FORM 10-SB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
INTERNET VIP, INC.
(Name of Small Business Issuer in its charter)
Delaware (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
1155 University St., Suite 602, Montreal, Canada H3B 3A7
(Address of principal executive offices) (Zip Code)
Telephone Number (514) 876-9222 Fax Number (514) 876-1001
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
<PAGE>
PART I.
Item 1. Description of Business.
(a) Business Development
Internet VIP, Inc. (the "Company"), a Delaware corporation, was organized on
November 13, 1998. The Company has not been involved with any bankruptcy,
receivership or similar proceedings. The Company has not had any material
reclassification, merger, consolidation, or purchase or sale of a significant
amount of assets not in the ordinary course of business.
(b) Business of Issuer
THE COMPANY
<PAGE>
The Company was formed to sell long distance international
telephone services using the new technology, Voice over Internet Protocol
("VIP"). From its strategically-located Switching Center in Montreal, Canada,
calls can be routed from anywhere in North America to anywhere in the world
using VIP technology. The first phase of operations will encompass calls from
Montreal to St. Petersburg and Moscow, and vice versa.
The Company will initially be servicing two different groups
of customers, and both groups will access the Company's technological platform
in a different manner.
The first customer group will be from the Russian Ministry of
Interior. The Ministry presently has its own telephone system. When a member of
the ministry calls North America through the Company's platform, he will dial a
code to access the Company's equipment that is located in the ministry. He will
then get a second dial tone and will be able to dial directly to North America.
The Company's equipment takes this call and sends it over a dedicated line to
the Company's calling center in Montreal using the VIP technology. In Montreal,
the Company's mirror image equipment receives the call, re-packages it for
normal phone transmission and then directs it through regular local phone lines
to the intended parties anywhere in North America.
The second type of subscriber will be individuals or
corporations that will have purchased prepaid calling cards or contracts. For
one of these customers to place a call from any telephone in Russia, he will
dial a local access number to reach the Company's equipment and then input his
card number and personal identification number ("PIN"). The Company's equipment
will validate the card number and PIN and then give the caller a second dial
tone allowing him to make the long distance call. The call is then processed in
the same manner as described above.
For both types of customers, the Company's technology and
equipment will process these steps in milliseconds and the customer will be
unable to detect the difference between a traditional long distance call between
Moscow and North America and a call utilizing the Company's system. The process
for a call to Moscow originating in North America over the Company's system
operates the same way with the customer calling an "800" number to access the
Company's North American platform in the same manner as if he were using a
conventional calling card.
All of the Company's technology is state of the art, but the
Company will not be dependent on any one vendor in particular. For the hardware
in the calling centers in Montreal and Moscow, the Company will be using a
configuration and equipment designed by Ericsson Inc. For the trans-atlantic
fiber optic E-1 lines, the Company has proposals from five telecommunication
companies for the lease of dedicated VIP circuits.
<PAGE>
Initially, the Company will operate through a wholly owned Canadian
subsidiary corporation, V.I. Internet Telecommunications Inc. ("V.I. Internet").
V.I. Internet owns and operates the Canadian switching center, and it owns 80%
of two Russian joint-venture entities, established to manage the Company's
centers in St. Petersburg and Moscow. The remaining 20% of the Russian
joint-venture companies are owned indirectly by the Russian Ministry of
Interior, in the case of Moscow, and by the BaltUnexim Bank in the case of St.
Petersburg. The strategy of teaming with a prominent Russian government agency
should give V.I. Internet access to unlimited local lines in Russia and
contracts for usage from most if not all government and related agency traffic
from within the Russian Federation to North America.
Traditional telephone service is a circuit-switched
technology. When a long-distance call is placed, the system switches open a
direct connection between the sender, and then over a series of switching
facilities, to the receiving party. The connection remains open during the
duration of the telephone call. Since no one else can use the circuit while a
call is in progress, more circuits are required, which leads to inefficiency and
expense. This is one reason why local telephone companies, and the intermediate
switching companies, charge high prices for their services.
The Company believes that Internet Protocol (IP) telephony is
the wave of the future. IP is a packet-switched technology, which is the basis
of all Internet communication and is the technology used by the Company to
process their long distance telephone service. IP breaks up network data into
small chunks or packets, which are then sent out. These packets are routed, over
the Company's dedicated fiber optic lines, until they reach their destination.
This process happens in microseconds. In 1996 the first IP telephony technology
was put into place. Millions of individuals, governments, and corporations are
using this technology every day to send data, voice conversations, and even
money.
The Company has commenced operations with the signing of two
joint venture agreements between V.I. Internet and its Russian partners covering
the cities of Moscow and St. Petersburg. As previously indicated, these joint
ventures should give the Company the availability of telephone lines needed to
provide service. Additionally, the Company's joint venture partners are
committed to market and promote the usage of the Company's centers in Russia to
customers from the industry and retail communities. The Company, through its
wholly owned subsidiary, V.I. Internet, has letters of intent with governmental
and industrial entities expressing an interest to purchase telephone service
from Russia to North America, provided the IP Network is completed. The Company
is in the process of completing and installing its IP Network and anticipates
converting the letters of intent to firm contracts by August 31, 1999. If the
Company is successful in converting the letters of intent to firm contracts, the
Company anticipates that by the end of the first year of long distance service
between Russia and North America the Company will be providing 1,500,000 minutes
per month. However, there can be no assurance that such usage and/or revenue
levels, if any, will be attained. The Company does not currently intend to
proceed with St. Petersburg until the Moscow facility is operational and can
fund development of the new facility.
<PAGE>
COMPETITION
Internet Telephony in Russia has not been represented by big
companies yet. However, there are several small companies (Global M, Maxima,
Mos-Teleinternet) which serve several localities within Downtown Moscow. The
investigation launched into their activities by the Ministry of Communications
in November 1998 (the Report to Duma Communication committee on December 11,
1998) had established that all of these small companies work on a "call back"
principle which is illegal under Russian law. The main problem these companies
face is the necessity to get special licenses from the Ministry of
Communications. They do not currently have these licenses and we believe they
are unlikely to receive them in the near future as no law has been introduced in
that regard. Accordingly, competitors will not be able to legally operate
without great difficulty in the Russian market prior to approximately at least
the year 2002 when the Company believes the market may first start to become
officially deregulated. We, meanwhile, have the agreement with the Ministry of
Interior, which has its own telephone system independent of the Ministry of
Communications.
RUSSIAN MARKET TODAY
Three segments of the market are targeted by our project:
governmental, commercial (foreign and joint venture enterprises, Russian
companies and Russian branches of non-Russian companies) and private individuals
who will buy pre-paid cards. While there is no fully confirmed estimate of the
volume of Russian international communications market, the assumption made by
the Economic Research Institute of Russia (selection of research works
1994-1999) is that the market in Moscow and areas and regions using Moscow as
transmission points has an annual volume of about 210 million minutes. Over the
next 2 1/2 years we hope to capture 20-25% of our targeted markets in Moscow.
TERMS OF PAYMENT AND CURRENCY
Russian currency today is the ruble. On June 1, 1999 the
conversion rate was 24 rubles a dollar. Despite such a rate the ruble is more
stable than it was after the August 17, 1998 crisis and, according to published
reports by Smith Barney and Solomon Brothers should continue to exchange between
25 and 32 rubles a dollar for the foreseeable future. During July 1999, the
conversion rate was between 24-24.5 rubles a dollar.
The ruble is a convertible currency and can be freely
exchanged into any hard currency. Money may be transferred to foreign countries
as part of joint ventures without any obstacles.
All payments for our services will be based on the pre-payment
principle as exists today throughout the Soviet Federation. Payments will be
automatically transferred from the Central Bank in Moscow or BaltUnexim Bank in
St. Petersburg on a daily basis, as per instructions.
Our Moscow partner is the special technical and communication
services institute of the Ministry of Interior of Russia. The Russian Ministry
of the Interior is the strongest and most stable organization within the Russian
structure with its own telephone lines and communication services that include
governmental, presidential and other segments.
Our Moscow partner contributes the following:
<PAGE>
*The premises where the equipment is housed with complete security;
*Proper distribution system through already existent channels with the
Ministry's telephone network covering the governmental segment;
*Unlimited fiber optic access to the Moscow telephone network: and
<PAGE>
*A level of credibility that is very important for commercial success.
The leading executives of our Moscow JV partner are
Major-General V. Khimitchev, V. Martinov and R. Mananov, all of whom hold PhD
degrees and have done post graduate studies in the US and are specialists in
Russia in the field of communications.
The activities of our joint ventures have been negotiated
according to the Russian Law of Joint Ventures and Law of Investments. Acording
to the evaluation of IMF (statement of M. Comdecu, the president of IMF on
January 17 in the interview to the Interfax Agency) these laws are the most
liberal laws of that kind in Europe. However, problems with joint ventures do
exist. In our case however, the joint venture is with the Ministry of Interior
which is reputable and is much better organized than the average Russian partner
in a joint venture.
At present, there is a marketing plan for the Company's
Russian operations being developed in Moscow by a leading advertising and
marketing company. The plan is to capture Industrial usage of long distance
needs; and introduction of an economical pre-paid telephone card to the general
public.
Our joint venture partners will contribute in promoting and
selling the pre-paid card to all government agencies, through billboards,
television media and print media.
<PAGE>
An extremely important feature of the Company's anticipated
revenue stream is that all sales will be prepaid by the customers on a monthly
basis and customers will be required to sign Usage Commitment Contracts.
The Company is in the process of analyzing the long distance
traffic between Russia and Europe. However, there can be no assurance that any
business will develop in this market.
On the North American side, the Company has entered into a
Maintenance and Operating Agreement with Bridgepoint Enterprises Inc., a
Montreal, Quebec corporation. Pursuant to the Agreement, after the Company
purchases the necessary equipment to establish a switching center, Bridgeport
will build and install the Company's center in its facility and once
operational, will continue to operate and maintain the center for a monthly fee
of $8,000. In April 1999, Bridgeport completed the installation of the Company's
equipment and the center became operational.
In June 1999, the Company entered into a one year renewable
contract with Metrocom, a closed joint stock company, to provide a
Trans-Atlantic Fiber Optic E-1 Line for dedicated circuits at an annual cost of
$515,520. The contract provides for the fee to be reduced if international
tariffs for Trans-Atlantic Lines decline. The Company currently anticipates that
rates will decline in the Fall of 1999.
The founders and principals of the Company believe that they
have put together a team having the experience and the extensive network of
contacts to build and operate a premier long distance service between the former
Soviet Union countries, North America and Europe. Their proven entrepreneurial
record and motivated energy will hopefully establish the Company as a prominent
telecommunications company, especially in the former Soviet Union countries,
resulting in a commercially successful enterprise.
The Company currently has three full time employees and eight
part time employees. The Company anticipates hiring up to an additional five
employees once its facilities become fully operational. The Company does not
expect to incur any material costs in complying with environmental laws.
Item 2. Plan of Operation.
Management's Discussion and Analysis
As noted in Item 1 above, the Company is currently installing its equipment and
building its network centers. Until its facilities are operational, the Company
cannot begin to generate any revenues. Our facilities are currently operational
on a limited basis and we expect them to be fully operational in August.
The Company recently completed a private offering in which it netted
approximately $800,000. The bulk of the proceeds are being used to purchase and
install equipment for our facilities in Moscow and Canada. We believe we have
sufficient funds to make our facilities operational and that any future funding
can be supplied by income from operations.
The Company does not expect to conduct any product research and development and
we have purchased all the equipment we need to install in our current
facilities. The Company intends to retain marketing and public relations
consultants as necessary, and to hire additional staff if warranted by its sales
volume on an as needed basis.
As discussed above, the Company intends to expand its operations into St.
Petersburg once the Moscow facility is operational using cash flows generated by
the Moscow facility. We have issued a purchase order for the necessary equipment
and anticipate installation to commence in the end of August or beginning of
September. While the Company will not have to pay for the equipment for six
months and believes it will be able to pay for the equipment out of then
existing cash flows, the Company anticipates requiring approximately $125,000 to
finance startup costs for the new facility. The Company has no specific plans at
this time for obtaining the necessary funds and is currently reviewing its
options, which includes an additional private financing. Total costs for each
new facility including equipment, installation, marketing and office personnel
is currently estimated at $300,000.
<PAGE>
The Company's business plan currently calls for expansion into other markets,
such as Israel and Korea, if and when opportunities present themselves and as
funding permits. During the next twelve months, the Company intends to use the
same formula for financing any expansions, i.e., external funding for startup
costs and internal financing for operations. Other than as described, the
Company does not currently anticipate funding its growth with additional public
financings, except in the event an unexpected and unusual opportunity is
presented.
Year 2000 Disclosure
The Company only has a limited number of computers that it uses for mostly word
processing, bookkeeping and general administrative purposes. We do not believe
that we will be significantly effected by the "Year 2000 problem." In any event,
we have the ability to save all of our internal data on discs which will
preserve the date in the event problems occur with our system.
The Company's business is the sale of international telephone service. This
requires our total dependence on the integrity of equipment used by the
telecommunications industry. Specifically, we are dependent on equipment
used/made by Cisco Systems, RAD Data Communications Products, Teleglobe
(Metrocom), AT&T Canada and Ericsson. Based upon publicity available information
provided by these companies, we believe they are all "Year 2000 compliant" and
the Company's operations should not be adversely effected by the Year 2000
problem. We are also dependent upon the ability of the local Moscow telephone
exchange to address these issues. We have been advised by our agent that the
Moscow telephone system uses an analog technology that should not be effected by
the Year 2000 problem and that our business should not be jeopardized.
As with all commercial enterprises, we can be adversely impacted in the event
the local utility companies serving the areas in which we operate are not Year
2000 Compliant as well as the international banking system. In these regards the
Company expects that it is as susceptible as other businesses its size in its
locations and does not expect to be adversely impacted to any greater degree.
Item 3. Description of Property.
The Company maintains its corporate offices at 1155 University Street, Suite
602, Montreal, Canada where we have approximately 1,550 square feet at an annual
rental of $48,600. The property is subleased from an entity controlled by one of
our directors by a five year lease expiring January 31, 2004. The sublet may be
terminated by the Company at the end of any year without penalty. Our Moscow
facility is comprised of approximately 160 square yards and is located at 19-7
Starovagankovski Perealok, Moscow, Russia where we pay $4,354 per month under a
three year lease. The Moscow property is leased from an entity controlled by Dr.
Gerol and Mr. Makarov, directors of the Company, at a rate the Company believes
is the going rate for similar space.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the
beneficial ownership of the Company's Common Stock, $.0001 par value, as of the
date hereof and after the Offering by (i) each person known by the Company to
own beneficially more than five percent of the Company's outstanding shares of
Common Stock, (ii) each director and executive officer of the Company who owns
shares and (iii) all directors and executive officers of the Company as a group.
Unless otherwise indicated, all shares of Common Stock are owned by the
individual named as sole record and beneficial owner with exclusive power to
vote and dispose of such shares. None of the people listed below owns any other
securities of the Company. There are no arrangements which may result in a
change in control of the Company.
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------- --------------------------------- ---------------------------------
Shares Owned Beneficially Percentage
- -------------------------------------- --------------------------------- ---------------------------------
Ilya Gerol (1) 2,700,000 12.38%
- -------------------------------------- --------------------------------- ---------------------------------
Viatscheslav Makarov (1) 2,700,000 12.38%
- -------------------------------------- --------------------------------- ---------------------------------
Derek Labell (1) 2,500,000 11.46%
- -------------------------------------- --------------------------------- ---------------------------------
Michael MacInnis (1) 1,258,000 5.77%
- -------------------------------------- --------------------------------- ---------------------------------
Natalia Maloshina (1) 2,000,000 9.17%
- -------------------------------------- --------------------------------- ---------------------------------
Nais Corp. 1,386,300 6.35%
94 Washington Ave.
Lawrence, NY 11559
- -------------------------------------- --------------------------------- ---------------------------------
Howard Salamon 1,386,300 6.35%
20 Margaret Ave.
Lawrence, NY 11559
- -------------------------------------- --------------------------------- ---------------------------------
All Executive Officers and Directors 9,158,000 41.97%
as a Group
- -------------------------------------- --------------------------------- ---------------------------------
</TABLE>
1 Uses Company's address.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
(a) Directors and Executive Officers.
Name Age Position
Dr. Ilya Gerol 59 Chairman & Chief Executive Officer
Derek LaBell 39 President, Director of
Sales and Marketing
(North America) & Director
Michael MacInnis 51 Chief Financial Officer &
Director
Viatcheslav Makarov 44 VP-Sales and Marketing
(Russia) & Director
Dr. Ilya Gerol: Chairman and Chief Executive Officer
<PAGE>
Dr. Ilya Gerol is an expert in communications with over 28 years of
experience. A Canadian of Russian descent, Dr. Gerol is Chairman of the Board of
Directors and Chief Executive Officer. He has consulted to the Economic Council
of Canada, and has researched and analyzed international information and
economic trends, specializing in energy, communications, and the world economy.
From 1965 through 1973, Dr. Gerol was an Editor, a Senior Editor, and then
Editor-in-Chief of Radio Broadcasting Atlantica International in Riga, Latvia
(former Soviet Union). From 1973 to 1979 he was an Editor of SM Newspaper in
Riga. From 1980 through 1981, he was an associate teaching assistant at the
University of British Columbia. From 1981 through 1984 he was a syndicated
columnist at The Province Vancouver and an associate Editor at the International
Business Magazine. From 1984 through 1990 he was a Foreign Editor and Syndicated
Columnist on international affairs and international business at the Ottawa
Citizen. From 1988 through 1991 he was a visiting professor of Political Science
at the State University of Winnipeg. From 1991 to 1994 he was a consultant on
Eastern Europe and Commonwealth of Independent States to Economic Counsel of
Canada for Amberoute International Group. From 1994 to 1997 Dr. Gerol was vice
president international, newsletter D.A. & G. Information and Analysis and
Editor-in-Chief. Dr. Gerol has been on staff and/or visiting professor for over
14 universities throughout the world including State University of Winnipeg,
University of British Columbia, Moscow State University, Hebrew University, and
others.
<PAGE>
Derek LaBell: President and Director of Sales and Marketing (North America)
Mr. Derek LaBell is the Company's President and Director of
Sales and Marketing (North America) and comes to the Company with over 20 years
experience in sales, marketing and management. Mr. LaBell has an in-depth
knowledge of the North American telecommunications long distance telephone card
market, including card marketing, applications, production, distribution,
franchising and card application platforms. In 1994, Mr. LaBell participated in
the initial groundwork to bring prepaid phone cards to Canada by conducting a
comprehensive study on behalf of a company which eventually became Canada's
number one prepaid phone card company. From 1986 to 1990 Mr. LaBell was
Director-Property Management of The Marine Group's real estate division,
Montreal, Quebec, managing the real estate portfolio in Montreal, Windsor,
Ontario and Fort Lauderdale, Florida. From 1991 to 1993 he established a Limited
Partnership, operating foreign currency exchange offices in Montreal, Quebec for
which he negotiated the North American rights to sell and distribute the leading
European automated foreign currency exchange vending machine. During the same
period he was instrumental in concluding the acquisition of AVF, a carriage
trade asset management firm in Frankfurt, Germany. During 1994 he represented
Pascals Realties Ltd. leasing and managing their corporate office property in
Old Montreal. From 1995 to 1997 Mr. LaBell provided consulting services to Monit
International Inc. (a privately held Montreal Real Estate company owning and
managing more than sixty properties throughout Eastern Canada and United States)
on leasing and tenant improvement construction issues. From 1997 to present he
has been director of leasing for Tidan, a privately held Montreal Real Estate
company owning and managing more than fifty properties throughout Eastern Canada
and in the United States.
Michael MacInnis: Chief Financial Officer
Mr. Michael MacInnis is the Chief Financial Officer. Mr.
MacInnis received his Chartered Accountant designation in 1972 and started his
own firm in 1974 where he specialized in corporate finance, income taxation and
reorganizations. In addition, he has operated and consulted to many corporations
throughout Canada and has successfully raised funding in excess of an aggregate
of $200 million for various commercial projects. Also, he specializes in Public
Corporations listed on the NASD Bulletin Board. During the last five years Mr.
MacInnis has focused his efforts on developing a franchised consulting concept
and providing consulting services to various companies seeking financing.
Viatcheslav Makarov: Vice President - Sales and Marketing (Russia)
Mr. Viatcheslav is the Company's vice-president - sales and
marketing. Mr. Makarov was trained as an engineer and his initial career was as
an avionics scientist in the former Soviet Union. From 1989 through 1995 he
became the chief representative of Volvo (automotive) in Russian and, as well,
worked as a member of Renault bureau in Moscow. Since 1996, Mr. Makarov moved to
Canada where he established and currently operates, the Interservice Group, a
group of companies that consult to U.S., Canadian and European business circles
on financial and industrial development within Eastern European and C.I.S.
countries utilizing the many contacts and connections that he has cultivated in
the last ten years in both the Russian government and industry.
(b) Significant Employees
None
(c) Family Relationships
There are no family relationships among directors or executive officers of the
Company.
(d) Involvement in Certain Legal Proceedings.
None.
Item 6. Executive Compensation.
(a) General
Commencing January 1, 1999, the Company has agreed to pay Dr. Gerol and Messrs.
MacInnis and Makarov an annual salary of $24,000. Mr. LaBell receives the same
salary commencing May 1, 1999. None of the Company's executive officers provides
services on a full-time basis. No executive officer or employee of the Company
is paid more than $100,000 per year in salary and benefits. The Company does not
currently provide any benefits to its executive officers.
(b) Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Name and Other Long-term
Principal Position Year(1) SalaryBonus Compensation Compensation: Options
Dr. Ilya Gerol 1999 $4,000 0 0 0
Chairman & Chief
Executive Officer
Michael McInnis 1999 $4,000 0 0 0
Chief
Financial Officer
& Director
Viatcheslav Makarov 1999 $4,000 0 0 0
VP-Sales and
Marketing (Russia)
& Director
Derek LaBell 1999 0 0 0 0
President, Directors
of Sales and
Marketing
(North America)
& Director
</TABLE>
(1) Covers the period from inception (November 13, 1998) to the fiscal
year end on February 28, 1999.
(c) Options/SAR Grants Table
None.
(d) Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Value Table
None
(e) Long Term Incentive Plan ("LTIP") Awards Table
None
(f) Compensation of Directors
None
(g) Employment Contracts and Termination of Employment, and Change-in-Control
Arrangements The Company has no employment contracts with any of its executive
officers. There are no provisions for compensation to be paid to any executive
officer or director of the Company upon the termination of their services by
either party or by the actions of a third party.
(h) Report on Repricings of Options/SARs
None.
Item 7. Certain Relationships and Related Transactions.
None.
Item 8. Description of Securities.
(a) Common or Preferred Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.0001 par value, of which 21,817,900 shares were issued and outstanding as of
the date hereof. Each outstanding share of Common Stock is entitled to one (1)
vote, either in person or by proxy, on all matters that may be voted upon the
owners thereof at meetings of the stockholders.
The holders of Common Stock (i) have equal ratable rights to dividends
from funds legally available therefor, when and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights, or redemption or sinking
fund provisions applicable thereto; and (iv) are entitled to one non-cumulative
vote per share on all matters on which stockholders may vote at all meetings of
stockholders.
Holders of Shares of Common Stock of the Company do not have cumulative
voting rights, which means that the individuals holding Common Stock with voting
rights to more than 50% of eligible votes, voting for the election of directors,
can elect all directors of the Company if they so choose and, in such event, the
holders of the remaining shares will not be able to elect any of the Company's
directors.
(b) Debt Securities.
The Company has not issued any debt securities to date.
(c) Other securities to be Registered
None.
PART II
Item 1. Market Price for Common Equity and Related Stockholder Matters.
(a) Market Information
There is no public trading market for the Company's securities. The Company has
no outstanding securities convertible into its Common Stock. No stockholder has
any registration rights. Of the 21,817,900 shares of common stock outstanding,
20,156,600 are currently subject to the resale restrictions and limitations of
Rule 144.
(b) Holders
There are 94 holders of the Company's common stock.
(c) Dividends
The Company has had no earnings to date, nor has the Company declared any
dividends to date. The payment by the Company of dividends, if any, in the
future, rests within the discretion of its Board of Directors and will depend,
among other things, upon the Company's earnings, its capital requirements and
its financial condition, as well as other relevant factors. The Company has not
declared any cash dividends since inception, and has no present intention of
paying any cash dividends on its Common Stock in the foreseeable future, as it
intends to use earnings, if any, to generate growth.
Item 2. Legal Proceedings
None
Item 3. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 4. Recent Sales of Unregistered Securities.
In November 1998, the Company sold 1,184,000 shares at a price of $.05 per
share. All of such shares were sold pursuant to the exemption contained in
Regulation S.
During the first part of 1999, the Company sold 1,661,300 shares at a price of
$.50 per share. All of such shares were sold pursuant to the exemption contained
in Rule 504.
In February 1999, the Company agreed to issue 200,000 shares of restricted stock
to Global Asset Management Fund as payment for consulting services. These shares
were issued pursuant to the exemption from registration contained in Section
4(2) of the Act.
No commissions or discounts were paid or given to any person or entity in any of
the Company's sales of securities. There were no underwriters or securities
brokers or securities dealers involved in the offering in any way; the shares
were sold by management on a best efforts basis.
Item 5. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended, authorizes the
Company to Indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorney's fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which a person is a party by reason of being
a director or officer of the Company if it is determined that such person acted
in accordance with the applicable standard of conduct set forth in such
statutory provisions. The Company's Certificate of Incorporation contains
provisions relating to the indemnification of director and officers and the
Company's By-Laws extends such indemnities to the full extent permitted by
Delaware law.
The Company may also purchase and maintain insurance for the benefit of any
director or officer which may cover claims for which the Company could not
indemnify such persons.
PART F/S
The financial statements are included at the end of this Registration Statement,
prior to the signature page.
PART III
Item 1. Index to Exhibits.
EXHIBIT
2.1 Certificate of Incorporation
2.2 By-Laws
6.1 Lease for Montreal space
6.2 Joint Venture Agreement between V.I. Internet Telecommunications Inc.
and Specialized Technic and Communications of The Ministry of
Interior of Russian Federation
6.3 Joint Venture Agreement between V.I. Internet Telecommunications Inc.
and Telecom XXI Development, Ltd.
27 Financial Data Schedule
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1999
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Internet VIP, Inc.:
We have audited the accompanying consolidated balance sheet of Internet VIP,
Inc. (a Delaware corporation) and subsidiary as of February 28, 1999, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the period from inception (November 13, 1998) to February 28,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 Internet VIP, Inc. and
subsidiary as of February 28, 1999, and the results of their operations and
their cash flows for the period from inception (November 13, 1998) to February
28, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company is in the
development stage and its continued existence is dependent on obtaining
additional financing for its operations. The Company's plans in regards to these
matters are also described in Note 1. In addition, the Company faces risks as a
development stage company. The success of the Company's operations is influenced
by these risks as more fully described in Note 1. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
/s/
New York, New York
June 1, 1999
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 223,624
Other current assets 801
------------
Total current assets 224,425
DEPOSIT ON ACCOUNT OF PROPERTY AND EQUIPMENT 25,000
------------
Total assets $ 249,425
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 68,258
---------------
Total current liabilities 68,258
---------------
STOCKHOLDERS' EQUITY:
Common Stocks, $0.0001 par value; 50,000,000 shares authorized; 20,874,800
shares issued and 2,087 outstanding
Additional paid-in capital 498,090
Deferred compensation (100,000)
Accumulated deficit
(219,010)
Total stockholders' equity 181,167
----------------
Total liabilities and stockholders' equity $ 249,425
================
The accompanying notes are an integral part of this
balance sheet.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1998) TO
FEBRUARY 28, 1999
OPERATING EXPENSES:
General and administrative expenses $ 219,010
Total operating expenses 219,010
Net loss $ (219,010)
BASIC AND DILUTED NET LOSS PER SHARE $ (0.01)
==============
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - $=
BASIC AND DILUTED 20,143,332
==========
The accompanying notes are an integral part of this statement.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1998) TO FEBRUARY 28, 1999
DO TABLES LATER
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional Total
Number of Amount Paid-in Deferred Accumulated Stockholders'
Shares Capital Compensation Deficit Equity
BALANCE, November 13, 1998 $ - $ - $ - $ - $ - $ -
Issuance of Common Stocks to 18,772,600 1,877 - - - 1,877
founders
Issuance of Common Stocks in a
private placement ($0.05 per
share) 1,184,000 118 59,082 - - 59,200
Issuance of Common Stocks for
consulting services 200,000 20 99,980 (100,000) - -
Issuance of Common Stocks in a
private placement ($0.5 per
share), net of issuance costs of
$20,000 718,200 72 339,028 - - 339,100
Net loss - - - - (219,010) (219,010)
BALANCE, February 28, 1999 20,874,800 2,087 498,090 (100,000) (219,010) 181,167
========== ===== ======= ======== ======== =======
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1998) TO FEBRUARY 28, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(219,010)
Adjustments to reconcile net loss to net cash used in operating activities-
Changes in operating assets and liabilities-
Other current assets (801)
Accrued expenses 68,258
Net cash used in operating activities (151,553)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit on account of property and equipment (25,000)
Net cash used in investing activities (25,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholders' capital contribution, net 400,177
Net cash provided by financing activities 400,177
Net increase in cash and cash equivalents 223,624
CASH AND CASH EQUIVALENTS, beginning of period -
CASH AND CASH EQUIVALENTS, end of period $223,624
NONCASH FINANCING ACTIVITIES:
Common stock issued for consulting services $100,000
The accompanying notes are an integral part of this statement.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
<PAGE>
ORGANIZATION
Internet VIP, Inc. was incorporated in the state of Delaware on November 13,
1998. Internet VIP, Inc. and its wholly owned subsidiary, V.I. Internet
Telecommunications, Inc., a Canadian corporation (together, the "Company") were
formed to sell long distance international telephone services using the new
technology, VIP-Voice over Internet Protocol. From its strategically located
switching center in Montreal, Canada, calls can be routed from anywhere in North
America to anywhere in the world. The first phase of operations will encompass
calls from Montreal to St. Petersburg and Moscow, and vice versa.
Initially Internet VIP Inc. will operate through its wholly owned
Canadian subsidiary corporation, V.I. Internet Telecommunications Inc. ("V.I.
Internet"). V.I. Internet will own and operate the Canadian switching centers.
Additionally, V.I. Internet will own 80% of two Russian joint-venture entities,
which were established to manage the Company's centers in St. Petersburg and
Moscow. The remaining 20% of the Russian joint-venture companies are owned by
the Division of the Russian Ministry of Interior, in the case of Moscow, and by
the BaltUnexim Bank in the case of St. Petersburg.
The Company is in the development stage. It is not currently generating any
revenues from operations and is therefore dependent on external sources for
financing its operations. The Company completed, subsequent to February 28,
1999, a private placement. Subsequent net proceeds from the issuance of the
equity were approximately $450,000. Management expects these proceeds together
with its estimated revenues in fiscal year 1999 to be sufficient to finance the
Company's operations through fiscal year 1999. However, there can be no
assurance that the Company will succeed in executing its plan and obtaining the
financing necessary for its operations.
The Company faces risks as a development stage company. These risks include,
among others, uncertainty of product acceptance, sales and distribution risk,
competition, risk of errors, and quality and price of its products compared to
alternative products and service. Additionally, other factors such as loss of
key personnel could impact the future results of operations or financial
condition of the Company.
All of the aforementioned matters raise substantial doubt about the Company's
ability to continue as a going concern.
<PAGE>
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Internet VIP, Inc.
and its wholly owned subsidiary, V.I. Internet and its Russian joint-ventures.
Material intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Foreign Currency
The Company accounts for foreign currency in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation,"
for operating subsidiaries. The functional currency of the Company's wholly
owned subsidiary is the U.S. dollar.
Per Share Data
SFAS No. 128, "Earnings per Share," establishes new standards for computing and
presenting earnings per share (EPS). The standard requires the presentation of
basic EPS and diluted EPS. Basic EPS is calculated by dividing income available
to common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing income
available to common shareholders by the weighted average number of common shares
outstanding adjusted to reflect potentially dilutive securities.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents approximates fair value.
Organizational and Development Costs
Organizational and development costs are expensed as incurred.
<PAGE>
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement and tax
bases of assets and liabilities. Deferred tax assets and liabilities are
measured using tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period in which the tax rate change
takes place.
Recently Issued Accounting Standards
Additionally, in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." This statement establishes
standards for the way the public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. This statement is effective for
financial statements for periods beginning after December 15, 1997, and need not
be applied to interim periods in the initial year of application. Comparative
information for earlier years presented is to be restated. The Company currently
believes that it operates in one segment and that the adoption of this statement
will not have an impact on the Company's financial statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. The Company
currently does not use derivatives and, therefore, this new pronouncement is not
applicable.
PRIVATE PLACEMENT
In January 1999, the Company offered to sell, in a private placement, up to
1,900,000 shares of its Common Stock, $0.0001 par value, at a price of $.50 per
share, of which 718,200 shares were sold by February 28, 1999. Proceeds from the
offering are held in an unrestricted escrow account and transferable to the
Company upon demand. At February 28, 1999 $115,000 held in escrow are included
in cash and cash equivalents. Subsequent to February 28, 1999, the Company
issued an additional 925,400 shares in connection with this offering.
INCOME TAXES
At February 28, 1999, the Company has net operating losses available to offset
future income for book and tax purposes of approximately $200,000.
<PAGE>
The loss carryforwards expire in February 2019. The annual utilization of these
loss carryforwards will be substantially limited if there are changes in the
Company's ownership.
The Company has provided a valuation allowance for the full amount of the tax
benefit associated with the loss carryforwards due to the uncertainty
surrounding their realization.
COMMITMENTS AND CONTINGENCIES
<PAGE>
Lease Commitment
The Company leases office space from a related party, for the period ending
January 2001, under an operating lease. Future minimum annual lease payments are
as follows:
For the year ending February 28:
2000 $ 48,600
2001 44,550
---------------
$ 93,150
Rent expense for the period from inception (November 13, 1998) to February 28,
1999 was $4,050.
Consulting Agreements
In December 1998, the Company entered into a four-year consulting agreement with
Nais Corp., a related party, according to which Nais Corp. will provide the
Company with financial and business public relations consulting services. Future
minimum annual fees are as follows:
For the year ending February 28:
2000 $ 72,000
2001 72,000
2002 72,000
2003 60,000
---------------
$ 276,000
In February 1999, the Company entered into a one-year consulting agreement with
Global Asset Management Group, Inc. ("Global Asset"), a Florida Corporation.
According to the contract, Global Asset will provide the Company with financial
consulting services in consideration to 200,000 shares of the Company's Common
Stock, the fair market value of which was $100,000 at the date of the contract.
The Company recorded the consulting fees as deferred compensation, which will be
amortized over the contract period (one year).
<PAGE>
Equipment Purchase Agreement
The Company purchased revenue generating equipment in the amount of $280,000, of
which $25,000 was paid in advance by February 28, 1999. The equipment was
received and installed by the Company subsequent to February 28, 1999.
Facilities Management Agreement
In February 1999, the Company entered into a five-year agreement with
Bridgepoint Enterprises ("Bridgepoint"), according to which Bridgepoint will
provide the Company with facilities for its equipment as well as maintenance and
technical support for such equipment for variable monthly consideration. Future
estimated minimum annual fees are as follows:
For the year ending February 28:
2000 $ 96,000
2001 96,000
2002 96,000
2003 96,000
2004 96,000
---------------
$ 480,000
Telecommunication Service Agreement
In June 1999, the Company entered into a one-year service agreement with
Metrocom, a Russian company, according to which Metrocom will provide
telecommunication services to the Company for a monthly charge of approximately
$40,000.
6. RELATED PARTIES
The Company received consulting services from related parties. Fees
paid for such services were approximately $14,000 in the period from inception
(November 13, 1998) to February 28, 1999.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERNET VIP, INC.
Date: August 2, 1999 /s/
Dr. Ilya Gerol, Chairman and CEO
(Chief Executive Officer)
Date: August 3, 1999 /s/
Michael MacInnis, CFO and Director
(Chief Financial Officer)
Date: August 2, 1999 /s/
Derek LaBell, President and Director
Date: August 2, 1999 /s/
Viatcheslav Makarov, V P and Director
<PAGE>
Description of Exhibits.
2.1 Certificate of Incorporation
2.2 By-Laws
6.1 Lease for Montreal space
6.2 Lease for Moscow space
6.3 Joint Venture Agreement between V.I. Internet Telecommunications Inc.
and Specialized Technic and Communications of The Ministry of
Interior of Russian Federation
6.4 Joint Venture Agreement between V.I. Internet Telecommunications Inc.
and Telecom XXI Development, Ltd.
27 Financial Data Schedule
Exhibit 2.1
CERTIFICATE OF INCORPORATION
OF
INTERNET VIP, INC.
FIRST. The name of this corporation shall be:
INTERNET VIP, INC.
SECOND. Its registered office in the State of Delaware is to
be located at 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805, and its registered agent at such address is THE COMPANY CORPORATION.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this
corporation is authorized to issue is:
Fifty Million (50,000,000) shares with a par value of One
Tenth of One mil ($.0001) each, amounting to Five Thousand Dollars ($5,000.00).
FIFTH. The name and mailing address of the incorporator is
as follows:
Neysa Webb
The Company Corporation
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt,
amend or repeal the by-laws.
IN WITNESS WHEREOF, The undersigned, being the incorporator
hereinbefore named, has executed, signed and acknowledged this certificate of
incorporation this thirteenth day of November, A.D. 1998.
/s/
Neysa Webb
Incorporator
Exhibit 2.2
BY-LAWS
OF
INTERNET VIP, INC.
(A Delaware Corporation)
ARTICLE I
OFFICES
1. OFFICE.
The registered office of the corporation shall be located in
the State of Delaware, County of New Castle, City of Wilmington, and the name of
the registered agent at such office shall be The Company Corporation.
2. ADDITIONAL OFFICES.
The corporation may also have offices and places of business
at such other places, within or without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS
1. CERTIFICATES REPRESENTING SHARES.
Certificates representing shares shall set forth thereon the
statements prescribed by any applicable provision of law and shall be signed by
the Chairman of the Board of Directors, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and may be sealed with the corporate seal or a facsimile thereof. The signature
of the officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
corporation itself or its employee. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of its
issue.
A Certificate representing shares shall not be issued until
the full amount of consideration therefor has been paid except as the General
Corporation Law may otherwise permit.
No Certificate representing shares shall be issued in place of
any certificate alleged to have been lost, destroyed or stolen, except on
production of such evidence of such loss, destruction or theft and on delivery
to the corporation, if the Board of Directors shall so require, of a bond of
indemnity in such amount, upon such terms and secured by such surety as the
Board of Directors may in its discretion require.
2. FRACTIONAL SHARE INTERESTS.
The corporation may issue certificates for fractions of a
share where necessary to effect transactions authorized by the General
Corporation Law which shall entitle the holder in proportion to his fractional
holdings, to exercise voting rights, receive dividends and participate in
liquidating distributions; or it may pay in cash the fair value of fractions of
a share as of the time when those entitled to receive such fractions are
determined; or it may issue scrip in registered or bearer form over the manual
or facsimile signature of an officer of the corporation or of its agent,
exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of a stockholder except as therein provided.
3. SHARE TRANSFERS.
Upon compliance with provisions restricting the
transferability of shares, if any, transfers of shares of the corporation shall
be made only on the share record of the corporation by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes due
thereon.
4. RECORD DATE FOR STOCKHOLDERS.
For the purpose of determining the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to or dissent from any proposal without a meeting, or for
the purpose of determining stockholders entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of any other action,
the directors may fix, in advance, a date as the record date for any such
determination of stockholders. Such date shall not be more than sixty days nor
less than ten days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed, the record date for the
determination of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if no notice is given, the day
on which the meeting is held; the record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
resolution of the directors relating thereto is adopted. When a determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this paragraph, such determination
shall apply to any adjournment thereof, unless the directors fix a new record
date under this paragraph for the adjourned meeting.
MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "stockholder" or "stockholders"
refers to an outstanding share or shares and to a holder or holders of record of
outstanding shares when the corporation is authorized to issue only one class of
shares, and said reference is also intended to include any outstanding share or
shares and any holder or holders of record of outstanding shares of any class
upon which or upon whom the Certificate of Incorporation confers such rights
where there are two or more classes or series of shares or upon which or upon
whom the General Corporation Law confers such rights notwithstanding that the
Certificate of Incorporation may provide for more than one class or series of
shares, one or more of which are limited or denied such rights thereunder.
5. MEETINGS.
TIME. The annual meeting shall be held on the date fixed, from time to
time, by the directors, provided, that each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting. A special meeting shall be held on the date fixed by the directors
except when the General Corporation Law confers the right to fix the date upon
stockholders.
PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, or, whenever
stockholders entitled to call a special meeting shall call the same, the meeting
shall be held at the office of the corporation in the State of Delaware.
CALL. Annual meetings may be called by the directors or by any officer
instructed by the directors to call the meeting or by the President. Special
meetings may be called in like manner except when the directors are required by
the General Corporation Law to call a meeting, or except when the stockholders
are entitled by said Law to demand the call of a meeting.
<PAGE>
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. The notice of all
meetings shall be in writing, shall state the place, date, and hour of the
meeting, and shall state the name and capacity of the person issuing the same.
The notice for a special meeting shall indicate that it is being issued by or at
the direction of the person or persons calling the meeting. The notice of an
annual meeting shall state that the meeting is called for the election of
directors and for the transaction of other business which may properly come
before the meeting, and shall (if any other action which could be taken at a
special meeting is to be taken at such annual meeting) state the purpose or
purposes. The notice of a special meeting shall in all instances state the
purpose or purposes for which the meeting is called. If any action is proposed
to be taken which would, if taken, entitle stockholders to receive payment for
their shares, the notice shall include a statement of that purpose and to that
effect. Except as otherwise provided by the General Corporation Law, a copy of
the notice of any meeting shall be given, personally or by first class mail, not
less than ten days nor more than sixty days before the date of the meeting,
unless the lapse of the prescribed period of time shall have been waived, to
each stockholder at his record address or at such other address which he may
have furnished by notice in writing to the Secretary of the corporation. If a
meeting is adjourned to another time or place, and if any announcement of the
adjourned time or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the directors, after adjournment,
fix a new record date for the adjourned meeting. Notice of a meeting need not be
given to any stockholder who submits a signed waiver of notice, in person or by
proxy, before or after the meeting. The attendance of a stockholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting shall constitute a waiver of
notice by him.
STOCKHOLDER LIST. There shall be prepared and made, at least ten days
before every meeting of stockholders, a complete list of the stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
CONDUCT OF MEETING. Meetings of the stockholders shall be presided over
by any one of the following officers--the Chairman of the Board, if any, the
President, a Vice President, or, if none of the foregoing is in office and
present, by a chairman to be chosen by the stockholders. The Secretary of the
corporation, or in his absence, an Assistant Secretary, shall act as Secretary
of the meeting, but if neither the Secretary nor Assistant Secretary is present,
the chairman of the meeting shall appoint a Secretary of the meeting.
PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or his attorney-in-fact. No proxy
shall be valid after the expiration of three years from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except as otherwise provided by the General
Corporation Law.
<PAGE>
INSPECTORS OF ELECTION. The directors, in advance of any meeting, may
appoint one or more inspectors to act at the meeting or any adjournment thereof.
If inspectors are not so appointed, the person presiding at the meeting may,
and, on the request of any stockholder shall, appoint one or more inspectors. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, if any, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors, if any, shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting or any stockholder entitled to vote thereat,
the inspector or inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by him or them.
QUORUM. Except as the General Corporation Law and these By-Laws may
otherwise provide, the holders of a majority of the outstanding shares shall
constitute a quorum at a meeting of stockholders for the transaction of any
business. When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any stockholders. The stockholders present may
adjourn the meeting despite the absence of a quorum.
VOTING. Each share shall entitle the holder thereof to one vote. In the
election of directors, a plurality of the votes cast shall elect. Any other
action shall be authorized by a majority of the votes cast except where the
Certificate of Incorporation or the General Corporation Law prescribe a
different proportion of votes.
6. STOCKHOLDER ACTION WITHOUT MEETINGS.
Any action required to be taken, or any action which may be taken, at
any annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of the
outstanding stock having not less than one-half (1/2) of the votes entitled to
vote thereon had there been an actual meeting and they were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing and shall be delivered to the corporation by delivery to
its registered office in Delaware, its principal place of business, or an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
ARTICLE III
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITIONS.
The business of the corporation shall be managed by its Board
of Directors. The word "director" means any member of the Board of Directors.
The use of the phrase "entire board" herein refers to the total number of
directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER.
Each director shall be at least eighteen years of age. A
director need not be a stockholder, a citizen of the United States, or a
resident of the State of Delaware.
The initial Board of Directors shall consist of one (1)
person. Thereafter, the number of directors constituting the entire board may be
fixed from time to time by action of the directors or of the stockholders. The
number of directors may be increased or decreased by action of directors or
stockholders, provided that any action of the directors to effect such increase
or decrease shall require the vote of a majority of the entire board. No
decrease shall shorten the term of any incumbent directors.
3. ELECTION AND TERM.
Directors who are elected at an annual meeting of
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
stockholders and until their successors have been elected and qualified. In the
interim between annual meetings of stockholders or of special meetings of
stockholders called for the election of directors, newly created directorships
and any vacancies in the Board of Directors, including vacancies resulting from
the removal of directors for cause or without cause, may be filled by the vote
of the remaining directors then in office, although less than a quorum exists.
4. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
PLACE. Meetings shall be held at such place within or without the State
of Delaware as shall be fixed by the Board.
CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, or
the President, or of a majority of the directors in office. A regular meeting
should be held quarterly.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written, oral
or any other mode of notice of the time and place of special meetings shall be
given to each director twenty-four hours prior to the meeting. The notice of any
meeting need not specify the purpose of the meeting. Any requirement of
furnishing a notice shall be waived by any director who signs a waiver of notice
before or after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to him.
QUORUM AND ACTION. A majority of the entire Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided such
majority shall constitute at least one-third of the entire Board. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
to another time and place. Except as otherwise provided herein or in any
applicable provision of law, the vote of a majority of the directors present at
the time of the vote at a meeting of the Board, if a quorum is present at such
time, shall be the action of the Board.
CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present, shall preside at all meetings. Otherwise, the President, if present, or
any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause or
without cause by the stockholders.
6. COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority
of the entire Board, designate from their number one or more directors to
constitute an Executive Committee which shall possess and may exercise all the
powers and authority of the Board of Directors in the management of the affairs
of the corporation between meetings of the Board (except to the extent
prohibited by applicable provisions of the General Corporation Law), and/or such
other committee or committees, which, to the extent provided in the resolution,
shall have and may exercise the powers of the Board of Directors in the
management of the business affairs of the corporation and may authorize the seal
of the corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. All such
committees shall serve at the pleasure of the Board. Each committee shall keep
regular minutes of its meetings and report the me to the Board of Directors when
required.
7. CONFERENCE TELEPHONE.
Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of such Board or committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time. Such
participation shall constitute presence in person at such meeting.
8. ACTION IN WRITING.
Any action required or permitted to be taken at any meeting of
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board or the committee, as the case may be, consent in
writing to the adoption of a resolution authorizing the action, and the
resolution and the written consents thereto are filed with the minutes of the
proceedings of the Board or committee.
ARTICLE IV
OFFICERS
1. EXECUTIVE OFFICERS.
The directors may elect or appoint a Chairman of the Board of
Directors, a President, one or more Vice Presidents (one or more of whom may be
denominated "Executive Vice President"), a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, and such other
officers as they may determine. Any two or more offices may be held by the same
person.
2. TERM OF OFFICE; REMOVAL.
Unless otherwise provided in the resolution of election or
appointment, each officer shall hold office until the meeting of the Board of
Directors following the next meeting of stockholders and until his successor has
been elected and qualified. The Board of Directors may remove any officer for
cause or without cause.
3. AUTHORITY AND DUTIES.
All officers, as between themselves and the corporation, shall
have such authority and perform such duties in the management of the corporation
as may be provided in these By-Laws, or, to the extent not so provided, by the
Board of Directors.
4. THE PRESIDENT.
The President shall be the chief executive officer of the
corporation. Subject to the direction and control of the Board of Directors, he
shall be in general charge of the business and affairs of the corporation.
5. VICE PRESIDENTS.
Any Vice President that may have been appointed, in the
absence or disability of the President shall perform the duties and exercise the
power of the President, in the order of their seniority, and shall perform such
other duties as the Board of Directors shall prescribe.
6. THE SECRETARY.
The Secretary shall keep in safe custody the seal of the corporation
and affix it to any instrument when authorized by the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors.
7. THE TREASURER.
The Treasurer shall have the care and custody of the corporate
funds, and other valuable effects, including securities, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board, or whenever they may require it, an
account of all his transactions as Treasurer and of the financial condition of
the corporation. If required by the Board of Directors, the Treasurer shall give
the corporation a bond for such term, in such sum and with such surety or
sureties as shall be satisfactory to the Board for the faithful performance of
the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
ARTICLE V
BOOKS AND RECORDS
The books of the corporation may be kept within or without the
State of Delaware, at such place or places as the Board of Directors may, from
time to time, determine. Any of the foregoing books, minutes, or records may be
in written form or in any other form capable of being converted into written
form within a reasonable time.
ARTICLE VI
CORPORATE SEAL
The corporate seal, if any, shall be in such form as the Board
of Directors shall prescribe.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be as fixed by the
Board of Directors.
ARTICLE VIII
CONTROL OVER BY-LAWS
The stockholders entitled to vote in the election of directors
or the directors may amend or repeal the By-Laws and may adopt new By-Laws.
ARTICLE IX
INDEMNITY
Any person who was or is a party or threatened to be made a
party to any threatened, pending or completed action, suit or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, join venture, trust or other
enterprise (including employee benefit plans) (hereinafter an "indemnitee"),
shall be indemnified and held harmless by the corporation to the fullest extent
authorized by the General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification than
permitted prior thereto), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such indemnitee in connection with such action, suit or proceeding, if the
indemnitee acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful. The termination of the proceeding, whether by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe such conduct was
unlawful.
Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including employee benefit plans) shall be indemnified and
held harmless by the corporation to the fullest extent authorized by the General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification than permitted prior thereto),
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court in which such suit or action was
brought, shall determine upon application, that despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
shall deem proper.
All reasonable expenses incurred by or on behalf of the
indemnitee in connection with any suit, action or proceeding, may be advanced to
the indemnitee by the corporation.
The rights to indemnification and to advancement of expenses
conferred in this section shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
The indemnification and advancement of expenses provided by
this section shall continue as to a person who has ceased to be a director
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
If any provision of this Article is determined to be
unenforceable in whole or in part, such provision shall nonetheless be enforced
to the fullest extent permissible it being the intent of this Article to provide
indemnification to all persons eligible hereunder to the fullest extent
permitted under law. Accordingly, if the law is changed in any way, whether by
act of the Legislature or by a court, these provisions shall be deemed amended
to include such changes.
Exhibit 6.1
VI INTERSERVICE INC.
1155 University St., Suite 602, Montreal H3B 3A7, Canada tel. (310) 876-1001
January 28, 1999
V.I. Internet Telecommunications Inc.
Michael MacInnis
President
Re: Service and office use
at 1155 University, Suite 602, Montreal, Canada
This is to confirm that V.I. Internet Telecommunications Inc. shall
have the right to use our offices at its discretion and make use of the
following services:
typing
conference
photocopy
fax
computer
telephone for local and long distance
coffee
courier
office supplies
and other normal office use
These services and office use shall be for the monthly fee of four thousand and
fifty dollars USD ($4050.00 USD) plus applicable federal and provincial taxes.
This agreement shall commence on February 1, 1999 and terminate January 31,
2001.
Trusting all is to your satisfaction.
Yours very truly,
V.I. Interservices Inc.
Per: /s/
Viatcheslav Makarov, President
Agreed to V.I. Internet Telecommunications Inc.
Per: /s/
Michael MacInnis, President
Exhibit 6.2
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is made as of
November 25, 1998.
BY AND AMONG: V.I. Internet Telecommunications Inc., a corporation duly
incorporated under the laws of Canada with legal domicile in Montreal, Province
of Quebec, Canada (hereinafter referred as "Company"), hereby represented by Mr.
Mickael Macinnis, Mr. Viatcheslav Makarov, Mr. Ilya Gerol, duly authorized as he
so declares.
ON THE ONE HAND
The State Directory "Specialized Technic and Communications" (SD
"ST&C") of The Ministry of Interior of Russian Federation. (hereinafter referred
jointly as the "Parties" or individually as the "Party")
WHEREAS, "ST&C" is desirous of establishing a voice, fax and data
telecommunication service to/from Russian Federation and other countries on the
base of Internet technology; and
WHEREAS (SD "ST&C") has extensive communications expertise; and
WHEREAS, SD {SD&C} has the resources and capability to implement the
Russian component of any required system that could provide telecommunication
services in St. Petersburg and other areas of the Russian Federation; and
WHEREAS, SD {SD&C} can secure all necessary permits, licenses and
approvals for the legitimate operation of a Russian telecommunication service;
and
WHEREAS, SD {SD&C}, through its normal links with other ministries,
municipal governments and with the Commonwealth of Independent States (CIS), is
desirous of allowing and encouraging these governments to make use of such
telecommunication services; and
WHEREAS, the Company has extensive communications expertise including
marketing and operation of prepaid telecommunication services; and
WHEREAS, the Company has extensive North American and International
management, marketing trade funding and promotional experience and capability;
and
WHEREAS, the Company has long-established links with communications
systems providers and users throughout North America; and
WHEREAS, the Company wishes to establish telecommunication services
to/from North America on its Internet Telephone Protocol network to its
customers to/from the Russian Federation; and
WHEREAS, the Company needs to implement an Internet Telephony Protocol
Communication System (the "System") between, on one hand, Moscow and St.
Petersburg hubs and, on the other hand, the Montreal gateway hub to North
America and the rest of the world, so to be able to provide the
telecommunication services ("Project"); and
WHEREAS, SD {SD&C} wishes to associate with VI to jointly pursue the
implementation of the Project and the operation of the System; and
WHEREAS, the Parties also desire to set forth their mutual
understandings regarding their cooperation and obligations in the implementation
of the Project and the operation of the System as well as the essential elements
of the formation of a new company by them for such purposes.
NOW, THEREFORE, the Parties hereby agree as follows:
1. OBJECTIVE
The purpose of this MOU is to establish the relationship
between the Parties, their respective obligations and the material conditions of
the formation of an operating company that will be used by the Parties to
provide the System in order to meet the needs of the Russian Federation, its
private corporate sector and its private citizens in their communication
connection with North America, Europe and rest of the world.
2. FORMATION OF THE OPERATING COMPANY
The Parties will form a corporation organized under the laws
of Russian Federation. Such corporation shall be known as "Interservice
Telephone Russia" or by any other name agreed to by the Parties and approved by
the competent authorities ("Operating Company"). Such Operating Company will be
created no later than thirty (30) days after execution of this MOU.
2.1 Shareholdings.
The Parties hereby agree that their respective percentages of
equity interests in the Operating Company will be as follows:
Shareholder % Equity Interest
VI - 80%
SD {SD&C} - 20%
a) Indirect Shareholdings and Foreign or Other Ownership Restrictions.
The Parties further agree that their respective equity interest in the
Operating Company may be held by each Party either directly, and/or (in such
Party's sole and absolute discretion) indirectly through one or more of such
party's Affiliates (as defined in Article 6 below).
The Parties acknowledge and agree that the Shareholder's Agreement (as
defined in Section 2.2 below) will include express rights, restrictions and
obligations of each of the shareholders regarding any change of control of any
of the shareholders of the Operating Company (the "Shareholders").
<PAGE>
b) Transfer Restrictions and Rights of First
Refusal for Equity Allocated to the Parties.
If, at any time before or after formation of the Operating Company, any
Party should wish to sell part or all of its equity interests in the Operating
Company, that Party must first offer such equity interests to the other Party at
fair market value upon the same terms and conditions that it would offer to sell
such equity interests to a third party, before offering for sale such equity
interests to any third party upon same terms and conditions.
c) Price for Acquisition of Equity Interests.
The amount of the capital contributions of the shareholders and other
financing needs of the Operating Company will be as mutually agreed upon by the
Parties. The Parties currently contemplate that the initial capital
contributions will be proportionate to their equity interests in the Operating
Company.
2.2 Shareholders' Agreement.
The parties shall negotiate and form the Operating Company and enter
into a shareholders' agreement setting forth their rights (including voting
rights) and obligations regarding their respective equity interests in the
Operating Company including, among other things, the transfer restrictions,
rights of first refusal and mutually agreed upon provisions (the "Shareholders'
Agreement").
a) The International Operator.
The Parties contemplate that there will be an agreement between the
Company and SD {SD&C} (or their respective Affiliates) with respect to their
supervision and control of the management of the business of the Operating
Company, and that such agreement will be submitted to all Parties.
b) Board Representation and Decision making.
The Parties currently contemplate that the Operating Company will have
a five (5) member board of directors (the "Board") (each director to have one
vote), and the shareholders will be entitled to appoint directors to the Board
in accordance with the equity ownership interests in the Operating Company from
time to time held by them in the Operating Company (unless otherwise agreed in
the Shareholders' Agreement). Based on the percentage of equity interests in the
Operating Company set forth in Section 2.1 above, the Directors would be
appointed as follows:
<PAGE>
3 director(s) will be appointed by the Company;
2 director(s) will be appointed by (SD "ST&C").
The Shareholders' Agreement will provide the fundamental decisions
regarding the Operating Company will require a Majority vote. It is currently
contemplated by the Parties that fundamental decisions will be decisions within
the following general categories (to be specifically agreed in detail in the
Shareholders' Agreement);
<PAGE>
Annual Financing and Operating Plans
<PAGE>
Major Technological Platform choices
<PAGE>
Major Transactions including sale of assets
<PAGE>
Significant Changes in Financial Leverage
<PAGE>
Appointment and Dismissal of the President
c) Operating Company Appointments
The Parties will be entitled to nominate the respective persons to be
appointed as the President of the Operating Company, subject to Super Majority
approval of the Board, and as the Vice-President of Operations of the Operating
Company, subject to simple majority approval of the Board.
2.3 Services Agreement
The Parties agree that the Operating Company may, from time to time,
enter into agreements (collectively the "Services Agreement") with any of the
Parties (or their respective Affiliates) pursuant to which such entities will
provide services to the Operating Company on terms and conditions to be agreed
between such entity, on the one hand, and the Operating Company, on the other
hand.
2.4 Language of Agreements
All agreements (including this MOU) shall be prepared and executed in
both the Russian and English languages. All agreements, when in final form,
shall be promptly sent to an agreed upon translator, and the costs of such
translation shall be shared equally by the Parties.
<PAGE>
3. OBLIGATIONS OF THE COMPANY
As part of its contribution to the Project, the Company shall within
three (3) months following the execution of the MOU as well as any other
document required to implement the MOU, except as otherwise provided below,
provide at its costs the following:
3.1 all the technical equipment and telephone lines required to operate
the telecommunication services between Russian Federation and Canada, as well as
the interconnection in Montreal, Canada with the Montreal gateway hub so to
extend the telecommunication services throughout the world;
3.2 the marketing and promotion of the use of the telecommunication
services throughout Canada and the United States by state and private corporate
sectors, telephone corporations and private individuals telecommunication
services through the use of prepaid telephone cards;
3.3 prepaid telephone cards for promotion and sale in Russian
Federation and North America;
3.4 establishment of a credit account record for all the Operating
Company prepaid customers;
3.5 payment for the costs of telephone lines and usage between St.
Petersburg and Moscow as well as local and long distance charges between Russian
Federation and other destinations in the world and vice versa.
3.6 the financing of the Project through proper banking and investment
arrangements and the keeping of (SD "ST&C") inform of such arrangements
throughout the implementation of the Project and the operation of the System;
3.7 an accounting system for the implementation and operation of the
System based on generally accepted accounting principles and the applicable
Russian Federation laws;
3.8 training, both technical and administrative, of the employees of
the Operating Company involved in the implementation and operation of the
System.
4. OBLIGATIONS OF (SD "ST&C")
(SD "ST&C"), as part of its participation into the Project, will
provide at its costs, within one (1) month following the execution of the MOU as
well as any other document required to implement the MOU, unless otherwise
provided below, the following:
4.1 (SD "ST&C") shall secure and execute this MOU as well as any other
document deemed necessary by the Parties to implement the MOU and to establish
the Operating Company;
4.2 (SD "ST&C") shall obtain the issuance of an exclusive and
irrevocable permit(s) from the competent state authorities of the Russian
Federation, as well as any other permit(s) or authorization(s), that is (are)
necessary to implement and operate the System for a period of at least ten (10)
years;
4.3 (SD "ST&C") shall obtain and grant the permission to the Operating
Company to start its activities within ten (10) days following its incorporation
and the issuance of the necessary permit(s);
4.4 (SD "ST&C") shall provide the office space and all other facilities
mutually agreed to between the Parties, as well as the necessary technical and
office personnel that the Parties will deem necessary to install and operate the
System;
4.5 (SD "ST&C") shall install all the equipment provided by VI to
implement the System; (SD "ST&C") shall also install all the facilities (such as
electrical power and outlets, telephone access, internet access, etc.) deemed
necessary to operate the System;
4.6 (SD "ST&C") will assist the Operating Company with the physical
implementation, operation and maintenance of the technical equipment required to
operate the System and will provide the interconnection in Moscow to extend the
telecommunication services throughout Russian Federation and the CIS;
4.7 (SD "ST&C") shall have the MOU as well as any other document
required to implement the MOU, whether mentioned or not in this MOU, registered
with the competent authorities of the Russian Federation within ten (10) days of
their execution by the Parties;
4.8 (SD "ST&C") shall be responsible for the relationship between the
Operating Company and the state authorities of the Russian Federation at all
levels of Government so to maintain a positive relationship in place.
5. OPERATING COMPANY RESPONSIBILITIES
The Operating Company shall have the responsibilities decided by its
shareholders and, without limiting the foregoing, shall be responsible for the
implementation and operation of the System. It is understood and agreed by the
Parties that the Operating Company shall, among other things:
5.1 market and promote the use of the prepaid telecommunication
services in the Russian Federation by state and private corporate sectors at all
levels of Government, as well as by private individuals through the sale of
prepaid telephone cards;
5.2 provide VI with the reimbursement of the calls made by its
customers using the System, including reimbursement from prepaid telephone
cards;
5.3 pay all operational costs and expenses incurred by the Operating
Company, including without limitation cost of rent, employees salaries,
promotion and advertising costs, permits and interconnection fees, and any other
overhead costs and/or expenses. All these costs, fees and expenses shall be
charged to VI with a ten per cent (10%) surcharge. Any local telephone costs for
incoming calls from outside of Russian Federation will be charged to VI at cost.
Any surcharge over costs and/or expenses invoiced to VI shall be adjusted on a
quarterly basis by VI and Operating Company to ensure a fair sharing of profits
and losses for both VI and Operating Company;
5.4 pay, on a weekly basis, the services fees to the Parties resulting
from provision by such Parties of consulting services, in accordance with the
Services Agreements;
5.5 maintain adequate accounting system of its operations based on
generally accepted accounting principles and applicable Russian Federation laws;
open and maintain an operation account with a Russian bank as selected by the
shareholders.
6. CONFIDENTIALITY
Each Party (sometimes hereinafter referred to as a "Receiving Party")
agrees to hold in confidence and not to disclose to any third party (a) any and
all information provided by a Party directly or indirectly on its behalf
(sometimes referred to as a "Disclosing Party") to any Receiving Party, whether
orally or in writing and before or after the date of this MOU, (b) all analysis,
compilations, studies and other documents and records prepared by the Receiving
Party, its advisers or its representatives that are generated from or reflect
such information, (c) any technical, economic and market studies and business
plans jointly prepared by the Parties in relation to the Project, and (d) the
terms of this MOU or any other facts relating to the Project and/or the
Operating Company contemplated hereby (collectively, the "Information"), except
(i) if such Information is required by securities laws or other applicable laws
or court orders in Russian Federation and/or Canada, but only after written
notice of such disclosure requirement has been given by the Receiving Party to
the Disclosing Party, (ii) if such Information is disclosed by the Receiving
Party to its representatives, agents and advisors (who may include lending
institutions and insurance companies) who need to know such Information for the
purpose of assisting the Receiving Party with the evaluation, planning,
establishment and operation of the Project and the Operating Company, but only
after such persons have been directed by the Receiving Party to treat such
Information in accordance with the terms of this MOU, or (iii) with the prior
written consent of the Disclosing Party in respect of the Information referred
to in clauses a) and b) of this Article 6. Further, each Party agrees not to use
the Information for any purpose other than the evaluation, planning,
implementation and operation of the Project and the Operating Company.
The obligations set forth in the preceding paragraph will not apply to
a Receiving Party in respect of (A) information that is or becomes generally
available to the public other than as a result of a disclosure directly or
indirectly by such Receiving Party or (B) information that is or becomes
generally available to such Receiving Party on a non-confidential basis from a
source other than the Disclosing Party, provided that such source is not known
by such Receiving Party to be subject to any prohibition against transmitting
the information to such Receiving Party and that such Receiving Party is not
aware that the availability of such information from such source resulted
directly or indirectly from information supplied by the Disclosing Party.
As used in this MOU, "Affiliate", with respect to any person or entity,
means any individual, firm, corporation, association, partnership, joint
venture, trust or other entity, now or hereafter existing, which, directly or
indirectly, controls, is controlled by or is under common control with such
person or entity; a person or entity "controls" another person or entity (the
"subject person") if such person or entity (alone or in combination with an
Affiliate(s)), possesses the power, by contract or ownership of voting stock or
other equity interests (i) to elect a majority of the members of the board of
directors (or other similar governing body) of the subject person, or (ii) if
the subject person is not a corporation, to otherwise direct or cause the
direction of the management and policies of the subject person; and "controlled"
has a corresponding meaning.
7. PUBLIC ANNOUNCEMENTS
No news release, public announcement, advertisement or publicity
concerning this MOU, the Project, the Operating Company, the System or any other
matters contemplated hereby may be made without the prior approval of the
Parties, except as may be required by securities laws or other applicable laws
or court orders, in which case, such disclosure shall be subject to clause (i)
of Article 6.
8. EXCLUSIVITY
8.1 Each Party agrees that from the date of execution of this MOU
through the formation of the Operating Company and the execution of the
Shareholders' Agreement (the "MOU Exclusivity Period"), it will not enter into,
will cause its wholly-owned subsidiaries not to enter into and will use its
reasonable, good faith efforts to cause its Affiliates not to enter into, any
discussions, negotiations or agreements with any other person(s) or entity(ies)
(including, without limitation, any telecommunication operator with respect to
investing or agreeing to invest (directly or indirectly) in, or providing
general strategic consultation or advisory services to, any person, entity or
group proposing to provide implementation and operation of an Internet Telephone
Protocol network to customers in Russian Federation, in each case other than
pursuant to this Agreement; provided, however, that nothing in this Article 8
shall be construed as restricting the rights of any Party or of any Party's
Affiliates to continue with its normal correspondence business with any
international telecommunication services carrier or provider.
8.2 The Parties agree that provisions relating to exclusivity for the
period following the MOU Exclusivity Period shall be governed by terms to be
included in the Shareholders' Agreement.
9. TERMINATION
Subject to the survival provisions of Section 13.6, this MOU will
terminate on the first to occur of any of the following events (the "Termination
Date"):
9.1 the date on which this MOU is replaced by the comprehensive legal
agreements and documents referred to in Article 2 hereof,
9.2 the date of the mutual written agreement of all of the Parties to
so terminate.
9.3 If a Party fails to fulfill its obligations under this MOU and,
after having received a notice to that effect from the other Party, does not
cure such failure within sixty (60) days of receipt of the notice, and the
non-defaulting Party terminates this MOU as a result of an arbitration decision
and of its confirmation by a court of competent jurisdiction.
Upon the occurrence of the Termination Date, each Party shall promptly
return to the other Party(ies) all Information obtained by it in relation to the
other Party(ies). In addition, each Party shall remain liable for the payment of
its share of agreed-upon expenses incurred or committed pursuant to Article 3
and 4 hereof through the Termination Date. Unless otherwise agreed in writing by
the Parties hereto, the provisions of Articles 6 and 7 hereof will survive the
Termination date and the termination of this MOU.
10. RELATIONSHIP OF PARTIES
No Party has the power or authority to legally bind the other Party
hereto, and nothing herein contained will be construed as authorizing a Party to
act as an agent or representative of the other Party hereto or to legally bind
the other Party hereto.
<PAGE>
11. GOVERNING LAW: DISPUTES
11.1 The entering into, construction, and performance of this MOU shall
be governed by and interpreted in accordance with the laws of Russian
Federation.
11.2 The Parties hereto agree that any disputes, controversies or
differences which may arise between or among them out of, in relation to, or in
connection with this MOU or its subject matter, including disputes as to
validity, performance, breach or termination, shall be resolved by them as
expenditiously as possible pursuant to amicable and good faith discussions.
11.3 Any dispute, controversy or difference between or among the
Parties (an "International Arbitration"), which cannot be settled pursuant to
amicable and good faith discussions as provided above, shall be submitted to
binding arbitration in accordance with the Arbitration Rules of the United
Nations Commission on International Trade Law as in force on the date of
commencement of the subject International Arbitration, shall be conducted in
English and in Stockholm, Sweden, and the law governing such arbitration
proceedings shall be law of Russian Federation, and the decision of such
arbitrators shall be rendered in law.
11.4 In the event of any inconsistency between the Russian version and
the English version of this MOU or of any agreement referred to in Article 2,
the English version shall prevail.
11.5 The validity and construction of this Article 11 shall be governed
by the laws of Russian Federation.
12. NOTICES
All notices to be given among the Parties will be validly given when
delivered by courier or by Facsimile as set out below:
If to the Company: ________________
If to (SD "ST&C"): 6 Proletarskaya Diktatura square, St. Petersburg,
193124, Russia. fax +7 812 326-1312
13. GENERAL
13.1 Preamble; Integration: The preamble and the documents referred
hereto shall form an integral part hereof as if recited at length. The terms and
provisions contained in this MOU together with the documents referred hereto
constitute the entire agreement between the Parties with respect to the subject
matter hereof.
13.2 No Waiver: No amendment or waiver of this MOU shall be binding
unless executed in writing by both Parties. No waiver of any of the provisions
of this MOU shall constitute a waiver of any other provision (whether or not
similar) nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
13.3 Severability. any provision in this MOU which is held to be
illegal or unenforceable in any jurisdiction shall be ineffective to the extent
of such illegality or unenforceability without invalidating the remaining
provisions and any such illegal or unenforceable provision shall be deemed to be
restated to reflect as nearly as possible the original intention of the Parties
in accordance with applicable law.
13.4 Extended Meanings. In this MOU, words importing the singular
number include the plural and vice versa and words importing gender include all
genders. The word "person" includes, subject to the context in which it appears,
an individual, partnership, association, body corporate, trustee, executor,
administrator or legal representative.
13.5 Headings. The division of this MOU into Articles and subsections
and the insertion of headings are for convenience of reference only and shall
not affect its construction or interpretation.
13.6 Survival. The following provisions shall survive the termination
of this MOU together with such other provisions of this MOU which expressly or
by their nature survive termination:
Article 6 CONFIDENTIALITY
Article 7 PUBLIC ANNOUNCEMENTS
Article 11 GOVERNING LAWS, DISPUTES
Article 13 GENERAL
13.7 Binding Effect: This MOU will be binding on and enure to the
benefit of the Parties hereto and their respective successors and permitted
assigns. No Party may assign this MOU or any of their rights or obligations
hereunder or delegate the performance thereof to a third party without the prior
written consent of the other Party except that the Parties may assign this MOU
to one or more of their subsidiaries or Affiliates.
13.8 Counterparts: This MOU may be executed in one or more
counterparts, each of which when so executed shall be deemed an original, but
all of which taken together shall constitute one and the same complete and
executed agreement.
13.9 Effective Agreement: If executed in counterparts, this MOU shall
become effective when each Party to this MOU shall have received counterparts
hereof signed by the other Party hereto.
13.10 Delays: In those cases where the activities of one Party or a
responsibility of one Party called for in this MOU, or otherwise, are dependent
on an activity or responsibility of the other Party, or is dependent on
receiving information or approval from the other Party, and the activity,
responsibility, information or approval is not given or notified in such one
Party, then the activity or responsibility of such one Party may be delayed a
corresponding amount of time.
IN WITNESS HEREOF, the Parties to this MOU have caused it to be
executed and sealed by their duly authorized officers as of the day and year
first written above.
(SD "ST&C")
------------------------------------
<PAGE>
V.I. INTERNET TELECOMMUNICATIONS INC.
-------------------------------------
Exhibit 6.3
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is made as of November 25,
1998.
BY AND AMONG: V.I. Internet Telecommunications Inc., a corporation duly
incorporated under the laws of Canada with legal domicile in Montreal, Province
of Quebec, Canada (hereinafter referred as "Company"), hereby represented by Mr.
Mickael Macinnis, Mr. Viatcheslav Makarov, Mr. Ilya Gerol, duly authorized as he
so declares.
ON THE ONE HAND
AND: Telecom XXI Development, LTD, A company registered in Cayman
Islands, (hereinafter referred to as "Telecom XXI") with a registered office at:
W.S. Walker & Company, First Floor, Caledonian House, Mary Street, P.O. Box
265G, George Town, Grand Cayman, Cayman Islands, represented by Dmitri Novikov,
President.
ON THE OTHER HAND
(hereinafter referred jointly as the "Parties" or individually as the
"Party").
WHEREAS, Telecom XXI is desirous of establishing a voice, fax and data
telecommunication service to/from Russian Federation and other countries; and
WHEREAS, Telecom XXI has extensive communications expertise through the
State Directory -- "Technic and Communication", and
WHEREAS, Telecom XXI has the resources and capability to implement the
Russian component of any required system that could provide telecommunication
services in St. Petersburg and other areas of the Russian Federation; and
WHEREAS, Telecom XXI can secure all necessary permits, licenses and
approvals for the legitimate operation of a Russian telecommunication service;
and
WHEREAS, Telecom XXI, through its normal links with other agencies,
municipal governments and with the Commonwealth of Independent States (CIS), is
desirous of allowing and encouraging these governments to make use of such
telecommunication services; and
WHEREAS, the Company has extensive communications expertise including
marketing and operation of prepaid telecommunication services; and
WHEREAS, the Company has extensive North American and International
management, marketing trade funding and promotional experience and capability;
and
WHEREAS, the Company has long-established links with communications
systems providers and users throughout North America; and
WHEREAS, the Company wishes to establish telecommunication services
to/from North America on its Internet Telephone Protocol network to its
customers to/from the Russian Federation; and
WHEREAS, the Company needs to implement an Internet Telephony Protocol
Communication Systems (the "System") between, on one hand, Moscow and St.
Petersburg hubs and, on the other hand, the Montreal gateway hub to North
America and the rest of the world, so to be able to provide the
telecommunication services ("Project"); and
WHEREAS, Telecom XXI wishes to associate with VI to jointly pursue the
implementation of the Project and the operation of the System; and
WHEREAS, the Parties also desire to set forth their mutual
understandings regarding their cooperation and obligations in the implementation
of the Project and the operation of the System as well as the essential elements
of the formation of a new company by them for such purposes.
NOW, THEREFORE, the Parties hereby agree as follows:
1. OBJECTIVE
The purpose of this MOU is to establish the relationship between the
Parties, their respective obligations and the material conditions of the
formation of an operating company that will be used by the Parties to provide
the System in order to meet the needs of the Russian Federation, its private
corporate sector and its private citizens in their communication connection with
North America, Europe and rest of the world.
2. FORMATION OF THE OPERATING COMPANY
The Parties will form a corporation organized under the laws of Russian
Federation. Such corporation shall be known as "Interservice Telephone Russia"
or by any other name agreed to by the Parties and approved by the competent
authorities ("Operating Company"). Such Operating Company will be created no
later than thirty (30) days after execution of this MOU.
2.1 Shareholdings.
The Parties hereby agree that their respective percentages of equity
interests in the Operating Company will be as follows:
Shareholder % Equity Interest
VI - 80%
Telecom XXI - 20%
a) Indirect Shareholdings and Foreign or
Other Ownership Restrictions.
The Parties further agree that their
respective equity interest in the Operating
Company may be held by each Party either
directly, and/or (in such Party's sole and
absolute discretion) indirectly through one
or more of such party's Affiliates (as
defined in Article 6 below). The Parties
acknowledge and agree that the Shareholder's
Agreement (as defined in Section 2.2 below)
will include express rights, restrictions
and obligations of each of the shareholders
regarding any change of control of any of
the shareholders of the Operating Company
(the "Shareholders").
<PAGE>
b) Transfer Restrictions and Rights of First
Refusal for Equity Allocated to the Parties.
If, at any time before or after formation of
the Operating Company, any Party should wish
to sell part or all of its equity interests
in the Operating Company, that Party must
first offer such equity interests to the
other Party at fair market value upon the
same terms and conditions that it would
offer to sell such equity interests to a
third party, before offering for sale such
equity interests to any third party upon
same terms and conditions.
c) Price for Acquisition of Equity Interests.
The amount of the capital contributions of
the shareholders and other financing needs
of the Operating Company will be as mutually
agreed upon by the Parties. The Parties
currently contemplate that the initial
capital contributions will be proportionate
to their equity interests in the Operating
Company.
2.2 Shareholders' Agreement.
The parties shall negotiate and form the Operating Company and
enter into a shareholders' agreement setting forth their rights (including
voting rights) and obligations regarding their respective equity interests in
the Operating Company including, among other things, the transfer restrictions,
rights of first refusal and mutually agreed upon provisions (the "Shareholders'
Agreement").
a) The International Operator.
The parties further agree that the
Shareholders' Agreement will provide that
the day-to-day management of the business of
the Operating Company or its Affiliate shall
be supervised and controlled by the Company.
The Parties contemplate that there will be
an agreement between the Company and Telecom
XXI (or their respective Affiliates) with
respect to their supervision and control of
the management of the business of the
Operating Company, and that such agreement
will be submitted to all Parties.
b) Board Representation and Decision making.
The Parties currently contemplate that the
Operating Company will have a eight (8)
member board of directors (the "Board")
(each director to have one vote), and the
shareholders will be entitled to appoint
directors to the Board in accordance with
the equity ownership interests in the
Operating Company from time to time held by
them in the Operating Company (unless
otherwise agreed in the Shareholders'
Agreement). Based on the percentage of
equity interests in the Operating Company
set forth in Section 2.1 above, the
Directors would be appointed as follows:
<PAGE>
6 director(s) will be appointed by the Company;
<PAGE>
2 director(s) will be appointed by Telecom
XXI.
The Shareholders' Agreement will provide the
fundamental decisions regarding the
Operating Company will require a Super
Majority Shareholder vote (eighty per cent
(80%) or more of all outstanding shares)
and/or a Super Majority Board vote (eighty
per cent (80%) or more of the total number
of directors comprising the full Board), as
appropriate under applicable law. It is
currently contemplated by the Parties that
fundamental decisions will be decisions
within the following general categories (to
be specifically agreed in detail in the
Shareholders' Agreement);
<PAGE>
Annual Financing and Operating Plans
<PAGE>
Major Technological Platform choices
<PAGE>
Related party Transactions
<PAGE>
Major Transactions including sale of assets
<PAGE>
Significant Changes in Financial Leverage
<PAGE>
Appointment and Dismissal of the President
c) Operating Company Appointments
The Company will be entitled to nominate the
respective persons to be appointed as the
President of the Operating Company, subject
to Super Majority approval of the Board, and
as the Vice-President of Operations of the
Operating Company, subject to simple
majority approval of the Board.
2.3 Services Agreement
The Parties agree that the Operating Company may, from time to
time, enter into agreements (collectively the "Services Agreement") with any of
the Parties (or their respective Affiliates) pursuant to which such entities
will provide services to the Operating Company on terms and conditions to be
agreed between such entity, on the one hand, and the Operating Company, on the
other hand.
2.4 Language of Agreements
All agreements (including this MOU) shall be prepared and
executed in both the Russian and English languages. All agreements, when in
final form, shall be promptly sent to an agreed upon translator, and the costs
of such translation shall be shared equally by the Parties.
<PAGE>
3. OBLIGATIONS OF THE COMPANY
As part of its contribution to the Project, the Company shall within
three (3) months following the execution of the MOU as well as any other
document required to implement the MOU, except as otherwise provided below,
provide at its costs the following:
3.1 all the technical equipment and telephone lines required to operate
the telecommunication services between Russian Federation and Canada, as well as
the interconnection in Montreal, Canada with the Montreal gateway hub so to
extend the telecommunication services throughout the world;
3.2 the marketing and promotion of the use of the telecommunication
services throughout Canada and the United States by state and private corporate
sectors, telephone corporations and private individuals telecommunication
services through the use of prepaid telephone cards;
3.3 prepaid telephone cards for promotion and sale in Russian
Federation and North America;
3.4 establishment of a credit account record for all the Operating
Company prepaid customers;
3.5 payment for the costs of telephone lines and usage between St.
Petersburg and Moscow as well as local and long distance charges between Russian
Federation and other destinations in the world and vice versa.
3.6 the financing of the Project through proper banking and investment
arrangements and the keeping of Telecom XXI inform of such arrangements
throughout the implementation of the Project and the operation of the System;
3.7 an accounting system for the implementation and operation of the
System based on generally accepted accounting principles and the applicable
Russian Federation laws;
3.8 training, both technical and administrative, of the employees of
the Operating Company involved in the implementation and operation of the
System.
4. OBLIGATIONS OF TELECOM XXI
Telecom XXI, as part of its participation into the Project,
will provide at its costs, within one (1) month following the execution of the
MOU as well as any other document required to implement the MOU, unless
otherwise provided below, the following:
4.1 Telecom XXI shall secure and execute this MOU as well as
any other document deemed necessary by the Parties to implement the MOU and to
establish the Operating Company;
4.2 Telecom XXI shall obtain the issuance of an exclusive and
irrevocable permit(s) from the competent state authorities of the Russian
Federation, as well as any other permit(s) or authorization(s), that is (are)
necessary to implement and operate the System for a period of at least ten (10)
years;
4.3 Telecom XXI shall obtain and grant the permission to the
Operating Company to start its activities within ten (10) days following its
incorporation and the issuance of the necessary permit(s);
4.4 Telecom XXI shall provide the office space and all other
facilities mutually agreed to between the Parties, as well as the necessary
technical and office personnel that the Parties will deem necessary to install
and operate the System;
4.5 Telecom XXI shall install all the equipment provided by VI
to implement the System; Telecom XXI shall also install all the facilities (such
as electrical power and outlets, telephone access, internet access, etc.) deemed
necessary to operate the System;
4.6 Telecom XXI will assist the Operating Company with the
physical implementation, operation and maintenance of the technical equipment
required to operate the System and will provide the interconnection in Moscow to
extend the telecommunication services throughout Russian Federation and the CIS;
4.7 Telecom XXI shall have the MOU as well as any other
document required to implement the MOU, whether mentioned or not in this MOU,
registered with the competent authorities of the Russian Federation within ten
(10) days of their execution by the Parties;
4.8 Telecom XXI shall be responsible for the relationship
between the Operating Company and the state authorities of the Russian
Federation at all levels of Government so to maintain a positive relationship in
place.
5. OPERATING COMPANY RESPONSIBILITIES
The Operating Company shall have the responsibilities decided
by its shareholders and, without limiting the foregoing, shall be responsible
for the implementation and operation of the System. It is understood and agreed
by the Parties that the Operating Company shall, among other things:
5.1 market and promote the use of the prepaid
telecommunication services in the Russian Federation by state and private
corporate sectors at all levels of Government, as well as by private individuals
through the sale of prepaid telephone cards;
5.2 provide VI with the reimbursement of the calls made by its
customers using the System, including reimbursement from prepaid telephone
cards;
5.3 pay all operational costs and expenses incurred by the
Operating Company, including without limitation cost of rent, employees
salaries, promotion and advertising costs, permits and interconnection fees, and
any other overhead costs and/or expenses. All these costs, fees and expenses
shall be charged to VI with a ten per cent (10%) surcharge. Any local telephone
costs for incoming calls from outside of Russian Federation will be charged to
VI at cost. Any surcharge over costs and/or expenses invoiced to VI shall be
adjusted on a quarterly basis by VI and Operating Company to ensure a fair
sharing of profits and losses for both VI and Operating Company;
5.4 pay, on a weekly basis, the services fees to the Parties
resulting from provision by such Parties of consulting services, in accordance
with the Services Agreements;
5.5 maintain adequate accounting system of its operations
based on generally accepted accounting principles and applicable Russian
Federation laws; open and maintain an operation account with a Russian bank as
selected by the shareholders.
6. CONFIDENTIALITY
Each Party (sometimes hereinafter referred to as a "Receiving
Party") agrees to hold in confidence and not to disclose to any third party (a)
any and all information provided by a Party directly or indirectly on its behalf
(sometimes referred to as a "Disclosing Party") to any Receiving Party, whether
orally or in writing and before or after the date of this MOU, (b) all analysis,
compilations, studies and other documents and records prepared by the Receiving
Party, its advisers or its representatives that are generated from or reflect
such information, (c) any technical, economic and market studies and business
plans jointly prepared by the Parties in relation to the Project, and (d) the
terms of this MOU or any other facts relating to the Project and/or the
Operating Company contemplated hereby (collectively, the "Information"), except
(i) if such Information is required by securities laws or other applicable laws
or court orders in Russian Federation and/or Canada, but only after written
notice of such disclosure requirement has been given by the Receiving Party to
the Disclosing Party, (ii) if such Information is disclosed by the Receiving
Party to its representatives, agents and advisors (who may include lending
institutions and insurance companies) who need to know such Information for the
purpose of assisting the Receiving Party with the evaluation, planning,
establishment and operation of the Project and the Operating Company, but only
after such persons have been directed by the Receiving Party to treat such
Information in accordance with the terms of this MOU, or (iii) with the prior
written consent of the Disclosing Party in respect of the Information referred
to in clauses a) and b) of this Article 6. Further, each Party agrees not to use
the Information for any purpose other than the evaluation, planning,
implementation and operation of the Project and the Operating Company.
The obligations set forth in the preceding paragraph will not
apply to a Receiving Party in respect of (A) information that is or becomes
generally available to the public other than as a result of a disclosure
directly or indirectly by such Receiving Party or (B) information that is or
becomes generally available to such Receiving Party on a non-confidential basis
from a source other than the Disclosing Party, provided that such source is not
known by such Receiving Party to be subject to any prohibition against
transmitting the information to such Receiving Party and that such Receiving
Party is not aware that the availability of such information from such source
resulted directly or indirectly from information supplied by the Disclosing
Party.
As used in this MOU, "Affiliate", with respect to any person
or entity, means any individual, firm, corporation, association, partnership,
joint venture, trust or other entity, now or hereafter existing, which, directly
or indirectly, controls, is controlled by or is under common control with such
person or entity; a person or entity "controls" another person or entity (the
"subject person") if such person or entity (alone or in combination with an
Affiliate(s)), possesses the power, by contract or ownership of voting stock or
other equity interests (i) to elect a majority of the members of the board of
directors (or other similar governing body) of the subject person, or (ii) if
the subject person is not a corporation, to otherwise direct or cause the
direction of the management and policies of the subject person; and "controlled"
has a corresponding meaning.
7. PUBLIC ANNOUNCEMENTS
No news release, public announcement, advertisement or
publicity concerning this MOU, the Project, the Operating Company, the System or
any other matters contemplated hereby may be made without the prior approval of
the Parties, except as may be required by securities laws or other applicable
laws or court orders, in which case, such disclosure shall be subject to clause
(i) of Article 6.
8. EXCLUSIVITY
8.1 Each Party agrees that from the date of execution of this
MOU through the formation of the Operating Company and the execution of the
Shareholders' Agreement (the "MOU Exclusivity Period"), it will not enter into,
will cause its wholly-owned subsidiaries not to enter into and will use its
reasonable, good faith efforts to cause its Affiliates not to enter into, any
discussions, negotiations or agreements with any other person(s) or entity(ies)
(including, without limitation, any telecommunication operator with respect to
investing or agreeing to invest (directly or indirectly) in, or providing
general strategic consultation or advisory services to, any person, entity or
group proposing to provide implementation and operation of an Internet Telephone
Protocol network to customers in Russian Federation, in each case other than
pursuant to this Agreement; provided, however, that nothing in this Article 8
shall be construed as restricting the rights of any Party or of any Party's
Affiliates to continue with its normal correspondence business with any
international telecommunication services carrier or provider.
8.2 The Parties agree that provisions relating to exclusivity
for the period following the MOU Exclusivity Period shall be governed by terms
to be included in the Shareholders' Agreement.
9. TERMINATION
Subject to the survival provisions of Section 13.6, this MOU will
terminate on the first to occur of any of the following events (the "Termination
Date"):
9.1 the date on which this MOU is replaced by the comprehensive legal
agreements and documents referred to in Article 2 hereof,
9.2 the date of the mutual written agreement of all of the Parties to
so terminate.
9.3 If a Party fails to fulfill its obligations under this MOU and,
after having received a notice to that effect from the other Party, does not
cure such failure within sixty (60) days of receipt of the notice, and the
non-defaulting Party terminates this MOU as a result of an arbitration decision
and of its confirmation by a court of competent jurisdiction.
Upon the occurrence of the Termination Date, each Party shall promptly
return to the other Party(ies) all Information obtained by it in relation to the
other Party(ies). In addition, each Party shall remain liable for the payment of
its share of agreed-upon expenses incurred or committed pursuant to Article 3
and 4 hereof through the Termination Date. Unless otherwise agreed in writing by
the Parties hereto, the provisions of Articles 6 and 7 hereof will survive the
Termination date and the termination of this MOU.
10. RELATIONSHIP OF PARTIES
No Party has the power or authority to legally bind the other
Party hereto, and nothing herein contained will be construed as authorizing a
Party to act as an agent or representative of the other Party hereto or to
legally bind the other Party hereto.
<PAGE>
11. GOVERNING LAW: DISPUTES
11.1 The entering into, construction, and performance of this MOU shall
be governed by and interpreted in accordance with the laws of Russian
Federation.
11.2 The Parties hereto agree that any disputes, controversies or
differences which may arise between or among them out of, in relation to, or in
connection with this MOU or its subject matter, including disputes as to
validity, performance, breach or termination, shall be resolved by them as
expenditiously as possible pursuant to amicable and good faith discussions.
11.3 Any dispute, controversy or difference between or among the
Parties (an "International Arbitration"), which cannot be settled pursuant to
amicable and good faith discussions as provided above, shall be submitted to
binding arbitration in accordance with the Arbitration Rules of the United
Nations Commission on International Trade Law as in force on the date of
commencement of the subject International Arbitration, shall be conducted in
English and in Stockholm, Sweden, and the law governing such arbitration
proceedings shall be law of Russian Federation, and the decision of such
arbitrators shall be rendered in law.
11.4 In the event of any inconsistency between the Russian version and
the English version of this MOU or of any agreement referred to in Article 2,
the English version shall prevail.
11.5 The validity and construction of this Article 11 shall be governed
by the laws of Russian Federation.
12. NOTICES
All notices to be given among the Parties will be validly given when
delivered by courier or by Facsimile as set out below:
If to the Company: ________________
If to Telecom XXI: 6 Proletarskaya Diktatura square, St. Petersburg,
193124, Russia. fax +7 812 326-1312
13. GENERAL
13.1 Preamble; Integration: The preamble and the documents referred
hereto shall form an integral part hereof as if recited at length. The terms and
provisions contained in this MOU together with the documents referred hereto
constitute the entire agreement between the Parties with respect to the subject
matter hereof.
13.2 No Waiver: No amendment or waiver of this MOU shall be binding
unless executed in writing by both Parties. No waiver of any of the provisions
of this MOU shall constitute a waiver of any other provision (whether or not
similar) nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
13.3 Severability. any provision in this MOU which is held to be
illegal or unenforceable in any jurisdiction shall be ineffective to the extent
of such illegality or unenforceability without invalidating the remaining
provisions and any such illegal or unenforceable provision shall be deemed to be
restated to reflect as nearly as possible the original intention of the Parties
in accordance with applicable law.
13.4 Extended Meanings. In this MOU, words importing the singular
number include the plural and vice versa and words importing gender include all
genders. The word "person" includes, subject to the context in which it appears,
an individual, partnership, association, body corporate, trustee, executor,
administrator or legal representative.
13.5 Headings. The division of this MOU into Articles and subsections
and the insertion of headings are for convenience of reference only and shall
not affect its construction or interpretation.
13.6 Survival. The following provisions shall survive the termination
of this MOU together with such other provisions of this MOU which expressly or
by their nature survive termination:
Article 6 CONFIDENTIALITY
Article 7 PUBLIC
ANNOUNCEMENTS
Article 11 GOVERNING LAWS,
DISPUTES
Article 13 GENERAL
13.7 Binding Effect: This MOU will be binding on and enure to the
benefit of the Parties hereto and their respective successors and permitted
assigns. No Party may assign this MOU or any of their rights or obligations
hereunder or delegate the performance thereof to a third party without the prior
written consent of the other Party except that the Parties may assign this MOU
to one or more of their subsidiaries or Affiliates.
13.8 Counterparts: This MOU may be executed in one or more
counterparts, each of which when so executed shall be deemed an original, but
all of which taken together shall constitute one and the same complete and
executed agreement.
13.9 Effective Agreement: If executed in counterparts, this MOU shall
become effective when each Party to this MOU shall have received counterparts
hereof signed by the other Party hereto.
13.10 Delays: In those cases where the activities of one Party or a
responsibility of one Party called for in this MOU, or otherwise, are dependent
on an activity or responsibility of the other Party, or is dependent on
receiving information or approval from the other Party, and the activity,
responsibility, information or approval is not given or notified in such one
Party, then the activity or responsibility of such one Party may be delayed a
corresponding amount of time.
IN WITNESS HEREOF, the Parties to this MOU have caused it to be
executed and sealed by their duly authorized officers as of the day and year
first written above.
TELECOM XXI DEVELOPMENT LTD.
------------------------------------
<PAGE>
V.I. INTERNET TELECOMMUNICATIONS INC.
-------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001080008
<NAME> Internet VIP, Inc.
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> NOV-13-1998
<PERIOD-END> FEB-28-1999
<CASH> 223,624
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 801
<PP&E> 25,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 249,425
<CURRENT-LIABILITIES> 68,258
<BONDS> 0
0
0
<COMMON> 2,087
<OTHER-SE> 179,080
<TOTAL-LIABILITY-AND-EQUITY> 249,425
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 219,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (219,010)
<INCOME-TAX> 0
<INCOME-CONTINUING> (219,010)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (219,010)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
