agent from the Company of a check payable to the order of the
soliciting Underwriter in the amount of the Exercise Fee. In the event that an
Exercise Fee is paid to the Underwriter with respect to a Warrant which the
Company or the Warrant Agent determines is not properly completed for exercise
or in respect of which the Underwriter is not entitled to an Exercise Fee, the
soliciting Underwriter will return such Exercise Fee to the Warrant Agent which
shall forthwith return such fee to the Company.
The Representative and the Company may at any time, after _________ ___,
1999 (or _________ ___, 1998, as the case may be), and during business hours,
examine the records of the Warrant Agent,
4
<PAGE> 7
including its ledger of original Warrant certificates returned to the Warrant
Agent upon exercise of Warrants. Notwithstanding any provision to the contrary,
the provisions of paragraph 5(a) and 5(c) may not be modified, amended or
deleted without the prior written consent of the Representative.
Section 6. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance or delivery of any certificates of shares of Common Stock in a name
other than that of the registered holder of Warrants in respect of which such
shares are issued, and in such case neither the Company nor the Warrant Agent
shall be required to issue or deliver any certificate for shares of Common Stock
or any Warrant until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid.
Section 7. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
Section 8. Reservation of Common Stock. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
shares of Common Stock, a number of shares of Common Stock sufficient to provide
for the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the shares of Common Stock and every subsequent transfer
agent for any shares of the Company's Common Stock issuable upon the exercise of
any of the rights of purchase aforesaid are irrevocably authorized and directed
at all times to reserve such number of authorized and unissued shares of Common
Stock as shall be required for such purpose. The Company agrees that all shares
of Common Stock issued upon exercise of the Warrants shall be, at the time of
delivery of the certificates of such shares, validly issued and outstanding,
fully paid and nonassessable and listed on any national securities exchange upon
5
<PAGE> 8
which the other shares of Common Stock are then listed. So long as any unexpired
Warrants remain outstanding, the Company will file such post-effective
amendments to the registration statement (Form SB-2, Registration No. 333 - )
(the "Registration Statement") filed pursuant to the Act with respect to the
Warrants (or other appropriate registration statements or post-effective
amendment or supplements) as may be necessary to permit it to deliver to each
person exercising a Warrant, a prospectus meeting the requirements of Section
10(a)(3) of the Act and otherwise complying therewith, and will deliver such
prospectus to each such person. To the extent that during any period it is not
reasonably likely that the Warrants will be exercised, due to market price or
otherwise, the Company need not file such a post-effective amendment during such
period. The Company will keep a copy of this Agreement on file with the transfer
agent for the shares of Common Stock and with every subsequent transfer agent
for any shares of the Company's Common Stock issuable upon the exercise of the
rights of purchase represented by the Warrants. The Warrant Agent is irrevocably
authorized to requisition from time to time from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for that purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company,
and such cancelled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants which shall have expired.
Section 9. Warrant Price: Adjustments.
(a) The warrant price at which Common Stock shall be purchasable
upon the exercise of the Warrants shall be $7.25 at any time from _________ ___,
1999 (or _________ ___, 1998, upon the express written consent of the
Representative) until 5:00 Eastern time on _________ ___, 2002 or after
adjustment, as provided in this Section, shall be such price as so adjusted (the
"Warrant Price").
(b) The Warrant Price shall be subject to adjustment from time to
time as follows:
(i) In case the Company shall at any time after the date
hereof pay a dividend in shares of Common Stock or make a distribution in shares
of Common Stock, then upon such dividend or distribution the Warrant Price in
effect immediately prior to such dividend or distribution shall forthwith be
reduced to a price determined by dividing:
6
<PAGE> 9
(A) an amount equal to the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution
multiplied by the Warrant Price in effect immediately prior to such dividend or
distribution, by
(B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in accordance
with the provisions of this clause,
(i) the following provisions shall be applicable: Common Stock
issuable by way of dividend or other distribution on any stock of the Company
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution.
(ii) In case the Company shall at any time subdivide or
combine the outstanding Common Stock, the Warrant Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination to the nearest one cent. Any such adjustment shall become effective
at the time such subdivision or combination shall become effective.
(iii) Within a reasonable time after the close of each
quarterly fiscal period of the Company during which the Warrant Price has been
adjusted as herein provided, the Company shall
(A) file with the Warrant Agent a certificate signed by
the President or Vice President of the Company and by the Treasurer or Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company, showing in
detail the facts requiring all such adjustments occurring during such period and
the Warrant Price after each such adjustment; and
(B) The Warrant Agent shall have no duty with respect to
any such certificate filed with it except to keep the same on file and available
for inspection by holders of Warrants during reasonable business hours, and the
Warrant Agent may conclusively rely upon the latest certificate furnished to it
hereunder. The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts exist
which may require any adjustment of the Warrant Price, or with respect to the
nature or extent of any adjustment of the Warrant Price when made, or with
respect to the method employed in making any such adjustment, or with respect to
the nature or extent of the property or securities deliverable
7
<PAGE> 10
hereunder. In the absence of a certificate having been furnished, the Warrant
Agent may conclusively rely upon the provisions of the Warrants with respect to
the Common Stock deliverable upon the exercise of the Warrants and the
applicable Warrant Price thereof.
(C) Notwithstanding anything contained herein to the
contrary, no adjustment of the Warrant Price shall be made if the amount of such
adjustment shall be less than $.05, but in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to not less than $.05.
(c) In the event that the number of outstanding shares of Common
Stock is increased by a stock dividend payable in Common Stock or by a
subdivision of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of
this Section by reason of such dividend or subdivision, the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be increased in
proportion to such increase in outstanding shares. In the event that the number
of shares of Common Stock outstanding is decreased by a combination of the
outstanding Common Stock, then, from and after the time at which the adjusted
Warrant Price becomes effective pursuant to Subsection (b) of this Section by
reason of such combination, the number of shares of Common Stock issuable upon
the exercise of each Warrant shall be decreased in proportion to such decrease
in the outstanding shares of Common Stock.
(d) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination), or in case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the holder of each Warrant then outstanding shall thereafter have the
right to purchase the kind and amount of shares of Common Stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which the holder of such Warrant shall then be entitled to
purchase; such adjustments shall apply with respect to all such changes
occurring between the date of this Warrant Agreement and the date of exercise of
such Warrant.
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<PAGE> 11
(e) Subject to the provisions of this Section 9, in case the Company
shall, at any time prior to the exercise of the Warrants, make any distribution
of its assets to holders of its Common Stock as a liquidating or a partial
liquidating dividend, then the holder of Warrants who exercises his Warrants
after the record date for the determination of those holders of Common Stock
entitled to such distribution of assets as a liquidating or partial liquidating
dividend shall be entitled to receive for the Warrant Price per Warrant, in
addition to each share of Common Stock, the amount of such distribution (or, at
the option of the Company, a sum equal to the value of any such assets at the
time of such distribution as determined by the Board of Directors of the Company
in good faith), which would have been payable to such holder had he been the
holder of record of the Common Stock receivable upon exercise of his Warrant on
the record date for the determination of those entitled to such distribution.
(f) In case of the dissolution, liquidation or winding-up of the
Company, all rights under the Warrants shall terminate on a date fixed by the
Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding-up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(g) In case the Company shall, at any time prior to the expiration
of the Warrants and prior to the exercise thereof, offer to the holders of its
Common Stock any rights to subscribe for additional shares of any class of the
Company, then the Company shall give written notice thereof to the last
registered holder thereof not less than thirty (30) days prior to the date on
which the books of the Company are closed or a record date is fixed for the
determination of the stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date fixed with respect to such offer of subscription and the right of the
holder thereof to participate in such offer of subscription shall terminate if
the Warrant shall not be exercised on or before the date of such closing of the
books or such record date.
(h) Any adjustment pursuant to the aforesaid provisions shall be
made on the basis of the number of shares of Common Stock which the holder
thereof would have been entitled to acquire by the exercise of the Warrant
immediately prior to the event giving rise to such adjustment.
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<PAGE> 12
(i) Irrespective of any adjustments in the Warrant Price or the
number or kind of shares purchasable upon exercise of the Warrants, Warrants
previously or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant Agreement.
(j) The Company may retain a firm of independent public accountants
(who may be any such firm regularly employed by the Company) to make any
computation required under this Section, and any certificate setting forth such
computation signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section.
(k) If at any time, as a result of an adjustment made pursuant to
paragraph (d) above, the holders of a Warrant or Warrants shall become entitled
to purchase any securities other than shares of Common Stock, thereafter the
number of such securities so purchasable upon exercise of each Warrant and the
Warrant Price for such shares 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 the Common Stock contained in paragraphs (b) and (c).
(l) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of such Warrants
will be made, however under the following circumstances:
(i) upon the grant or exercise of any of the options presently
outstanding (or options which may hereafter be granted and/or exercised) under
the Company's Omnibus Stock Incentive Plan for officers, directors and/or
employees, consultants and similar situated parties of the Company; or
(ii) upon the sale or exercise of the Warrants; or
(iii) upon exercise of the Representative's Warrant as
otherwise described in the Company's Prospectus dated _________ ___, 1997; or
(iv) upon exercise or sale of the Warrants issuable upon
exercise of the Representative's Warrant; or
(v) upon any amendment to or change in the term of any rights
or warrants to subscribe for or purchase, or options for the purchase of Common
Stock or convertible securities, including, but not limited to, any extension of
any expiration date of any such right, warrant or option, any change in any
exercise or purchase price provided for in any such right, warrant or option,
10
<PAGE> 13
any extension of any date through which any convertible securities are
convertible into or exchangeable for Common Stock or any change in the rate at
which any convertible securities are convertible into or exchangeable for Common
Stock (other than rights, warrants, options or convertible securities issued or
sold after the close of business on the date of the original issue of the Common
Stock, (i) for presently outstanding securities, or (ii) for which an adjustment
in the Purchase Price then in effect was theretofore made or required to be
made, upon issuance or sale thereof).
Section 10. Fractional Interests. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the market value of the Common
Stock of the Company on the last trading day prior to the exercise date.
Section 11. Notices to Warrantholders.
(a) Upon any adjustment of the Warrant Price and the number of
shares of Common Stock issuable upon exercise of a Warrant, then and in each
such case, the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Warrant Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company shall also mail such notice to the holders of the Warrants at their
respective addresses appearing in the Warrant register. Failure to give or mail
such notice, or any defect therein, shall not affect the validity of the
adjustments.
(b) In case at any time:
(i) the Company shall pay dividends payable in stock upon its
Common Stock or make any distribution (other than regular cash dividends) to the
holders of its Common Stock; or
(ii) the Company shall offer for subscription pro rata to all
of the holders of its Common Stock any additional shares of stock of any class
or other rights; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to another
corporation; or
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<PAGE> 14
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then in any one or more of such cases,
the Company shall give written notice in the manner set forth in Section 1 l(a)
of the date on which (A) a record shall be taken for such dividend, distribution
or subscription rights, or (B) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up as the case may be. Such notice shall be given at
least thirty (30) days prior to the action in question and not less than thirty
(30) days prior to the record date in respect thereof. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of any
of the matters set forth in this Section 1(b)(b).
(c) The Company shall cause copies of all financial statements and
reports, proxy statements and other documents that are sent to its stockholders
to be sent by first class mail, postage prepaid, on the date of mailing to such
stockholders, to each registered holder of Warrants at his address appearing in
the Warrant register as of the record date for the determination of the
stockholders entitled to such documents.
Section 12. Disposition of Proceeds on Exercise of Warrants.
(a) The Warrant Agent shall promptly forward to the Company all
monies received by the Warrant Agent for the purchase of shares of Common Stock
through the exercise of such Warrants.
(b) The Warrant Agent shall keep copies of this Agreement available
for inspection by holders of Warrants during normal business hours.
Section 13. Redemption of Warrants. The Warrants are redeemable by the
Company commencing on _________ ___, 1999 ( or _________ ___, 1998, with the
express written consent of the Representative), and prior to their expiration on
_________ ___, 2002, in whole or in part, on not less than thirty (30) days'
prior written notice at a redemption price of $.50 per Warrant at any time;
provided that the closing bid price on the Nasdaq SmallCap Market, or the last
sale price, if listed on the Nasdaq National Market or a national exchange (the
"Market Place"), of the Common Stock for a period of twenty (20) consecutive
trading days ending on the third day prior to the date of any redemption notice,
equals
12
<PAGE> 15
or exceeds $14.50 per share. Any redemption in part shall be made pro rata to
all Warrant holders. The redemption notice shall be mailed to the holders of the
Warrants at their respective addresses appearing in the Warrant register.
Holders of the Warrants will have exercise rights until the close of business on
the date fixed for redemption.
The Warrants underlying the Representative's Warrant shall not be subject
to redemption by the Company until they have been exercised and the underlying
Warrants are outstanding.
Section 14. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation or company which may succeed to the corporate trust business of
the Warrant Agent by any merger or consolidation or otherwise shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor Warrant Agent
under t he provisions of Section 16 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrants shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned. In all such cases such Warrants shall have
the full force provided in the Warrants and in the Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as such
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
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<PAGE> 16
(b) The Warrant Agent shall not be responsible for any failure of
the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant for any action taken in reliance on
any notice, resolution, waiver, consent, order, certificate or other instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expenses unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses which may be incurred (for which there is no obligation of the
Company to do so, except as provided herein) but this provision shall not affect
the power of the Warrant Agent to take such action as the Warrant Agent may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrants or
the production thereof at any trial or other proceeding, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights and
interests may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or
14
<PAGE> 17
become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent and its
duties shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any such attorneys, agents or employees or for any
loss to the Company, provided reasonable care had been exercised in the
selection and continued employment thereof.
(j) Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its President or a Vice President or its Secretary or an Assistant
Secretary or its Treasurer or an Assistant Treasurer (unless other evidence in
respect thereof be herein specifically prescribed); and any resolution of the
Board of Directors may be evidenced to the Warrant Agent by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company.
Section 16. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and to the holders of the Warrants notice by mailing such notice to
the holders at their respective addresses appearing on the Warrant register, of
such resignation, specifying a date when such resignation shall take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and the like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
action, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after such removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or after the
Company has received such notice from a registered holder of a Warrant (who
shall, with such notice, submit his Warrant for inspection by the Company), then
the registered holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Any
successor Warrant Agent, whether appointed by
15
<PAGE> 18
the Company or by such a court, shall be a bank or trust company, in good
standing, incorporated under any state or federal law. After appointment, the
successor Warrant Agent shall be vested with the same powers, rights, duties and
responsibility as if it had been originally named as Warrant Agent without
further act or deed and the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent all cancelled Warrants, records and property at the
time held by it hereunder, and execute and deliver any further assurance or
conveyance necessary for the purpose. Failure to file or mail any notice
provided for in this Section, however, or any defect therein, shall not affect
the validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 17. Identity of Transfer Agent. Forthwith upon the appointment of
any transfer agent for the shares of Common Stock or of any subsequent transfer
agent for the shares of Common Stock or other shares of the Company's Common
Stock issuable upon the exercise of the` rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.
Section 18. Notices. Any notice pursuant to this Agreement to be given by
the Warrant Agent, or by the registered holder of any Warrant to the Company,
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
Russian Wireless Telephone Company, Inc.
780 Third Avenue
New York, New York 10017
Attention: Ronald G. Nathan, President
and a copy thereof to:
Hall Dickler Kent Friedman & Wood, LLP
909 Third Avenue
New York, New York 10022
Attention: Steven D. Dreyer, Esq.
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
16
<PAGE> 19
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Mr. George Karfunkel
Any notice pursuant to this Agreement to be given to the Warrant Agent or
by the Company to the Representative shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address if filed in
writing with the Warrant Agent) as follows:
J.W. Barclay & Co., Inc.
One Battery Park Plaza
New York, New York 10004
Attention: Mr. John Cioffoletti
and a copy thereof to:
Gusrae Kaplan & Bruno
120 Wall Street
New York, New York 10005
Attention: Lawrence G. Nusbaum, III, Esq.
Section 19. Supplements and Amendments. The Company, the Warrant Agent and
the Representative may from time to time supplement or amend this Agreement in
order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Warrant Agent and the Representative may
deem necessary or desirable and which shall not be inconsistent with the
provisions of the Warrants and which shall not adversely affect the interest of
the holders of Warrants.
Section 20. New York Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York
applicable to agreements to be performed wholly within New York.
Section 21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Representative,
the Company and the Warrant Agent and the registered holders of the Warrants any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered holders of the Warrants.
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<PAGE> 20
Section 22. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Representative or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
By: ________________________________________
Ronald G. Nathan, President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: ________________________________________
J.W. BARCLAY & CO., INC.
By: ________________________________________
18
<PAGE> 1
Exhibit 4.5
April 24, 1997
J. W. Barclay & Co., Inc.
One Battery Park Plaza
New York, New York 10004
Gentlemen:
The undersigned understands that J. W. Barclay & Co., Inc. (the
"Underwriter") is considering acting as underwriter for an initial public
offering (the "Offering") of securities of Russian Wireless Telephone Company,
Inc., a Delaware corporation formerly known as Telcom Group USA, Inc. (the
"Company"), pursuant to a registration statement on Form SB-2 (the "Registration
Statement"), filed with the Securities and Exchange Commission (the
"Commission").
The Underwriter has informed the Company that the Underwriter's obligation
to execute an underwriting agreement with respect to the Offering, and to
purchase the securities which the Company will be offering to the public will be
conditioned upon the Company's receipt of agreements from all pre-Offering
holders of securities of the Company regarding the imposition of restrictions on
the sale or other disposition of their respective securities.
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
undersigned agrees that the undersigned will not, for a period ending on the
first to occur of twenty-four (24) months following the date the Registration
Statement is declared effective by the Commission (the "Effective Date"),
without the prior written consent of the Underwriter, directly or indirectly,
offer, sell, transfer or otherwise dispose of any of the securities of the
Company, or any securities convertible into or exchangeable for any shares of
Common Stock ("Derivative Securities"), owned by the undersigned as of the date
thereof.
<PAGE> 2
The number of shares of Common Stock and Derivative Securities to which
this agreement relates is set forth below.
Very truly yours,
________________________________
Number of shares of Common Stock owned:
Number and type of Derivative Securities owned:
<PAGE> 1
Exhibit 4.6
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES
UNDERLYING THIS WARRANT MAY BE MADE UNTIL
THE EFFECTIVENESS OF A REGISTRATION STATEMENT
OR OF A POST-EFFECTIVE AMENDMENT THERETO
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
COVERING THIS WARRANT OR THE SECURITIES UNDERLYING
THIS WARRANT, OR UNTIL THE COMPANY IS IN RECEIPT OF AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT. TRANSFER OF
THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
REPRESENTATIVE'S WARRANT TO PURCHASE
COMMON STOCK AND/OR REDEEMABLE WARRANTS
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(a Delaware corporation)
Dated:______________ ___, 1997
<PAGE> 2
THIS CERTIFIES THAT J.W. Barclay & Co., Inc. (the representative of the
Underwriters (the "Representative"), and together with its assigns, the
"Holder") is entitled to purchase from Russian Wireless Telephone Company, Inc.,
a Delaware corporation (the "Company"), for an aggregate price of $10, an option
("Purchase Option"), during the period as hereinafter specified, for up to
153,000 shares of the Company's common stock, $.01 par value per share (the
"Common Stock"), and 220,000 redeemable warrants (the "Warrants" and
collectively with the Common Stock, the "Securities"), at a purchase price of
$8.40 per share of Common Stock and $.60 per Warrant which Warrant is
exercisable at $7.25 per share of Common Stock (the "Exercise Price") (the
"Representative's Warrant").
This Representative's Warrant is issued pursuant to an Underwriting
Agreement dated , 1997, between the Company and the Representative in connection
with a public offering through the Representative (the "Public Offering") of
1,530,000 shares of Common Stock and 2,200,000 Warrants.
1. Exercise of the Representative's Warrant.
(a) The rights represented by this Representative's Warrant
shall be exercised at the prices and during the periods as follows:
(i) During the period from , 1997 to , 1998, inclusive, the
Holder shall have no right to purchase any Securities hereunder.
(ii) Between , 1998 and , 2002, inclusive, the Holder shall
have the option to purchase shares of Common Stock and Warrants hereunder at a
price of $8.40 and $.60, respectively, the purchase price of the Common Stock
and the Warrant being 120% of the public offering price for the Securities set
forth in the Prospectus forming a part of the registration statement on Form
SB-2 (File No. 333-_______) of the Company, as amended (the "Registration
Statement").
(iii) After ________ __, 2002, the Holder shall have no right
to purchase any Securities hereunder and this Representative's Warrant shall
expire effective at 5:00 p.m., New York time.
(b) The rights represented by this Representative's Warrant
may be exercised at any time within the period above specified, in whole or in
part, by (i) the surrender of this Representative's Warrant (with the purchase
form at the end hereof properly executed) at the principal executive of office
of the Company (or such other of office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company); (ii) payment to the
<PAGE> 3
Company of the Exercise Price then in effect for the number of shares of Common
Stock and Warrants specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the Company of a
duly executed agreement signed by the person(s) designated in the purchase form
to the effect that such person(s) agree(s) to be bound by the provisions of
Paragraph 5 and subparagraphs (b), (c) and (d) of Paragraph 6 hereof. This
Representative's Warrant shall be deemed to have been exercised, in whole or in
part to the extent specified, immediately prior to the close of business on the
date this Representative's Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this Paragraph 1, and the person or
persons in whose name or names the certificates for the Securities shall be
issuable upon such exercise shall become the Holder or Holders of record of such
Common Stock and Warrants at that time and date. The Common Stock and Warrants
so purchased shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) business days, after the rights represented by this
Representative's Warrant shall have been so exercised.
2. Restrictions on Transfer.
This Representative's Warrant shall not be transferred, sold,
assigned, or hypothecated for a period of one year commencing _______ __, 1997,
except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part to any person who is an of officer of the
Representative or an officer or partner of any other member of the underwriting
syndicate or selling group member during such period; and after such one-year
period, such a transfer may occur providing the Representative's Warrant is
exercised immediately upon transfer, and if not exercised immediately on
transfer, the Representative's Warrant shall lapse. Any such assignment shall be
effected by the Holder by (i) completing and executing the form of assignment at
the end hereof and (ii) surrendering this Representative's Warrant with such
duly completed and executed assignment form for cancellation, accompanied by
funds sufficient to pay any transfer tax, at the office or agency of the Company
referred to in Paragraph 1 hereof, accompanied by a certificate (signed by a
duly authorized representative of the Holder), stating that each transferee is a
permitted transferee under this Paragraph 2 hereof; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder) a new
Representative's Warrant or Representative's Warrants of like tenor and
representing in the aggregate rights to purchase the same number of Securities
as are then purchasable hereunder.
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<PAGE> 4
3. Covenants of the Company.
(a) The Company covenants and agrees that all Common Stock and
Common Stock issuable upon exercise of the Warrants will, upon issuance, be duly
and validly issued, fully paid and nonassessable and no personal liability will
attach to the holder thereof by reason of being such a holder, other than as set
forth herein.
(b) The Company covenants and agrees that during the period
within which this Representative's Warrant may be exercised, the Company will at
all times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of this Representative's Warrant and the
Warrants included therein.
(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of the Representative's
Warrant and the Warrants contained therein, to be listed on or quoted by the
Nasdaq National Market System or on the Nasdaq SmallCap Market.
4. No Rights of Stockholder.
This Representative's Warrant shall not entitle the Holder to
any voting rights or other rights as a stockholder of the Company, either at law
or in equity, and the rights of the Holder are limited to those expressed in
this Representative's Warrant and are not enforceable against the Company except
to the extent set forth herein.
5. Registration Rights.
(a) The Company shall advise the Holder or its transferee,
whether the Holder holds this Representative's Warrant or has exercised this
Representative's Warrant and holds Common Stock and Warrants, or Common Stock
underlying the Warrants (the "Warrant Shares"), by written notice at least 30
days prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act, covering any securities of the Company, for its own
account or for the account of others, and will for a period of six years from ,
1998 upon the request of the Holder, include in any such post-effective
amendment or registration statement such information as may be required to
permit a public offering of any of the Common Stock or Warrants issuable
hereunder, and/or the Warrant Shares (the "Registerable Securities"), provided
however that this Section 5(a) is not applicable to any registration statement
by the Company on Forms
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<PAGE> 5
S-4 or S-8 (including any Form S-3 related to such Form S-8) or any other
comparable form. The Company shall supply prospectuses in order to facilitate
the public sale or other disposition of the Registerable Securities, use its
best efforts to register and qualify any of the Registerable Securities for sale
in such states as such Holder reasonably designates, provided such qualification
is not solely for the purpose of subjecting the Company to jurisdiction in that
state or is not unduly burdensome, and do any and all other acts and things
which may be necessary to enable such Holder to consummate the public sale of
the Registerable Securities, and furnish indemnification in the manner provided
in Paragraph 6 hereof. The Holder shall furnish information reasonably requested
by the Company in accordance with such post-effective amendments or registration
statements, including its intentions with respect thereto, and shall furnish
indemnification as set forth in Paragraph 6. The Company shall continue to
advise the Holders of the Registerable Securities of its intention to file a
registration statement or amendment pursuant to this Paragraph 5(a) until the
earlier of (i) , 2004; or (ii) such time as all of the Registerable Securities
have been registered and sold under the Act.
(b) If any fifty-one (51 %) percent holder (as defined below)
shall give notice to the Company at any time during the four (4) year period
beginning one (1) year from , 1997 to the effect that such holder desires to
register under the Act any Registerable Securities, under such circumstances
that a public distribution (within the meaning of the Act) of any such
Registerable Securities will be involved, then the Company will as promptly as
practicable after receipt of such notice, but not later than thirty (30) days
after receipt of such notice, file a post effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act to
the end that the Registerable Securities may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts to
cause such registration to become and remain effective as provided herein
(including the taking of such steps as are necessary to obtain the removal of
any stop order); provided, that such fifty-one (51%) percent holder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request; and provided, further, that the Company shall
not be required to file such a post effective amendment or registration
statement on more than one occasion at its expense. The Company will maintain
such registration statement or post-effective amendment current under the Act
for a period of at least six (6) months from the effective date thereof. The
Company shall supply prospectuses in order to facilitate the public sale of the
Registerable Securities, use its best efforts to register and qualify any of the
Registerable Securities for sale in such states as such holder reasonably
designates, provided such qualification
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<PAGE> 6
is not solely for the purpose of subjecting the Company to jurisdiction in that
state or is not unduly burdensome, and furnish indemnification in the manner
provided in Paragraph 6 hereof.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b),
at his or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registerable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Representative's Warrant. The Holder may thereafter exercise
the Warrants at any time or from time to time subsequent to the effectiveness
under the Act of the registration statement in which the Common Stock underlying
the Representative's Warrants and Warrants were included.
(d) The term "51% holder," as used in this Paragraph 5, shall
include any owner or combination of owners of Representative's Warrants or
Registerable Securities if the aggregate number of Common Shares and Warrant
Shares included in and underlying the Representative's Warrants and Registerable
Securities held of record by it or them, would constitute a majority of the
aggregate of such Common Shares and Warrant Shares.
(e) The following provisions of this Paragraph 5 shall also be
applicable:
(i) Within ten (10) days after receiving any notice pursuant
to Paragraph 5(b), the Company shall give notice to the other Holders of
Representative's Warrants or Registerable Securities, advising that the Company
is proceeding with such post-effective amendment or registration and offering to
include therein the Registerable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration, the Company shall, upon the request of any Holder of Registerable
Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its best efforts to qualify the Registerable Securities for
sale in such states as the 51% holder shall designate, provided such
qualification is not solely for the purpose of subjecting the Company to
jurisdiction in that state or is not unduly burdensome, at such times as the
registration statement is effective under the Act.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Paragraph 5(a) hereof
notwithstanding that the Registerable Securities subject to this
Representative's Warrant may be included in any
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<PAGE> 7
such registration. The Company shall also comply with one request for
registration made by the 51% holder pursuant to Paragraph 5(b) hereof at the
Company's own expense and without charge to any holder of the Registerable
Securities, and with one request at the expense of the Holders thereof.
Notwithstanding the foregoing, any Holder whose Registerable Securities are
included in any such registration statement pursuant to this Paragraph 5 shall,
however, bear the fees of any counsel retained by him and any transfer taxes or
underwriting discounts or commissions applicable to the Registerable Securities
sold by him pursuant thereto and, in the case of a registration pursuant to
Paragraph 5(a) hereof, any additional registration fees attributable to the
registration of such Holder's Registerable Securities.
(iii) If the managing underwriter in any such underwritten
offering shall advise the Company that it declines to include a portion or all
of the Registerable Securities requested by the Holders to be included in the
registration statement, then distribution of all or a specified portion of the
Registerable Securities shall be excluded from such registration statement (in
case of an exclusion as to a portion of such Registerable Securities, such
portion to be allocated among such Holders in proportion to the respective
numbers of Registerable Securities requested to be registered by each such
Holder). In such event the Company shall give the Holder prompt notice of the
number of Registerable Securities excluded. Further, in such event the Company
shall, within six (6) months of the completion of such subsequent offering, file
and use its best efforts to have declared effective, at its sole expense, a
registration statement relating to such excluded securities.
6. Indemnification.
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, if the Distributing Holder is a broker or dealer, against
any losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder 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 any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out
6
<PAGE> 8
of or are based upon the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and will reimburse the Distributing Holder for any legal or other expenses
reasonably incurred by the Distributing Holder, in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case (i) 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 said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder, any other
Distributing Holder or any such underwriter for use in the preparation thereof,
and (ii) such losses, claims, damages or liabilities arise out of or are based
upon any actual or alleged untrue statement or omission made in or from any
preliminary prospectus, but corrected in the final prospectus, as amended or
supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registerable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its of officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the 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 was made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
7
<PAGE> 9
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 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, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will 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 to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 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.
7. Adjustments of Exercise Price and Number of Securities.
(a) The Warrant Price shall be subject to adjustment from time
to time as follows:
(1) In case the Company shall at any time after the date
hereof pay a dividend in shares of Common Stock or make a distribution in shares
of Common Stock, then upon such dividend or distribution the Warrant Price in
effect immediately prior to such dividend or distribution shall forthwith be
reduced to a price determined by dividing:
(a) an amount equal to the total number of shares
of Common Stock outstanding immediately prior to such dividend or distribution
multiplied by the Warrant Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with the
provisions of this clause (i), the following provisions shall be applicable:
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall he deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
8
<PAGE> 10
(2) In case the Company shall at any time subdivide or combine
the outstanding Common Stock, the Warrant Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination to the nearest one cent. Any such adjustment shall become effective
at the time such subdivision or combination shall become effective.
(3) Within a reasonable time after the close of each quarterly
fiscal period of the Company during which the Warrant Price has been adjusted as
herein provided, the Company shall:
(a) Deliver to the Representative a certificate
signed by the President or Vice President of the Company and by the Treasurer or
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
showing in detail the facts requiring all such adjustments occurring during such
period and the Warrant Price after each such adjustment.
(b) Notwithstanding anything contained herein to
the contrary, no adjustment of the Warrant Price shall be made if the amount of
such adjustment shall be less than $.05, but in such case any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to not less than
$.05.
(b) In the event that the number of outstanding shares of
Common Stock is increased by a stock dividend payable in Common Stock or by a
subdivision of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of
this Section by reason of such dividend or subdivision, the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be increased in
proportion to such increase in outstanding shares. In the event that the number
of shares of Common Stock outstanding is decreased by a combination of the
outstanding Common Stock, then, from and after the time at which the adjusted
Warrant Price becomes effective pursuant to Subsection (b) of this Section by
reason of such combination, the number of shares of Common Stock issuable upon
the exercise of each Warrant shall be decreased in proportion to such decrease
in the outstanding shares of Common Stock.
(c) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination), or in case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification of
9
<PAGE> 11
the outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the holder of each Warrant then outstanding shall thereafter have the
right to purchase the kind and amount of shares of Common Stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which the holder of such Warrant shall then be entitled to
purchase; such adjustments shall apply with respect to all such changes
occurring between the date of this Warrant Agreement and the date of exercise of
such Warrant.
(d) Subject to the provisions of this Section, in case the
Company shall, at any time prior to the exercise of the Warrants, make any
distribution of its assets to holders of its Common Stock as a liquidating or a
partial liquidating dividend, then the holder of Warrants who exercises his
Warrants after the record date for the determination of those holders of Common
Stock entitled to such distribution of assets as a liquidating or partial
liquidating dividend shall be entitled to receive for the Warrant Price per
Warrant, in addition to each share of Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of any
such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith), which would have been payable to such
holder had he been the holder of record of the Common Stock receivable upon
exercise of his Warrant on the record date for the determination of those
entitled to such distribution.
(e) In case of the dissolution, liquidation or winding-up of
the Company, all rights under the Warrants shall terminate on a date fixed by
the Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding-up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(f) In case the Company shall, at any time prior to the
expiration of the Warrants and prior to the exercise thereof, offer to the
holders of its Common Stock any rights to subscribe for additional shares of any
class of the Company, then the Company shall give written notice thereof to the
last registered holder thereof not less than thirty (30) days prior to the date
on which the books of the Company are closed or a record date is fixed for the
determination of the stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books
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<PAGE> 12
shall be closed or record date fixed with respect to such offer of subscription
and the right of the holder thereof to participate in such offer of subscription
shall terminate if the Warrant shall not be exercised on or before the date of
such closing of the books or such record date.
(g) Any adjustment pursuant to the aforesaid provisions shall
be made on the basis of the number of shares of Common Stock which the holder
thereof would have been entitled to acquire by the exercise of the Warrant
immediately prior to the event giving rise to such adjustment.
(h) Irrespective of any adjustments in the Warrant Price or
the number or kind of shares purchasable upon exercise of the Warrants, Warrants
previously or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant Agreement.
(i) The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section.
(j) If at any time, as a result of an adjustment made pursuant
to paragraph (d) above, the holders of a Warrant or Warrants shall become
entitled to purchase any securities other than shares of Common Stock,
thereafter the number of such securities so purchasable upon exercise of each
Warrant and the Warrant Price for such shares 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 the Common Stock contained in paragraphs (b)
and (c).
(k) No adjustment to the Warrant Price or to the number of
shares of Common Stock purchasable upon the exercise of such Warrants will be
made, however under the following circumstances:
(i) upon the grant or exercise of any of the options presently
outstanding (or options which may hereafter be granted and/or exercised) under
the Company's Omnibus Stock Incentive Plan for officers, directors and/or
employees, consultants and similar situated parties of the Company; or
(ii) upon the sale or exercise of the Warrants issued to
the public pursuant to the ________ __, 1997 Prospectus; or
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<PAGE> 13
(iii) upon exercise of this Warrant; or
(iv) upon exercise or sale of the Warrants issuable upon
exercise of the Representative's Warrants; or
(v) upon any amendment to or change in the term of any rights
or warrants to subscribe for or purchase, or options for the purchase of Common
Stock or convertible securities, including, but not limited to, any extension of
any expiration date of any such right, warrant or option, any change in any
exercise or purchase price provided for in any such right, warrant or option,
any extension of any date through which any convertible securities are
convertible into or exchangeable for Common Stock or any change in the rate at
which any convertible securities are convertible into or exchangeable for Common
Stock (other than rights, warrants, options or convertible securities issued or
sold after the close of business on the date of the original issue of the Common
Stock, (i) for presently outstanding securities, or (ii) for which an adjustment
in the Warrant Price then in effect was theretofore made or required to be made,
upon issuance or sale thereof).
8. Fractional Shares.
(a) The Company shall not be required to issue fractions of
shares of Common Shares on the exercise of the Warrants subject to this
Representative's Warrant. The Company shall not be obligated to issue any
fractional share interests or fractional warrant interests upon the exercise of
any Warrant or Warrants, nor shall it be obligated to issue scrip or pay cash in
lieu of fractional interests, provided, however, that if a holder exercises all
the Warrants held of record by such holder, the fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares.
(b) The Holder of this Representative's Warrant, by acceptance
hereof, expressly waives his right to receive any fractional share of Common
Stock upon exercise of the Warrants subject to this Underwriter's Warrant.
9. Redemption of Warrants underlying the Representative's Warrant.
The Warrants underlying the Representative's Warrant shall not be
subject to redemption by the Company until they have been exercised and the
underlying Warrants are outstanding.
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<PAGE> 14
10. Miscellaneous.
(a) This Representative's Warrant shall be governed by and in
accordance with the laws of the State of New York.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, 780 Third Avenue, New York, New
York 10017.
(c) The Company and the Representative may from time to time
supplement or amend this Representative's Warrant without the approval of any
other Holders in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem not to
adversely affect the interest of the Holders.
(d) All the covenants and provisions of this Representative's
Warrant by or for the benefit of the Company and the Holders inure to the
benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Warrant shall be construed
to give to any person or corporation other than the Company and the
Representative and any other registered Holder or Holders, any legal or
equitable right and that any such right is for the sole and exclusive benefit of
the Company and the Underwriter and any other Holder or Holders.
(f) This Representative's Warrant may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, Russian Wireless Telephone Company,
Inc. has caused this Representative's Warrant to be signed by its
duly authorized officer and this Representative's Warrant to be
dated , 1997.
RUSSIAN WIRELESS TELEPHONE
COMPANY, INC.
By:___________________________
Ronald G. Nathan, President
<PAGE> 1
Exhibit 4.7
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
INSTRUCTIONS
FOR COMPLETING THE CUSTODY AGREEMENT AND POWER OF ATTORNEY
THE ATTACHED AGREEMENT MUST BE COMPLETED AND SIGNED BY EACH
STOCKHOLDER WHO WISHES TO SELL SHARES IN THE PROPOSED
OFFERING. ALL SIGNATURES MUST BE GUARANTEED BY A BANK OR TRUST
COMPANY OR MEMBER OF THE NEW YORK OR AMERICAN STOCK EXCHANGE
(SEE INSTRUCTION "D").
A. You have been sent four copies of the Custody Agreement and Power of
Attorney (the "Custody Agreement"). Please complete and return three copies of
the Custody Agreement to the address listed in paragraph F below together with
your endorsed stock certificate(s). One completed copy of the Custody Agreement
will be retained by the Custodian, one will be sent to the Attorney-In-Fact and
one will be returned to you.
B. The Custody Agreement includes a questionnaire on pages 10 through
15, which will be used to prepare any amendments to a Registration Statement on
Form SB-2 (No. 333-24177) which was filed by Russian Wireless Telephone Company,
Inc. (the "Company") with the Securities and Exchange Commission on March 28,
1997. You must answer each question fully and carefully.
C. You must indicate the number of shares you wish to sell by
completing page 18 of the Custody Agreement.
D. YOU MUST SIGN EACH COPY OF THE CUSTODY AGREEMENT ON PAGE 17, AND YOU
ALSO MUST SIGN EACH STOCK CERTIFICATE (OR THE ACCOMPANYING STOCK POWER)
DEPOSITED HEREUNDER. YOUR SIGNATURE MUST APPEAR ON THE CUSTODY AGREEMENT AND THE
STOCK CERTIFICATE OR THE ACCOMPANYING STOCK POWER GUARANTEED BY ANY BANK OR
TRUST COMPANY OR ANY BROKER WHO IS A MEMBER OF THE NEW YORK OR AMERICAN STOCK
EXCHANGE. PLEASE SIGN THE STOCK CERTIFICATE (OR THE ACCOMPANYING STOCK POWER)
AND EACH COPY OF THE CUSTODY AGREEMENT EXACTLY AS YOUR NAME APPEARS ON YOUR
STOCK CERTIFICATE.
E. IF STOCK CERTIFICATES TO BE DEPOSITED ARE ISSUED IN THE NAME OF
TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, PARTNERS, ATTORNEYS-IN-FACT,
NOMINEES, OR OTHERS ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, THE
CUSTOMARY EVIDENCE OF AUTHORITY OF THE PERSON OR PERSONS MAKING THE DEPOSIT MUST
ACCOMPANY THE STOCK CERTIFICATES, TOGETHER WITH TRUE AND COMPLETE COPIES OF ANY
TRUST INSTRUMENT. EACH NOMINEE SHOULD ATTACH A CERTIFIED COPY OF HIS APPOINTMENT
AS NOMINEE OR A CERTIFIED AUTHORIZATION OF SUCH NOMINEE STATUS.
<PAGE> 2
F. Endorsed stock certificates or stock certificates with stock powers
attached along with fully executed copies of the completed Custody Agreement,
and any other documents you are executing in connection with this transaction,
should be promptly forwarded to:
Hall Dickler Kent Friedman & Wood, LLP
909 Third Avenue
New York, New York 10022
Attention: Steven D. Dreyer, Esq.
G. If any certificate which you submit represents a greater number than
the Shares to be sold by you, the Custodian will cause to be delivered to you a
certificate for the excess number of shares within 10 days after the closing of
the sale by the Underwriters.
H. PLEASE CONTACT MR. RONALD G. NATHAN, PRESIDENT OF THE COMPANY, IF
ANY INFORMATION OR REPRESENTATION INCLUDED IN THE ENCLOSED CUSTODY AGREEMENT
SHOULD CHANGE PRIOR TO THE SALE OF YOUR SHARES.
2
<PAGE> 3
CUSTODY AGREEMENT AND POWER OF ATTORNEY
for
Sale of Shares of Common Stock, $.01 Par Value
RUSSIAN WIRELESS TELEPHONE COMPANY
Hall Dickler Kent Friedman & Wood, LLP
909 Third Avenue
New York, New York 10022
Attention: Steven D. Dreyer, Esq.
("Attorney-In-Fact" and "Custodian")
Dear Sirs:
The undersigned stockholder (the "Selling Stockholder") of Russian
Wireless Telephone Company, Inc., a Delaware corporation (the "Company"), and
the Company desire to sell certain shares of the Common Stock of the Company,
$.01 par value (the "Common Stock"), to J.W. Barclay & Co. Inc. as the
representative of the underwriters (the "Representative") for distribution under
a Registration Statement on Form SB-2 (File No. 333-24177) (the "Registration
Statement") to the public at a price and on terms to be determined as
hereinafter set forth. The Company proposes to issue and sell an aggregate of
1,500,000 shares of its authorized and unissued Common Stock and 2,000,000
redeemable Common Stock Purchase Warrants (the "Warrants"), and has granted the
Underwriters an option to purchase up to an additional 229,500 shares of its
authorized and unissued Common Stock and 300,000 additional Warrants on the
terms and conditions of the Underwriting Agreement, as defined below. The
Selling Stockholder proposes to sell an aggregate of 30,000 shares of Common
Stock. The aggregate number of shares or any portion thereof to be sold are
referred to hereinafter as the "Purchased Shares"; the aggregate number of
shares or any portion thereof included in the option granted the Underwriters
are referred to hereinafter as the "Option Shares"; and the Purchased Shares and
the Option Shares together sometimes are referred to hereinafter as the
"Shares". It is understood that such sale to the Underwriters shall be entered
into only if, as and when the Attorney-In-Fact (as hereinafter defined), acting
for the Selling Stockholder in his discretion determines that such sale is in
the best interests of the Selling Stockholder.
A. Power of Attorney
The undersigned hereby irrevocably constitutes and appoints
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<PAGE> 4
Steven D. Dreyer his true and lawful agent and attorney ("Attorney-In-Fact")
with respect to all matters arising in connection with the public offering and
sale of the Shares to be sold by the undersigned to the Underwriters, including,
but not limited to, the power and authority on behalf of the undersigned to do
any and all of the following things:
1. To make, execute and deliver an underwriting agreement (the
"Underwriting Agreement") substantially in the form of the draft
thereof which the undersigned has received and which was filed as
Exhibit 1.1 to the Registration Statement, but with such insertions,
changes, additions or deletions as the Attorney-In-Fact shall determine
to be not materially adverse to the undersigned, and not inconsistent
with the draft thereof, such approval to be conclusively evidenced by
his execution and delivery thereof, and to carry out and comply in his
sole discretion with all the provisions of the Underwriting Agreement,
including the making of all representations and agreements provided in
the Underwriting Agreement to be made by, and to exercise all authority
thereunder vested in, the undersigned.
2. To sell, assign and transfer to the Underwriters pursuant
to Section 4 of the Underwriting Agreement the aggregate number, but
not less than the aggregate number, of Purchased Shares listed in
Schedule A hereto and deposited hereunder for sale by the undersigned.
3. To negotiate, determine and agree upon (a) the price at
which the Shares (including the Shares to be sold by the undersigned)
will be sold by the Selling Stockholders to the Underwriters pursuant
to the Underwriting Agreement, and (b) the price at which the Shares
(including the Shares to be sold by the undersigned) initially will be
offered to the public by the Underwriters, such price to be not less
than $7.00 per share and to include an Underwriter's discount and
commission of not more than 10%. The difference between the price paid
by the Underwriters to the Company and the price at which the Shares
are offered and sold to the public represents a portion of the
Underwriters' compensation for its services.
4. To take any and all steps deemed necessary or desirable by
the Attorney-In-Fact in connection with the registration with the
Securities and Exchange Commission (the "Commission") of the Shares
under the Securities Act of 1933, as amended (the "Securities Act"),
and the registration or qualification of the Shares under the
securities or blue sky laws of any jurisdiction, including the
requesting of acceleration of effectiveness of the Registration
Statement, the filing of letters with the Commission and such other
steps
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<PAGE> 5
as the Attorney-In-Fact may deem necessary or advisable.
5. To represent to the Commission, if requested by the
Commission, that the undersigned is selling the Shares owned by him for
the purposes of raising funds or diversifying the investment portfolio
of the undersigned.
6. To accept and deliver to the Custodian, on behalf of the
undersigned, any certificates for shares of stock of the Company issued
in the name of the undersigned after the date hereof but prior to the
sale of the Shares to the Underwriters.
7. If necessary, to endorse (in blank or otherwise) on behalf
of the undersigned the certificate or certificates representing the
Shares to be sold by the undersigned, or a stock power or powers
attached to such certificate or certificates, and to transfer and
deliver such certificate or certificates representing such Shares to or
upon the order of the Underwriters.
8. To instruct the Company's transfer agent with respect to
all matters pertaining to the certificates representing the Shares; to
cause the Company's transfer agent to issue and register a certificate
or certificates representing the Shares in accordance with the
directions of the Underwriters; and to permit inspection and packaging
of such certificates by the Underwriters, in each case as provided in
the Underwriting Agreement.
9. To retain Messrs. Hall Dickler Kent Friedman & Wood, LLP,
as legal counsel for the Selling Stockholder.
10. Subject to the terms and conditions of Section 1 hereof,
otherwise to take all actions and do all things, in his discretion,
including the execution and delivery of all documents necessary or
proper, required, contemplated or deemed advisable by the Selling
Stockholder and generally to act for and in the name of the undersigned
with respect to the sale of the Shares to the Underwriters and
re-offering of the Shares by the Underwriters as fully as could the
undersigned if then personally present and acting.
The Attorney-In-Fact hereby is empowered to determine in his sole
discretion the time or times when, and the purposes for and the manner in which,
any power herein conferred upon him by the Selling Stockholder shall be
exercised and to exercise any such power.
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<PAGE> 6
This Power of Attorney shall terminate (other than as provided in
Section H hereof) when the Shares to be sold by the Selling Stockholder have
been delivered and paid for as provided in the Underwriting Agreement and any
and all actions required to be taken by the Custodian under this Agreement and
the Underwriting Agreement have been completed.
B. Deposit of Shares
For the purposes hereof, the undersigned herewith transmits to the
Custodian, one or more certificates representing not less than the aggregate
number of Shares set forth with respect to the undersigned in Schedule A
attached hereto. Each such certificate so delivered (i) is in negotiable and
proper deliverable form with the signature of the undersigned to the endorsement
thereon guaranteed by a bank or trust company having an office or a
correspondent in New York City or by a member of the New York Stock Exchange or
American Stock Exchange, or (ii) is accompanied by a duly executed stock power
or powers, in blank, bearing the signature of the undersigned so guaranteed. The
Custodian is hereby authorized and directed, subject to the instructions of the
Attorney-In-Fact: (i) to hold the Shares represented by the certificate or
certificates referred to above in custody; (ii) to make such other appropriate
arrangements as may be necessary for the safekeeping of said certificate or
certificates and the delivery thereof for sale to the Underwriters at the date
of delivery; and (iii) to deliver to the undersigned new certificates for the
untransferred balance, if any, of the shares of Common Stock evidenced by the
enclosed certificate or certificates.
If acting as a trustee or in any other fiduciary or representative
capacity, the undersigned has delivered duly certified copies of each trust
agreement, will, letters testamentary or other instrument pursuant to which the
undersigned is authorized to act as a Selling Stockholder. The undersigned
agrees to deliver to the Attorney-In-Fact or the Custodian such additional
documentation as the Company or the Underwriters may request to effectuate any
of the provisions hereof or of the Underwriting Agreement.
C. Sale of Shares
The Custodian hereby is authorized and directed to deliver to the
Underwriters certificates for the Shares to be sold by the undersigned as
provided in the Underwriting Agreement against delivery to the Custodian for the
account of the undersigned of the purchase price payable by the Underwriters in
the form of a certified check of J.W. Barclay & Co., Inc., or by bank cashier's
check in New York Clearing House funds payable to the order of each of the
Selling Stockholders for their respective amounts. The
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<PAGE> 7
Custodian is authorized, on behalf of the undersigned, to accept and acknowledge
receipt of the payment of the purchase price for the Shares to be sold by the
undersigned.
D. Representations, Warranties and Agreements
The undersigned represents and warrants to, and agrees with the Company
and the Underwriters that (i) the undersigned has reviewed carefully the proof
of the Underwriting Agreement, including without limitation, the representations
and warranties to be made by the undersigned as a Selling Stockholder contained
in Section 2.B, the certificate referred to in Section 9(i), and the indemnity
and contribution provisions contained in Section 10; (ii) such representations
and warranties are true and correct as of the date hereof and will be true and
correct at the time of the execution of the Underwriting Agreement and the time
of the sale of the Shares to the Under-writers; and (iii) such covenants and
agreements are valid and binding as of the date hereof and will be valid and
binding at the time of the execution of the Underwriting Agreement and the time
of the sale of the Shares to the Underwriters. This Agreement constitutes a
representation that the undersigned has received the Preliminary Prospectus of
the Company and, except as set forth under "Exceptions" below, the information
contained in such Preliminary Prospectus with respect to the undersigned is true
and correct.
The foregoing representations, warranties and agreements, as well as
those contained in the Questionnaire which comprises Section I of this
Agreement, and those contained in the Underwriting Agreement, are and will be
made for the benefit of, and may be relied upon by, the Underwriter, the
Attorney-in-Fact, and the Custodian and their respective representatives, agents
and counsel.
EXCEPTIONS:
E. Irrevocability of Instruments
This Agreement, the deposit pursuant hereto of certificates
representing the Shares, and all authority herein conferred, is granted, made
and conferred subject to and in consideration of the interest of the
Underwriters and the Company, for the purpose of completing the transactions
contemplated hereunder and by the Underwriting Agreement; and the
Attorney-In-Fact further is vested hereby with an estate, right, title and
interest in and to the Shares for the purpose of irrevocably empowering and
securing to him authority sufficient to consummate said transactions at the time
of purchase. Accordingly, this Agreement shall be irrevocable prior to August
31, 1997 and shall remain in full force and effect until that date. Furthermore,
for the consideration herein referred to and in consideration of the said
interest in the Shares, the undersigned agrees that this Agreement is
irrevocable and shall not
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<PAGE> 8
be terminated by operation of law upon the occurrence of any event whatsoever.
F. Rights and Obligations of the Selling Stockholder
Until payment in full for the Shares has been made by or for the
account of the Underwriters, as above provided, the undersigned Selling
Stockholder shall remain the owner of his Shares and shall retain all rights of
ownership with respect to the Shares, including the right to vote and to receive
any dividends and payment thereon, except the right to dispose of the Shares,
which is subject to the Attorney-In-Fact's, rights pursuant hereto and subject
to the Underwriting Agreement. However, until such payment in full has been
made, or until the Underwriting Agreement has been terminated, the undersigned
agrees not to give, pledge, hypothecate, grant liens on, transfer, deal with or
contract with respect to, the Shares, or any interest therein, except in
accordance with the Underwriting Agreement, and the Custodian shall not seek,
request or demand any transfer, or transfer any, of the Shares except pursuant
to the Underwriting Agreement.
G. Liability and Indemnification of
the Attorney-In-Fact and Custodian
Subject to the terms and conditions of Section A.1 hereof, the
Attorney-In-Fact and the Custodian are authorized to accept this Agreement and
take any and all actions hereunder as the Attorney-In-Fact, in his sole
discretion, shall determine. The Attorney-In-Fact and Custodian assume no
responsibility or liability to the undersigned or to any other person, other
than to deal with the Shares and any other shares of Common Stock held and
received by the Attorney-In-Fact or deposited with the Custodian pursuant to the
terms of this Agreement in accordance with the provisions hereof. The
undersigned hereby does agree to indemnify and hold harmless the
Attorney-In-Fact and the Custodian with respect to anything done by them in good
faith in connection with any and all matters contemplated by this Agreement or
the Underwriting Agreement.
H. Return of Undelivered Shares
If the Underwriting Agreement is not executed and delivered prior to
August 31, 1997, or if the Underwriting Agreement shall be executed and
delivered and then terminated pursuant to the provisions thereof without
purchase of the Shares, this Custody Agreement (and the Power of Attorney
included herein) shall terminate, and the Attorney-In-Fact, after all
obligations hereunder or under the Underwriting Agreement have been fulfilled,
shall instruct the Custodian to return to the undersigned the
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<PAGE> 9
Shares held in custody for the account of the undersigned, together with any
applicable stock powers, unless this Agreement is extended by written notice
from the Selling Stockholder.
I. Questionnaire
In connection with the preparation of the Registration Statement it is
necessary that the Company obtain from you the information called for by the
following questions. The information supplied in response to this Questionnaire
will be used to assure that certain of the information included in the
Registration Statement is correct. Accordingly, great care should be exercised
in the completion of the following questions,
If the answer to any item is negative, or if such item is inapplicable,
please so state in the space provided. If the space provided is insufficient for
a complete answer, additional sheets may be attached to this Agreement.
Question 1. Before answering this question, please read the explanatory
information concerning "beneficial ownership" which follows this question.
Please state as of (I) May 31, 1997, and (II) immediately following the
sale of the Shares by you to the Underwriters:
<TABLE>
<CAPTION>
I II
As of
May 31, 1997 After sale
------------ ----------
<S> <C> <C>
A.1. The number of shares
of the Company's Common Stock
beneficially owned, directly or
indirectly, by you:
2. The number of shares
listed in A.1 as to which you
have sole voting power: _____ shares _____ shares
share voting power: _____ shares _____ shares
have sole investment/
disposition power: _____ shares _____ shares
share investment/
disposition power: _____ shares _____ shares
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
I II
As of
May 31, 1997 After sale
------------ ----------
<S> <C> <C>
3. The number of shares
of the Company's Common Stock
owned of record by you: _____ shares _____ shares
4. Whether the shares
listed in A.3 are included in
those listed in A.1:
Yes____No____ Yes____No____
B.1. The number of
shares of Company Common Stock
that are owned by a partnership,
firm, corporation, trust, estate
or voting trust of which you are
a partner, director, officer,
principal stockholder, trustee,
executor or participant: _____ shares _____ shares
2. The name (or other
identification) of any such
partnership, firm, corporation,
trust, estate or voting trust:
3. Whether the shares
listed in B.1 are included in
those listed in A.1: Yes____No____ Yes____No____
C.1. The number of
shares of Company Common Stock
with respect to which you have
the right to acquire beneficial
ownership, directly or
indirectly, within 60 days
pursuant to the power to
revoke or the automatic
termination of a trust,
discretionary account or
similar arrangement: _____ shares _____ shares
through the exercise of
any option, warrant or
right _____ shares _____ shares
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
I II
As of
May 31, 1997 After sale
------------ ----------
<S> <C> <C>
2. Whether the shares
listed in C.1 are included in
those listed in A.1: Yes____No____ Yes____No____
</TABLE>
Note: Items A, B and C are intended to elicit information as to the nature of
your beneficial ownership of shares (such as record ownership, beneficial
ownership by virtue of your having or sharing voting or investment powers,
beneficial ownership by reason of your right to acquire, etc.). If you do not
believe that the nature of your beneficial ownership is apparent from your
responses to items A, B and C, please further explain below:
<TABLE>
<CAPTION>
<S> <C> <C>
D. The number of shares
reported as beneficially owned by
you under Question A.1 that are
subject to any put, call,
straddle or other option, or to
any pledge, hypothecation or
other agreement which may affect
your ownership thereof, and the
nature of the option or agreement
involved: _____ shares _____ shares
E.1. The number of shares
reported as beneficially owned
by you under Question A.1 as to
which you disclaim beneficial
ownership: _____ shares _____ shares
</TABLE>
2. If you disclaim
beneficial ownership of any
shares, please briefly identify
such shares and state the reasons
for such disclaimer:
Beneficial ownership: A beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares (1) voting power, including the power to
direct the voting of such security or (2) disposition power, including the power
to dispose of or direct the disposition of such security. In addition, a person
is deemed to have "beneficial ownership" of any securities as to which such
person has the right to acquire beneficial ownership at any time within 60 days,
including, but not limited to, any right to acquire:
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<PAGE> 12
(i) through the exercise of any option, warrant or right;
(ii) through the conversion of any security;
(iii) pursuant to the power to revoke a trust, discretionary
account or similar arrangement; or
(iv) pursuant to the automatic termination of a trust,
discretionary account or similar arrangement.
It is possible that a security may have more than one "beneficial
owner," such as a trust, with two co-trustees sharing voting power, and the
settler or another third party having investment power, and the settler or
another third party having investment power, in which case each of the three
would be the "beneficial owner" of the securities in the trust. The power to
vote or direct the voting, or to invest or dispose of, or direct the investment
or disposition of, a security may be indirect and arise from legal, economic,
contractual or other rights, and the determination of beneficial ownership
depends on who ultimately possesses or shares the power to direct the voting or
the disposition of the security.
The final determination of the existence of beneficial ownership
depends on the facts of each case; you may, in the space provided after Question
1.E.2, disclaim beneficial ownership of securities held in the name of another,
although indicating the holdings of such other person. Since beneficial
ownership by you of securities registered in the name of another may have
serious consequences, financial or otherwise, to you, you should use great care,
and if necessary consult your attorney, before reporting such shares as
beneficially owned.
Question 2. Describe briefly and state the approximate amount of any
interest, direct or indirect, which you or any of your associates had or have in
any transaction, or series of similar transactions, occurring in whole or in
part since April 1994 or in any proposed transaction, or series of similar
transactions, to which the Company was, or is to be, a party. You may merely
affirm the statements made in the Preliminary Prospectus dated March 28, 1997
under the heading "Certain Relationships and Related Transactions." (You need
not describe transactions in which you or any associate did not have an
aggregate interest exceeding $10,000 or any transaction in which your interest
arose solely from your ownership of securities of the Company provided that you
received no extra or special benefit not shared on a pro rata basis by all other
security holders.) For purposes of the foregoing, your "associates" include:
12
<PAGE> 13
(1) Any corporation or other organization (other than the Company)
of which you are an officer or partner or of which you
beneficially own, directly or indirectly, 10% or more of any
class of equity securities;
(2) Any trust or estate in which you have a substantial beneficial
interest or as to which you serve as trustee, executor or in a
similar fiduciary capacity; and
(3) Your spouse and any relative of yours or of your spouse if
such relative either lives with you or is a director or
officer of the Company or any of its subsidiaries.
ANSWER:
Question 3. Please describe briefly any material legal proceeding
pending or known to be contemplated in which you or any of your associates (as
defined in the previous question) has an interest adverse to the Company,
including the name of the court or agency in which any proceeding is pending or
known to be contemplated, the date instituted or the date you anticipate it will
be instituted, the principal parties thereto, a description of the factual basis
alleged to underly the proceeding or contemplated proceeding and the relief
sought or to be sought.
ANSWER:
Question 4. Do you know of any arrangement (other than the proposed
Underwriting Agreement) made or to be made by any person for any of the
following purposes: (a) to limit or restrict the sale of shares of the Company's
Common Stock during the period of distribution; (b) to stabilize the market for
any shares of the Company's Common Stock to be offered; or (c) to withhold
commissions, or otherwise to hold the Underwriters or each dealer responsible
for the distribution of his participation in connection with the proposed
offering?
Yes_________ No_________
13
<PAGE> 14
If yes, please summarize your knowledge of such arrangement:
Question 5. Please state whether (a) you are, directly or indirectly,
affiliated or associated with any member of the National Association of
Securities Dealers, Inc. or (b) you have been or might be an underwriter, or a
controlling person or member of any investment banking or brokerage firm which
has been or might be an underwriter, for securities of the Company including the
securities now being registered. If your answer to (a) is in the affirmative,
please state the name of such member and the nature of the relationship. If your
answer to (b) is in the affirmative, please state any underwriting discounts and
commissions received or which might be received by you or such firm upon the
sale of securities by the Company.
ANSWER:
Question 6. Please state each person or specify each class of persons
(other than underwriters or dealers, as such) to whom any shares of Common Stock
of the Company have been sold by you or any associate (as defined in Question 2)
of yours, since April 1, 1982 or are to be sold by you or any such associate of
yours. In answering this question, please make a separate statement with respect
to each sale of Common Stock, giving the number of shares of Common Stock sold,
the price at which such shares were sold and the consideration given for the
shares so sold.
ANSWER:
Question 7. Do you or does any associate (as defined in Question 2) of
yours have any understanding or agreement to sell to anyone shares of Common
Stock other than pursuant to the Underwriting Agreement? If yes, please give
details of any such sale, undertaking or agreement, including the date(s),
number of shares, sale price and party to whom sold or to be sold.
ANSWER:
14
<PAGE> 15
J. Miscellaneous
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
Receipt by the Attorney-In-Fact and the Custodian of executed
counterparts of this Agreement, or any certificate representing Shares deposited
hereunder, shall constitute acceptance by each of the Attorney-In-Fact and the
Custodian of the authorizations herein conferred and evidence the agreement of
each of the Attorney-In-Fact and the Custodian to carry out and to perform this
Agreement in accordance with the provisions hereof.
The validity, enforceability, interpretation and construction of this
Agreement shall be determined in accordance with the laws of the State of New
York and shall inure to the benefit of, and this Agreement shall be binding
upon, the undersigned and the undersigned's heirs, executors, administrators,
successors end assigns, as the case may be.
If any word, phrase, clause, portion or provision of this Agreement
shall be held or deemed to be, or shall in fact be, inoperative or unenforceable
as applied in any particular case or circumstance in any applicable jurisdiction
or jurisdiction because if conflicts with any other provision hereof, or any
constitution, statute or rule of public policy, or for any other reason, such
eventuality shall not render any of the aforesaid inoperative or unenforceable
in any other case or circumstance, or render any one or more or combination of
any words, phrases, clauses, portions, or provisions herein invalid,
inoperative, ultra vires or unenforceable to any extent whatsoever.
The undersigned hereby ratifies and confirms all that the
Attorney-In-Fact shall do by virtue hereof.
15
<PAGE> 16
IN WITNESS WHEREOF, the undersigned has executed this Agreement on this
day of , 1997.
Signature:
__________________________________
Signature of Selling __________________________________
Stockholder Guaranteed Please sign exactly as your
by: name appears on your stock
certificate.
Name and address to which
___________________________ notices and funds shall be
*(See Note below) sent (please print or type),
__________________________________
(Name)
__________________________________
(Street)
__________________________________
(City) (State) (Zip Code, if
in USA)
*(NOTE: The Stockholder's signature must be guaranteed by a bank or trust
company or by a member of the New York or American Stock Exchange.)
16
<PAGE> 17
SCHEDULE A
Certificate for Shares of Common Stock of
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
Deposited Herewith
1. Your exact name and address:
2. Certificates for Shares of Common Stock Deposited
A B C
No. of Shares
No. of Shares of Common Stock
of Common Stock from This
Certificate represented by Certificate
Number Certificate* To Be Sold**
_______________ _______________ _______________
_______________ _______________ _______________
_______________ _______________ _______________
- --------------------
* The number to be inserted in this column is the number appearing on the
stock certificate you are submitting for sale.
** The number to be inserted in this column is the number of shares from
the certificate that you want to sell. If you deposit a certificate or
certificates representing more shares than you plan to sell, the
Custodian will cause to be delivered to you a new certificate
representing the number of shares to be retained by you within ten days
after the closing of the sale to the Underwriters.
17
<PAGE> 18
TRANSFER FORM
(To be signed only upon transfer of the Representative's Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _______________________ the right to purchase shares of Common
Stock and/or Warrants of Russian Wireless Telephone Company, Inc. represented by
the foregoing Representative's Warrant to the extent of _____________ shares of
Common Stock and/or ____ Warrants, and appoints ______________, attorney to
transfer such rights on the books of Russian Wireless Telephone Company, Inc.,
with full power of substitution in the premises.
Dated:__________________
________________________
(name of holder)
________________________
Address
________________________
In the presence of:
________________________
________________________
<PAGE> 19
PURCHASE FORM
(To be signed only upon exercise of the Representative's Warrant)
The undersigned, the Holder of the foregoing Representative's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Representative's Warrant for, and to purchase thereunder, ________ shares of
Common Stock and/or ___ Warrants of Russian Wireless Telephone Company, Inc. and
herewith makes payment of $______ thereof, and requests that the certificates
for Common Stock/or Warrants be issued in the name(s) of, and delivered to
____________ whose address(es) is (are) ___________________________
Dated: __________________
_________________________
_________________________
Address
<PAGE> 1
Exhibit 5
[Letterhead of Hall Dickler Kent Friedman & Wood LLP]
July 3, 1997
Russian Wireless Telephone Company, Inc.
780 Third Avenue
New York, New York 10017
Gentlemen:
We have acted as counsel for Russian Wireless Telephone Company,
Inc. (the "Company") in connection with the registration under the Securities
Act of 1933, as amended (the "Act") and offering (the "Offering"), of (a)
1,729,500 shares (the "Shares") of the Company's $.01 par value common stock
(the "Common Stock") which are being offered for sale by the Company; (b) 30,000
shares of Common Stock which are being offered for sale for the account of a
certain selling stockholder (the "Selling Stockholder's Shares"); (c) redeemable
five year warrants to purchase up to 2,300,000 shares of the Company's Common
Stock at an exercise price of $7.25 per share which are being offered for sale
by the Company (the "Warrants"); (d) the Common Stock issuable upon exercise of
the Warrants (the "Warrant Shares" which, together with the Shares and the
Selling Stockholder's Shares, are hereinafter referred to collectively as the
"Securities"); (e) a warrant issuable to J.W. Barclay & Co., Inc. (the
"Representative"), in its capacity as representative of the several underwriters
of the Offering, to purchase up to 150,000 shares of Common Stock and 200,000
Warrants (the "Representative's Warrant"); (f) the warrants issuable upon
exercise of the Representative's Warrants; (g) the Common Stock issuable upon
exercise of the Representative's Warrant; and (h) the Common Stock issuable upon
exercise of the warrants to be issued upon exercise of the Representative's
Warrant. We have also acted as counsel for the Company in connection with the
registration for the accounts of certain selling securityholders (the "Selling
Securityholders") under the Act of 1,155,000 shares of Common Stock, 2,462,515
Warrants and 25,000 shares of Common Stock to be issued upon exercise of an
option held by one of the Selling Securityholders (collectively, the "Selling
Securityholders' Securities"), all of which are being offered for sale by the
respective
<PAGE> 2
Russian Wireless Telephone Company, Inc.
July 3, 1997
Page 2
holders of the Selling Securityholders' Securities on a delayed,
non-underwritten basis.
In connection with the opinions hereinbelow expressed, we have
examined the following documents (or true copies thereof): the Company's
Certificate of Incorporation, as amended, the Certificate of Merger of Russian
Wireless Telephone Company, Inc. with and into the Company; the Company's
By-Laws, its stock and warrant records, the minutes of actions heretofore taken
by the Company's stockholders and directors, the Registration Statement on SEC
Form SB-2, as amended (the "Registration Statement") which has been filed with
the Securities and Exchange Commission under File No. 333-24177 with respect to
the registration of the Securities, the Representative's Warrant, the securities
issuable upon exercise of the Representative's Warrant and the Selling
Securityholders' Securities, the form of Warrant certificate, the form of Common
Stock certificate, the form of Representative's Warrant, the form of Warrant
Agreement pertaining to the Warrants, the Blue Sky registration materials filed
by the Company in various jurisdictions and such other documents as we deemed
necessary or appropriate under the circumstances.
Based upon, and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware, and has all requisite
power and authority (corporate and other) to own or lease its properties and
conduct its business.
2. The Company has taken all necessary corporate action required
with respect to the issuance of the Securities, and the execution and delivery
of the Warrants, the Representative's Warrants and the warrants issuable upon
exercise of the Representative's Warrants.
3. The Company has reserved a sufficient number of its authorized
but unissued shares of Common Stock for issuance upon valid exercise of the
Warrants, and the warrants issuable upon exercise of the Representative's
Warrant.
4. Subject to the proviso that none of the Securities or the Selling
Securityholders' Securities shall be issued in any jurisdiction unless and until
a valid Blue Sky registration or exemption therefrom pertaining to such
Securities and Selling Securityholders' Securities shall be in effect, upon
receipt of full payment for the Shares, Warrant Shares and the Common Stock
issuable upon
<PAGE> 3
Russian Wireless Telephone Company, Inc.
July 3, 1997
Page 3
exercise of the Warrants which are components of the Selling Securityholders'
Securities, such Shares, Warrant Shares and shares of Common Stock shall be (or,
in the case of the Selling Securityholder's Shares, already will have been)
validly issued and outstanding as fully paid and non-assessable shares of the
Company's Common Stock.
5. Subject to the further proviso that none of the Warrants, the
Representative's Warrant or the warrants issuable upon exercise of the
Representative's Warrant shall be issued in any jurisdiction unless and until a
valid Blue Sky registration or exemption therefrom pertaining to such securities
shall be in effect, upon receipt of full payment for such securities, the same
shall be validly issued and outstanding securities of the Company entitling the
holders thereof to purchase shares of the Company's Common Stock in accordance
with the terms, and subject to the conditions and limitations set forth therein,
and in the case of the Warrants, subject also, to the conditions and limitations
set forth in the Warrant Agreement.
6. Upon each timely exercise, in whole or in part, of the Warrants,
Representative's Warrant and/or the warrants issuable upon exercise of the
Representative's Warrant, and the receipt of full payment for the shares of
Common Stock which are the subject of each such exercise transaction, such
shares shall be validly issued and outstanding as fully paid and non-assessable
shares of the Company's Common Stock.
Very truly yours,
Hall Dickler Kent Friedman & Wood LLP
<PAGE> 1
Exhibit 10.6
LEASE, dated March 28, 1996, between 780 THIRD AVENUE ASSOCIATES, a New York
partnership, having an office at 780 Third Avenue, New York, New York 10017
("Landlord"), and TELCOM GROUP USA, INC., a Delaware corporation having an
office at 575 Lexington Avenue, Suite 410, New York, New York ("Tenant")
W I T N E S S E T H:
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
Demise; Premises
Section 1.01 Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord the premises hereinafter described ("Premises") in the building
("Building") located on the land ("Land") known by the street address 780 Third
Avenue, New York, New York, in the Borough of Manhattan, City and State of New
York, as more particularly described in Exhibit A annexed hereto and made a part
hereof, for the Term hereinafter stated, for the rents hereinafter reserved, and
upon and subject to the terms of this Lease.
Section 1.02 The Premises consist of a portion of the 16th floor in the
Building, substantially as shown on the floor plan annexed hereto as Exhibit B
and made a part hereof,* together with all fixtures and improvements which, at
the commencement of the Term or at any time during the Term, are attached
thereto or installed therein and together with all appurtenances to the
Premises, including the right to use, in common with others, the Building
Equipment, subject to the terms of this Lease.
Section 1.03 The definitions of certain terms used in this Lease are
set forth in Section 40.01 and in various other Sections of this Lease.
*designated as Suite 1602,
ARTICLE 2
Term
Section 2.01 The Premises are leased for a term ("Term") which shall
<PAGE> 2
commence on the later of (i) May 1, 1996 or (ii) substantial completion of the
work to be performed by landlord pursuant to Exhibit C hereof ("Commencement
Date") and shall end on April 30, 2001 the ("Expiration Date") unless the Term
shall sooner terminate pursuant to any of the terms of this Lease or pursuant to
law.
Section 2.02 When the Commencement Date has been determined by
Landlord, Landlord and Tenant shall, upon the request of either of them, execute
a statement prepared by Landlord setting forth such date. Neither Landlord's
failure to request nor Tenant's failure to execute such agreement shall affect
Landlord's determination of the Commencement Date.
ARTICLE 3
Rent
Section 3.01 A. Tenant shall pay to Landlord, without notice or demand
except as otherwise provided herein, in lawful money of the United States of
America, by check drawn on a bank or trust company which is a member of the New
York Clearinghouse Association, at the office of the Landlord or at such other
place as Landlord may designate, the following:
(a) annual fixed rent (such annual fixed rent being referred
to herein as "Fixed Rent") of $75,950.00 ($6,329.16 per month) for the period
beginning on the Commencement Date and ending on the Expiration Date, payable in
equal monthly installments, in advance, on the first (1st) day of each and every
calendar month during the Term; and
(b) additional rent ("Additional Rent") consisting of all
other sums of money as shall become due from and be payable by Tenant hereunder
(for default in the payment of which Landlord shall have the same remedies as
for a default in the payment of Fixed Rent).
If Tenant shall fail to pay when due any installment of Fixed Rent or any
payment of Additional Rent for a period of 10 days after such installment or
payment shall have become due, Tenant shall pay interest thereon at the Interest
Rate, from the date when such installment or payment shall have become due to
the date of the payment thereof, and such interest shall be deemed Additional
Rent.
B. There shall be no abatement of, deduction from,
counter-claim or setoff against, Fixed Rent and Additional Rent except as
otherwise specifically provided in this Lease.
Section 3.02 Notwithstanding the provisions of Section 3.01, Tenant
shall pay
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<PAGE> 3
$25,316.67 on account of Fixed Rent upon the execution of this Lease, which
shall be credited on a per diem basis toward the payment of the installment(s)
of Fixed Rent due and payable under this Lease for the period beginning on the
fifth (5th) month anniversary Commencement Date and ending on the day
immediately preceding the ninth (9th) month anniversary of the Commencement
Date. If by reason of any of the provisions of this Lease, the Commencement Date
for all or any part of the Premises shall be other than the first day of a
calendar month, Fixed Rent for such month shall be pro-rated on a per diem
basis.
Section 3.03 Tenant covenants to (a) pay the Fixed Rent and Additional
Rent when due and (b) observe and perform, and not to suffer or permit any
violation of, Tenant's obligations under this Lease.
Section 3.04 Notwithstanding anything contained in Article 3 of this
Lease to the contrary, but provided Tenant is not then in breach or default
under any of the terms, covenants or conditions in this Lease on Tenant's part
to observe or perform beyond notice and the expiration of any applicable cure
period, (a) Tenant shall not be obligated to pay the first $31,645.83 of Fixed
Rent becoming payable by Tenant to Landlord under this Lease, and (b) the
installment of Fixed Rent paid by Tenant to Landlord pursuant to Section 3.02 of
this Lease shall be applied to the first monthly installment(s) of Fixed Rent
that Tenant is obligated to pay to Landlord under this Lease.
ARTICLE 4
Completion and Occupancy of the Premises
Section 4.01 Tenant shall take possession of the Premises in its then
"as is" condition, except that Landlord agrees to perform the work and make the
installations in the Premises described and defined as "Landlord's Work" in
Exhibit C. All of the terms of Exhibit C are incorporated herein as if fully set
forth at length.
Section 4.02 The taking of occupancy of the whole or any part of the
Premises by Tenant shall be conclusive evidence, as against tenant, that Tenant
accepts possession of the same and that the Premises and the Building were in
good and satisfactory condition at the time such occupancy was so taken and that
the Premises were substantially as shown on Exhibit B.
ARTICLE 5
Use
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Section 5.01 Tenant shall use and occupy the Premises for executive and
administrative offices for the business of general and executive offices, and
for no other purpose. Tenant shall not use or occupy or suffer or permit the use
or occupancy of an part of the Premises in any manner which in Landlord's
reasonable judgment would adversely affect (i) the proper and economical
rendition of any service required to be furnished to any tenant, (ii) the use or
enjoyment of any part of the Building by any other tenant, or (iii) the
appearance, character or reputation of the Building as a first-class office
building with retail stores. Tenant shall not at any time use or occupy or
suffer or permit anyone to use or occupy the Premises, or do or permit anything
to be done in the Premises in violation of the Certificate of Occupancy for the
Building.
Section 5.02 If any governmental license or permit, other than a
certificate of occupancy, shall be required for the proper and lawful conduct of
tenant's business in the Premises or any part thereof, then tenant, at its
expense, shall duly procure and thereafter maintain such license or permit and
submit the same to Landlord for inspection. Tenant shall at all times comply
with the terms and conditions of each such license and permit, but in no event
shall failure to procure or maintain such license or permit by Tenant affect
Tenant's obligations hereunder.
ARTICLE 6
Floor Load; Telephone System
Section 6.01 Tenant shall not place a load upon any floor that exceeds
either the floor load per square foot that such floor was designed to carry or
which is allowed by any Legal Requirement. Subject to the preceding sentence, if
Tenant wishes to place any safes or vaults in the Premises it may do so at its
own expense after giving notice to Landlord, but Landlord reserves the right to
prescribe their weight and position. Business machines and mechanical equipment
in the Premises shall be placed and maintained by Tenant at Tenant's sole
expense, in such manner as shall be sufficient, in Landlord's reasonable
judgment, to prevent vibration, noise, annoyance and inconvenience to Landlord
and other tenants.
Section 6.02 Tenant may, with the consent of Landlord, which shall not
be unreasonably withheld, install, maintain, or operate in the Premises
telephone interconnect systems and data processing, teletype and other business
machines customarily used in offices; provided, however, Tenant shall comply
with all of the terms of this Lease that may be applicable to such installation,
maintenance or operation and shall give Landlord prior notice of the
installation thereof.
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<PAGE> 5
ARTICLE 7
Rent Adjustments
Section 7.01 For the purpose of this Lease:
A. The term "Premises Area" shall be deemed to mean 2,170 square feet.
B. The term "Building Area" shall be deemed to mean 470,00 square feet.
C. The term "Tenant's Proportionate Share" shall be deemed to mean
.46%.
D. "Landlord's Statement" shall mean an instrument containing a
computation of Additional Rent due pursuant to the provisions of this Article 7
furnished by Landlord to Tenant.
E. The term "Base Tax Factor" shall mean the Taxes for the 1995/96 Tax
Year.
F. The term "Taxes" shall mean (i) all real estate taxes, assessments
(special or otherwise), sewer and water rents, rates and charges and any other
government levies, impositions or charges of a similar or dissimilar nature,
whether general, special, ordinary, extraordinary, foreseen or unforeseen, which
may be assessed, levied or imposed upon all or any part of the Real Property,
whether or not the same constitute one or more tax lots, and (ii) any expenses
(including reasonable attorneys fees and disbursements) incurred by Landlord in
contesting any of the foregoing or the assessed valuation of all or any part of
the Real Property; but "Taxes" shall not include any interest or penalties
incurred by Landlord as a result of Landlord's late payment of taxes, except for
interest payable in connection with the installment payments of assessments
pursuant to the next sentence. If by law, any assessment may be divided and paid
in annual installments, then, provided the same is not prohibited under the
terms of the Superior Lease or the Superior Mortgage, for the purposes of this
Article (x) such assessment shall be deemed to have been so divided and to be
payable in the maximum number of annual installments permitted by law and (y)
there shall be deemed included in Taxes for each Tax Year the annual installment
of such assessment becoming payable during such Tax Year, together with interest
payable during such Tax Year on such annual installment and on all installments
thereafter becoming due as provided by law, all as if such assessment had been
so divided. If at any time after the date hereof the methods of taxation
prevailing at the date hereof shall be altered sot hat in lieu of or as a
substitute for the whole or any part of the taxes, assessments, rents, rates,
charges, levies or impositions now assessed, levied or imposed upon all or any
part of the Real Property, there shall be assessed, levied or imposed (a) a tax,
assessment, levy, imposition or charge based on the income or rents received
5
<PAGE> 6
therefrom whether or not wholly or partially as a capital levy or otherwise, or
(b) a tax, assessment, levy, imposition or charge measured by or based in whole
or in part upon all or any part of the Real Property and imposed upon Landlord,
or (c) a license fee measured by the rents, or (d) any other tax, assessment,
levy, imposition, charge or license fee however described or imposed, then all
such taxes, assessments, levies, impositions, charges or license fees or the
part thereof so measured or based shall be deemed to be Taxes; provided that any
tax, assessment, levy, imposition or charge imposed on income from the Real
Property shall be calculated as if the Real Property is the only asset of the
Landlord.
G. The term "Tax Year" shall mean the 12 month period commencing on the
first (1st) day of July of each year, or such other period of 12 months as may
be duly adopted as the fiscal year for real estate tax purposes in The City of
New York.
H. The term "Escalation Year" shall mean each calendar year which shall
include any part of the Term.
I. The term "Base Operating Factor" shall mean Landlord's actual
Operating Expenses for the 1996 calendar year.
J. The term "Operating Expenses" shall mean all costs and expenses (and
taxes thereon, if any) paid or incurred by Landlord or on behalf of Landlord
with respect to the operation, cleaning, repair safety, replacement, management,
security and maintenance of the Real Property, Building Equipment, sidewalks,
curbs, plazas, and other areas adjacent to the Building, and with respect to the
services provided tenants, including, without limitation: (i) salaries, wages
and bonuses paid to, and the cost of any hospitalization, medical, surgical,
union and general welfare benefits (including group life insurance), any
pension, retirement or life insurance plans and other benefit or similar expense
relating to, employees of Landlord engaged in the operation, cleaning, repair,
safety, management, security or maintenance of the Real Property and the
Building Equipment or in providing services to tenants; (ii) social security,
unemployment and other payroll taxes, the cost of providing disability and
worker's compensation coverage imposed by any Legal Requirements, union contract
or to otherwise with respect to said employees; (iii) the cost of electricity,
gas, steam, water, heat, ventilation, air conditioning and other fuel and
utilities; (iv) the cost of casualty, rent, liability, fidelity, plate glass and
any other insurance; (v) the cost of repairs, maintenance, and painting; (vi)
expenditures for capital improvements and capital equipment which under
generally applied real estate practice are expenses or regarded as deferred
expenses and capital expenditures which are made by reason of Legal Requirements
or Insurance Requirements, in each case such expenditures to be included in
Operating Expenses for the Escalation Year in which such costs are incurred and
every subsequent Escalation Year, on a straight-line basis, to the extent that
such items are amortized over an appropriate period, but not more than 10 years,
with interest calculated at an annual rate equal
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<PAGE> 7
to 1% above the prime rate at the time of Landlord's having made said
expenditure; (vii) the cost or rental of all building and cleaning supplies,
tools, materials and equipment; (viii) the cost of uniforms, work clothes and
dry cleaning; (ix) window cleaning, concierge, guard, watchman or other security
personnel, service or system, if any; (x) management fees or if no managing
agent is employed by Landlord, a sum in lieu thereof which is not in excess of
then prevailing rates for management fees payable in the Borough of Manhattan
for first-class Third Avenue office buildings; (xi) charges of independent
contractors performing work included within this definition of Operating
Expenses; (xii) telephone and stationery; (xiii) reasonable legal, accounting
and other professional fees and disbursements incurred in connection with the
operation and management of the Real Property; (xiv) association fees and dues;
(xv) decorations; (xvi) depreciation of hand tools and other movable equipment
used in the operation, cleaning, repair, safety, management, security or
maintenance of the Building; and (xvii) exterior and interior landscaping.
Provided, however, that the foregoing costs and expenses shall exclude
or have deducted from them, as the case be: (a) executives' salaries above the
grade of managing director; (b) expenditures for capital improvements or capital
equipment, other than those referred to above and in the next succeeding
paragraph; (c) amounts received by Landlord through proceeds of insurance to the
extent they are compensation for sums previously included in Operating Expenses
(d) cost of repairs or replacements incurred by reason of fire or other casualty
or condemnation to the extent Landlord is compensated therefor, (e) advertising
and promotional expenditures; (f) costs incurred in performing work or
furnishing services for any tenant (including Tenant), whether at such tenant's
or Landlord's expense, to the extent that such work or service is in excess of
any work or service that Landlord is obligated to furnish to tenant at
Landlord's expense; (g) depreciation except as provided above; (h) brokerage
commissions; (i) taxes; (j) refinancing costs and mortgage interest and
amortization payments; and (k) costs of preparing any space in the Building for
occupancy by a tenant or for any rent abatement given to a tenant.
If Landlord shall purchase any item of capital equipment or make any
capital expenditure which has the effect of reducing the expenses which would
otherwise be included in Operating Expenses, then the unamortized costs of such
capital equipment or capital expenditure are to be included in Operating
Expenses for the Escalation Year in which the costs are incurred and every
subsequent Escalation Year, on a straightline basis, to the extent that such
items are amortized over such period of time as Landlord reasonably estimates
such savings or reductions in Operating Expenses will equal Landlord's costs for
such capital equipment or capital expenditure, with interest calculated at an
annual rate of 1% above the prime rate at the time of Landlord's having made
said expenditure. If Landlord shall ease any items of capital equipment designed
to result in savings or reductions in expenses
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<PAGE> 8
which would otherwise be included in Operating Expenses, then the rentals and
other costs paid with respect to such leasing shall be included in Operating
Expenses for the Escalation Years in which incurred.
Section 7.02 A. Tenant shall pay as Additional Rent for each and every
Tax Year all or a portion of which shall be within the Term ()including the Tax
Year in effect on the Commencement Date) an amount ("Tenant's Tax Payment")
equal to Tenant's Proportionate Share of the amount by which the Taxes for such
Tax Year are greater than the Base Tax Factor. Tenant's Tax Payment shall be
payable by Tenant to Landlord within ten (10) days after receipt of Landlord's
Statement regardless of whether such Landlord's Statement is received prior to,
on or after the first (1st) day of such Tax Year. If there shall be any increase
in Taxes for any Tax Year, whether during or after such Tax Year, or if there
shall be any decrease in the Taxes for any Tax Year during such Tax Year,
Landlord may furnish a revised Landlord's Statement for such Tax Year, and
Tenant's Tax Payment for such Tax Year shall be adjusted and, (a) within ten
(10) days after Tenant's receipt of such revised landlord's Statement, Tenant
shall (with respect to any increase in Taxes for such Tax Year) pay such
increase in Tenant's Tax Payment to Landlord, or (b) (with respect to any
decrease in Taxes for such Tax Year), Landlord shall credit such decrease in
Tenant's Tax Payment against the next installment of Additional Rent payable by
Tenant pursuant to Section 7.02B below. If during the Term, Taxes are required
to be paid (either to the appropriate taxing authorities or as tax escrow
payments, to the Superior Lessor or the Superior Mortgagee), in full or in
monthly, quarterly or other installment on any other date or dates than as
presently required, then Tenant's Tax Payments shall be correspondingly
accelerated or revised so that said Tenant's Tax Payments are due at least 10
days prior to the date payments are due to the taxing authorities or the
Superior Lessor or the Superior Mortgagee. The benefit of any discount for any
early payment or prepayment of Taxes and of any tax exemption or abatement
relating to all or any part of the Real Property shall accrue solely to the
benefit of Landlord and Taxes shall be computed without subtracting such
discount or taking into account any such exemption or abatement.
B. (1) At any time, and from time to time, during the
Term, Landlord may give to Tenant a Landlord's Statement setting forth Tenant's
Projected Share of Taxes (as hereinafter defined). Commencing on the first day
of the first full calendar month next succeeding the date on which Landlord
gives Tenant such Landlord's Statement with respect to Tenant's Projected Share
of Taxes and continuing thereafter on the first day of each and every calendar
month of the Term, Tenant shall pay to Landlord, as Additional Rent for the Tax
Year in which such Additional Rent payment is due, Tenant's Projected Share of
Taxes. "Tenant's Projected Share of Taxes" shall mean Landlord's estimate of
Tenant's Tax Payment for the Tax Year next succeeding the Tax Year in which
Tenant's Projected Share of Taxes is payable by Tenant, divided by Twelve (12).
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<PAGE> 9
(2) Upon each date that a Tenant's Tax
Payment (or an installment thereof) shall be due from Tenant pursuant to the
terms of Section 7.02A hereof, Landlord shall apply the aggregate of the
installments of Tenant's Projected Share of Taxes theretofore paid to Landlord
(but not previously applied pursuant to this Section 7.02B) against the Tax
Payment (or installment thereof) then due from Tenant. If such aggregate amount
is insufficient to discharge such Tax Payment (or installment thereof), Landlord
shall so notify Tenant in the Landlord's Statement served upon Tenant pursuant
to Section 7.02A, and the amount of Tenant's payment obligation with respect to
such Tax Payment (or installment thereof) pursuant to Section 7.02A, shall equal
the amount of such insufficiency. If, however, such aggregate amount shall be
greater than the Tax Payment (or installment thereof), Landlord, at Landlord's
option shall either (x) pay the amount of such excess directly to Tenant, or (y)
credit the amount of such excess against the next installment(s) of Tenant's
Projected Share of Taxes due hereunder.
(3) Notwithstanding anything contained in
Section 7.02(B)(2) above to the contrary, (a) if the first Landlord's Statement
with respect to Tenant's Projected Share of Taxes is given to Tenant after the
Commencement Date, then in addition to the first payment of Tenant's Projected
Share of Taxes payable by Tenant hereunder, Tenant shall pay on the date that
such first payment of Tenant's Projected Share of Taxes is due, as Additional
Rent for the Tax year in which such first payment is due, an amount equal to
such first payment of Tenant's Projected Share of Taxes, multiplied by the
number of full calendar months of the Term immediately prior to the date such
first payment is due, and (b) if any Landlord's Statement with respect to
Tenant's Projected Share of Taxes (after said first Landlord's Statement) is
given to Tenant after the first day of any Tax Year, then in addition to the
payment of Tenant's Projected Share of Taxes payable by Tenant after the
rendition of such Landlord's Statement, Tenant shall pay on the date that such
payment of Tenant's Projected Share of Taxes is due, as Additional Rent for the
Tax Year in which such payment is due, an amount equal to (a) such payment of
Tenant's Projected Share of Taxes, multiplied by the number of full calendar
months of such Tax Year preceding the date that such payment of Tenant's
Projected Share of Taxes is due, less (b) the aggregate amount of Tenant's
Projected Share of Taxes (if any) previously paid by Tenant during such period.
C. If the real estate tax fiscal year of the City of
New York shall be changed at any time after the date hereof, any Taxes for such
fiscal year, a part of which is included within a particular Tax Year and a part
of which is not so included, shall be apportioned on the basis of the number of
days in such fiscal year included in the particular Tax Year for the purpose of
making the computations under this Section 7.02.
D. Only Landlord shall be eligible to institute tax
reduction or other proceedings to reduce the assessed valuation of the Real
Property. If Landlord
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<PAGE> 10
shall receive a refund of Taxes for any Tax Year, Landlord shall either pay to
Tenant, or, at Landlord's election, credit against subsequent payments under
this Section 7.02 or Section 7.03, an amount equal to Tenant's Proportionate
Share of the refund, but which amount shall not exceed Tenant's Tax Payment paid
for such Tax Year. Nothing herein shall obligate Landlord to file any
application or institute any proceeding seeking a reductio in Taxes or assessed
valuation.
E. Tenant Tax Payment and any credits with respect
thereto as provided in this Section 7.02 shall be made as provided in this
Section 7.02 regardless of the fact that Tenant may be exempt, in whole or in
part, from the payment of any taxes by reason of Tenant's diplomatic or other
tax exempt status or for any other reason whatsoever.
F. If the Commencement Date or the Expiration Date
shall occur on a date other than July 1 or June 30, respectively, any Additional
Rent under this Section 7.02 for the Tax Year in which such Commencement Date or
Expiration Date shall occur shall be apportioned in that percentage which the
number of days in the period from the Commencement Date of June 30 or from July
1 to the Expiration Date, as the case may be, both inclusive, shall bear to the
total number of days in such Tax Year. In the event of a termination of this
Lease, any Additional Rent under this Section 7.02 shall be paid or adjusted
within 30 days after submission of Landlord's Statement. In no event shall Fixed
Rent ever be reduced by operation of this Section 7.02 and the rights and
obligations of Landlord and Tenant under the provisions of this Section 7.02
with respect to any Additional Rent shall survive the termination of this Lease.
G. Each Landlord's Statement furnished by Landlord
with respect to Tenant's Tax Payment shall be accompanied by a copy of the real
estate tax bill for the Tax Year referred to therein, but Landlord shall have no
obligation to deliver more than one such copy of the real estate tax bill in
respect of any Tax Year.
Section 7.03 A. Tenant shall pay as Additional Rent for each Escalation
Year an amount "Tenant's Operating Payment"), calculated as follows:
In the case of each Escalation Year a sum equal to Tenant's
Proportionate Share of the amount by which Operating Expenses for such
Escalation Year exceed the Base Operating Factor.
B. Landlord shall furnish to Tenant, with respect to
each Escalation Year, a written statement setting forth Landlord's estimate of
Tenant's Operating payment for such Escalation Year. Tenant shall pay to
Landlord on the first day of each month during such Escalation Year an amount
equal to one-twelfth of Landlord's estimate of Tenant's Operating Payment for
such Escalation Year. If, however, Landlord shall furnish any such estimate for
an Escalation Year
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subsequent to the commencement thereof, then (a) until the first day of an
Escalation Year subsequent to the commencement thereof, then (a) until the first
day of the month following the month in which such estimate is furnished to
Tenant, Tenant shall pay to Landlord on the first day of each month an amount
equal to the monthly sum payable by Tenant to Landlord under this Section 7.03
in respect of the last month of the preceding Escalation year; (b) promptly
after such estimate is furnished to Tenant or together therewith, Landlord shall
give notice to Tenant stating whether the installments of Tenant's Operating
Payment previously made for such escalation Year were greater or less than the
installments of Tenant's Operating Payment to be made for such Escalation Year
in accordance with such estimate, and (i) if there shall be a deficiency, Tenant
shall pay the amount thereto within 10 days after demand therefor, or (ii) if
there shall have been an overpayment, Landlord shall either refund to Tenant the
amount thereof or, at Landlord's election, credit the amount thereof against
subsequent payments under this Section 7.03 or Section 7.02; and (c) on the
first day of the month following the month in which such estimate is furnished
to Tenant, and monthly thereafter throughout the remainder of such Escalation
Year, Tenant shall pay to Landlord an amount equal to one-twelfth of Tenant's
Operating Payment shown on such estimate. Landlord shall at any time or from
time to time (but not more than twice with respect to any Escalation Year)
furnish to Tenant a revised statement of Landlord's estimate of Tenant's
Operating Payment for such Escalation Year, and in such case, Tenant's Operating
Payment for such Escalation Year shall be adjusted and paid or refunded, as the
case may be, substantially in the same manner as provided in the preceding
sentence.
C. After the end of each Escalation Year Landlord
shall furnish to Tenant a Landlord's Statement for such Escalation Year. Each
such year-end Landlord's Statement for any Escalation Year shall be accompanied
by a computation of operating expenses for the Building prepared by an
independent certified public accountant or independent managing agent designated
by Landlord from which Landlord shall make the computation of Operating Expenses
hereunder. In making computations of operating expenses, the certified public
accountant or managing agent may rely on Landlord's reasonable estimates and
allocations whenever said estimates and allocations are needed for this Article.
If the Landlord's Statement shall show that the sums paid by Tenant under
Section 7.03c exceed Tenant's Operating Payment required to be paid by Tenant
for such Escalation Year, Landlord shall either refund to Tenant the amount of
such excess or, at Landlord's election, credit the amount of such excess against
subsequent payments under this Section 7.03 or Section 7.02; and if the
Landlord's Statement for such Escalation Year shall show that the sums so paid
by Tenant were less than Tenant's operating Payment paid by Tenant for such
Escalation Year, Tenant shall pay the amount of such deficiency within 10 days
after demand therefor.
D. If the Commencement Date or the Expiration Date
shall
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occur on a date other than January 1 or December 31, respectively, any
Additional Rent under this Section 7.03 for the Escalation Year in which such
Commencement Date or Expiration Date shall occur shall be apportioned in that
percentage which the number of days in the period from the Commencement Date to
December 31 or from January 1 to the Expiration Date, as the case may be, both
inclusive, shall bear to the total number of days in such Escalation Year. In
the event of a termination of this Lease, any Additional Rent under this Article
shall be aid or adjusted within 30 days after submission of a Landlord's
Statement. In no event shall Fixed Rent ever be reduced by operation of this
Section 7.03B and the rights and obligations of Landlord and Tenant under the
provisions of this Article with respect to any Additional Rent shall survive the
Expiration Date or sooner termination of this Lease.
Section 7.04 A. Landlord's failure to render Landlord's Statements with
respect to any Tax Year or Escalation Year shall not prejudice Landlord's right
to thereafter render a Landlord's Statement with respect thereto or with respect
to any subsequent Tax Year or Escalation Year, nor shall the rendering of a
Landlord's Statement prejudice Landlord's right to thereafter render a corrected
Landlord's Statement for that Tax Year or Escalation Year, as the case may be.
Nothing herein contained shall restrict Landlord from issuing a Landlord's
Statement at any time there is an increase in Taxes, or Operating Expenses
during any Tax Year or Escalation Year or any time thereafter.
B. Each Landlord's Statement shall be conclusive and
binding upon Tenant unless (a) within 90 days after receipt of such Landlord's
Statement Tenant shall notify Landlord that it disputes the correctness of
Landlord's Statement, specifying the particular respects in which Landlord's
Statement is claimed to be incorrect and (b) if such dispute shall not be
resolved within 90 days after the giving of such Landlord's Statement, Tenant
shall, within 30 days after the expiration of such 90-day period, submit the
dispute to arbitration pursuant to Article 28. Pending the determination of such
dispute, Tenant shall pay Additional Rent in accordance with the applicable
Landlord's Statement, without prejudice to Tenant's position. If such dispute is
ultimately determined in Tenant's favor, Landlord shall promptly after such
determination, upon demand, pay to Tenant any amount so overpaid by Tenant.
ARTICLE 8
Insurance
Section 8.01 Tenant shall not violate, or permit the violation of, any
condition imposed by the Standard fire insurance policy then issued for office
buildings in the Borough of Manhattan City of New York, and shall not do, or
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permit anything to be done, or keep or permit anything to be kept in the
Premises which would subject Landlord to any liability or responsibility for
personal injury or death or property damage, or which would increase the fire or
other casualty insurance rate on the Building or the property therein over the
rate which would otherwise then be in effect (unless Tenant pays the resulting
premium as provided in Section 8.03) or which would result in insurance
companies of good standing refusing to insure the Building or any of such
property in amounts reasonably satisfactory to Landlord.
Section 8.02 Tenant covenants to provide on or before the earlier to
occur of (i) the Commencement Date and (ii) ten (10) days from the date of this
Lease and to keep in force during the Term the following insurance coverage
which coverage shall be effective on the Commencement Date:
(a) for the benefit of Landlord and Tenant a comprehensive
policy of liability insurance protecting Landlord and Tenant against any
liability whatsoever occasioned by accident on or about the Premises or any
appurtenances thereto and naming the Superior Lessor and the Superior Mortgagee
as additional insureds. Such policy is to be written by good and solvent
insurance companies authorized to do business in the state of New York and the
limits of liability thereunder shall not be less than the amount of Two Million
($2,000,000.00) Dollars combined single limit coverage on a per occurrence
basis, including property damages. Such insurance may be carried under a blanket
policy covering the Premises and other locations of Tenant, if any;
(b) Fire and Extended coverage in an amount adequate to cover
the cost of replacement of all personal property, fixtures, furnishing and
equipment, including Tenant's Work located in the Premises. Such policy shall be
written by good and solvent insurance companies authorized to do business in the
State of New York.
Prior to the time such insurance is first required to be
carried by Tenant and thereafter, at least fifteen (15) days prior to the
expiration of any such policies, Tenant agrees to deliver to Landlord either
duplicate originals of the aforesaid policies or certificates evidencing such
insurance, provided said certificate contains an endorsement that such insurance
may not be modified or cancelled except upon fifteen (15) days' notice to
Landlord, together with evidence of payment for the policy. Tenant's failure to
provide and keep in force the aforementioned insurance shall be regarded as a
material default hereunder, entitling Landlord to exercise any or all of the
remedies as provided in this Lease in the event of Tenant's default.
Section 8.03 Landlord and Tenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, each fire or extended coverage
policy obtained by it and covering the Building, the Premises or the personal
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property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation or permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against said third party. The waiver of subrogation or permission for waiver of
any claim hereinbefore referred to shall extend to the agents of each party and
its employees and, in the case of Tenant, shall also extend to all other persons
and entities occupying using the Premises in accordance with the term s of this
Lease. If and to the extent that such waiver or permission can be obtained only
upon payment of an additional charge then, except as provided in the following
two paragraphs, the party benefiting from the waiver or permission shall pay
such charge upon demand, or shall be deemed to have agreed that the party
obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission.
In the event that Landlord shall be unable at any time to obtain one of the
provisions referred to above in any of its insurance policies, at Tenant's
option Landlord shall cause Tenant to be named in such policy or policies as one
of the assureds, but if any additional premium shall be imposed for the
inclusion of Tenant as such as assured, Tenant shall pay such additional premium
upon demand. In the event that Tenant shall have been named as one of the
assureds in any of Landlord's policies in accordance with the foregoing, Tenant
shall endorse promptly to the order of Landlord, without recourse, any check,
draft or order for the payment of money representing the proceeds of any such
policy or any other payment growing out of or connected with said policy and
Tenant hereby irrevocably waives any and all rights in and to such proceeds in
payments.
In the event that Tenant shall be unable at any time to obtain one of the
provisions referred to above in any of its insurance policies, Tenant shall
cause Landlord to be named in such policy or policies as one of the assureds,
but if any additional premium shall be imposed for the inclusion of Landlord as
such an assured, Landlord shall pay such additional premium upon demand or
Tenant shall be excused from its obligations under this paragraph with respect
to the insurance policy or policies for which such additional premiums would be
imposed. In the event that Landlord shall have been named as one of the assureds
in any of Tenant's policies in accordance with the foregoing, landlord shall
endorse promptly to the order of Tenant, without recourse, any check, draft or
offer for payment of money representing the proceeds of any such policy or any
other payment growing out of or connected with said policy and Landlord hereby
irrevocably waives any and all rights in and to such proceeds and payments.
Subject to the foregoing provisions of this Section 8.03, and insofar as may be
permitted by the terms of the insurance policies carried by it, each party
hereby releases the other with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party for loss,
damages or destruction with
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respect to its property by fire or other casualty (including rental value or
business interruption, as the case may be) occurring during the term of this
Lease.
Section 8.04 If any dispute shall arise between Landlord and Tenant
with respect to the incurrence or amount of any additional insurance premium
referred to in Section 8.03, the dispute shall be determined by arbitration.
Section 8.05 A schedule or make up of rates for the Building or the
Premises, as the case may be, issued by the New York Fire Insurance Rating
Organization or other similar body making rates for fire insurance and extended
coverage for the premises concerned, shall be conclusive evidence of the facts
therein stated and of the several items and charges in the fire insurance rate
with extended coverage then applicable to such premises.
ARTICLE 9
Compliance with Laws
Section 9.01 Tenant shall give prompt notice to Landlord of any notice
it receives of the violation of any law or requirement of public authority, and
Tenant, at its expenses, shall comply with all laws and requirements of public
authorities which shall, with respect to the Premises or the use and occupation
thereof, or the abatement of any nuisance, impose any violation, order or duty
on Landlord or Tenant, arising from (i) Tenant's use of the Premises, (ii) the
manner of conduct of Tenant's business or operation of its installation,
equipment or other property therein, (iii) any cause or condition created by or
at the instance of Tenant, other than by Landlord's performance of any work for
or on behalf of Tenant, or (iv) breach of any of Tenant's obligations hereunder.
However, Tenant shall not be so required to make any structural or other
substantial change in the Premises unless the requirement arises from a cause or
condition referred to in clause (ii), (iii) or (iv) above. Furthermore, Tenant
need not comply with any such law or requirement of public authority so long as
Tenant shall be contesting the validity thereof, or the applicability thereof to
the Premises, in accordance with Section 9.02. Landlord, at its expense, shall
comply with all other such laws and requirements of public authorities as shall
affect the Premises, but may similarly contest the same subject to conditions
reciprocal to Subsections (a), (b) and (d) of Section 9.02.
Section 9.02 Tenant may, at its expense (and if necessary, in the name
of but without expense to Landlord) contest, by appropriate proceedings
prosecuted diligently and in good faith, the validity, or applicability to the
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings, provided that:
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(a) Landlord shall not be subject to criminal penalty or to
prosecution for a crime nor shall the Premises or any part thereof be subject to
being condemned or vacated, by reason of non-compliance or otherwise by reason
of such contest;
(b) Tenant shall defend, indemnify and hold harmless Landlord
against all liability, loss or damage which Landlord shall suffer by reason of
such non-compliance or contest, including reasonable attorney's fees and other
expenses reasonably incurred by Landlord;
(c) Such non-compliance or contest shall not constitute or
result in any violation of any superior lease or superior mortgage, or if such
superior lease and/or superior mortgage shall permit such non-compliance or
contest on condition of such taking of action furnished at the expense of
Tenant; and
(d) Tenant shall keep Landlord advised as to the status of
such proceedings. Without limiting the application of Subsection (a) above
thereto, Landlord shall be deemed subject to prosecution for a crime within the
meaning of said Subsection, if Landlord, or any officer of Landlord
individually, is charged with a crime of any kind or degree whatever, whether by
service of a summons or otherwise, unless such charge is withdrawn before
Landlord or such officer (as the case may be) is required to plead or answer
thereto.
ARTICLE 10
Improvements; Tenant's Property
Section 10.01 Upon and subject to the terms of this Article, Tenant, at
any time and from time to time during the Term, at its sole cost and expense,
may make Improvements in and to the Premises, excluding structural changes,
provided:
(a) The Improvements will not result in a violation of or
require a change in any certificate of occupancy applicable to the Premises or
to the Building;
(b) The outside appearance, usefulness or rentability of the
Building or any part thereof shall not be affected in any way;
(c) No part of the Building outside of the Premises shall be
physically affected;
(d) The proper or economical functioning of the Building
Equipment shall not be adversely affected;
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(e) In performing the work involved in making such
Improvements, Tenant shall be bound by and observe all of the terms of this
Article;
(f) Tenant shall not use the elevators during business hours
on business days for haulage or removal of materials or debris;
(g) Before proceeding with any Improvements, Tenant shall
submit to Landlord plans and specifications and all changes and revisions
thereto, for the work to be done for Landlord's approval and Tenant shall, upon
demand of Landlord, pay to Landlord the reasonable costs incurred by Landlord
for the review of such plans and specifications and all changes and revisions
thereto by its architect, engineer and other consultants. Landlord may as a
condition of its approval require Tenant to make reasonable revisions in and to
the plans and specifications and to pose a bond or other security reasonably
satisfactory to Landlord to insure the completion of such change.
(h) Tenant shall not be permitted to install and make part of
the Premises any materials, fixtures or articles which are subject to liens,
conditional sales contracts, chattel mortgages or security interests (as such
terms is defined in the Uniform Commercial Code as in effect in New York at the
time of the making of the Improvement);
(i) No improvements estimated to cost more than $25,000 (as
estimated by landlord's architect or licensed professional engineer or general
contractor) shall be undertaken (i) except under the supervision of a licensed
architect or licensed professional engineer reasonably satisfactory to Landlord,
(ii) except after at least 30 days' prior notice to Landlord and (iii) prior to
Tenant delivering to Landlord either (y) a performance bond and a labor and
materials payment bond (issued by a surety company satisfactory to Landlord and
licensed to do business in New York State) or (z) such other security as shall
be satisfactory to Landlord;
(j) The sprinkler system design is not thereby modified,
altered or changed; and
(k) Tenant shall not (i) attach or affix any screws or
fasteners to the exterior curtainwall of the Building or (ii) install, without
the written consent of Landlord, any materials that will come in contact with
the exterior curtainwall of the Building.
Section 10.02 All Improvements shall at all times comply with all Legal
Requirements and Insurance Requirements and all Rules and Regulations (including
any Landlord may adopt with respect to the making of Improvements) and shall be
made at such times and in such manner as Landlord may from time to
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time reasonably designate. Tenant, at its expense, shall (a) obtain all
necessary municipal and other governmental permits, authorizations, approvals
and certificates for the commencement and prosecution of such improvements and
for final approval thereof upon completion, (b) deliver copies thereof to
Landlord and (c) cause all Improvements to be performed in a good and
first-class workmanlike manner, using new materials and equipment at least equal
in quality to the original installations of the Building or the then standards
for the Building established by Landlord. Improvements shall be promptly
commenced and completed and shall be performed in such manner so as not to
interfere with the occupancy of any other tenant nor delay or impose any
additional expense upon Landlord in the construction, maintenance, cleaning,
repair, safety, management, security or operation of the Building or the
Building Equipment; and if any such additional expense shall be incurred by
Landlord as a result of Tenant's performance of any Improvements, Tenant shall
pay such additional expense as Additional Rent upon demand. Tenant shall furnish
Landlord with satisfactory evidence that the insurance required during the
performance of the Improvements pursuant to Article 8 is in effect at or before
the commencement of the Improvements and, on request, at reasonable intervals
thereafter. No Improvements shall involve the removal of any fixtures, equipment
or other property in the Premises which are not Tenant's Property without
Landlord's prior consent and unless they shall be promptly replaced, at Tenant's
expense and free of superior title, liens, security interests and claims, with
fixtures, equipment or other property, as the case may be, of like utility and
at least equal value, unless Landlord shall otherwise consent.
Section 10.03 Tenant, at its expense, shall promptly procure the
cancellation or discharge of all notices of violation arising from or otherwise
connected with Improvements which shall be issued by any public authority having
or asserting jurisdiction.
Section 10.04 Tenant shall promptly pay in the cost of all
Improvements. Tenant hereby indemnifies Landlord against liability for any and
all mechanic's and other liens filed in connection with any Improvements or
repairs. Tenant, at its expense, shall procure the discharge of all such liens
within 30 days after notice to Tenant of the filing of any such lien against the
Premises or the Real Property. If Tenant shall fail to cause any such lien to be
discharged within the period aforesaid, then, in addition to any other right or
remedy, Landlord may, but shall not be obligated to, discharge the same either
by paying the amount claimed to be due or by deposit or bonding proceedings, and
in any such event Landlord shall be entitled, if it elects, to compel the
prosecution of an action for the foreclosure of such lien and to pay the amount
of the judgment in favor of the lienor with interest, costs and allowances. Any
amount so paid by Landlord and all reasonable costs and expenses incurred by
Landlord in connection therewith, shall constitute Additional Rent and shall be
paid by Tenant to Landlord on demand.
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Section 10.05 Only Landlord or any one or more persons approved or
designated by Landlord (Landlord (or such person) being referred to in this
Section as "Designated Contractor") shall be permitted to act as contractor for
any work to be performed in accordance with this Article. Landlord expressly
reserves the right to act as, or to designate, at any time and from time to
time, an exclusive construction contractor and Landlord furthermore expressly
reserves the right to exclude for the Building any person attempting to act as
construction contractor in violation hereof. In the event Tenant proposes to use
any contractor or subcontractor other than the Designated Contractor for the
Performance of any Improvement, Tenant shall submit to Landlord, together with
the plans and specifications, the name of such contractor or subcontractor. If
Landlord shall not consent to Tenant's engaging such contractor or subcontractor
for the performance of such Improvement, the Designated Contractor shall submit
to Tenant a bid for the work to be performed in connection with such
Improvement.l If within 10 days after receipt of any such bid, Tenant contests
the reasonableness thereof, Landlord and Tenant shall each obtain, with 10 days
after receipt by Landlord of Tenant's notice contesting the original bid, one
bona fide bid for such work from competent independent contractors. The average
of the two bids thus obtained shall be the standard of comparison in determining
the reasonableness of the Designated Contractor's bid. If the Designated
Contractor is unwilling to accept the average of such bids as full payment for
its services, Landlord may substitute another contractor who submitted a bid and
will accept such average as full payment. If Landlord fails to make such
substitution within 10 days after the ascertainment of the average of such bids,
Tenant shall be free to make its own arrangement for such work, subject, however
to the other provisions of this Article 10, for a price not to exceed the
average of the two bids received by both Landlord and Tenant.
Section 10.06 Tenant agrees that it will not at any time prior to or
during the Term, either directly or indirectly, employ or permit the employment
of any contractor, mechanic or laborer, or permit any materials in the Premises,
if the use of such contractor, mechanic or laborer or such materials would, in
Landlord's option, create any difficulty, strike or jurisdictional dispute with
other contractors, mechanics or laborers engaged by Tenant or Landlord or
others, would in any way disturb the construction, maintenance, cleaning,
repair, management, security or operation of the Building or any part thereof.
In the event of any interference or conflict, Tenant, upon demand of Landlord,
shall cause all contractors, mechanics or laborers, or all materials causing
such interference, difficulty or conflict, to leave or be removed from the
Building immediately.
Section 10.07 All fixtures, equipment, improvements and appurtenances
attached to, or built into, the Premises at the commencement of or during the
Term (collectively "Fixtures"), whether or not at the expense of Tenant, shall
be surrendered to Landlord upon the termination of this Lease except as
otherwise expressly provided in this Lease; provided, however, that any Fixtures
attached to,
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or built into, the Premises at the expense of Tenant shall be and remain the
property of Tenant during the Term and any Fixtures attached to, or built into,
the Premises at the expense of Landlord shall be and remain the property of
Landlord during the term. The Fixtures shall include all electrical, plumbing,
heating and sprinkling equipment, fixtures, outlets, venetian blinds,
partitions, railways, gates, doors, vaults, paneling, molding, shelving,
radiator enclosures, cork, rubber, linoleum and composition floors, ventilating,
silencing, air conditioning and cooling equipment, and all fixtures, equipment,
improvements and appurtenances of a similar nature or purpose whether or not
attached to or built into the Premises.
Section 10.08 No approval of plans or specifications by Landlord or
consent by Landlord allowing Tenant to make Improvements in the Premises shall
in any way be deemed to be an agreement by Landlord that the contemplated
Improvements comply with any Legal Requirements or Insurance Requirements or the
certificate of occupancy for the Building nor shall it be deemed to be a waiver
by Landlord of the compliance by Tenant with any of the terms of this Lease.
Notice is hereby given that neither Landlord, Landlord's agents, the Superior
Lessor, the Superior Mortgagee nor the Fee Mortgagee shall be liable for any
labor or materials furnished or to be furnished to Tenant upon credit, and that
no mechanic's or other lien for such labor or materials shall attach to or
affect any estate or interest of Landlord or the Superior Lessor, Superior
Mortgagee or Fee Mortgagee in and to the Premises or the Real Property.
ARTICLE 11
Repairs
Section 11.01 Tenant, at its sole cost and expense, shall take good
care of the Premises and Building Equipment therein and Tenant's Property and
the Fixtures. Tenant, at its sole cost and expense, shall make and be
responsible for all interior repairs, ordinary or extraordinary as and when
needed to preserve the Premises and the Building Equipment therein and Tenant's
Property and the Fixtures in good working order and condition, the need for
which arises out of (a) the installation, use, existence or operation of
Improvements, Tenant's Property or Fixtures, (b) the moving of Tenant's Property
or Fixtures in or out of the Building or the Premises, (c) the acts, omissions,
negligence or misuse of Tenant or any of its subtenants or any of its or their
employees, agents, contractors, Licensees or invitees or their use of occupancy
or manner of use or occupancy of the Premises otherwise than in accordance with
the terms of this Lease (except fire or other casualty caused by Tenant's
negligence, if the fire or other casualty insurance policies insuring Landlord
are not invalidated and the rights of Landlord are not adversely affected by
this provision) or (d) pursuant to the provisions of Section 9.01A, provided,
however, that Landlord, at its option, may make any of the foregoing repairs
(other
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than repairs to Tenant's Property) and in such event, Tenant shall pay to
Landlord the cost thereof, as Additional Rent, on demand. In no event shall
Tenant be required to make, be responsible for or pay for any repairs which are
required as a result of the negligence of Landlord, its agents, contractors or
employees. Tenant, at its sole cost and expense, shall promptly replace
scratched, damaged or broken doors and glass in and about the Premises and shall
be responsible for all repairs and maintenance of wall and floor coverings in
the Premises. Tenant shall promptly make, at its sole cost and expense, all
repairs in or to the Premises for which it is responsible. If the Premises shall
include any space on any ground, street, mezzanine or basement floor in the
Building, Tenant, at its sole cost and expense, shall make all necessary repairs
to all windows and other glass in, on or about such space and put, keep and
maintain all portions of the Premises and any sidewalks, curbs, entranceways,
passageways and vaults adjoining and/or appurtenant to the Premises in clean and
orderly condition, free of dirt, rubbish, snow, ice and other accumulations and
unlawful obstructions. All repairs made by or on behalf of Tenant or any person
claiming through or under Tenant shall be made and performed in conformity with
the provisions of Article 10, and shall be at least equal in quality and class
to the original work or installation or the then standards for the Building
established by Landlord.
Section 11.02. Landlord shall operate the Building as a first-class
office building with retail stores. Landlord shall, at its expense, make or
cause to be made all necessary repairs to keep the Building in good order and
repair excluding, however, (a) repairs of Tenant's Property or Improvements not
occasioned by Landlord's negligence and (b) repairs which Tenant is obligated to
make pursuant to Section 11.01 and the other terms of this Lease. Landlord
shall, at Tenant's sole cost and expense, perform all maintenance and make all
necessary repairs to the air conditioning equipment and any security systems or
devices which may be installed in the Premises by Landlord, Tenant or others,
except the building standard air conditioning system which (except as otherwise
provided in Section 11.01) shall be maintained and repaired at Landlord's sole
cost and expense. Nothing contained in this Section shall require Landlord to
paint the Premises. No liability of Landlord to Tenant shall, however, accrue
under this Section unless and until Tenant has given notice to Landlord of the
specific repair required to be made, or of the failure properly to furnish any
service.
Section 11.03. Tenant recognizes and acknowledges that the operation of
the Building Equipment may cause vibration, noise, heat or cold which may be
transmitted throughout the Premises. Landlord shall have no obligation to
endeavor to reduce such vibration, noise, heat or cold beyond what is prevalent
in other similarly situated Class-A office buildings in Midtown Manhattan.
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ARTICLE 12
Heating, Ventilation and Air Conditioning
Section 12.01. Landlord, at Landlord's expense (except as may be set
forth in Article 13), shall furnish and distribute to the Premises, through the
Building heating, ventilating and air conditioning systems, heat, ventilating
and air conditioning, as may be required for reasonably comfortable occupancy of
the Premises from 8:00 A.M. to 6:00 P.M. ("business hours") on business days.
Business days as used in this Lease shall mean all days except Saturdays,
Sundays and the days observed by the Federal or the New York State or City
governments as legal holidays and such other days as shall be designated as
holidays by the applicable operating engineers union or building service
employees union contract. Landlord and Tenant further agree to operate the
heating, ventilating and air-conditioning equipment in accordance with their
design criteria unless a recognized energy or water conservation program,
guidelines, regulations or recommendations promulgated by any Federal, State,
City or other governmental or quasi-governmental bureau, board, department,
agency, office, commission or other subdivision thereof or the American Society
of Heating, Refrigeration and Air-Conditioning Engineers, Inc. or any successor
thereto or other organization serving a similar function shall provide for any
reduction in operations below said criteria in which case such equipment shall
be operated so as to provide reduced service in accordance with such programs,
guidelines, regulations or recommendations.
Section 12.02. If Tenant shall require heating, ventilating or
air-conditioning service at any time other than during business hours on
business days ("after hours"), Landlord shall furnish the same upon advance
notice from Tenant given prior to 2:00 P.M. on the last business day to occur
prior to such non-business day, and Tenant shall pay Landlord's then established
charges therefor as Additional Rent on demand.
Section 12.03. Tenant acknowledges that the Building has windows
capable of being opened. However, Tenant covenants that no one shall open said
windows, nor shall Tenant permit the opening of said windows at any time by
anyone for any reason, except in full compliance with the provisions of Section
37.01(b) of this Lease. As a result of the foregoing , Tenant acknowledges that
the Premises may become uninhabitable during hours or days when Landlord is not
required to furnish heat, ventilation or air-conditioning pursuant to this
Article 12. Any use or occupancy of the Premises during such hours or days when
Landlord is not so required to furnish heating, ventilating or air-conditioning
shall be at the sole risk, responsibility and hazard of Tenant. Landlord shall
have no liability to Tenant with respect to such condition of the Premises. In
addition, Landlord shall not be responsible if the normal operation of the
Building heating or ventilating system or the air conditioning system serving
the Premises shall fail to provide such service
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in accordance with the requirements of this Lease in any portions of the
Premises (a) which shall have an electrical loan in excess of 3-1/2 watts per
square foot of usable area for all purposes (including lighting and power), or
which shall have a human occupancy factor in excess of one person per 100 square
feet of usable area, or (b) because of any rearrangement of partitioning or
other improvements. Tenant shall cooperate fully with Landlord at all times and
abide by all regulations and requirements which Landlord may reasonable
prescribe for the proper functioning and protection of the heating, ventilating
and air-conditioning systems.
ARTICLE 13
Electricity
Section 13.01. Landlord shall install in the Building and the Premises,
in accordance with the provisions of the Work Letter and the Plans and
Specifications (as defined in the Work Letter) approved by Landlord, such
electrical risers, feeders and wiring as shall be necessary to permit Tenant to
receive electrical energy for (a) Tenant's reasonable use of normal office
equipment and such lighting, electrical appliances and other machines and
equipment as landlord may reasonably permit to be installed in the Premises and
(b) the operation of the heating, ventilating and air-conditioning system
serving the Premises. Landlord has installed, at Landlord's expense, a meter for
the purpose of measuring electrical consumption, on the sixteenth (16th) floor
of the Building ("Tenant's Floor"). Landlord shall maintain, service, repair
and, if necessary, replace such meter. Tenant, upon demand by Landlord, shall
pay to Landlord, as Additional Rent, an amount equal to 23.02% of the reasonable
costs incurred by Landlord in connection with such maintenance, service, repair
and replacement. Following the Commencement Date, Landlord shall cause an
electrical engineer or a utility consultant selected by Landlord to make a
survey of Tenant's connected power load and the connected power load of that
portion of the rentable area of the Tenant's Floor not included within the
Premises. Landlord, at Landlord's option, shall have the right, at any time and
from time to time during the Term, to cause similar surveys to be made. The term
"Tenant's Share" shall mean that percentage equal to Tenant's percentage of the
aggregate of the connected power load for the entire rentable area of the
Tenant's percentage of the aggregate of the connected power load for the entire
rentable area of the Tenant's Floor as determined from time to time pursuant
hereto. The findings of Landlord's engineer or consultant shall be binding on
Landlord and Tenant, subject to adjustment as hereinafter provided. Promptly
after receipt by Landlord of a bill from the public utility company furnishing
electrical energy to the Tenant's Floor, Landlord shall furnish to Tenant a copy
thereof together with a request for payment to Landlord by Tenant of Tenant's
Share of such bill. Tenant shall promptly pay to Landlord, as Additional Rent,
Tenant's share of such bill. In the event Tenant shall dispute any findings of
the engineer or consultant designated by Landlord, Tenant
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may, within thirty (30) days of receiving notice of such findings, designate by
notice to Landlord an independent electrical engineer or utility consultant to
make, at Tenant's sole cost and expense, another determination of Tenant's
connected power load. If the engineer or consultant selected by Tenant shall
determine that Tenant's connected power load is less than as determined by
Landlord's engineer or consultant and the two are unable to adjust such
difference within twenty (20) days after the determination made by Tenant's
engineer or consultant is delivered to Landlord, the dispute shall be resolved
by arbitration in accordance with Article 28. Pending a final determination
pursuant to such arbitration, however, Tenant shall pay Landlord for such
electrical energy based on the determination of Landlord's engineer or
consultant' and, if it is determined that Tenant has overpaid, Landlord shall
reimburse Tenant for any overpayment at the conclusion of such arbitration. In
any such arbitration, the third experience in similar matters in New York City.
Landlord will permit electrical risers, feeders and wiring in the Building
serving the Premises to be used by Tenant to the extent that they are available,
suitable, safe and within the plan and design capacities for the Building.
Section 13.02. Tenant shall not, without the prior consent of Landlord,
make or perform or permit any alteration to wiring installations or other
electrical facilities in or serving the Premises or any additions to the
electrical fixtures, business machines or office equipment or appliances (other
than typewriters and similar low energy consuming office machines) in the
Premises which utilize electrical energy. Should Landlord grant such consent,
all additional risers or other equipment required therefor shall be provided by
Landlord and the cost thereof shall be paid by Tenant within ten (10) days after
being billed therefor, provided that Landlord shall not be obligated to consent
to any such alteration or installation if, in Landlord's judgment, the same or
will cause permanent damage or injury to the Building or the Premises or will
cause or create a hazardous condition or entail tenants. Rigid conduit only will
be allowed or such other wiring or conduit which will not violate any applicable
Legal Requirements.
Section 13.03. Landlord shall have no liability to Tenant for any loss,
damage or expense which Tenant may sustain or incur by reason of any change,
failure, inadequacy or defect in the supply or character of the electrical
energy furnished to the Premises or if the quantity or character of the
electrical energy is no longer available or suitable for Tenant's requirements
except for any actual damage suffered by Tenant by reason of any such failure,
inadequacy or defect caused by Landlord's negligence, and then only after actual
notice as provided in Section 11.02.
Section 13.04. Landlord shall furnish and install all lighting, tubes,
lamps, starters, bulbs and ballasts required in the Premises and Tenant shall
pay to Landlord or its designated contractor the then established reasonable
charges therefor as Additional Rent within ten (10) days of demand, except that
any such items installed at the commencement of the Term for building standard
fixtures shall be at
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Landlord's sole cost and expense.
Section 13.05. If pursuant to a Legal Requirement or the policies of
the public utility company servicing the Building, Tenant is no longer permitted
to obtain electrical energy in the manner provided in Section 13.01, Landlord
will furnish electrical energy to the Premises either, at Landlord's option, on
a submetering basis or a rent inclusion basis. Landlord shall give Tenant notice
at least 30 days prior to the date on which Landlord shall commence furnishing
electrical energy to the Premises (unless such notice is not feasible under the
circumstances, in which event landlord will give Tenant such reasonable notice
as is possible), which notice will set forth the method chosen by Landlord for
furnishing electrical energy to the Premises and the terms on which Landlord
will so furnish electrical energy; subject to Tenant's approval, not be
unreasonably withheld.
ARTICLE 14
Cleaning and Other Services
Section 14.01. A. Provided this Lease is then in full force and effect,
without any defaults by Tenant hereunder Landlord beyond notice and the
expiration of any applicable cure period, at its expense, shall cause the
Premises, including the windows thereof (subject to Tenant maintaining
unrestricted access to such windows), but excluding any portions of the Premises
used for the storage, preparation, service or consumption of food or beverages,
to be cleaned, substantially in accordance with the standard set forth in
Exhibit D. Tenant shall pay the Landlord as Additional Rent, within ten days of
demand Landlord's charges for (a) cleaning work in the Premises or the Building
required because of (i) misuse or neglect on the part of Tenant or its agents,
employees, contractors, licensees or invitees, (ii) use of portions of the
Premises for the storage, preparation, or consumption of food or beverages,
reproduction, data processing or computer operations, private lavatories or
toilets or other special purposes requiring greater or more difficult cleaning
work than office areas, (iii) interior glass surfaces, (iv) non-Building
Standard materials or finishes installed by Tenant or at its request, (v)
increases in frequency or scope in any of the items set forth in Exhibit D as
shall have been requested by Tenant, and (b) removal from the Premises and the
Building of (i) so much refuse and rubbish of Tenant as shall exceed that
normally accumulated in the daily routine of ordinary business office occupancy,
and (ii) all of the refuse and rubbish of Tenant's machines and of any eating
facilities requiring special handling and (c) additional cleaning work in the
Premises or the Building required because of the use of the Premises by Tenant
after hours. Landlord and its cleaning contractor and their employees shall have
access to the Premises at all times except between 8:00 A.M. and 5:30 P.M. on
business days and, to the extent that it will not unreasonably interfere the
operation of Tenant's business, during
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business hours. Landlord and its cleaning contractor and their employees shall
have the use of the Tenant's light, power and water in the Premises, without
charge therefor, as may be reasonably required for the purpose of cleaning the
Premises. If Tenant is permitted hereunder to and does have a separate area for
the storage, preparation, service or consumption of food or beverages in the
Premises, Tenant, at its sole cost and expense, shall cause all portions of the
Premises so sued to be cleaned daily in a manner satisfactory to Landlord and to
be exterminated regularly and, in addition, whenever there shall be evidence of
any infestation.
B. The cleaning services to be furnished by Landlord
pursuant to this Section may be furnished by a contractor or contractors
employed by Landlord and Tenant agrees that Landlord shall not be deemed in
default of any of its obligations under this Section unless such default shall
continue for a reasonable period of time after notice from Tenant not to exceed
ten days to Landlord setting forth the specific nature of such default.
Section 14.02. Landlord, at Landlord's expense, shall furnish necessary
elevator service on business days during business hours and shall have an
elevator subject to call at all other times. Landlord shall not be required to
furnish any operator service for automatic elevators. If Landlord shall, at any
time, elect to furnish operator service for any automatic elevators, Landlord
shall have the right to discontinue furnishing operator service for any
automatic elevators, Landlord shall have the right to discontinue furnishing
such service. In the event Tenant shall require the use of the Building's
elevators for purposes not otherwise supplied by Landlord or after hours,
Landlord shall provide a service elevator or passenger elevator, as the case may
be, for the use of Tenant, provided that Tenant gives Landlord reasonable notice
of the time and use of such elevators to be made by Tenant and Tenant pays
Landlord's usual and reasonable charges for the use thereof as Additional Rent
within ten days of demand, including, without limitation, any expense for
operator service for such elevator which Landlord may deem necessary in
connection with Tenant's use of such elevator. Landlord shall have the right to
change the operation or manner of operating any of the elevators in the Building
and shall have the right to discontinue, temporarily or permanently, the use of
any one or more cars in any of the banks provided reasonable elevator service is
provided to the Premises.
Section 14.03. Landlord shall supply reasonably adequate quantities of
hot and cold water to a point or points in the Premises for ordinary lavatory,
cleaning and drinking purposes. If Tenant requires, uses or consumes water for
any other purpose, Landlord may install a water meter and measure Tenant's
consumption of water for all purposes. Tenant shall pay Landlord the cost of any
such meter and its installation and the cost of keeping such meter and any such
installation equipment in good working order and repair as Additional Rent
within ten days of demand. Tenant agrees to pay for water consumed as shown on
said meter and any other
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rent, tax, levy or charge based thereon which now or hereafter is assessed,
imposed or a lien upon the Premises or the Building, as and when bills are
rendered.
Section. 14.04. Landlord reserves the right to stop, interrupt or
reduce service of the heating, ventilating or air conditioning systems,
elevator, electrical energy, or plumbing or any other service or systems,
because of Force Majeure, Legal Requirements or Insurance Requirements or for
repairs or improvements, which, in the judgment of Landlord, are desirable or
necessary. Landlord shall have no liability to Tenant for failure to supply any
such repairs, alterations and improvements shall be made with a minimum amount
of inconvenience to Tenant and that Landlord will diligently proceed therewith
to completion, subject to Force Majeure. If as a result of any suspension
referred to in this Lease, the Premises shall be rendered untenantable for the
conduct of Tenant's business therein, as and a consequence thereof Tenant is
compelled to discontinue the conduct of its business therein for a period of
more than five (5) consecutive business days, then while such condition
persists, the Fixed Rent payable under this Lease shall be abated until such
time as the Premises are rendered tenantable.
Section 14.05. Only Landlord or one or more persons approved by
Landlord will be permitted to furnish laundry, linen, towels, drinking water,
ice, food, beverages, bootblacking, barbering and other similar supplies and
services to tenants. Landlord may fix the hours during which and the regulations
under which said supplies and services are to be furnished. Landlord expressly
reserves the right to act as or to designate, at any time and from time to time,
an exclusive supplier of all or any one or more of said supplies and services,
provided that the quality thereof and the charges therefor are reasonably
comparable to that of other suppliers; and Landlord furthermore expressly
reserves the right to exclude from the Building any person attempting to furnish
any of said supplies or services but not so designated by Landlord. However,
Tenant, its regular office employees, or invitees may personally bring food or
beverages into the Building for consumption with the Premises solely by Tenant,
its regular office employees or invitees. In all events, all food and beverages
shall be carried in closed containers.
Section 14.06. Only Landlord or one or more persons approved by
Landlord shall be permitted to act as maintenance contractor for all waxing,
polishing, lamp replacement, cleaning and maintenance work in the Premises,
provided that the quality thereof and the charges therefor are reasonably
comparable to that of other contractors servicing a first class office building
with retail space. Nothing herein contained shall prohibit Tenant from
performing such work for itself by use of its own regular employees. Landlord
may fix the hours during which and regulations under which such services are to
be furnished. Landlord expressly reserves the right to act as or to designate,
at any time and from time to time, an exclusive contractor for all or any one or
more of said services, provided that the contractors; and Landlord furthermore
expressly reserves the right to exclude from the Building any
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person attempting to furnish any of said services but not so designated by
Landlord.
ARTICLE 15
Damage to or Destruction of the Premises
Section 15.01. If the Premises or any part thereof shall be damaged or
rendered Untenantable by fire or other insured casualty and Tenant gives prompt
notice thereof to Landlord and this Lease is not terminated pursuant to any
provision of this Article, Landlord shall proceed, with reasonable diligence
after the collection of the insurance proceeds attributable to such damage, to
repair or cause to be repaired such damage to the Basic Construction of the
Building and Landlord's Work. All other repairs required by reason of such
casualty shall be performed by Tenant, at its sole cost and expense, promptly
and with due diligence. Except as provided in Section 15.07, the rent shall be
equitably abated to the extent that the Premises shall have been rendered
Untenantable, such abatement to be from the date of such damage to the date the
Premises shall no longer be Untenantable, the rent allocable to such reoccupied
portion, based upon the proportion which the reoccupied portion of the Premises
bears to the total area of the Premises, shall be payable by Tenant from the
date of such occupancy.
Section 15.02. If the Premises shall be totally damaged or rendered
wholly Untenantable by fire or other casualty, and Landlord has not terminated
this Lease pursuant to Section 15.03 and Landlord has not completed the making
of the required repairs to the Premises and access thereto within 6 months from
the date of such damage or destruction and such additional time after such date
(but in no event to exceed 3 months), as shall equal the aggregate period
Landlord may have been delayed in doing so by Force Majeure or adjustment of
insurance, Tenant, within 30 days after the date on which Landlord is required
to complete the repairs pursuant to this Section, may serve notice on Landlord
of its intention to terminate this Lease, and if within said 30 day period,
Landlord shall not have substantially completed the making of the required
repairs, this Lease shall terminate on the expiration, however, to Landlord's
rights and remedies against Tenant under the terms of this Lease.
Section 15.03. If the Premises shall be totally destroyed or rendered
wholly Untenantable by fire or other casualty or if the Building shall be os
damaged by fire or other casualty that substantial alteration or reconstruction
of the Building shall, in Landlord's sole opinion, be required (whether or not
the Premises shall have been damaged by such fire or other casualty), then in
any such event Landlord may, at its option, terminate this Lease, by giving
Tenant 30 days' notice of such termination, within 120 days after the date of
such fire or other casualty. In the event that such notice of termination shall
be given, this Lease shall terminate as of
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the date provided in such notice of termination (whether or not the Term shall
have commenced) with the same affect as if that date were the Expiration Date
without prejudice, however, to Landlord's rights and remedies against Tenant
under the terms of this Lease. If, at any time prior to Landlord giving Tenant
the aforesaid notice of termination or commencing the repair pursuant to Section
15.01, there shall be a Successor Landlord, such Successor Landlord shall have a
further period of 60 days from the date of so taking possession to terminate
this Lease by 30 days' notice to Tenant and in the event that such a notice of
termination shall be given, this Lease shall terminate as of the date provided
in such 30 day notice of termination(whether or not the Term shall have
commenced) with the same effect as if that date were the Expiration Date without
prejudice, however, to Landlord's (or Successor Landlord's) rights against
Tenant under the terms of this Lease.
Section 15.04. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from any such damage by fire or other casualty or the repair thereof. Landlord
shall not be obligated to carry insurance of any kind on Tenant's Property or
any improvements made at Tenant's sole cost and expense, and Landlord shall not
be obligated to repair any damage thereto or replace the same.
Section 15.05. Except as expressly provided in Article 8, nothing
herein contained shall relieve Tenant from any liability to Landlord or to its
insurers in connection with any damage to the Premises or the Building by fire
or other casualty if Tenant shall be legally liable in such respect.
Section 15.05. Except as expressly provided in Article 8, noting herein
contained shall relieve Tenant from any liability to Landlord or to its insurers
in connection with any damage to the Premises or the Building by fire or other
casualty if Tenant shall be legally liable in such respect.
Section 15.06. This Article shall be considered an express agreement
governing any case of damage to or destruction of the Building or any part
thereof by fire or other casualty, and Section 227 of the Real Property Law of
the State of New York providing for such a contingency in the absence of such
express agreement, and any other law of like import now or hereafter enacted,
shall have no application in such case.
ARTICLE 16
Eminent Domain
Section 16.01. If the whole or any part of the Premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then
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and in that event, the term of this Lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of the Lease and assigns to Landlord, Tenant's
entire interest in any such award.
ARTICLE 17
Conditions or Limitation
Section 17.01. To the extent permitted by applicable law this Lease and
the term and estate hereby granted are subject to the limitation that whenever
Tenant shall make an assignment of the property of Tenant for the benefit of
creditors, or shall file a voluntary petition under any bankruptcy or insolvency
law, or an involuntary petition alleging an act of bankruptcy or insolvency
shall be filed against Tenant under any bankruptcy or insolvency law, or
whenever a petition shall be filed or against Tenant under the reorganization
provisions of the United States Bankruptcy Act or under the provisions of any
law of like import, or whenever a petition shall be filed by Tenant under the
arrangement provisions of the United States Bankruptcy Act or under the
provisions of any law of like import, or whenever a permanent receiver of Tenant
or of or for the property of Tenant shall be appointed, then, Landlord, (a) at
any time after receipt of notice of the occurrence of any such event, or (b) if
such event occurs without the acquiescence of Tenant, at any time after the
event continues for ninety (90) days Landlord may give Tenant a notice of
intention to end the term of this Lease at the expiration of ten (10) days from
the date of service of such term and estate hereby granted, whether or not the
term shall theretofore have commenced, shall terminate with the same effect as
if that day were the Expiration Date, but Tenant shall remain liable for damages
as provided in Article 18.
Section 17.02. This Lease and the Term and estate hereby granted are
subject to the limitations that:
(a) if Tenant shall default in the payment when due of any
installment of Fixed Rent or in the payment when due of any Additional Rent, and
such default shall continue for a period of 10 days after notice by Landlord to
Tenant of such default; or
(b) if Tenant shall default in the performance of any term of
this Lease on Tenant's part to be performed (other than the payment of Fixed
Rent and Additional Rent) and Tenant shall fail to remedy such default within 30
days after and notice by Landlord to Tenant of such default, or if such default
is of such a nature that it cannot be completely remedied within said period of
30 days if Tenant shall not (x) promptly upon the giving by Landlord of such
notice, advise Landlord
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of Tenant's intention to institute all reasonable steps necessary to remedy such
situation, (y) promptly institute and thereafter diligently prosecute to
completion all steps necessary to remedy the same, and (z) complete such remedy
within a reasonable time after the date of the giving of said notice by
Landlord; and in any event prior to such time as would either (i) subject
Landlord, Landlord's agents, the Superior Lessor, the Superior Mortgagee or the
Fee Mortgagee to prosecution for a crime or (ii) cause a default under the
Superior Lease or the Superior Mortgage; or
(c) intentionally deleted; or
(d) if any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of the
Term would, by operation or law or otherwise, devolve upon or pass to any person
other than Tenant except as is expressly permitted under Article 22; or
(e) if the Premises shall become vacant, deserted or abandoned
(unless as a result of a casualty); or
(f) if Tenant shall default in the performance of any term,
covenant, agreement or condition of Tenant's part to be observed or performed
under any other lease with Landlord or space in the Building and such default
shall continue beyond the grace period, if any, set forth in such other lease
for the remedying of such default,
then in any of said events Landlord may give to Tenant notice of intention to
terminate this Lease to end the Term and the estate hereby granted at the
expiration of 3 days from the date of the giving of such notice, and, in the
event such notice is given, this Lease and the Term and estate hereby granted
(whether or not the Term shall have commenced) shall terminate upon the
expiration of said 3 days with the same effect as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided in
Article 18.
Section 17.03. If the notice provided for in Section 17.01 shall have
been given and this Lease shall be terminated or if the Premises shall be or
become vacant, deserted or abandoned, then, in any such event, Landlord may
without notice terminate all services.
ARTICLE 18
Re-Entry by Landlord; Remedies
Section 18.01. A. If Tenant shall default in the payment when due of
any installment of Fixed Rent or in the payment when due of any Additional Rent
and
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such default shall continue for a period of 10 days after notice from Landlord
to Tenant of such default or if this Lease and the Term shall terminate as
provided in Article 17:
(a) Landlord and Landlord's agents may immediately, or at any
time after such default or after the date upon which this Lease and the Term
shall terminate, re-enter the Premises or any part thereof, without notice,
either by summary proceedings or by any other applicable action or proceeding,
or by force or otherwise (without being liable to indictment, prosecution or
damages thereof), and may repossess the Premises and dispossess Tenant and any
other persons from the Premises and remove any and all of its or their property
and effects from the Premises, without liability for damage thereto, to the end
that Landlord may have, hold and enjoy the Premises and in no event shall
reentry be deemed an acceptance of surrender of this Lease; and
(b) Landlord, at its option, may relet the whole or any part
or parts of the Premises from time to time, either in the name of Landlord or
otherwise, to such tenant or tenants, for such term or terms ending before, don
or after the Expiration Date, at such rental or rentals and upon such other
terms and conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine. Landlord shall have no
obligation to relet the Premises or any part thereof and shall in no event be
liable for refusal or failure to relet the Premises or any part thereof, or, in
the event of such reletting, for refusal or failure to collect any rent upon any
such reletting, and no such refusal or failure shall operate to relieve Tenant
of any liability under this Lease or otherwise to affect any such liability.
Landlord, at Landlord's option, may make such repairs, improvement, alterations,
additions, decorations and other physical changes in and to the Premises as
Landlord, in its sole discretion, considers advisable or necessary in connection
with any such reletting or proposed reletting, without relieving Tenant of any
liability under this Lease or otherwise affecting any such liability.
B. No such re-entry or taking possession of the
Premises by Landlord shall be construed as an election by Landlord to terminate
this Lease, unless Landlord give written notice to Tenant of such election. In
the event Landlord relets the whole or any part or parts of the Premises
pursuant to this Article 18 without terminating this Lease, Landlord may at any
time thereafter elect to terminate this Lease for such previous default.
Section 18.02. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does hereby expressly
waive any and all rights, so far as is permitted by law, which Tenant and all
such persons might otherwise have to (a) the service of any notice of intention
to re-enter or to institute legal proceedings to that end, (b) redeem the
Premises or any interest therein, (c) re-enter or repossess the Premises, or (d)
restore the operation of this Lease, after
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Tenant shall have been dispossessed by a judgment or by a warrant of any court
of judge, or after any re-entry by Landlord, or after any termination of this
Lease, whether such dispossess, re-entry by Landlord or termination shall be by
operation of law or pursuant to the provisions of this Lease. The words
"reenter", "re-entry" and "re-entered" as used in this Lease shall not be deemed
to be restricted to their technical legal meanings.
Section 18.03. In the event of any breach by Tenant or any person
claiming through or under Tenant of any of the terms of this Lease, Landlord
shall be entitled to enjoin such breach or threatened breach and shall have the
right to invoke any right allowed at law or in equity, by statute or otherwise,
as if re-entry, summary proceedings or other specific remedies were not provided
for in this Lease.
Section 18.04. If this Lease is terminated under the provisions of
Article 17, or if Landlord shall re-enter the Premises, or in the event of the
termination of this Lease, or of re-entry, by or under any summary dispossess or
other proceeding or action or any provision of law by reason of default
hereunder on the part of Tenant, Tenant shall pay to Landlord as damages, at the
election of Landlord, either:
(a) a sum which at the time of such termination of this Lease
or at the time of any such re-entry, by or under any summary dispossess or other
proceeding or actions or any provision of law by reason of default hereunder on
the part of Tenant, Tenant shall pay to Landlord as damages, at the election of
Landlord, either:
(1) the aggregate of the Fixed Rent and the
Additional Rent payable hereunder which would have been payable by Tenant
(conclusively presuming the Additional Rent to be the same as was payable for
the year immediately preceding such termination ) for the period commencing with
such earlier termination of this Lease or the date of any such re-entry, as the
case may be, and ending with the Expiration Date, had this Lease not so
terminated or had Landlord not so re-entered the Premises for the same period;
over
(2) the aggregate fair market rental value of the
Premises for the same period; or
(b) sums equal to the Fixed Rent and the Additional Rent (as
above presumed) payable hereunder which would have been payable by Tenant had
this Lease not so terminated, or had Landlord not so re-entered the Premises,
payable upon the due dates therefor specified herein following such termination
or such re-entry and until the Expiration Date, provided, however, that if
Landlord shall relet the Premises during said period, Landlord shall credit
Tenant with the net rents received by Landlord from such
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reletting, such net rents to be determined by first deducting from the gross
rents as and when received by Landlord from such reletting the expenses incurred
or paid by Landlord in terminating this Lease or in re-entering the Premises and
in securing possession thereof, as well as the reasonable expenses of reletting,
including altering and preparing the Premises for new tenants, brokers'
commissions; it being understood that any such reletting may be for a period
shorter or longer than the remaining term of this Lease; but in no event shall
Tenant be entitled to receive any excess of such net rents over the sums payable
by Tenant to Landlord hereunder, not shall Tenant be entitled in any suit for
the collection of damages pursuant to this Subsection to a credit in respect of
any net rents from a reletting, except to the extent that such net rents are
actually received by Landlord.l If the Premises or any part thereof should be
relet in combination with other space, then proper apportionment on a square
foot basis (for equivalent space) shall be made of the rent received from such
reletting and of the expenses of reletting.
If the Premises or any thereof be relet by Landlord for the unexpired portion of
the term of this Lease, or any part thereof, before presentation of proof of
such damages to any court, commission or tribunal, the amount of rent reserved
upon such reletting shall, prima facie, be the fair and reasonable rental value
for the Premises, or part thereof, so relet during the term of the reletting.
Section 18.05. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this Lease would have expired if
it had not been so terminated under the provisions of Article 17, or under any
provision of law, or had Landlord not re-entered the Premises. Nothing herein
contained shall be construed to limit or preclude recovery by Landlord against
Tenant of any sums or damages to which, in addition to the damages particularly
provided above, Landlord may lawfully be entitled by reason of any default
hereunder on the part of Tenant. Nothing herein contained shall be construed to
limit or prejudice the right of Landlord to prove for and obtain as liquidated
damages by reason of the termination of this Lease or re-entry on the Premises
for the default of Tenant under this Lease, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and governing
the proceedings in which, such damages are to be proved whether or not such
amount be greater, equal to, or less than any of the sums referred to in Section
18.04.
Section 18.06. Nothing herein contained shall be construed as limiting
or precluding the recovery by Landlord against Tenant of any sums or damages to
which, in addition to the damages particularly provided above, Landlord may
lawfully be entitled by reason of any default hereunder on the part of Tenant.
Section 18.07. Each right of Landlord provided for in this Lease shall
be cumulative and shall be in addition to every other right provided for in this
Lease
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or now or hereafter existing at law or in equity, by statute or otherwise, and
the exercise or beginning of the exercise by Landlord of any one or more of such
rights shall not preclude the simultaneous or later exercise by Landlord of any
or all other rights provided for in this Lease or now or hereafter existing at
law or in equity, by statute or otherwise.
ARTICLE 19
Curing Tenant's Defaults; Fees and Expenses
Section 19.01. If Tenant shall default in the performance of any term
of this Lease on Tenant's part to be performed, Landlord, without thereby
waiving such default and without liability to Tenant in connection therewith,
may, but shall not be obligated to, perform the same for the account and at the
expense of Tenant, without notice in case of emergency and upon 10 days' prior
notice in all other cases, Landlord may enter the Premises at any time to cure
any default without any liability to Tenant, except for Landlord's negligence.
Bills for any expenses incurred by Landlord in connection with any such
performances or involved in collecting or endeavoring to collect rent or
enforcing or endeavoring to enforce any rights against Tenant under or in
connection with this Lease or pursuant to law, including any reasonable cost,
expense and disbursement involved in instituting and prosecuting summary
proceedings, as well as bills for any property, material, labor or services
provided, furnished or rendered, including reasonable attorneys' fees and
disbursements, shall be paid by Tenant as Additional Rent with ten days of
demand. In the event that Tenant is in arrears in payment of rent, Tenant waives
Tenant's rights, if any, to designate the items against which any payments made
by Tenant are to be credited and Landlord may apply any payment made by Tenant
to any items Landlord sees fit, irrespective of and notwithstanding any
designation or requests by Tenant as to the items against which any such
payments shall be credited. Landlord reserves the right, without liability to
Tenant to suspend furnishing to Tenant electrical energy and all or any other
services (including heat, ventilation and air conditioning), whenever Landlord
is obligated to furnish the same after hours or otherwise at Tenant's expense,
in the event that (but only for so long as) Tenant is in arrears in paying
Landlord therefor beyond notice and the expiration of any applicable cure
period.
ARTICLE 20
Non-Liability and Indemnification
Section 20.01. Tenant shall indemnify and save harmless Landlord and
its agents against and form (a) any and all claims (i) arising from (x) the
conduct or
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management of the Premises or of any business therein, or (y) any work or thing
whatsoever done, or any condition created (other than by Landlord for Landlord's
or Tenant's account) in or about the Premises during the term of this Lease or
during the period of time, if any, prior to the Commencement Date that Tenant
may have been given access to the Premises, or (ii) arising from any negligent
or otherwise wrongful act or omission of Tenant or any of its subtenants,
occupants or licensees or its or their employees, agents or contractors, and (b)
all costs, expenses and liabilities incurred in or in connection with each such
claim or action or proceeding brought thereon. In case of any such claim,
Tenant, upon notice from Landlord, shall resist and defend such action or
proceeding by legal counsel approved by Landlord, such approval not to be
unreasonably withheld.
ARTICLE 21
Surrender
Section 21.01. On the Expiration Date or upon the sooner termination of
this Lease or upon any reentry by Landlord upon the Premises, Tenant shall, at
its sole cost and expense, quit, surrender, vacate and deliver the Premises to
Landlord "broom clean" and in good order, condition and repair except for
ordinary wear, tear and damage by fire or other insured casualty, together with
all Improvements and Fixtures (except as otherwise provided for in this Lease).
Tenant shall remove from the Real Property all of Tenant's Property and all
other personal property and personal effects of all persons claiming through or
under Tenant, and shall pay the cost of repairing all material damage to the
Premises and the Real Property occasioned by such removal. Any Tenant's Property
or other personal property which shall remain in the Premises after the
termination of this Lease shall be deemed to have been abandoned and either may
be retained by Landlord as its property or may be disposed of in such a manner
as Landlord may see fit. If such Tenant's Property or other personal property or
any part thereof shall be sold, Landlord may receive and retain the proceeds of
such sale as the property of Landlord. Any expense incurred by Landlord in
removing or disposing of such Tenant's Property or other personal property shall
be reimbursed to Landlord by Tenant as Additional Rent within ten days of
demand.
Section 21.02. If the Expiration Date or the date of sooner termination
of this Lease shall fall on a day which is not a business day,k then Tenant's
obligations under Section 21.01 shall be performed on or prior to the
immediately preceding business day.
Section 21.03. If the Premises are not surrendered upon the termination
of this Lease, Tenant hereby indemnifies Landlord against liability resulting
from delay by Tenant in so surrendering the Premises, including any claims made
by any
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succeeding tenant or prospective tenant founded upon such delay.
Section 21.04. In the event Tenant remains in possession of the
Premises after the termination of this Lease without the execution of a new
lease, Tenant, at the option of the Landlord, shall be deemed to be occupying
the Premises as a tenant from month to month, at a monthly rental equal to one
and one-half times the Fixed Rent and Additional Rent payable during the last
month of the Term, subject to all of the other terms of this Lease insofar as
the same are applicable to a month-to-month tenancy.
Section 21.05. Tenant's obligation under this Article shall survive the
termination of this Lease.
ARTICLE 22
Assignment, Mortgaging and Subletting
Section 22.01. Tenant, for itself, its heirs distributee, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage, pledge, or otherwise encumber, all
or any part of its interest in this Lease, sublet the Premises, in whole or in
part, or suffer or permit the Premises or any part thereof to be used or
occupied by others, without the prior written consent of Landlord in each
instance. Any assignment, sublease, mortgage, pledge, encumbrance or transfer in
contravention of the provisions of this Article 22 shall be void.
Section 22.02. If Tenant shall, at any time or from time to time,
desire to assign its interest in this Lease or to sublet the Premises, the
Tenant shall submit to Landlord a written request for Landlord's consent to such
assignment or subletting, which request shall be accompanied by the following
information: (i) a true copy of the proposed instrument of assignment or
sublease, the effective or commencement date of which shall be not less than 30
nor more than 180 days after the giving of such notice, and copies of all other
agreements between the parties signed concurrently or in connection with such
assignment or sublease; (ii) a statement setting forth in reasonable detail the
name and address of the proposed assignee or subtenant, the nature of its
business and the proposed uses of the Premises; and (iii) current financial
information about the proposes assignee or subtenant and any guarantor of its
obligations, including, without limitation, its most recent financial statement,
and any other information Landlord may reasonably request with respect to the
proposed assignee or subtenant. Landlord, by notice given to Tenant within
thirty (30) days after receipt of Tenant's request for consent, but only in the
event Tenant's request is to assign this Lease or sublet all of the Premises,
may terminate this Lease on a date to be specified in said notice (the
"Termination Date"), which
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date shall be not earlier than one (1) day before the effective date of the
proposed assignment or subletting nor later than sixty-one (61) day after said
effective date, and, in such event, all rent and additional rent due hereunder
shall be paid and apportioned to such date, and Tenant shall vacate and
surrender the Premises on or before the Termination Date as if it were the
Expiration Date. If Landlord shall so exercise its option to terminate this
Lease, Landlord shall have the right to let all or portions of the Premises to
any person (including, without limitation, Tenant's proposed assignee or
subtenant), without any liability to Tenant.
Section 22.03. If Landlord shall not exercise its option to terminate
this Lease pursuant to Section 22.02 above, Landlord shall not unreasonably
withhold its consent to the proposed assignment or subletting for the use
expressly permitted in this Lease, provided that:
(1) the Premises shall not, without Landlord's prior consent,
have been listed or otherwise publicly advertised for assignment or subletting
at a rental rate lower than the higher of (a) the Fixed Rent and all Additional
Rent then payable, or (b) the then prevailing rental rate for other space in the
Building;
(2) Tenant shall employ, as exclusive renting agent for
subletting and assignment of this Lease, having the sole and exclusive right to
lease, Landlord's managing agent for the Building or such broker as shall be
approved by Landlord;
(3) Tenant shall not then be in default hereunder beyond
notice and the expiration of any applicable cure period;
(4) the proposed assignee or subtenant shall have a financial
standing, be of a character be engaged in a business, and propose to use the
Premises, in a manner in keeping with the standards of the Building;
(5) The proposed assignee or subtenant shall not then be a
tenant, subtenant or assignee of any space in the Building, nor shall the
proposed assignee or subtenant be a person or entity with whom Landlord is then
or has been, within the prior six-month period, negotiating to lease space in
the Building;
(6) the character of the business to be conducted in the
Premises by the proposed assignee or subtenant shall not be likely to increase
building operating expenses, use of elevators, cleaning services or other
services in the Building;
(7) there shall be no more than two subtenants in the Premises
at any time; and
(8) Tenant shall reimburse Landlord on demand for any
reasonable
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costs, including reasonable attorneys' fees and disbursements, that may be
incurred by Landlord in connection with said assignment or sublease.
If there is a dispute between Landlord and Tenant as to the reasonableness of
Landlord's refusal to consent to any subletting or assignment, such dispute
shall be determined by arbitration in The City of New York in accordance with
the prevailing rules of the American Arbitration Association. The arbitrators
shall be bound by the provisions of this Lease and shall not add to, subtract
from or otherwise modify such provisions. Notwithstanding any contrary
provisions hereof, Tenant hereby waives any claim against Landlord for money
damages which it may have based upon any assertion that Landlord has
unreasonably withheld or delayed any consent to any assignment or a subletting
pursuant to this Article. Tenant agrees that, in the event of any such dispute,
its sole remedy shall be an action or proceeding to enforce such provisions or
for specific performance.
Section 22.04. Every subletting hereunder is subject to the express
condition, and by accepting a sublease hereunder each subtenant shall be
conclusively deemed to have agreed, that if this Lease should be terminated
prior to the Expiration Date of if Landlord should succeed to any portion of
Tenant's estate in the Premises, then at Landlord's election such subtenant
shall either surrender that portion of the Premises to Landlord within sixty
(60) days of Landlord's request therefor, or shall attorn to and recognize
Landlord as such subtenant's landlord under such sublease (except that Landlord
shall not be liable for any previous act or omission of Tenant, nor bound by any
modification of the Sublease not approved in writing by Landlord, nor liable for
any security not received by Landlord or any prepaid rent in excess of one
month's rent), and such subtenant shall promptly execute and deliver any
instrument Landlord may reasonably request to evidence such attornment.
Section 22.05. Tenant shall deliver to Landlord a copy of each sublease
or assignment made hereunder within ten (10) days of its execution. Tenant shall
remain fully liable for the due and timely performance of all of Tenant's
obligations hereunder notwithstanding any subletting or assignment provided for
herein and, without limiting the generality of the foregoing, shall remain fully
responsible and liable to Landlord for all acts and omissions of any subtenant,
assignee or anyone claiming by, through or under any subtenant or assignee which
shall be in violation of any of the obligations of this Lease, and any such
violation shall be deemed to be a violation by Tenant. Notwithstanding any
assignment and assumption by the assignee of the obligations of Tenant
hereunder, Tenant herein named, and each immediate or remote successor in
interest of Tenant herein named, shall remain liable jointly and severally (as a
primary obligor) with its assignee and all subsequent assignees for the
performance of Tenant's obligations hereunder, and shall remain fully and
directly responsible and liable to Landlord for all acts and omission on the
part of any assignee subsequent to it in violation of any of the obligations of
this Lease.
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Section 22.06. Each sublease shall be in form and content reasonably
satisfactory to Landlord, and shall contain provisions setting forth the matters
contained in Section 22.04 above, and further provisions that: (i) the sublease
is subject and subordinate to this Lease and all amendments and modifications
hereof, and (ii) the sublease shall not be assigned, transferred, pledged,
mortgaged or encumbered by the subtenant, in whole or in part, nor shall the
sublet premises be further sublet or used or occupied by persons other than the
subtenant, without the prior written consent of Landlord in each instance. No
subletting shall end later than one day before the Expiration Date of this
Lease.
Section 22.07. No assignment of Tenant's interest in this Lease shall
be binding upon Landlord unless the assignee shall execute, acknowledge and
deliver to landlord an agreement, in form and substance satisfactory to
landlord, whereby such assignee agrees unconditionally to be personally bound by
and to perform all of the obligations of Tenant hereunder and further expressly
agrees that notwithstanding such assignment the provisions of this Article shall
continue to be binding upon such assignee with respect to all future assignments
and transfers.
Section 22.08. If Landlord shall have consented tony assignment or
subletting, or if there is any transfer of this Lease by operation of law or
otherwise, and if Tenant shall receive any consideration from its assignee or
subtenant for or in connection with the assignment Tenant's interest in this
Lease or the subletting of the Premises or any part thereof, as the case may be,
or if Tenant shall sublet the Premises or a part thereof at a rental rate
(including additional rent) which shall exceed the rental rate payable hereunder
(including, in any such case, but not limited to, sums paid for the sale or
rental of Tenant's fixtures, leasehold improvements, equipment, furniture or
other personal leasehold property less, in teh case of a sale thereof, the then
net unamortized or undepreciated costs thereof determined on the basis of Tenant
federal income tax returns), then Tenant shall pay to Landlord, as Additional
Rent hereunder, one-half of such excess (after taking into account brokerage
commissions, reasonable legal and architect's fees and free rent). In the case
of a subletting of less than the entire Premises, the above calculation of
rental rates shall be made on a per square foot basis.
Section 22.09. If Tenant or any general partner of Tenant is ever a
partnership or corporation or other entity, the provisions of this lease
limiting or prohibiting the assignment hereof or subletting of the Premises
shall be deemed to have been violated by (i) the transfer or transfers of a
partnership interest, stock ownership or other equity interest, or (ii) the
issuance of new such partnership or stock interests, or (iii) the merger,
dissolution or liquidation, in or of Tenant, or any entity which is a general
partner of Tenant, whether voluntarily or by operation of law, if such happening
or happenings, individually or in the aggregate result in (a) the admission of a
new general partner of Tenant, or (b) a change in control (hereinafter defined)
of Tenant or any general partner of Tenant. As used in the
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preceding sentence the term "control" shall mean actual operating control of
Tenant's ordinary business operations or a beneficial ownership interest (direct
or indirect) of 51% or more in Tenant or any general partner of Tenant.
Throughout the term of this Lease, within ten (10) days after request by
Landlord, Tenant will advise Landlord by sworn statement in writing as to the
identity and ownership interests of its shareholders, partners and other
principals.
Section 22.10. In the event that Tenant fails to execute and deliver
any assignment or sublease to which Landlord consented under the provisions of
this Article within forty-five (45) days after the giving of such consent, then
Tenant shall again comply with all of the provisions of this Article before
assigning its interest in this Lease or subletting the Premises.
Section 22.11. The consent of Landlord to an assignment or a subletting
shall not relieve Tenant from obtaining the express consent in writing of
Landlord to any further assignment or subletting.
Section 22.12. If Tenant's interest in this Lease be assigned, or if
the Premises or any part thereof be sublet or occupied by anyone other than
Tenant, upon default by Tenant, Landlord may collect rent from the assignee,
subtenant or occupant and apply the net amount collected to the rental herein
reserved, but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of the provisions of this Article or of any default hereunder or
the acceptance of the assignee, subtenant or occupant as Tenant, or a release of
Tenant from the further observance or performance by Tenant of all of the
covenants, conditions, terms and provisions on the part of Tenant to be
performed or observed.
Section 22.13. Tenant agrees to forever indemnify and hold harmless
Landlord from and against the claims of any proposed subtenant or assignee
relating to Landlord response to Tenant request for consent to an assignment or
subletting, and claims of any broker who alleges to have played any part in
bringing about a proposed sublease or assignment in each case whether or not
such sublessor assignment shall be consented toy Landlord and/or consummated,
and against all losses, damages, costs and expenses incurred by Landlord
(including, without limitation, attorneys fees) relating to or resulting from
such claims.
Section 22.14. Notwithstanding anything to the contrary contained in
Article 22, which shall not apply, Tenant shall have the privilege, subject to
the terms and conditions hereinafter set forth (other than Section 22.02),
without the consent of Landlord, to assign its interest in this lease (i) to a
purchaser of all or substantially all of Tenant's assets (provided such
purchaser shall have also assumed substantially all of Tenant's liabilities) or
with whom Tenant shall merge or consolidate, or (ii) to a corporation or
partnership entity which shall control, be under the control of, or be under
common control with, Tenant (the term "control" as used herein shall be
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deemed to mean ownership of more than 50% of the outstanding voting stock of a
corporation, or other majority equity and controlling interest if the as signee
is not a corporation) (any such purchaser or entity being a "Related Entity").
Tenant may, without consent of Landlord, also sublease all or any portion of the
Premises to any corporation or other entity which is a Related Entity only for
so long as such corporation or other entity shall remain a Related Entity. Any
assignment or subletting described above may be made upon the condition that (A)
the principal purpose of such assignment or sublease is not the acquisition of
Tenant's interest in this Lease (except if such assignment or sublease is not
the acquisition of Tenant's interest in this Lease (except if such assignment or
sublease is not the acquisition of Tenant's interest in this Lease (except if
such assignment or sublease is made to a Related Entity and is made for a valid
business purpose) and (B) no such assignment shall be valid unless Tenant shall,
within ten (10) business days after execution thereof, deliver to Landlord (x) a
duplicate original instrument of assignment in form and substance reasonably
satisfactory to Landlord, duly executed by the Tenant and (y) a duplicate
original instrument in form and substance reasonably satisfactory to Landlord,
duly executed by the assignee, in which such assignee shall assume observance
and performance of, and agree to be bound by, all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed and (c)
no such sublease shall be valid unless Tenant shall, within ten (10) business
days after the execution thereof, deliver to Landlord a duplicate original
sublease in form and substance reasonably satisfactory to Landlord, duly
executed by Tenant and subtenant. If at any time following such subletting to a
Related Entity, such subtenant shall cease to be a Related Entity, then Tenant
shall not more than three (3) business days after the date such subtenant shall
cease to be a Related Entity, deliver to Landlord a duplicate original
instrument or assignment and assumption in form and substance reasonably
satisfactory to Landlord duly executed by such subtenant and Tenant whereby the
subtenant shall assign this Lease and all right such subtenant and Tenant
whereby the subtenant shall assign this the Lease and all right such subtenant
many have hereunder to Tenant. Landlord hereby approves the presence of
Cornerstone Group of New York and American Network Technologies in the Premises,
regardless of whether such entities are Related Entities.
ARTICLE 23
Subordination and Attornment
Section 23.01. This Lease and all rights of Tenant hereunder are and
shall be subject and subordinate in all respects to (a) all present and future
ground leases, operating leases, superior leases, overriding leases and
underlying leases and grants of term of the Land and the Building or any portion
thereof (collectively, including the applicable items set froth in subdivision
(d) of this Section 23.01, the "Superior
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Lease"), (b) all mortgages and building loan agreements, including leasehold
mortgages and spreader and consolidation agreements, which may now or hereafter
affect the Land, the Building or the Superior Lease (collectively, including the
applicable items set forth in subdivisions (c) and (D) of this Section 23.01,
the "Superior Mortgage") whether or not the Superior Mortgage shall also cover
other lands or buildings or leases except that a mortgage on the Land only shall
not be a Superior Mortgage so long as there is in effect a Superior Lease which
is not subordinate to such mortgage, (c) each advance made or to be made under
the Superior Mortgage, (d) all renewals, modifications, replacements,
supplements, substitutions and extensions of the Mortgage and (e) the
Declaration. The provisions of this Section shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver, at its own cost and
expense, any instrument, in reasonable and recordable form if requested, that
Landlord, the Superior Lessor or the Superior Mortgagee may reasonably request
to evidence such subordination.
Section 23.02. Landlord hereby notifies Tenant that this Lease may not
be cancelled or surrendered, or modified or amended so as to reduce the rent,
shorten the Term or adversely affect in any other respect to any material extent
the rights of Landlord hereunder and that Landlord may not accept prepayments of
any installments of rent except for prepayments in the nature of security for
the performance of Tenant's obligations hereunder, without the consent of the
Superior Lessor and the Superior Mortgage in each instance, except that said
consent shall be required for the institution or prosecution of any action or
proceedings against Tenant by reason of a default on the part of Tenant under
the terms of this Lease.
Section 23.03. If, at any time prior to the termination of this Lease,
the Superior Lessor or the Superior Mortgagee or any person, or the Superior
Lessor's or Superior Mortgagee's or such person's successors or assigns (the
Superior Lessor, Superior Mortgagee and any such person or successor or assign
being herein collectively referred to as "Successor Landlord") shall succeed to
the rights of Landlord under this Lease through possession or foreclosure or
delivery of a new lease or deed or otherwise, Tenant agrees, at the election and
upon request of any such Successor Landlord, to fully and completely attorn,
from to time, to and recognize any such Successor Landlord, as Tenant's landlord
under this Lease upon the then executory terms of this Lease; provided such
Successor Landlord shall agree in writing to accept Tenant's attornment. The
foregoing provision of this Section shall inure to the benefit of any such
Successor Landlord, shall apply notwithstanding that, as a matter of law, this
Lease may terminate upon the termination of the Superior Lease, shall be
self-operative upon any such demand, and no further instrument shall be required
to give effect to said provisions. Tenant, however, upon demand of any such
Successor Landlord agrees to execute, from time to time, instruments to evidence
and confirm the foregoing provisions of this Section satisfactory to any such
Successor Landlord, acknowledging such
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attornment and setting forth the terms and conditions of its tenancy, in a form
reasonably satisfactory to Tenant. Upon such attornment this Lease shall
continue in full force and effect as a direct lease between such Successor
Landlord and Tenant upon all of the then executory terms of this Lease except
that such Successor landlord shall be (a) liable for any previous act or
omission or negligence of Landlord under this Lease; (b) subject to any
counterclaim, defense or offset, not expressly provided for in this Lease and
asserted with reasonable promptness, which theretofore shall have accrued to
Tenant against Landlord; (c) obligated to perform any Work; (d) bound by any
previous modification or amendment of this Lease or by any previous prepayment
of more than one month's rent, unless such modification or prepayment shall have
been approved in writing by the Superior Lessor or the Superior Mortgage through
or by reason of which the Successor landlord shall have succeeded to the rights
of Landlord under this Lease; (e) obligated to repair the Premises or the
Building or any part thereof, in the event of total or substantial total damage
beyond such repair as can reasonably be accomplished from the net proceeds of
insurance actually made available to Successor Landlord; or (f) obligated to
repair the Premises or the Building or any part thereof, in the event of partial
condemnation beyond such repair as can reasonably be accomplished from the net
proceeds of any award actually made available to Successor Landlord, as
consequential damages allocable to the part of the Premises or the Building not
taken. Nothing contained in this Section shall be construed to impair any right
otherwise exercisable by any such owner, holder or lessee.
Section 23.04. If any act or omission by Landlord would give Tenant the
right, immediately or after lapse of time, to cancel or terminate this Lease or
to claim a partial or total eviction, Tenant will not exercise any such right
until (a) it has given written notice of such act or omission to each Superior
Mortgagee and each Superior Lessor, whose name and address shall have previously
been furnished to Tenant, by delivering notice of such act or omission addressed
to such party at its last address so furnished and (b) a reasonable period for
remedying such act or omission shall have elapsed following such giving of
notice and following the time when such Superior Mortgagee or Superior Lessor
shall have become entitled under such Superior Mortgage or Superior Lease, as
the case may be, to remedy the same (which shall in no event be less than the
period to which Landlord would be entitled under this Lease to effect such
remedy) provided such Superior Mortgagee or Superior Lessor shall, with
reasonable diligence, give Tenant notice of intention to, and commence and
continue to, remedy such act or omission or to cause the same to be remedied.
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ARTICLE 24
Access, Changes In Building Facilities
Section 24.01. All except the inside surfaces of all walls, windows and
doors bounding the Premises (including exterior Building walls, core corridor
walls and doors and any core corridor entrance) any space in or adjacent to the
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities, and the use thereof, as
well as access thereto through the Premises for the purpose of operation,
maintenance, decoration and repair, are reserved to Landlord.
Section 24.02 Tenant shall permit Landlord to install, use, replace and
maintain pipes, ducts and conduits within the demising walls, bearing columns
and ceilings of the Premises.
Section 24.03 Landlord or Landlord's agent shall have the right, upon
request (except in emergency under clause (ii) hereof) to enter and/or pass
through the Premises or any part thereof, at reasonable times during reasonable
hours (i) to examine the Premises and to show them to the fee owners, lessors of
superior leases, holders of superior mortgages, or prospective purchasers,
mortgagees or lessees of the building as an entirety, and (ii) for the purpose
of making such repairs or changes in or to the Premises or in or to its
facilities, as may be provided for by this Lease or as may be mutually agreed
upon by the parties or as Landlord may be required to make by law or in order to
repair and maintain said structure or its fixtures or facilities. Landlord shall
be allowed to take all materials into and upon the Premises that may be required
for such repairs, changes, repainting or maintenance, without liability to
Tenant, but Landlord shall not unreasonably interfere with Tenant's use of the
Premises and shall use its est efforts to minimize interference with Tenant's
use of the Premises. Landlord shall also have the right to enter on and/or pass
through the Premises, or any part thereof, at such times as such entry shall be
required by circumstances of emergency affecting he Premises or said structure.
Section 24.04 During the period of nine (9) months prior to the
Expiration Date Landlord may exhibit the Premises to prospective tenants.
Section 24.05 Landlord reserves the right, at any time, without
incurring any liability to Tenant therefor, to make such changes in or to the
Building and the fixtures and equipment thereof, as well as in or to the street
entrances, hall, passages, elevators, escalators, stairways thereof, as it may
deem necessary or desirable; provided, however Landlord shall use best efforts
to minimize interference with Tenant's use of the Premises.
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ARTICLE 25
Inability to Perform
Section 25.01 This Lease and the obligations of Tenant to pay rent and
perform all of the terms of this Lease on the part of tenant to be performed
shall in no way be affected because Landlord is unable or delayed in fulfilling
any of its obligations under this lease or by reason of Force Majeure. Landlord
shall in each instance exercise reasonable diligence to effect performance when
and as soon as possible. However, Landlord shall be under no obligation to
employ overtime labor.
ARTICLE 26
Legal Proceedings; Waiver of Counterclaims and Jury Trial
Section 26.01 In the event Landlord commences any summary proceeding or
action for non-payment of rent, Tenant covenants and agrees that it will not
interpose, by consolidation of actions or otherwise, any counterclaim or other
claim seeking affirmative relief of whatsoever nature or description in any such
proceeding except for compulsory counterclaims. To the extent permitted by
applicable law, Landlord and Tenant hereby waive trial by jury in any action or
proceeding, and with respect to any claim asserted in any such action or
proceeding, brought by either of the parties against the other on any matter
whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises,
any claim of injury or damage, or any emergency or other statutory remedy with
respect thereto. Tenant hereby represents to Landlord that it is not entitled,
directly or indirectly, to diplomatic or sovereign immunity and Tenant agrees
that in all disputes arising, directly or indirectly out of this Lease, Tenant
shall be subject to service of process in, and the jurisdiction of the courts
of, the State of New York. The provisions of this Article shall survive the
Expiration date or sooner termination of this Lease.
ARTICLE 27
No Other Waiver
Section 27.01 The failure of Landlord or Tenant to insist in any
instance upon the strict performance of any term of this lease, or to exercise
any right herein contained, shall not be construed as a waiver or relinquishment
for the future of the performance of such obligation of this Lease or of the
right to exercise any such right, but the same shall continue and remain in full
force and effect with respect to
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any subsequent breach, act or omission.
Section 27.02 The following specific provisions of this Section shall
not limit the generality of the provisions of this Article:
(a) no agreement to accept a surrender of all or any part of
the Premises or this Lease shall be valid unless in writing and signed by
Landlord. No delivery of keys shall operate as a termination of this Lease or a
surrender of the Premises or this Lease. Without limiting the generality of the
preceding sentence, if, subject to the provisions of Article 22, Tenant shall at
any time request Landlord to sublet the Premises for Tenant's account, Landlord
or landlord agent is authorized to receive said keys for such purpose without
releasing Tenant from any of its obligations under this Lease, and Tenant hereby
releases Landlord from any liability for loss or damage to any of Tenant's
Property in connection with such subletting.
(b) The receipt or acceptance by landlord of rent with
knowledge of breach by Tenant of any term of this lease shall not be deemed a
waiver of such breach.
(c) No payment by Tenant or receipt by landlord of a lesser
amount than the correct rent shall be deemed to be other than a payment on
account, nor shall any endorsement or statement on any check or any accompanying
letter be deemed to effect or evidence an accord and satisfaction, and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the balance or pursue any other right of Landlord.
(d) Neither any option grant to tenant in this lease or in any
collateral instrument to renew or extend the term, nor the exercise of any such
option by Tenant, shall prevent Landlord from exercising any option or right
granted or reserved to landlord in this Lease or in any collateral instrument or
that Landlord may otherwise have, to terminate this lease or any renewal or
extended term. Any termination of this Lease shall serve to terminate any such
renewal or extension, whether or not Tenant shall have exercised any option to
renew or extend the Term. Any such option or right on the part of Landlord to
terminate this lease shall continue during any extension or renewal of the Term.
No option granted to tenant to renew or extend the Term shall be deemed to give
Tenant any further option to renew or extend the Term.
(e) No waiver by Landlord in favor of any other tenant or
occupant of the Building shall constitute a waiver in favor of the Tenant named
herein.
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ARTICLE 28
Arbitration
Section 28.01 Either party may request arbitration of any matter in
dispute wherein arbitration is expressly provided in this Lease as the
appropriate remedy. The party requesting arbitration shall do so by giving
notice to that effect to the other party, and both parties shall promptly
thereafter jointly apply to the American Arbitration association (or any
organization successor thereto) in the City and County of New York for the
appointment of a single arbitrator.
Section 28.02 The arbitration shall be conducted in accordance with the
then prevailing rules of the American Arbitration Association (or any
organization successor thereto) in the City and County of New York. In rendering
such decision and award, the arbitrator shall not add to, subtract form or
otherwise modify the provisions of this Lease.
Section 28.03 If for any reason whatsoever a written decision and award
of the arbitrator shall not be rendered within ninety (90) days after the
appointment of such arbitrator, then at any time thereafter before such decision
and award shall have been rendered either party may apply to the Supreme Court
of the State of New York or to any other court having jurisdiction and
exercising the functions similar to those now exercised by such court, by
action, proceeding or otherwise (but not by a new arbitration proceeding) as may
be proper to determine the question in dispute consistently with the provisions
of this Lease.
Section 28.04 All the expenses of the arbitration shall be borne by the
parties equally.
ARTICLE 29
Quiet Enjoyment
Section 29.01 If, and so long as, Tenant pays the rent and keeps,
observes and performs each and every term of this lease on the part of Tenant,
to be kept, observed and performed, Tenant shall peaceably and quietly enjoy the
Premises through the Term without hindrance by Landlord or any person lawfully
claiming through or under Landlord, subject to the terms of this Lease and of
the Superior Lease and the Superior Mortgage.
This covenant shall be construed as a covenant running with the Land and shall
not be construed as a personal covenant or obligation of landlord, except to the
extent of Landlord's interest n this lease and then subject to the terms of
Section 43.02.
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ARTICLE 30
Rules and Regulations
Section 30.02 Tenant and its employees, agents, invitees and licensees
shall faithfully observe and strictly comply with, and shall not permit
violation of, the Rules and Regulations annexed hereto as Exhibit E, and such
changes therein and additions thereto as Landlord hereafter may reasonably make
and communicate by notice to Tenant ("Rules and Regulations"). Tenant's right to
dispute the reasonableness of any change sin the Rules and Regulations and
additional Rules and Regulations shall be deemed waived unless asserted to
Landlord within 20 days after Landlord shall have given Tenant notice of the
adoption of any such additional Rules and Regulations. In case of any conflict
or inconsistency between the provisions of this Lease and any Rules and
Regulations, the provisions of this lease shall control. Landlord shall have no
duty or obligation to enforce any Rule or Regulation, or any term, covenant or
condition of any Lease, against any other tenant, and Landlord's failure or
refusal to enforce any Rule or Regulation, or any term, covenant or condition of
any other lease against any other tenant shall be without liability of Landlord
to tEnant. landlord shall not discriminate against Tenant in the enforcement of
the Rules and Regulations.
Section 30.02 Notwithstanding anything to the contrary in any of the
Rules and Regulations, whenever Landlord shall claim by notice to Tenant that
Tenant is violating any of the provisions of the Rules and Regulations and
Tenant shall in good faith dispute such claim to landlord within 10 days after
service of Landlord's notice of the violation,t he dispute shall be determined
by arbitration pursuant to Article 28.
ARTICLE 31
Building Name
Section 31.01 The Building may be designated and known by any name or
address Landlord may choose and such designated name or address may be changed
from time to time in Landlord's sole discretion. Tenant agrees not to refer to
the Building by any name or address other than as designated by landlord. The
Building may be named after any person, firm or otherwise, whether or not such
name is, or resembles, the name of a tenant of the Building. In no event shall
Tenant use, inc connection with its business or otherwise, any photographic or
other type representation of the Building. in the event the Building is named
after any person, firm or otherwise, Tenant, in connection with its business or
otherwise, shall not refer to the Building by such name but shall only use the
street address of the Building.
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ARTICLE 32
Shoring; No Dedication
Section 32.01 If an excavation or other substructure work shall be
undertaken or authorized upon the land adjacent to the Building or in the vaults
beneath the Building or in subsurface space adjacent to said vaults, Tenant,
without liability on the part of Landlord therefor, shall afford Landlord or the
person causing such excavation or other substructure work, license to enter (at
reasonable times and upon reasonable notice to Tenant) upon the Premises for the
purpose of doing such work as Landlord or such person shall deem necessary to
protect any of the walls or structures of the Building or surrounding land from
injury or damage and to support the same by proper foundations, pinning and/or
underpinning, and, except in case of emergency. landlord shall endeavor to have
such entry accomplished during reasonable hours in the presence of a
representative of tenant, who shall be designated by Tenant promptly upon
landlord's request. Such license to enter shall be without liability of Landlord
to tenant.
Section 32.02 Landlord shall have the right to erect any gate, chain or
other obstruction or to close off any portion of the Real Property to the public
at any time to the extent necessary to prevent a dedication thereof for public
use.
ARTICLE 33
Notice of accidents
Section 33.01 Tenant shall give notice to Landlord, promptly after
Tenant learns thereof, of any accident, emergency, occurrence for which landlord
might be liable, fire or other casualty and all damages to or defects in the
Premises, the Building or the Building equipment for the repair of which
landlord might be responsible or which constitutes Landlord's property. Such
notice shall be given by telegram or personal delivery to the address of
Landlord then in effect for notices.
ARTICLE 34
Vaults
Section 34.01 No vaults, vault space or other space not within the
property line of the Building is leased hereunder notwithstanding anything
contained in or indicate don any sketch, blueprint or plan, or elsewhere in this
Lease to the contrary. landlord makes no representation as to the location of
the property line of the Building. All vaults and vault space and all other
space not within the property line
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of the Building, which tenant may be permitted to use/or occupy, are to be used
and/or occupied under a license revocable by landlord on 10 days' notice to
tenant, and if any such license shall be revoked by landlord, or if the amount
of any such vaults, vault space or other space shall be diminished or required
by any federal, state or municipal authority or public utility, Landlord shall
be without liability to Tenant. Any fee, tax or charge imposed by any
governmental authority for any such vault, vault space or other space shall be
paid by Tenant, as Additional Rent, within five (5) days after Landlord's demand
therefor.
ARTICLE 35
Brokerage
Section 35.01 Tenant and Landlord represent that in the negotiation of
this Lease it dealt with no brokers other than CB Commercial Real Estate Group,
Inc. and Joseph P. day Realty and that as far as Tenant and Landlord are aware
said brokers are the sole brokers who negotiated this Lease. landlord agrees to
pay said brokers a commission in accordance with a separate agreement. tenant
and Landlord hereby indemnify each other against liability arising out of any
inaccuracy or alleged inaccuracy of the above representation. landlord shall
have no liability for brokerage commissions arising out of an assignment or a
sublease by Tenant and Tenant shall and dos hereby indemnify Landlord and hold
it harmless from any and all liability for brokerage commissions arising out of
any such assignment or sublease. The covenants, representations and agreements
of Tenant set forth in this Section 35.01 shall survive the termination of this
Lease.
ARTICLE 36
Security Deposit
Section 36.01 Tenant has deposited with Landlord the sum of $18,987.50
(if by check subject to collection) as security for the full and punctual
performance by Tenant of all of the terms of this Lease. Landlord shall deposit
such security deposit in an interest bearing account in a financial institution
to be selected by Landlord in its sole discretion. Landlord shall be entitled to
receive as an administrative expense, a sum equal to one (1%) percent per annum
upon such security deposit, the interest to be credited to Tenant annually. In
the event Tenant defaults in the performance of any of the terms of this lease,
including the payment of rent, Landlord may use, apply or retain the whole or
any part of the security so deposited to the extent required for the payment of
any rent or for any sum which landlord may expend or may be required to expend
by reason of Tenant's default in respect of any of the terms of this lease,
including any damages or deficiency in the re-letting
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of the Premises, whether accruing before or after summary proceedings or other
re-entry by Landlord. In the case of every such use, application or retention,
Tenant shall, within ten days of demand, pay to Landlord the sum so used,
applied or retained which shall be added to the security deposit so that the
same shall be replenished to its former amount. If Tenant shall fully and
punctually comply with all of the terms of this Lease, the security, together
with any accrued interest thereon, less any administrative expenses to which
Landlord is entitled pursuant to this Article 36, shall be returned to Tenant 30
days after the termination of this Lease and delivery of the exclusive
possession of the Premises to Landlord. In the event of a sale or lease of the
Building, Landlord shall have the right to transfer the security to the vendee
or lessee and landlord shall ipso factor be released by Tenant from all
liability for the return of such security; and Tenant agrees to look solely to
the new landlord for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new landlord. Tenant shall not assign or encumber or attempt to
assign or encumber the monies deposited herein as security and neither Landlord
nor its successors or assigns shall be bound by any such assignment, encumbrance
or attempted assignment or encumbrance.
ARTICLE 37
Window Cleaning
Section 37.01 Tenant will not clean nor require, permit, suffer or
allow any window in the Premises to be cleaned from the outside in violation of
Section 202 of the Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
ARTICLE 38
Consents
Section 38.01 Wherever it is specifically provided in this Lease that a
party's consent is not to be unreasonably withheld, a response to a request for
such consent shall also not be unreasonably delayed. if either Landlord or
Tenant considers that the other has unreasonably withheld or delayed a consent,
it shall so notify the other party within 20 days after receipt of notice of
denial of the requested consent or, in case notice of denial is not received,
within 30 days after making its request for the consent.
Section 38.02 Tenant hereby waives any claim against Landlord which it
may have based upon any assertion that Landlord has unreasonably withheld or
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unreasonably delayed any such consent, and Tenant agrees that its sole remedy
shall be an action or proceeding to enforce any such provision or for specific
performance, injunction or declaratory judgment. in the event of such
determination, the requested consent shaLl be deemed to have been granted;
however, Landlord shall have no liability to tenant for its refusal or failure
to give such consent. The sole remedy for Landlord's unreasonably withholding or
delaying of consent shall be as provided in this Section.
Section 38.03 Notwithstanding anything to the contrary provided in this
Lease, in any instance where the consent of the Superior Lessor and/or the
Superior Mortgagee is required Landlord shall not be required to give its
consent until and unless the Superior Lessor and/or the Superior Mortgagee has
given its consent.
ARTICLE 39
Notices
Section 39.01 A. Except as otherwise expressly provided in this lease
or pursuant to any Legal Requirement, any bills, statements, notices, demands,
requests, consents, or other communications (collectively, "notices") given or
required to be given under or in connection with this Lease or pursuant to any
Legal Requirement shall be effective only if in writing and,
(a) if to Tenant, then, at the option of Landlord, (i) sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to Tenant's address as set forth in this lease if mailed prior to the
Commencement Date or at the Building if subsequent to the Commencement Date, or
to such other address as Tenant may designate for such purpose by like notice,
or (ii) delivered personally to Tenant, (b) if to Landlord, sent by registered
or certified mail, return receipt requested, postage prepaid, to Landlord's
address as set forth in this Lease, or to such other or further address or
addresses as Landlord may designate for such purpose by like notice; or (c) if
to any other person, sent by registered or certified mail, return receipt
requested and postage prepaid addressed to such person's last known principal
address or to such other address as such person may designate to landlord and
Tenant as its address for such purposed by like notice.
B. Notices shall be deemed to have been rendered or
given (a) ont he date delivered, if delivered to Tenant personally, or (b) five
days after the date mailed, if mailed as provided in this Section, unless mailed
outside of The City of New York, in which case it shall be deemed to have been
rendered or given 5 business days after mailing. Notices given by counsel for
either party shall be deemed valid notices if addressed and sent in accordance
with the provisions of this Article.
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ARTICLE 40
Definitions; Construction of Terms
Section 40.01 For the purposes of this Lease and all agreements
supplemental to this Lease:
(a) "Additional Rent" shall have the meaning given in Section
3.01A.
(b) "after hours" shall have the meaning given in Section
12.02.
(c) "Basic Construction of the Building" means in addition to
the structure itself, the mechanical and electrical systems and the distribution
thereof to locations from which each floor can be served, and the elevators,
lobby and other common areas, andy other necessary construction, excepting only
any materials or work to finish any portion for occupancy by particular tenants.
(d) "Building" shall have the meaning given in Section 1.01.
(e) "Building Equipment" shall mean all machinery, apparatus,
equipment, personal property, fixtures and systems, of every kind and nature
whatsoever now or hereafter attached to or used in connection with the operation
or maintenance of the Building, including all electrical, heating, mechanical,
sanitary, sprinkler, utility, power, plumbing, cleaning, fire prevention,
refrigeration, ventilating, air cooling, air conditioning, elevator and
escalator systems, apparatus and equipment, and any and all renewals and
replacements of any thereof; but excluding, however, (i) tenant's Property, (ii)
property of any other tenant, (iii) property of contractors servicing the
Building and (iv) improvements for water, gas, steam and electricity and other
similar equipment owned by any public utility company or any governmental agency
or body.
(f) "business days" and "business hours" shall have the
respective meanings given in section 12.01.
(g) "Commencement Date" shall have the meaning given in
section 2.01A.
(h) "Expiration Date" shall have the meaning given in Section
2.01
(i) "Declaration" shall mean the Declaration, dated July 27,
1981, made by landlord recorded int he Office of the Register of the City of New
York on August 20, 1981, as No. 10726 in Reel 579 of conveyances at page 1641.
The Declaration requires, among other things, that in the even the building
known as 155 East 48th Street, New York, New York or the building now known as
150 East 49th Street,
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New York, New York shall be altered or reconstructed so as to come within a
certain distance of the exterior wall openings on the west lot line of the Land,
such exterior wall openings will be closed, at Landlord's expense, with
construction meeting the fire resistance rating requirement for exterior wall
construction.
(j) "Fee Mortgage" shall mean, collectively, any mortgage
which does not constitute a Superior Mortgage and which encumbers the Land and
all renewals, modifications, replacements, substitutions, supplements,
extensions, spreaders, and consolidations thereof.
(k) "Fee Mortgagee" shall mean, collectively, all holders at
the time of the Fee Mortgage.
(l) "Fixed Rent" shall have the meaning given in Section
3.01A.
(m) "Fixtures" shall have the meaning given in Section 10.07.
(n) "Force Majeure" shall mean any and all causes beyond
Landlord's reasonable control, including delays caused by Tenant, other tenants,
governmental restriction, regulation or control, labor dispute, strike,
accident, mechanical breakdown, shortages or inability to obtain labor, fuel,
steam, water, electricity or materials, acts of God, enemy action, civil
commotion, fire or other casualty.
(o) "Guarantor" shall mean any person(s) who guarantees any or
all of tenant's obligations under this lease.
(p) "Improvements" shall mean improvements made by or on
behalf of Tenant or any person claiming through or under Tenant.
(q) "improvements" shall mean improvements, alterations,
additions, substitutions, betterments and decorations.
(r) "Insurance Requirements" shall mean all requirements of
any insurance policy coveting or applicable to all or any part of the Real
Property or the Premises or the use thereof, all requirements of the issuer of
any such policy and all orders, rules, regulations, recommendations and other
requirements of the New York Board of Fire Underwriters or the Insurance Service
Office or any other body exercising the same or similar functions and having
jurisdiction or cognizance of all or any part of the Real Property or the
Premises.
(s) "Interest Rate" shall mean a rate per annum equal to the
lesser of (a) 2% above the prime rate in effect from time to time or (b) the
maximum applicable legal rate, if any.
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(t) "Land" shall have the meaning given in Section 1.01.
(u) "Landlord" shall have the meaning given in Section 43.02.
(v) "Landlord's Work" shall have the meaning given in Exhibit
C.
(w) "Legal Requirements" shall mean laws, statutes and
ordinances (including building codes and zoning regulations and ordinances) and
the orders, rules, regulations, directives and requirements of all federal,
state, county, city and borough departments, bureaus, boards, agencies, offices,
commissions and other subdivisions thereof, or of any official thereof, or of
any other governmental, public or quasi-public authority, whether now or
hereafter in force, which may be applicable to the Real Property or the Premises
or any part thereof or the sidewalks, curbs or areas adjacent thereto and the
Declaration and all requirements, obligations and conditions of all instruments
of record on the date of this lease.
(x) "Premises" shall have the meaning given in Section 1.01.
(y) "prime rate" shall mean the annual rate of interest from
time to time publicly announced by The Chase Manhattan Bank, N.A., as it prime
lending rate.
(z) "Real Property" shall mean the Building and the Land and
all easements, air rights, development rights and other appurtenances thereto.
(aa) "Rules and Regulations" shall have the meaning given in
Section 30.01.
(bb) "Superior Lease' shall have the meaning given in Section
23.01.
(cc) "Superior Lessor" shall mean, collectively, all lessors
at the time of the Superior Lease.
(dd) "Superior Mortgage" shall have the meaning given in
Section 23.01.
(ee) "Superior Mortgagee" shall mean, collectively, all
holders at the time of the Superior Mortgage.
(ff) "Successor Landlord" shall have the meaning given in
Section 23.04.
(gg) "Tenant" shall have the meaning given in Section 43.03.
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(hh) "Tenant's Property" shall mean all fixtures, Improvements
and other property (i) installed at the sole expense of tenant, (ii) with
respect to which tenant has not been granted any credit or allowance by
landlord, (iii) which are removable without material damage to the Premises nd
(iv) which are not replacements of any property of Landlord, whether any such
replacement is made at Tenant's expense or otherwise.
(ii) "Tenant's Work" shall have the meaning given in Exhibit
C.
(jj) "Term" shall have the meaning given in Section 2.01A.
(kk) "Untenantable" shall mean the extent to which tenant is
actually unable to use any or all of the Premises int he normal course of its
business.
(ll) "Work Letter" shall have the meaning given in Section
4.01.
Section 40.02 A. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this lease, or the application of
such provisions or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
B. if any term of this lease is found invalid or
unenforceable to any extent by a final judgment or award which shall to be
subject to change by appeal, then either party may initiate an arbitration in
accordance with the provisions of Article 28. Said arbitrators shall devise a
valid and enforceable substitute term for this lease which shall as nearly as
possible carry out the intention of the parties with respect to the term of this
lease found invalid or unenforceable. Such substitute term as so devised shall
thereupon be deemed a part of this lease.
Section 40.03 The various terms which are defined in other Articles of
this lease or are defined in exhibits annexed hereto shall have the meanings
specified in such other Articles and such Exhibits for all purposes of this
lease and all agreement supplemental thereto, unless the context clearly
indicates the contrary.
Section 40.04 The Article headings in this Lease and the Table of
Contents to this Lease are inserted only as a matter of convenience or
reference, and are not to be given any effect in construing this Lease.
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ARTICLE 41
Estoppel Certificate; Recording
Section 41.01 (a) at any time and from time to time upon not less than
10 days' prior notice by Landlord or the Superior Lessor or Superior Mortgagee
to tenant, Tenant shall, without charge, execute, acknowledge and deliver (1) a
statement in writing int he form annexed hereto as Exhibit F addressed to such
party as Landlord, or the Superior Lessor or the Superior mortgagee, as the case
may be, may designate (with such additions or changes as may be reasonably
requested) or in form satisfactory to Landlord, or the Superior Lessor or the
Superior Mortgagee, as the case may be, certifying all or any of the following:
(i) that this Lease is unmodified and in full force and effect (or if there have
been modifications, that this lease is in full force and effect as modified and
stating the modifications), (ii) whether the term has commenced an Fixed Rent
and Additional Rent have become payable hereunder and, if so, the dates to which
they have been paid, (ii) whether or not, to the best knowledge of the signee of
such certificate, Landlord is in default in performance of any of the terms of
this Lease, and, if so, specifying each such default of which the signer may
have knowledge, (iv) whether Tenant has accepted possession of the Premises, (v)
whether Tenant has made any claim against Landlord under this Lease and, if so,
the nature thereof and the dollar amount, if any, of such claim, (vi) whether
there exist any offsets or defenses against enforcement of any of thee terms of
this lease upon the part of Tenant to be performed and, if so, specifying the
same, (vii) either that Tenant does not know of any default in the performance
of any provision of this lease or specifying any default of which tenant may
have knowledge and stating what action tEnant is taking or proposes to take with
respect thereto, (viii) that, to the knowledge of Tenant, there are no
proceedings pending or threatened against Tenant or Guarantor before or by any
court or administrative agency which if adversely decided, would materially and
adversely affect he financial condition or operations of Tenant or Guarantor or,
if any such proceedings are pending or threatened to the knowledge of Tenant,
specifying and describing the same and (ix) such further information with
respect to the Lease or the Premises as Landlord may reasonably request or the
Superior Mortgagee or superior Lessor may reasonably require, and/or (2) "Tenant
Acceptance Letter" in the form annexed hereto as Exhibit G, it being intended
that any such statement delivered pursuant hereto may be relied upon by any
prospective purchaser of the Real Property or any part thereof or of the
interest of Landlord in ny part thereof, by any mortgagee or prospective
mortgagee thereof, by any lessor or prospective lessor thereof, by any lessee or
prospective lessee thereof, or by any prospective assignee of any mortgage
thereof.
(b) The failure of Tenant to execute, acknowledge and deliver
to Landlord a statement in accordance with the provisions of this Section within
said 10 day period shall constitute an acknowledgment by Tenant, which may be
relied
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on by any person who would be entitled to rely upon any such statement, that
such statement as submitted by Landlord is true and correct.
Section 41.02 Tenant agrees not to record this Lease (or a memorandum
hereof) or any other document related hereto.
ARTICLE 42
Relocation of Premises
Section 42.01 Effective on or after June 15, 1999, Landlord shall have
the one-time only right to substitute other space in the Building (a "Substitute
Space") for the Premises in connection with its leasing of the Premises to
Sanpellegrino, Inc. by notice (a "Substitution Notice") given to Tenant not
later than 90 days prior to the ate set forth in the Substitution Notice as the
effective date (the "Substitution dAte") for the substitution. The Substitute
Space shall have a rentable areas equal to or greater than that of the space it
is replacing and shall be similar thereto in configuration. If Landlord gives a
Substitution Notice, Tenant shall vacate the space in quesiton and surrender the
same to Landlord on or before the Substitution Date, and promptly after Tenant
enters into occupancy of the Substitute Space, Landlord shall reimburse tenant
for all the reasonable expenses incurred by Tenant with respect to its move into
the Substitute Space. From and after the Substitution Date, all of the terms of
this lease shall remain unchanged except that the term "Premises" shall mean the
Substitute Space.
ARTICLE 43
Parties Bound
Section 43.01 The terms of this lease shall bind and benefit the
successors and assigns of the parties with the same effect as if mentioned in
each instance where a party is named or referred to, except that no violation of
the provisions of Article 22 shall operate to vest any right in any successor or
assignee of tenant and that the provisions of this Article shall not be
construed as modifying the conditions of limitation contained in Article 17.
Section 43.02 A. The term "Landlord" shall mean only the owner at that
time in question of the present landlord's interest in the Building and in the
event of a sale or transfer of the Building (by operation of law or otherwise),
or in the event of the making of a lease of all or substantially all of the
Building, or in the event of a sale or transfer (by operation of law or
otherwise) of the leasehold estate under any such lease, the grantor, transferor
or lessor,a s the case may be, shall be and hereby is
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(to the extent of the interest or portion of the Building or leasehold estate
sold, transferred or leased) automatically and entirely released and discharged,
from and after the date of such sale, transfer or leasing, of all liability in
respect of the performance of any of the terms of this Lease on the part of
Landlord thereafter to be performed; provided that the purchaser, transfereee or
lessee (collectively, "Transferee") shall be deemed to have assumed and agreed
to perform, subject to the limitations of this Section and Section 23.04 (and
without further agreement between the then parties hereto, or among such parties
and the Transferee) and only during and in respect of the Transferee's period of
ownership of the Landlord's interest under this Lease, all of the terms of this
Lease on the part of Landlord to be performed during such period of ownership,
which terms shall be deemed to "run with the land" it being intended that
Landlord obligations hereunder shall, as limited by this Article, be binding on
Landlord, its successors and assigns, only during and in respect of their
respective successive periods of ownership.
B. No recourse shall be had on any of Landlord's
obligations hereunder or for any claim based thereon or otherwise in respect
thereof against any incorporator, subscriber to the capital stock, shareholder,
officer or director, past, present or future, of any corporation or any partner
or joint venturer which shall be Landlord hereunder or included int he term
"Landlord" or of any successor of any such corporation,or against any principal,
disclosed or undisclosed, or any affiliate of any party which shall be Landlord
or included in the term "Landlord", whether directly or through landlord or
through any receiver, assignee, trustee in bankruptcy or through any other
person, firm or corporation, whether by virtue of any constitution, statute or
rule of law by enforcement of any assessment or penalty or otherwise, all such
liability being expressly waived and released by Tenant.
C. Tenant shall look solely to landlord's estate and
interest in the Building or the proceeds of a sale thereof for the satisfaction
of any right of Tenant for the collection of a judgement or other judicial
process or arbitration award requiring the payment of money by landlord and no
other property or assets of Landlord, Landlord's agents, incorporators,
shareholders, officers, directors, partners, principals (disclosed or
undisclosed) or affiliates shall be subject to levy, lien, execution,
attachment, or other enforcement procedure for the satisfaction of tenant's
rights and remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or under law, or Tenant's use and occupancy of the
premises or any other liability of Landlord to Tenant.
Section 43.03 The term "Tenant" shall mean the Tenant herein named or
any assignee or other successor in interest (immediate or remote) of he Tenant
herein named, which at the time in question is the owner of the Tenant's estate
and interest granted by this Lease; but the foregoing provisions of this
subsection shall not be construed to permit any assignment of this Lease or
subletting of the premises or to relieve the Tenant herein named or any assignee
or other successor
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in interest (whether immediate or remote) of the Tenant herein named from the
full and prompt performance of Tenant's obligations hereunder.
Section 43.04 Nothing contained in this Lease shall be deemed to confer
upon any tenant, or anyone claiming under or through any tenant, any right to
insist upon, or to enforce against Landlord or Tenant, the performance of
Tenant's obligations hereunder.
Section 43.05 The submission by Landlord to Tenant of this Lease in
draft form shall be deemed submission solely for Tenant's consideration and not
for acceptance and execution. Such submission shall have no binding force and
effect, shall not constitute an option for the leasing of the Premises, and
shall to confer any rights or impose any obligations upon either party. The
submission by landlord of this Lease for execution by Tenant and the actual
execution and delivery thereof by Tenant to Landlord shall similarly have no
binding force and effect on Landlord unless and until Landlord shall have
executed this Lease and a counterpart thereof shall have been delivered to
Tenant. Further, this Lease is subject to the written approval of New York Life
Insurance Company, the existing Superior Mortgagee. Landlord agrees to submit
this Lease for such approval promptly after the date hereof and both parties
agree to use their best efforts to obtain such approval. int he event that such
approval is not obtained within the period of 15 business days after the date
hereof, either Landlord or Tenant may elect to terminate this Lease by giving
written notice to the other party of such election (unless such approval has
been obtained prior to the giving of such notice),a nd in such event, this Lease
shall terminate as of the date on which such notice is given as if such date
were the Expiration Date, and if the Commencment Fate has not occurred, Landlord
shall refund any rent paid by Tenant pursuant to Secitno 3.02 and any security
deposited by Tenant pursuant to Article 36.
ARTICLE 44
Miscellaneous
Section 44.01 This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
This Lease may not be changed, modified, abandoned or discharged, in whole or in
part, nor any of its provisions waived except by a written instrument which (a)
expressly refers to this lease, (b) is executed by the party against whom
enforcement of he change, modification, abandonment, discharge or waiver is
sought and (c) is permissible under the Superior mortgage and the Superior
L:ease.
Section 44.02 Tenant expressly acknowledges that neither Landlord nor
Landlord agents has made or is making, and Tenant, in executing and delivering
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<PAGE> 62
this Lease, is not relying upon, any warranties, representations, promises or
statements, except to the extent that the same are expressly set forth in this
Lease, and no rights, easements or licenses are or shall be acquired by tenant
by implication or otherwise unless expressly set forth in this Lease.
Section 44.03 Any apportionment or prorations of rent to be made under
this Lease shall be computed on the basis of a 360 day year, with 12 months of
30 days each.
Section 44.04 The laws of the State of New York applicable to contracts
made and to be performed wholly within the State of New York shall govern and
control the validity, interpretation, performance and enforcement of this Lease.
Section 44.05 If Tenant is a corporation, each person executing this
Lease on behalf of tenant hereby covenants, represents and warrants that Tenant
is a duly incorporated or duly qualified (if foreign) corporation and is
authorized to do business in the State of New York ( a copy of evidence thereof
to be supplied to Landlord upon request); and that each person executing this
lease on behalf of Tenant is an officer of tenant and that he is duly authorized
to execute, acknowledge and deliver this Lease to Landlord (a copy of a
resolution to that effect to be supplied to Landlord upon request).
Section 44.06 A. if Tenant is a partnership (or is comprised of 2 or
more persons, individually, or as joint venturers or as copartners of a
partnership) or if tenant's interest in this Lease shall be assigned to a
partnership (or to 2 or more persons, individually, or as joint venturers or as
copartners of a partnership) pursuant to Article 22 (any such partnership and
such persons are referred to in this Article as "partnership Tenant"), the
following provisions of this Section shall apply to such Partnership Tenant: (a)
the liability of each of the parties comprising Partnership Tenant shall be
joint and several, and (b) each of the parties comprising Partnership tenant
hereby consents in advance to, and agrees to be bound by, any modifications,
termination, discharge or surrender of this Lease which may hereafter be made
and by any notices, demands, requests or other communications which may
hereafter be given, by Partnership Tenant or by any of the parties comprising
Partnership tenant, and (c) any bills, statements, notices, demands, requests or
other communications given or rendered to Partnership tEnant or to any of the
parties comprising Partnership Tenant shall be deemed given or rendered to
Partnership tenant and to all such parties and shall be binding upon partnership
Tenant and all parties, and (d) if Partnership Tenant shall admit new partners,
alls such new partners shall, by their admission to Partnership tEnant, be
deemed to have assumed performance of all of the terms, covenants and conditions
of this lease on tenant's part to be observed and performed, and (e) Partnership
Tenant shall give prompt notice to Landlord of the admission of any such new
partners, and upon demand of Landlord, shall cause each such new partner to
execute and
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deliver to Landlord an agreement in form satisfactory to landlord, wherein each
such new Partner shall assume performance of all of the terms, covenants and
conditions of this lease on tenant's part to be observed and performed (but
neither Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of Subdivision (d) of this Section 44.06 A).
Section 44.07 All Exhibits to this Lease and any all Rider provisions
attache dot this lease are hereby incorporated into this Lease. If any provision
contained in any Rider hereto is inconsistent or in conflict with any printed
provision of this Lease, the provision contained in such Rider shall supersede
said printed provision and shall control.
ARTICLE 45
Landlord's Cancellation Option
Section 45.01 Landlord shall have the option to cancel this Lease and
the term hereof in connection with its leasing of the Premises to Sanpellegrino,
Inc. effective any time after June 15, 1999 (the "Landlord's Cancellation
Date"). If Landlord desires to cancel this Lease, Landlord shall do so by giving
Tenant notice thereof on or before the day which is 180 days prior to the date
specified by Landlord in such notice as the Landlord's Cancellation Date, time
being of the essence. If Landlord gives Tenant such notice, then this Leae and
the term hereof shall end and expire on the Landlord's Cancellation Date as if
same were the expiration date of this Lease and the term hereof, herein set
forth, and Tenant shall quit and surrender the Premises to Landlord.
Notwithstanding the foregoing, in the event that Landlord exercises Landlord's
right to relocate Tenant pursuant to Article 42, Landlord shall have no right to
cancel this Lease pursuant to this Article.
ARTICLE 46
Signage
Section 46.01 Landlord agrees to provide to Tenant, at Landlrod's cost
and expense, with up to ten (10) lines in the lobby directroy, which may include
Tenant, Related Entities (as defined in Section 22.14), or the Cornerstone Group
of New York and American Network Technologies. Further Landlord agrees to
provide to Tenant, at Landlord cost and expense, two (2) building standard signs
for the exterior of the Premises, one of which shall list Tenant, and the second
of which shall list The Cornerstone Group of New York.
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<PAGE> 64
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the date and year first above written.
WITNESS: 780 THIRD AVENUE ASSOCIATES
By: Jaymont Properties, Inc.,
its managing agent
By: By: ____________________________________
Mark S. James
Managing Director
WITNESS: TELCOM GROUP USA, INC.
By: ____________________________________
Name:
Title:
By: Tenant
64
<PAGE> 1
Exhibit 10.7
Translation from Russian
LEASE AGREEMENT No.2
City of Moscow December 29, 1995
The Planning-Design Bureau for the Mechanization of Electric Power Construction
Corporation (PKB Proyektenergomash), represented by General Director Pogozhev,
Igor Mikhailovich, acting on the basis of the "Charter" and referred to
subsequently as the Lessor, on the one hand, and the firm Korbina
Telecommunications, represented by General Director Seidenfeld, Menakhem, acting
on the basis of the "Charter" and referred to subsequently as the Lessee, on the
other hand, have confirmed this Agreement concerning the following:
1. SUBJECT OF THE AGREEMENT
1.1 The Lessor provides the Lessee with the rental use of premises on the
7th (seventh) floor, having an area of 249.2 square meters (two hundred
forty-nine and two-tenths square meters), for use as an office in the
engineering-laboratory building of the Lessor in the city of Moscow, Ryazan
Prospekt, Building 30/15.
2. OBLIGATIONS OF EACH PARTY
The Lessor is required to:
2.1 Transfer to the Lessee the rental premises subsequent to the signing
of the Agreement, as stipulated in the terms of the Agreement.
2.2 At its own expense, make capital repairs in the rental premises.
2.3 Take necessary measures, at its own expense, to repair damages to the
heating system or electricity services which occur through no fault of the
Lessee.
2.4 Issue passes to permit entrance into the building (for the use of
their employees) to permanent and temporary employees of the Lessee, one-time
use passes and passes for packages, at the expense of the Lessee, and, also at
the expense of the Lessee, to extend the duration of temporary and permanent
passes and their replacement.
The Lessee is required to:
2.5 Utilize the rental premises in accordance with the terms of the
Agreement and in the prescribed manner (Clause 1.1 Subject of the Agreement).
1
<PAGE> 2
2.6 Perform ongoing maintenance and cleaning of the premises at its own
expense, removing, with its own employees and at its own expense, all disposals
connected with Lessee's activities (unneeded packaging, construction refuse,
etc.), except for fixtures.
2.7 Not make any changes in planning or equipment in the premises
necessitated by the needs of the Lessee without the permission of the Lessor,
and to conform with the latter's interior decoration of the premises.
2.8 Strictly observe the regulations concerning fire security.
3. PAYMENTS AND RATES
3.1 For the use of the premises, the Lessee pays to the Lessor in rubles
at the rate of USA$154 (one hundred fifty-four USA dollars) per year for 1
square meter of the rental premises plus a tax on additional costs, established
by the RF Government, and supplementary taxes adopted by the RF Government on
all forms of services and tasks for the duration of the Agreement.
Payment is effected at the exchange rate established by the Bank of Russia
at the moment the bill is presented.
3.2 The above-mentioned sum is comprised of two parts: Compensation for
expenditures in the upkeep and servicing of the premises in the amount of
USA$123.2, or 80% of the overall payment, and USA$30.8 dollars, or 20% of the
payment for the rental of the premises.
3.3 The rental payment, and also the compensation for expenditures in the
upkeep and servicing of the premises is transferred to the account, as specified
by the Lessor, monthly no later than the 5th (fifth) bank business day from the
moment the bill is presented.
3.4 The bills for telephone communications of all types, subscription
payments for the telephones, for telephone information services,
telegraph-teletype services are paid for within two bank business days after the
receipt of the bills.
4. RESPONSIBILITIES OF BOTH PARTIES
4.1 The parties bear responsibility for all capital property under this
Agreement in accordance with current laws of the RF.
4.2 In the event of a late payment by the Lessee, fines are imposed in the
amount of 0.5% per day for the overdue sum during the first 5 days of the
nonpayment and 1.5% per day for the overdue sum for the subsequent days.
2
<PAGE> 3
4.3 For the late payment of bills for telephone communications (including
intercity and local, subscription payments for the telephones, telephone
information services, telegraph-teletype services, etc.) fines are imposed in
the amount of 1% for the first overdue day, and 2% for subsequent days for the
overdue sum.
4.4 The payment of penalties, established by the Agreement, does not
release the Lessee from fulfilling its obligations under the Agreement.
4.5 In the event of nonpayment by the Lessee of compensation for
expenditures in the upkeep and services of the premises and compensation for
expenditures on the rental premises, and also the fines relating to these
payments during 10 calendar days following the payment due date, the Lessor has
the right to annul the Agreement unilaterally.
4.6 In the event of late payment of bills, and also fines for all types of
telephone communications and telephone/sic/teletype services, the Lessor has the
right to turn off telephones until the Lessee pays off the stipulated debt.
4.7 The Lessee bears full responsibility in accordance with current laws
applying to security technology, safety of workers, and anti-fire security
during the performance of any work by the Lessee during the full term of the
Agreement.
4.8 The annulment of the Agreement before its expiration may be effected
by agreement by the parties in written form or unilaterally by the Lessor in the
event the usage of the premises by the Lessee is not in accordance with the
Agreement.
4.9 In the event that the Agreement is annulled at the initiative of the
Lessee at the expiration of its term, the latter pays the Lessor the payment
sum, with taxes, on the added costs up to the end of the current year.
5. MISCELLANEOUS CONDITIONS
5.1 The Lessor retains his rights in the future to reexamine the
compensation sum for expenditures in the upkeep and servicing of the premises,
and also the compensation for expenditures for rental of the premises in the
event of:
- Re-evaluation by the State of basic funds;
- Freeing of prices for power carriers and, in connection with this,
an increase in the cost of heat and power energy, supply of water,
etc.;
- Liberalization of prices for communal services, operational
materials,
3
<PAGE> 4
spare parts and similar material resources;
- Increase in the cost of real estate;
- Change in the imposition of taxes in an upward direction;
- Introduction of new taxes, ecological obligations with material
expenditures, etc.
5.2 Ten days before the Agreement is confirmed, the Lessee presents to the
Lessor copies of the "Charter" or "Status" of its organization.
5.3 The Lessee is legally and materially accountable for damages inflicted
on the Lessor because of actions of third parties involved with the activities
of the Lessee.
5.4 The Lessee pledges not to attract to its work the employees of the
Lessor from their basic tasks, and to coordinate with the Lessor's management
the possibility of attracting the latter's employees for work when they have
free time from their basic tasks.
5.5 The Lessee, in the proper manner, having fulfilled the obligations
according to the Agreement, at the end of the term of the Agreement has the
priority right before other organizations and parties to the extension of the
Agreement for subsequent terms agreed upon with the Lessor.
6. TERM OF THE AGREEMENT AND LEGAL
ADDRESSES OF THE PARTIES
6.1 Term of Agreement from January 1, 1996 to December 31, 1999.
6.2 The Lessor (The Planning-Design Bureau for the Mechanization of
Electric Power Construction Corporation "Proyektenergomash"):
Post office address: 109428, city of Moscow, Ryazan
Prospekt, Building 30/15
Telegraph address: Moscow, Gileya
Teletype: 207030 KULMN
Telephones: 371-84-00, 371-84-84, 371-02-10
Account 4467436, Moscow Industrial Bank, Volgograd Branch
Code 109377
Correspondent account: 201791
Index of tax inspection: 7721068840
4
<PAGE> 5
6.3 The Lessee (the firm Korbina Telecommunications):
Post office address: 109428, city of Moscow, Ryazan
Prospekt, Building 30/15
Telephones: (095) 371-54-88, 371-91-32, 371-6879
Fax: 371-92-05
Account: 1846743, RMF 996705 (44583251), part 8
Index of tax inspection: 77229158574, Arbat Commercial Bank
Address of Bank: Russia, Moscow, 123056, Krasina 27,
(Tsvetnoy Blvd, 3)
Telephone: (095) 253-44-63.
LESSEE LESSOR
General Director of the General Director of the
firm Korbina Telecommunications PKB "Proyektoenergomash"
/sig./ Menakhem Seidenfeld /sig./ I. M. Pogozhev
December 29, 1995 December 29, 1995
/seal of/ Korbina Telecommuni- /seal of/ Southeastern
cations Corporation, Moscow Administrative Region,
Moscow, Planning-Design
Bureau for the Mechanization
of Electric Power
Construction,
Proyektoenergomash" Corp.
5
<PAGE> 6
SUPPLEMENTARY CONDITION
to the Agreement No. 2 of December 29, 1995, with Korbina Telecommunications
Corporation and the Proyektenergomash Corporation.
City of Moscow September 24, 1996
The Proyektenergomash Corporation, represented by General Director I. M.
Pogozhev, acting on the basis of the "Charter," on the one hand, and the Korbina
Telecommunications Corporation, represented by General Director V. A.
Khachaturyan, acting on the basis of the "Charter" (Status), on the other hand,
confirmed this condition concerning the following:
1. In accordance with the letter from the Proyektenergomash Corporation of
September 19, 1996, the cost of the premises owned by the Lessor (the
Proyektenergomash Corporation) and rented to the Lessee (the Korbina
Telecommunications Corporation) for USA 210 dollars, in view of increased taxes
on each square meter is now established at the equivalent of USA 252 dollars In
rubles in accordance with the exchange rate set by the Bank of Russia at the
moment that the bills are presented.
2. The term of this supplementary condition is effective as of October 1,
1996.
3. This supplementary condition is an integral part of Agreement No. 2, of
December 12, 1995.
Lessee Lessor
General Director General Director
Korbina Telecommunications Corp. Proyektenergomash
/sig./ V. A. Khachaturyan /sig./ I. M. Pogozhev
September 24, 1996 September 24, 1996
<PAGE> 7
THE PUBLIC CORPORATION
Planning-Design Bureau for the Mechanization
of Electric Power Construction
PROYEKTENERGOMASH
109428, city of Moscow
Southeastern Administrative Region
Ryazan Prospekt, Building 30/15
Telephone 371-84-00; 371-02-29
Korbina Telecommunications
Private Corporation
To the Director (President)
Mister(Madam) Khachaturyan, V. A.
With this letter I inform you that, from June 1, 1997, to our great
regret, because of increased expenses in the rental of real estate and changes
in standards in the adjacent territory, we are compelled to increase the rental
for 1 square meter per year by (equivalent) 6 USA dollars (according to the
NDS), in accordance with Clause 5.1 of the Agreement signed by you earlier.
Respectfully,
General Director
Proyektenergomash Corp.
/sig./ I. M. Pogozhev
<PAGE> 1
Exhibit 10.8
Translation from Russian
LEASE AGREEMENT No. 2a
City of Moscow February 28, 1997
The Planning-Design Bureau for the Mechanization of Electric Power Construction
Corporation (P-DB "Proyektenergomash"), represented by General Director
Pogozhev, Igor Mikhailovich, acting on the basis of the "Charter" and referred
to subsequently as the Lessor, on the one hand, and the "Investelektrosvyaz"
Corporation, represented by General Director Belenkiy, Aleksandr Edvard, acting
on the basis of the "Charter," and referred to subsequently as the Lessee, on
the other hand, have confirmed this Agreement concerning the following:
1. SUBJECT OF THE AGREEMENT
1.1 The Lessor provides the Lessee with the rental use of premises on
the 8th (eighth) floor, having an area of 128.5 square meters (one hundred and
twenty-eight and five-tenths square meters), for use as an office in the
engineering laboratory building of the Lessor in the city of Moscow, Ryazan
Prospekt, Building 30/15.
2. OBLIGATIONS OF EACH PARTY
The Lessor is required to:
2.1 Transfer to the Lessee the rental premises subsequent to the signing
of the Agreement, as stipulated in the terms of the Agreement.
2.2 At its own expense, make capital repairs in the rental premises.
2.3 Take necessary measures, at its own expense, to repair damages to the
heating system or electricity services which occur through no fault of the
Lessee.
2.4 Issue passes to permit entrance into the building (for the use of
their employees) to permanent and temporary employees of the Lessee, one-time
use passes and passes for packages, at the expense of the Lessee, and, also at
the expense of the Lessee, to extend the duration of temporary and permanent
passes and their replacement.
The Lessee is required to:
2.5 Utilize the rental premises in accordance with the terms of the
Agreement and in the prescribed manner (Clause 1.1 Subject of the Agreement).
1
<PAGE> 2
2.6 Perform ongoing maintenance and cleaning of the premises at its own
expense, removing, with its own employees and at its own expense, all disposals
connected with Lessee's activities (unneeded packaging, construction refuse,
etc.), except for fixtures.
2.7 Not make any changes in planning or equipment in the premises
necessitated by the needs of the Lessee without the permission of the Lessor,
and to conform with the latter's interior decoration of the premises.
2.8 Strictly observe the regulations concerning fire security.
3. PAYMENTS AND RATES
3.1 For the use of the premises, the Lessee pays to the Lessor in rubles
at the rate of USA$210 (two hundred and ten USA dollars) per year for 1 square
meter of the rental premises plus a tax on additional costs, established by the
RF Government, and supplementary taxes adopted by the RF Government on all Forms
of services and tasks for the duration of the Agreement.
Payment is effected at the exchange rate established by the Bank of Russia
at the moment the bill is presented.
3.2 The above-mentioned sum is comprised of two parts: Compensation for
expenditures in the upkeep and servicing of the premises in the amount of
USA$168 (one hundred and sixty eight USA dollars), or 80% of the overall
payment, and USA$42 (forty-two USA dollars), or 20% of the payment for the
rental of the premises.
3.3 The rental payment, and also the compensation for expenditures in the
upkeep and servicing of the premises is transferred to the account, as specified
by the Lessor, monthly no later than the 5th (fifth) bank business day from the
moment the bill is presented.
3.4 The bills for telephone communications of all types, subscription
payments for the telephones, for telephone information services,
telegraph-teletype services are paid for within two bank business days after the
receipt of the bills.
4. RESPONSIBILITIES OF BOTH PARTIES
4.1 The parties bear responsibility for all capital property under this
Agreement in accordance with current laws of the RF.
4.2 In the event of a late payment by the Lessee, fines are imposed in the
amount of 0.5% per day for the overdue sum during the first 5 days of the
nonpayment and 1.5% per day for the overdue sum for the subsequent days.
2
<PAGE> 3
4.3 For the late payment of bills for telephone communications (including
intercity and local, subscription payments for the telephones, telephone
information services, telegraph-teletype services, etc.) fines are imposed in
the amount of 1% for the first overdue day, and 2% for subsequent days for the
overdue sum.
4.4 The payment of penalties, established by the Agreement, does not
release the Lessee from fulfilling its obligations under the Agreement.
4.5 In the event of nonpayment by the Lessee of compensation for
expenditures in the upkeep and services of the premises and compensation for
expenditures on the rental premises, and also the fines relating to these
payments during 10 calendar days following the payment due date, the Lessor has
the right to annul the Agreement unilaterally.
4.6 In the event of late payment of bills, and also fines for all types of
telephone communications and telephone/sic/teletype services, the Lessor has the
right to turn off telephones until the Lessee pays off the stipulated debt.
4.7 The Lessee bears full responsibility in accordance with current laws
applying to security technology, safety of workers, and anti-fire security
during the performance of any work by the Lessee during the full term of the
Agreement.
4.8 The annulment of the Agreement before its expiration may be effected
by agreement by the parties in written form or unilaterally by the Lessor in the
event the usage of the premises by the Lessee is not in accordance with the
Agreement.
4.9 In the event that the Agreement is annulled at the initiative of the
Lessee at the expiration of its term, the latter pays the Lessor the payment
sum, with taxes, on the added costs up to the end of the current year.
5. MISCELLANEOUS CONDITIONS
5.1 The Lessor retains his rights in the future to reexamine the
compensation sum for expenditures in the upkeep and servicing of the premises,
and also the compensation for expenditures for rental of the premises in the
event of:
- Re-evaluation by the State of basic funds;
- Freeing of prices for power carriers and, in connection with this,
an increase in the cost of heat and power energy, supply of water,
etc.;
- Liberalization of prices for communal services, operational
materials, spare parts and similar material resources;
- Increase in the cost of real estate;
- Change in the imposition of taxes in an upward direction;
3
<PAGE> 4
- Introduction of new taxes, ecological obligations with material
expenditures, etc.
5.2 Ten days before the Agreement is confirmed, the Lessee presents to the
Lessor copies of the "Charter" or "Status" of its organization.
5.3 The Lessee is legally and materially accountable for damages inflicted
on the Lessor because of actions of third parties involved with the activities
of the Lessee.
5.4 The Lessee pledges not to attract to its work the employees of the
Lessor from their basic tasks, and to coordinate with the Lessor's management
the possibility of attracting the latter's employees for work when they have
free time from their basic tasks.
5.5 The Lessee, in the proper manner, having fulfilled the obligations
according to the Agreement, at the end of the term of the Agreement has the
priority right before other organizations and parties to the extension of the
Agreement for subsequent terms agreed upon with the Lessor.
6. TERM OF THE AGREEMENT AND LEGAL
ADDRESSES OF THE PARTIES
6.1 Term of Agreement from March 1, 1997 to December 31, 1999.
6.2 The Lessor (The Planning-Design Bureau for the Mechanization of
Electric Power Construction Corporation "Proyektenergomash")
Post office address: 109428, city of Moscow, Ryazan Prospekt, Building
Telegraph address: 30/15 Telegraph address: Moscow, Gileya
Teletype: 207030 KULMN
Telephones: 371-84-00, 371-84-84, 371-02-10
Account 4467436 at the Volgograd branch of the Moscow Industrial Bank
BIK 044583406
Code 109377
Correspondent account: 406161300
INN 7721068840
6.3 The Lessee "Investelektrosvyaz" Corporation
Legal address: Moscow, Vernadski Proyezd,
Building 125
Payer: "Investelektrosvyaz" Corporation
Account 467312 in the RTs of the Moscow Accounting Chamber Correspondent
account: 658162300 BIK 044585658 INN 7729158475, Code of department OKONKh
52300, Code OKNO 40395965
4
<PAGE> 5
LESSEE LESSOR
General Director of General Director of
"Investelektrosvyaz" Corp. P-DB "Proyektoenergomash"
/sig./ A. E. Belenkiy /sig./ I. M. Pogozhev
February 28, 1997 February 28, 1997
/seal of/ "Investelektrosvyaz" /seal of/ Southeastern /?/
Corporation Region, Moscow, Planning--
Moscow Design Bureau for the
Mechanization of Electric
Power Construction
"Proyektenergomash"
5
<PAGE> 1
Exhibit 10.9
FINANCIAL CONSULTING AGREEMENT
__________ ___, 1997
Russian Wireless Telephone Company, Inc.
780 Third Avenue
New York, New York 10017
Attention: Ronald G. Nathan, President
Gentlemen:
This will confirm the arrangements, terms and conditions pursuant to which
J.W. Barclay & Co., Inc. (the "Consultant") has been retained to serve as a
consultant and advisor to Russian Wireless Telephone Company, Inc., a Delaware
corporation (the "Company"), on a non-exclusive basis for the term set forth in
Section 2 below. The undersigned hereby agrees to the following terms and
conditions:
1. Duties of Consultant.
(a) Consulting Services. Consultant will provide such financial consulting
services and advice pertaining to the Company's business affairs as the Company
may from time to time reasonably request. Without limiting the generality of the
foregoing, Consultant will assist the Company in developing, studying and
evaluating financing, merger and acquisition proposals, prepare reports and
studies thereon when advisable, and assist in negotiations and discussions
pertaining thereto.
(b) Financing. Consultant will assist and represent the Company in
obtaining both short and long-term financing, when so requested by the Company.
The Consultant will be entitled to additional compensation under such terms as
may be agreed to by the parties.
(c) Wall Street Liaison. Consultant will, when appropriate, arrange
meetings between representatives of the Company and individuals and financial
institutions in the investment community, such as security analysts, portfolio
managers and market makers.
The services described in this Section 1 shall be rendered by Consultant
without any direct supervision by the Company and at such time and place and in
such manner (whether by conference, telephone, letter or otherwise) as
Consultant may determine.
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2. Term.
This Agreement shall continue for a period of thirty-six months from the
date hereof (the "Term").
3. Compensation.
(a) As compensation for Consultant's services hereunder, the Company shall
pay to Consultant the sum of $187,340, representing 2% of the net proceeds
received by the Company from the sale of the Common Stock and Warrants sold by
the Company in the public offering of its securities pursuant to an SB-2
Registration Statement (File No. 333-24177) which was declared effective by the
Securities and Exchange Commission on , 1997. In addition, the Company shall pay
to Consultant a sum equal to 2% of the net proceeds from the sale of Common
Stock and Warrants sold by the Company to the extent the Underwriters'
over-allotment option is exercised. Consultant's fee shall be due and payable on
the Closing Date and Option Closing Date, as the case may be.
4. Relationship. Nothing herein shall constitute Consultant as an employee or
agent of the Company, except to such extent as might hereinafter be agreed upon
for a particular purpose. Except as might hereinafter be expressly agreed,
Consultant shall not have the authority to obligate or commit the Company in any
manner whatsoever.
5. Confidentiality. Except in the course of the performance of its duties
hereunder, Consultant agrees that it shall not disclose any trade secrets,
know-how, or other proprietary information not in the public domain learned as a
result of this Agreement unless and until such information becomes generally
known.
6. Assignment and Termination. This Agreement shall not be assignable by any
party except to successors to all or substantially all of the business of either
party for any reason whatsoever without the prior written consent of the other
party, which consent may be arbitrarily withheld by the party whose consent is
required.
Very truly yours,
J.W. Barclay & Co., Inc.
By:__________________________
John Cioffoletti
AGREED AND ACCEPTED:
Russian Wireless Telephone
Company, Inc.
By:__________________________
Ronald G. Nathan, President
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Exhibit 10.11
STOCK PURCHASE AGREEMENT
AGREEMENT entered into as of this 29th day of August, 1995, by and
between TelCom Group USA, Inc., a Delaware corporation, (the "Company) and
Harvey Bloch (the "Seller").
WHEREAS, the Seller desires to sell, and the Company desires to
purchase, 488,000 of its outstanding shares (the "Securities") of Common Stock,
$.01 par value (the "Common Shares"), in exchange for the issuance by the
Company of a promissory note to the Seller in the aggregate principal amount of
$244,000, substantially in the form of Exhibit A hereto (the "Note");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company and the Seller hereby
agree as follows:
SECTION 1
SALE OF THE SHARES
1.1 Sale of the Securities. Subject to the terms and conditions
hereof, the Seller will sell to the Company in exchange for the issuance of the
Note and the Company will purchase from the Seller, at the Closing, the
Securities.
SECTION 2
CLOSING DATE; DELIVERY
2.1 Closing Date. The closing of the purchase and sale of the
Securities hereunder (the "Closing") shall be held following the execution and
delivery of this Agreement on such date as is mutually agreeable by the parties
hereto (the "Closing Date").
2.2 Delivery. At the Closing, the Seller will deliver to the Company
a certificate representing the Securities to be purchased by the Company.
SECTION 3
MISCELLANEOUS
3.1 Governing Law. This Agreement shall be governed by and
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construed in accordance with the laws of the State of New York.
3.2 Successors, Assigns and Transferees. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, transferees, heirs, executors and
administrators of the parties hereto.
3.3 Separability; Other Agreement. In case any provision of the
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Agreement shall be in addition to any other Agreement,
written or oral, that the parties hereto may have with each other.
3.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which, together,
shall constitute one instrument.
3.5 Entire Agreement. This Agreement shall represent the entire
understanding among the parties hereto pertaining to this financing and
supersedes any previous agreement, whether written or oral.
3.6 Attachment Hereto. Exhibit A hereto is hereby incorporated into,
and made a part of, this Agreement.
TELCOM GROUP USA, INC.
By:______________________________________
Name: Ronald G. Nathan
Title: President
By:_________________________________________
Name: Harvey Bloch
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PROMISSORY NOTE
$244,000 August 29, 1995
WHEREAS, Harvey Bloch (the "Lender") desires to accept from TelCom
Group USA, Inc. (the "Borrower"), and the Borrower desires to issue to Lender,
this Promissory Note (the "Note") in the principal amount of $244,000 in payment
of and in consideration for the contribution by the Lender to the Borrower of
488,000 shares of Common Stock of the Borrower, pursuant to the terms and
conditions contained in this Note.
NOW, THEREFORE, for good and valuable consideration herein
contained, Borrower hereby promises to pay to the order of Lender or his
successors or assigns the principal amount of two hundred and forty-four
thousand ($244,000) dollars as follows: one hundred thousand ($100,000) dollars
upon the closing of the Borrower's private placement offering of Units for which
J.W. Barclay & Co., Inc. is acting as placement agent and the balance of one
hundred and forty-four thousand ($144,000) dollars upon the closing of the
Borrower's initial public offering of securities (the "Maturity Date"), plus
accrued and unpaid interest on such date and as specified below.
Borrower also promises to pay interest on the $244,000 principal
amount of this Note on the Maturity Date at a rate equal to 2% per annum (on the
basis of a 360-day year and actual number of days elapsed) from and including
the date hereof until such principal sum shall be paid in full and to pay
interest on any overdue installment of principal or interest at a rate equal to
2% per annum.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America in immediately available
funds to Lender, at Lender's office or such other place as shall be designated
in writing by Lender for such purpose.
Borrower hereby waives diligence, presentment, dishonor, demand,
notice and protest and, to the full extent permitted by law, the right to plead
any statute of limitations as a defense to any demand hereunder. Borrower
promises to pay all costs and expenses, including reasonable attorneys' fees,
incurred in the collection and enforcement of this Note.
Whenever any payment on this Note shall be stated to be due on a
Saturday, a Sunday or a day on which banking institutions in the City of New
York are authorized or obligated by law, regulation or executive order to remain
closed (a "Legal Holiday"), such payment shall be made on the next succeeding
day which is not a Legal Holiday and such extension of time shall be included in
the computation of the payment of interest on this Note.
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The terms of this Note are not subject to amendment except by
written agreement of Lender and Borrower and Borrower may assign its obligations
hereunder without the prior written consent of Lender.
This Note may be prepaid at any time by Borrower either in whole or
in part.
This Note shall be governed by and construed and enforced in
accordance with the laws of State of New York, without regard to principles of
conflicts of laws.
IN WITNESS WHEREOF, Borrower has duly executed this Note, the day
and year first above written.
TELCOM GROUP USA, INC.
By: ____________________________________
Name: Ronald G. Nathan
Title: President
2
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Exhibit 10.12
CONTRACT NO. D5/3
Moscow March 15, 1996
ZAO [Private Joint-Stock Company] Rustelnet, hereafter called "Rustelnet,"
represented by its general director, S. Ye. Obel'chenko, acting on the basis of
the Bylaws, party of the first part, and ZAO Corbina Telecommunications,
hereafter called "the DISTRIBUTOR," represented by its general director, M.Y.
Saydenfel'd, acting on the basis of the Bylaws, party of the second part, have
concluded this contract as follows:
1. SUBJECT MATTER OF THE CONTRACT
Rustelnet hereby designates ZAO Corbina Telecommunications to be its
DISTRIBUTOR in providing communications services on the territory of the Russian
Federation [RF].
2. THE DISTRIBUTOR'S OBLIGATIONS
2.1 The DISTRIBUTOR hereby assumes the following obligations:
- - to conclude Contracts with customers in its own name to provide them
communications services, clearing with Rustelnet the date when service will
begin under each Contract;
- - to see that communications services are provided.
2.2 The DISTRIBUTOR hereby assumes the following obligations:
- - to build up in his account money collected from customers;
- - to settle with Rustelnet twice a month on the basis of bills Rustelnet
presents for communications services.
3. OBLIGATIONS OF RUSTELNET
3.1 Rustelnet shall provide the DISTRIBUTOR a list of communications
services (Appendix A) and the wholesale rates of those services, which shall be
established in Protocols which constitute an inseparable part of this Contract.
3.2 Rustelnet must provide the DISTRIBUTOR timely information about a
change in the list of communications services provided and wholesale rates for
those services.
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In this case, Rustelnet shall give the DISTRIBUTOR written notice of the
changes indicated above 30 working days before the change takes effect.
3.3 Rustelnet shall see that customers obtained by the DISTRIBUTOR are
provided communications services 7 days a week and 24 hours a day.
3.4 Rustelnet shall provide the DISTRIBUTOR billing data on the volume of
communications services furnished him, and on that basis the DISTRIBUTOR shall
generate bills and present them to customers.
4. SETTLEMENT PROCEDURE
4.1 Twice a month (on the 1st and 16th) the DISTRIBUTOR shall credit to
Rustelnet's account all proceeds obtained from his customers in keeping with the
billing data and wholesale rates the Parties have agreed on and on the basis of
bills Rustelnet has presented.
The funds shall be credited to Rustelnet's account no later than 10
working days after the bills have been received from Rustelnet. Adjustments to
billing data mutually agreed to shall be taken into account when the next bills
are paid.
If the bills are not paid on time, penalties shall be charged at the rate
of 0.5% of the unpaid amount for each day of delinquency, but not to exceed 25%
of the entire amount.
Should there be a delay in payment of Rustelnet's bills, on the basis of
its assessment of the commercial risk it reserve the right to terminate the
supply of communications services without prior notices.
5. CONFIDENTIALITY
5.1 Confidential information may become known to the Parties during
performance of this Contract.
The Parties agree that information classified as confidential by one of
the Parties shall not be divulged by the other Party to any third Party without
written permission of the Party furnishing such information.
6. LIFE OF THE CONTRACT
6.1 This Contract shall take effect on the date it is signed by both
Parties and shall remain in effect for 1 (one) year. The Contract may be
canceled unilaterally upon full mutual settlement of the Parties if written
notice is given 2 months before the date of the cancellation.
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6.2 The Contract shall be considered performed when settlement between the
Parties has been completed.
7. OTHER CONDITIONS
7.1 The signing, validity, and performance of the Contract shall be
treated in conformity with the laws of the Russian Federation.
7.2 Supplements or amendments to the Contract shall take effect and shall
be binding on the Parties if they have been drawn up in writing and signed by
the General Directors or authorized individuals representing the interests of
the Parties on the basis of powers of attorney signed by the chief executives of
the Parties.
7.3 The Contract shall be extended automatically if neither of the Parties
takes action to cancel it under 6.1.
8. FORCE MAJEURE
8.1 Neither Rustelnet nor the DISTRIBUTOR shall be responsible for a delay
in performing their respective obligations or their nonperformance under this
Contract as a consequence of any event customarily classified as force majeure,
including, but not limited to, natural disasters, the actions of some government
agency (de jure or de facto), disruption of law and order, embargo, strike, or
any other circumstances of a similar or different nature which are beyond the
control of the Parties and which prevent the Parties from performing some of
their obligations under this Contract. The Parties shall notify one another of
the circumstances of force majeure. As of the date of the notice the Party
giving notice may cease or postpone performance of its obligations for the
period performance is prevented by the circumstances of force majeure, and in
this case the notifying Party shall not be liable to the other Party or its
customers.
9. DISPUTES
9.1 The Parties agree to resolve all disagreements and disputes that arise
through negotiation. The Parties agree to follow prearbitration procedure for
settlement of disputes previously envisaged by the Regulation on Grievance
Procedure for Settlement of Disputes, approved by Decree of the RF Supreme
Soviet on June 24, 1992. If agreement is not reached in prearbitration
procedure, the Parties (or one of them) shall have the right to appeal to the
Arbitration Court of the city of Moscow.
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10. LEGAL ADDRESSES AND BANKING PARTICULARS OF THE PARTIES
Rustelnet Corbina Telecommunications
No. 32a Leninskiy Prospekt No. 30, Ryazanskoye Shosse
Moscow 117334 Suite 707, Moscow 109428
INN 7736145390 INN 7729158574
Settlement account: 110467937 Settlement account: 18467413
Commercial Bank MOSTBANK Commercial Bank Arbat
MFO 997168, Section 8s MFO 996705, Section 8N
This Contract has been signed in two copies, one for each of the Parties.
The two copies have equal legal force.
For Rustelnet For the DISTRIBUTOR
General director General director
S. Ye. Obel'chenko [signed] M. Y. Saydenfel'd [signed]
[Stamp] Rustelnet [Stamp] Corbina
Telecommunications
Public Joint-Stock Company
Moscow
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APPENDIX A
TO CONTRACT NO. D5/3
DATED MARCH 15, 1996
LIST OF COMMUNICATIONS SERVICES
PROVIDED TO THE DISTRIBUTOR FOR DISTRIBUTION
1. Automatic and operator-assisted communications with payment for
services by means of prepayment cards, telephone cards, and bank credit cards.
2. Automatic connection with password access.
3. Operator-assisted semiautomatic communications.
4. Automatic communications in which the customer is connected over a
separate line and given a Moscow number (at the customer's request).
For Rustelnet For the DISTRIBUTOR
General director General director
S. Ye. Obel'chenko [signed] M. Y. Saydenfel'd [signed]
[Stamp] Rustelnet [Stamp] Corbina
Telecommunications
Public Joint-Stock Company
Moscow
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Exhibit 10.13
SPRINTNETSM AND SPRINTMAILSM
INTERNATIONAL VALUE ADDED SERVICES ("IVAS")
DISTRIBUTOR AGREEMENT No 2662
This AGREEMENT made this _________ day of _________, 1995 between SPRINT
NETWORKS, a Russian-American Joint Stock Company, (hereinafter "SPRINT"),
duly organized and existing under the laws of the Russian Federation, and
having its principal office at 7 Tverskaya ulitsa 103375 Moscow Russian
Federation, and Corbina Telecommunications and More (hereinafter
"DISTRIBUTOR"), duly organized and existing under the laws of Russian
Federation, and having its principal office at Ryazansky Prospect 30115,
Moscow; collectively, the "Parties", and individually "Party".
WHEREAS, SPRINT has developed worldwide data communications network
services called SprintNetSM, SprintMailsm and, providing the quality of
the used channels is appropriate, Global SprintFaxSM, hereinafter referred
to as "International Value Added services" or IVAS";
WHEREAS, DISTRIBUTOR desires to act as an authorized reseller of IVAS in
the Territory as defined below;
NOW, Therefore, in consideration of the mutual agreements and
understandings herein contained, the parties hereto agree as follows:
1. DEFINITIONS
"Customer" - The third party organization which contracts with
DISTRIBUTOR for the provision of IVAS Services;
"Collection Rate" - The price established independently by
DISTRIBUTOR for charging its own customers for provision of IVAS
Services;
"Tariff Rate" - The retail rate established by SPRINT for the sale
of IVAS Services to customers.
"Discounted Tariff" - The rate established for each IVAS Service by
the Parties upon which the Settlement Rate is based;
"Territory" - For the purposes of this Agreement, Territory is
defined as the geographical region as recognized at the effective
date to be the territory of Moscow.
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2. NON-EXCLUSIVE DISTRIBUTOR ARRANGEMENT
A. Appointment and Acceptance - SPRINT hereby appoints DISTRIBUTOR upon
the terms and conditions herein set forth, as a non-Exclusive Distributor
of SPRINT for the purchase and resale of IVAS Services in the Territory.
The specific IVAS Services which DISTRIBUTOR may resell are set forth in
Exhibit "A". The description of IVAS services is given in EXHIBIT C to
this Agreement. DISTRIBUTOR hereby accepts such appointment and agrees to
act as a Distributor of Services as defined herein.
B. Marketing Coordination - SPRINT will coordinate any and all marketing
efforts that it may perform in the Territory with DISTRIBUTOR. This
coordination shall consist at a minimum of the following:
(i) If the customer has a contract with SPRINT for the provision
of IVAS Services, the DISTRIBUTOR will not market these
Services to the customer;
(ii) If the Customer has a contract with DISTRIBUTOR for the
provision of IVAS Services, then SPRINT will not market these
Services to the Customer;
(iii) Operational issues such as account management for prospective
customers will be coordinated by mutual agreement of the
Parties, such that both Parties will not market to the same
prospective customer, except by mutual agreement.
C. Non-Exclusivity - Nothing in this Agreement shall preclude or limit
SPRINT from appointing other Distributors of Services in the Territory.
SPRINT shall make its best efforts to ensure the coordination of different
Distributors of Services and DISTRIBUTOR shall make its best efforts to
ensure coordinated activity with other Distributors of Services.
3. TERM OF THE AGREEMENT/EFFECTIVE DATE
3.1 Term and Termination
This Agreement shall take effect from the date stated hereinabove and
shall remain in effect unless terminated by one or the other Party or both
Parties. This Agreement may be terminated upon six (6) months' written
notice by either Party to the other Party.
Distributor Agreement 2
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3.2 Commitments upon Termination
Upon termination of this Agreement, SPRINT will continue to provide IVAS
Services to DISTRIBUTOR in support of any outstanding DISTRIBUTOR
contractual commitments to its customers, for up to one (1) year after
termination. DISTRIBUTOR will continue to pay for these IVAS Services
during that period.
4. PRICES/PRODUCTS
The rates for IVAS Services provided by SPRINT to DISTRIBUTOR shall be as
set forth in the schedule attached hereto as Exhibit "B" and made a part
hereof. The Discounted Tariff Rate shall be the rate paid by DISTRIBUTOR
to SPRINT for purchase of the Services. Collection Rates are the
responsibility of DISTRIBUTOR. Discounted Tariff Rates for IVAS Services
may be modified from time to time by SPRINT upon ninety (90) days prior
written notice to DISTRIBUTOR. In addition to these rates, SPRINT may set
a fixed monthly charge for DISTRIBUTOR.
5. DISTRIBUTOR RESPONSIBILITIES
DISTRIBUTOR shall be solely responsible for all risks and expenses
incurred in connection with its actions in the resale and service of the
IVAS Services or any other acts required of DISTRIBUTOR pursuant to this
Agreement. DISTRIBUTOR shall independently contract for itself for the
purposes of resale of the IVAS Services and act in all respects on its own
account. DISTRIBUTOR shall indemnify SPRINT for any claims arising from
DISTRIBUTOR's/DISTRIBUTOR's Customer's use of IVAS Services.
6. TAXES AND TERMS OF PAYMENT
6.1 Taxes - The prices quoted herein are net and do not include amounts
arising from any tariff, duty, levy, tax or withholding, including but not
limited to Value Added Tax, sales, property, ad valorem and use taxes, or
any tax in lieu thereof, which may in the future be imposed by any
government or governmental agency with respect to the IVAS Services to
DISTRIBUTOR or its Customers with respect to this Agreement.
6.2 Terms of Payment - (1) DISTRIBUTOR shall be invoiced monthly for the
IVAS Services ordered by DISTRIBUTOR, except that fixed monthly charges
shall be invoiced in advance. All the payments shall be effected by
DISTRIBUTOR in US Dollars to SPRINT'S account indicated in the invoice
within thirty (30) calendar days from the date of receipt by DISTRIBUTOR
of
Distributor Agreement 3
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SPRINT's invoice. In case the payable amount is not received to SPRINT's
account within forty-five (45) calendar days from the date of SPRINT's
invoice, DISTRIBUTOR shall pay to SPRINT a penalty of 1.5% of the delayed
payment for each month after the said 45 calendar days.
In case the payable amount is not received to SPRINT's account within
sixty (60) calendar days from the date of receipt by DISTRIBUTOR of
SPRINT's invoice, SPRINT shall have the right to immediately and by prior
notice to DISTRIBUTOR suspend or terminate this Agreement and it does not
release DISTRIBUTOR from payment of the said penalty.
DISTRIBUTOR shall compensate SPRINT for any losses or damage arising from
DISTRIBUTOR's breach of its obligations under this Agreement, including
reasonable expenses for attorney fees incurred in enforcing this
Agreement. The penalty procedure shall be enforced in case the outstanding
amount exceeds $ 500.
(2) For such products as PC SprintMailsm software package, modems, smart
boxes, etc. to be supplied by SPRINT to DISTRIBUTOR for its Customers, the
payments shall be effected by DISTRIBUTOR to SPRINT's account as per
SPRINT's invoice and SPRINT shall start supplying the product/equipment
only upon the payments is received to this account.
(3) While making payments DISTRIBUTOR shall indicate No. of this Agreement
and No. of SPRINT's invoice to identify the payment received.
(4) Bank charges for payment of invoices shall be at the expense of
DISTRIBUTOR.
7. SPECIFICATIONS OF IVAS SERVICES
IVAS Services will be delivered in accordance with SPRINT's
specifications, which may be modified or changed without notice,
provided that said change or modification does not substantially
alter the functioning or performance of the IVAS Services that would
cause any Customer impact.
8. DISTRIBUTOR'S UNDERTAKINGS
A. Market Development - DISTRIBUTOR shall diligently and faithfully exert
its best efforts to develop the market and promote the sale of IVAS
Services within the Territory. DISTRIBUTOR shall conduct promotional
programs, including advertising of IVAS, to develop the market for the
IVAS
Distributor Agreement 4
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Services within the Territory. The cost of such market development and
promotion of the IVAS Service and within the Territory shall be borne in
full by DISTRIBUTOR, except for such costs, if any, as SPRINT shall agree
in writing to bear in each case.
B. Service Facilities - DISTRIBUTOR shall maintain facilities at its own
expense to render complete service to Customers, including Customer
service and Customer training.
C. Market Feedback - DISTRIBUTOR shall provide to SPRINT, for the purpose
of effectively managing its system resources and addressing present and
future Customer requirements, at no expense to SPRINT, quarterly Customer
account review information ("REPORTS") to include, but not necessarily be
limited to, the following:
(i) Six (6) months' forecast of network Customers;
(ii) Summary of service-related problems and status thereof;
(iii) Information pertaining to specific IVAS Service and Product
applications developed or in use;
(iv) Competitive activity.
These reports should be sent to the address indicated in Article 16.I, of
this Agreement.
D. Administrative IVAS Services - DISTRIBUTOR shall follow the order
administration process defined by SPRINT and shall utilize the associated
support tools.
E. Extra-Territory Sales - DISTRIBUTOR shall refrain from seeking
customers for IVAS Services, and from establishing and maintaining any
branch or distribution depot for the purpose of selling IVAS Services
outside the Territory, unless DISTRIBUTOR has the prior written consent of
SPRINT.
F. License of Improvement, etc. - DISTRIBUTOR agrees that, during the term
of this Agreement, it will provide SPRINT with a nonexclusive royalty-free
license or right to use any improvements, inventions or modifications
developed by DISTRIBUTOR, its employees or agents pertaining to the IVAS
Services subject to reasonable compensation to DISTRIBUTOR.
Distributor Agreement 5
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G. Customer Support/Customer Training - DISTRIBUTOR shall maintain a staff
specifically to ensure subscribers full understanding of the use of the
IVAS Services supplied. This support will include Customer training and
timely response to customer questions.
9. UNDERTAKINGS BY SPRINT
A. Sales and Product Literature - SPRINT agrees to provide DISTRIBUTOR
with a reasonable amount of copies of current English and Russian version
sales and promotional literature, and Customer Documentation at no charge.
B. Training - SPRINT shall provide, at the expense of DISTRIBUTOR,
training for DISTRIBUTOR's personnel with respect to operation, sale,
service, and administration of the IVAS Services.
C. SPRINT shall also make available, on DISTRIBUTOR's request, training
for DISTRIBUTOR's customers in the operation and use of the IVAS Services,
but at the expense of DISTRIBUTOR. Cost of such training will be one
hundred U.S. Dollars per person.
D. Advertising and Promotion - SPRINT reserves the right to review for
approval in advance of publication all advertising, promotional, and
training materials used or distributed by DISTRIBUTOR which relate to the
IVAS Services. SPRINT shall conduct said review without undue delay.
Except as may be required by law, neither Party shall without the other
Party's prior written consent make any news release or public announcement
concerning the subject matter of this Agreement.
E. Patent Indemnity - If promptly notified in writing of any action
brought against DISTRIBUTOR based on a claim that the IVAS Services or
their usage by DISTRIBUTOR infringes an applicable Russian patent or
copyright, SPRINT shall defend any such action at its expense and shall
pay any and all fees, costs or damages that may be awarded in such action,
or settlement thereof, provided DISTRIBUTOR gives SPRINT full information
and assistance necessary to defend and/or settle. SPRINT may, at its sole
option, negotiate a settlement or compromise thereof. In the event that a
final injunction is obtained against DISTRIBUTOR prohibiting usage of the
IVAS Services purchased hereunder or any part thereof by reason of
infringement of an applicable patent or copyright, SPRINT shall, at its
option, either: (i) at its expense, procure for DISTRIBUTOR the right to
continue using the IVAS Services or replace or modify IVAS Services so
that they are non-infringing; or (ii) direct DISTRIBUTOR to discontinue
sale of the IVAS
Distributor Agreement 6
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Services. In the latter event this Agreement shall be terminated
immediately. DISTRIBUTOR agrees to include this paragraph in all contracts
with its Customers.
F. Customer Contracts - DISTRIBUTOR shall, prior to the commencement of
marketing IVAS Services, provide its form of Customer contract to SPRINT
for review and approval. SPRINT's review shall be limited to ascertaining
whether the proprietary and legal interests of SPRINT are adequately
protected in such contract.
G. Billing Statistics - SPRINT shall provide DISTRIBUTOR with concise and
correct billing statistics and supporting information required for
DISTRIBUTOR to produce invoices for its customers.
H. Exchange of Client Lists - SPRINT shall provide to DISTRIBUTOR and
DISTRIBUTOR shall provide to SPRINT, at the end of each month or at the
request of the other party a list of current customers. This list is to be
used only to avoid duplication of marketing efforts and is to be
considered proprietary information by both parties. Any disclosure of this
information without the prior written consent of the other party to the
disclosing party will be held to be a breach of Section 13 of this
contract.
I. Administration Mailbox - SPRINT will provide to DISTRIBUTOR one
user-identifier, "Mailbox", on the SovMail system for purpose of
interconnection between SPRINT and DISTRIBUTOR for the purpose of
executing the present Agreement.
10. TRADE NAME AND TRADEMARK
A. License of Trademarks for IVAS
IVAS Services - Contemporaneously with the execution of this Reseller
Agreement, SPRINT and DISTRIBUTOR shall enter into a trademark license
agreement permitting DISTRIBUTOR to use the trademarks owned by
DISTRIBUTOR or its parent in connection with the IVAS.
B. Identification of IVAS Services
DISTRIBUTOR in advertising, contracting or dealing with third parties,
shall not refer to IVAS Services by any other trade name, trademark or
service-mark except as approved by SPRINT.
Distributor Agreement 7
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C. Use of IVAS after Termination
Upon termination of this Agreement, DISTRIBUTOR shall discontinue all such
uses and any representations which make it appear that DISTRIBUTOR is
still handling the IVAS Services, except as provided in Article 3.2 of
this Agreement.
D. Survival of Obligations
The obligations undertaken by DISTRIBUTOR pursuant to this Article 10
shall survive termination of this Agreement, and in the event of such
termination DISTRIBUTOR agrees not to register or use any trademarks,
trade names, or service-marks which are the same as or confusingly similar
to the trademark licenses pursuant to this Article 10.
11. MISCELLANEOUS UNDERTAKINGS
A. Downtime - There shall be no credits for "downtime" of IVAS Services
whether due to failure of communications, power outages, force majeure, or
failure of SPRINT's hardware or software up to 24 hours. For "downtime"
more than 24 hours, SPRINT will credit DISTRIBUTOR 1/30th of the monthly
fixed charges for each additional 24-hours period or part thereof, where
these fixed charges exclude failure of, or charges for, access lines.
DISTRIBUTOR shall notify SPRINT, in writing of any outages and provide
supporting documentation if requested by SPRINT.
B. DISTRIBUTOR Supplied Software and Hardware - SPRINT shall not be liable
for any act or omission of any other entity furnishing equipment or
software to DISTRIBUTOR or to DISTRIBUTOR's Customers, nor shall SPRINT be
liable for any damages or losses due to the fault or negligence of
DISTRIBUTOR or a Customer in conjunction with the IVAS Services.
C. Modifications - SPRINT shall not be liable to DISTRIBUTOR or to
DISTRIBUTOR's Customers if changes in any of SPRINT's facilities,
operations, procedures, or services: (i) render obsolete any equipment or
software provided by DISTRIBUTOR or Customer in conjunction with its use
of the IVAS Services; (ii) require modification or alteration of such
equipment or software; or (iii) otherwise affect its performance.
D. Customer Information Security - DISTRIBUTOR assumes sole responsibility
for the selection and use of any code or passwords as may be permitted or
required by the IVAS Services. SPRINT's obligation for file
Distributor Agreement 8
<PAGE> 9
security shall be limited to the provision of password or similar access
inhibition.
12. RESTRICTIONS ON USE
The resale of IVAS Services is furnished subject to the condition that
there will be no abuse or fraudulent use thereof. Abuse and fraudulent use
of IVAS Services includes, but is not limited to:
A. Obtaining or attempting to obtain IVAS Services by rearranging,
tampering or making connection with any facilities of SPRINT, or by any
scheme, false representation or false credit device, or by or through any
other fraudulent means or devices whatsoever, with intent to avoid
payment, in whole or in part, of the regular charges for IVAS Services.
B. Attempting to, or actually obtaining, accessing, altering, or
destroying the data files, programs, procedures and/or information of
another SPRINT customer or by rearranging, tampering with or making
connection with any facilities of SPRINT or by any scheme, false
representation or through any other fraudulent representation means or
devices whatsoever.
C. Distribution of unsolicited advertisements, brochures, sales catalogues
or any other material which might be construed as sale or promotional
materials in quantity to Customers or to monitored bulletin boards outside
of DISTRIBUTOR's accounts.
D. Assisting another to perform the acts prohibited in A, B, and C. above.
E. Using IVAS Services in such a manner as to interfere unreasonably with
the use of IVAS Services by one or more other customers.
F. Using information deemed to be, at SPRINT's sole discretion, obscene,
salacious, or prurient.
Any attempt to misuse IVAS Services must be stopped immediately by
DISTRIBUTOR. Failure to do so within ten (10) days of written notice by
SPRINT shall be deemed a material breach of this Agreement and
notwithstanding any provision herein to the contrary, shall immediately
entitle SPRINT to any and all of SPRINT's remedies hereunder including
termination, and any remedies as may exist at law or in equity.
The obligations of this Article 12 shall survive termination of this
Agreement.
Distributor Agreement 9
<PAGE> 10
13. PROPRIETARY INFORMATION/CONFIDENTIALITY
During the performance of this Agreement, the Parties may become privy to
each other's proprietary or confidential information. Each Party agrees
that it shall maintain in confidence proprietary and confidential
information disclosed by the other Party and that such information shall
not be disclosed to any third parties (except third parties who may be
performing maintenance services on the hardware or software used in
conjunction with providing IVAS Services) unless such information:
A. Was in the public domain or available to a third party without
restriction to keep it confidential at or prior to the time the receiving
Party disclosed it to the third party; or
B. Had been independently developed or known to the receiving party at the
time of disclosure to the third party; or
C. Was know to the third party at the time of disclosure; or
D. Was disclosed inadvertently to a third party despite the exercise of
the same measure of care as the receiving Party; or
E. Must be disclosed to an independent common carrier or regulatory body
as a necessary incident of furnishing public data communications switching
service; or
F. Is disclosed to the third party after three (3) years from the date of
this Agreement; or
G. Is received in good faith by one party, or a third party without any
obligations to keep it confidential; or
H. As may be necessary or required by law or by any governmental agency.
With respect to E and H above, disclosures shall be made only after ten
(10) days prior written notice by the Party that received the information
to the Party that provided the information indicating its intent to
disclose. Each Party shall obtain a written undertaking from any third
party to which it proposes to disclose such information in substantially
the form of this Article and shall obtain the providing Party's prior
written consent before making the disclosure.
Distributor Agreement 10
<PAGE> 11
14. WARRANTY AND LIMITATION OF LIABILITY
A. WARRANTY - SPRINT MAKES NO WARRANTY EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE OR PURPOSE. IT IS INTENDED BY THE PARTIES THAT THIS SECTION
SHALL APPLY TO DISTRIBUTOR OR ANY OF DISTRIBUTOR'S SUBSCRIBERS, CUSTOMERS,
OR USERS.
B. Limitation of Liability - SPRINT's and DISTRIBUTOR's liability for
actual, proven damages for any cause whatsoever, and regardless of the
form of action, whether in contract or in tort or otherwise, including
negligence, shall be limited to an amount equivalent to the charges
payable by DISTRIBUTOR under this Agreement for the Service and during the
period when such damages shall occur but not more than U.S. $10,000 in the
aggregate. In no event shall SPRINT or DISTRIBUTOR be liable for any
special or consequential damages arising from the use, misuse,
unavailability, error or omission of the IVAS Services or from any other
cause whatsoever.
15. TERMINATION
A. Termination Upon Default - Either Party may terminate this Agreement in
the event of a default by the other Party, provided that the
non-defaulting Party so advises the defaulting Party in writing of the
event of alleged default and the defaulting Party does not remedy the
alleged default within thirty (30) days after written notice thereof.
Default is defined to include:
(i) Either Party's insolvency or initiation of bankruptcy or
receivership proceedings by or against the party;
(ii) Either Party's material breach of any of the other terms or
conditions hereof including the failure to make any payment
when due; or
(iii) The execution by DISTRIBUTOR of a Deed of Trust or Assignment
for the benefit of creditors or any other transfer or
assignment of a similar nature (it being understood that the
execution of any third party financing agreement(s) shall not
constitute an event of default hereunder).
Distributor Agreement 11
<PAGE> 12
B. Assignment of contracts/Payments Upon Termination
(i) Termination regardless of cause or nature (including
non-renewal of this Agreement) shall be without prejudice to
any other rights or remedies of either Party and without
liability to the other Party (except as provided in this
Agreement) for any loss or damage occasioned thereby, and each
Party shall remain responsible for its obligations existing
immediately prior to termination.
(ii) Upon termination of this Agreement, DISTRIBUTOR shall promptly
assign to SPRINT or to SPRINT's designee, all of SPRINT's
customer contracts relating to the provision of the IVAS
Services. Upon such assignment, SPRINT agrees to continue to
provide the IVAS Services to the Customer under SPRINT's
standard terms and conditions for the provision of the IVAS
Services "Assigned Contracts".
(iii) DISTRIBUTOR agrees that upon termination it will turn over to
SPRINT its current prospect list. The prospect list shall
include the name of the prospect and the contact name.
C. Survival of Obligations - Termination of this Agreement for any cause
shall not release either Party hereto from any liability which at the time of
termination has already accrued to the other Party hereto or which thereafter
may accrue in respect to any act or omission prior to termination or from any
obligation which is expressly stated herein to survive termination; provided,
however, that SPRINT may, without liability, cancel any previously accepted
orders if this Agreement is terminated pursuant to Paragraph A hereof.
16. MISCELLANEOUS
A. Applicable Law - The validity, construction and performance of this
Agreement shall be governed by and interpreted in accordance with the laws
of the Russian Federation.
B. Effects of Headings - Except for headings appearing in Article 1
hereof, headings to articles and paragraphs of this Agreement are intended
only to facilitate reference, do not form a part of this Agreement, and
shall not in any way affect the interpretation hereof.
C. Modification, Etc. of Agreement - No addition or modification of this
Agreement shall be effective or binding on either of the Parties hereto
unless
Distributor Agreement 12
<PAGE> 13
reduced to writing and executed by the respective duly authorized
representatives of each of the Parties hereto.
D. Hold Harmless - Except as expressly provided otherwise herein or as
required by applicable law, DISTRIBUTOR and SPRINT covenant and represent
that each will hold the other harmless for and against all suits, claims,
liabilities, damages, and expenses (including legal expenses) of any kind
or character, including injury to person or damage to property and
infringement of property rights, alleged, charged, or
otherwise asserted by third persons, arising out of or in connection with
the other Party's acts in performance of this Agreement, including but not
limited to the resale of the IVAS Services, DISTRIBUTOR's dealings with
its Customers, or any representation or action made by DISTRIBUTOR in its
marketing of IVAS Services or performance of any obligations under this
Agreement.
E. Assignment - DISTRIBUTOR may not assign its rights or obligations under
this Agreement, in whole or in part, without the prior written consent of
SPRINT.
F. Non-Waiver - The waiver, express or implied, by either Party hereto of
any rights hereunder or of any failure to perform or breach hereof by the
other Party hereto shall not constitute or be deemed a waiver of any other
right hereunder or any other failure to perform or breach hereof by the
other party hereto, whether of a similar or dissimilar nature.
G. DISTRIBUTOR as Independent Contractor - DISTRIBUTOR is an independent
contractor and is not authorized to act as a representative or commercial
agent for or legal representative of SPRINT, and DISTRIBUTOR shall not
have authority to assume or create any obligation on behalf of, in the
name of, or binding upon, SPRINT, nor to represent SPRINT as a reseller in
any manner not specifically provided for herein, and all sales by
DISTRIBUTOR shall be in its own name and for its own account.
H. Entire Agreement - This Agreement, together with any agreements or
other documents to which it may be made part, and all Exhibits annexed
hereto, constitutes the entire agreement between the parties, and
supersedes any prior agreement, written or oral, including the terms of
any negotiations in connection with or relating to this agreement. No
agent, employee, or representative of either party has any authority to
bind such party to any affirmation, representation, or warranty, and
unless such is specifically
Distributor Agreement 13
<PAGE> 14
included within this written Agreement, it shall not be enforceable by the
other Party hereto.
No statement, made prior to or after the date hereof, whether by
representatives of SPRINT or DISTRIBUTOR nor any documentation,
information, advice, consultation or otherwise, including representation
by salespersons, sales engineers, technical personnel, or other employees
or agents, shall be deemed to supplement, alter, waive, or modify the
terms contained herein.
I. Notices - Except as otherwise provided in this Agreement, all notices
required or permitted to be given hereunder shall be in writing and shall
be valid and sufficient if dispatched by registered airmail, postage
prepaid, addressed as follows:
If to SPRINT:
Sprint Networks
No. 7 Tverskaya Ulitsa, Entrance No. 7
103375 Moscow, Russia
Attention: General Director
Telephone: (7-095) 201-6890
Facsimile: (7-095) 923-2344
If to DISTRIBUTOR:
Attention: Mark Seidenfeld
Telephone: 371-54-88
Fax: 371-92-05
Either Party hereto may change its address by a notice given to the other
Party hereto in the manner set forth above. Notices given as herein
provided shall be considered to have been received ten (10) days after the
mailing thereof.
J. Severability - Should any part of this Agreement for any reason be
declared invalid, such decision shall not affect the validity of any
remaining portion, which shall remain in force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the Parties hereto that they
would have executed the remaining portion of this Agreement without
including therein any such part or portion which may, for any reason, be
hereafter declared invalid.
Distributor Agreement 14
<PAGE> 15
K. Confidential Treatment - The contents and substance of this Agreement
shall in no event be disclosed by DISTRIBUTOR to third parties except by
consent of the parties hereto or as may otherwise be required by law.
L. Remedies - Upon the occurrence of an Event of Default, SPRINT shall be
entitled to retain all payments made prior thereto, and SPRINT at its
option may, by thirty (30) days written notice to DISTRIBUTOR terminate
this Agreement without prejudice to any other remedies of SPRINT at law or
otherwise.
M. Force Majeure - neither SPRINT nor DISTRIBUTOR shall not be responsible
for any delay or failure in performance or other duties hereunder (whether
material or not) due to any occurrence commonly known as force majeure,
including, without limitation, acts of God, any governmental body (de jure
or de facto) or public enemy, riots, embargoes, strikes, or other
concerted acts of workmen (whether of the Parties or others), casualties
or accidents, deliveries or transportation and shortage of cars, trucks,
fuel, power, labor, or materials, or any other causes, circumstances, or
contingencies, whether of a similar or dissimilar nature to the foregoing,
beyond the parties' control, which prevent or hinder the transmission of
IVAS Services or performance by either party or any of its obligations
hereunder.
SPRINT shall give DISTRIBUTOR, and DISTRIBUTOR shall give SPRINT, notice
in the event of any one or more of the foregoing occurrences. Upon such
notice, the notifying Party may cancel or delay performance hereunder for
so long as such performance is delayed by such occurrence or occurrences
and in such event the notifying Party shall have no liability to the other
party or its Customers.
17. ARBITRATION
Any dispute of claim arising out of this Agreement or the breach thereof
shall be settled by arbitration in accordance with the Arbitration Rules
of the International Chamber of Commerce then in effect, and judgment upon
the award may be entered in Moscow, the Russian Federation. Neither Party
shall appeal such award to any court or regulatory agency. Unless
otherwise agreed, venue for arbitration shall be in Helsinki, Finland.
Such arbitration shall be conducted on a cost-sharing basis with each
Party sharing equally the costs associated therewith.
Distributor Agreement 15
<PAGE> 16
18. COSTS
Except as otherwise provided herein, each Party shall bear its own costs
associated with its performance hereunder.
THIS AGREEMENT ALONG WITH ALL EXHIBITS HERETO CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES ANY PRIOR AGREEMENTS, WRITTEN
OR ORAL. NO WAIVER, ALTERATION OR MODIFICATION OF ANY OF THE PROVISIONS
HEREOF SHALL BE BINDING UNLESS MADE IN WRITING BY AND SIGNED BY A DULY
AUTHORIZED OFFICER OF THE PARTIES.
IN WITNESS WHEREOF, the Parties have hereunto set their hands and caused
their corporate seals to be affixed hereto.
SPRINT DISTRIBUTOR
_________________________ __________________________________
Signature Signature
_________________________ __________________________________
Printed Name Printed Name
_________________________ __________________________________
Title Title
_________________________ __________________________________
Date Date
Distributor Agreement 16
<PAGE> 1
Exhibit 10.14
SERVICE AGREEMENT
This Service Agreement is made this 21 day of December 1995 between
Russian-American joint venture MACOMNET of Moscow, a limited liability company,
hereinafter referred to as Macomnet and represented by General Director Victor
Bykhovsky and Corbina Telecommunications hereinafter referred to as Subscriber
and represented by Director CIS Operations Mark Seidenfeld.
The Service provided by Macomnet to Subscriber as described in Exhibit A
("Service Description") is subject to the following Terms and Conditions:
1. TERM.
The Term of this Service Agreement shall commence on the date of execution
of this Agreement by both Parties and shall extend thereafter until expiration
or renewal as defined in Exhibit A ("Service Description").
2. PAYMENT.
2.1 Subscriber will be invoiced for the Non-Recurring Installation Charge
upon signing the Acceptance Certificate.
The Non-Recurring Charge, each Monthly Recurring Charge as described
in Exhibit A, and any other charges including taxes in accordance with the
legislation in effect, penalties, reconnection fees, service expedite fees,
network reconfiguration fees (whenever requested by the Subscriber) and fees
imposed according to laws and regulations in force during this Service Agreement
are due and payable by the Subscriber within fifteen (15) days from the date of
invoice submission by Macomnet for such charges.
2.2 Upon completion of the cable construction work and installation of the
equipment required for rendering the Service, Macomnet will perform testing of
the channel for the Service. Positive results of the testing submitted to the
Subscriber represent the basis for submission of the Acceptance Certificate and
invoicing the Subscriber for the Non-Recurrent Installation Charge and the
Monthly Recurring Charge for the first month.
The Acceptance Certificate shall be signed by the Subscriber within
5 (five) business days thereafter. If the Subscriber fails to sign the said
Acceptance Certificate within the above mentioned five day term, provided the
testing results were positive, the Acceptance Certificate shall be deemed valid
on the unilateral basis.
The date indicated in the invoice shall be deemed the date the
Service is available for use ("Availability Date").
<PAGE> 2
2.3 Macomnet is entitled to invoice the Subscriber for the Monthly
Recurring Charge along with all the due taxes in conformity with acting
legislation not earlier than at the first day of each month.
2.4 Late payments will be subject to a late payment charge computed as one
half of one percent (0.5%) of the amount billed per each day of delay in
payments.
2.5 If payments are delayed for a term exceeding ten (10) days, Macomnet
reserves the right to cut off the Service. The Service shall be reactivated at
an additional cost as specified in Exhibit A to the present Agreement.
2.6 Subscriber's refusal from Service reactivation means cancellation of
the Service Agreement, when provisions of Article 7 of this Agreement shall
apply.
2.7 With any change of the tax policy or the legislation in effect,
Macomnet shall make unilateral tax adjustments.
2.8 Macomnet reserves the right for adjustment of the monthly recurring
charge not more often than once a year. This readjustment shall be made within
the reasonable levels and with a notice submitted to the Subscriber three months
in advance.
3. USE.
Subscriber may use the Service for any lawful purpose for which it is
intended, provided that Subscriber will not sue the Service so as to interfere
with or impair the Service over any of the facilities and associated equipment
comprising the Macomnet network and associated equipment, or to impair the
privacy of any other party's communications over the Macomnet network facilities
and associated equipment.
4. SUBSCRIBER RESPONSIBILITIES.
4.1 Without any charge to Macomnet, Subscriber shall provide adequate
floorspace, guaranteed commercial power and lighting for installation of
Macomnet equipment and cable at the Subscriber's premises as well as the
necessary permits and right-of-way for laying cable through the adjacent
territory.
4.2 Within three days Subscriber will give approval to the equipment
layout diagram presented by Macomnet.
4.3 Subscriber shall allow and provide Macomnet use of 24 hour access for
personnel and egress cables and equipment to the Subscriber's premises, plus
acquire and provide right of use to any and all required riser shafts, conduits,
cable raceways
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<PAGE> 3
or other facilities and communication structures, owned by the building
management that are necessary and required to provide the Service at the
Subscriber's premises.
4.4 If the Subscriber's premises or building is lacking the telephone
cable entry necessary for cable installation, the Subscriber shall provide for
the construction of such entry.
4.5 Subscriber shall allow all jobs to be done to provide the Service to
the Subscriber within the normal business hours (9 a.m. to 6 p.m. of the work
days of week). Should any other time be allowed for the purpose, the Subscriber
shall be charged extra in an amount agreed upon with Macomnet.
4.6 Upon termination of Services provided under the Agreement, the
Subscriber should provide Macomnet with the possibility to demount the installed
equipment and cables on coordinated term.
5. OWNERSHIP.
5.1 Subscriber agrees that all rights, title and interest in the
equipment, cables and associated materials provided by Macomnet hereunder shall
at all times remain exclusively with Macomnet, except as otherwise agreed upon
in writing between Macomnet and the Subscriber.
5.2 The equipment and cables supplied by Macomnet to provide Service in
compliance with this Agreement at Subscriber's premises shall at all time remain
the property of Macomnet, and access to such equipment and cables will not be
denied at coordinated time for Macomnet personnel to maintain, operate, extend
from fiber interconnection units or demarcation panels for other potential
Subscribers services or to provide any type of service that is required for the
safe and complete operation of Macomnet's network facilities and associated
equipment. Subscriber shall not create or permit to be created any violation of
the property rights for Macomnet's equipment, materials and cables.
6. MAINTENANCE.
6.1 Subscriber shall not perform any maintenance or repair to Macomnet
equipment or facilities, and Subscriber shall limit the access of unauthorized
persons to the Service and equipment.
6.2 Subscriber shall immediately report in writing any failure,
interruption or impairment of Service to the Macomnet Network Management Center,
duplicating same by phone or fax at the numbers of the Macomnet Network
Management Center. Macomnet shall take reasonable measures to maintain the
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Service within applicable parameters as defined in Exhibit B ("Performance
Standards").
6.3 If Subscriber requests fulfillment of any additional works not
associated with outage of Macomnet's equipment or damage of cables, the
Subscriber should pay for these works.
7. CANCELLATION.
7.1 If Subscriber cancels this Service Agreement prior to the Availability
Date, Subscriber shall reimburse Macomnet for all expenses incurred for
installation of the Service. After the Availability Date, provided Subscriber
has paid all charges to date referred to the organization of the Service.
Subscriber may cancel this Service Agreement by delivering to Macomnet a
cancellation payment, equal to six (6) months of the Monthly Recurring Charge of
the contracted amount.
7.2 Subscriber may cancel the Service at the expiration of the Term or
after the expiration of the Term by providing written notice to Macomnet sixty
(60) days prior to the intended termination date.
7.3 If the Subscriber cancels this Service Agreement within the first year
of a multi-year agreement term the Subscriber will reimburse Macomnet for all
installation costs incurred for the installation of the Service to the
Subscriber's premises and the required six (6) month cancellation fee referenced
above.
7.4 At cancellation of the present Agreement initiated by the Subscriber,
the later agrees to pay Macomnet for all the termination fees and penalties,
costs for cable removal from the cable access and routing facilities, and any
restoration fees or costs that may be incurred during the cable removal process
required to restore the cable access and routing facilities to the conditions
they were in prior to Services commencement, as well as possible penalties
imposed by the building administration.
8. DEFAULT.
8.1 The following events will be events of default under this Service
Agreement.
(a) failure by Subscriber to pay any sum payable by Subscriber under
this Service Agreement by the due date or in the agreed amount;
(b) failure by either party to perform any non-monetary obligations
under this Service Agreement within the period specified by the present
Agreement
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<PAGE> 5
or within such additional period as reasonably necessary to cure such failure if
the failure cannot be cured within the specified period;
(c) if the total period when the Service remains unavailable due to
undoubtedly established fault of Macomnet amounts to more then 96 hours within
the period of subsequent 30 days, then Subscriber may cancel the Agreement, and
the provisions of the Article 7 of the present Agreement shall not apply.
8.2 On occurrence of an event of default through Macomnet failure, the
Subscriber shall be given a credit for the length of time Macomnet delays in
meeting its obligations. On occurrence of an event of default through the
Subscriber's failure, the Required In-Service Date per the Service Order shall
accordingly be postponed by Macomnet for the time the Subscriber delays in
meeting its obligations.
9. INTERRUPTION CREDIT.
9.1 Subscriber shall be entitled to a credit for any period in which the
Service remains unavailable for four (4) hours or more, unless the interruption
takes place through the Subscriber's fault or as expressly permitted by Exhibit
B of this Service Agreement. The amount of the credit shall be equal to the
amount Subscriber is charged for the Service for the period of time that the
interruption continues beyond four (4) hours, calculated in increments of thirty
(30) minutes.
9.2 No credit shall be allowed for any interruption or for any impairment
of the Service of less than (4) hours or for any times required to make tests or
adjustments to the Service, provided these tests or adjustments are requested by
Subscriber.
10. WARRANTY AND LIABILITY.
10.1 The Interruption Credit and Impaired Operating Condition Credit
described above shall be Macomnet's sole obligation and Subscriber's sole remedy
for any loss or damage sustained as a result of any interruption, service
impairment or failure of the Service, any facilities used in providing the
Service, or for any error, omission or delay for any reason.
10.2 Macomnet guarantees the compliance of the Service provided under this
Agreement to the performance standards specified in Exhibit B of the Agreement.
10.3 In no event shall Macomnet be liable to Subscriber or to any third
party for any indirect, special or consequential damages including, without
limitation, those based on loss of revenues of profits, or business
opportunities, whether or not
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<PAGE> 6
Macomnet had or should have had any knowledge, actual or constructive, that any
such damages might be incurred.
11. INDEMNIFICATION.
Each party will indemnify the other party against all liability, damage
and expense, including reasonable attorney's fees and court costs ("Damages"),
arising out of any claim or judgement ("Claim") for damages to any property, or
injury to or death of any person, which arises out of any alleged act or
omission of the other party. Subscriber will also indemnify Macomnet against all
Damages from any Claim which arises out of Subscriber's use of the Service or is
made by a third party claiming through Subscriber to whom Subscriber provides
service using the Service.
12. ASSIGNMENT.
Neither party may assign this Service Agreement to a third party without
the express written consent of the other party, except (a) to any subsidiary,
parent company or affiliate or (b) pursuant to any sale of all the business
related to this Service Agreement or (c) pursuant to a financing, merger or
reorganization if the party's credit-worthiness is not thereby impaired.
13. NOTICE OF ASSIGNMENT.
The Subscriber hereby acknowledges that it has received notice of the
assignment to the European Bank for Reconstruction and Development of the rights
under this Service Agreement.
14. CONFIDENTIALITY.
14.1 If either party provides confidential information to the other in
writing and identified as such, the receiving party shall protect the
confidential information from disclosure to third parties with the same degree
of care accorded its own confidential and proprietary information, except that
neither party shall be required to protect as confidential any information which
becomes publicly available other than through the recipient or which is required
to be disclosed by a state or judicial order or which is independently developed
by the disclosing party.
14.2 Confidentiality obligations shall survive for a period of one (1)
year following expiration or termination of this Service Agreement. If the
parties have entered into a Confidentiality Agreement, its terms and obligations
shall be in addition to the terms and obligations of this Paragraph.
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15. NOTICES.
15.1 All notices shall be in writing and addressed as provided in Exhibit
C ("General Notices").
15.2 Notices shall be deemed given five (5) days after delivery to an
international overnight courier service, fee prepaid., return receipt requested
or if by facsimile, on the date indicated on the receiving party's facsimile
copy.
16. SETTLEMENT OF DISPUTES.
If the parties are unable to independently resolve any dispute pursuant to
this Service Agreement, the dispute shall be settled by the Arbitration Court of
Russia.
17. FORCE MAJEURE.
17.1 The obligations of the parties to this Agreement are subject to force
majeure and a party shall not be in default if any failure or delay in
fulfilling its obligations is caused by governmental acts or actions (official
or unofficial), blockades or embargoes; war or civil disorder; strike or other
labor problem; acts of God; natural disasters, or other circumstances which the
party could not foresee nor prevent through reasonable measures.
17.2 If any party shall be unable, by reasons of force majeure, to carry
out its obligations under this Agreement, the party so failing shall give a
written notice to the other party within a minimum possible time after the
occurrence of any such case. The obligations of the failing party shall
accordingly be suspended for the length of time of the continuance of such force
majeure event.
18. GENERAL PROVISIONS.
18.1 These terms and conditions and the terms and conditions of any
addendum, schedule or exhibit hereto (including, without limitation, Exhibits A,
B, C and D, as well as Macomnet Order Form and Acceptance Statement which are
incorporated herein by reference) constitute the entire agreement between the
parties and supersede any other oral or written understandings regarding the
Service described in this Service Agreement.
18.2 Both parties agree that sales representatives of Macomnet have no
authority to bind Macomnet or to alter the terms and conditions of this Service
Agreement. Failure of either party to insist on strict performance of any of
these terms and conditions shall not be deemed a waiver thereof. If any
provisions of this
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<PAGE> 8
Service Agreement are held to be unenforceable, the remaining provisions of this
Service Agreement shall remain in effect. This Service Agreement shall be
governed by the laws of Russia.
18.3 This Agreement is signed in two originals, each in a bilingual form
in English and in Russian and consists of ( ) pages. Both texts are identical in
meaning. The Russian text is agreed to be predominant.
MACOMNET/MAKOMHET:
Victor Bykhovsky
General Director
__________________________________________
Signature
__________________________________________
Date
8
<PAGE> 1
Exhibit 10.15
AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") made as of June
16, 1997, by and between Russian Wireless Telephone Company, Inc. (f/k/a Telcom
Group USA, Inc.), a corporation organized and existing under the laws of the
state of Delaware (the "Corporation"), and Ronald G. Nathan (the "Executive").
WHEREAS, the Executive is employed by the Corporation pursuant to that
certain employment agreement between the parties dated as of January 1, 1995
(the "Employment Agreement"); and
WHEREAS, the parties desire to extend the term of the Employment Agreement
through December 31, 1999,
NOW, THEREFORE, in consideration of the foregoing, and the mutual terms
and conditions hereinbelow set forth, it is agreed as follows:
1. Extension of Employment Agreement. Article I of the Employment
Agreement is hereby deemed to have been deleted, and replaced in its entirety by
the following new Article I:
Article I: Employment. A. The Corporation hereby employes the
Executive as an executive of the Corporation (as his duties are more
particularly described in Paragraph B of this Article I) for a period
commencing on January 1, 1995 and terminating on December 31, 1999, unless
Executive's employment is terminated earlier pursuant to Article III of
this Agreement (the 'Employment Period').
B. The Executive shall serve as the Chief Executive Officer of the
Corporation and any such other position or positions within the
Corporation as the Corporation and Executive shall mutually agree upon.
C. The Executive accepts such employment, and agrees to devote
substantially all of his time (approximately 40 hours per week) in the
performance of such services as may from time to time be assigned to him
by, or pursuant to the authorization of, the Board of Directors of the
Corporation (the "Board") or by the Chairman of the Board of the
Corporation consistent with his position as Chief Executive Officer,
provided, however, that Executive shall not be required to render full
time services in the performance of his duties hereunder. The Executive
agrees that during the Employment Period he will not, directly or
indirectly, engage or participate in, or become employed by, or render
advisory or other services to, any business entity which competes directly
with the Company's current business (namely the provision of competitive
access services and the resale of
<PAGE> 2
long distance services), except in the performance of his duties for the
Corporation."
2. Continuation of Employment Agreement in Full Force and Effect. The
Employment Agreement, as modified by the provisions of this Amendment thereto,
shall continue, from and after the date hereof, in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
RUSSIAN WIRELESS
TELEPHONE COMPANY, INC.
By: ____________________________________________
Jack W. Buechner, Chairman
________________________________________________
Ronald G. Nathan
2
<PAGE> 1
Exhibit 10.16
AMENDMENT dated as of June 16, 1997 to the EMPLOYMENT AGREEMENT (the
"Agreement") made as of the 28th day of January 1997 by and between Mikhail
Leibov, residing at 11 Golar Drive, Monsey, New York 10952 (the "Executive"),
and Russian Wireless Telephone Company, Inc., a Delaware corporation formerly
known as Telcom Group USA, Inc., having an office for the transaction of
business at 780 Third Avenue, New York, New York 10017 (the "Company").
1. Modification of Article 1 of the Agreement. Section 1.1 of the
Agreement is hereby deemed to have been deleted and replaced by the following
new Section 1.1:
Section 1.1 Employment of the Executive. Commencing on
February 1, 1997 (the "Commencement Date") and continuing during the
five year period ending on January 31, 2002 (the "Term"), the Executive
shall serve as Executive Vice President of the Company, as General
Director (Chief Executive) of ZAO Corbina Telecommunications
("Corbina"), as General Director (Chief Executive) of ZAO CompTel
Limited ("CompTel") and as General Director (Chief Executive) of ZAO
Investelektrosvyaz ("Investelektrosvyaz"), and shall devote
substantially all of his time (approximately 40 hours per week) in
connection therewith. In his capacities as General Director of Corbina,
CompTel and Investelektrosvyaz, the Executive shall have general
supervision over the business and day-to-day affairs of such companies,
reporting in each case to the Chief Executive Officer of the Company,
and subject in each case, to the overall directions given to the
Executive by the Chief Executive Officer of the Company which shall be
in accordance with the management decisions made by the respective
stockholders of such companies at extraordinary and general meetings of
such stockholders.
2. Modification of Article 7 of the Agreement. Article 7 of the
Agreement is hereby modified by adding thereto a new Section 7.8 which provides,
as follows:
Section 7.8 The Company's Warranties and Representations. The
Company hereby warrants and represents to the Executive that:
(a) Upon completion of the initial public offering of
securities which the Company shall be making pursuant to the prospectus
which forms a part of the Registration Statement on Form SB-2 filed by
the Company with the Securities and Exchange Commission under
Registration No. 333-24177 (the "Prospectus"), the Company shall use
the net proceeds derived therefrom in accordance with the provisions
of, and for the purposes stated in, the section of the Prospectus
entitled "Use of Proceeds."
<PAGE> 2
(b) Upon receipt of the Executive's requests for funds needed
to implement the business plans of Corbina, CompTel and Investelektrosvyaz in
accordance with the disclosures thereof contained in the Prospectus, the Company
shall transfer such funds to the "I" account maintained by the Company at ABN
Amro Bank in Moscow, or to such other account or accounts as shall be mutually
acceptable to the Company's Chief Executive Officer and the Executive.
(c) In the event that the Company shall receive, at any time
during the Term of this Agreement, loan proceeds aggregating not less than $50
million from one or more banks or other financial institutions, the Company
shall provide up to 30% of such loan proceeds to Corbina, CompTel and/or
Investelektrosvyaz for expansion of their respective businesses pursuant to the
business plans of such companies as disclosed in the Prospectus.
3. Continuation of Agreement in Full Force and Effect. The Agreement,
as modified by the provisions of this Amendment thereto, shall continue, from
and after the date hereof, in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to the Agreement as of the date first above written.
RUSSIAN WIRELESS
TELEPHONE COMPANY, INC.
By:_____________________________________
Ronald G. Nathan, President
________________________________________
Mikhail Leibov
2
<PAGE> 1
Exhibit 10.17
[LETTERHEAD OF HOLLAND INTERTRUST (ANTILLES) N.V.]
TelCom Group USA, Inc.
575 Lexington Avenue
New York, New York 10022
Curacao, July 31, 1995
Ref.: STOCK CONTRIBUTION
Dear Sirs,
We hereby deliver to TelCom Group USA, Inc. (the "Company"), an
aggregate of 800,000 shares of Common Stock of the Company held by us and
represented by certificates #16 (600,000 shares) and #27 (200,000 shares)
attached hereto in connection with the acquisition of such shares by the Company
from us and the issuance of that certain promissory note of TelCom to us dated
May 22, 1995 in the aggregate principal amount of $800,000 (a copy of which is
attached hereto). We hereby disclaim any interest whatsoever in these shares of
Common Stock.
INVERSIONES SANTA CATALINA N.V.
By its Managing Director
HOLLAND INTERTRUST (CURACAO) N.V.
By:___________________________________________
Name: Gregory E. Elias
Title: Managing Director
<PAGE> 2
PROMISSORY NOTE
$600,000 May 22, 1995
WHEREAS, Inversiones Santa Catalina, N.V. (the "Lender") desires to
accept from TelCom Group USA, Inc. (the "Borrower"), and the Borrower desires to
issue to Lender, this Promissory Note (the "Note") in the principal amount of
$600,000 in payment of and in consideration for the contribution by the Lender
to the Borrower of 800,000 shares of Common Stock of the Borrower, pursuant to
the terms and conditions contained in this Note.
NOW, THEREFORE, for good and valuable consideration herein contained,
Borrower hereby promises to pay to the order of Lender or his successors or
assigns the principal amount of six hundred thousand ($600,000) dollars on May
22, 2000 (the "Maturity Date"), plus accrued and unpaid interest on such date
and as specified below.
Borrower also promises to pay interest on the $600,000 principal amount
of this Note on the Maturity Date at a rate equal to 2% per annum (on the basis
of a 360-day year and actual number of days elapsed) from and including the date
hereof until such principal sum shall be paid in full and to pay interest on any
overdue installment of principal or interest at a rate equal to 2% per annum.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in immediately available
funds to Lender, at Lender's office or such other place as shall be designated
in writing by Lender for such purpose.
Borrower hereby waives diligence, presentment, dishonor, demand, notice
and protest and, to the full extent permitted by law, the right to plead any
statute of limitations as a defense to any demand hereunder. Borrower promises
to pay all costs and expenses, including reasonable attorneys' fees, incurred in
the collection and enforcement of this Note.
On the Maturity Date Borrower shall pay to the order of Lender or its
successors or assigns the principal amount of $600,000 plus accrued and unpaid
interest at the rate set forth above.
Whenever any payment on this Note shall be stated to be due on a
Saturday, a Sunday or a day on which banking institutions in the City of New
York are authorized or obligated by law, regulation or executive order to remain
closed (a "Legal Holiday"), such payment shall be made on the next succeeding
day which is not a Legal Holiday and such extension of time shall be included in
the computation of the payment of interest on this Note.
<PAGE> 3
The terms of this Note are not subject to amendment except by written
agreement of Lender and Borrower and Borrower may assign its obligations
hereunder without the prior written consent of Lender.
This Note may be prepaid at any time by Borrower either in whole or in
part.
This Note shall be governed by and construed and enforced in accordance
with the laws of State of New York, without regard to principles of conflicts of
laws.
IN WITNESS WHEREOF, Borrower has duly executed this Note, the day and
year first above written.
TELCOM GROUP USA, INC.
By:_____________________________________
Name: Ronald G. Nathan
Title: President
2
<PAGE> 1
Exhibit 10.18
AGREEMENT dated as of June 25, 1997 between Russian Wireless
Telephone Company, Inc. (the "Borrower"), a Delaware corporation formerly known
as Telcom Group USA, Inc. having offices for the transaction of business located
at 780 Third Avenue, Suite 1600, New York, New York 10017; and Inversiones Santa
Catalina, N.V. (the "Lender"), a joint stock corporation organized under the
laws of the Netherlands Antilles having offices for the transaction of business
located at P.O. Box 1137, Curacao, Netherlands, Antilles.
WHEREAS, in May 1995, the Borrower, redeemed from the Lender
800,000 shares of Borrower's $.01 par value common stock and agreed to pay
therefor the sum of $600,000 (the "Redemption Price"); and
WHEREAS, as evidence of Borrower's obligation to pay the
Redemption price to Lender, Borrower made and issued on May 22, 1995 a certain
promissory note which provided, among other things, that Borrower would pay to
the Lender on May 22, 2000 the principal sum of $600,000, together with interest
thereon computed at the rate of 2% per annum (the "Note"); and
WHEREAS, the Borrower desires to borrow the sum of $150,000
from Lender in accordance with the terms, and subject to the conditions
hereinbelow set forth; and
WHEREAS, Lender is willing to lend said $150,000 to the
Borrower pursuant to the terms of this agreement,
NOW, THEREFORE, in consideration of the foregoing, and the
mutual terms and conditions hereinbelow set forth, it is agreed, as follows:
1. $150,000 Loan. Borrower hereby acknowledges receipt from
the Lender of the sum of $150,000 (the "Principal") which constitutes the
proceeds of a loan made by the Lender to the Borrower. Borrower hereby promises
that, on the earlier to occur of (i) the closing of its proposed initial public
offering of securities (the "Offering"), and (ii) December 31, 1997, Borrower
shall pay, by bank check, certified check or other immediately available funds,
said Principal (or the outstanding balance thereof remaining unpaid on said
date), together with interest computed on said principal amount (as the same may
be reduced from time to time) from the date first above-written through the date
of such payment, at the rate of 15% per annum (said Principal and interest being
hereinafter referred to collectively as the "Indebtedness"). Anything herein
contained to the contrary notwithstanding, in the event that, for any reason,
Borrower withdraws the registration statement pertaining to the Offering prior
to the declaration of effectiveness thereof by the Securities & Exchange
Commission (the "Commission"), or otherwise ceases (a "Termination") to proceed
with registration of the securities subject to such Offering under the
Securities Act of 1933, as amended (the "Act"), the entire amount of the
Indebtedness shall thereupon become immediately due and payable without further
notice.
<PAGE> 2
2. Events of Default. Upon the occurrence of any of the
following events (herein called "Events of Default") which shall have occurred
and be continuing:
a. Borrower shall default in the payment of the
Indebtedness when due; or
b. (i) Borrower shall commence any proceeding or
other action relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation, winding-up,
composition or any other relief under the Bankruptcy Act, as amended, or under
any other insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act or law, of any
jurisdiction, domestic or foreign, now or hereafter existing; or (ii) Borrower
shall admit the material allegations of any petition or pleading in connection
with any such proceeding; or (iii) Borrower applies for, or consents or
acquiesces to, the appointment of a receiver, conservator, trustee or similar
officer for it or for all or a substantial part of its property; or (iv)
Borrower makes a general assignment for the benefit of creditors; or
c. (i) There shall be commenced any involuntary
proceeding in bankruptcy against Borrower or there shall be taken any action
against Borrower seeking reorganization, arrangement, readjustment of its debts,
liquidation, dissolution, arrangement, composition, readjustment of debt or any
other similar act or law of any jurisdiction, domestic or foreign, now or
hereafter existing, which proceeding or action shall continue for sixty (60)
days undismissed, unbonded or undischarged; or
(ii) there shall be appointed any receiver,
conservator, trustee or similar officer for Borrower or for all or substantially
all of its property, and such appointment shall continue for sixty (60) days
undismissed, unbonded or undisclosed; or (iii) there shall be issued any warrant
of attachment, execution or similar process against substantially all of the
property of Borrower which shall continue for sixty (60) days undismissed,
unbonded and undischarged; or
d. There shall be a material breach of any warranty,
representation or covenant of Borrower contained herein; or
e. A Termination shall occur (as defned in Section 1
hereof),
then, and in any such event the Lender may by written notice to Borrower declare
the entire unpaid Principal outstanding together with accrued interest thereon
at a rate (the "Late Rate") equal to the greater of (i) 12% per annum or (ii)
the highest maximum rate permitted by law, due and payable, and the same shall,
unless such
2
<PAGE> 3
default be cured within five (5) days after such notice, forthwith become due
and payable upon the expiration of such five (5) day period, without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived.
3. Acceleration of Payment of the Note. In order to induce
Lender to enter into and execute this Agreement, the parties hereto hereby agree
that the Note is hereby deemed to have been modified to provide that the entire
unpaid balance of the principal amount of the Note, together with all accrued
but unpaid interest due and owing with respect thereto, shall become due and
payable on the date when the Indebtedness shall become due and payable
hereunder.
4. Borrower's Warranties and Representations. Borrower hereby
represents and warrants to the Lender, as follows:
a. Organization and Corporate Power. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, has all requisite corporate power and authority to
execute this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Borrower does not, and the
consummation of the transactions contemplated hereby will not, violate any
provisions of Borrower's organizational and governing documents, or any
provision of any law, rule, regulation, mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree to which Borrower or
any of its subsidiaries is a party or by which Borrower or any of its
subsidiaries is bound. Borrower has taken all action required by law, its
organizational and governing documents or otherwise (including action by such
entity's board of directors or other managing body) to authorize its execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of Borrower.
b. Consents. No authorization, consent or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery or performance by
Investor of any obligations hereunder. To the best of Borrower's knowledge, no
registrations, filings, applications, notices, transfers, consents, approvals,
orders, qualifications, waivers or other action of any kind is required by
virtue of the execution and delivery of this Agreement or of the consummation of
the transactions contemplated hereby.
5. Lender's Representations. Lender represents to Borrower, as
follows:
a. Lender has been advised by Borrower, as follows:
3
<PAGE> 4
i. Borrower is seeking to borrow up to
$300,000 (including the Principal) from several lenders including the Lender.
THE CLOSINGS OF THE LOANS TO BE MADE TO BORROWER BY SUCH LENDERS (INCLUDING
LENDER) ARE NOT INTERRELATED OR INTERDEPENDENT. ACCORDINGLY, BORROWER MAY
CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, AND USE THE PRINCIPAL FOR THE
PURPOSES STATED HEREIN WHETHER OR NOT IT CLOSES ANY OF SUCH OTHER LOAN
TRANSACTIONS.
ii. Lender has received a copy of the
preliminary prospectus which forms a part of the Registration Statement on Form
SB-2 which the Borrower filed with the Commission on March 28, 1997 under
Registration No. 333-24177 (the "Prospectus").
iii. Lender has reviewed the Prospectus, and
is familiar with the various risks identified in the section of the Prospectus
entitled "Risk Factors."
iv. The Principal shall be used by Borrower
as working capital, and for general corporate purposes.
b. Lender is aware of and, in connection with his
review of the Prospectus, Lender has considered, among other things, the
following additional risk factors:
i. The transaction which is the subject of
this Agreement is extremely speculative and should only be made by persons who
can afford to lose the entire principal amount being loaned to Borrower.
ii. The repayment of the Indebtedness will
be wholly dependent upon the completion of the Offering.
6. Miscellaneous. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by all the parties hereto. No delay or
failure on the part of the Lender in exercising any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any right, power or privilege hereunder. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof, and it supersedes all prior oral or written agreements, commitments or
understandings with respect to such matters. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Borrower agrees to indemnify and hold harmless the
Lender from and against any costs and expenses (including attorneys' fees and
disbursements) incurred by the Lender in enforcing and preserving the Lender's
rights under this Agreement. This agreement shall be
4
<PAGE> 5
interpreted in accordance with the laws of the state of New York without regard
to the conflicts of laws principles thereof.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above-written.
Russian Wireless Telephone Company, Inc.
By:_____________________________________
Ronald G. Nathan, President
Inversiones Santa Catalina, N.V.
By its Managing Director
Holland Intertrust (Curacao) N.V.
By:_____________________________________
Name:___________________________________
Title:__________________________________
5
<PAGE> 1
Exhibit 10.19
AGREEMENT dated as of June 25, 1997 (the "Agreement") between
and among Russian Wireless Telephone Company, Inc. ("Borrower"), a Delaware
corporation having offices for the transaction of business located at 780 Third
Avenue, Suite 1600, New York, New York 10017; and Joseph Defalco residing at 235
Promenade, Scotch Plains, New Jersey 07076 (the "Lender").
WHEREAS, the Borrower desires to borrow the sum of $150,000
from Lender in accordance with the terms, and subject to the conditions
hereinbelow set forth; and
WHEREAS, Lender is willing to lend said $150,000 to the
Borrower pursuant to the terms of this agreement,
NOW, THEREFORE, in consideration of the foregoing, and the
mutual terms and conditions hereinbelow set forth, it is agreed, as follows:
1. $150,000 Loan. Borrower hereby acknowledges receipt from
the Lender of the sum of $150,000 (the "Principal") which constitutes the
proceeds of a loan made by the Lender to the Borrower. Borrower hereby promises
that, on the earlier to occur of (i) the closing of its proposed initial public
offering of securities (the "Offering"), and (ii) December 31, 1997, Borrower
shall pay, by bank check, certified check or other immediately available funds,
said Principal (or the outstanding balance thereof remaining unpaid on said
date), together with interest computed on said principal amount (as the same may
be reduced from time to time) from the date first above-written through the date
of such payment, at the rate of 15% per annum (said Principal and interest being
hereinafter referred to collectively as the "Indebtedness"). Anything herein
contained to the contrary notwithstanding, in the event that, for any reason,
Borrower withdraws the registration statement pertaining to the Offering prior
to the declaration of effectiveness thereof by the Securities & Exchange
Commission (the "Commission"), or otherwise ceases (a "Termination") to proceed
with registration of the securities subject to such Offering under the
Securities Act of 1933, as amended (the "Act"), the entire amount of the
Indebtedness shall thereupon become immediately due and payable without further
notice.
2. Events of Default. Upon the occurrence of any of the
following events (herein called "Events of Default") which shall have occurred
and be continuing:
a. Borrower shall default in the payment of the
Indebtedness when due; or
b. (i) Borrower shall commence any proceeding or
other action relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation, winding-up,
composition or any other relief under the Bankruptcy Act, as amended, or under
<PAGE> 2
any other insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act or law, of any
jurisdiction, domestic or foreign, now or hereafter existing; or (ii) Borrower
shall admit the material allegations of any petition or pleading in connection
with any such proceeding; or (iii) Borrower applies for, or consents or
acquiesces to, the appointment of a receiver, conservator, trustee or similar
officer for it or for all or a substantial part of its property; or (iv)
Borrower makes a general assignment for the benefit of creditors; or
c. (i) There shall be commenced any involuntary
proceeding in bankruptcy against Borrower or there shall be taken any action
against Borrower seeking reorganization, arrangement, readjustment of its debts,
liquidation, dissolution, arrangement, composition, readjustment of debt or any
other similar act or law of any jurisdiction, domestic or foreign, now or
hereafter existing, which proceeding or action shall continue for sixty (60)
days undismissed, unbonded or undischarged; or
(ii) there shall be appointed any receiver,
conservator, trustee or similar officer for Borrower or for all or substantially
all of its property, and such appointment shall continue for sixty (60) days
undismissed, unbonded or undisclosed; or (iii) there shall be issued any warrant
of attachment, execution or similar process against substantially all of the
property of Borrower which shall continue for sixty (60) days undismissed,
unbonded and undischarged; or
d. There shall be a material breach of any warranty,
representation or covenant of Borrower contained herein; or
e. A Termination shall occur (as defined in Section 1
hereof), then, and in any such event the Lender may by written notice to
Borrower declare the entire unpaid Principal outstanding together with accrued
interest thereon at a rate (the "Late Rate") equal to the greater of (i) 12% per
annum or (ii) the highest maximum rate permitted by law, due and payable, and
the same shall, unless such default be cured within five (5) days after such
notice, forthwith become due and payable upon the expiration of such five (5)
day period, without presentment, demand, protest or other notice of any kind,
all of which are expressly waived.
3. Borrower's Warranties and Representations. Borrower hereby
represents and warrants to the Lender, as follows:
a. Organization and Corporate Power. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware, has all requisite corporate power and authority to
execute this
2
<PAGE> 3
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Borrower does not, and the consummation of the
transactions contemplated hereby will not, violate any provisions of Borrower's
organizational and governing documents, or any provision of any law, rule,
regulation, mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree to which Borrower or any of its subsidiaries is a
party or by which Borrower or any of its subsidiaries is bound. Borrower has
taken all action required by law, its organizational and governing documents or
otherwise (including action by such entity's board of directors or other
managing body) to authorize its execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement is a valid and binding agreement of Borrower.
b. Consents. No authorization, consent or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery or performance by
Investor of any obligations hereunder. To the best of Borrower's knowledge, no
registrations, filings, applications, notices, transfers, consents, approvals,
orders, qualifications, waivers or other action of any kind is required by
virtue of the execution and delivery of this Agreement or of the consummation of
the transactions contemplated hereby.
4. Lender's Representations. Lender represents to Borrower, as
follows:
a. Lender has been advised by Borrower, as follows:
i. Borrower is seeking to borrow up to
$300,000 (including the Principal) from several lenders including the Lender.
THE CLOSINGS OF THE LOANS TO BE MADE TO BORROWER BY SUCH LENDERS (INCLUDING
LENDER) ARE NOT INTERRELATED OR INTERDEPENDENT. ACCORDINGLY, BORROWER MAY
CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, AND USE THE PRINCIPAL FOR THE
PURPOSES STATED HEREIN WHETHER OR NOT IT CLOSES ANY OF SUCH OTHER LOAN
TRANSACTIONS.
ii. Lender has received a copy of the
preliminary prospectus which forms a part of the Registration Statement on Form
SB-2 which the Borrower filed with the Commission on March 28, 1997 under
Registration No. 333-24177 (the "Prospectus").
iii. Lender has reviewed the Prospectus, and
is familiar with the various risks identified in the section of the Prospectus
entitled "Risk Factors."
iv. The Principal shall be used by Borrower
as working
3
<PAGE> 4
capital, and for general corporate purposes.
b. Lender is aware of and, in connection with his
review of the Prospectus, Lender has considered, among other things, the
following additional risk factors:
i. The transaction which is the subject of
this Agreement is extremely speculative and should only be made by persons who
can afford to lose the entire principal amount being loaned to Borrower.
ii. The repayment of the Indebtedness will
be wholly dependent upon the completion of the Offering.
5. Miscellaneous. No amendment, modification or discharge of
this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by all the parties hereto. No delay or
failure on the part of the Lender in exercising any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any right, power or privilege hereunder. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof, and it supersedes all prior oral or written agreements, commitments or
understandings with respect to such matters. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Borrower agrees to indemnify and hold harmless the
Lender from and against any costs and expenses (including attorneys' fees and
disbursements) incurred by the Lender in enforcing and preserving the Lender's
rights under this Agreement. This agreement shall be interpreted in accordance
with the laws of the state of New York without regard to the conflicts of laws
principles thereof.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above-written.
Russian Wireless Telephone Company, Inc.
By:_____________________________________
Ronald G. Nathan, President
________________________________________
Joseph Defalco
4
<PAGE> 1
Exhibit 10.20
Rescission Agreement dated as of February 6, 1997, by and between
TelCom Group USA, Inc. ("TelCom") and Colonial Electric Consulting Corp.
("Colonial").
RECITALS
WHEREAS, TelCom, in connection with a private placement of Units made
to a group of investors in 1994 which included Colonial, heretofore issued one
Unit thereof to Colonial consisting of a certain Promissory Note dated October
19, 1994 payable to Colonial's order in the aggregate principal amount of
$98,000 (the "Note") and a certain Warrant to purchase 50,000 shares of Telcom's
Common Stock, $.01 par value (the "Warrant" which, together with the Note, are
hereinafter referred to as the "Unit"); and
WHEREAS, the Note provided that the Maturity Date1 thereof shall be the
earlier of (i) TelCom's consummation of a public or private financing of its
equity securities raising net proceeds equal to or greater than the gross
proceeds raised in the Offering or (ii) sixteen (16) months from the First
Closing Date; and
WHEREAS, the parties hereto extended the Maturity Date pursuant to
Amendment No. 1 to the Note executed in January 1996 to the earlier of (i)
TelCom's consummation of a public or private financing of its equity securities
raising net proceeds equal to or greater than the gross proceeds raised in the
Offering or (ii) twenty two (22) months from the First Closing Date; and
WHEREAS, the Colonial has refused to grant Telcom's request for a
further extension of the Maturity Date, and has agreed, instead, to rescind its
purchase of the Unit pursuant to the terms, and subject to the conditions
hereinbelow provided; and
WHEREAS, Telcom is willing to implement such rescission transaction in
accordance with such terms, and subject to such conditions,
NOW, THEREFORE, in consideration of the above premises, TelCom and
Colonial agree as follows:
1. Rescission of Unit Purchase. Telcom and Colonial hereby agree that
Colonial's purchase of the Unit is hereby rescinded. In order to implement such
rescission, and in consideration therefor, Telcom shall pay the sum of $100,000
to Colonial without any interest as follows: four installments of $25,000 shall
be paid to Colonial by check subject to collection, or by wire transfer to an
account to be designated by Colonial. Such installments shall be made on the
15th day of each month commencing in February 1997, and continuing through and
including May,
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1
Unless otherwise indicated, all capitalized terms used in this
Rescission Agreement shall have the meanings ascribed thereto in the Note.
<PAGE> 2
1997.
2. Cancellation of Note and Warrant. Colonial hereby agrees that the
Note and the Warrant are hereby canceled, and are no longer enforceable against
Telcom.
3. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware. The parties hereto consent to
the jurisdiction of the Courts of the State of New York and the United States
District Courts situated therein in connection with any action concerning the
provisions of this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the date first written above.
TELCOM GROUP USA, INC.
By:______________________________________
Ronald G. Nathan, President
Colonial Electric Consulting Corp.
By:______________________________________
Matthew Ricciardi, President
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<PAGE> 1
Exhibit 10.21
Amendment dated June 18, 1997 to Rescission Agreement dated as of
February 6, 1997 (the "Agreement") between Russian Wireless Telephone Company,
Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Colonial Electric Consulting
Corp. ("Colonial").
RECITALS
WHEREAS, TelCom, in connection with a private placement of Units made
to a group of investors in 1994 which included Colonial, heretofore issued one
Unit thereof to Colonial consisting of a certain Promissory Note dated October
19, 1994 payable to Colonial's order in the aggregate principal amount of
$98,000 (the "Note") and a certain Warrant to purchase 50,000 shares of Telcom's
Common Stock, $.01 par value (the "Warrant" which, together with the Note, are
hereinafter referred to as the "Unit"); and
WHEREAS, the Note provided that the Maturity Date1 thereof shall be the
earlier of (i) TelCom's consummation of a public or private financing of its
equity securities raising net proceeds equal to or greater than the gross
proceeds raised in the Offering or (ii) sixteen (16) months from the First
Closing Date; and
WHEREAS, the parties hereto extended the Maturity Date pursuant to
Amendment No. 1 to the Note executed in January 1996 to the earlier of (i)
TelCom's consummation of a public or private financing of its equity securities
raising net proceeds equal to or greater than the gross proceeds raised in the
Offering or (ii) twenty two (22) months from the First Closing Date; and
WHEREAS, the Colonial refused to grant Telcom's request for a further
extension of the Maturity Date, and agreed, instead, to rescind its purchase of
the Unit pursuant to the terms, and subject to the conditions of the Agreement;
and
WHEREAS, Telcom has paid $50,000 of the $100,000 due and owing to
Colonial pursuant to the Agreement, and has requested Colonial to modify the
provisions of the Agreement pertaining to the balance owed thereunder in the
manner hereinbelow provided; and
WHEREAS, Colonial is willing to grant Telcom's request in accordance
with the terms, and subject to the conditions hereinbelow set forth,
NOW, THEREFORE, in consideration of the above premises, TelCom and
Colonial agree as follows:
1. Modification of Paragraph 1 of the Agreement. The parties hereby
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Unless otherwise indicated, all capitalized terms used in this
Amendment to the Agreement shall have the meanings ascribed thereto in the Note.
<PAGE> 2
agree that paragraph 1 of the Agreement is deemed to have been deleted and
replaced by the following with effect from the date of the Agreement:
1. Rescission of Unit Purchase. Telcom and Colonial hereby agree that
Colonial's purchase of the Unit is hereby rescinded. In order to
implement such rescission, and in consideration therefor, Telcom shall
pay the sum of $100,000 to Colonial without any interest as follows:
two installments of $25,000 shall be paid to Colonial by check subject
to collection, or by wire transfer to an account to be designated by
Colonial. Such installments shall be made on the 15th days of February
and March 1997. The balance of $50,000 shall be paid on the closing
date of the Offering.
2. Re-issuance of Warrant to Colonial. In order to induce Colonial to
execute this amendment to the Agreement, and in consideration therefor, Telcom
hereby agrees to re-issue to Colonial a warrant (the "New Warrant") entitling
Colonial to purchase a portion of the shares of Telcom's common stock that
Colonial had been entitled to purchase pursuant to the Warrant. Accordingly,
such New Warrant will entitle Colonial to purchase 12,500 shares of Telcom's
Common Stock at an exercise price of $7.25 per share. Such New Warrant shall
contain precisely the same provisions as those contained in the form of New
Warrant annexed hereto as Exhibit A.
2. Lock-up. Colonial understands that (a) J. W. Barclay & Co., Inc.
(the "Underwriter") is considering acting as underwriter of the Offering,
pursuant to a registration statement on Form SB-2 (the "Registration
Statement"), heretofore filed by Telcom with the Securities and Exchange
Commission (the "Commission"); and (b) the Underwriter has informed Telcom that
the Underwriter's obligation to execute an underwriting agreement with respect
to the Offering, and to purchase the securities which Telcom will be offering to
the public will be conditioned upon Telcom's receipt of agreements from all
pre-Offering holders of securities of Telcom regarding the imposition of
restrictions on the sale or other disposition of their respective securities.
Accordingly, in consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Colonial agrees that Colonial will not, for a period ending on the first to
occur of twenty-four (24) months following the date the Registration Statement
is declared effective by the Commission (the "Effective Date"), without the
prior written consent of the Underwriter, directly or indirectly, offer, sell,
transfer or otherwise dispose of the New Warrant any of the shares of Telcom's
Common Stock issuable upon exercise of the New Warrant.
3. Continuation of Agreement. The Agreement shall continue to be
effective and binding upon the parties, as modified by the provisions of this
amendment thereto.
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4. Miscellaneous. This amendment to the Agreement shall be construed
and enforced in accordance with the laws of the State of Delaware. The parties
hereto consent to the jurisdiction of the Courts of the State of New York and
the United States District Courts situated therein in connection with any action
concerning the provisions of this Agreement. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the date first written above.
Russian Wireless Telephone Company, Inc.
By:_____________________________________
Ronald G. Nathan, President
Colonial Electric Consulting Corp.
By:_____________________________________
Matthew Ricciardi, President
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<PAGE> 4
EXHIBIT A
WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER
THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO SUCH
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF
COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR OTHER STATE
SECURITIES LAW.
CONNECTICUT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36-485
OF THE CONNECTICUT UNIFORM SECURITIES ACT (THE "ACT") AND, THEREFORE, CANNOT BE
RESOLD UNLESS THEY ARE REGISTERED UNDER THE ACT, OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
June 18, 1997
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
COMMON STOCK
PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3
W- 12,500 Warrants
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Russian Wireless Telephone
Company, Inc., a Delaware corporation formerly known as TelCom Group USA, Inc.,
a Delaware corporation (the "Company"), Colonial Electric Consulting Corp. is
hereby granted the right to purchase, at the initial exercise price of $7.25 per
share (subject to adjustment as provided herein) at any time commencing on the
effective date (the Effective Date") of the registration statement to be filed
by the Company in connection with the Company's proposed initial public offering
(the "Initial Public Offering") until 5:00 p.m. on the five-year anniversary of
the Effective Date,12,500 shares of Common Stock, $.01 par value, of the Company
(the "Shares"). Upon
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consummation of the Initial Public Offering, the Warrants will be exchanged for
an Initial Public Offering Warrant Certificate representing the right to
purchase the same number of shares. If the Initial Public Offering is not
consummated by September 30, 1997 based upon the Company's decision not to
proceed with the Initial Public Offering, each Warrant shall automatically
convert on such date into one share of Common Stock. If the Initial Public
Offering is not consummated by September 30, 1997 for any other reason, these
Warrants shall automatically become null and void.
Each Common Stock Purchase Warrant (the "Warrant") initially
is exercisable at a price of $7.25 per Share payable in cash or by certified or
official bank check in New York Clearing House funds, subject to adjustments as
provided in Section 5 hereof. Upon surrender of this Warrant, with the annexed
Subscription Form duly executed, together with payment of the Purchase Price (as
hereinafter defined) for the Shares purchased at the offices of the Company, the
registered holder of this Warrant (the "Holder") shall be entitled to receive a
certificate or certificates for the Shares so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are
exercisable at the option of the Holder, in whole or in part (but not as to
fractional Shares underlying this Warrant), during the period in which this
Warrant may be exercised as set forth above. In the case of the purchase of less
than all the Shares purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the Shares purchasable hereunder.
2. Issuance of Certificates.
Upon the exercise of this Warrant and payment in full for the
Shares, the issuance of certificates for Shares underlying this Warrant shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder, including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall be
issued in the name of, or (subject to the provisions of Section 3.1 hereof) in
such names as may be directed by, the Holder; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The certificates representing the Shares underlying this
Warrant shall be executed on behalf of the Company by the manual
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or facsimile signature of the Chairman or President and the Chief Financial
Officer, the Secretary or Assistant Secretary of the Company holding office at
the time such Shares are issued.
3. Restriction on Transfer; Registration Under the Securities
Act of 1933, as amended.
3.1 Neither the Warrants nor any Share issuable upon exercise
hereof has been registered under the Securities Act of 1933, as amended (the
"Act"), and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Act which has become effective and is current with respect to such
securities, or, (ii) pursuant to a specific exemption from registration under
the Act but only upon a Holder hereof first having obtained the written opinion
of counsel to the Company, or other counsel reasonably acceptable to the
Company, that the proposed disposition is consistent with all applicable
provisions of the Act as well as any applicable "Blue Sky" or other state
securities law. Upon exercise, in part or in whole, of this Warrant, each
certificate issued representing the Shares underlying this Warrant shall bear a
legend to the foregoing effect.
3.2 If at any time after the date hereof and expiring five (5)
years thereafter, the Company proposes to register any of its securities under
the Act (other than in connection with a merger, acquisition or exchange offer
on Form S-4 or pursuant to Form S-8 or successor forms), it will give written
notice by registered mail, at least thirty (30) days prior to the filing of each
such registration statement to the Holder(s) of the Warrants and/or Shares of
its intention to do so. Upon the written request of any Holder of the Warrants
and/or Shares given within ten (10) days after receipt of any such notice of its
or their desire to include any such Warrants and/or Shares in such proposed
registration statement, the Company shall afford such Holder(s) of the Warrants
and/or Shares the opportunity to have any such Warrants and/or Shares registered
under such registration statement.
Notwithstanding the provisions of this Section 3.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 3.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
If any registration pursuant to this Section 3.2 shall be
underwritten in whole or in part, the Company may require that the Warrants
and/or Shares requested for inclusion pursuant to this Section 3.2 be included
in the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters.
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Notwithstanding the provisions of this Section 3.2, if the
managing underwriter in an underwritten public offering of securities shall
advise the Company in writing that inclusion of some or all of the Warrants
and/or Shares would, in such managing underwriter's opinion, materially
interfere with the proposed distribution of the securities to be offered by the
Company, in respect of which registration was originally to be effected, then
the number of Warrants and/or Shares to be included in the registration
statement may be reduced pro rata (by number of shares) among any holders of
securities requesting registration or excluded in their entirety if so required
by the underwriter from the registration statement.
3.3 In connection with any registration under Sections 3.2 or
6 hereof, the Company covenants and agrees as follows:
(a) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions or
other charges of any broker-dealer acting on behalf of Holder(s)), fees and
expenses in connection with all registration statements filed pursuant to
Sections 3.2 and 6 hereof including, without limitation, the Company's legal and
accounting fees, printing expenses and blue sky fees and expenses.
(b) The Company will take all necessary action which may be
required in qualifying or registering the Warrants and/or Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(c) The Company shall indemnify the Holder(s) of the Warrants
and/or Shares to be sold pursuant to any registration statement and each person,
if any, who controls such Holder(s) within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or any other statute, common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in such registration statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in order
to qualify the Warrants and/or the Shares under the securities laws thereof or
filed with the Securities and Exchange Commission (the "Commission"), any state
securities commission or agency, the National Association of Securities Dealers,
Inc., The Nasdaq Stock Market or any securities exchange, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements
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<PAGE> 8
contained therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Holder(s) expressly for use in such registration statement, any
amendment or supplement thereto or any application, as the case may be. If any
action is brought against the Holder(s) or any controlling person of the
Holder(s) in respect of which indemnity may be sought against the Company
pursuant to this Section 3.3(c), the Holder(s) or such controlling person shall,
within thirty (30) days after the receipt of a summons or complaint, notify the
Company in writing of the institution of such action and the Company shall
assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel (which counsel shall be reasonably
satisfactory to the Holder(s) or such controlling person), but the failure to
give such notice shall not affect such indemnified person's right to
indemnification hereunder except to the extent that the Company's defense of
such action was materially adversely affected thereby. The Holder(s) or such
controlling person shall have the right to employ its or their own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of the Holder(s) or such controlling person unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action, the Company shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the Company (in
which case the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the fees and expenses of not more than one additional firm of attorneys for the
Holder(s) and/or such controlling person shall be borne by the Company. Except
as expressly provided in the previous sentence, in the event that the Company
shall have assumed the defense of any such action or claim, the Company shall
not thereafter be liable to the Holder(s) or such controlling person in
investigating, preparing or defending any such action or claim. The Company
agrees promptly to notify the Holder(s) of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the resale of the Warrants and/or the Shares or in
connection with such registration statement.
(d) The Holder(s) of the Warrants and/or Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from written information furnished by or on behalf of such Holders, or their
successors or assigns, expressly for use in such registration statement.
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(e) Nothing contained herein shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
3.4 In connection with any registration made pursuant to
Sections 3.2 or 6 hereof, the Holder(s) of the Warrants and/or Shares agree as
follows:
(a) Any public sale of the Warrants and/or Shares included in
such registration statement shall be effected through the underwriter for such
registration and the Holder(s) shall compensate the underwriter in accordance
with its customary compensation practices for such transactions.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial purchase
price shall be $5.75 per Share. The adjusted purchase price shall be the price
which shall result from time to time from any and all adjustments of the initial
purchase price in accordance with the provisions of Section 5 hereof and subject
to Section 6 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall
mean the initial purchase price or the adjusted purchase price, depending upon
the context.
5. Adjustments of Purchase Price and Number of Shares.
In the event that, prior to the issuance by the Company of all
the Shares issuable upon exercise of this Warrant, there shall be any change in
the outstanding common stock of the Company by reason of the declaration of
stock dividends, or through a recapitalization resulting from stock splits or
combinations, without the payment to the Company of any compensation therefor in
money, services or property, the remaining Shares still subject to this Warrant
and the purchase price thereof shall be appropriately adjusted (but without
regard to fractions) by the Board of Directors of the Company to reflect such
change.
6. Automatic Conversion; Cancellation.
If the Company consummates a public offering of its
securities prior to the last day on which the Warrants may be exercised, which
offering includes warrants to purchase shares of common stock of the Company
("Redeemable Warrants") and the Warrants shall not have been exercised in full,
then the unexercised portion of the Warrants shall automatically, without any
action by the Holder, be converted into Redeemable Warrants (the "New Warrants")
exercisable to purchase the same number of Shares as are purchasable upon the
exercise of the unexercised portion of the Warrants but having terms identical
to those of the
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Redeemable Warrants, including, but not limited to, the anti-dilution provisions
contained therein and an exercise price per share equal to the exercise price
per share of the Redeemable Warrants offered in the public offering. The Company
shall cause the New Warrants and the underlying shares of common stock of the
Company to be included in the registration statement for such offering,
provided, however, if the managing underwriter, other than J.W. Barclay & Co.,
Inc. ("JWBC") or an affiliate of JWBC, in an underwritten public offering of
securities shall advise the Company in writing that inclusion of some or all of
the New Warrants and the underlying shares of Common Stock of the Company would,
in such managing underwriter's reasonable opinion, materially or adversely
affect the proposed distribution of the securities to be offered by the Company,
then the number of New Warrants and the underlying shares of Common Stock to be
included in the registration statement may be reduced pro rata (by number of
shares) among any holders of securities requesting registration if so required
by the underwriter from the registration statement. In the event that JWBC or an
affiliate of JWBC is the managing underwriter of such public offering, the
Company shall cause the New Warrants and the underlying shares of Common Stock
of the Company to be included in the registration statement for such offering.
In the event that the provisions of this Section 6 shall become applicable, the
Holder shall be required to return this Warrant to the Company for cancellation
or, if this Warrant cannot then be located, to execute and deliver to the
Company a lost security affidavit and indemnity agreement reasonably
satisfactory to the Company. In addition, in the event that the provisions of
this Section 6 shall become applicable, this Warrant shall no longer be of any
force or effect and the New Warrant shall set forth the respective rights and
obligations of the Holder and the Company.
If the Initial Public Offering is not consummated by August 2,
1997 based upon the Company's decision not to proceed with the Initial Public
Offering, each Warrant shall automatically convert on such date into one share
of Common Stock. If the Initial Public Offering is not consummated by August 2,
1997 for any other reason, these Warrants shall automatically become null and
void.
7. Merger or Consolidation.
In case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding common stock of the Company), the corporation formed
by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
his Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger by a holder of the number
of shares of common stock of the Company for which his Warrant might have been
exercised immediately
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<PAGE> 11
prior to such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for the automatic conversion provision of Section 6 and
adjustments which shall be identical to the adjustments provided in Section 5.
The above provisions of this Section 7 shall similarly apply to successive
consolidations or mergers.
8. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company for a new Warrant of like tenor and date representing in the
aggregate the right to purchase the same number of Shares as are purchasable
hereunder in such denominations as shall be designated by the Holder hereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares on the exercise of this Warrant, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated.
10. Reservation of Securities.
The Company shall at all times reserve and keep available out
of its authorized common stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of Shares as shall be issuable upon the
exercise hereof. The Company covenants and agrees that, upon exercise of this
Warrant and payment of the Purchase Price therefor, all Shares issuable upon
such exercise shall be duly and validly issued, fully paid and nonassessable.
11. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as
conferring upon the Holder hereof the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights whatsoever as
a shareholder of the
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Company.
12. Notices.
All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, telegraphed or sent by certified, registered, or express mail,
postage prepaid, and shall be deemed given when so delivered personally,
telegraphed or, if mailed, five days after the date of deposit in the United
States mails, as follows:
(a) If to the Company, to:
Russian Wireless Telephone Company, Inc.
780 Third Avenue, Suite 1600
New York, NY 10017
Attn: Ronald G. Nathan, Chief Executive Officer
With a copy to:
Hall Dickler Kent Friedman & Wood LLP
909 Third Avenue
New York, New York 10022
Attention: Steven D. Dreyer, Esq.
(b) If to the registered Holder, to the address of such Holder
as shown on the books of the Company.
13. Successors.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
14. Headings.
The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
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15. Law Governing.
This Warrant is delivered in the State of New York and shall
be construed and enforced in accordance with, and governed by, the laws of the
State of New York, without giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed in its corporate name by a duly authorized officer and has caused its
corporate seal to be affixed hereto on the date first above written.
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
By:__________________________________________
Name: Ronald G. Nathan
Title: President and Chief Executive Officer
10
<PAGE> 14
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the
right to purchase Shares represented by this Warrant in accordance with the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
________________________________________
Name of Holder
By:_____________________________________
Signature
________________________________________
________________________________________
________________________________________
Address
Dated:_______________________ ________________________________________
Social Security Number or Taxpayer's
Identification Number
11
<PAGE> 1
Exhibit 10.22
Amendment No. 3 dated as of June 19, 1997, by and between Russian
Wireless Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and
Michael Ciasulli (the "Payee") to that certain Promissory Note dated November 3,
1994 of TelCom to the Payee in the aggregate principal amount of $98,000 (the
"Note").
RECITALS
WHEREAS, TelCom has issued that certain Note to the Payee pursuant to
TelCom's private placement securities offering (the "Offering") (capitalized
terms used herein without definition shall have the respective meanings ascribed
to them in the Note); and
WHEREAS, the Note provides that the Maturity Date of the note shall be
the earlier of (i) TelCom's consummation of a public or private financing of its
equity securities raising net proceeds equal to or greater than the gross
proceeds raised in the Offering or (ii) sixteen (16) months from the First
Closing Date; and
WHEREAS, the parties hereto heretofore extended the Maturity Date
pursuant to Amendments No. 1 and 2 to the Note; and
WHEREAS, the parties hereto desire to further extend the Maturity Date;
and
WHEREAS, the execution of this Amendment has been duly authorized by
the Board of Directors of TelCom and all things necessary to make this Amendment
a valid, binding and legal instrument according to its terms have been done and
performed,
NOW, THEREFORE, in consideration of the above premises, TelCom and the
Payee agree as follows:
1. The definition of "Maturity Date" in the Note is hereby amended and
restated in its entirety as follows:
"... the earlier of (i) the Company's consummation of a public or private
financing of its equity securities raising net proceeds equal to or greater than
the gross proceeds raised in this Offering; or (ii) October 31, 1997 (the
earlier of such dates is referred to herein as the 'Maturity Date')..."
2. This Amendment shall be effective as of the date first above
written.
3. This Amendment may be executed in any number of counterparts, each
of which shall be an original, but such counterparts shall together constitute
one and the same instrument.
4. This Amendment shall be construed and enforced in accordance with
<PAGE> 2
the laws of the State of Delaware. The parties hereto consent to the
jurisdiction of the Courts of the State of New York and the United States
District Courts situated therein in connection with any action concerning the
provisions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the date first written above.
Russian Wireless Telephone Company, Inc.
By:______________________________________
Ronald Nathan, President
_________________________________________
Michael Ciasulli
2
<PAGE> 1
Exhibit 10.23
Amendment No. 3 dated as of June 19, 1997, by and between Russian
Wireless Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Per
Eric Dahl (the "Payee") to that certain Promissory Note dated October 19, 1994
of TelCom to Lehman Bros. Bank (Switzerland) in the aggregate principal amount
of $686,000 (the "Note").
RECITALS
WHEREAS, TelCom has issued that certain Note to the Lehman Bros. Bank
(Switzerland), Payee's assignor, pursuant to TelCom's private placement
securities offering (the "Offering") (capitalized terms used herein without
definition shall have the respective meanings ascribed to them in the Note); and
WHEREAS, the Note provides that the Maturity Date of the note shall be
the earlier of (i) TelCom's consummation of a public or private financing of its
equity securities raising net proceeds equal to or greater than the gross
proceeds raised in the Offering or (ii) sixteen (16) months from the First
Closing Date; and
WHEREAS, the parties hereto heretofore extended the Maturity Date
pursuant to Amendments No. 1 and 2 to the Note; and
WHEREAS, the parties hereto desire to further extend the Maturity Date;
and
WHEREAS, the execution of this Amendment has been duly authorized by
the Board of Directors of TelCom and all things necessary to make this Amendment
a valid, binding and legal instrument according to its terms have been done and
performed,
NOW, THEREFORE, in consideration of the above premises, TelCom and the
Payee agree as follows:
1. The definition of "Maturity Date" in the Note is hereby amended and
restated in its entirety as follows:
"... the earlier of (i) the Company's consummation of a public or private
financing of its equity securities raising net proceeds equal to or greater than
the gross proceeds raised in this Offering; or (ii) October 31, 1997 (the
earlier of such dates is referred to herein as the 'Maturity Date')..."
2. This Amendment shall be effective as of the date first above
written.
3. This Amendment may be executed in any number of counterparts, each
of which shall be an original, but such counterparts shall together constitute
one and the same instrument.
<PAGE> 2
4. This Amendment shall be construed and enforced in accordance with
the laws of the State of Delaware. The parties hereto consent to the
jurisdiction of the Courts of the State of New York and the United States
District Courts situated therein in connection with any action concerning the
provisions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the date first written above.
Russian Wireless Telephone Company, Inc.
By:________________________________________
Ronald Nathan, President
___________________________________________
Per Eric Dahl
2
<PAGE> 1
Exhibit 10.24
Amendment No. 3 dated as of June 19, 1997, by and between Russian
Wireless Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and
Larry Dunn (the "Payee") to that certain Promissory Note dated November 3, 1994
of TelCom to the Payee in the aggregate principal amount of $49,000 (the
"Note").
RECITALS
WHEREAS, TelCom has issued that certain Note to the Payee pursuant to
TelCom's private placement securities offering (the "Offering") (capitalized
terms used herein without definition shall have the respective meanings ascribed
to them in the Note); and
WHEREAS, the Note provides that the Maturity Date of the note shall be
the earlier of (i) TelCom's consummation of a public or private financing of its
equity securities raising net proceeds equal to or greater than the gross
proceeds raised in the Offering or (ii) sixteen (16) months from the First
Closing Date; and
WHEREAS, the parties hereto heretofore extended the Maturity Date
pursuant to Amendment Nos. 1 and 2 to the Note; and
WHEREAS, the parties hereto desire to further extend the Maturity Date;
and
WHEREAS, the execution of this Amendment has been duly authorized by
the Board of Directors of TelCom and all things necessary to make this Amendment
a valid, binding and legal instrument according to its terms have been done and
performed,
NOW, THEREFORE, in consideration of the above premises, TelCom and the
Payee agree as follows:
1. The definition of "Maturity Date" in the Note is hereby amended and
restated in its entirety as follows:
"... the earlier of (i) the Company's consummation of a public or private
financing of its equity securities raising net proceeds equal to or greater than
the gross proceeds raised in this Offering; or (ii) October 31, 1997 (the
earlier of such dates is referred to herein as the 'Maturity Date')..."
2. This Amendment shall be effective as of the date first above
written.
3. This Amendment may be executed in any number of counterparts, each
of which shall be an original, but such counterparts shall together constitute
one and the same instrument.
4. This Amendment shall be construed and enforced in accordance with
<PAGE> 2
the laws of the State of Delaware. The parties hereto consent to the
jurisdiction of the Courts of the State of New York and the United States
District Courts situated therein in connection with any action concerning the
provisions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the date first written above.
Russian Wireless Telephone Company, Inc.
By:___________________________________________
Ronald Nathan, President
______________________________________________
Larry Dunn
2
<PAGE> 1
Exhibit 10.25
Amendment No. 3 dated as of June 19, 1997, by and between Russian
Wireless Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and
Slate Daiagi Realty, Inc. (the "Payee") to that certain Promissory Note dated
October 19, 1994 of TelCom to the Payee in the aggregate principal amount of
$49,000 (the "Note").
RECITALS
WHEREAS, TelCom has issued that certain Note to the Payee pursuant to
TelCom's private placement securities offering (the "Offering") (capitalized
terms used herein without definition shall have the respective meanings ascribed
to them in the Note); and
WHEREAS, the Note provides that the Maturity Date of the note shall be
the earlier of (i) TelCom's consummation of a public or private financing of its
equity securities raising net proceeds equal to or greater than the gross
proceeds raised in the Offering or (ii) sixteen (16) months from the First
Closing Date; and
WHEREAS, the parties hereto heretofore extended the Maturity Date
pursuant to Amendment Nos. 1 and 2 to the Note; and
WHEREAS, the parties hereto desire to further extend the Maturity Date;
and
WHEREAS, the execution of this Amendment has been duly authorized by
the Board of Directors of TelCom and all things necessary to make this Amendment
a valid, binding and legal instrument according to its terms have been done and
performed,
NOW, THEREFORE, in consideration of the above premises, TelCom and the
Payee agree as follows:
1. The definition of "Maturity Date" in the Note is hereby amended and
restated in its entirety as follows:
"... the earlier of (i) the Company's consummation of a public or private
financing of its equity securities raising net proceeds equal to or greater than
the gross proceeds raised in this Offering; or (ii) October 31, 1997 (the
earlier of such dates is referred to herein as the 'Maturity Date')..."
2. This Amendment shall be effective as of the date first above
written.
3. This Amendment may be executed in any number of counterparts, each
of which shall be an original, but such counterparts shall together constitute
one and the same instrument.
<PAGE> 2
4. This Amendment shall be construed and enforced in accordance with
the laws of the State of Delaware. The parties hereto consent to the
jurisdiction of the Courts of the State of New York and the United States
District Courts situated therein in connection with any action concerning the
provisions of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the date first written above.
Russian Wireless Telephone Company, Inc.
By:__________________________________________
Ronald Nathan, President
Slate Daiagi Realty, Inc.
By:__________________________________________
2
<PAGE> 1
Exhibit 10.29
Translation from Russian
A 002743 Ministry of Communications
of the Russian Federation
License
No. 5958
The Ministry of Communications of the Russian Federation, in accordance with the
Law covering communications in the Russian Federation, permits the
implementation of communications activities to the
Corporation "Investelektrosvyaz"
Legal address:
117526, city of Moscow, Street of 26 Bakinsky Commissars,
Building 12, Section 1, Management Premises.
Type of activity:
To provide services to local, intrazonal and intercity telephone
communications.
The terms for the realization of this type of activity, and the
territory, are specified in the attached document which is an integral part of
this license.
Active period of the license up to 2-21-2002
Start of providing service (no later than) 2-21-1998
Date of registration of the license in the
United Register of Licensing for Communications 2-21-1997
First Deputy of the Federal
Ministry of Communications /signature/ A. Ye. Krupnov
/Seal of/ Ministry of Communications
of the Russian Federation
<PAGE> 2
Ministry of Communications of the Russian Federation
Terms of the Implementation of Activities
in Accordance with License No. 5958
1. The Corporation "Investelektrosvyaz", Licensee of this License,
is authorized to provide local, interzonal and intercity telephone
communications networks for public use in the territory indicated in paragraph
37. The overall installed capacity of the communications network of the Licensee
is not less than 20,000 numbers.
The distribution of the Licensee's network capacity in the
territory's regions of activity is in accordance with paragraph 37.
2. By the end of the sixth year of operations the Licensee must
guarantee to bring into service not less than 70% of the capacity indicated in
paragraph 1 of this License.
3. The Licensee must provide services in the Licensee's territory to
any person who requires such services, in accordance with the availability of
appropriate technical resources.
Services may be denied or cancelled under the following
circumstances:
- Providing the services may create a threat to the security and
defensive capabilities of the state and the health and security of people.
- It may be impossible to provide services in view of some kind of
physical, topographic or other natural obstacles.
- The user, without substantive grounds, does not agree with the
terms for the provision of services and, at the same time, does not pay for the
services provided.
- The user utilizes, or intends to utilize, the communications
equipment for any type of illegal goals, or receives the services of the network
by illegal means, operates the equipment provided in violation of the rules for
technical operation, or utilizes uncertified equipment.
The denial in each specific case must be well-founded.
4. The connection of the Licensee's communications network to the
1
<PAGE> 3
general use communications network of the Russian Federation is established at
the level of the local telephone network in accordance with the technical terms,
as specified in paragraph 37.
Other operators of general use communications networks having a
license for the provision of services for local telephone networks in the
specified territory are permitted, in accordance with technical conditions, to
connect to the general use communications network of the Russian Federation,
provided that they conform with prevailing norms and rules for the passage of
traffic.
Other communications networks may not connect with the
communications network of the Licensee with the aim of assuring an outlet for
the users of these networks to the general use communications network of the
Russian Federation.
The Licensee must participate in the proportional development of
general use communications networks of the Russian Federation. After the form,
size and procedure for the allocation of investment to this goal shall be
determined, the Licensee shall be so informed.
The Licensee has the right to rent the communications channels and
physical circuits of the general use communications network of the Russian
Federation in accordance with the tariffs in effect for that specific category
of user.
5. The connection of the Licensee's communications network's
technical equipment to the general use communications network of the Russian
Federation, and also of their operation, are effected in accordance with the
prevailing norms established by the Ministry of Communications of the Russian
Federation.
6. The provision of telephone communications services, in accordance
with this License, with the use of radio-relay systems of transmission is
permitted after receiving approval from the State Supervisor for Communications
of the Russian Federation for the utilization of working frequencies.
7. The application in the subscriber sector of a radio attenuator
network, functioning only in the 330 megahertz band, is permitted in accordance
with the offices of the State Supervisor for Communications of the Russian
Federation for the utilization of working frequencies.
8. In the event that switching equipment of foreign manufacture is
used, its type must be adaptable to usage in the general use communications
network in a specific region.
9. The numbering in the Licensee's communications network must
correspond with the numbering of the general use communications network of the
2
<PAGE> 4
Russian Federation.
10. The Licensee must comply with the demands of the Ministry of
Communications of the Russian Federation for the orderly passage of traffic and
the provision of services.
In instances specified by legislation of the Russian Federation the
centralized management of the Licensee's communications networks is implemented
directly by the Ministry of Communications of the Russian Federation.
11. The provision of services for intercity and international
telephone communications to the users of the Licensee's network is effected only
within the general use communications network.
12. Public payphones must be installed in the Licensee's zone of
activity. The distribution density of payphones in the local telephone service
is determined by the Licensee depending on the density of telephones and the
density of the population and must be coordinated with local administrative
organs, in accordance with paragraph 37.
13. The Licensee shall settle the accounts for traffic in accordance
with established procedures.
14. The Licensee must provide communications services, as specified
in this License, 24 hours a day, every day, with the exception of interruptions
necessary to conduct needed preventive maintenance and repair work which shall
be scheduled for the times when they will impose the least damage to the user.
15. The Licensee must provide the communications services to users
in accordance with standards for quality, technical norms, certifications, and
the terms of the agreement for the provision of communications services.
16. The Licensee bears a responsibility to clients in the event of
nonperformance or improper performance of its obligations in procedures and
scale, as specified by current legislation of the Russian Federation.
17. The creation of the Licensee's communications network is
permitted only by the existing design documentation, which has been developed in
accordance with Construction Standards and Rules and Departmental Standards for
Technological Design (CS&R, DSTD), employed in the Russian Federation and in
compliance with established procedure.
18. The tariffs for the communications services are established on a
contractual basis.
3
<PAGE> 5
In those cases where the legislation of the Russian Federation
pertains to separate types of communications services rendered by communications
enterprises, the tariffs may be regulated by the state.
The summoning of urgent operational services (fire department,
police, emergency medical aid, emergency gas repair services, mountain rescue
services, and others) by all physical and juridicial individuals/entities is
performed free of charge.
The payment for internetwork connections is established on the basis
of contracts, terms and conditions agreed to between the respective network
enterprises. Disagreements on these matters are examined in a court of law or in
an arbitration court.
Users are not charged for calls if the connection is not made.
19. Expenses relating to the design and construction of the
Licensee's communications network, its connection to the general use
communications network of the Russian Federation, the settlement of accounts
with the general use communications network of the Russian Federation, are
effected at the expense of the Licensee.
20. At times of natural calamities, quarantines and other emergency
situations, as provided for in legislation of the Russian Federation, the
appropriate authorized state organs have the right to priority of usage and also
to suspend the operations of the Licensee's networks and means of
communications.
21. The Licensee must provide absolute priority to all reports
relating to the safety of human life at sea, on land, in the air, in outer
space, and the execution of urgent measures in the area of defense, security and
protection of law and order in the Russian Federation, and also reports of
serious accidents, catastrophes, epidemics, epizootics and spontaneous
disasters.
22. Preferences and priorities may be established according to
efficiency of usage and the size of payments for communications services, for
individual categories of officials in state organs, diplomatic and consular
representatives of foreign states, representatives of international
organizations, and also individual groups of citizens utilizing the electric
communications.
The enumeration of preferences and also the categories of officials
and citizens who have the right to preferences and priorities is determined by
legislation of the Russian Federation and the legal rules established by acts of
subordinate departments of the Russian Federation, and also by international
treaties and
4
<PAGE> 6
agreements of the Russian Federation.
23. The Licensee must ensure the observance of secrecy in
communications.
Information concerning reports transmitted over the Licensee's
communications network, and also the reports themselves, may be given only to
the senders and receivers or their legal representatives.
Tapping telephone conversations, familiarization with reports over
the electric communications network, the receiving of information concerning
them, and also other restricted secrets of the communications network, are
permitted only in accordance with prevailing legislation of the Russian
Federation.
24. The Licensee must not obstruct the work of employees of the
Supervisor for Communications of the Russian Federation in testing the technical
parameters of the communications network and, if necessary, must ensure that
such employees are allowed access to their measuring apparatus in order to use
it in this work.
25. The Licensee, during development, creation and operation of the
communications network, must, in accordance with legislation of the Russian
Federation, provide assistance to organs effecting operational-search activities
to enable them to execute operational-search measures on the communications
network, and to take measures to ban the revealing of organizational and
tactical methods in the execution of the specified measures.
If the communications network is used for criminal goals which
inflict damage to the interests of individuals, society and the state, the
appropriate authorized state organs; in accordance with legislation of the
Russian Federation, have the right to suspend the operation of the network and
the Licensee's means of communications.
The connection of users must be effected after fulfilling demands in
accordance with the Law of the Russian Federation "Concerning operational-search
activity in the Russian Federation."
26. The Licensee must take measures to avert unauthorized
interference in the management of the created network and the unauthorized
control over its functions.
27. Usage of the technical facilities of the communications network
is permitted with the availability of a certificate from the Ministry of
Communications of the Russian Federation.
5
<PAGE> 7
28. The initiation of communications services, in accordance with
this License, is possible only with the permission of the office of the State
Supervisor for Communications of the Russian Federation for the Operation of the
Network.
29. The Licensee must provide, free of charge, governmental
electro-communications in accordance with the procedures established by the
Ministry of Communications of the Russian Federation.
30. The Licensee, as required by the Ministry of Communications of
the Russian Federation, provides information concerning the technical condition
and the long-range development of the created technical facilities, terms for
the supply of the communications services, and the current tariffs.
31. The License shall be regulated, interpreted and utilized in
accordance with current legislation of the Russian Federation.
32. The Licensee must effect its operations in accordance with
current legislation of the Russian Federation and the normative acts enacted by
the Ministry of Communications of the Russian Federation.
33. The Ministry of Communications of the Russian Federation
reserves to itself the right to make changes and additions to the License in
accordance with changes in current legislation of the Russian Federation.
34. The Licensee must submit to local statistical organs and to the
Ministry of Communications of the Russian Federation periodic and annual state
statistical reports regarding the communications network in accordance with the
procedure established by the State Committee of the Russian Federation for
Statistics.
The violation of the procedure for the submission of statistical
reports entails administrative responsibility in accordance with current
legislation.
35. The License cannot be transferred to another party.
36. The License must be registered within a 30-day period after it
has been issued at the territorial administration of the offices of the State
Supervisor for Communications in the Russian Federation.
In the event of a change in the mailing address, bank accounts, and
the telephone number, the Licensee must, within one week, so inform the Ministry
of Communications of the Russian Federation and the territorial administration
of the offices of the State Supervisor for Communications in the Russian
Federation.
6
<PAGE> 8
37. Licensee's territory of operations:
<TABLE>
<CAPTION>
No. of Regions Capacity, Operator Authorizing
Corp. Numbers Connections/Install.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 c. of Moscow 10,000 City of Moscow
Telephone Network
Corporation
2 c. of St. Petersburg 2,000 Petersburg Telephone
Network Corporation
3 c. of Novosibirsk 2,000 City of Novosibirsk
Telephone Network Corp.
4 c. of Nizhny 2,000 "Svyazinform" Corp.,
Novgorod Nizhny Novgorod Region
5 c. of Ekaterinburg 2,000 City of Ekaterinburg
Telephone Network Corp.
6 Moscow Region 2,000 "Electrosvyaz" Corp.
of the Moscow Region
</TABLE>
First Deputy of the /Seal of/
Federal Ministry of Ministry of /Signature/ A. Ye. Krupnov
Communications Comm. of the
Russian Fed.
Chief of Department for the /Signature/ N. M. Popov
Organization of Licensing Tasks
7
<PAGE> 9
Copy No. 1
Military Department To the Deputy Chairman of the
- 32152 - State Commission on Radio Fre-
May 5, 1997 quencies at the Ministry of
No. 1/15/374 Communications of the Russian
City of Moscow Federation, 103091, city of
Moscow, Delegat Street, 5
Regarding No. 663 of April 8, 1997
Military Department 32152 does not object to the assignment of radio frequencies
1350-1530 MHz to the "Investelekrosvyaz" Corporation for their purchase of the
"MultiGain Wireless" system dedicated for use in the territory of Moscow and the
Moscow Region.
The establishment of the station must be realized in accordance with the Statute
confirmed by the Decree of the Government of the Russian Federation of June 5,
1994, No. 643.
First Deputy of the Department Commander /sig./ O. V. Ivanov
8
<PAGE> 1
Exhibit 10.30
AGENT'S AGREEMENT
No. /indecipherable/
The Korbina Telecommunications Private Corporation, referred to subsequently as
the Principal, represented by General Director V. A. Khachaturyan, on the one
hand, and the Kortek Private Corporation, referred to subsequently as the Agent,
represented by General Director V. V. Voronin, on the other hand, both referred
to subsequently as the Partners, confirmed the Agreement concerning the
following:
1. Subject of the Agreement and other general conditions
1.1. The Agent commits itself, by the authorization of the Principal and for its
own account and from its own name, to deal with and make arrangements with the
Telmos Corporation necessary to provide the Principal with telephone channels,
numbers, and the services of local, intercity and international telephone
communications.
1.2. In order to accomplish these functions, stipulated in Clause 1 of the
Agreement, the Principal commits itself to pay the Agent a fee of 0.1% of the
amounts presented by the Telmos Corporation to the Agent for the account of the
Agent in Moscow.
2. Responsibilities of the Agent
2.1. The Agent assumes the following responsibilities:
a) Effect reciprocal relationships with the telephone companies regarding the
assurance of telephone communications to the Principal;
b) Effect, in its own name, accounts (including payments) with the telephone
companies;
c) Effect the audit and processing of bills received from the telephone
companies.
3. Responsibilities of the Principal
3.1. The Principal assumes the following responsibilities:
a) Provide the Agent with information (and instructions) necessary for the
execution of its responsibilities in accordance with the Agreement-Commission;
b) Pay the Agent the fee and compensate the Agent for necessary expenses in the
execution of its responsibilities (including payments to the telephone companies
for services rendered to the Principal) by the procedure stipulated in Clause
1.2 of this
1
<PAGE> 2
Agreement:
c) Accept without delay from the Agent all it has accomplished with respect to
this Agreement (bills, payments, etc.)
4. Method of payment
4.1. The Principal commits itself to pay the bills, presented by the Telmos
Corporation to the Agent, for all expenses relating to the provision of services
of the telephone communications network for the account of the Telmos
Corporation and the commission fee for the account of the Kortek Private
Corporation. The Principal must make payment within ten days from the date it
receives the bills from the Telmos Corporation. The bill in dollars or rubles is
based on the agreements effected by the Agent on behalf of the Principal.
Payment is made in rubles at the MMVB exchange rate on the day of payment +
2.5%.
5. Responsibilities of Parties during the term of the
Agreement
5.1. In the event of nonfulfillment or improper fulfillment of their obligations
under this Agreement, the Principal and the Agent bear responsibility in
accordance with current laws.
5.2. In the event of nonpayment of telephone bills received from the Agent, the
Principal pays a fine according to the list of extra charges.
5.3. This Agreement becomes effective at the moment it is signed and will be in
force during the term of the Principal's execution of its responsibilities and
the settlement of all accounts between the Principal and the Agent. This
Agreement is in force until the Parties provide a written cancellation.
5.4. In the event of disagreements concerning matters stipulated in this
Agreement, or in connection with it, the Parties will take all measures to
resolve them through discussions.
5.5. All other matters, not stipulated in this Agreement, will be resolved
according to current laws of the R.F. which regulate relationships established
by the Agreement Commission.
5.6. This Agreement is comprised of two originals.
5.7. Special conditions: Supplements to Clause 4 and 4.1. "+ 2.5%"/sic/.
6. Legal addresses and accounts of the parties
2
<PAGE> 3
Principal: Korbina Telecommunications Private Corporation, city of Moscow,
Vernadski Prospekt, Bldg. 125
Index of tax inspection: 7729158574, Account 111467227 in the branch of
"Tagansk" AB "Inkombank"
Correspondent account: 502161000 at the RKTs Headquarters, Central Bureau, R.F.
for Moscow, MFO 44583502 (201791), part 5C.
Agent: Kortek Private Corporation, 109428, city of Moscow, Ryazansk
Prospekt, Bldg 30/15, Office 707
Index of tax inspection: 7729327783, Account 111467670 in the branch of
"Tagansk" AB "Inkombank"
Correspondent account: 502161000 at the RKTs Headquarters, Central Bureau, R.F.
for Moscow, MFO 44583502.
Signatures and seals:
General Director General Director Korbina
Telecommunications Kortek Private Corporation
Private Corporation
/sig./ V. A. Khachaturyan /sig./ V. V. Voronin
3
<PAGE> 1
Exhibit 11
Russian Wireless Telephone Company, Inc.
(formerly Telcom Group, USA)
Computation of Earnings (Loss) Per Share
<TABLE>
<CAPTION>
Month of Weighted Average
Issuance For Number of Shares Outstanding
F/S Purposes Shares 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock at January 1, 1995 4,536,876 4,536,876 4,536,876
January '95 600,000 600,000 600,000
May '95 (2,663,876) (1,553,928) (2,663,876)
April '95 300,000 200,000 300,000
May '95 (800,000) (466,667) (800,000)
August '95 (488,000) (462,667) (466,000)
February '96 300,000 275,000
December '96 - Shares 450,000 450,000 450,000
--------- --------- ---------
Weighted Average shares 2,235,000 3,603,614 2,210,000
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Net Weighted Net (Loss)
YEAR (Loss) Avg Shares Per Share
- ------------------------------------------------------
<S> <C> <C> <C>
1995 (1,227,502) 3,603,614 (0.34)
1996 (1,470,878) 2,210,000 (0.67)
</TABLE>
<TABLE>
<CAPTION>
Weighted Average
Shares Outstanding
Month of 3 Months Ended
Issuance For Number of March 31, March 31,
F/S Purposes Shares 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock at January 1, 1996 1,485,000 1,485,000 1,485,000
February 1996 300,000 300,000 200,000
December 1996 450,000 450,000 --
February 1997 750,000 750,000 --
--------- --------- ---------
Weighted Average Shares 2,985,000 2,985,000 1,685,000
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Net Weighted Net (Loss)
3 MONTHS ENDED (Loss) Average Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1996 (308,642) 1,685,000 (0.18)
March 31, 1997 (4,159,250) 2,985,000 (1.39)
</TABLE>
