DRAFT #5 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
ePHONE Telecom, Inc.
(Name of Small Business Issuer in its charter)
Florida 98-0204749
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Ste E - 39767 Paseo Padre Parkway, Fremont, California, U.S.A. 94539-7970
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (510) 661-9898
Issuer's Website: www.ephonetel.com
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common shares Nil
Securities to be registered pursuant to Section 12(b) of the Act:
Common shares $0.001 par value
(Title of Class)
ePhone Telecom, Inc. is filing this Form 10-SB on a voluntary basis for the
purpose of making itself a reporting company under the Act.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. Business Development
ePhone Telecom, Inc. (the "Company") has not been in business for 3 years. The
development of the business of the Company as described below was essentially
commenced as of November, 1998. From the Company's original incorporation until
November, 1998 the Company did no business and made no attempt to do any
business. From November, 1998 to December, 1999, the Company did not business
and focused its efforts on the review of business potentials and, ultimately,
the business potential of the business described below.
The Company does not have a predecessor nor has there been any material
reclassification of its business or any purchase of any assets not in the
ordinary course of business.
The Company was incorporated pursuant to the laws of the State of Florida,
U.S.A., effective May 3, 1996, as IRA Fund Brokers Corp., and changed its name
to IFB Corp. on April 6, 1998. On March 22, 1999, IFB Corp. changed its name to
ePHONE Telecom Inc.
The possibility of voice communications travelling over the Internet, rather
than through the Public Switched Telephone Network ("PSTN"), first became a
reality in 1995 when VocalTec, Inc. introduced its Internet Phone software.
Designed to run on a personal computer ("PC") equipped with a sound card,
speakers, microphone, and modem, the software compressed the voice signal, and
translated it into Internet Protocol ("IP") packets for transmission over the
Internet. This PC-to-PC Internet telephony worked only if both parties were
using the same Internet Phone software, and had made an appointment to be
connected to the Internet at the same time.
The basic steps involved in originating an IP Telephony call, are: (1)
conversion of the analog voice signal to digital format; and (2)
compression/translation of the signal into IP packets for transmission over the
public Internet or managed IP networks. The process is reversed at the receiving
end.
Internet Protocol is a method of taking information, usually a data stream that
represents images or keystrokes, and dividing it into many small pieces, or
"packets". These packets each include a header, which carries the originating
address, the destination address, and a map for reassembling those packets when
they reach their destination. IP was created to carry data, the same collection
of zeros and ones that underlie every programme, document, and image created
using a computer.
IP is a very flexible protocol for sending information across a network that has
many different possible starting points and destinations, commonly known as
"any-to-any". Because IP packets can travel from their starting point to their
destination without staying linked together during the journey, they do not have
to look for pathways across networks large enough to carry large chunks of
information. Instead, the packets can scatter and exploit every available
pathway across a network. Over the PSTN, analog voice communications need a
direct point-to-point path and tie up this connection during the entire duration
of the communication.
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1. Principal Services and their Markets
(a) Services
Using Voice over Internet Protocol ("VoIP"), the Company will offer to small
office and small business users, first and foremost, a low-cost, high-quality
alternative to traditional long distance carriers. It intends to offer other
telephony features in the future. The components of the initial offering are
described below.
Central to the Company's proposed operation, is a high quality IP backbone
that will transport digitized packets of voice, fax and data, for its
clients, around the world. The Company has selected a supplier for this
component of its service - UUNET Technologies, Inc. (see Section 5 below).
The Company will install multi-port gateways at UUNET's Points of Presence
("POP") premises in targeted markets around the world. These gateways will
allow customers in those markets to access the ePHONE network, with no
equipment other than their regular telephone. Once a customer places a
call, either telephone or fax, the call is sent to the ePHONE gateway,
located at the local UUNET facility. The call then is converted into IP
packets and sent to destination using the most cost-effective route, as
determined by the Company's Network Operations Center ("NOC"). The Company
has selected Array Telecom Corp. ("Array") to supply the gateways for this
component of its service (see Section 5 below).
The first gateway will be installed in Rotterdam, The Netherlands in
January, 2000. This site will be used to test the network and billing
system.
A record of the call is created and sent to the Company's NOC, for purposes
of billing and customer service. While theoretically, one NOC could serve
the worldwide network, in practice, quality will be improved, and billing
simplified, by strategically locating a NOC in each main geographic region,
with a copy of the record sent to the Company's central NOC, for back-up.
The NOC consists of a gateway and server supplied by Array, and billing
software supplied by Infozech. The first NOC is being installed by Array at
its premises in Herndon, Virginia.
Finally, the Company will also enable customers to originate calls using a
Customer Premise Equipment ("CPE") device, the iGate, developed by TEK
DigiTel Corp. ("TEK") of Germantown, Maryland. It is an inexpensive 2-port
gateway that makes the conversion from analog to IP at the customer's
premises. The iGate interfaces with the customer's regular telephone
system. It connects to the Company's IP network via Integrated Services
Digital Network ("ISDN"), dial-up modem or Ethernet connection - LAN, CATV
(cable modem), or DSL (high-speed telephone). The Company's arrangements
with TEK are described in Section 5 below.
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The iGate represents a unique feature and competitive advantage for the
Company. It allows customers to access the Company's network anywhere there
is Internet service, without the need for a local ePHONE gateway. The iGate
enables phone-to-phone and fax-to-fax IP Telephony, making the service
transparent to users who simply pick up the phone and dial the destination
number.
(b) Customers
The Company's customers will fall into two main categories: small office/small
business users ("Retail"), and long distance regional/international carriers
("Carrier").
Retail
Small office/small business customers with less than $200 monthly long distance
usage, will use their telephone and/or fax to dial a local ePHONE gateway and
access the Company's IP network enabling them to call anywhere in the world at
greatly reduced rates. The Company will also offer a dialer to make the service
transparent to the user. When the customer dials a long distance number, the
dialer automatically dials the ePhone gateway, identifies the customer and dials
the destination number.
Customers who meet the minimum monthly usage criteria will receive an iGate at
no cost. The iGate will enable the customer to place call anywhere in the world
at greatly reduced rates, as well as placing calls to other iGate customers for
$0.03 per minute, irrespective of their location. This last feature will be
particularly attractive to multi-branch organizations and businesses, which have
frequently called numbers.
Those customers who do not meet the minimum monthly usage criteria, but who
would like to take advantage of the iGate features, will be asked to pay a
monthly network management fee of $5-25, depending on their monthly volume of
calls.
Carrier
The Company will use the ePHONE gateways, located at UUNet sites, to provide a
service helping long distance carriers make the transition from circuit
switching to VoIP packet switching.
For example, a San Francisco-based Competitive Local Exchange Carrier
("CLEC") has a large customer base focused on the Asian market. An ePHONE
gateway would be located at the CLEC's premises in San Francisco. Customers'
calls to Asia would then be routed through the gateway, on to ePHONE's IP
network, downloaded in Hong Kong at an ePHONE gateway, and then sent to the
destination number, via the local PSTN.
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(c) Fixed Wireless Local Loop Project
The President and COO of the Company, Mr. Charlie Yang, prior to the acquisition
of his company, General Tel Inc., by the Company on July 8, 1999, had developed
a business relationship with Saigon Post and Telecommunications Corporation
("SPT") in Vietnam. The Company has agreed to continue to develop that
relationship.
On October 22, 1999, the Company signed an Agreement in Principle (Exhibit 10.3)
with SPT to jointly develop and operate a series of fixed Wireless Local Loop
("WLL") networks in the region of Ho Chi Minh City. The Company and SPT are
currently conducting a technical and financial feasibility study for the
project, which is expected to build to more than 80,000 subscribers in the next
5 years. The feasibility study is scheduled to be completed by February 28,
2000, at which time, if the outcome is positive, a Business Cooperation Contract
("BCC") will be signed between the two parties. The BCC will guide the
management and operation of the WLL project. The BCC will be in the nature of a
Joint Venture Agreement.
The parties are currently expecting the project to have 2,000-5,000 subscribers
by the end of 2000, rising to 40,000 by 2004. The Company will be seeking
separate financing for this project, primarily from investors in Hong Kong and
elsewhere in Asia. The extent of the financing required will not be known until
the feasibility study has been completed at the end of February, 2000.
2. Distribution of Services and Markets
The Company is targeting those markets that offer both volume and the greatest
margin between the prevailing long distance rates and the cost to the Company of
terminating calls over the IP network. These markets are primarily
intercontinental, i.e. Europe-North America, North America-Asia, and
Asia-Europe.
In its market development work to date, the Company has targeted telephone
equipment distributors and Internet Service Providers ("ISPs") in Europe and to
a lesser extent in Asia, to act as distributors of its services. Telephone
equipment distributors traditionally sell telephone equipment and provide
training to interconnectors who in turn sell, install and maintain telephone
switches and other telecommunications equipment for businesses. These
distributors also sell telephone equipment to retail outlets in their area.
The Company has had a presence in Europe for the last nine months, through Hans
van Yzeren, a Director of the Company, located in Belgium. A number of potential
distributors have signed Letters of Intent to distribute the Company's services
. As part of these agreements, the distributors have been testing the iGate on
their premises. These tests, conducted over the last six months, have
demonstrated to the potential distributors, the high level of voice quality
delivered by ePHONE's iGate.
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The potential distributors include:
Webby Corp of the Netherlands, distributors of WebTV devices, which
proposes a US$500,000 advertising campaign starting in January 2000,
exclusively devoted to the ePHONE products.
MA&C Europe of Gant, Belgium, has proposed distribution in Belgium and
France.
Q-Net CL SRO of the Czech Republic.
Starcom of Warsaw, Poland, intends to cover Poland, Slovenia and Hungary.
Vestel Elecktronik A.S, the largest independent ISP in Turkey.
X/IP Communications Ltd of London, England, a subsidiary of Interoute
World Online, of Vianen, The Netherlands, covers most of the countries in
Western Europe as ISPs.
In addition, strong demonstration of interest has been expressed by a number of
other potential distributors in Eastern Europe, Africa and Asia.
E-Commerce, particularly in business-to-business offerings is believed by the
Company to be an increasingly important part of today's marketing and sales
strategy. The Company has spent in excess of $US 60,000 developing its website -
www.ephonetel.com - including the recruitment of distributors.
3. New Products or Services
The Company's focus, currently and for the next few months, is to establish its
IP network, physically locate the initial ePHONE gateways, finalize testing on
the iGate, finalize the contractual arrangements with its distributors, and
generate revenues through the sale of the services described above.
Additional services are expected to be introduced after the establishment of a
strong business base. These will include voice mail and unified messaging.
4. Competitive Conditions
The internet telephony market is, in Management's opinion, changing and growing
rapidly. Long distance rates are dropping every day, which in turn places
pressure on internet telephony rates. A number of products currently on the
market enable VoIP services using a telephone or fax. Typically these products
require the terminating party to have the identical equipment and in some cases,
to be forewarned of an impending call. Two-step dialing is required and often
configuring the equipment can be cumbersome.
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The Company believes that its iGate represents a significant competitive
advantage. It does not require two-step dialing. It does not require that the
other party has an iGate. Choosing the private IP network over the public
Internet will enhance the quality of the call. Customer testing conducted with
potential distributors indicates that the iGate, working together with the
gateways and IP network, represents a very attractive solution. Furthermore, the
iGate is priced very competitively and the cost will go down as volume
increases.
However the Company is keenly aware that it must not delay the launch of its
service line. It is imperative that the Company generates revenues in the first
quarter of the year 2000.
5. Suppliers
(a) Internet Backbone
An important element of the Company's operation is a high quality IP
backbone that will transport digitized packets of voice, fax and data,
for its clients, around the world. To this end, the Company has signed
a CoLocation Agreement dated August 26, 1999 with UUNET Technologies
Inc., for UUNET's site in San Jose, California. The Company has had an
iGate Server located at the San Jose site since September, 1999.
The Company will install its gateways at other UUNET's Points of
Presence (POP) premises around the world, to serve as its origination
and termination points when sending voice, fax or data via the Internet
or its dedicated IP network. It has signed a second CoLocation
Agreement with UUNET dated December 12, 1999 for UUNET's site in
Rotterdam, The Netherlands, where a 30-port gateway will be installed
in January, 2000.
(b) Gateways
On November 9,1999, the Company issued a Purchase Order, in the amount
of $1,000,000, to Array, to supply multi-port gateways over the next 12
months. The Company has so far ordered the billing software and server,
and the first 3 gateways, to be located respectively in Rotterdam, The
Netherlands, Herndon, Virginia, and Hong Kong, during the first quarter
of 2000. The Company has also ordered two low-density gateways for
testing purposes.
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(c) Customer Premise Equipment
The Company signed a Memorandum of Understanding on July 19, 1999 with TEK.
TEK undertook to support the development and delivery of the iGate as a
first priority, and to provide customer support. The Company undertook to
order and prepay for a certain number of iGate units. In an Addendum to the
MOU, dated September 11, 1999, TEK agreed to provide the Company with
exclusive worldwide distribution rights to the "ePhone" solution, defined
as the integration/combination of TEK's iGate and Array Telecom's
Gateway/Gatekeeper. In return, the Company agreed that if it manufactures
the TEK iGate, it will pay a one-time manufacturing rights fee and per unit
royalties to TEK. The Company also agreed to certain minimum sales of iGate
units.
Under an Agreement dated November 9, 1999 Array is testing Customer Premise
Equipment (iGate Servers) supplied by TEK. The testing revolves around
interoperability of the iGates with the Array gateways, and with the ePHONE
billing software. The results of these tests indicate that the iGates are
interoperable with ePHONE's Array gateways, as well as with the Company's
billing software. Further testing is underway to determine the ability of
the iGates to "wake up" the caller equipment at the point of termination,
in the case where the receiving party is not online. Testing is due to be
completed by January 31, 2000.
6. Dependence on a few major customers
The Company is seeking to establish a number of distributorships in each of
its major market areas. In addition, it will seek to attract customers over
the web. The Company's business does not lend itself to being dependent on
a very few customers.
7. Government Approvals and Regulations
The Company will not attempt to enter into any market, which is subject to
regulation, without first determining that it can satisfy the regulatory
requirements.
In order to conduct telephony business in the United States, the Company
will have to prepare and file applications and associated tariffs for
international and interexchange telecommunications certification before the
Federal Communications Commission and State Commissions, respectively.
The Company's need for licenses in Europe and Asia will be a function of
whether the Company operates as a foreign company in those locations, or
whether it works with licensed foreign partners.
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8. Patents, Trademarks and Royalty Agreements
The Company does not have any patents, trademarks, licences or protective
agreements other than that it has trademarked its logo in Canada. The
Company also has concluded the Agreement with Charles Yang described in
Item 7D hereof (Exhibit 10.1).
9. R. & D. Activities
The Company considers that it has to the date hereof spent on research and
development activities related to its above-described business
approximately $200,000. There is no specific allocation of any of those
costs to the Company's future customers - although it will be the Company's
objective to charge for its products and services in sufficient amounts to
enable it to recover its research and development costs.
10. Y2K Compliance
The Company is not planning to commence operations until the first quarter
of 2000. Hence, it will avoid any potential problems arising from the
actual date change itself. Nonetheless, it has taken steps to confirm that
its suppliers are compliant.
UUNET's Y2K report is available on its website at:
http://www.wcom.com/about_the_company/year_2000_compliance/uunet_y2k. UUNET
has made it clear that for an organization of it's magnitude, it is
imperative to have a smooth crossover from 1999 to 2000 and that all the
necessary precautions have been taken.
Array Telecom, has confirmed that the hardware and software used for the
network management and call routing, has been tested, no anomalies were
found and that it is Y2K compliant.
TEK, the supplier of the iGate Servers has confirmed that the iGate does
not use or contain a real time clock and is therefore in no way affected by
the Y2K problem and that no testing is necessary or required.
The Company's actual costs incurred in addressing the Y2K issue have been
minimal. The Company is a start-up company, using new technologies,
supplied by others. Any future costs related to the Y2K problem will be the
suppliers' responsibility, and will not affect the Company's financial
condition.
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11. Employees
At the date hereof the Company has only 1 employee, being Charles Yang, who
is employed as the Company's President and Chief Operating Officer on a
full-time basis. The Company otherwise functions through the efforts of its
officers and contracted consultants.
C. Reports to Security Holders
The Company is not presently required under any Act or Regulation to
deliver financial statements or other information to any of its
shareholders. However:
1. Annual Reporting
Regardless of whether it becomes required to do so by applicable rules or
regulations, the Company will, voluntarily, send to all of its securityholders
an Annual Report on or before the 30th day of June in each year, which will
include the financial statements of the Company audited to the preceding
December 31st, being the Company's fiscal year-end.
2. SEC Reporting
As the Company became a reporting company on December 15, 1999, pursuant to the
SEC Rules, it will hereafter supply reporting as is required by its reporting
company status.
3. Public Access
The public may read and copy any materials that this Company files with the
United States Securities and Exchange Commission at its Public Reference Room at
450 - 5th Street N.W., Washington, D.C., U.S.A. 20549. The public may also
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Further, to the extent that the Company files with the
SEC electronically the SEC maintains an Internet site that contains reports,
proxy and Information Statements and other information regarding issuers, and
interested persons may obtain information on the site http:\\www.sec.gov. The
Company's Internet address is http:\\ www.ephonetel.com.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company has not had any revenues from any operations as it has not commenced
its proposed business operations. The Company's plan of operation for the next
12 months is principally as follows:
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The Company has tentatively agreed with certain private investors (including
many of the Directors and Officers) to make a $1,000,000 Regulation S private
placement of shares to them November 3, 1999. The shares will be subject to a
one-year hold. The proceeds from this private placement are being used to fund
operations and equipment purchases so far in 1999. As of November 30, 1999,
approximately $800,000 has been expended, of which $250,000 has been advanced to
TEK DigiTel Corp as prepayment for 500 iGate Servers.
Currently, the Company requires approximately $60,000 per month for salaries,
rent, marketing, general administration, consulting and legal fees. This amount
will increase in the first quarter of 2000 as revenue is generated. It does not
include gateways and other required equipment purchases, which in the fourth
quarter of 1999 will amount to $100,000.
These working capital requirements and equipment purchases will continue to be
funded out of the above-noted private placement for the period ending March 31,
2000. The Company will have to raise additional funds starting prior to March
31, 2000 in order to continue start-up operations.
The Company is currently in negotiations with a Canadian investment dealer for a
$5,000,000 equity/debt financing. The funding is subject to the Company
satisfying the requirements of the Eligibility Rules of NASD and becoming again
quoted on the National Association of Securities Dealers' Over-The-Counter
Bulletin Board. These funds are needed for the Company to continue to cover
working capital requirements as well as the purchase of the Array gateways
referred to above.
As an alternative, the Company is also discussing withanother company a plan to
lease finance the Customer Premise Equipment, the iGate servers, and possibly
the Array gateways.
If the Company fails to again qualify to be quoted on the Over-The-Counter
Bulletin Board, it will have to solicit personal loans or private placements
from individuals, officers and directors to continue operations. The
compensation of officers and consultants would be reviewed and where possible
reduced. The offices would be consolidated and expenses would not be incurred
unless mandatory.
ITEM 3 DESCRIPTION OF PROPERTY
(a) Plants or property
The Company does not own or have any rights to purchase any plants or other
property. Its only physical assets are computers and office equipment.
(b) Investment Policies
The Company does not have any policies which limit or guide the types of
investments that it might acquire or invest in. However, at the date
hereof, the Company does not have any expectations that it will acquire any
investments other than those which might be compatible with, and will
enhance or support, the Company's business objectives as described above.
The Company does not have any policy which would lead it to acquiring
assets or investments for capital gain. Such assets or investments as it
may acquire or invest in would be to advance the business described above
with the objective of generating income.
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ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information with respect to beneficial ownership of
the outstanding common shares of the Company as of September 20, 1999 for: (i)
each shareholder known to be the beneficial owner of 5% or more of the
outstanding common shares; (ii) each of the Company's executive officers and
directors; and (iii) all executive officers and directors of the Company as a
group. In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or has the power to dispose or direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which the person has the right to acquire beneficial ownership within 60 days.
At November 30, 1999 the Company had 12,000,000 shares issued and outstanding
and had outstanding options entitling the purchase, within 60 days, of 3,775,000
shares. The following information as to percentage of beneficial ownership is
therefore of the total of the shares issued or under option, being 15,775,000.
<TABLE>
Name and Address Number of Common Shares Percent of
or Identity of Individual Beneficially Owned Beneficial
or Group or Deemed Beneficially Owned Ownership
- - ------------------------------ ---------------------------- ----------
<S> <C> <C>
Robert G. Clarke
915 Leyland Street
West Vancouver, B.C. V7T 2L6 Nil shares
Director, Chairman and Chief 1,000,000 options 6.34%
Executive Officer and Promoter
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Charles Yang
39767 Paseo Padre Parkway
Suite E, Nil shares
Fremont, California, 94538 500,000 options
Director, President and Chief Operating of which only 300,000 are 1.9%
Officer exercisable within 60 days)
Peter Francis
Suite 3C, Tung Shan Terrace, Nil shares 1.58%
Stubbs Road, 250,000 options
Hong Kong
Director
Hans van Yzeren
Goizendreef 12 Nil shares 1.58%
2360 Oud-Turnhout 250,000 options
Belgium
Director
Charlie Rodriguez
162 West Petunia Place Nil shares 1.58%
Tucson, Arizona 250,000 options
U.S.A.
85737
Secretary and Vice-President
John Fraser
104 Elm Avenue Nil shares 1.58%
Toronto, Ontario 250,000 options
M4W 1P2
Director and Executive Vice-President
Ben Leboe
16730 Carrs Landing Rd. Nil shares 1.58%
Lake Country, B.C. 250,000 options
V4V 1B2
Chief Financial Officer
Executive Officers and Directors as a group Nil shares
(7) persons 2,550,000 options 16.16%
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Americana International Inc.*
Hong Kong 2,550,000 shares 16.16%
Holder of more than 5%
</TABLE>
* Management is advised that the owner of 100% of the issued shares of
Americana International Inc. is Gary Kenneth Urwin, Chartered Accountant,
of 27 Hamilton Parade, Pymble, Sydney, Australia. Mr. Urwin has no other
relationship to the Company.
ITEM 5 DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
All Directors serve until the next Annual General Meeting of the Shareholders or
until they earlier resign. Officers are elected by the Board of Directors and
their terms of office are, except to the extent that the engagement of Mr. Yang
is governed by an Agreement, at the discretion of the Board of Directors.
Further details of the Directors and Officers are as follows:
Name, Age and Positions held with the Company
Robert G. Clarke - 55 Holds degrees, Bachelor of Commerce and Master of
Business Appointed Director, President and Chief Executive Administration.
During portions of the last 5 years has Officer June 3, 1999. Effective
August 9, 1999 acted as independent business consultant. Director, resigned
as President and was appointed Chairman President and Chief Executive of
Waverider Communications of the Board. Also deemed the promoter of the Inc.
(trades OTC BB under Symbol "WAVC" January, 1997 to Company. December,
1997. Director Global CT & T Telecommunications
Business experience during past 5 years
Inc. ("GLC" - Vancouver Stock Exchange , September 18, 1995 - October 17,
1996 and again from February 11, 1998 - October 11, 1999. Corporate
Secretary, Pacific Western Capital Corporation (traded on Vancouver Stock
Exchange) August 15, 1995 - October 17, 1996.
Name, Age and Positions held with the Company
Charles Yang - 39 Appointed Director, President and Chief Operating Officer
of the Company, August 9, 1999
Business experience during past 5 years
1994-1996: President of Charles Industries, Inc., Los Angeles, California
directing multimedia communications system integration; 1995: International
Sales Manager, North America/Greater China, of AFLA Inc., of Taiwan and
California - multimedia network hardware manufacturer; 1996: Director of
Sales and marketing, DFI Inc. of Fremont, California, marketing multimedia
notebook and mobile computing system integration; 1997: President Arlotto
Technologies, Inc., Fremont, California, marketing in U.S. and Canada data
communication equipment; 1997-1999: Founder, President and Chief Executive
Officer of General-Tel Inc., Fremont, California. Marketing
telecommunication services and technolgies. Mr. Yang has undertaken to
particularly, as part of his general full-time duties with the Company,
focus on the potential for marketing of the Company's products and services
in China and to assist Mr. Fraser in the development of the contractual
arrangements which have been evolving in Vietnam.
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Name, Age and Positions held with the Company
John G. Fraser - 53 Appointed Director and Executive Vice-President of the
Company June 3, 1999.
Business experience during past 5 years
Masters Business Administration degree University of Pittsburg. Bachelor of
Commerce and Administration, Victoria University, Wellington, New Zealand.
With KPMG Canada, Chartered Accountants until 1998. Most recent position
held was Vice-Chairman, with national responsibility for KPMG Consulting
which provides a full range of management consulting services, strategy,
reengineering, human resources, information technology and package
applications. Annual revenues were approximately $100 million, with
professional staff of 600 and offices in 12 locations. Specific duties
included providing strategic and business direction, quality assurance,
professional development, risk management, compensation and promotions.
Member of the firm's Management Committee and International Management
Consulting Committee; Chair of the Management Consulting Policy Committee
and the KPMG Centre for Government Foundation.
In addition to his general duties Mr. Fraser has assumed responsibility for
directing the development of the contractual arrangements that have been
established in Vietnam.
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Name, Age and Positions held with the Company
Charlie Rodriguez - 55 Appointed Corporate Secretary and Vice-President -
Corporate Affairs June 3, 1999
Business experience during past 5 years
Master Business Administration Degree.
Zephyr Technologies, Inc., Omaha, Nebraska. Served as Chief Financial
Officer for a biometrics and smartcard software integrator company.
Prepared business plan, contracts and marketing materials for presentations
to investment bankers.
WaveRider Communications, Inc., (a NASD OTC Bulletin Board reporting
company), Vancouver, Canada, formerly named Channel I, Inc. Served as
director from January to November 1997, and as President and CEO from May
1995 to January 1997. Developed an infrastructure for the implementation of
the strategic business plan, presented management reports and implemented a
business plan and a public offering of common shares.
Hogan Clinics, Las Vegas, Nevada. Served as an outside consultant on an
ongoing basis during 1998. Provided administrative management for all
business and clinical operations including strategic planning, accounting,
finance, supplies, equipment, contracting, and personnel for Medical
Clinic. Restructured clinical operations eliminating duplication of
functions.
Advisory Services of Arizona, Inc., Scottsdale, Arizona. An investment
banking and consulting company specializing in public companies. Served as
an in-house consultant from October 1994 to December 1996. Assisted in the
design and structure of various mergers and acquisitions and financings by
clients. Provided operational analysis, and developed business plans and
assisted in implementing infrastructures for various clients. Bullet-Cougar
Golf Equipment Manufacturing Company (a NASDAQ company), Irvine,
California. Provided due diligence for the purchase of three-golf equipment
manufacturing subsidiaries merging into a public company. Interim Treasurer
and Chief Financial Officer November 1994 to March 1995. Re-engineered
operations and initiated a material requirements plan and direct order
software system.
- 17 -
<PAGE>
Name, Age and Positions held with the Company
Benjamin Leboe - 53 Management Appointed Chief Financial Officer of the
Company June 3, 1999.
Business experience during past 5 years
British Columbia Chartered Accountant and Certified Consultant.
Vice-President and Chief Financial Officer of VECW Industries Ltd. 1991 -
June 1995; Director and President of CPT Pemberton Technologies Ltd.
(shares traded on Vancouver Stock Exchange "CPT") 1991 - June, 1995; from
July 1995 to date, Owner/Manager of Independent Management Consultants of
British Columbia.
Name, Age and Positions held with the Company
Peter Francis - 50 Director since June 3, 1999
Business experience during past 5 years
From 1984 to present has operated his own investment and corporate advisory
company - in the course of which he has incidentally sat on the Boards of
or was a shareholder of or advisor to 12 companies that were publicly
listed for trading on Asian markets.
Designated to have responsibility for development of the Company's business
in Southeast Asia - exclusive of Vietnam and China
Name, Age and Positions held with the Company
Hans van Yzeren - 39 Director since June 3, 1999
1998 to present:
1996 - 1998: Data Services NV, Belgium. Position: Partner/Managing
Director; Developing and establishing a new brand name of computer
peripherals especially computer monitors in the European market. Extensive
communication and negotiations with manufacturers and component suppliers
regarding product, quality and price. Development of product design and
manufacturing and established relationships with suppliers and customers.
1990 - 1996: G-Tel Communications S.a.r.l., Luxembourg; Position:
Partner/Director. Development of new style cordless telephone low and high
frequency for all markets. Extensive involvement in R & D, product design,
manufacturing, cost reduction and marketing. Mr. van Yzeren's commitment to
the Company has been to, on a part-time basis, assist in the development of
market opportunities for the Company's products and services in Europe.
- 17 -
<PAGE>
ITEM 6 EXECUTIVE COMPENSATION
A. Cash compensation
The Company paid no compensation, cash or otherwise, to any of its directors or
executive officers during the fiscal years ended December 31, 1998.
No directors or executive officers are presently under any agreement pursuant to
which they are guaranteed salary or other direct compensation. Various of the
directors and executive officers perform functions for the Company on a
consulting basis and are paid for their services rendered from time to time on
such basis as is negotiated with them from time to time by the Chief Executive
Officer, Mr. Clarke. Mr. Yang is currently entitled to compensation on a basic
monthly basis with additional potential commissions and shares of the Company
pursuant to the agreement described in Item 7 below.
B. Option grants
No options were granted by the Company during any period prior to December 31,
1998. The Company does not have a stock option plan. However, the Company did
grant, effective July, 1998, share purchase incentive options to 12 directors,
executive officers, non-executive officers and individuals providing service to
the Company entitling them to purchase up to an aggregate total of 3,975,000
shares of the Company exercisable at $0.50 per share on or before June 30, 2000.
Provided that, the options granted to any individual will terminate within 30
days after the individual ceases to perform services for the Company or within 6
months after the date of the death of such individual. The numbers of shares
optioned to each of the Company's Directors and Executive Officers is shown in
the table in Item 4 above.
C. Charles Yang
With the number of shares Charles Yang could receive pursuant to the agreement
described in Item 7(d) and attached as an Exhibit hereto, he could become the
largest single shareholder with enough shares to affect control of the Company.
- 18 -
<PAGE>
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. On May 8, 1996, immediately following the incorporation of the Company, the
Company issued 1,000,000 common shares for $0.001 per share. Of these
975,000 shares were issued by the Company to Ira Schwartz, the Company's
then sole director and officer.
B. By an Agreement dated July 8, 1999 the Company engaged Charles Yang (who
was not previously related to the Company) to provide his services on a
full-time basis as the President and Chief Operating Officer of the Company
for a basic term of 4 years. The Agreement provides for the payment to Mr.
Yang of a fee of $7,500 per month initially, escalating to $17,500 per
month for the period April 1 - June 30, 2000. For the second, third and
fourth years of Mr. Yang's engagement his compensation will be reviewed but
will increase by a minimum of not less than 15% over the amount paid to him
in the preceding year.
The Agreement also provided for Mr. Yang to be granted options and, pursuant
thereto, Mr. Yang was granted options to purchase 500,000 common shares of the
Company exercisable at $0.50 per share, during the term of his Engagement
Agreement, the options vesting on the following schedule:
100,000 shares on execution of the Agreement
200,000 shares October 1,
1999 200,000 shares January 1, 2000
In the Agreement the Company also agreed to acquire from Mr. Yang 100% of the
issued shares of a company owned by him, General-Tel Inc., in exchange for
1,500,000 voting common shares of the Company. The Agreement provides that the
Company must, within 6 months of the closing of the acquisition of General-Tel,
raise funding for itself (and possibly use by General-Tel) of not less than
$1,100,000, and if such financing is not raised within the said deadline Mr.
Yang will be entitled to cancel the negotiations or the acquisition agreement
and have 100% of the shares of General-Tel re-transferred to him in
consideration for which he must return 1,350,000 of the Company's shares to it.
The Company has also agreed to issue Mr. Yang 2,000,000 voting common shares
(which it has not yet done). The certificates for the shares will be held in
escrow by the Company's Canadian lawyers, and 25% of such shares - i.e. 500,000
shares - will be released to Mr. Yang upon the Company achieving the following
performance thresholds:
(i) net sales revenues of $5,000,000
(ii) aggregate cumulative net sales revenues of $12,000,000
(iii) aggregate cumulative net sales revenues of $30,000,000
(iv) aggregate cumulative net sales revenues of $50,000,000
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<PAGE>
The Agreement requires that Mr. Yang bring to the company the benefit of all
negotiations and technical knowledge initiated or held by him to sell hardware
or services with respect to a technology referred to as Wireless Local Loop
("WLL"). The Company has agreed to issue Mr. Yang 1,000,000 voting common shares
if he succeeds in developing an agreement for the sale of WLL to one or more
purchasers brought to the Company by Mr. Yang - such shares to be issued on the
following schedule:
(i) 300,000 shares upon completion of negotiation and signing of
Memorandum of Understanding with the purchaser of WLL;
(ii) 300,000 shares upon completion of signing of a formal contract for the
sale of WLL;
(iii)400,000 shares upon the receipt by the Company from the sale of WLL of
payments and revenues of not less than $500,000.
Further, Mr. Yang will receive 10% of the gross profits earned by the
Company from the sales of WLL.
Mr. Yang will also, from the sale of the Company's products or services, receive
royalties on the following basis:
(i) from sales of equipment or services in China, Vietnam or Taiwan,
provided the Company's gross profit margin is not less than 20%
from such sales, Mr. Yang will be paid 5% of the gross profits from
such business; and
(ii) for countries other than China, Vietnam or Taiwan where the Company
pays sales commissions or representatives or agents in such other
country, Mr. Yang will be paid monies equal to 1% of the amount of
the gross sales revenues from such countries;
(iii) where sales to China, Vietnam or Taiwan produce gross profits of
less than 20% then Mr. Yang will, in lieu of the aforesaid 5%,
receive commissions equal to 1% of the gross sales revenues from
such countries.
B. The Company issued the options described in Item 6B hereof to various of its
directors and executive officers.
ITEM 8 DESCRIPTION OF SECURITIES
The Company's authorized capital consists only of voting common shares.
12,000,000 shares are issued and outstanding as of the date of this Statement
and are held by 27 registered shareholders. The 12,000,000 shares are the number
which are issued as a result of the Company's 1:3 split which came effective
July 16, 1999. Prior to the split the Company had 4,000,000 shares issued.
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<PAGE>
All of the common shares rank equally with each other, and none have attached to
them any dividend, pre-emptive or other rights or restrictions attached to them.
Each share has attached to it one (1) non-cumulative vote. The Company's By-Laws
do not contain any provisions which defer or prevent a change in control of the
Company.
The Registrar and Transfer Agent of the Company's shares is Interwest Transfer
Co., Inc., 100 - 1981 East 4800
south, Salt Lake City, Utah, U.S.A.
PART II
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
A. Market Information
The common voting shares of the Company are traded on the Over-The-Counter
electronic Bulletin Board - under the symbol "EPHO" until December 15, 1999.
From and after that date trades have been made on the National Quotation
Bureau's electronic "Pink Sheets" under the symbol "EPHO". The Company's shares
do not trade on any stock exchange or any other market.
The reported high and low bid prices for the Company's shares for the quarters
of the last two completed fiscal years ending December 31, 1998 and the first
three quarters of 1999 are as follows. The quotations reflect inter-dealer
prices and do not include retail mark-ups, mark-downs or commissions, and may
not represent actual transactions. The source of the bid information given is
the Nasdaq-Amex Market Group.
Year and Quarter High Bid $ Low Bid $
- - ----------------- ---------- ---------
1997
1st Quarter 0 0
2nd Quarter 0 0
3rd Quarter 0 0
4th Quarter 0 0
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<PAGE>
Year and Quarter High Bid $ Low Bid $
- - ----------------- ---------- ---------
1998
1st Quarter 0 0
2nd Quarter 0 0
3rd Quarter $0.50 $0.50
4th Quarter $0.50 $0.50
Year and Quarter High Bid $ Low Bid $
- - ----------------- ---------- ---------
1999
1st Quarter $0.625 $0.50
2nd Quarter $2.125 $0.5313
3rd Quarter - July 1 - July 16, 1999 1:3 split -
July 16, 1999
September 30, 1999
October 1 - December 15, 1999
As the Company's shares started trading on a 1:3 split basis effective July 16,
1999 the figures given above for the periods prior to that date are of pre-split
shares. The Company's shares were not posted for trading on thue OTC Bulletin
Board until May 18, 1998 - and hence no bid prices are shown for the period
prior to that date.
B. Holders
As of December 20, 1999 there were 27 shareholders of record of the Company's
outstanding shares. One registered holder was the brokers' nominee and clearing
house Cede & Co., of New York City, New York, U.S.A. - which was the registered
holder of 5,368,000 shares.
C. Dividends
The Company has not paid any cash dividends to date and no cash dividends will
be declared or paid on the Common Shares in the foreseeable future. Payment of
dividends is solely at the discretion of the Board of Directors.
On July 2, 1999, the Board of Directors unanimously approved a stock dividend of
2 shares for each 1 issued share - having the same net effect as a 3-1 forward
split of the Company's Common Shares. The record date of the stock split was the
close of business on July 6, 1999 and was such that each shareholder received 2
additional shares for each share owned at the close of business on July 16,
1999. The Company does not anticipate that there will be any stock dividends
paid by the Company in the foreseeable future.
- 22 -
<PAGE>
ITEM 2 LEGAL PROCEEDINGS
The Company is not involved in, or has no knowledge of, any threatened or
pending legal proceedings against it.
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has had no disagreements with its auditor Barry Friedman, C.P.A.,
during the fiscal years ended December 31, 1997 and 1998, six months ended June
30, 1999, and subsequent periods.
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
The Company has, in the past 3 years, sold securities, namely voting common
shares - without registering the securities under the United States Securities
Act of 1933, as follows:
(a) Effective March 1, 1999 the Company issued 1,000,000 shares in its capital
for a price of $0.01 per share - being a total of $10,000 - to 8 purchasers none
of whom were related to the Company or its Directors or Officers;
(b) Effective April 1, 1999 the Company issued 2,000,000 shares in its capital
for a price of $0.045 per share - for a total of $90,000 - to a total of 20
purchasers who included the 8 purchasers of the shares described in sub-clause
(a) above - none of whom were otherwise related to the Company or its Directors
or Officers.
All of the shares referred to in Clauses (a) and (b) have since been split on a
1:3 basis so that they have become a total of 9,000,000 issued shares.
All of the sales were made directly by the Company and not through the use of
underwriters. No underwriting discounts or commissions were paid with respect to
any of the sales - all of which were made for cash at the prices designated
above.
The sales were made without registration pursuant to the exemption granted by
Rule 504 of Regulation D to the Securities Act. All sales made within a 12 month
period were for less than an aggregate total of $1,000,000. All of the sales
were made to non United States persons outside of the United States.
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Neither the Company's Charter documents nor any contracts or arrangements in
existence provide for any insurance or indemnification of any Director, Officer
or controlling person of the Company affecting his or her liability in such
capacity.
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<PAGE>
Section 607.0850 of the Statutes of Florida (pursuant to which the Company was
incorporated) grants to a company the power to provide indemnification to
directors, officers, employees or agents of the corporation. While the
provisions of the Statute contain an extensive description of situations where
indemnification may be granted generally, the corporation can grant
indemnification to directors, officers, employees or agents or others serving
the company with respect to either actions by third parties or by the company if
the person being indemnified was, with respect to the subject of the action,
acting in good faith and in a manner he or she reasonably believed to be in the
best interests of the company, and had no reason to believe was unlawful.
Indemnification and the extent of the indemnification must be determined in each
instance after a claim arises by a majority vote of the board of directors.
Indemnification, even if previously approved, shall not be given if a final
adjudication determines that the actions which are the subject of the
indemnification were:
(a) a violation of the criminal law unless the person being indemnified had
reasonable cause to believe that the conduct was not unlawful; or
(b) involves a transaction in which the person derived or was to derive an
improper personal benefit; or
(c) the person is a director and liability provisions elsewhere in the Statutes
of Florida are applicable; or
(d) the actions of the person proposed to be indemnified constituted wilful
misconduct or conscious disregard for the best interests of the
corporation.
As of the date hereof the Company has not agreed to grant any indemnification to
any person pursuant to the foregoing statutory provisions.
PART F/S
Audited financial statements of the Company are provided herein. They cover the
last two completed fiscal years of the Company ending December 31, 1997 and
December 31, 1998 and the half-yearly period ending June 30, 1999. Unaudited
statements covering the stub period to September 30, 1999 are also included
- 24 -
<PAGE>
PART III
ITEM 2 DESCRIPTION OF EXHIBITS
3.1 Articles of Incorporation
3.2 Articles of Amendment of Articles of Incorporation
3.3 By-Laws
10.1 Engagement Agreement dated July 8, 1999 of Charles Yang
10.2 Specimen of form of Option Incentive Agreement signed by the Company with
the various optionees as detailed in Item 6.B of Part I
10.3 Agreement in Principle dated October 22, 1999 with Saigon Post and
Telecommunications Corp.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
ePHONE TELECOM, INC.
(Registrant)
Date: December 20, 1999 By: "Robert Clarke"
-----------------
AGREEMENT IN PRINCIPLE
To approach
THE BUSINESS CO-OPERATION
ON
WLL NETWORK SERVICES
Between
SAIGON POST AND TELECOMMUNICATIONS SERVICE CORPORATION
And
GENERAL-TEL / ePHONE, TELCOM, INC.
<PAGE>
Pursuant to the Law on Foreign Investment and other legal documents and
instructions of the Socialist Republic of Vietnam.
Based on the functions, business activities and capabilities of the two
Companies as well as demands in Vietnamese telecommunications market.
The Parties mentioned hereinafter include:
1. THE VIETNAMESE PARTY
SAIGON POST AND TELECOMMUNICATIONS SERVICE CORPORATION, a joint-stock enterprise
is legally organized and permitted to operate in conformity with the Law of the
Socialist Republic of Vietnam, being authorized to develop and provide post and
telecommunications services in Vietnam;
- - - Head Office : 45 Le Duan, District 1, Ho Chi Minh City
- Vietnam
- - - Telephone : (84-8) 822 0121/ 822 0124
- - - Facsimile : (84-8) 822 0120
- - - License of Incorporation No : 002914 GP-UB dated 27 December, 1995,
granted by Ho Chi Minh City People's
Committee
- - - Registered Capital : 50.000 Millions VND
- - - Bank account number : 361.130.00.0165 at ORICOMBANK
- - - Represented by : Mr. TRINH DINH KHUONG ; Title -
General Director
Hereinafter referred to as "SPT"
2. THE FOREIGN PARTY
GENERAL-TEL / ePHONE TELECOM corporation is legally organized and permitted to
operate in conformity with the Laws of the United States of America
- - - Head Office 46505 Landing Parkway, Fremont, California,
USA
- - - Telephone (510) 661-9898
- - - Facsimile (510) 661-9897
- - - License of Incorporation No State of Florida, United States of America,
May 3, 1996
- - - Registered Capital Authorized: 50 million shares, Issued: 12
million shares: Market Value
of Capital USD 12 million
- - - Bank account number Bank of America 097410-2667
- - - Represented by Robert G. Clarke, Chairman and CEO
Hereinafter referred to as "G/E"
In this agreement, SPT and G/E can be separately referred as "party" and
collectively referred as "parties"
WHEREAS
1. SPT has been legally authorized to provide telecommunications services in
the Socialist Republic of Vietnam, including the construction and
operation of WLL Networks in the Project Areas.
2. G/E, an international telecommunications consortium, expects to
collaborate with SPT in setting up networks and providing WLL services in
the Project Areas, including assistance to SPT in techniques, training,
marketing, operation and management of the Network (as set forth
hereunder):
Therefore, after discussion and negotiation, the two parties have come to an
Agreement in Principle (AIP) on this 22 nd October, 1999, in Ho Chi Minh City as
a basis for proceeding and completing the official cooperation in the form of
Business Co-operation Contract, with the following terms and conditions:
<PAGE>
Article 1. OBJECTIVES AND FORMS OF CO-OPERATION
1.1 Objectives:
SPT and G/E shall jointly co-operate in developing, building up, and
operating the Networks and providing telecommunication services using WLL
customer access system based on CDMA technology, including any other
enhanced technology based on CDMA, using 1.900 MHz band in Project Areas
approved by the Socialist Republic of Vietnam.
1.2 Forms of Co-operation:
The Co-operation shall be made under the form of business co-operation
contract as stipulated in the Law on Foreign Investment in Vietnam. In the
future, should Vietnamese government allows another suitable form of
cooperation in the telecommunications services the two parties agree to
discuss and apply to the authority in order to change into that form based
on the mutual agreement in compliance with the laws of Vietnam.
1.3 Feasibility Study
The parties will forthwith commence a study of the demand for, and economic
viability of, telecommunication services in the Project Areas, and
initially, in HCMC. The study will be directed by G/E, with assistance from
SPT. The initial Feasibility Study as specified in Article 2.3, will be
updated as work on the initial Networks progresses.
<PAGE>
Article 2. THE MAIN CONTENTS OF THE PROJECT
2.1 Subscribers
The two Parties shall co-operate to establish, develop, and operate the
WLL Networks with the initial capacity of from 25 to 30 thousand
subscribers according to realistic demand, and shall be defined at each
milestone in each phase to reach the forecasted number of subscribers in
the Feasibility Study, within the project areas in the Socialist Republic
of Vietnam.
2.2 Scope of Services
The scope of services within the network shall cover voice, facsimile and
other value added services based on WLL applications such as, data
communication, voice response, etc. within the Project Areas approved by
the Vietnamese Government.
2.3 Project and Coverage areas and Feasibility Study Leading to BCC The
coverage areas for WLL Services business will be firstly covered in HCM
City and later expanded to other demanded areas in Vietnam in line with
the Government's approval . The detail coverage plan of the project areas
shall be clarified in the Economic & Technical Feasibility Studies as
defined in the Business Cooperation Contract (BCC). The coverage areas and
implementation plan shall be in periods as follows:
Feasibility Study
A feasibility study will be performed by the foreign partner in cooperation
with SPT for the total WLL project. The feasibility study will include the
following: - site survey - technical specifications/requirements - economic and
financial structure - operational requirements - equipment requirements
technical evaluation of WLL equipment consisting of at least two base stations
and end user equipment for at least 100 subscribers
The feasibility study and technical evaluation (with the terms and conditions
and responsibility of each party defined in ANNEX A) will be conducted within
120 days after signing this AIP. Upon completion of this FS, both parties will
join to negotiate and sign a Business Cooperation Contract. The BCC shall be
submitted for approval to the appropriate VN authority. Upon BCC approval, the
project will consist three stages:
Stage 1 : Implement in the selected district of Ho Chi Minh City a WLL network
with capacity of from 25 to 30 thousand subscribers. This stage shall consist 2
phases.
Phase One: Installation of pilot WLL network of 5,000 subscribers
Phase Two: Complete installation of the network up to additional 25,000
subscribers.
Stage 2 : Expand to other demanded areas in Ho Chi Minh with total network
capacity up to 80,000 subscribers. Stage 3 : Expand to other provinces of
Vietnam with expected capacity increasing up to 1.0 million subscribers.
2.4 Technology and Frequency Usage:
The network mentioned in this Agreement shall operate with CDMA technology
IS-95 B/C based, which will be able to migrate to Wideband CDMA ( 3G ), to
provide WLL services using 1,900 MHz band, with the 7.5 MHz bandwidth.
<PAGE>
2.5 The Contract Duration:
When the Project reach the number of subscribers at 25,000 or at least one
year (start from commercial launch), the parties shall review the result
of project operations up to that time, along with the market situations.
If possible, the parties shall consider to study for expansion to other
demanded areas in Vietnam territory as well as for expansion of the
contract duration reasonably. This will be the base for applying document
in order to obtain all approvals from governmental authorities of Vietnam
for the project expansion. The actual contract duration shall be defined
in the Feasibility Study and BCC content.
Article 3. CONTRIBUTIONS OF THE PARTIES
3.1 Contributions of SPT
3.1.1 Intangible assets
- - - Rights of using frequencies 7.5 MHz in the 1,900 Mhz band and other
necessary microwave bands.
- - - Rights of using national numbering plan.
- - - Rights of operating and providing telecommunications services in
Vietnam.
- - - Rights of renting and/or using public areas to install WLL equipment
(such as: telephone, poles, main, cable paths, cables ducts,
antenna, etc.)
3.1.2 Expenses
- - - Cost of recruitment and initially training Vietnamese staffs for the
project.
- - - Costs for obtaining other necessary licenses as mentioned in article
6.1.1 (not including the investment license of this project).
3.2. Contributions of G/E 3.2.1 Fixed asset
G/E shall be accountable to finance for the procurement of equipment of
WLL system including Tandem Switch which must support malicious/criminal
call trace features as required by Vietnam Government, as specified in
the project as follows:
- - - Network equipment (including costs for design, installation, testing,
commissioning, and acceptance) - End-user telephone sets - Other supplement
infrastructure facilities such as tower, building, generator, air-conditioner
,etc.
- - - Transportation means.
- - - Office equipment of BCC offices.
<PAGE>
3.2.2 Working capital
G/E shall be responsible for the total working capital as required for
the project including costs for operation and management of the network.
When the net cash flow of the project reach the break-even-point, the
necessary working capital shall be compensated by the revenue of the
project itself.
3.2.3 Other contributions
- Costs for training staff of SPT in the BCC in accordance with
technology transfer purpose.
- Cost for doing market/site survey, making PFS/FS, other required
documentation, applying procedures, and other necessary expenses for
obtaining investment licenses of WLL project.
The Foreign Party shall pledge to contribute capital in cash in
accordance with the contribution schedule as specified in the business plan of
the feasibility study.
In case of widening the network so as to enhance the quality of the
services, the Parties shall discuss and agree to re-adjust the investment
schedule in an appropriate way.
Article 4. PROCUREMENT OF EQUIPMENT
The parties agreed that the procurement of equipment shall be performed in the
following way:
The procurement and installation of equipment and machines shall be
undertaken through the open and whole package tender processes, including
the complete solution and equipment for the network, of which including
malicious/criminal call trace facilities. Equipment could be supplied from
different sources, but it must be guaranteed for the modern and compatible
features and meets the standards of ITU and of Vietnam.
The essential criteria for winning the bidding selection process:
- - - Quality of equipment and services.
- - - Cost of equipment.
- - - Credit/financing conditions of the equipment supplier.
- - - The condition of maintaining and the capability of supplementing and
upgrading the network system.
- - - New and advanced equipment, field proven, with the latest production
time.
Article 5. Financial Feasibility and Costs
5.1 Feasibility
The parties shall prepare for inclusion in the BCC, a financial
feasibility of the project. As part of the feasibility, each party
shall be entitled to recover as a first priority, their costs as set
out below including the capital costs of the project. The feasibility
shall specify the respective shares of the profits, the terms of the
BCC, definition of costs and revenues and the internal rates of return.
5.2 Joint Costs
The Parties shall pay the following costs, which is relating to the
operation of the Project and will be treated as Joint costs including,
but not limited to:
Turnover tax; or value added tax
Fees for leasing frequencies and channels ( 1.900 MHz and microwave) o Costs for
operation and management the network, which consist of but not limited to: Costs
for maintenance and repair equipment after the guarantee period of the vendors.
- - - Costs for sales( including hand set subsidies) - Costs for customer care
services. - Costs for marketing and promotion - Cost for renting land and
buildings. - Expenses of administrative management (electricity, water,
telephone, etc.). - Cost of insurance for fixed assets controlled by the BCC
Management Team. - Cost of training for periodical update knowledge of
Vietnamese staff during the operation of BCC (including training locally and
abroad).
- - - Expenditures for SPT and G/E staff full-time working for the BCC project:
(including salary, social insurance, health-care insurance, trade union
fees, and other allowances... These expenditures shall be counted at
Vietnamese living cost and in conformity with the Vietnamese accounting
regulations.
- - - Bonuses for the staff which could be treated as costs
- - - Fees for the project consultation and other expenses relating to the BCC.
- - - Other miscellaneous expenses.
5.3 Separate Costs
The Parties agree that costs born in relation to the BCC project, but which are
separately paid by each Party and not calculated as Joint Costs, will be treated
as Separate Costs.
Separate Costs of SPT:
- - - Salaries and costs for Saigon Postel's members taking part in the joint
coordinating committee, and including Deputy Manager of Department/
Division up to General Director of the BCC.
- - - Depreciation of assets and SPT's consultation fees (if any).
- - - Income tax of SPT
Separate costs of G/E:
- - - Salaries, insurance, and other relating costs for G/E's senior personnel
working for the BCC project in Vietnam, and including JCC's members.
- - - Costs for G/E's consultation (if any)
- - - G/E's depreciation of assets and equipment;
- - - Interest from getting loans (if any).
- - - Costs for transferring technology;
- - - G/E's income tax and profit remittance tax.
- - - Costs for obtaining investment license of this project
The content in relation to separate costs and joint costs shall be further
defined in the feasibility study and the official business co-operation
contract.
Article 6. OBLIGATIONS OF THE PARTIES
6.1 Obligations of Saigon Postel Corp.
6.1.1 Application for the Investment License:
SPT shall be responsible for completing the project profile, with the
assistance of G/E, and other procedures in order to apply for the
Investment License of the project (costs for this application procedure
shall be paid by G/E). In addition, SPT shall be accountable to obtaining
the following approvals:
a. Permits of design and installation as specified in the project.
b. Permits for importing equipment and facilities.
c. Permits of using frequencies; and
d. Other necessary approvals.
6.1.2 Customs clearance and others:
Saigon Postel shall be responsible for completing formalities of customs,
transportation and renting storage space of equipment, machine and
materials as specified in the project (costs of these businesses shall be
counted as Joint Costs and approved by the Joint Coordinating Committee
established in Article 9.1 of this AIP)
6.1.3 Management and operation of the Networks: SPT shall be responsible for: -
Managing and operating the Networks with G/E's assistance.
- - - Helping to complete the procedures to be supplied electric power, water, to
import transport means for the purpose of building-up, operating and
managing the project. Saigon Postel Corp., with the assistance from G/E,
shall be accountable to setting up the pre-feasibility study, the
feasibility study in conformity with the Law on foreign investment of
Vietnam. As planned, the process and time for finishing the project profile
is described in Article 2.3.
- - - ProvidingVietnamese staff to assist in the Feasibility Study
- - - Procuring all permits and approvals from departments of SRV government to
commence and operate Networks and to allow G/E to remove its profits from
SRV
6.2 Obligations of G/E
6.2.1. Financing the project:
G/E shall be accountable to the finance of the project, as specified in
article 3.2, in accordance with the contribution schedule as regulated in
the feasibility study.
6.2.2. Equipment and Materials:
G/E shall be responsible for planning, designing, constructing, and
together with SPT's assistance, inspecting and commissioning facilities
and materials of the Networks in accordance with the Technical
Feasibility Study, the Economic Feasibility Study and the resolutions of
the Joint Coordinating Committee.
6..2.4 Assistance in Management, Techniques, Training and Technology transfer:
G/E shall be responsible for training and instructing Saigon Postel's
staffs in techniques and non-techniques in order to transfer technology
and experience in managing, operating and sales-marketing of wireless
system using CDMA technology as mentioned above. Depending on business
requirements and upon the reasonable suggestions of SPT, G/E shall be
responsible for providing SPT with experts to assist SPT staffs in
network management, operation, and sales-marketing properly.
6.2.5 The entire WLL project ( including software, hardware and firmware) shall
be Y2K compliant.
6.2.6 G/E will pay cost of WLL trial in Ho Chi Minh City in accordance with
ANNEX B.
6.2.7 G/E will pay monthly frequency usage fee of (estimated by SPT) USD
9,000.00 one month in advance.
Article 7. OWNERSHIP OF CONTRIBUTIONS
The parties agree that all assets described as parts of the each party's
contribution shall remain its ownership during the Business Cooperation Contract
Period.
Article 8. TERMINATION AND TRANSFER OF EQUIPMENT AND FACILITIES
Upon the expiration of the BCC, if the internal rate of return of G/E
falls within the agreed IRR range (to be defined in the BCC), G/E shall transfer
its assets of the network to SPT with the agreed nominal price of one (01) US
Dollar.
Other case of termination will be discussed and agreed in the BCC.
Article 9: THE JOINT COORDINATING COMMITTEE AND BCC MANAGEMENT
9.1. Functions of Joint Coordinating Committee (JCC):
After the Business Co-operation Contract is approved and the Investment
License is obtained, The Parties agree to set up a Joint Coordination
Committee ("JCC"), which consists of 3 persons from each Party. This JCC
shall be responsible for inspecting, supervising, consulting and
recommending the BCC Management Committee to implement the Project with
the specific functions as follows:
- - - Considering and making recommendations on issues relating to the techniques
and technology selection and networks plans as specified in the project.
- - - Considering and making recommendations on the plan and policy of business,
marketing, training in order to implement the project.
- - - Considering and making recommendations on equipment supply through the
tender procedure.
- - - Considering and making recommendations on solving difficulties in the
process of implementing and operating the project in regards to the BCC
management team's suggestions.
- - - Considering and discussing all suggestions and claims by SPT or G/E in
relation to the project. Trying to resolve all disputes or conflicts
between the Parties arising out or in relation to the Business Co-operation
Contract through negotiations.
9.2. Rights of the JCC:
In order to fully perform those functions, the Joint Coordinating
Committee shall be entrusted the rights to supervise at-once any issue in
relation to this project, including examination of account books and
documents kept by the BCC management team/committee.
9.3. Resolutions of the JCC:
The Resolutions of the JCC must be in compliance with the target and
benefit of BCC. The resolutions of the joint Coordinating Committee shall
be agreed by a majority vote of the attending members except for
resolutions, which are connected with the following issues, shall need the
consensus (100%)of all the attending members:
- - - Business plan, tender selection plan and annual budget plan.
- - - Changes of technical and technological aspects and Network plans
relating to the Project.
- - - Increasing, decreasing and transfer of the parties' contributions.
- - - The transferring technology contract with the third party.
- - - Adjusting the ratio for profit sharing in accordance with the projected
Internal Rate of Return of G/E.
- - - All expenditures and costs
- - - Selecting the independent auditing company.
- - - Amending and supplementing the operational regulations of the JCC.
- - - Other additional issues, if any, fully agreed (100%)by JCC's members to
put in this list.
9.4. The relationship between JCC and BCC management Committee: The Resolutions
shall have the binding value on the parties participating the BCC project,
and must ensure not to violate the law, the sovereignty and the national
security of Vietnam. The parties shall be responsible for popularizing
JCC' s resolutions to their staffs, including BCC management committee's
members, and instructing them for carrying out these resolutions
seriously, in order to manage BCC's operation in an efficient way.
9.5. The BCC management Committee
Members attending the BCC management Committee including General Director,
Deputy General Director, Chief Accountant and Directors of
departments/divisions and subsidiaries, shall be appointed by SPT after
taking into account the recommendation of JCC. The two parties shall
discuss to find the reasonable solutions for the foreign party to be able
to participate in BCC management for mutual benefit in conformity with the
Laws of Vietnam.
10 Article 10. GENERAL REGULATIONS
10.1 Confidentiality
10.1.1 General Confidentiality
Each Party pledges to make its employees, directors and shareholders keep
in confidence any information and not disclose to any third party,
including, but not limiting non circumvention to any equipment vendors
and/or financial parties introduced or brought in by G/E, the details of
the negotiations between the Parties, the content of the Agreement in
Principle (AIP), the Business Plan, or any document in relation to the
above-mentioned matters and any other relevant information (confidential
information), without obtaining the prior written consent of the other
Party, excepting to the extent that:
- - - Such disclosure of such information is requested by any Governmental
management agency relevant to that Party in order to abide by official
instructions and guidelines; or
- - - The disclosure of information is made to professional advisers of such
Party or to the personnel or affiliates of that Party provided that such
disclosure is made by way of signing a confidentiality agreement and those
to whom such disclosure is undertaken to abide by the confidential
provisions as set out in this Article; or
- - - The confidential information disclosed by the disclosing Party or person is
popularly announced.
10.1.2 Term of Confidentiality
If this AIP shall be terminated without the BCC having been signed the
confidentiality provisions of Article 10.1.1 shall remain in effect and
have binding value on the parties for 2 years from the date of the
termination of this AIP.
10.1.3 Protection of Proprietary Information
All special or proprietary information and know how introduced to the
Project by G/E which has not become popularly announced or publicly
disclosed, shall be owned by G/E and will be assets that can only be
acquired by SPT pursuant to Article 8.
10.2 Public announcements
Each Party agrees that it will not announce publicly any of the
discussions in relation to the AIP, Project, Business Plan or any
related information or plan under any form whether a press release or
otherwise without prior discussion and prior consent in writing of the
other Party.
10.3 Applicable Law, Disputes and Arbitration
10.3.1 Applicable Law
The AIP shall be constructed and interpreted in accordance with the Law
of the Socialist Republic of Vietnam. In this spirit, any dispute or
conflict arising out of or relating to the form, validity and content
of the AIP shall be interpreted and understood in accordance with the
Law of the Socialist Republic of Vietnam.
10.3.2 In case of any dispute arising out or relating to this agreement is not
governed or interpreted by the Laws of Vietnam, the two parties agree
to apply the Laws of Singapore (ASEAN Region). 10.4 Dispute resolution
In case of any dispute, discrepancy of opinions or claim arising out of
or relating to this AIP, the parties shall discuss to find reasonable
solutions in the spirit of co-operation, respecting each other and
law-conformity. If the Parties are unable to reach to an agreement,
such dispute, discrepancy of opinions or claims shall be solved by an
arbitration organization.
10.5 Arbitration Organization
Both parties agree that any dispute or discrepancy shall be settled by
the Vietnamese International Arbitration Center in conjunction with the
Vietnamese Chamber of Commerce and Industry in Ho Chi Minh City. The
solution of such dispute and discrepancy shall be made in compliance
with the lawsuit principles of the international arbitration
organization as mentioned above. The award of the Vietnamese
international arbitration center shall be final and have the binding
value on the Parties. In case one of two parties involved in this AIP
does not agree to the award from the resolution from the Vietnamese
International Arbitration Center, the disagreeing party can request
resolution from Singaporean International Arbitration Center. The
resolution of Singaporean International Arbitration Center is the final
decision.
10.6 Financial Records and Reporting
The financial records of the Project shall be maintained using the
Vietnamese Accounting System. Modifications to the Vietnamese
Accounting System will be made to allow for recording and accounting
principles and procedures so that they can be audited using Generally
Accepted Accounting Principles.
10.7 Perodic Reporting
Management of the Project shall provide written reports to the JCC on a
periodic basis containing all material information on, for the period
being reported on, monies expended, revenues if any received, work
done, success achieved and problems encountered which have not been
resolved (if any).
10.8. Languages
This Agreement in Principle is made in two languages of equal validity,
English and Vietnamese. In the event that there is any misunderstanding
between the English version and the Vietnamese version, the Parties
agree to refer to the English version.
10.9 Copies
This agreement shall be made in four (04) original copies of equal
validity and each copy contains both the English and Vietnamese
versions.
10.10 Term of Agreement in Principle
The effect period of this AIP shall be twelve (12) months or until
the BCC is earlier signed by the parties
10.11 Termination by G/E and/or SPT
Each party may at any time, upon giving 30 days written notice to the
other party, terminate this Agreement. Upon the expiry of the 30 days
all of both parties' obligations shall terminate.
10.12 Approval
This AIP shall be submitted to the highest authorities by the Boards of
Management of each Party for approval at the latest 30 working days and
then to the Vietnamese Authorities for decision and approval. After
obtaining the approval from the Vietnamese Government, the two Parties
shall, within 10 working weeks, jointly perform the Feasibility Study,
the Business Corporation Contract, the Operational Regulations of JCC
and BCC's Management Committee, as well as other necessary documents in
order to submit to the Authorities for obtaining the Investment
License.
10.13 Other Issues
Other issues concerning the co-operation between the Parties or any
details not mentioned in this Principle Agreement shall be discussed and
reflected in the official Business Cooperation Contract. The ANNEX A and
ANNEX B shall be considered as the inseperable parts of this Agreement in
Principle.
On behalf of
Saigon Postel Corp.
"Trinh Dinh Khuong"
Mr. TRINH DINH KHUONG
General Director
On behalf of
General-Tel / ePHONE, Telecom Inc.
"Robert G. Clarke"
ROBERT G CLARKE
Chairman & Chief Executive Officer
<PAGE>
ANNEX A
Terms and conditions for feasibility study and technical evaluation period
Article 1: THE PLACE FOR DEPLOYMENT OF PILOT SYSTEM
The WLL pilot will be deployed at the following places:
1.1 The estimated coverage area is District 9 or District 12 in HCM City.
1.2 The places for installation:45 Le Duan Street and other suitable places
Article 2: THE TERMINATION OF THE EXPERIMENTATION
Based on the performance result of the pilot system, within one (01) month
from the date of termination of the trial duration, both Parties will sign
the final Acceptance Record, and evaluate the result of the
experimentation.
2.1 If the pilot system meets the technical requirements and the quality of
services, two parties shall negotiate and sign official business
cooperation contract (BCC) for WLL services. The choosing of equipment for
BCC project will be carry out under tendering.
2.2 In the case where pilot equipment does not meet the technical requirements,
quality of calling and other requirements of services, party B agrees to
export the equipment.
Article 3: RESPONSIBILITIES OF THE PARTIES
3.1 Responsibilities of party A
3.1.1 To apply for the licenses to test the pilot WLL system as well as to
use frequency for this technical experimentation.
3.1.2 To coordinate with party B in site survey, installation and operation
of the system. 3.1.3 Preparing the place for installation of pilot
equipment, to ensure the requirements such as surface site for
experimentation.
3.1.4 Ensuring power supply, water for BTS, BSC during trial duration.
3.1.5 To assign capable staff to participate in the process of
experimentation and acceptance. 3.1.6 To prepare subscribers
participating in the testing and to distribute pilot areas. 3.1.7
Arranging, and obtaining agreements for interconnections with PSTN,
VTN, VTI network. 3.1.8 To help party B with customs clearance of the
pilot equipment imported into or exported from Vietnam.
3.2 Responsibilities of party B:
3.2.1 Providing WLL pilot equipment in accordance with configuration agreed
by both parties and transporting those to the place of installation.
3.2.2 To be in charge of site survey, installation of equipment at the
testing site.
3.2.3 To be responsible for technical aspects, ensuring the quality of
system during the installation and testing duration.
3.2.4 To be responsible for providing detailed procedures for equipment
testing and specifications checking.
3.2.5 Providing technical documents of system, training technical staffs of
party A, guiding the operation and maintenance of the system.
3.2.6 Providing WLL terminal equipment suitable to the system.
3.2.7 Obtain financing for party A to purchase Local Tandem switching
equipment.
3.2.8 To ensure using properly licensed frequency and pilot configuration,
not to effect activities of telecommunication system over the testing
area as well as not to effect the frequency band of telecommunication
systems of other networks over or nearby the pilot coverage area.
3.3 Mutual responsibilities
3.3.1 During the trial duration, if pilot equipment fails, then both parties
shall check to find the reason and have a reasonable solution for the
problem.
3.3.2 Testing, measuring, checking and reporting the result of
experimentation must be handled and unanimously agreed by both parties.
3.3.3 Both parties shall negotiate with VNPT for interconnection.
Article 4: SHARING EXPENDITURES
Both parties agree to share expenses originated during testing duration as
follows:
4.1 Party A shall cover:
4.1.1 All expenses related to the license of pilot WLL network including all
necessary approvals required for the pilot network of this Agreement.
4.1.2 Expenses of party A's staffs who participate in the project.
4.1.3 Expense for renting the surface for installation of pilot equipment as
well as necessary power supply for activities of experimentation.
4.2 Party B shall cover:
4.2.1 All expenses related to storing, maintaining, transporting, installing
and lifting the pilot equipment.
4.2.2 Expense of party B's staffs who participate in the project.
4.2.3 Frequency fee during the duration of experimentation.
<PAGE>
ANNEX B
Estimated costs for WLL feasibility study
This ANNEX B contains schedule of estimated cost for WLL trial in Ho Chi Minh
City. The marketing costs in section (I) below have already been incurred by
party A, and are subject to cost recovery which will be specified in the BCC.
The remaining estimated costs shown in sections II, III, and IV are considered
by Party B to be necessary for conducting the feasibility study. Party B agrees
to cover the full estimated cost of items shown in sections II and IV of the
schedule. For the estimated costs in Section III, party B agrees to pay only
those actual and necessary costs with prior approval, and which are fully
documented by party A with original cost receipts.
COST SCHEDULE FOR WLL TRIAL AT HCM CITY
<TABLE>
<S> <C> <C> <C>
II For marketing: (Completed)
1Develop plan of HCMC 5000
2Telecom plan of HCMC 7000
3Telecom plan of Vietnam 8000
4Other information 5000
5Cost for PFS building 25000
Total:(These costs have been incurred by SPT) USD $50,000(I)
III For cell survey:
1Rent car: (100USD/car_day) 100 7 700
2Party A Staff Cost for data collection (5USD/per_day) 75 7 525
3Party A Staff Cost for survey analysis (20USD/per_day) 160 7 1120
4Cost to buy maps, resources material, tech research 1000
5Cost for public relation, promotions 1000
Total: USD $4,345(II)
IIII For Project Feasibility Study:
1Technical requirement & specification 10000
2Business analysis 10000
3Financial analysis 10000
4Data & Information collection 5000
5Preparation of tendering documents 10000
6Other cost 5000
Total: USD $50,000(III)
IV Operation cost per month
1Frequency: (9000USD/7.5MHz/month): 9000 x 4 36000
2Rental fee for installation site of cell, antenna... :(20USD/m2/month) 4000
(20 x 25 x 4 x 2)
Total: USD $40,000(IV)
TOTAL (I,II,III + IV) USD $144,345
</TABLE>
