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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1997
REGISTRATION NO. 333-24177
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 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)
DELAWARE 4813 13-3769217
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification identification Number)
incorporation or Code Number)
organization)
575 LEXINGTON AVENUE, SUITE 410, NEW YORK, NEW YORK 10022
(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.
575 LEXINGTON AVENUE, SUITE 410, NEW YORK, NEW YORK 10022
(212) 486-2900
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
COPIES TO:
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
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. [ ]
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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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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS TO BE PRICE PER OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY 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) 11.55(8) 1,767,150 535.50
Warrants Issuable Upon
Exercise of
Representative's Warrant 220,000(3) .83(8) 182,600 55.33
Common Stock Issuable Upon
Exercise of Warrants
Issuable Upon Exercise
of Representative's Warrant 220,000(3) 7.25(6) 1,595,000 483.33
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Totals -- -- $62,688,251 $18,996.44*
===========================================================================
</TABLE>
* $18,931.73 was previously paid. Accordingly a further fee payment of
$64.71 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 165% 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.
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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."
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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.
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SUBJECT TO COMPLETION DATED SEPTEMBER 16, 1997
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 J.W.
Barclay & Co., Inc. the representative of the Underwriters (the
"Representative"). See "Description of Securities--Warrants."
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 RWTCW,
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."
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A
HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
ON PAGE 14 AND "DILUTION" ON PAGE 31.
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.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS PROCEEDS TO TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDER(3)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $7.00 $.63 $6.37 $6.37
Per Warrant .50 .045 .455 --
Total(4) $11,810,000 $1,062,900 $10,556,000 $191,100
========================================================
</TABLE>
(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 165% 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 $125,000 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 $1,123,000 in the aggregate (or
$1,151,145 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,
$1,222,335, $12,168,065 and $191,100, respectively. See "Underwriting."
In addition to the Common Stock and Warrants being offered by the Company
and the Common Stock being offered by the Selling Stockholder pursuant to this
Prospectus, 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 granted by the Company to the Chairman
of its Board of Directors, all of which are being offered by certain selling
securityholders (the "Selling Securityholders").
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
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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
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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/OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. 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.
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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."
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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
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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 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
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<PAGE> 14
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.
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
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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 six month period ended June 30, 1997,
the Company (excluding Corbina) incurred a net loss of $7,835,110 (including a
one time compensation charge of $5,250,000 to account for the merger of Russian
Wireless Telephone Company, Inc. ("Russian Wireless") with and into the Company)
on minimal revenues, and Corbina incurred a net loss of $78,111 on total
revenues of $1,265,435. See "Risk Factors" and "Business -- General Overview."
The Company's office is located at 575 Lexington Avenue, 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.
15
<PAGE> 16
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
Certain Warrant Terms:
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.
16
<PAGE> 17
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."
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
17
<PAGE> 18
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 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."
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<PAGE> 19
(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."
19
<PAGE> 20
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 six month
period ended June 30, 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 six month period ended June 30, 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 with and into the Company and the
Company's acquisition of a 75% ownership interest in Corbina (i) 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 (ii) on the statement of
operations for the six months ended June 30, 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 a former stockholder and pursuant to the Second Private
Placement, the Third Private Placement and the Bridge 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 June 30, 1997; (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 six months ended June 30,
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
20
<PAGE> 21
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."
21
<PAGE> 22
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996:
<TABLE>
<CAPTION>
RUSSIAN
WIRELESS CORBINA
TELEPHONE TELECOM- PROFORMA PROFORMA
THE COMPANY, MUNICATIONS PROFORMA COMBINED TRANSACTION AS
COMPANY INC. (1) 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 $ 5,250(2)
100 -- -- $ 175(4) 5,525 $ 175(7) 5,700
Selling, General
and
Administrative
Expenses 483 $ 35 372 (70)(4) 820 42(5) 862
Writedown of
Equipment -- --
Depreciation and
Amortization 210 65(3) 275 275
------- ------- ------- ------- ------- ------- -------
Total Operating
Expenses 793 35 372 5,420 6,620 217 6,837
------- ------- ------- ------- ------- ------- -------
Operating Loss (785) (35) (187) (5,420) (6,427) (217) (6,644)
Other (Income)
Expenses:
Interest and
financing costs 686 -- -- -- 686 (618)(6) 68
Foreign Exchange
Loss -- -- 13 -- 13 (13)
------- ------- ------- ------- ------- ------- -------
Loss Before Provision
for Income Taxes
and Extraordinary
Items (1,471) (35) (200) (5,420) (7,126) (401) (6,725)
Provision for
Income Taxes (9) (9) (9)
------- ------- ------- ------- ------- ------- -------
Loss Before
Extraordinary Items $(1,471) $ (35) $ (209) $(5,420) $(7,135) $ (401) $(6,784)
------- ------- ------- ------- ------- ------- -------
Net Loss Per Share $ (.64) $(14.00) $(1,499) $ (2.41) (1.50)
</TABLE>
22
<PAGE> 23
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997:
<TABLE>
<CAPTION>
THE PROFORMA PROFORMA
COMPANY PROFORMA COMBINED TRANSACTION AS
CONSOLIDATED ADJUSTMENTS COMPANY ADJUSTMENTS ADJUSTED
- --------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues $ 1,266 -- $ 1,266 -- $ 1,266
Cost of Services 1,197 -- 1,197 -- 1,197
------- ------- -------
Gross Profit 69 -- 69 -- 69
------- ------- -------
Net Revenues
Operating Expenses:
Officers' Salaries 5,335 88 (4) 5,423 175(7) 5,598
Selling, General and
Administrative Expenses 473 (36)(4) 437 21(5) 458
Depreciation and
Amortization 1,680 -- 1,680 -- 1,680
------- ------- ------- ------- -------
Total Operating Expenses 7,488 52 7,540 196 7,736
Operating Loss (7,419) (52) (7,471) (196) (7,7667)
Other (Income) Expenses:
Interest and financing
costs 420 -- 420 (386)(6) 34
Foreign Exchange Gain (4) -- (4) -- (4)
------- ------- ------- ------- -------
Loss Before Provision
for Income Taxes (7,835) (52) (7,887) (190) (7,697)
Provision for Income Taxes -- -- -- -- --
------- ------- ------- ------- -------
Net Loss $(7,835) $ (52) $(7,887) $ (190) $(7,697)
======= ======= ======= ======= =======
Net Loss Per Share $ (2.78) $ (2.64) $ (1.71)
</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 resulting from the merger of
Russian Wireless with and into the Company, based on the assumed public
offering price of the Common Stock of $7.00 per share.
(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 $125,000 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."
23
<PAGE> 24
BALANCE SHEET AT JUNE 30, 1997:
<TABLE>
<CAPTION>
PROFORMA
THE TRANSACTION AS
COMPANY ADJUSTMENTS ADJUSTED
-------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 25 $ 11,600(a) $ 5,964
(2,292)(b)
(3,369)(c)
Accounts Receivable, Net 515 515
Prepaid Expenses and Other Current Assets 284 125(b) 409
-------- -------- --------
Total Current Assets 824 6,064 6,888
Property and Equipment, Net 210 210
Deferred Registration Fees 762 (762)(d) 0
Goodwill in Corbina, Net 294 294
Organization Costs 2 2
-------- -------- --------
Total Assets $ 2,092 $ 5,302 $ 7,394
======== ======== ========
Current Liabilities:
Notes Payable 2,899 (2,899)(c) 0
Accrued Interest Payable 494 (470)(c) 24
Accounts Payable and Accrued Expenses 1,849 762(d) 1,087
-------- -------- --------
Total Current Liabilities 5,242 (4,131) 1,111
Long Term Debt 389 389
Stockholders' Equity (Deficiency):
Common Stock 29 15(a) 44
Additional Paid In Capital 7,583 11,585(a) 17,001
(2,167)(b)
Accumulated Deficit (11,151) (11,151)
-------- -------- --------
Total Stockholders' Equity (Deficiency) (3,539) 9,433 5,894
-------- -------- --------
Total Liabilities and Stockholders'
Equity (Deficiency) $ 2,092 $ 5,302 $ 7,394
======== ======== ========
</TABLE>
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 $800,000 (of which $762,000 already has been accrued), the
Underwriters' discounts and commissions aggregating $1,044,000, the
Representative's non-accountable expense allowance (net of a $25,000
advance) aggregating $323,000 and the Representative's pre-paid financial
consulting fee of $125,000. See "Underwriting."
24
<PAGE> 25
(c) To record the repayment of debt and accrued interest at June 30, 1997 and
to write off unamortized discounts on notes payable to additional paid in
capital.
(d) To write-off $762,000 of deferred registration fees, including a $25,000
advance with respect to the Representative's non-accountable expense
allowance against paid in capital.
25
<PAGE> 26
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 six months ended June 30, 1997, the Company incurred losses from
operations of $7,418,632 (including a one time charge of $5,250,000), had a
working capital deficiency of $4,418,579 (including Corbina's deficiency of
$395,605), a stockholders' deficiency of $3,538, 728 and an accumulated deficit
of $11,151,336; and Corbina incurred losses from operations of $78,111, had a
working capital deficiency of $395,605 and a stockholders' deficiency of
$204,740. 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
26
<PAGE> 27
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 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
27
<PAGE> 28
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 $3,159,000 (32.8%) of the net
proceeds of the Offering to repay indebtedness to investors, and approximately
$150,000 of such proceeds to satisfy an obligation owed to Harvey Bloch, a
former stockholder, in connection with the redemption of the shares of Common
Stock that he formerly owned. 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. 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
28
<PAGE> 29
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
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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 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
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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 nationalism (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
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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.
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
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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
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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 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."
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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
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.
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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
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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 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
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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 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
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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 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
39
<PAGE> 40
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
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<PAGE> 41
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."
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.
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<PAGE> 42
82% 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 $5.76 per share based upon a pro forma net tangible book value per
share after the Offering. This represents a dilution of 82% 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 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."
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<PAGE> 43
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.
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."
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<PAGE> 44
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. However, 1,150,000
of said 1,155,000 shares will be restricted from sale pursuant to the lockup
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 (a) each of the directors and officers of the
Company and its Subsidiaries, (b) the holders of substantially all of said
1,155,000 shares and said 1,800,000 shares, as well as (c) the holders of
substantially all of the warrants to purchase 2,462,515 shares of Common Stock
issued in October 1994 and February 1996 in connection with the Company's second
and third private placements, and the holder of an option to purchase 25,000
shares of Common Stock must execute written lockup agreements 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. By reason of the
registration rights which the Company conferred to the investors who purchased
750,000 warrants of Common Stock pursuant to the Company's first private
placement of securities in June 1994, the Representative did not require any of
such warrantholders to agree to lockup their securities. As of the date of this
Prospectus, the holders of 1,150,000 of said 1,155,000 shares, the holders of
1,780,000 of said 1,800,000 shares, the holders of warrants to purchase
2,404,181 of said 2,462,515 shares, the holder of warrants issued in said first
private placement to purchase 50,000 shares and the holder of said option have
executed lockup agreements. In the event that the Representative fails to
receive lockup 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 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "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
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<PAGE> 45
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 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
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<PAGE> 46
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.
New requirements for the initial and continued listing of common and
preferred stock on the Nasdaq SmallCap Market recently became effective. In
order to qualify for initial listing, a company must have, among other things,
net tangible assets of at least $4 million, not less than one million shares
held by stockholders who are neither officers nor directors, a market value for
such publicly held shares of at least $5 million, at least three market makers,
at least 300 stockholders with holdings of 100 or more shares and an operating
history of at least one year. The new initial listing criteria also includes a
minimum bid price requirement of $4.00 and requires an applicant to comply with
a set of corporate governance standards relating to, among other things, the
appointment of at least two independent directors to the Board, the formation of
an Audit Committee of the Board, the majority of whose members must be
independent directors and compliance with quorum, stockholder approval and proxy
solicitation standards. Such new requirements also impose stricter criteria for
continued listing on the Nasdaq SmallCap Market, including the implementation of
a $2,000,000 net tangible assets test, requirements to have at least 500,000
shares of publicly held stock having a market value of at least $1,000,000 and a
minimum bid price for such shares of $1.00.
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> 47
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 $9,433,000 ($11,016,920 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 6.9%
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 25.4%
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 2.6%
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 6.9%
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 24.7%
Retirement of Bridge Financing owed to three non-employee,
</TABLE>
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<PAGE> 48
<TABLE>
<S> <C> <C>
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%
Prepayment 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) 125,000 1.3%
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 note issued in connection with
the redemption of Common Stock previously owned by
Harvey Bloch, a former stockholder (see "Certain
Relationships and Related Transactions") 150,000 1.6%
Working capital (1) 1,509,000 15.9%
--------------------
$9,433,000 100.0%
====================
</TABLE>
(1) If the over-allotment option is exercised in full, the Company will
realize additional net proceeds of approximately $1,558,920. All of such
additional proceeds 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
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<PAGE> 49
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 fiber-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> 50
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 June
30, 1997 was approximately $(4,595,000) or $(1.54) 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 June 30, 1997 would have been approximately $5,575,000 or
$1.24 per share of Common Stock. This represents an immediate increase in
proforma tangible book value of $2.78 per share to existing common stockholders
and an immediate dilution of $5.76 per share (or 82%) 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 $(1.54)
Increase per share attributable to new investors $ 2.78
----
Proforma net tangible book value per share after offering 1.24
----
Proforma dilution per share to new investors $5.76
=====
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 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> 51
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 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
JUNE 30, 1997 ADJUSTMENTS ADJUSTED
------------- ----------- --------
<S> <C> <C> <C>
Notes Payable $ 2,899,000 $(2,899,000) --
Long Term Debt 389,000 389,000
Stockholders' Deficiency
Common Stock--$.01 par value,
authorized 15,000,000, issued and
outstanding: 2,985,000 shares at
Mar. 31, 1997; 4,485,000 shares--
Proforma Offering 29,850 15,000 $44,850
Preferred Stock--$.01 par value,
authorized 1,000,000 shares, issued
and outstanding at Mar. 31, 1997: 0 -- -- --
Additional Paid in Capital 7,583,000 9,418,000 17,001,000
Accumulated Deficit (11,151,000) -- (11,151,000)
---------- --------- ----------
Total Stockholders' Equity (Deficiency) ( 3,538,150) 9,433,000 5,894,850
----------- --------- ----------
Total Capitalization $ 250,150 $ 6,534,000 $ 6,283,850
============ =========== ===========
</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> 52
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 June 30, 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 June 30,
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 June 30, 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 reposition 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
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<PAGE> 53
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 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
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<PAGE> 54
(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.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
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 six months ended June 30, 1997, the $1,265,435 of revenues
generated by Corbina during the same period. During the first six months of
1996, the Company's sole revenues were commissions of $4,589 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 $254,648 and $7,418,632 during the
six months ended June 30, 1996 and 1997, respectively. Such expenses for the
period ended June 30, 1997 consist of a combination of the Company's and
Corbina's operating expenses during the six months ended June 30, 1997. The
primary components of such expenses consisted of officers' salaries,
amortization of deferred financing costs and selling, general and administrative
expenses. In accordance with the accounting rules applicable to the merger of
Russian Wireless with and into the Company, the 750,000 shares of the Company's
Common Stock which were issued in exchange for all of the outstanding shares of
Russian Wireless' common stock were valued at the $7.00 initial public offering
price of the Common Stock. A one time, non-recurring charge in the $5,250,000
aggregate amount thereof was made to officers' salaries. The officers' salaries
component of operating expenses increased, excluding such one time charge, by a
factor of 1.5 from $54,166 during the first six months of 1996 to $85,000 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 financing costs reflects the significant increase in the costs incurred
by the Company with respect to its financing activities during the first half of
1997 when compared to the same period of 1996. Selling, general and
administrative expenses increased by a factor of seven from $63,368 during the
first six months of 1996 to $472,422 during the comparable period of 1997. As
discussed above, the comparatively low amount recorded as selling, general and
administrative
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<PAGE> 55
expenses during the first six months 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 six months of 1997 were:
Corbina's operating expenses during that period ($150,582); the commission paid
by the Company with respect to the Bridge Financing ($75,000), travel and
entertainment expenses ($8,000); office rents and utility expenses ($19,000) and
employee compensation expenses ($67,000).
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 six month periods ended June 30, 1996 and 1997, the Company incurred
operating losses of $250,059 and $7,418,632, 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 $539,719 ($.18 per share) and, $7,835,118 ($2.78 per share),
respectively, during the six months ended June 30, 1996 and 1997.
Corbina
During the six months ended June 30, 1997, Corbina incurred a net loss
from operations of $78,111 on revenues of $1,265,435, as compared to the net
loss of $71,144 which it incurred on revenues of $155,984 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, and the loss incurred during that period, reflected
the fact that Corbina was not then focusing its efforts on revenue generation
activities. By contrast, management believes that the revenues generated by
Corbina during the six months ended June 30, 1997 signify that Corbina has
reached a point in the process of its maturation as a business where it is
almost breaking even. Management further believes that, the application of those
portions of the proceeds of this Offering which have been allocated to the
expansion of Corbina's business, will enable Corbina to increase its customer
base, and concomitantly increase the volume of telephone traffic purchased by
such customers to a point where it will be able to generate profits from its
operations within the next 12 months. However, by reason of the facts that
management can not state with certainty that such increases in Corbina's
customer base and/or revenues will continue at the rates heretofore experienced,
or at all, or that Corbina will not incur increases in its operating costs from
unforeseen increases in the telecommunications services that it purchases for
resale to its customers, or otherwise, no assurances can be given in that
regard. 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.
Management further 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
55
<PAGE> 56
in an increase in its customer base, and a concomitant increase in telephone
traffic purchased by such customers.
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 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 June, 1997, all but one of the
investors in the Second Private Placement agreed to extend the maturity of said
notes from June 19, 1997 to October 31, 1997, or the date of closing of this
Offering, whichever first occurs. The Company agreed with Colonial, the investor
which did not agree to such extension, to rescind Colonial's original $100,000
investment, pursuant to an agreement providing for the payment of 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, in order to conserve cash, 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 Company intends to use a portion of the proceeds of this
Offering to pay its indebtedness under the notes issued in the Second Private
Placement and to Colonial. 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 October 31, 1997, or upon closing of
this Offering, whichever
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<PAGE> 57
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."
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
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<PAGE> 58
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
nonmonetary 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 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."
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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."
In October 1996, Messrs. Nathan and Leibov Incorporated Russian Wireless
Telephone Company, Inc., a Delaware corporation ("Russian Wireless"), to engage
in business separately from TelCom Group by providing wireless local loop
telecommunications services to business customers in the Moscow Region.
Subsequent to TelCom Group's acquisition of its ownership interest in Corbina,
the managements of TelCom Group and Russian Wireless determined that their
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<PAGE> 60
ability to succeed in business would be enhanced by providing long distance and
wireless local loop telecommunications services in the Russian Federation
through one parent entity. Accordingly, on February 10, 1997, Russian Wireless
merged with and into the Company. In connection therewith, the Company changed
its name from TelCom Group USA, Inc. to Russian Wireless Telephone Company, Inc.
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 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
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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 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
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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, 10,000 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
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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, 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
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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 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
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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
maintenance service for the equipment and Internet access through Corbina which
is currently offering services to its customers as an internet service provider.
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BILLING, TARIFFS AND INTERCONNECTION CHARGES
Billing. Investelektro intends to provide monthly and/or semimonthly
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 nonresident 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
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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 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
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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
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
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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
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observations, 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, 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
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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."
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.
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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.
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 rerouted 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
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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.
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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, management 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,
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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 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.
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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.
FACILITIES
In May, 1996, the Company began occupying approximately 2,000 square feet
of space at 780 Third Avenue, Suite 1600, New York, New York, pursuant to a
lease which provided for a term expiring on April 30, 2001 and an annual rent of
approximately $76,000 per year. Upon concluding that the Company did not have a
need for office facilities as large as such premises, management undertook to
vacate such premises,
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to negotiate a cancellation of said lease and to find smaller premises to serve
as the Company's administrative offices. In order to effectuate such lease
cancellation, the Company has agreed to pay to its former landlord the sum of
$20,000 and relinquish its right to the return of a $19,000 security deposit.
The Company presently occupies premises located at Suite 410, 575 Lexington
Avenue, New York, New York, consisting of an office comprising approximately 200
square feet, plus a conference room and reception area, on a month to month
basis without a lease, at a rent of $1,000 per month. 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 preexisting 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
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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 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.
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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.
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 intercity 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.
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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.
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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.
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 Board of Directors presently consists of four members. The Company
intends to add Mr. Leibov to the Board upon completion of the Offering. The
Company also intends, upon completion of the Offering, to commence a search for
up to two additional directors. The search will focus on persons of high repute
who possess substantial knowledge and experience regarding the operation of
commercial enterprises, in general, and telecommunications businesses, in
particular, in the Russian Federation.
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
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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 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
postgraduate 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.
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<PAGE> 84
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 accounting principles which would
be applicable if Corbina's
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<PAGE> 85
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
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<PAGE> 86
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 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 Bylaws 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 Bylaws 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.
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<PAGE> 87
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 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. In accordance with the accounting rules applicable to
the merger of Russian Wireless with and into the Company, the 750,000 shares of
the Company's Common Stock which were issued in exchange for the same number of
shares of Russian Wireless' common stock were valued at the $7.00 initial public
offering price of the Common Stock. A one time, non-recurring charge in the
$5,250,000 aggregate amount thereof was made to officers' salaries which
resulted in an equivalent charge to the Company's earnings for the six month
period ended June 30, 1997.
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<PAGE> 88
.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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
PERCENT PERCENT
NUMBER OF SHARES OWNED 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>
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<PAGE> 89
* Represents less than one percent
(1) Based on 2,985,000 shares of Common Stock outstanding as of the date of
this Prospectus.
(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
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<PAGE> 90
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."
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<PAGE> 91
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 securities for a period of 24 months from the date of this
Prospectus without the prior written consent of the Representative.
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<PAGE> 92
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
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, and pursuant to the Underwriting Agreement, the Company is
prohibited from issuing any of its preferred stock for a period of two (2) years
from the date hereof without the Representative's express written consent.
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
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<PAGE> 93
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.
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, spinoff 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.
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<PAGE> 94
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 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
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<PAGE> 95
"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."
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.
95
<PAGE> 96
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 lockup
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
96
<PAGE> 97
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 (a) each of the directors and officers of the Company and its
Subsidiaries, (b) the holders of substantially all of said 1,155,000 shares and
said 1,800,000 shares, as well as (c) the holders of substantially all of the
warrants to purchase 2,462,515 shares of Common Stock issued in the Second
Private Placement and the Third Private Placement, and the holder of the
Buechner Option to purchase 25,000 shares of Common Stock must execute written
lockup agreements 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. By reason of the registration rights which the Company
conferred to the investors who purchased 750,000 warrants of Common Stock
pursuant to the First Private Placement, the Representative did not require any
of such warrantholders to agree to lockup their securities. As of the date of
this Prospectus, the holders of 1,150,000 of said 1,155,000 shares, the holders
of 1,780,000 of said 1,800,000 shares, the holders of warrants to purchase
2,404,181 of said 2,462,515 shares, the holder of warrants issued in the First
Private Placement to purchase 50,000 shares and the holder of the Buechner
Option have executed lockup agreements. 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 lockup agreement, the Company is not aware
of any circumstance under which the Representative would permit any of the
existing stockholders or warrantholders who have executed lockup agreements to
sell his respective securities prior to the end of the lockup 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 lockup 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 lockup 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.
97
<PAGE> 98
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 Stockholder, and the Company and the Selling
Stockholder 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 Stockholder 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 Stockholder 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
lockup agreements.
98
<PAGE> 99
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
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 Stockholder 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 Stockholder 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 $11.55 per share and $.825 per Warrant, respectively,
for a period of four years commencing one year from the date of this Prospectus,
and may not be sold, assigned, transferred, pledged or hypothecated for a period
of one year from the date of this Prospectus, except to an officer or partner of
an Underwriter or members of the selling group or their respective officers or
partners. The Warrants issuable upon exercise of the Representative's Warrants
will be exercisable at a price of $7.25 per share. 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 "piggyback" registration rights for the
holders of the Representative's Warrants and the underlying securities. Such
piggyback registration rights will expire seven years from the date of this
Prospectus.
99
<PAGE> 100
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.
It has been agreed that for a period of two (2) years from the date
hereof neither the Company, its current or future subsidiaries, if any, nor any
of its officers, directors and principal stockholders, or their respective
affiliates, will, without the express written consent of the Representative,
sell or transfer (directly or indirectly) any of their respective securities
including but not limited to preferred stock of the Company.
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 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 agreed to enter into a financial consulting agreement
with the Representative providing that, during the three year period commencing
on the date of closing of this Offering, it will pay the Representative the
aggregate amount of $125,000, all of which shall be paid at such closing.
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 V. Igitova, 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
100
<PAGE> 101
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.
101
<PAGE> 102
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
UNAUDITED FINANCIAL STATEMENTS
Balance Sheet at June 30, 1997 F-18
Statement of Operations for the six months ended June 30, 1997
and 1996 F-19
Statement of Shareholders' Deficiency for the period January 1, 1997
to June 30, 1997 F-20
Statement of Cash Flows for the six months ended June 30, 1997 and 1996 F-21
Notes to Financial Statements F-22
CORBINA TELECOMMUNICATIONS
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors F-28
Balance Sheet at December 31, 1996 F-29
Statement of Operations for the period December 1, 1995 through
December 31, 1996 F-30
Statement of Shareholders' Deficiency for the period December 1, 1995
through December 31, 1996 F-31
Statement of Cash Flows for the period December 1, 1995 through
December 31, 1996 F-32
Notes to Financial Statements F-33
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Balance Sheets at December 31, 1996 and at June 30, 1997 F-38
Statements of Operations for the six months ended June 30, 1997
and 1996 F-39
Statements of Cash Flows for the six month periods ended
June 30, 1997 and 1996 F-40
Notes to Financial Statements F-41
</TABLE>
F-1
<PAGE> 103
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> 104
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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 2,340,258
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> 105
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> 106
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK 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> 107
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> 108
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> 109
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
Azerbaijan. 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 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. Accordingly, the above acquisition will be accounted for
under the purchase method of accounting. The goodwill of approximately $330,000
will be amortized on the straight line method over a five year period. The
following unaudited proforma information presents the results of operations of
Telcom as though the aforementioned acquisition had occurred as of the beginning
of 1996.
<TABLE>
<CAPTION>
<S> <C>
Proforma revenue $ 1,012,000
Proforma net loss $(1,850,000)
Proforma net loss per share $(.84)
</TABLE>
F-8
<PAGE> 110
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. 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"). The shareholders of Russian Wireless exchanged all of the issued and
outstanding shares for 750,000 shares of Telcom's common stock valued at $7.00
per share (the projected IPO price (see Note 10)). Accordingly, on February 10,
1997, the Company recorded an expense of $5,250,000. 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>
<CAPTION>
<S> <C>
Total Assets $ 68
Shareholder's Deficiency $34,932
Net Loss $35,032
</TABLE>
In October 1996, Comptel Ltd. (Comptel) a closed joint stock company
organized under the laws of the Russian Federation was formed by the sole
shareholder of Corbina to operate a wireless local loop network in the Russian
Federation. In March 1997, the Company acquired for approximately $34,000 a 75%
interest in Comptel. This acquisition will be accounted for by the purchase
method of accounting. Comptel had no business activity for the period since
inception through June 30, 1997. At December 31, 1996, total assets, and
stockholders' equity were immaterial to the consolidated financial statements.
In October 1996, Investelektrosvyaz, a private joint stock company
organized under the laws of the Russian Federation was formed for approximately
$34,000 by Comptel and three unrelated parties to construct and operate a
wireless local loop telecommunications systems. Comptel owns 51% of
Investelektrosvyaz. Investelektrosvyaz had no business activity since inception
through June 30, 1997. At December 31, 1996, total assets and stockholders'
equity were immaterial to the consolidated financial statements.
F-9
<PAGE> 111
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
F-10
<PAGE> 112
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 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-11
<PAGE> 113
Impairment of long-term assets
Management periodically evaluates the carrying amount of its long-term
assets, including, goodwill, by estimating the future cash flows against the
carrying value of these assets.
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
F-12
<PAGE> 114
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) October 31, 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
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 October 31, 1997, the promissory notes (including all
accrued interest) will become immediately due and payable and each warrant will
become null and void.
F-13
<PAGE> 115
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. 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 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
F-14
<PAGE> 116
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 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.
F-15
<PAGE> 117
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.
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
F-16
<PAGE> 118
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>
<CAPTION>
Year ending December 31:
<S> <C> <C>
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-17
<PAGE> 119
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,312
Accounts receivable, net 514,607
Prepaid expenses and other current assets 283,786
----------
Total current assets 823,705
Equipment, net of accumulated depreciation of $46,088 209,337
Goodwill in Corbina, net of accumulated amortization of $32,738 294,642
Deferred registration fees 762,302
Organization costs, net of accumulated amortization of $3,684 2,451
----------
Total assets $2,092,437
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Notes payable $2,899,000
Accrued interest payable 494,453
Accounts payable and accrued expenses 1,848,831
----------
Total current liabilities 5,242,284
Long-term debt, net of discount of $211,119 388,881
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 7,582,758
Accumulated deficit (11,151,336)
-----------
Total stockholders' deficiency ( 3,538,728)
-----------
Total liabilities and stockholders' deficiency $ 2,092,437
===========
</TABLE>
See accompanying notes.
F-18
<PAGE> 120
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1997 1996
---- ----
<S> <C> <C>
Revenues $ 1,265,435 $ 4,589
Cost of services 1,196,645 --
--------- ---------
Gross profit 68,790 4,589
Operating expenses:
Officers' salaries 5,335,000 54,166
Selling, general and administrative 472,422 63,368
Amortization of deferred financing costs 1,680,000 137,114
--------- ---------
Total operating expenses 4,787,422 254,648
--------- ---------
Operating loss (7,418,632) (250,059)
Interest, including $300,881 ($186,019 in 1996) of
amortization of discount on notes payable, and
financing expenses, net 420,167 289,660
Foreign exchange gain 3,681 --
--------- ---------
Net loss $(7,835,118) $ (539,719)
=========== ==========
Net loss per common share $ (2.78) $ (.32)
=========== ==========
Weighted average number of shares outstanding 2,815,110 1,685,000
========= =========
</TABLE>
See accompanying notes.
F-19
<PAGE> 121
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK 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
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)
Issuance of common stock in
connection with merger
(unaudited) 750,000 7,500 5,242,500 -- 5,250,000
Net loss for the six months
ended June 30, 1997
(unaudited) -- -- -- (7,835,118) (7,835,118)
---------- ------- ---------- ------------ ------------
Balance at June 30, 1997 $2,985,000 $29,850 $7,582,758 $(11,151,336) $(13,538,728)
========== ======= ========== ============ ============
</TABLE>
See accompanying notes.
F-20
<PAGE> 122
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(7,835,118) $ (539,719)
Adjustments to reconcile net loss to net cash used
in operating activities:
Compensation charge 5,250,000 --
Depreciation 14,995 2,362
Amortization of organization costs 614 614
Amortization of deferred financing costs 1,680,000 --
Amortization of discount on notes payable 300,881 186,019
Amortization of Goodwill 32,738 --
Changes in operating assets and liabilities:
Accounts receivable (170,126) --
Prepaid expenses and other current assets (94,321) (25,316)
Security deposits 18,988 (12,828)
Accounts payable and accrued expenses 354,276 (226,822)
Accrued interest payable 153,640 92,230
----------- ----------
Net cash used in operating activities (293,433) (523,454)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan receivable 190,000 --
Payments made for acquisition of subsidiary (195,000) --
Acquisition of property and equipment (101,298) (13,956)
Deferred registration fees (37,302) (25,000)
----------- ----------
Net cash used in investing activities (143,600) (38,956)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable -- 1,050,000
Repayment of notes payable (50,000) (200,000)
----------- ----------
Net cash (used in) provided by financing activities (50,000) 850,000
----------- ----------
Net increase (decrease) in cash and cash equivalents (487,033) 287,590
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 $ 25,312 $ 299,046
=========== =========
SUMMARY OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Net liabilities assumed at acquisition $ 132,380 $ --
=========== ==========
Discount recorded on notes payable $ -- $ 648,000
=========== ==========
Accrued deferred registration fees $ 700,000 $ --
=========== ==========
</TABLE>
See accompanying notes.
F-21
<PAGE> 123
RUSSIAN WIRELESS TELEPHONE COMPANY, INC.
(FORMERLY TELCOM GROUP USA, INC.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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, Latvia and
Azerbaijan. 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 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. Accordingly, the above acquisition will be accounted for
under the purchase method of accounting. The goodwill of approximately $330,000
will be amortized on the straight line method over a five year period. The
following unaudited proforma information presents the results of operations of
Telcom as though the aforementioned acquisition had occurred as of the beginning
of 1997.
<TABLE>
<CAPTION>
<S> <C>
Proforma revenue $ 1,265,000
Proforma net loss $(7,887,000)
Proforma net loss per share $(2.80)
</TABLE>
F-22
<PAGE> 124
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. 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"). The shareholders of Russian Wireless exchanged all of the issued and
outstanding shares for 750,000 shares of Telcom's common stock valued at $7.00
per share (the projected IPO price). Accordingly, on February 10, 1997, the
Company recorded an expense of $5,250,000. 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>
<CAPTION>
<S> <C>
Total Assets $ 68
Shareholder's Deficiency $34,932
Net Loss $35,032
</TABLE>
In October 1996, Comptel Ltd. (Comptel) a closed joint stock company
organized under the laws of the Russian Federation was formed by the sole
shareholder of Corbina to operate a wireless local loop network in the Russian
Federation. In March 1997, the Company acquired for approximately $34,000 a 75%
interest in Comptel. This acquisition was accounted for by the purchase method
of accounting. Comptel had no business activity for the period since inception
through June 30, 1997. At December 31, 1996, total assets, and stockholders'
equity were immaterial to the consolidated financial statements.
In October 1996, Investelektrosvyaz, a private joint stock company
organized under the laws of the Russian Federation was formed for approximately
$34,000 by Comptel and three unrelated parties to construct and operate a
wireless local loop telecommunications systems. Comptel owns 51% of
Investelektrosvyaz. Investelektrosvyaz had no business activity since inception
through June 30, 1997. At December 31, 1996, total assets and stockholders'
equity were immaterial to the consolidated financial statements.
Basis of Presentation
During the six months ended June 30, 1997 and 1996, the Company's
incurred losses from operations aggregating $7,835,118 and $539,720,
respectively, and had a working capital deficiency and stockholders' deficiency
of $4,418,579 and $3,538,728 respectively, at June 30, 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 June 30, 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
F-23
<PAGE> 125
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 June 30, 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 six month period ended June 30, 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 six month period
ended June 30, 1997 has been consolidated with the Condensed Financial
Statements of Corbina for the six month period ended June 30, 1997. No allowance
has been made for a minority interest, with respect to Corbina, as Corbina
maintains a shareholders' deficiency at June 30, 1997.
Use of Estimates
F-24
<PAGE> 126
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 June 30, 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 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
F-25
<PAGE> 127
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.
Impairment of long-term assets
Management periodically evaluates the carrying amount of its long-term
assets, including, goodwill, by estimating the future cash flows against the
carrying value of these assets.
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 six
months ended June 30, 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
F-26
<PAGE> 128
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 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 on a month by month
basis at a rate of $1,000 per month. The Company negotiated, subsequent to June
30, 1997, a termination of a lease for office premises that it previously
occupied. In consideration for its former landlord's agreement to cancel such
lease, the Company has agreed to forego repayment of the $19,000 security
deposit it made pursuant to the lease, and to pay the landlord an additional
$20,000.
Total rent expense incurred for the six months ended June 30, 1997 and
1996 amounted to approximately $32,000 and $13,000, respectively.
F-27
<PAGE> 129
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.
ERNST & YOUNG (CIS) LIMITED
Moscow, Russian Federation
January 24, 1997
F-28
<PAGE> 130
CORBINA TELECOMMUNICATIONS
BALANCE SHEET
DECEMBER 31, 1996
(US DOLLARS)
<TABLE>
<CAPTION>
<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-29
<PAGE> 131
CORBINA TELECOMMUNICATIONS
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1996
(US dollars)
<TABLE>
<CAPTION>
<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-30
<PAGE> 132
CORBINA TELECOMMUNICATIONS
STATEMENT OF SHAREHOLDER'S DEFICIENCY
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1996
(US dollars)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT 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-31
<PAGE> 133
CORBINA TELECOMMUNICATIONS
STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1996
(US dollars)
<TABLE>
<CAPTION>
<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-32
<PAGE> 134
CORBINA TELECOMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 31, 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.
F-33
<PAGE> 135
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 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 nonmonetary 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.
F-34
<PAGE> 136
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>
<CAPTION>
<S> <C>
Network equipment 7 years
Computers 5 years
Office furniture and equipment 5 years
</TABLE>
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.
F-35
<PAGE> 137
3. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Network equipment $ 51,837
Computers 47,152
Office furniture and equipment 3,172
--------
102,161
Accumulated depreciation (14,533)
--------
$ 87,628
========
</TABLE>
4. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
<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>
<CAPTION>
<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>
<CAPTION>
<S> <C> <C>
1997 $ 38,000
1998 38,000
1999 38,000
2000 9,586
---------
$ 12,586
=========
</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
F-36
<PAGE> 138
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.
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-37
<PAGE> 139
CORBINA TELECOMMUNICATIONS
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1997
(UNAUDITED)
---------------
(IN US DOLLARS)
<S> <C>
ASSETS
Current assets:
Cash $ 17,408
Accounts receivable, net 514,607
Accrued VAT, net 133,523
Prepaid expense and other current assets 66,163
-------
Total current assets 731,701
Property and equipment, net 190,865
-------
Total assets $ 922,566
==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Trade payables $ 915,209
Accrued Taxes and other liabilities 212,097
----------
Total current liabilities 1,127,306
Shareholders' deficiency (204,740)
----------
Total liabilities and shareholders' deficiency $ 922,566
==========
</TABLE>
See accompanying notes.
F-38
<PAGE> 140
CORBINA TELECOMMUNICATIONS
UNAUDITED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1997
---- ----
(IN US DOLLARS)
<S> <C> <C>
Revenues $ 155,984 $1,265,435
Cost of services 135,785 1,196,645
-------- ---------
Gross profit 20,199 68,790
Selling, general and administrative expenses 90,810 150,582
Foreign exchange translation loss (gain) 533 ( 3,681)
-------- -------
Net loss $(71,144) $ (78,111)
======== =========
Loss per share $ (508) $ (558)
======== =========
Weighted average shares outstanding 140 140
======== ========
</TABLE>
See accompanying notes.
F-39
<PAGE> 141
CORBINA TELECOMMUNICATIONS
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1997
---- ----
(IN US DOLLARS)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 49,637 $ 109,437
INVESTING ACTIVITIES--Purchases and advances
for property and equipment (78,000) (114,516)
FINANCING ACTIVITIES--Capital contributions 30,668 --
-------- ------
Net increase (decrease) in cash and cash equivalents 2,305 (5,079)
Cash and cash equivalents at beginning of period -- 22,487
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,305 $ 17,408
======== =========
</TABLE>
See accompanying notes.
F-40
<PAGE> 142
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. 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 June 30, 1997, Corbina incurred losses of $78,111,
and as of June 30, 1997, its current liabilities exceeded its current assets by
$395,605 and its total liabilities exceeded total assets by $204,740. 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 six-month period ended June 30, 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.
F-41
<PAGE> 143
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 June 30, 1996, December 31, 1996, and June 30, 1997 for
one US dollar were RUR 5,083, RUR 5,560, and RUR 5,782 respectively. At August
8, 1997, the exchange rate had changed to RUR 5,802. 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.
Reclassifications
Certain amounts in the prior period have been reclassified to conform to current
period presentation.
2. INCOME TAXES
The provision for income taxes varies from expected income tax expense
calculated at the statutory rate of 35% due primarily to valuation allowances
applied to deferred tax assets which are less likely than not to be realized as
well as to certain tax exemptions applicable under Russian tax legislation and
to the non-deductibility of certain expenses recorded under US GAAP.
F-42
<PAGE> 144
APPENDIX A
GLOSSARY OF SELECTED TERMS
Set forth below are certain technical terms defined as they are used in
this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
A-1
<PAGE> 145
<TABLE>
<CAPTION>
<S> <C>
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.
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.
</TABLE>
A-2
<PAGE> 146
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
B-1
<PAGE> 147
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 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
B-2
<PAGE> 148
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 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
B-3
<PAGE> 149
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 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
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<PAGE> 150
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).
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.
B-5
<PAGE> 151
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-6
<PAGE> 152
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 10
Prospectus Summary 12
Risk Factors 26
Use of Proceeds 47
Dilution 50
Capitalization 51
Dividend Policy 51
Management's Discussion and Analysis of Financial Condition and Results
of Operations 52
Business 59
Management 82
Certain Relationships and Related Transactions 87
Principal Security Holders 88
Selling Stockholders 92
Concurrent Registration of Securities 92
Description of Securities 92
Shares Eligible for Future Sale 96
Underwriting 98
Legal Matters 100
Experts 100
Financial Statements F-1
Appendix A A-1
Appendix B B-1
</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.
<PAGE> 153
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> 154
[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 RWTCW,
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 2,530,000 Warrants which are being offered by the
Company; and 30,000 shares of Common Stock being offered by a selling
stockholder.
<PAGE> 155
[Alternate Prospectus Page]
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> 156
[Alternate Prospectus Page]
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
<PAGE> 157
[Alternate Prospectus Page]
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
<PAGE> 158
[Alternate Prospectus Page]
CONCURRENT OFFERING BY THE COMPANY
<TABLE>
<CAPTION>
<S> <C>
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 $9,433,000
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
</TABLE>
<PAGE> 159
[Alternate Prospectus Page]
(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 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> 160
[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> 161
[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.
<PAGE> 162
[Alternate Prospectus Page]
<TABLE>
<CAPTION>
SECURITIES OWNED AND OFFERED
BY EACH SELLING SECURITYHOLDER
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> 163
[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). Such compensation may necessitate a filing with the NASD
pursuant to Notice to Members 88-101. 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> 164
[Alternate Prospectus Page]
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>
<PAGE> 165
[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> 166
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.
II-1
<PAGE> 167
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-------
<S> <C>
SEC Registration fee $ 18,996
NASD Filing fee 6,769
Nasdaq SmallCap Market fees 10,000
Printing expenses 100,000
Legal fees and expenses 275,000
Accounting fees and expenses 275,000
Blue sky fees and expenses 95,000
Warrant agent fees 7,500
Stock and Warrant certificates 5,000
Miscellaneous 6,735
--------
Total $800,000
========
</TABLE>
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"). Mr. Nathan was considered to be an accredited
investor, as such term is defined by Rule 501 of Regulation D promulgated under
the Securities Act (an "Accredited Investor"), at the time when such transaction
was consummated.
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. Mr. Bloch was considered to be an
Accredited Investor at the time when such transaction was consummated.
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. Each
of such investors was considered to be an Accredited Investor at the time of
issuance of such securities. 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>
II-2
<PAGE> 168
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. Each
of such investors was considered to be an Accredited Investor at the time of
issuance of such securities. The Registrant's obligations pursuant to such notes
shall become due and payable on the earlier to occur of (i) the date of closing
of its initial public offering of securities, or (ii) October 31, 1997. 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. Mr. Nathan was considered to be an Accredited
Investor at the time when such transaction was consummated.
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. Mr. Downey was considered
to be an Accredited Investor at the time when such transaction was consummated.
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. Mr. Ferrante was
considered to be an Accredited Investor at the time when such transaction was
consummated.
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. Mr. Signoracci
was considered to be an Accredited Investor at the time when such transaction
was consummated.
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. Said investor was
considered to be an Accredited Investor at the time when such transaction was
consummated.
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. Mr. Klotz was considered to be an Accredited
Investor at the time when such transaction was consummated.
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. Mr. Staff was considered to be an Accredited
Investor at the time when such transaction was consummated.
II-3
<PAGE> 169
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. Mr. Tenure was considered to be an Accredited
Investor at the time when such transaction was consummated.
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. Each of such investors was considered to
be an Accredited Investor at the time of issuance of such securities. The
Registrant's obligations pursuant to such notes shall become due and payable on
the earlier to occur of (i) the date of closing of its initial public offering
of securities, or (ii) October 31, 1997. 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.
II-4
<PAGE> 170
<TABLE>
<CAPTION>
NO. OF
NAME NO. OF UNITS NO. OF SHARES 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 David 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 the 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 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. Said investors were
considered to be Accredited Investors at the time when such transactions were
consummated.
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. Messrs. Nathan and Leibov were considered to be Accredited
Investors at the time when such transaction was consummated.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
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.*
</TABLE>
II-5
<PAGE> 171
<TABLE>
<CAPTION>
<S> <C>
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 Lockup 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.**
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.**
</TABLE>
II-6
<PAGE> 172
<TABLE>
<CAPTION>
<S> <C>
10.18 Amendment dated as of August 1, 1997, by and between the Company and
Wayne Adams and Lovella Adams to Promissory Note and Warrant dated
February 2, 1996.
10.19 Amendment dated as of August 1, 1997, by and between the
Company and Dale Bertling to Promissory Note and Warrant dated
February 2, 1996.
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 Rustelnet.**
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.**
10.31 Amendment dated as of August 1, 1997, by and between the Company and
Christopher Cirillo to Promissory Note and Warrant dated February 2,
1996.
10.32 Amendment dated as of August 1, 1997, by and between the Company and
Jerome and Ann Coppola to Promissory Note and Warrant dated February 2,
1996.
10.33 Amendment dated as of August 1, 1997, by and between the
Company and Boyd Corliss to Promissory Note and Warrant dated
February 2, 1996.
10.34 Amendment dated as of August 1, 1997, by and between the
Company and Richard David to Promissory Note and Warrant dated
August 5, 1997.
10.35 Amendment dated as of August 1, 1997, by and between the
Company and Kenneth A. DeLonge to Promissory Note and Warrant
dated May 5, 1997.
10.36 Amendment dated as of August 1, 1997, by and between the
Company and Leon Feldan to Promissory Note and Warrant dated
February 2, 1996.
10.37 Amendment dated as of August 1, 1997, by and between the Company and
David Hanos, Jr. to Promissory Note and Warrant dated February 2, 1996.
</TABLE>
II-7
<PAGE> 173
<TABLE>
<CAPTION>
<S> <C>
10.38 Amendment dated as of August 1, 1997, by and between the
Company and Bernard Kolkana to Promissory Note and Warrant
dated February 2, 1996.
10.39 Amendment dated as of August 1, 1997, by and between the Company and
Charles Leithauser to Promissory Note and Warrant dated February 2,
1996.
10.40 Amendment dated as of August 1, 1997, by and between the Company and E.
Dale Miller to Promissory Note and Warrant dated February 2, 1996.
10.41 Amendment dated as of August 1, 1997, by and between the
Company and Howard Pack to Promissory Notes and Warrant dated
February 2, 1996.
10.42 Amendment dated as of August 1, 1997, by and between the Company and The
Royal Bank of Scotland International Limited to Promissory Note and
Warrant dated May 5, 1997.
10.43 Amendment dated as of August 1, 1997, by and between the
Company and Harold H. Singer to Promissory Note and Warrant
dated February 2, 1996.
10.44 Amendment dated as of August 1, 1997, by and between the
Company and Thomas Zenick to Promissory Note and Warrant dated
February 2, 1996.
11 Computations of Earnings (Loss) Per Share.
21 Subsidiaries of the Company.
23.1 Consent of Independent Auditors (See Part II, Page 11).
23.2 Consent of Independent Auditors (See Part II, Page 11).
23.3 Consent of Counsel (See Part II, Page 12).
23.4 Consent of Counsel (See Part II, Page 12).
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).
** Filed on July 3, 1997 as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form SB-2.
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.
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
II-8
<PAGE> 174
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 (Section 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-9
<PAGE> 175
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 16th day of September, 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
- --------- ----- ----
<S> <C> <C>
/s/ Jack W. Buechner
- ----------------------------------
Jack W. Buechner Director, Chairman of the Board September 16, 1997
/s/ Ronald G. Nathan
- ----------------------------------
Ronald G. Nathan Director, President, Treasurer
(Principal Executive and Principal
Financial and Accounting Officer) September 16, 1997
/s/ Richard N. Holwill
- ----------------------------------
Richard N. Holwill Director September 16, 1997
/s/ Steven D. Dreyer
- ----------------------------------
Steven D. Dreyer Director, Secretary September 16, 1997
</TABLE>
II-10
<PAGE> 176
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. 2 to the
Registration Statement (Form SB-2, No. 333-24177) and related prospectus of
Russian Wireless Telephone Company, Inc. dated September 16, 1997.
ERNST & YOUNG LLP
New York, New York
September 16, 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. 2 to the
Registration Statement (Form SB-2, No. 333-24177) and related prospectus of
Russian Wireless Telephone Company, Inc. dated September 16, 1997.
ERNST & YOUNG (CIS) LIMITED
Moscow, Russian Federation
September 16, 1997
II-11
<PAGE> 177
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
September 16, 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
September 16, 1997
II-12
<PAGE> 178
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.
4.6 -- Form of Representative's Warrant.
10.9 -- Financial Consulting Agreement Between the Company and the
Representative.
10.18 -- Amendment dated as of August 1, 1997, by and between the Company
and Wayne Adams and Lovella Adams to Promissory Note and Warrant
dated February 2, 1996.
10.19 -- Amendment dated as of August 1, 1997, by and between the Company
and Dale Bertling to Promissory Note and Warrant dated February 2,
1996.
10.31 -- Amendment dated as of August 1, 1997, by and between the Company
and Christopher Cirillo to Promissory Note and Warrant dated
February 2, 1996.
10.32 -- Amendment dated as of August 1, 1997, by and between the Company
and Jerome and Ann Coppola to Promissory Note and Warrant dated
February 2, 1996.
10.33 -- Amendment dated as of August 1, 1997, by and between the Company
and Boyd Corliss to Promissory Note and Warrant dated February 2,
1996.
10.34 -- Amendment dated as of August 1, 1997, by and between the Company
and Richard David to Promissory Note and Warrant dated August 5,
1997.
10.35 -- Amendment dated as of August 1, 1997, by and between the Company
and Kenneth A. DeLonge to Promissory Note and Warrant dated May 5,
1997.
10.36 -- Amendment dated as of August 1, 1997, by and between the Company
and Leon Feldan to Promissory Note and Warrant dated February 2,
1996.
10.37 -- Amendment dated as of August 1, 1997, by and between the Company
and David Hanos, Jr. to Promissory Note and Warrant dated February
2, 1996.
10.38 -- Amendment dated as of August 1, 1997, by and between the Company
and Bernard Kolkana to Promissory Note and Warrant dated February
2, 1996.
10.39 -- Amendment dated as of August 1, 1997, by and between the Company
and Charles Leithauser to Promissory Note and Warrant dated
February 2, 1996.
10.40 -- Amendment dated as of August 1, 1997, by and between the Company
and E. Dale Miller to Promissory Note and Warrant dated February
2, 1996.
10.41 -- Amendment dated as of August 1, 1997, by and between the Company
and Howard Pack to Promissory Notes and Warrant dated February 2,
1996.
10.42 -- Amendment dated as of August 1, 1997, by and between the Company
and The Royal Bank of Scotland International Limited to Promissory
Note and Warrant dated May 5, 1997.
10.43 -- Amendment dated as of August 1, 1997, by and between the Company
and Harold H. Singer to Promissory Note and Warrant dated February
2, 1996.
10.44 -- Amendment dated as of August 1, 1997, by and between the Company
and Thomas Zenick to Promissory Note and Warrant dated February 2,
1996.
11 -- Computations of Earnings (Loss) Per Share.
</TABLE>
II-13
<PAGE> 179
EXHIBIT
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --- -----------
<S> <C> <C>
21 -- Subsidiaries of the Company.
23.1 -- Consent of Independent Auditors (See Part II, Page 11).
23.2 -- Consent of Independent Auditors (See Part II, Page 11).
23.3 -- Consent of Counsel (See Part II, Page 12).
23.4 -- Consent of Counsel (See Part II, Page 12).
</TABLE>
II-14
<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
<PAGE> 2
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. 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 $11.55 per share of Common Stock and $.83 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.
2
<PAGE> 3
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 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
3
<PAGE> 4
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 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
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<PAGE> 5
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 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,
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<PAGE> 6
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 issue or acquire
any equity securities except that the Company may
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<PAGE> 7
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
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<PAGE> 8
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
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.
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<PAGE> 9
(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 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
9
<PAGE> 10
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.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any 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
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<PAGE> 11
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 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.
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<PAGE> 12
(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 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
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<PAGE> 13
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
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<PAGE> 14
the death or incapacity of such Selling Stockholder or by the occurrence of any
other event.
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
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<PAGE> 15
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 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
15
<PAGE> 16
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 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
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<PAGE> 17
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.
(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
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<PAGE> 18
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.
(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.
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(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> 20
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 of $125,000, all of which shall be paid upon the Closing
Date.
(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
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<PAGE> 21
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 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
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<PAGE> 22
written consent of the Representative. Options granted pursuant to plans must be
exercisable at the fair market value on the date of grant.
(aa) 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.
(bb) 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.
(cc) 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.
(dd) 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 nine percent (9%) 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
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<PAGE> 23
Dealers, Inc ("NASD"), and to certain foreign dealers, and such dealers may
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
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<PAGE> 24
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 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
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<PAGE> 25
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.
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.
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<PAGE> 26
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 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) a fee of $15,000 to be
paid to counsel for the Underwriters for the preparation of a secondary trading
memorandum; (vi) fees and disbursements of counsel and accountants for the
Company; (vii) other expenses and disbursements incurred on behalf of the
Company (viii) the filing fees payable to the Commission and the National
Association of Securities Dealers, Inc. ("NASD"); and
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<PAGE> 27
(ix) 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. Any unaccounted for portion of the $25,000 so
advanced will be returned to the Company in the event the Offering is not
consummated.
(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.
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
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<PAGE> 28
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
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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, 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
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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 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
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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;
(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
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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 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
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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;
(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
34
<PAGE> 35
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
35
<PAGE> 36
out the businesses of such Russian Subsidiaries or the Company, such as
consummating material transactions or declaring dividends in cash or stock.
(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
36
<PAGE> 37
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 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
37
<PAGE> 38
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.
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
38
<PAGE> 39
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.
(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
39
<PAGE> 40
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 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
40
<PAGE> 41
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
41
<PAGE> 42
aforesaid fifteen (15) days, the contributing party will be 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
42
<PAGE> 43
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 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
43
<PAGE> 44
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 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.
44
<PAGE> 45
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.
45
<PAGE> 46
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:_____________________________________
46
<PAGE> 47
SCHEDULE A
Stock to be Sold By the Selling Stockholder
Name Number of Shares
- ---- ----------------
The Cam Neeley Foundation 30,000
------
Total: 30,000
======
<PAGE> 48
SCHEDULE B
<TABLE>
<CAPTION>
Number of Shares Number of
of Common Stock Warrants to
to be Purchased to be Purchased
--------------- ---------------
Underwriter
- -----------
<S> <C> <C>
J.W. Barclay & Co., Inc.
Total: 1,530,000 2,200,000
========= =========
</TABLE>
<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
$11.55 per share of Common Stock and $.83 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 $11.55 and $.83, respectively, the purchase price of the Common Stock
and the Warrant being 165% of the public offering price for the Securities set
forth in the Prospectus forming a part of the registration
<PAGE> 3
statement on Form SB-2 (File No. 333-24177) 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 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
2
<PAGE> 4
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.
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
3
<PAGE> 5
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 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
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<PAGE> 6
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 is not solely for the purpose of
subjecting the Company to jurisdiction in that state or is not unduly
burdensome, and furnish
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<PAGE> 7
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
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<PAGE> 8
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 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
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<PAGE> 9
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 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
8
<PAGE> 10
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.
(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
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<PAGE> 11
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.
(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:
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<PAGE> 12
(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 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
11
<PAGE> 13
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
12
<PAGE> 14
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.
(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
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<PAGE> 15
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
(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
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<PAGE> 16
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.
15
<PAGE> 17
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.
<PAGE> 18
RUSSIAN WIRELESS TELEPHONE
COMPANY, INC.
By:___________________________
Ronald G. Nathan, President
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> 19
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)
<PAGE> 20
________________________
Address
________________________
In the presence of:
________________________
________________________
<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
<PAGE> 2
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.
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 $3,472.22 per month, or an aggregate fee of
$125,000. Consultant's fee shall be due and payable on the date hereof.
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
<PAGE> 3
AGREED AND ACCEPTED:
Russian Wireless Telephone Company, Inc.
By:______________________________________
Ronald G. Nathan, President
<PAGE> 1
Exhibit 10.18
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Wayne Adams
and Lovella Adams (the "Payee") to that certain Promissory Note dated February
2, 1996 of TelCom to the Payee in the aggregate principal amount of $17,500 (the
"Note") and that certain Warrant dated February 2, 1996 issued by TelCom to the
Payee (the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Wayne Adams and Lovella Adams or
<PAGE> 2
assigns (the "Holder") the principal amount of seventeen thousand five
hundred dollars ($17,500.00) (the "Principal Amount"), in such coin or
currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts,
together with simple interest thereon at the rate of eight percent (8%)
per annum calculated from February 2, 1996, at the principal office of
the Company, upon the earlier of (a) October 31, 1997 or (b) the
closing of a public financing through the sale of securities from which
the Company receives gross proceeds of at least $2,000,000. No payments
of principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_________________________________________
Wayne Adams
_________________________________________
Lovella Adams
3
<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 10.31
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Christopher
Cirillo (the "Payee") to that certain Promissory Note dated February 2, 1996 of
TelCom to the Payee in the aggregate principal amount of $17,500 (the "Note")
and that certain Warrant dated February 2, 1996 issued by TelCom to the Payee
(the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Christopher Cirillo or assigns (the
<PAGE> 2
"Holder") the principal amount of seventeen thousand five hundred
dollars ($17,500.00) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
______________________________________
Christopher Cirillo
3
<PAGE> 1
Exhibit 10.32
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Jerome and
Ann Coppola (the "Payees") to those two certain Promissory Notes dated February
2, 1996 of TelCom to the Payees in the aggregate principal amounts of $105,000
and $35,000, respectively (the "Notes") and that certain Warrant dated February
2, 1996 issued by TelCom to the Payees (the "Warrant").
RECITALS
WHEREAS, TelCom issued the Notes to the Payees pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payees entitling the holder thereof to purchase 266,668 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Notes provide, among other things, that (a) the maturity
date of the Notes shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Notes if the Company defaults in payment of any principal or
interest on the Notes on the date when the same shall become due and payable,
and such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Notes in order to
avoid incurring an event of default under the Notes in the event that such
offering is not completed within 30 days of August 2, 1997; 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
Payees agree as follows:
1. (a) The first paragraph the $105,000 Note is hereby amended and
restated in its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Jerome and Ann Coppola or assigns
<PAGE> 2
(the "Holder") the principal amount of one hundred five thousand
dollars ($105,000.00) (the "Principal Amount"), in such coin or
currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts,
together with simple interest thereon at the rate of eight percent (8%)
per annum calculated from February 2, 1996, at the principal office of
the Company, upon the earlier of (a) October 31, 1997 or (b) the
closing of a public financing through the sale of securities from which
the Company receives gross proceeds of at least $2,000,000. No payments
of principal and/or interest shall be due until maturity."
(b) The first paragraph the $35,000 Note is hereby amended and
restated in its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Jerome and Ann Coppola or assigns (the
"Holder") the principal amount of thirty five thousand dollars
($35,000.00) (the "Principal Amount"), in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payees' agreement to extend the maturity of
the Notes, as aforesaid, the second sentence of the second paragraph of Section
6 of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
Notes issued by TelCom in the Offering.
4. 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.
5. The Notes and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
______________________________________
Jerome Coppola
______________________________________
Ann Coppola
3
<PAGE> 1
Exhibit 10.33
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Boyd Corliss
(the "Payee") to that certain Promissory Note dated February 2, 1996 of TelCom
to the Payee in the aggregate principal amount of $17,500 (the "Note") and that
certain Warrant dated February 2, 1996 issued by TelCom to the Payee (the
"Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Boyd Corliss or assigns (the "Holder")
<PAGE> 2
the principal amount of seventeen thousand five hundred dollars
($17,500.00) (the "Principal Amount"), in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_________________________________________
Boyd Corliss
3
<PAGE> 1
Exhibit 10.34
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Richard
David (the "Payee") to that certain Replacement Promissory Note dated August 5,
1997 of TelCom to the Payee in the aggregate principal amount of $17,500 (the
"Note") and that certain Replacement Warrant dated August 5, 1997 issued by
TelCom to the Payee (the "Warrant").
RECITALS
WHEREAS, TelCom issued the original of the Note to the Payee pursuant
to TelCom's private placement securities offering which closed on or about
February 2, 1996 (the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the original of the
Warrant to the Payee entitling the holder thereof to purchase 33,334 shares of
TelCom's $.01 par value common stock at an initial exercise price of $5.75 per
share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone
<PAGE> 2
Company, Inc., a Delaware corporation formerly known as TelCom Group
USA, Inc., (the "Company"), promises to pay to Richard David or assigns
(the "Holder") the principal amount of seventeen thousand five hundred
dollars ($17,500.00) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_________________________________________
Richard David
3
<PAGE> 1
Exhibit 10.35
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Kenneth A.
DeLonge (the "Payee") to that certain Replacement Promissory Note dated May 5,
1997 of TelCom to the Payee in the aggregate principal amount of $35,000 (the
"Note") and that certain Replacement Warrant dated May 5, 1997 issued by TelCom
to the Payee (the "Warrant").
RECITALS
WHEREAS, TelCom issued the original of the Note to the Payee pursuant
to TelCom's private placement securities offering which closed on or about
February 2, 1996 (the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the original of the
Warrant to the Payee entitling the holder thereof to purchase 66,667 shares of
TelCom's $.01 par value common stock at an initial exercise price of $5.75 per
share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone
<PAGE> 2
Company, Inc., a Delaware corporation formerly known as TelCom Group
USA, Inc., (the "Company"), promises to pay to Kenneth A. DeLonge or
assigns (the "Holder") the principal amount of Thirty Five Thousand
dollars ($35,000.00) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_______________________________________
Kenneth A. DeLonge
3
<PAGE> 1
Exhibit 10.36
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Leon Feldan
(the "Payee") to that certain Promissory Note dated February 2, 1996 of TelCom
to the Payee in the aggregate principal amount of $17,500 (the "Note") and that
certain Warrant dated February 2, 1996 issued by TelCom to the Payee (the
"Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Leon Feldan or assigns (the "Holder")
<PAGE> 2
the principal amount of seventeen thousand five hundred dollars
($17,500.00) (the "Principal Amount"), in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_________________________________________
Leon Feldan
3
<PAGE> 1
Exhibit 10.37
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and David Hanos,
Jr. (the "Payee") to that certain Promissory Note dated February 2, 1996 of
TelCom to the Payee in the aggregate principal amount of $17,500 (the "Note")
and that certain Warrant dated February 2, 1996 issued by TelCom to the Payee
(the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to David Hanos, Jr. or assigns (the
<PAGE> 2
"Holder") the principal amount of seventeen thousand five hundred
dollars ($17,500.00) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_______________________________________
David Hanos, Jr.
3
<PAGE> 1
Exhibit 10.38
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Bernard
Kolkana (the "Payee") to that certain Promissory Note dated February 2, 1996 of
TelCom to the Payee in the aggregate principal amount of $17,500 (the "Note")
and that certain Warrant dated February 2, 1996 issued by TelCom to the Payee
(the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Bernard Kolkana or assigns (the
<PAGE> 2
"Holder") the principal amount of seventeen thousand five hundred
dollars ($17,500.00) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_______________________________________
Bernard Kolkana
3
<PAGE> 1
Exhibit 10.39
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Charles
Leithauser (the "Payee") to that certain Promissory Note dated February 2, 1996
of TelCom to the Payee in the aggregate principal amount of $17,500 (the "Note")
and that certain Warrant dated February 2, 1996 issued by TelCom to the Payee
(the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Charles Leithauser or assigns (the
<PAGE> 2
"Holder") the principal amount of seventeen thousand five hundred
dollars ($17,500.00) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
________________________________________
Charles Leithauser
3
<PAGE> 1
Exhibit 10.40
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and E. Dale
Miller (the "Payee") to that certain Promissory Note dated February 2, 1996 of
TelCom to the Payee in the aggregate principal amount of $17,500 (the "Note")
and that certain Warrant dated February 2, 1996 issued by TelCom to the Payee
(the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to E. Dale Miller or assigns (the "Holder")
<PAGE> 2
the principal amount of seventeen thousand five hundred dollars
($17,500.00) (the "Principal Amount"), in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
_______________________________________
E. Dale Miller
3
<PAGE> 1
Exhibit 10.41
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Howard Pack
(the "Payee") to those two certain Promissory Notes dated February 2, 1996 of
TelCom to the Payee, each in the aggregate principal amount of $17,500 (the
"Notes") and that certain Warrant dated February 2, 1996 issued by TelCom to the
Payee (the "Warrant").
RECITALS
WHEREAS, TelCom issued the Notes to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 66,667 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Notes provide, among other things, that (a) the maturity
date of the Notes shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Notes if the Company defaults in payment of any principal or
interest on the Notes on the date when the same shall become due and payable,
and such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Notes in order to
avoid incurring an event of default under the Notes in the event that such
offering is not completed within 30 days of August 2, 1997; 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 first paragraph of each of the Notes is hereby amended and
restated in its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Howard Pack or assigns (the "Holder")
<PAGE> 2
the principal amount of seventeen thousand five hundred dollars
($17,500.00) (the "Principal Amount"), in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Notes, as aforesaid, the second sentence of the second paragraph of Section
6 of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
Notes issued by TelCom in the Offering.
4. 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.
5. The Notes and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
________________________________________
Howard Pack
3
<PAGE> 1
Exhibit 10.42
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and The Royal
Bank of Scotland International Limited (the "Payee") to that certain Promissory
Note dated May 5, 1997 of TelCom to the Payee in the aggregate principal amount
of $525,000 (the "Note") and that certain Warrant dated May 5, 1997 issued by
TelCom to the Payee (the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 1,000,005 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to The Royal Bank of Scotland
<PAGE> 2
International Limited or assigns (the "Holder") the principal amount of
five hundred twenty five thousand dollars ($525,000.00) (the "Principal
Amount"), in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public
and private debts, together with simple interest thereon at the rate of
eight percent (8%) per annum calculated from February 2, 1996, at the
principal office of the Company, upon the earlier of (a) October 31,
1997 or (b) the closing of a public financing through the sale of
securities from which the Company receives gross proceeds of at least
$2,000,000. No payments of principal and/or interest shall be due until
maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
The Royal Bank of Scotland International Limited
By: ______________________________________________
3
<PAGE> 1
Exhibit 10.43
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Harold H.
Singer (the "Payee") to that certain Promissory Note dated February 2, 1996 of
TelCom to the Payee in the aggregate principal amount of $105,000 (the "Note")
and that certain Warrant dated February 2, 1996 issued by TelCom to the Payee
(the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 200,001 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Harold H. Singer or assigns (the
<PAGE> 2
"Holder") the principal amount of one hundred five thousand dollars
($105,000.00) (the "Principal Amount"), in such coin or currency of the
United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
______________________________________
Harold H. Singer
3
<PAGE> 1
Exhibit 10.44
Amendment dated as of August 1, 1997, by and between Russian Wireless
Telephone Company, Inc. f/k/a TelCom Group USA, Inc. ("TelCom") and Thomas
Zenick (the "Payee") to that certain Promissory Note dated February 2, 1996 of
TelCom to the Payee in the aggregate principal amount of $17,500 (the "Note")
and that certain Warrant dated February 2, 1996 issued by TelCom to the Payee
(the "Warrant").
RECITALS
WHEREAS, TelCom issued the Note to the Payee pursuant to TelCom's
private placement securities offering which closed on or about February 2, 1996
(the "Offering"); and
WHEREAS, pursuant to the Offering, TelCom issued the Warrant to the
Payee entitling the holder thereof to purchase 33,334 shares of TelCom's $.01
par value common stock at an initial exercise price of $5.75 per share; and
WHEREAS, the Note provides, among other things, that (a) the maturity
date of the Note shall be the earlier of (i) August 2, 1997 or (ii) the closing
of a public financing through the sale of securities from which the Company
receives gross proceeds of at least $2,000,000; and (b) an event of default will
occur under the Note if the Company defaults in payment of any principal or
interest on the Note on the date when the same shall become due and payable, and
such default shall continue for a period of 30 days after such date; and
WHEREAS, the Warrant provides, among other things, that if the Company
does not complete an initial public offering by August 2, 1997 for any reason
other than a decision not to proceed with such offering the Warrant shall
automatically become null and void; and
WHEREAS, the Company is proceeding with an initial public offering of
its securities, and desires to extend the maturity of the Note in order to avoid
incurring an event of default under the Note in the event that such offering is
not completed within 30 days of August 2, 1997; 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 first paragraph of the Note is hereby amended and restated in
its entirety as follows:
"FOR VALUE RECEIVED, Russian Wireless Telephone Company, Inc.,
a Delaware corporation formerly known as TelCom Group USA, Inc., (the
"Company"), promises to pay to Thomas Zenick or assigns (the
<PAGE> 2
"Holder") the principal amount of seventeen thousand five hundred
dollars ($17,500.00) (the "Principal Amount"), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of eight percent (8%) per annum
calculated from February 2, 1996, at the principal office of the
Company, upon the earlier of (a) October 31, 1997 or (b) the closing of
a public financing through the sale of securities from which the
Company receives gross proceeds of at least $2,000,000. No payments of
principal and/or interest shall be due until maturity."
2. In consideration of the Payee's agreement to extend the maturity of
the Note, as aforesaid, the second sentence of the second paragraph of Section 6
of the Warrant, and all other references contained in the Warrant to the
automatic cancellation, termination or expiration of the Warrant in the event
that the Company does not complete an initial public offering by August 2, 1997
for any reason other than a decision not to proceed with such offering, are
hereby deemed to have been deleted from the Warrant as of, and with effect from,
August 1, 1997.
3. This Amendment shall be effective as of the date first above
written, provided, however, that such effectiveness shall be expressly
conditioned upon TelCom's receipt of similarly executed amending agreements from
the holders of not less than 51% of the aggregate principal amount of all of the
notes issued by TelCom in the Offering.
4. 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.
5. The Note and the Warrant, as modified by the provisions of this
instrument, shall continue, from and after the date hereof, in full force and
effect.
2
<PAGE> 3
6. This Amendment shall be construed and enforced in accordance with
the laws of the State of New York without regard to its conflicts of laws
provisions. 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
__________________________________________
Thomas Zenick
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) (2,663,876) (1,553,928)
April '95 300,000 300,000 200,000
May '95 (800,000) (800,000) (466,667)
August '95 (488,000) (466,000) (462,667)
February '96 300,000 275,000
December '96 450,000 450,000 450,000
--------- --------- ---------
Weighted Average shares 2,235,000 2,210,000 3,603,614
========= ========= =========
</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 6 Months Ended
Issuance For Number of June 30, June 30,
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 750,000 580,110 --
--------- --------- ---------
Weighted Average Shares 2,985,000 2,815,110 1,685,000
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Net Weighted Net (Loss)
6 MONTHS ENDED (Loss) Average Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 1996 (308,642) 1,685,000 (0.18)
June 30, 1997 (7,835,118) 2,815,110 (2.78)
</TABLE>
<PAGE> 1
Exhibit 21
Subsidiaries of Russian Wireless Telephone Company, Inc.,
a Delaware corporation
ZAO Corbina Telecommunications, a closed joint stock company organized under the
laws of the Russian Federation - 75% owned by Registrant
ZAO CompTel Ltd. ("CompTel"), a closed joint stock company organized under the
laws of the Russian Federation - 75% owned by Registrant
ZAO Investelektrosvyaz, a closed joint stock company organized under the laws of
the Russian Federation - 51% owned by CompTel
