-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VuXZFfX1IvUUNf5T8Xdwid2D4Z+D9IvVyGfqFcc/Ql5girZq9lz1qd1Ux+TZ9hPz Rgyy/jbuM6xO0fwtPjbLKw== 0000950123-97-002721.txt : 19970329 0000950123-97-002721.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950123-97-002721 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSSIAN WIRELESS TELEPHONE CO INC CENTRAL INDEX KEY: 0001030991 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-24177 FILM NUMBER: 97567867 BUSINESS ADDRESS: STREET 1: 780 THIRD AVENUE, SUITE 1600 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2124862900 SB-2 1 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997 REGISTRATION NO. 333[ ] ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) DELAWARE 4813 13-3769217 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) ORGANIZATION)
780 Third Avenue, Suite 1600, New York, New York 10017 (212) 486-2900 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS AND TELEPHONE NUMBER) RONALD G. NATHAN President Russian Wireless Telephone Company, Inc. 780 Third Avenue, New York, New York 10017 (212) 486-2900 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------ COPIES TO: STEVEN D. DREYER, ESQ. LAWRENCE G. NUSBAUM III, ESQ. HALL DICKLER KENT FRIEDMAN & WOOD, LLP GUSRAE, KAPLAN & BRUNO 909 Third Avenue 120 Wall Street New York, New York 10022 New York, New York 10005 Telephone No. (212) 339-5400 Telephone No. (212) 269-1400 Telecopier No. (212) 935-3121 Telecopier No. (212) 809-5449
------------------------ APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of the registration statement. ------------------------ If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] 2 CALCULATION OF REGISTRATION FEE ================================================================================================ PROPOSED MAXIMUM PROPOSED OFFERING MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO PRICE PER AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED BE REGISTERED SECURITY OFFERING PRICE FEE - ------------------------------------------------------------------------------------------------ Common Stock, $.01 Par Value (the "Common Stock") to be Sold by the Registrant................. 1,738,250(1) $ 7.00 $12,167,750 $3,687.20 - ------------------------------------------------------------------------------------------------ Five Year Redeemable Common Stock Purchase Warrants (the "Warrants") to be Sold by the Registrant..................... 2,300,000(2) .50 1,150,000 348.48 - ------------------------------------------------------------------------------------------------ Common Stock Issuable Upon Exer- cise of Warrants to be Sold by the Registrant................. 2,300,000(3) 7.25 16,675,000 5,053.03 - ------------------------------------------------------------------------------------------------ Common Stock to be Sold by Certain Selling Securityholders................ 1,155,000(4) 7.00 8,085,000 2,450.00 - ------------------------------------------------------------------------------------------------ Warrants to be Sold by Certain Selling Securityholders........ 2,450,015 .50(5) 1,225,008 371.21 - ------------------------------------------------------------------------------------------------ Common Stock Issuable Upon Exer- cise of Selling Securityholders' Warrants...... 2,450,015 7.25(6) 17,762,608 5,382.61 - ------------------------------------------------------------------------------------------------ Common Stock Issuable Upon Exer- cise of an Option Held by a Selling Securityholder......... 25,000 2.00(7) 50,000 15.15 - ------------------------------------------------------------------------------------------------ Representative's Warrant......... 1 10.00 10 n/a - ------------------------------------------------------------------------------------------------ Common stock Issuable Upon Exer- cise of Representative's Warrant........................ 225,500(3) 8.40(8) 1,894,200 574.00 - ------------------------------------------------------------------------------------------------ Warrants Issuable Upon Exercise of Representative's Warrant.... 200,000(3) .60(8) 120,000 36.36 - ------------------------------------------------------------------------------------------------ Common Stock Issuable Upon Exer- cise of Warrants Issuable Upon Exercise of Representative's Warrant........................ 200,000(3) 8.79(8) 1,740,000 527.27 - ------------------------------------------------------------------------------------------------ Totals...................... -- -- $60,869,576 $18,445.33 ================================================================================================
(1) Includes 338,250 shares of Common Stock which the Underwriters have the option to purchase to cover over-allotments, if any. (2) Includes 300,000 Warrants which the Underwriters have the option to purchase to cover over-allotments, if any. (3) Pursuant to Rule 416, there are also being registered such additional shares of Common Stock as may be issued pursuant to the anti-dilution provisions of the Warrants and the Representative's Warrants. (4) Includes 855,000 shares of Common Stock which the Underwriters have agreed to purchase, and 300,000 shares of Common Stock to be offered on a delayed basis in non-underwritten transactions by certain selling securityholders. (5) Based upon the public offering price of the Warrants. (6) Based upon the exercise price of the Warrants. (7) Based upon the exercise price of the Option. (8) Based upon 120% of the maximum offering price of the Common Stock and the Warrants, as the case may be. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 3 EXPLANATORY NOTE The Registration Statement contains a Prospectus (the "Company Prospectus") which will be used in connection with the underwritten offering of up to(a) 2,255,000 shares of the Common Stock, $.01 par value, of the Registrant (the "Common Stock"), 1,400,000 shares of which will be offered by the Registrant and 855,000 shares of which will be offered by certain selling securityholders (the "Selling Stockholders"); and (b) 2,000,000 five year redeemable warrants to purchase Common Stock (the "Redeemable Warrants"), all of which are being offered by the Registrant. Following the Company Prospectus, there are alternate pages to be included in a second prospectus (the "Alternate Prospectus") which will be used by selling securityholders (the "Selling Securityholders") in connection with an offering to be made on a delayed, non-underwritten basis by them for their accounts of 300,000 shares of Common Stock, 2,450,015 Redeemable Warrants and 25,000 shares of Common Stock to be issued upon exercise of an option held by one of the Selling Securityholders. The Alternate Prospectus will be identical to the Company Prospectus, except for the changes indicated by the alternate pages. Such changes will include alternate front and back outside cover pages (to be substituted for the cover pages of the Company Prospectus), alternate pages containing additional information concerning the Selling Securityholders and the plan of distribution disclosed under the captions "Selling Securityholders" and "Plan of Distribution." The Alternate Prospectus will omit matters not applicable to the offering to be made thereby, including "Underwriting" and the disclosures concerning the counsel to the Representative set forth under the caption "Legal Matters." 4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MARCH 28, 1997 PROSPECTUS RUSSIAN WIRELESS TELEPHONE COMPANY, INC. 2,255,000 SHARES OF COMMON STOCK AND 2,000,000 FIVE YEAR REDEEMABLE WARRANTS Russian Wireless Telephone Company, Inc., a Delaware corporation (the "Company"), hereby offers (the "Offering") 1,400,000 shares of common stock, $.01 par value (the "Common Stock") of the Company and 2,000,000 redeemable common stock purchase warrants (the "Redeemable Warrants"). The initial public offering prices of the Common Stock and the Redeemable Warrants are $7.00 and $.50, respectively. This Prospectus also relates to the offering (the "Selling Stockholders' Offering") of 855,000 shares of Common Stock by certain selling stockholders (the "Selling Stockholders"). Both the Offering and the Selling Stockholders' Offering are being sold through a group of underwriters (the "Underwriters") for whom J.W. Barclay & Co., Inc. (the "Representative") is acting as the representative. See "Underwriting." The Common Stock and Redeemable Warrants offered hereby will be separately tradeable immediately upon issuance and may be purchased separately. Investors will not be required to purchase shares of Common Stock and Redeemable Warrants together or in any particular ratio. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock, at an exercise price of $7.25 (the "Exercise Price"), subject to adjustment, commencing two years from the date of this Prospectus (the "Effective Date") until the close of business on [ ], 2002 [the fifth anniversary of the Effective Date]. The Redeemable Warrants are redeemable, in whole or in part, by the Company at a price of $.50 per Redeemable Warrant commencing two years after the Effective Date and prior to their expiration, provided that (i) prior written notice of not less than 20 days is given to the holders of the Redeemable Warrants, and (ii) the closing bid price (as defined) for the 20 consecutive trading days immediately prior to the date on which notice of redemption is given shall have exceeded $14.50 per share. Notwithstanding the foregoing, the Redeemable Warrants may be exercised and/or redeemed during the one year period commencing on [ ], 1998 [the first anniversary of the Effective Date] upon the express written consent of the Representative. See "Description of Securities -- Redeemable Warrants." THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE [ ] AND "DILUTION". ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prior to this Offering, there has been no market for the Common Stock or the Redeemable Warrants. The Company has made applications for inclusion of the Common Stock and Redeemable Warrants on the Nasdaq SmallCap Market under the symbols [RWTC] and [RWTW], respectively, and for listing of the Common Stock and Redeemable Warrants on the Boston Stock Exchange and the Pacific Stock Exchange under the symbols [RWT] and [RWTW], respectively. There can be no assurance that any of such applications will be granted, or if any of such applications is granted, that an active and liquid market in such securities will develop. See "Risk Factors" and "Underwriting." ------------------------ =========================================================================================================== UNDERWRITING PROCEEDS TO DISCOUNTS AND PROCEEDS TO SELLING PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS (3) - ----------------------------------------------------------------------------------------------------------- Per Share.................................. $7.00 $.70 $6.30 $6.30 - ----------------------------------------------------------------------------------------------------------- Per Redeemable Warrant..................... .50 .05 .45 -- - ----------------------------------------------------------------------------------------------------------- Total (4)............................. $16,785,000 $1,678,500 $9,720,000 $5,386,500 ===========================================================================================================
(1) Does not include (i) a warrant to be issued to the Representative to purchase 225,500 shares of Common Stock and 200,000 Redeemable Warrants, at exercise prices equal to 120% of the respective public offering prices of the Common Stock and Redeemable Warrants (the "Representative's Warrant"), (ii) a non-accountable expense allowance payable to the Representative equal to 3% of the gross proceeds of the Offering and (iii) a consulting agreement providing for fees totalling $177,420 which is payable to the Representative in full on the closing of this Offering. The Company has agreed to indemnify the Underwriters against, or contribute to losses arising from, certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting estimated expenses of this Offering, including the Representative's non-accountable expense allowance( net of a $25,000 advance paid by the Company), of $849,000 in the aggregate (or $924,533 if the Underwriters' over-allotment option is exercised in full) payable by the Company. (3) Before deducting the Representative's non-accountable expense allowance of $179,550 payable by the Selling Stockholders. (4) The Company has granted the Representative an option exercisable for a period of 45 days from the date of this Prospectus to purchase up to an additional 338,250 shares of Common Stock and 300,000 Redeemable Warrants, upon the same terms and conditions as the Common Stock and Redeemable Warrants being offered hereby, solely to cover over-allotments, if any (the "Over-Allotment Option"). If the Over-Allotment Option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to the Selling Stockholders will be $19,302,750, $1,731,308, $13,317,750 and $5,985,000, respectively. See "Underwriting." ------------------------ The Common Stock and Redeemable Warrants are being offered by the several Underwriters named herein on a firm commitment basis, subject to prior sale, when, as and if delivered to and accepted by them and subject to certain other conditions. It is expected that delivery of the certificates representing the Common Stock and Redeemable Warrants will be made against payment therefor at the offices of J.W. Barclay & Co., Inc., One Battery Park Plaza, New York, New York 10004, or through the facilities of the Depositary Trust Company, on or about , 1997. J.W. BARCLAY & CO., INC. ------------------------ THE DATE OF THIS PROSPECTUS IS , 1997 5 [INSIDE FRONT COVER OF PROSPECTUS] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ------------------------ AVAILABLE INFORMATION The Company has filed with the Washington, D.C. office of the U.S. Securities and Exchange Commission (the "Commission" or "SEC") a registration statement on Form SB-2 (the "Registration Statement") under the Securities Act which includes this Prospectus. This Prospectus, which constitutes a part of the Registration Statement does not contain all the information set forth in the Registration Statement and exhibits thereto. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement and the exhibits thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Company is subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Reports, proxy and information statements and other information filed by the Company thereunder may be inspected without charge, and copied at prescribed rates at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W. Washington D.C. 20549; and at the Commission's Regional Offices at Seven World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition thereto, such reports, proxy and information statements and other information will be accessible and retrievable from the Website maintained by the Commission at http://www.sec.gov. The Company has applied for listing of the Common Stock and Redeemable Warrants on the Nasdaq SmallCap Market. The Company has also applied for listing of the Common Stock and Redeemable Warrants on the Boston Stock Exchange and the Pacific Stock Exchange. Copies of the reports, proxy and information statements and other information which the Company will file can be inspected and copied at the public reference facilities maintained by the Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006. The Company intends to distribute to its stockholders annual reports containing financial statements audited by its independent accountants after the close of each fiscal year, and will distribute such other periodic reports to its stockholders as the Company may deem to be appropriate, or as may be required by law. The Company's fiscal year ends on December 31 of each year. In addition to (i) the 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants being offered by the Company; and (ii) the 855,000 shares of Common Stock being offered by the Selling Stockholders, the Registration Statement of which this Prospectus is a part also covers 300,000 shares of Common Stock, 2,450,015 Redeemable Warrants (and the shares of Common Stock issuable upon exercise thereof), as well as 25,000 shares of Common Stock issuable upon exercise of an option, all of which are being offered by certain selling securityholders (the "Selling Securityholders"). ENFORCEMENT OF CIVIL LIABILITIES The Company was incorporated in the State of Delaware. However, substantially all of the assets of the Company are located in the Russian Federation, and are owned by two closed joint stock companies organized under the laws of the Russian Federation. The Company is the owner and holder of 75% of the outstanding capital stock of each of such joint stock companies, and the balance of the outstanding shares of capital stock of such companies is owned by an individual who is a former citizen of the Russian Federation, and is now a citizen of the United States, and who, in his capacity as a key employee of the Company, spends the majority of his time outside of the United States. By reason of the foregoing, it may not be possible for investors to effect service of process within the United States upon such joint stock companies or said key employee, or to enforce in the United States or outside of the United States judgments obtained against such joint stock companies or key employee in the United States courts, or to enforce in the United States courts judgments obtained against such joint stock companies or key employee in courts in jurisdictions outside of the United States, in each case, in any action, including actions predicated upon the civil liability provisions of the United States securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in jurisdictions located outside of the United States, liabilities predicated upon the United States securities laws. No treaty exists between the United States and the Russian Federation for the reciprocal enforcement of foreign court judgments. See "Risk Factors -- Legal Risks." 2 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Financial Statements and Notes thereto appearing elsewhere in this Prospectus. As used in this Prospectus, (i) "Corbina" means Closed Joint Stock Company Corbina Telecommunications, a closed joint stock company organized under the laws of the Russian Federation which is 75% owned by the Company and 25% owned by Mikhail Leibov ("Mr. Leibov") , a key executive of the Company; and (ii) "CompTel" means Closed Joint Stock Company CompTel Ltd., a closed joint stock company organized under the laws of the Russian Federation which is 75% owned by the Company and 25% owned by Leibov. See Appendix A for the definitions of certain terms used in this Prospectus. See Appendix B for a description of recent historical, political and economic conditions in the Russian Federation (which is sometimes hereinafter referred to as "Russia"). Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option or the Representative's Warrant, and all financial statements and data contained in this Prospectus have been presented in accordance with U.S. generally accepted accounting principles. See "Underwriting." 3 7 THE COMPANY Russian Wireless Telephone Company, Inc., a Delaware corporation, through its Russian subsidiaries, Corbina and CompTel (the "Subsidiaries"), is a provider of local, domestic and international telecommunications services, principally in the metropolitan area of the city of Moscow and the area encompassing the Moscow Oblast in the Russian Federation (collectively, the "Moscow Region"). It intends to increase the volume of telecommunications business that it conducts within the Moscow Region, and expand its business by offering its telecommunications services in other urban areas of the Russian Federation. The Company's goal is to become a preferred provider of telecommunications services initially to the business community in the Moscow Region, and subsequently to other markets in the Russian Federation. The Company believes it can achieve such goal by providing high quality, cost effective local and long distance telecommunications services in such areas. The Company intends to provide such services by using the net proceeds of this Offering to construct a state-of-the-art wireless local loop telecommunications network and to expand its long distance telecommunications operations. PROPOSED WIRELESS LOCAL LOOP OPERATIONS The Company intends to construct and operate, through CompTel, state-of-the-art wireless local loop telecommunications systems in the Moscow Region, and in other "under-telephoned" target markets in the Russian Federation and other countries of the former Soviet Union. CompTel has applied to the Ministry of Communication of the Russian Federation (the "MOC") for a license to operate its proposed wireless local loop network, and for assignment of radio frequencies for its use in connection with such operations. No assurance can be given that such application will be granted. If such license and frequencies are not issued, the Company will not be able to construct or operate its proposed wireless local loop network. See "Risk Factors." A wireless local loop system is a radiotelephone system that provides telecommunications service to fixed locations, such as homes and businesses, without the traditional network of poles and two-wire copper cables. It utilizes a conventional telephone handset that is plugged into a radio receiver unit and operates in exactly the same manner as a conventional telephone. In addition, the system provides the customer at least limited mobility; the communications system is fully accessible as long as the subscriber moves around within the system's coverage area. The primary advantage of a wireless local loop network over traditional wireline technology is speed of installation. The current worldwide backlog of telephone service, estimated at over forty million lines, is a direct result of the labor intensive nature of the traditional deployment process involving laying cables and hard-wiring each line to the switch. A telephone switch typically takes several weeks to install, and individual phone lines, in both remote as well as urban areas, can require several years, depending on the size of the proposed system. With a wireless local loop system, however, several thousand customers inside a typical coverage area (with a radius of approximately 18 miles) can obtain instant access to the network when the system is activated. Deployment of a wireless local loop system drastically reduces installation time to a few weeks for an entire communications system. See "Business -- CompTel's Proposed Wireless Local Loop Operations." LONG DISTANCE TELECOMMUNICATIONS OPERATIONS Corbina is a switch-based reseller of domestic and international long distance services primarily to business customers in the Moscow Region. Corbina began commercial operations in March, 1996 and, based upon information available to management, it currently is the largest reseller of long distance services in the Russian Federation and the former Soviet Union. Corbina's long distance operations consist of reselling the long distance services of Russian long distance carriers including Rustelnet and Global One ("Global One"), a joint venture of Sprint Communications Company, Deutche Telekom AG and France Telecom. Pursuant to agreements that Corbina has entered into with such primary long distance carriers, it offers to its customers the long distance services of these carriers at rates lower than those available directly from the carriers. 4 8 RUSSIAN TELECOMMUNICATIONS INDUSTRY OVERVIEW In the Soviet era, telecommunications in the Russian Federation (and in the other republics of the former Soviet Union) was viewed as existing principally to serve the defense and security needs of the state. As a result, the Company believes that the public telecommunications network in the Soviet Union was underdeveloped. With the break-up of the Soviet Union and the liberalization of the economies of its former republics, the demand for telecommunications services has increased significantly. However, the Company believes that Russia and the governments of the countries of the former Soviet Union do not currently have the significant capital necessary for the development of the telecommunications infrastructure. As a result, they have actively encouraged market liberalization, privatization and foreign investment in the telecommunications sector. This has resulted in significant development in the area of fixed wire overlay systems, private networks and cellular and data services. As modern telecommunications capability is critical to the successful transition to a market economy, it is expected that the next stage of development will focus on basic local telecommunications infrastructure. The Company believes that the lack of highly developed local and long distance telecommunications systems in Russia has created a significant market opportunity for the Company. Inadequate investment in public telecommunications during the Soviet era and restrictions on access to advanced Western technology have resulted in an underdeveloped telephone system in the Russian Federation. According to published reports, the number of access lines per 100 people in the Russian Federation is significantly lower than in most developed countries. As private enterprise has developed in the Russian Federation since the break-up of the former Soviet Union, the demand for quality telecommunications services has increased dramatically. According to the MOC, there were approximately 26 million telephone lines in Russia with a waiting list for telephone line installation of 9.7 million at year end 1995, indicating significant pent-up demand. The lack of highly developed wireline telecommunications systems in Russia has resulted in some subscribers looking to wireless telecommunications systems, primarily cellular, as a substitute, rather than a supplement, to wireline systems. The Company believes that the high cost and lengthy time required to build the infrastructure necessary to install and upgrade local wireline services makes it feasible for the Company to provide wireless local loop services as a primary form of telecommunications in certain ares of the Moscow Region where wireline services are inadequate or non-existent. The Company believes that the Moscow Region, as the commercial and political center of the Russian Federation, has the greatest demand for quality telecommunications services. According to the MOC, in the Moscow Region there was a waiting list for line installation of over 164,000 at December 31, 1995. The Company believes that the Moscow Region, which has a per capita income level approximately three times the national average of the Russian Federation, has the ability to support a significant increase in local telecommunications subscribers. The telecommunications market in the Moscow Region, an area with a population of approximately twelve million, is characterized by low activated penetration rates, substantial bottlenecks on the public network and outdated switching technology. The Company believes the Moscow Region is an attractive market for the provision of integrated telecommunications services due to the current inadequacies of the public network as well as the rapid development of Russian and foreign businesses in the city. According to published reports, the public telecommunications market in the Moscow Region, with current spending of approximately $4.5 billion per annum, has grown by 350% since 1992 in dollar terms. The Company believes that the Moscow City Telephone Network ("MGTS"), the government owned provider of local telecommunications services within the Moscow Region, does not currently have the financial resources to develop the network infrastructure required to accommodate what the Company perceives to be a continuing and increasing market demand for more and better local and long distance telecommunications services. RUSSIAN LONG DISTANCE MARKET The Company believes that the Russian long distance market remains relatively underdeveloped, with poor network infrastructure resulting in limited network capacity. The size of the Russian long distance market, according to published reports, has grown significantly, with international and long distance services 5 9 accounting for approximately 57% of the estimated $4.5 billion market which currently exists for telecommunications services throughout the Russian Federation. The Company also believes that the volume of international and long distance telephone services will continue to grow as current and planned improvements to the Russian Federation's long distance telecommunications network infrastructure are made by Rostelecom, the government controlled provider of national and long distance telecommunications services, and other privately held licensed long distance carriers. ------------------------ The Company was organized in April 1994 under the name Telcom Group USA, Inc., and was certified by the New York Public Service Commission to operate as a reseller of all forms of telephone services via landline telephone company or other common carrier facilities located in the state of New York. The Company was engaged principally as aprovider of long distance telecommunications services in the New York metropolitan area. With the passage of the Federal Telecommunications Act of 1996, and the subsequent entry of long distance carriers into local markets, the Company began to phase out operations in New York and focused its efforts on the international markets, particularly the Russian Federation. In July 1996, the Company purchased from Mr. Leibov for $5,000 an option to acquire 105 of the 140 issued shares (i.e., 75%) of the capital stock of Corbina for $190,000. On January 28, 1997, the Company exercised its option, and acquired said 75% ownership interest in Corbina. As of the date of this Prospectus, the Company's sole operations and sole source of revenue consists of the long distance reselling activities conducted by Corbina in the Moscow Region. The Company is wholly dependent on the proceeds of this Offering to construct its proposed wireless local loop network and to expand its long distance telecommunications reselling operations in the Moscow Region. Moreover, the Company is also dependent upon CompTel's receipt of the license and frequency assignments necessary to construct and operate the proposed wireless local loop network. No assurances can be given that such license will be granted or that such frequencies will be assigned. In the absence of CompTel's receipt thereof, the Company will not be able to construct or operate the proposed wireless local loop network. During the year ended December 31, 1996, the Company incurred a net loss of $1,470,878 on total revenues of $8,043. During the period from December 1, 1995 (inception) through September 30, 1996, Corbina incurred a net loss of $204,908 on total revenues of $561,820. See "Risk Factors." The Company's office is located at 780 Third Avenue, Suite 1600, New York, New York 10017, and its telephone number is (212) 486-2900. The Subsidiaries' offices are located at 30/15 Ryazansky Prospect, Moscow, Russian Federation. RECENT DEVELOPMENTS In December 1996, the Company borrowed $750,000 from three nonaffiliated persons and issued to such persons an aggregate of 450,000 shares of Common Stock (the "Bridge Financing"). The Company must repay said $750,000, together with interest thereon accruing at a rate of 8% per annum on the earlier to occur of (i) three business days following the receipt by the Company of the net proceeds of the Offering or (ii) October 31, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Selling Stockholders." 6 10 THE OFFERING SECURITIES OFFERED BY The Company.................................. 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants The Selling Stockholders................... 855,000 shares of Common Stock Common Stock Outstanding Before the Offering (1).................... 2,985,000 shares Common Stock to be Outstanding After the Offering (2).................. 4,385,000 shares Redeemable Warrants Outstanding Before the Offering (3).................... 3,200,015 Redeemable Warrants to be Outstanding After the Offering (4).................. 5,200,015 Exercise Terms.......................... Each Redeemable Warrant entitles the holder thereof to purchase one share of Common Stock for $7.25 (subject to adjustment in certain circumstances) during the three year period commencing two years after the Effective Date. (4) Expiration Date......................... [ ], 2002 [the fifth anniversary of the Effective Date]. Redemption.............................. Redeemable by the Company, in whole or in part, at a price of $.50 per Redeemable Warrant commencing two years after the Effective Date and prior to their expiration (subject to earlier redemption with the Representative's written consent), provided that (i) prior written notice of not less than 20 days is given to the holders of the Redeemable Warrants, and (ii) the closing bid price (as defined) for the 20 consecutive trading days immediately prior to the date onwhich notice of redemption is given shall have exceeded $14.50 per share. Use of proceeds.............................. The net proceeds of the Offering will be used, among other purposes, to provide additional capital to Corbina, to purchase switching hardware and software for connection of CompTel's customers to the Moscow public telephone system, to purchase equipment and to acquire antenna sites to be used in connection with the development and construction of CompTel's proposed wireless local loop telecommunications system in the Moscow Region, to repay $750,000 borrowed in connection with the Offering and for working capital. See "Use of Proceeds." PROPOSED NASDAQ SYMBOLS Common Stock................................. RWTCW Redeemable Warrants.......................... RWTCW PROPOSED BOSTON AND PACIFIC STOCK EXCHANGE SYMBOLS Common Stock................................. [ ] Redeemable Warrants.......................... [ ] Risk Factors................................. The Offering involves a high degree of risk including, but not limited to, (i) risks of a political, economic and social nature regarding the
7 11 Russian Federation; (ii) currency, and dividend payment restrictions pertaining to the Company's Russian subsidiaries; (iii) risks pertaining to the Russian legal system; and (iv) risks relating to the Company, such as its limited operating history, its dependence on key management in the US and the Russian Federation, the Company's ability to manage the growth and expansion that will be necessary to achieve profitability, the competitive environment for long distance services in theRussian Federation, the problems inherent in introducing new telecommunications technology such as wireless local loop service; and (v) other risks, such as the absence of a prior market for the Company's securities, the large number of shares of the Company's Common Stock that will be available for future sale and substantial immediate dilution. See "Risk Factors" beginning on page [ ].
8 12 - ------------------------ (1) Does not include up to 4,475,015 shares of Common Stock issuable upon (i) exercise of (a) 750,000 common stock purchase warrants issued to investors in the Company's first private placement of securities (the "First Private Placement Warrants"); (b) 450,000 common stock purchase warrants issued to investors in the Company's second private placement of securities (the "Second Private Placement Warrants"), all of which are being offered for sale pursuant to a separate prospectus by certain Selling Securityholders; (c) 2,000,015 common stock purchase warrants issued to investors in the Company's third private placement of securities (the "Third Private Placement Warrants"), all of which are being offered for sale pursuant to a separate prospectus by certain Selling Securityholders; and (d) an option to purchase 25,000 shares of Common Stock issued to one of the Company's directors (the "Option"); and (ii) issuance of (a) 1,000,000 of Common Stock reserved for issuance under the Company's Omnibus Stock Option Plan; and (b) 250,000 shares of Common Stock issuable to Mr. leibov pursuant to his employment agreement with the Company. See "Description of Securities -- Warrants Issued in Private Placements;" "Management -- Option Issued to Non-Employee Director;" "-- Executive Employment Agreements;" and "Concurrent Registration of Securities." (2) Does not include up to 5,113,265 shares of Common Stock issuable in the events that (i) all of the 750,000 First Private Placement Warrants, the 450,000 Second Private Placement Warrants and the 2,000,015 Third Private Placement Warrants are fully exercised; (ii) the Company issues 338,250 shares of Common Stock upon full exercise of Underwriters' over-allotment option (and 300,000 shares of Common Stock are issued upon full exercise of the Redeemable Warrants to be issued in connection therewith); (iii) all 1,000,000 of the shares of Common Stock which have been reserved for issuance under the Company's Omnibus Stock Incentive Plan shall be issued; (iv) up to 250,000 shares of Common Stock are issued to Mr. Leibov pursuant to the Company's employment agreement with him; and (v) the 25,000 shares of Common Stock underlying the Option are issued. See "Management;" "Description of Securities;" and "Underwriting." (3) Consists of 750,000 First Private Placement Warrants, 450,000 Second Private Placement Warrants and 2,000,015 Third Private Placement Warrants which will be automatically converted into Redeemable Warrants upon closing of this Offering. See "Description of Securities." (4) Consists of (i) 2,000,000 Redeemable Warrants being offered by the Company in the Offering; (ii) 2,450,015 Redeemable Warrants which are being offered for sale by certain Selling Securityholders on a non-underwritten basis pursuant to a separate prospectus (including 450,000 Second Private Placement Warrants); and (iii) 750,000 First Private Placement Warrants which will be automatically converted into Redeemable Warrants upon closing of this Offering. See "Concurrent Registration of Securities;" "Description of Securities;" and "Underwriting." 9 HISTORICAL AND PROFORMA FINANCIAL DATA The following historical financial data relating to the Company for the year ended December 31, 1996 has been derived from the audited financial statements appearing elsewhere herein. Such information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Financial Statements and notes thereto appearing elsewhere therein. The Proforma Combined Company information includes and accounts for the effects of the merger of Russian Wireless Telephone Company, Inc. ("Russian Wireless") with and into the Company and the Company's acquisition of a 75% ownership interest in Corbina (i) on the balance sheet as if the merger and acquisition had occurred on December 31, 1996; and (ii) on the statement of operations as if the merger and acquisition had occurred on December 31, 1995. The Proforma as Adjusted information includes and accounts for the effects of (a) the payment of the principal and accrued interest on certain indebtedness owed by the Company to a former stockholder and pursuant to the Second Private Placement, the Third Private Placement and the Bridge Financing, and (b) the anticipated results of the completion of the sale of 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants offered hereby (not including 338,250 shares of Common Stock and 300,000 Redeemable Warrants subject to the Underwriters' Over-allotment Option) at assumed offering prices of $7.00 per share and $.50 per Redeemable Warrant (after deduction of the estimated underwriting discounts and commissions and the expenses of the Offering) upon (i) the balance sheet as if the aforementioned events had occurred on December 31, 1996, and (ii) the statement of operations as if such events had occurred on December 31, 1995. 10 13 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996:
RUSSIAN TELCOM WIRELESS CORBINA PROFORMA GROUP TELEPHONE TELECOMMUNICA- PROFORMA COMBINED TRANSACTION PROFORNA AS USA, INC. COMPANY, INC. TIONS(1) ADJUSTMENTS COMPANY ADJUSTMENTS ADJUSTED --------- ------------- -------------- ----------- -------- ----------- ----------- (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues.................. -- -- $ 562 -- $ 562 -- $ 562 Cost of Services.......... -- -- 423 -- 423 -- 423 ------ ---- ------- ------- ------- ------- Gross Profit.............. -- -- 139 -- 139 -- 139 Commission Income......... $ 8 -- -- -- 8 -- 8 ------ ---- ------- ------- ------- ------- Net Revenues.............. 8 -- 139 -- 147 -- 147 Operating Expenses: Officer's Salaries...... 100 -- -- $ 3,150(2) 3,425 175(7) 3,600 175(4) Selling, General and Administrative Expenses.............. 483 35 241 (70)(4) 689 60(5) 749 ------ ---- ------- ------- ------- ------- Writedown of Equipment.. -- -- 40 -- 40 -- 40 Depreciation and Amortization.......... 210 -- -- 56(3) 266 -- 266 ------ ---- ------- ------- ------- ------- Total Operating Expenses................ 793 35 281 3,311 4,420 235 4,655 ------ ---- ------- ------- ------- ------- Operating Loss............ (785) (35) (143) (3,311) 4,273 235 (4,508) ------ ---- ------- ------- ------- ------- Other Expenses: Interest and financing costs....... 686 -- -- -- 686 (626)(6) -- 1,680(8) 1,740 Other Income............ -- -- 8 -- 8 -- 8 ------ ---- ------- ------- ------- ------- Total Other Expenses...... 686 -- 8 -- 694 1,054 1,732 ------ ---- ------- ------- ------- ------- Loss Before Provision for Income.................. (1,471) (35) (134) (3,311) (4,951) 1,289 6,240 ------ ---- ------- ------- ------- ------- Provision for Income Taxes................... -- -- (71) -- (71) -- (71) ------ ---- ------- ------- ------- ------- Net Loss.................. $(1,471) $ (35) $ (205) $(3,311) $(5,021) $(1,289) $(6,311) ------ ---- ------- ------- ------- ------- Net Loss Per Share........ $ (.64) $ (14) $ (1,464) -- $ (1.70) -- $ (2.11)
- --------------- Statement of Operations Proforma Adjustments: (1) Corbina's data is presented for the period from December 1, 1995 (inception) through September 30, 1996. (2) To record increase in compensation expense based on 60% of the assumed public offering price of the Common Stock. (3) To record amortization of goodwill. (4) To record additional salary expense based upon the Company's employment agreement with Mr. Leibov. See "Management -- Executive Employment Agreements." Transaction Adjustments: (5) To amortize prepaid consulting fees. See "Underwriting." (6) To reduce interest expense based upon an assumed application of a portion of the proceeds of the Offering to reduce debt. See "Use of Proceeds." (7) To record additional shares of Common Stock issuable pursuant to the Company's employment agreement with Mr. Leibov. See "Management -- Executive Employment Agreements." (8) To write-off deferred financing costs. 11 14 BALANCE SHEET AT DECEMBER 31, 1996:
RUSSION WIRELESS TELEPHONE COMPANY, INC. (FORMERLY PROFORMA TELCOM GROUP RUSSIAN PROFORMA COMBINED TRANSACTION PROFORMA AS USA, INC.) WIRELESS CORBINA ADJUSTMENTS COMPANY ADJUSTMENTS ADJUSTED ------------- -------- ------- ----------- ------- ----------- ----------- (DOLLARS IN THOUSANDS) Current Assets: Cash and Cash Equivalents.... $ 488 $ $ 3 $ 2 (3) $ 494 $ (177)(6) $ 5,456 5,140(5) Accounts Receivable, Net..... 250 250 250 Due from Affiliate........... 30 (30)(4) Deferred Financing Costs..... 1,680 1,680 (1,680)(5) Prepaid and Other Expenses... 79 31 (5)(1) 106 177(6) 283 ------ --- ---- ---- ------ ------ ------ Total Current Assets......... 2,277 285 (223) 2,530 3,460 5,990 Loan Receivable.............. 190 190(1) Property and Equipment, Net........................ 20 43 63 63 Investment in Subsidiary..... $ 195(1) (195)(2) Goodwill..................... 280(2) 280 280 Other Assets................. 47 47 (25)(5) 22 ------ --- ---- ---- ------ ------ ------ Total Assets............. $ 2,534 $ $ 328 $ 57 $2,919 $ 3,435 $ 6,354 ====== === ==== ==== ====== ====== ====== Current Liabilities: Notes Payable.............. 2,658 2,658 (2,658)(5) Accrued Interest Payable... 359 359 (359)(5) Deferred Taxes............. 71 71 71 Accounts Payable and Accrued Liabilities 30(4) 110 35 342 5(3) 452 452 ------ --- ---- ---- ------ ------ ------ Total Current Liabilities.... 3,126 35 413 35 3,539 (3,017) 523 Long Term Debt............... 361 361 (361) Stockholders' Equity (Deficiency): Preferred Stock Common Stock............... 31(2) 22 3 31 ( 5)(3) 30 14(5) 44 Unpaid Common Stock.......... (3) ( 6) ( 3)(3) ( 6)(2) 95(2) Additional Paid In Capital... 2,340 95 (3,150)(3) 5,490 (6,438)(5) 11,928 (205)(2) Accumulated Deficit.......... (3,316) (35) (205) 3,150(3) (6,501) (6,501) ------ --- ---- ---- ------ ------ ------ Total Stockholders'Equity (Deficiency)............... (954) (35) (85) 92 (981) 6,452 5,470 ------ --- ---- ---- ------ ------ ------ Total Liabilities and Stockholders' Equity (Deficiency)........... $ 2,534 $ $ 328 $ 57 $2,919 $ 3,435 $ 6,354 ====== === ==== ==== ====== ====== ======
- --------------- Proforma Adjustments: (1) To record the exercise of the Company's option to acquire 75% of Corbina from Mr. Leibov and repayment of the loan receivable owed to the Company by Mikhail Leibov. (2) To consolidate Corbina. (3) To record the merger of Russian Wireless with and into the Company. (4) To eliminate intercompany receivables and payables. Transaction Adjustments: (5) To reflect repayment of debt and accrued interest, and the sale of Common Stock. (6) To record prepaid consulting fees. See "Underwriting." 11 15 RISK FACTORS An investment in the Common Stock and Redeemable Warrants offered hereby involves a high degree of risk. Prospective investors should carefully consider all of the information in this Prospectus including the following risk factors. LIMITED RELEVANT OPERATING HISTORY; NO EXPERIENCE IN OPERATING BUSINESSES LOCATED IN THE RUSSIAN FEDERATION; EARLY STAGE OF DEVELOPMENT IN RUSSIA; CONTINUING LOSSES AND STOCKHOLDERS' DEFICIENCIES; COMPANY'S AND CORBINA'S ABILITIES TO CONTINUE AS A GOING CONCERNS Since 1994, the Company has engaged in limited business activities as a reseller of long distance telephone services in the United States. Although it has engaged in such business activities since 1994, it has not heretofore engaged in any business activities in, and has no experience regarding the operation of any business in, the Russian Federation. During the past nine months, the Company's resources have been principally dedicated to identifying business opportunities in the telecommunications industry in the Russian Federation. The establishment and operation of a proposed wireless local loop telecommunications system by the CompTel may require further capital investments, development and regulatory approvals. The Company may be faced with problems, delays, expenses and difficulties which are typically encountered by companies in an early stage of development, many of which may be beyond the Company's control. These include, but are not limited to, undercapitalization, unanticipated problems and costs related to development, regulatory compliance, production, marketing, economic and political factors and competition. There can be no assurance that the Company will be able to develop, provide at reasonable cost, or market successfully, any of its products or services. Furthermore, during the year ended December 31, 1996, the Company incurred losses from operations of $784,848, had a working capital deficiency of $659,259 and a stockholders' deficiency of $953,610; and during the period from December 31, 1995 (inception) through September 30, 1996, Corbina incurred losses from operations of $142,662, had a working capital deficiency of $127,847 and a stockholders' deficiency of $84,594. Such factors may combine to raise substantial doubt about the Company's and Corbina's respective abilities to continue as going concerns. In this regard, see the Reports of Independent Auditors accompanying the Company's and Corbina's audited financial statements appearing elsewhere herein which cite substantial doubts about the Company's and Corbina's abilities to continue as going concerns. There can be no assurance that the Company or Corbina will achieve profitability in the future, if at all. If the Company and Corbina fail to achieve profitability, the Company's growth strategies could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON KEY MANAGEMENT; NO KEY MAN INSURANCE COVERAGE The Company's various businesses will be managed by a small number of key management personnel, both expatriate and local. The Company's proposed business operations are dependent upon Ronald G. Nathan, the Company's Chief Executive, and Mikhail Leibov, the Chief Executive Officer of Corbina and CompTel, for technical guidance and management. In 1995, the Company entered into an employment agreement with Mr. Nathan for a term of two years which has been extended through December 1999. Such agreement provides for the rendition of services by Mr. Nathan to the Company as its Chief Executive Officer on a less than full time basis. The Company has also entered into an employment agreement with Mr. Leibov which provides for his rendition of services as Chief Executive Officer of Corbina and CompTel during the five year term which commenced on February 1, 1997. The Company does not have any agreement with Mr. Leibov which would prohibit him from competing with the Company upon termination of his employment with the Company. In the event that Mr. Leibov's services were to become unavailable to the Company for any reason, the Company's existing and proposed operations in the Russian Federation would be severely jeopardized. The Company has applied for key man insurance coverage in the amount of $1,000,000 on each of such individuals. No assurance can be given that such insurance will be issued covering any or all of such persons. See "Management -- Executive Employment Agreements." 12 16 ABSENCE OF CONTROL OF SUBSIDIARIES' OPERATIONS; DEPENDENCE ON MR. LEIBOV The Company's principal assets are its interests in Corbina and CompTel. Although the Company owns 75% of each of the Subsidiaries, it is completely dependent upon Mr. Leibov, who owns the remaining 25% of each of the Subsidiaries, and is in complete control of the management of the Subsidiaries' operations. In the event that the Company and Mr. Leibov were to become embroiled in a serious and/or protracted dispute regarding the management or control of either of the Subsidiaries, the Company would have to engage in a very time consuming process to find a suitable replacement for Mr. Leibov. Furthermore, in light of the uncertainties of enforcement of contractual rights, as well as the rights of controlling shareholders, under Russian law, no assurance can be given that the Company would be successful in replacing Mr. Leibov with its chosen successor within any reasonably foreseeable time frame. GOVERNMENT REGULATION -- LICENSING AND FREQUENCY ALLOCATION REQUIREMENTS -- COMPTEL'S INABILITY TO CONDUCT OPERATIONS IF LICENSE IS NOT GRANTED CompTel can not construct or operate its proposed wireless local loop system unless and until it receives an appropriate license from the MOC authorizing it to do so, and granting it permission to utilize certain segments of the radio frequency spectrum in connection therewith. The licensing, construction, operation, sale and interconnection arrangements of wireless local loop telecommunications systems in Russia are regulated to varying degrees by the MOC. As of the date hereof, CompTel has applied for a license to construct and operate a wireless local loop system within the Moscow Region, but has not received such license. There can be no assurance that the license that it has applied for will be forthcoming and/or that it will be in the form requested by CompTel in its application to the MOC. Similarly, in connection with such license application, CompTel has requested permission to operate its proposed wireless local loop system over specific frequencies, but it has not received formal notification that the requested frequencies have been granted to it. If either a license and/or acceptable frequencies are not obtained by CompTel in a timely fashion, construction of its proposed wireless local loop system will be delayed. If a license and frequencies are not obtained, CompTel could not build its proposed local loop network. See "Business -- CompTel's Proposed Wireless Local Loop Operations -- Telecommunications License." USE OF SUBSTANTIAL PORTION OF OFFERING PROCEEDS TO PAY PRIOR INDEBTEDNESS The Company intends to use approximately $3,259,000 (36.74%) of the net proceeds of the Offering to pay off its indebtedness to the investors in the Second Private Placement, the Third Private Placement and the Bridge Financing, and a former shareholder whose shares of Common Stock were redeemed by the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources;" and "Certain Relationships and Related Transactions." EFFECT OF MINORITY OWNERSHIP INTEREST UPON POTENTIAL REVENUES FROM SUBSIDIARIES By reason of the fact that the Company is the owner of 75% of the outstanding capital stock of each of the Subsidiaries and Mr. Leibov is the owner of the 25% balance of each of the Subsidiaries, the Company will only be entitled to receive 75% of the net income which each of the Subsidiaries derives from the operation of their respective businesses. In addition, upon satisfaction of certain performance based incentive criteria contained in Mr. Leibov's employment agreement with the Company, Mr. Leibov may be entitled to receive from the Company up to 10% of the capital stock of Corbina owned by the Company. In such event, the Company's ownership interest in Corbina, and its entitlement to receipt of Corbina's net income would be reduced from 75% to 65%. See "Management -- Executive Employment Agreements." NEED FOR ADDITIONAL FUNDS; NO ASSURANCES OF ABILITY TO OBTAIN ADDITIONAL CAPITAL IF NEEDED The Company requires substantial capital to pursue its operating strategy. The Company's management believes that the net proceeds of the Offering will enable it to undertake its proposed business activities described herein for approximately 12 months after the closing of the Offering. However, any number of unanticipated events, over many of which the Company will have no control, could increase the Company's operating costs and/or decrease the number of potential and actual subscribers for its Subsidiaries' services. 13 17 Inasmuch as there can be no assurance that the Company's business interests will generate sufficient cash to satisfy current or future projected capital requirements, in the event that Company encounters a need for additional funds, either for the purpose of carrying out or expanding its proposed business operations, there can not be any assurance that such additional financing will be available when and if needed or, if available, that the terms upon which it is available will be favorable or acceptable to the Company. Furthermore, if such additional financing can be obtained on terms acceptable to the Company, such financing may result in dilution to stockholders, or a diminution in the value of the Company or both and, consequently, a reduction in the fair market value of the Common Stock. See "Use of Proceeds." POLITICAL AND ECONOMIC SITUATION IN THE RUSSIAN FEDERATION; LACK OF POLITICAL RISK INSURANCE A favorable political climate in the Russian Federation and the openness of its markets to United States trade is essential to the success of the Company. The Russian Federation appears to have embraced political reforms and market economies. However, there are no local procedures for such vast changes; the region has known only totalitarianism and a centrally-planned economy for most of this century. Any reversal in such perceived new political and economic trends and policies, or in international trade policy generally, could materially adversely affect the Company's operations. Moreover, the political situation in the Russian Federation, where the Company expects to generate all of its revenues in the near future, remains in constant transition. Since the arrival of the Yeltsin government in December 1991, the Russian Federation has experienced a proliferation of political parties, an increase of nationalist sentiment, and a fragmentation of its economic and political institutions. In addition, there has been a dramatic increase in crime, including organized crime which may target businesses in the Russian Federation. The viability of the Russian government has been tested by various political factions gaining strength and unsuccessful coup d'etats; there can be no assurance that a coup d'etat will not again be attempted or that any future attempts will not be successful. In addition, the privatization process in the Russian Federation has been sporadic. Because the Russian Federation is in the early stages of development of a market economy, its commercial framework in still developing. New marketoriented laws are being enacted, but their application is still uncertain. Although the Company believes that the Russian Federation has advanced in the area of commercial law, Russian laws and courts are not well tested in contract enforcement. Similarly, although Russian law regarding foreign investment provides protection against nationalization and confiscation, there is little or no judicial precedent in this area. In addition, a Presidential Decree issued in September 1993 provides certain other guarantees to foreign companies and Russian companies with foreign investments that detrimental changes in Russian regulations which come into effect following the date of registration of a company will not apply to that company for a period of three years, and that only Russian laws and decrees of the Russian President may place restrictions on the activities of foreign investors. However, the position of the Russian authorities has been that this decree applies only to changes that are directed specifically at foreign investors, and no foreign company has been able to obtain an official exemption from detrimental changes under the decree. There can be no assurance that additional detrimental changes in Russian regulations will not occur. The various government institutions and the relations between them, as well as the government's policies and the political leaders who formulate and implement them, are subject to rapid and potentially violent change. The Constitution of the Russian Federation (the "Russian Constitution") gives the President of the Russian Federation substantial authority, and any major changes in, or rejection of, current policies favoring political and economic reform by the President may have a material adverse effect on the Company and the operations of its Subsidiaries. The Russian Federation is constituted as a federation of republics, territories, regions (one of which is an autonomous region), cities of federal importance and autonomous areas, all of which are equal members of the Russian Federation. The delineation of authority among the regions, the internal republics and the federal governmental authorities is, in many instances, uncertain, and in some instances, contested. In Chechnya, for example, regional and local authorities openly defied the powers of the federal government, resulting in a protracted military confrontation. Lack of consensus between local and regional authorities and the federal government often results in the enactment of conflicting legislation at various levels and may result in political 14 18 instability. This lack of consensus may have negative economic effects, which could be material to the Company and its Subsidiaries. Furthermore, the political and economic changes in Russia in recent years have resulted in significant dislocations of authority, as previously existing structures have collapsed and new structures are only beginning to take shape. The local press and international press have reported that significant organized criminal activity has arisen, particularly in large metropolitan centers. Moreover, the combination of the sudden loss of the tight social control that was characteristic of the Soviet Union, a large but poorly paid police force, an increase in unemployment, an influx of unemployed persons from outlying areas to metropolitan centers and a decline in real wages has led to a substantial increase in property crime in large cities. In addition, the local press and international press have reported high levels of official corruption in the Moscow Region, and elsewhere in the Russian Federation. In an effort to decrease the levels of criminal activity and corruption, President Yeltsin has issued a series of decrees granting the security forces very broad powers. It has been acknowledged that many provisions of these anti-crime decrees violate the Russian Constitution as well as the Criminal Code of the Russian Federation and these decrees have been viewed by many as a threat to civil rights. While the Company and Corbina have not been adversely affected by these factors to date, no assurance can be given that the depredations of organized or other crime will not in the future have a material adverse effect on the Company and both of its Subsidiaries. The failure of many state-controlled enterprises to pay full salaries on a regular basis, and the failure of salaries and benefits generally to keep pace with the rapidly increasing cost of living have led in the past, and could lead in the future, to labor and social unrest. Such labor and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralized authority, increased nationalism (with restrictions on foreign involvement in the economy of the Russian Federation) and increased violence, any of which could have a material adverse effect on the Company and its Subsidiaries. In addition, a lack of consensus exists over the manner and scope of government control over the telecommunications industry. Because the telecommunications industry is widely viewed as strategically important to the Russian Federation, there can be no assurance that, in light of possible changes in political power, recent government policies liberalizing control over the telecommunications industry will continue. Any change in or reversal of such governmental policies could have a material adverse effect on the Company. The health of Russia's current president, Boris Yeltsin, is poor and, as a result, he could be forced to step down, could become incapacitated or could die. In such event, under the Russian Constitution the prime minister would become acting president and would be required to call new presidential elections. This could result in a period of political instability that could have a material adverse effect on companies operating in Russia. Foreign firms operating in this region may be subject to numerous other risks that are not present in domestic operations, including political strife, the possibility of expropriation, inadequate distribution facilities, restrictions on royalties, dividends and currency remittances, inflation, fluctuations of foreign currencies, high and unpredictable levels of taxation, requirements for governmental approvals for new ventures and local participation in operations. Such problems could have a material adverse effect on the Company's operations abroad. CURRENCY RISKS The recent history of trading in the rouble as against the U.S. Dollar has been characterized by significant declines in value and considerable volatility. Although in recent months, the rouble has experienced relative stability against the U.S. Dollar, there is a risk of further declines in value and continued volatility in the future. Corbina's tariffs are denominated, and CompTel's tariffs will be denominated, in U.S. dollars, but charges are and will be invoiced and collected in roubles, while their respective major capital expenditures are and/or will be generally denominated and payable in various foreign currencies, predominantly, roubles. To the extent such major capital expenditures involve importation of equipment and the like, current law permits the Subsidiaries to convert their rouble revenues into foreign currency to make such payments. The rouble is generally not convertible outside Russia. A market exists within Russia for the conversion of roubles into other 15 19 currencies, but it is limited in size and is subject to rules limiting the purposes for which conversion may be effected. The limited availability of other currencies may tend to inflate their values relative to the rouble and there can be no assurance that such a market will continue to exist indefinitely. Moreover, the banking system in Russia is not yet as developed as its Western counterparts and considerable delays may occur in the transfer of funds within, and the remittance of funds out of, Russia. Any delay in converting roubles into a foreign currency in order to make a payment or delay in the transfer of such foreign currency could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Foreign Currency Translation." CURRENCY CONTROLS; RESTRICTIONS ON REPATRIATION OF PAYMENTS While applicable legislation in the Russian Federation currently permits the repatriation of profits and capital and the making of other payments in hard currency, the ability of the Company to repatriate such profits and capital and to make such other payments is dependent upon the continuation of the existing legal regimes for currency control and foreign investment, administrative policies and practices in the enforcement of such legal regimes and the availability of foreign exchange in sufficient quantities in those countries. The illness of President Yeltsin could result in a change in such administrative policies in Russia, to the extent that the government and the Central Bank of the Russian Federation (the "Central Bank") feel constrained (or may be forced, if there is any risk of significant movements of capital from Russia in the wake of the elections) to limit the ability of Russian citizens and foreign investors to transfer capital out of Russia. In addition, under current currency regulations in Russia, while there do not appear to be additional administrative requirements for the payment of dividends or interest on debt, specific licenses from the Central Bank are required for the making of equipment lease payments to a foreign lessor and for repayments of principal on debt with a term of more than 180 days. Failure to obtain such currency licenses where required can result in the imposition of fines and penalties. While the requirements for obtaining such licenses largely involve the production of documentation, not only are the documentary requirements themselves burdensome, but there can be no assurance that the entity granting the licenses may not impose additional, substantive requirements for the grant of a license or deny a request for a license on an arbitrary basis. Furthermore, the time typically taken by the Central Bank to issue such licenses varies from two to six months. Finally, the Company's ability to repatriate distributions and other payments in hard currency will be dependent upon the ability of the Company's Subsidiaries to bill their customers in U.S. Dollars or the equivalent amount of local currency, as well as their ability to freely exchange local currency receipts into U.S. Dollars. Accordingly, there can be no assurance that, because of various local currency regulations, the Company will be able fully and/or timely to realize benefits from its operations in Russia through the receipt of hard currency payments. LEGAL RISKS Russia lacks a fully developed legal system. Russian law is evolving rapidly and in ways that may not always coincide with market developments, resulting in ambiguities, inconsistencies and anomalies, and ultimately in investment risk that would not exist in more developed legal systems. For example, the ability of a creditor both to obtain a lien or other similar priority in payment and to enforce such priority is uncertain. Furthermore, effective redress in Russian courts in respect of a breach of law and regulation, or in an ownership dispute, may be difficult to obtain. Risks associated with the Russian legal system include: (i) the untested nature of the independence of the judiciary and its immunity from economic, political or nationalistic influences; (ii) the relative inexperience of judges and courts in commercial dispute resolution, and generally in interpreting legal norms; (iii) inconsistencies among laws, presidential decrees and governmental and ministerial orders and resolutions; (iv) oftentimes conflicting local, regional and national laws, rules and regulations, particularly in the Russian Federation; (v) the lack of judicial or administrative guidance on interpreting the applicable rules; and (vi) a 16 20 high degree of discretion on the part of government authorities and arbitrary decision making which increases, among other things, the risk of property expropriation. The result has been considerable legal confusion, particularly in areas such as company law, property, commercial and contract law, securities law, foreign trade and investment law and tax law. No assurance can be given that the uncertainties associated with the existing and future laws and regulations of Russia will not have a material adverse effect on the Company. In January 1995 and March 1996, respectively, newly legislated provisions the First and Second Parts of the Civil Code of the Russian Federation (the "Civil Code") became effective. Also, in January 1996 and April 1996, respectively, the Federal Law on Joint Stock Companies and the Federal Law on the Securities Market became effective. The recent creation of many Russian laws, the lack of consensus about the scope, content and pace of economic and political reform and the rapid evolution of the Russian legal system in ways that may not always coincide with market developments, could lead to ambiguities, inconsistencies and anomalies, the enactment of laws and regulations without a clear constitutional or legislative basis, and ultimately in investment risks that do not exist in more developed legal systems. In addition, Russian legislation often contemplates implementing regulations that have not yet been promulgated, leaving substantial gaps in the regulatory infrastructure. No assurance can be given that, in some instances, the evolution of Russia's laws and the enactment of new legislation will not have a material adverse effect on the Company and/or its Subsidiaries. Disclosure and reporting requirements, and anti-fraud and insider trading legislation have only recently been enacted and most Russian companies and managers are not accustomed to such restrictions on their activities. The concept of fiduciary duties on the part of management or directors to their companies or shareholders is also relatively new and is not well developed. Moreover, Russia has not yet recognized the concept of class action lawsuits and has only recently enacted legislation providing for shareholder derivative lawsuits. To date, Russian courts do not have experience with respect to such derivative suits. Both the independence of the judicial system and its immunity from economic, political and nationalistic influences, remain largely untested. Judges and courts are generally inexperienced in the area of business and corporate law, and judicial precedents generally have no binding effect on subsequent decisions. There is no guarantee that a foreign investor would obtain effective redress in any court. Substantially all of the assets of the Company are located in the Russian Federation, and are, or will be, owned by Corbina and CompTel, two closed joint stock companies organized under the laws of the Russian Federation. The Company is the owner and holder of 75% of the outstanding capital stock of Corbina and CompTel. The balance of the outstanding shares of capital stock of such companies is owned by Mikhail Leibov, a former citizen of the Russian Federation who is now a citizen of the United States, and who, in his capacity as a key employee of the Company, spends the majority of his time outside of the United States. By reason of the foregoing, it may not be possible for investors to effect service of process within the United States upon the Company's Subsidiaries or Mr. Leibov, or to enforce in the United States or outside of the United States judgments obtained against the Company's Subsidiaries or Mr. Leibov in the United States courts, or to enforce in the United States courts judgments obtained against the Company's Subsidiaries or Mr. Leibov in courts in jurisdictions outside of the United States, in each case, in any action, including actions predicated upon the civil liability provisions of the United States securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in jurisdictions located outside of the United States, liabilities predicated upon the United States securities laws. No treaty exists between the United States and the Russian Federation for the reciprocal enforcement of foreign court judgments. See "Enforceability of Civil Liabilities." Furthermore, the relative infancy of business and legal cultures in Russia is reflected in the inadequate commitment of local business people, government officials and agencies, and the judicial system to honor legal rights and agreements, and generally to uphold the rule of law. Accordingly, the Company may, from time to time, confront threats of, or actual, arbitrary or illegal revision or cancellation of its licenses and agreements, and face uncertainty or delays in obtaining legal redress, any of which could have a material adverse effect on the Company. 17 21 SOCIAL RISKS The political and economic changes in Russia since the break up of the former Soviet Union have resulted in significant social dislocations, as existing structures of authority have collapsed and new ones are only beginning to take shape. The resulting broad decline in the standard of living has resulted in substantial political pressure on the government to slow or even reverse the economic policies currently being pursued. In addition, the local and international press have reported significant organized criminal activity, particularly in large metropolitan centers, directed at revenue-generated businesses, and an increased integration of Russian organized crime and major international criminal organizations. In addition, a substantial increase in property crime in large cities has been reported. Finally, the local and international press have reported high levels of official corruption in the locations where the Company operates. No assurance can be given that organized or other crime or claims that the Company or any of its Subsidiaries has been involved in official corruption will not in the future have a material adverse effect on the Company. INFLATION The Russian economy is in transition and has been characterized by high rates of inflation. The Russian Government adopted a number of measures in 1995 and 1996 and these have begun to have a favorable impact on inflation rates. In 1994, the average monthly inflation rate was 10.0%. In 1995, the average monthly inflation rate decreased to 7.2% and during 1996, the average monthly inflation rate was 1.8%. The devaluation of the rouble in recent years has not kept pace with inflation. Corbina prices its services, and CompTel intends to price its equipment and services in U.S. dollars thereby mitigating the effects of the devaluation of the rouble. However, the Company believes that such pricing may not be able to fully offset the effects of inflation because a substantial portion of all collections will be in roubles. In addition, the Company also believes that Corbina and CompTel may experience increased costs in hard currency terms due to the devaluation of the rouble. If the Subsidiaries are unable to maintain prices in line with inflation, due to competitive pressures or otherwise, it may have a material adverse effect on the Company. TAXATION Generally, taxes payable by Russian companies are substantial. In addition, taxes payable by Russian companies are numerous, they are charged by federal, regional and local authorities and they are subject to frequent change. The profit tax, which is imposed pursuant to federal legislation, is payable at the rate of 13% to the federal tax authorities, and it is payable to the regional tax authorities at such rates as they deem to establish, subject to an absolute ceiling on such rates of 22%. Businesses engaged in commercial operations in Russia must be registered with the taxing authorities in each location in which they conduct business, and must submit an annual tax declaration. Social Security contributions by employers are payable to four different governmental funds, and aggregate 38.5% of wages and salaries paid to Russian employees. A value-added tax (the "VAT") is imposed at the rate of 20% of the customs value of imported goods, on goods supplied within the Russian Federation and on certain services, including the services provided by Corbina, and which CompTel intents to provide. At the local level, the Moscow taxing authorities impose an advertising tax which is currently 5% of the value of advertising services purchased, transport and education taxes each of which is currently levied at the rate of 1% of salary expenses and housing and road-users taxes which are currently levied at the rates of 1.5% and 2.5% of revenues, respectively. Currently, dividends are taxed at 15% and the payor is required to withhold the tax when paying the dividend. The taxation system in Russia is at an early stage of development and is subject to varying interpretations, frequent changes and inconsistent enforcement at the federal, regional and local levels. In certain instances, new taxes have been given retroactive effect. Although the Russian Government has initiated a revision of the Russian tax system, including the enactment of a tax code with the assistance of tax experts from throughout the world, no assurance can be given that this proposed legislation will be enacted and, if enacted, will result in a reduction of the tax burden on Russian companies and the establishment of a more efficient tax system. To date, the system of tax collection has been relatively ineffective, resulting in the continual imposition of new taxes in an attempt to raise government revenues. This history, plus the existence of large government budget 18 22 deficits, raises the risk of a sudden imposition of arbitrary or onerous taxes, which could adversely affect investments in Russia, including an investment in the Company. UNCERTAINTY OF MARKET ACCEPTANCE; LIMITED MARKETING EXPERIENCE; DEVELOPMENT OF NEW TELECOMMUNICATIONS SYSTEMS Although the Company believes that there will be a substantial and receptive market for services and products which it expects to market in the Russian Federation, wireless local loop services have not, as of the date of this Prospectus, been offered in the Russian Federation. Given the limited economic resources of the newly privatized businesses which will encompass a material portion of the proposed market for the Company's services and products, there can be no assurance that the wireless local loop services and products to be offered by the Company will achieve commercial acceptance or that a sufficient number of customers will be able to afford such services. In addition, achieving market acceptance for the Company's proposed products and services will require substantial marketing efforts to inform potential customers of the distinctive characteristics and benefits thereof. The Company has limited marketing experience in the United States, and no marketing experience in the Russian Federation. There can be no assurance that its proposed products and services will ultimately be accepted by its targeted Russian customers. The Company has not previously developed a telecommunications system. The Company believes that the wireless loop telecommunications system it is planning to develop through CompTel, and the long distance telephone service that it is planning to expand through Corbina, will be able to operate effectively. There can be no assurance that such systems will be able to provide services on a competitive basis. In addition, there can be no assurance that the Company's estimates of the ultimate costs of such systems will prove to have been accurate or that the proceeds allocated will be sufficient to construct and/or expand such systems. POTENTIAL NEED FOR ADDITIONAL PARTNERS; RELIANCE ON PARTNERS The Company's strategy for providing telecommunications services in the Moscow Region and other parts of the Russian Federation may require it, or one or both of its Subsidiaries, to enter into collaborative arrangements with other parties. Such arrangements may include the provision of long distance telecommunications, wireless local loop services and/or technical assistance through joint ventures with strategic Russian manufacturing conglomerates or governmental authorities which own or operate, local telecommunications exchange networks, or with other entities who have contracts to provide such services to the owners and operators of such local networks. No assurance can be given that the Company will be able to successfully identify and/or negotiate acceptable agreements with other parties, or that if such agreements are consummated, that the Company will be successful in completing the transactions contemplated thereby. COMPETITION Competition for business by Western companies in the Russian Federation is intense. The MGTS has entered into joint ventures for the provision of long distance telecommunications services to consumers and businesses located in the Moscow Region with several of the world's largest telecommunications companies, including AT&T (TelMos), Belgacom and Alcatel Bell (Combellga), British Telecom (Comstar) and Global Telesystems (Sovintel). Each of such joint ventures has greater financial, technical and marketing resources than the Company. CompTel will not have an exclusive license to provide telecommunications services in the Moscow Region, and a number of other entities, including Russian companies and the above mentioned international joint ventures, may compete with CompTel for shares of the local telecommunications market in the Moscow Region. Many of such companies (and all of the above-mentioned joint ventures) will be larger than CompTel and have significantly greater financial and other resources. There can be no assurance that the Company will be able to compete effectively in any aspect of its current or proposed business activities or that developments by others will not render the Company's products and services noncompetitive. Moreover, the Company may have to compete with unlicensed businesses or with businesses capitalizing on personal relationships with the fluid power structure in the Russian Federation. In the Russian Federation, in addition to competition from private telecommunications companies, the Company may be competing with partially and wholly state-owned communications enterprises. There can be no assurance that the implementation of 19 23 the Company's strategy of having local partners will give it any competitive advantage. In addition, there can be no assurances that competition in the Company's targeted markets will not increase as economic activity grows and that larger, better capitalized competitors will not enter the market in these areas. See "Business -- CompTel's Proposed Wireless Local Loop Operations -- Competition;" and "-- Corbina's Long Distance Telecommunications Operations -- Competition." WIRELESS LOCAL LOOP NETWORK CONSTRUCTION AND OPERATIONAL RISKS General. The proposed development and operation of CompTel's wireless local loop network involves a high degree of risk. CompTel has completed the initial design for its network, has initiated the site selection process and has begun to hire key operating personnel in each market. CompTel intends to commence marketing efforts and launch commercial service in 1997 and expects to complete initial construction of its network by the end of 1998. There can be no assurance that CompTel will be able to construct its network in accordance with its current construction plan and schedule. If CompTel is not able to implement its construction plan, it may not be able to provide services comparable to those provided by MGTS and providers of cellular telecommunications services in its market and, as a result, CompTel's anticipated subscriber growth may be limited. Failure to comply with MOC licensing requirements could cause revocation or forfeiture of any license which may be issued to or the imposition of fines on CompTel by the MOC. The construction of CompTel's wireless local loop network is subject to successful completion of the network design, site and facility acquisitions, the purchase and installation of the network equipment and network testing. Delays in any of these areas could have a material adverse effect on CompTel's ability to construct its network in a timely manner. Location of Base Station Transmitter Equipment. The construction of CompTel's wireless local loop network will depend, to a significant degree, on CompTel's ability to lease or acquire sites for the location of the equipment which will receive the radio signals emanating from buildings and other locations from which CompTel's customers will be placing and receiving telecommunications transmissions, and/or re-transmit such signals directly to other buildings or locations within CompTel's proposed network, or through the public telephone network operated by MGTS, or to Corbina or another provider of long distance telecommunications services. The site selection process in the Moscow Region will require the negotiation of lease or acquisition agreements for approximately three sites for the proposed network, and may require CompTel to obtain governmental approvals or permits. The Company expects that the site acquisition process will continue throughout the construction of CompTel's network. Each stage of the process involves various risks and contingencies, many of which are not within the control of CompTel and any of which could adversely affect the construction of the network should there be delays or other problems. No assurance can be given that CompTel will be able to obtain such governmental approvals or permits, or that it will be able to successfully negotiate such site leases or site acquisition agreements, or that it will be able to obtain such sites, or lease same at costs which it will be able to afford or within a time frame which will enable it to establish and commence operations in a timely manner. Demands on Managerial, Operational and Financial Resources. The development, construction and operation of CompTel's wireless local loop network and the expansion of Corbina's long distance telecommunication services are expected to place significant demands on the Company's managerial and operational and financial resources. The Company's future performance will depend, in part, on the Company's ability to implement and improve its operational and financial systems and to attract, train and manage its employee base and those of its Subsidiaries, including customer support and marketing and sales personnel. There can be no assurance that the Company will be able to manage planned operations successfully. Any failure to manage growth effectively (including implementing adequate systems, procedures and controls in a timely manner) could have a material adverse effect on the Company's financial condition and the results of current and proposed operations. Dependence on Interconnect Parties. In order to operate its proposed network successfully, CompTel must maintain interconnection agreements with the telephone companies, including MGTS, operating or providing service in the areas where it intends to deploy its proposed wireless local loop network. Although, CompTel believes that it will be able to negotiate agreements providing for favorable tariffs for interconnection 20 24 fees and carrier charges with MGTS and such other telephone companies, no assurance can be given in this regard. If CompTel does not consummate an interconnection agreement with MGTS providing for reasonable terms and tariffs, or it is completely unable to obtain such an agreement, it would not be able to connect its subscribers' telecommunications traffic to the Moscow local public switched telephone network. Such an eventuality would materially adversely affect CompTel's proposed business activities. See "Business -- CompTel's Proposed Wireless Local Loop Operations -- Billings, Tariffs and Interconnection Charges." TECHNOLOGICAL OBSOLESCENCE AND NEW TECHNOLOGY The telecommunications industry is undergoing rapid and significant technological change. Future technological advances may result in new services or products directly competitive with the telecommunications services which the Company proposes to provide. Large manufacturers have dominated the technological development of a variety of wireless one-way and two-way communication technologies, including cellular telephone service, personal communications services, enhanced specialized mobile radio, low-speed data networks, and mobile satellite services, all of which currently are in use or under development. There can be no assurance that the Company would not be adversely affected by further developments of such technologies, or any changes therein. The Company will need access to improving technology in order to remain competitive. There can be no assurance that it can obtain access to such new technology through licensing agreements, joint ventures or otherwise. The Company does not intend to allocate any of the proceeds of the Offering to basic research and has not devoted any resources to research and development thus far. Such technology has generally been available on an "off-the-shelf" basis, but such technology may not be available to the Company in the future, or may render the Company's systems obsolete. If such technology is no longer available on an "off-the-shelf" basis, the Company's small size may hinder its ability to obtain necessary technology. SUSCEPTIBILITY TO POLITICAL AND OTHER PRESSURES Although the governments of the Russian Federation and geographic locales in which the Company intends to operate (such as the Moscow Region) may be limited in the extent to which they can legally direct the Company's policies, in practice they may be able to exercise significant influence. As a consequence, not only may the Company's activities be restrained if a governmental entity or instrumentality is not supportive, but the Company may be forced to take action to support policies or agendas of the government which are not in its commercial or other interests. RISKS ASSOCIATED WITH ACQUISITIONS The Company is not currently considering the acquisition of any business, or a joint venture with any other business or individual. From time to time in the future, the Company and/or its Subsidiaries may enter into negotiations with respect to potential acquisitions or joint ventures, some of which may result in preliminary agreements. In the course of such negotiations and/or due diligence, these negotiations and/or preliminary agreements may be abandoned or terminated. No assurance can be given that the Company and/or its Subsidiaries will find suitable acquisition or joint venture candidates, or that future acquisitions or joint ventures will be financed and made on acceptable terms, or if completed, that such acquisitions or ventures will be successful. OFFICIAL DATA RELIABILITY The official data published by the Russian federal, regional and local governments and federal agencies are substantially less reliable than the comparable data published in the United States. There can be no assurance that the official sources from which certain of the information set forth in this Prospectus has been drawn are reliable. Official statistics may also be produced on different bases than those used in the United States. Any discussion of matters relating to the Russian Federation must therefore be subject to uncertainty due to concerns about the completeness and reliability of available official and public information. 21 25 EFFECT OF CERTAIN SECURITIES TRANSACTIONS UPON THE COMPANY'S EARNINGS As a result of the Company's issuance of Common Stock to certain of its stockholders during the 12 month period which preceded the date of initial filing of the Registration Statement of which this Prospectus forms a part for consideration which was less than the offering price of the Common Stock set forth on the cover page hereof, the Company incurred deferred financing costs of $1,890,000, debt discounts of $465,000, and amortization of deferred financing costs and debt discounts of $416,500. In the event that the Company issues up to 250,000 shares of Common Stock to Mr. Leibov pursuant to the incentive compensation provisions of his employment agreement, the Company will recognize a substantial noncash charge to earnings equal to the fair value of such shares on the date of their issuance. In the event that the Company issues Common Stock pursuant to its Omnibus Stock Incentive Plan for less than the fair value of such shares at the time of such issuance, the Company will recognize a substantial noncash charge to earnings equal to the difference between the fair value of such shares on the date of their issuance and the amount received therefor. Such transactions would have the effect of significantly increasing the Company's loss or reducing or eliminating earnings, if any, at such time. The recognition of such expense may have a depressive effect on the market price of the Company's securities. See "Management -- Executive Employment Agreements;" "-- Omnibus Stock Incentive Plan;" and "Certain Relationships and Related Transactions." DIVIDEND POLICY AND RESTRICTIONS ON PAYMENT OF DIVIDENDS The Company has never paid cash dividends on its Common Stock. The Board of Directors does not anticipate paying cash dividends on its Common Stock in the foreseeable future as it intends to retain future earnings to finance the growth of the business. The payment of future cash dividends on the Common Stock will depend on such factors as earnings levels, anticipated capital requirements, the operating and financial condition of the Company and other factors deemed relevant by the Board of Directors. See "Dividend Policy." CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE REDEEMABLE WARRANTS The Company will be able to issue shares of its Common Stock upon exercise of the Redeemable Warrants only if there is then in effect a current prospectus relating to such Common Stock, and only if such Common Stock is qualified for sale or exempt from such qualification under applicable state securities laws of the jurisdictions in which the various holders of the Redeemable Warrants reside. Although the Company has undertaken to, and intends to, file and keep current a prospectus which will permit the purchase and sale of the Common Stock underlying the Redeemable Warrants, there can be no assurance that the Company will be able to do so. Redeemable Warrants may not be exercised after [ ], 1997 (nine months after the date of this Prospectus) unless and until a Post-Effective Amendment has been filed with the Securities and Exchange Commission ("SEC" or Commission") and becomes effective. Although the Company intends to seek to qualify for sale the shares of Common Stock underlying the Redeemable Warrants in those states in which the Common Stock and Redeemable Warrants are to be offered, no assurance can be given that such qualification will occur. The Redeemable Warrants may be deprived of any value and the market for the Redeemable Warrants may be limited if a current prospectus covering the Common Stock issuable upon exercise of the Redeemable Warrants is not kept effective or if such Common Stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the Redeemable Warrants then reside. See "Description of Securities -- Redeemable Warrants." MARKET FOR COMMON STOCK AND REDEEMABLE WARRANTS; POSSIBLE VOLATILITY OF PRICES The Company has applied for listing of the Common Stock and Redeemable Warrants on the Nasdaq SmallCap Market, the Boston Stock Exchange and the Pacific Stock Exchange. Such listings will not provide any assurance that an active public market for the Common Stock or Redeemable Warrants will develop or be sustained. If an active public market does not develop or is not sustained, the market price and liquidity of the Common Stock and/or Redeemable Warrants may be adversely affected. In addition, the stock market in recent years has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations as well as general economic 22 26 and market conditions may adversely affect the market price of the Common Stock and/or Redeemable Warrants prevailing from time to time. DILUTION Purchasers of the Common Stock offered by this Prospectus will suffer an immediate and substantial dilution in the net tangible book value per share of the Common Stock from the initial public offering price. At an assumed initial public offering price of $7.00 per share, new investors will experience a dilution of $5.31 per share based upon a pro forma net tangible book value per share after the Offering. This represents a dilution of 75.9% from the initial public offering price. By reason of the fact that the Company's stockholders and Russian Wireless' stockholders acquired their shares of the Company's Common Stock at prices which were substantially below the assumed public offering price of the Common Stock, purchasers of the Common Stock pursuant to this Offering will be bearing a substantial proportion of the risks which the Company will be encountering subsequent to the closing of this Offering. See "Dilution." POSSIBLE REDEMPTION OF REDEEMABLE WARRANTS The Redeemable Warrants may be redeemed by the Company, whether or not a current prospectus is available, at any time during the three year period commencing two years after the date of this Prospectus at a price of $.50 per Redeemable Warrant, provided that the closing price of the Common Stock as quoted on the principal market on which such shares shall then be trading shall be not less than the $14.50 per share during any period of 20 consecutive trading days ending on the third day preceding the date of such notice, and further provided, that with the Representative's prior written consent, the Company may redeem the Redeemable Warrants commencing two years after the date of this Prospectus. Although a Redeemable Warrant holder has the right to exercise his Redeemable Warrants through the date of redemption, he may not be able to exercise because of lack of funds at the time of redemption or if there is not then in effect a current prospectus relating to the Common Stock underlying such Redeemable Warrants. Furthermore, in the event that the Company timely and properly issues a notice of redemption of the Redeemable Warrants, no trading in such securities shall be permitted after the close of business on the date of redemption. At such time the value of all Redeemable Warrants which shall not have been timely exercised prior thereto shall be reduced to the redemption price. See "Underwriting." AUTHORIZATION OF PREFERRED STOCK The Company's Certificate of Incorporation authorizes the issuance of preferred stock with designations, rights and preferences determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Common Stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. The issuance of preferred stock with anti-takeover measures could have a depressive effect on the market price of the Common Stock (should a market develop for the Common Stock) and could discourage hostile bids in which shareholders may receive premiums for their shares. See "Description of Securities -- Preferred Stock." IMPACT ON THE MARKET OF EXERCISE OF REPRESENTATIVE'S WARRANTS The holders of the Representative's Warrants may exercise them at a time when the Company would, in all likelihood, be able to obtain equity capital by the sale of securities on terms more favorable than those provided by the Representative's Warrants. If the Representative's Warrants are exercised, the dilution of the voting and equity interests of the Company's shareholders which shall result therefrom could cause a decrease in the market price of the Company's securities, and may also adversely affect the Representative's ability to make and maintain an orderly market in the Company's securities. See "Description of Securities -- Representative's Warrants." 23 27 THE REPRESENTATIVE'S INFLUENCE ON THE MARKET FOR THE COMPANY'S SECURITIES A significant amount of the securities offered hereby may be sold to customers of the Representative. Such customers subsequently may engage in transactions for the sale or purchase of such securities with the Representative. Although it has no obligation to do so, the Representative intends to make a market in the Common Stock and Redeemable Warrants and may otherwise effect transactions in such securities. If it participates in the market, the Representative may exert significant influence on the market, if one develops, for the securities described in this Prospectus. Such market making activity may be discontinued at any time. The price and liquidity of the Common Stock and Redeemable Warrants may be significantly affected by the degree, if any, of the Representative's participation in such market. Additionally, the Representative may participate in the solicitation of the exercise of the Redeemable Warrants, in which event, it may be prohibited from engaging in any market making activities with respect to the Common Stock and Redeemable Warrants during certain periods while the Redeemable Warrants are exercisable. Such restrictions may adversely affect the price and liquidity of the Common Stock and Redeemable Warrants. Furthermore, if the Representative should exercise its registration rights to effect the distribution of the Common Stock and Redeemable Warrants underlying the Representative's Warrants, the Representative, prior to and during such distribution, will be unable to make a market in the Common Stock and Redeemable Warrants. If the Representative ceases making a market, the market and market prices for the Common Stock and Redeemable Warrants may be adversely affected, and the holders thereof may be unable to sell such securities. SHARES ELIGIBLE FOR FUTURE SALE Sales of the Common Stock in the public market after this Offering could adversely affect the market price of the Common Stock. Upon completion of this Offering, the Company will have outstanding 4,385,000 shares of Common Stock (4,723,250 shares if the Underwriters' over-allotment option is exercised in full). Of these shares, 2,255,000 shares will be freely tradeable without restriction under the Securities Act. The remaining 2,130,000 shares of Common Stock held by existing shareholders are restricted securities within the meaning of Rule 144. In accordance with Rule 144, 1,380,000 of such shares are presently eligible for sale to the public notwithstanding the fact that they have not been registered under the Securities Act. The Representative has required, as a condition to the closing of the Offering, that each of the holders of said 2,130,000 shares, as well as the holders of warrants and an option to purchase 3,225,015 shares of the Company's Common Stock must execute written lockup agreements providing that, for a period of 24 months from the date of this Prospectus, they shall not offer, register, sell, contract to sell, grant an option for the sale of, issue, assign, transfer or otherwise dispose of any of the Company's securities held by them without the Representative's prior written consent. See "Description of Securities -Registration Rights," "Shares Eligible for Future Sale"and "Underwriting." INDEMNIFICATION OF DIRECTORS AND OFFICERS; POSSIBLE INABILITY TO OBTAIN OFFICERS' AND DIRECTORS' LIABILITY INSURANCE The Company's Bylaws provide for the indemnification of directors and officers to the fullest extent permitted by law. The Company has entered into indemnification agreements with each of its officers and directors which also provide for their indemnification to the fullest extent permitted by law. The Company intends to apply for officers' and directors' liability insurance providing limits of $1,000,000 per occurrence. There can be no assurance that the Company will be able to obtain or maintain such insurance on acceptable terms. Failure to maintain such insurance could have a material adverse effect on the Company's ability to attract and retain directors and officers. Any amounts which the Company may be required to pay under such indemnification agreements which are not reimbursed by insurance, either because no insurance policy is then in effect or because the amount of such required payments exceeds the policy limit, could have a material adverse effect on the Company. See "Management -- Indemnification of Directors and Officers." 24 28 NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; RISKS OF LOW-PRICED STOCKS The Company has applied to the Nasdaq SmallCap Market for listing of the Common Stock and Redeemable Warrants. If the Company is unable to satisfy Nasdaq's listing criteria for the Common Stock and/or Redeemable Warrants, or if such securities are listed on the Nasdaq SmallCap Market, and the Company thereafter fails to satisfy the maintenance criteria for continued listing of any or all of such securities, they will be subject to being delisted, and trading, if any, would thereafter be conducted in the OTC Bulletin Board. As a consequence of such non-listing or delisting, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Common Stock and/or the Redeemable Warrants. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks. The SEC regulations generally define a penny stock to be any equity security that has a market price or exercise price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on Nasdaq and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three (3) years, (ii) net tangible assets of at least $5,000,000 if such issuer has been in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000 during such issuer's last three years of operations. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Furthermore, in connection with any transaction in a penny stock, brokers must also provide investors with current bid and offer quotations therefor, the compensation of the broker and its salesperson in connection therewith and monthly account statements showing the market value of each penny stock in the investor's account. See "Description of Securities -- Nasdaq SmallCap Market Listing; Boston Stock Exchange and Pacific Stock Exchange Listing Applications." Recently, a proposal has been made to increase the continued listing criteria on the Nasdaq SmallCap Market. If implemented as proposed, stricter criteria for continued listing on the Nasdaq SmallCap Market would be imposed, including the implementation of a $2,000,000 net tangible assets test, requirements for a greater number of publicly held securities and a higher market value for such securities and the implementation of new corporate governance criteria. No assurance can be given that such proposal will be adopted, or, if adopted, will be adopted in its current form. In addition, if the Common Stock or Redeemable Warrants are not quoted on Nasdaq, or the Company does not have $2,000,000 in net tangible assets, trading in the Common Stock and Redeemable Warrants would be covered by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") for non-Nasdaq and non-exchange listed securities. Under such rule, broker/dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities also are exempt from this rule if the market price is at least $5.00 per share. As of the date of this Prospectus, the Company believes that the Common Stock and Redeemable Warrants will be outside the definitional scope of a penny stock. In the event the Company's securities were subsequently to become characterized as penny stocks, the market liquidity for such securities could be adversely affected. In such an event, the regulations on penny stocks could limit the ability of broker/dealers to sell the Common Stock and/or the Redeemable Warrants and thus the ability of purchasers of the Common Stock and Redeemable Warrants to sell such securities in the secondary market would be adversely affected. 25 29 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants offered by the Company hereby at the assumed initial public offering prices of $7.00 per share and $.50 per Redeemable Warrant, are estimated to be $8,871,000 ($11,061,442 if the over- allotment option granted to the Underwriters is exercised in full) after deducting the underwriting discounts and commissions, the Underwriters' non-accountable expense allowance and the other estimated expenses of this Offering. The Company expects to use the net proceeds, as follows:
AMOUNT PERCENT ---------- ------- Contribution of capital to Corbina for its use in connection with the expansion of its services as a switch-based provider of long distance telecommunications services in the Moscow Region (see "Business -- Corbina's Long Distance Telecommunications Operations")..................................................... $ 655,000 7.38% Purchase of switching hardware and software for connection of CompTel's customers' telecommunication transmissions to the Moscow public switched telephone network and to Corbina's long distance carriers................................................ 3,000,000 33.82% Purchase of equipment (in-building network wiring components, wireless local loop transmitters and receivers and telephone handsets) to be employed by CompTel with respect to the creation and expansion of its proposed wireless local loop network in the Moscow Region.................................................... 1,000,000 11.27% Purchase of three antennas and ancillary equipment to be employed by CompTel for interconnection of telecommunication transmissions throughout its proposed wireless local loop network.............. 250,000 2.82% Payment of antenna site rents for three antenna sites in the Moscow Region during first year of CompTel's operations................. 60,000 0.68% Retirement of promissory notes issued in connection with the Company's Second and Third Private Placements (including accrued interest) (See "Capitalization" and Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources").................. 2,329,000 26.26% Retirement of Bridge Financing (including accrued interest) owed to unrelated third parties (See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources").................. 780,000 8.79% Pre-payment of fee due pursuant to a financial consulting agreement to be entered into by the Company with the Representative at the closing of the Offering (See "Underwriting") (1)................. 177,420 2.00% Retirement of promissory note issued in connection with the redemption of Common Stock previously owned by a former shareholder (see "Certain Relationships and Related Transactions")................................................... 150,000 1.69% Working capital (2)................................................ 469,580 5.29% ---------- ------- $8,871,000 100.00% ========== =======
- --------------- (1) Such fee will be equal to 2% of the net proceeds derived by the Company from the sale of the Common Stock and Redeemable Warrants offered hereby. In the event that the over-allotment option is exercised in full, the total amount of such proceeds will be approximately $11,061,442. In such event, the amount of the fee to be paid by the Company to the Representative pursuant to the financial consulting agreement will be approximately $221,229. (2) If the over-allotment option is exercised in full, the Company will realize additional net proceeds of approximately $2,190.442. All of such additional proceeds, except for $43,809 thereof which must be added to the payment to be made pursuant to the Company's financial consulting agreement with the Representative, will be incorporated into the Company's working capital and used for general corporate purposes. The proceeds, if any, from the exercise of the Redeemable Warrants and any outstanding warrants and options will be added to working capital and used for general corporate purposes. 26 30 The allocation of the net proceeds of this Offering by the Company, as set forth above, represents the Company's best estimate, based upon its present plans and certain assumptions regarding general economic and industry conditions and the issuance of a license authorizing CompTel to construct and operate its proposed wireless local loop system. If any of such plans or assumptions should change, the Company may find it necessary or advisable to reallocate some of the Offering proceeds within the above-described categories, or to other purposes. Proceeds of the Offering which are not immediately required for the purposes described above will be invested in United States government securities, short-term certificates of deposit, money market funds and other high-grade, short-term interest-bearing investments. The Company believes that the proceeds from the Offering, together with cash flow from operations (if any), should be sufficient to fund its operations, including the proposed expansion of Corbina's operations and the proposed build-out and operation of CompTel's wireless local loop operations, for approximately 12 months. However, there can be no assurance that events affecting the Company's operations will not result in the Company depleting its funds before such time. The Company may need to raise substantial additional capital to continue to fund its proposed operations. The Company may seek such capital through public or private financings, corporate collaborations or other sources. However, there can be no assurance that additional financing will be available through any of such sources or, if available, that such financing will be on acceptable terms. See "Risk Factors -- Need for Additional Funds; Limited Sources of Liquidity;" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 27 31 DILUTION The difference between the initial public offering price per share of Common Stock and the proforma net tangible book value per share of Common Stock after this Offering constitutes the dilution to investors in this Offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets reduced by the amount of total liabilities) by the number of outstanding shares of Common Stock. The following discussion allocates no value to the Redeemable Warrants. The proforma net negative tangible book value of the Company, as of December 31, 1996, assuming that the merger of Russian Wireless and the acquisition of the Company's 75% ownership interest in Corbina took place on said date, was approximately $(1,268,500) or $(.42) per share of Common Stock. After giving effect to the estimated net proceeds from the sale of the securities offered by the Company at the assumed initial public offering prices of $7.00 per share and $.50 per Redeemable Warrant, the proforma net tangible book value of the Company as of December 31, 1996 would have been approximately $7,400,000 or $1.69 per share of Common Stock. This represents an immediate increase in proforma tangible book value of $2.11 per share to existing common stockholders and an immediate dilution of $5.31 per share (or 76%) to new investors. The following table illustrates the per share dilution in proforma net tangible book value to new investors: Assumed public offering price per share.............................. $7.00 Proforma net tangible book value per share before offering(1)........ $(.42) Increase per share attributable to new investors..................... $2.11 Proforma net tangible book value per share after offering(1).................................................. 1.69 ----- Proforma dilution per share to new investors(1)...................... $5.31 =====
- --------------- (1) After giving effect to the merger of Russian Wireless with and into the Company, and the acquisition of the Company's 75% ownership interest in Corbina. The following table summarizes on a pro forma basis as of December 31, 1996, the differences in the total consideration paid and the average price per share paid between existing holders of Common Stock and new investors with respect to the number of shares of Common Stock purchased from the Company assuming an initial public offering price of $7.00 per share:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------- --------------------- PRICE NUMBER PERCENT AMOUNT* PERCENT PER SHARE ---------- ----- ------------ ----- --------- Existing Shareholders(1).......... 2,985,000 68.1% $276,350 2.8% $0.09 New Investors..................... 1,400,000 31.9% 9,800,000 97.2% $7.00 Total(1).......................... 4,385,000 100.0% $10,076,350 100.0% $2.30
- --------------- * Prior to deduction of expenses of the Offering. (1) Adjusted to reflect the effects of the merger of Russian Wireless with and into the Company. 28 32 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1996. The Proforma -- Merger and Proforma Offering information includes and accounts for the effects of (a) the merger of Russian Wireless with and into the Company; and (b) the anticipated results of the completion of the sale of 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants offered hereby (not including 338,250 shares of Common Stock and 300,000 Redeemable Warrants subject to the Underwriters' over-allotment option) at assumed public offering prices of $7.00 per share and $.50 per Redeemable Warrant (after deduction of the estimated underwriting discounts and commissions, and expenses of the Offering).
ADJUSTMENTS DECEMBER 31, ------------------------- PROFORMA 1996 MERGER(1) OFFERING(2) AS ADJUSTED ------------ ----------- ----------- ----------- Notes Payable............................... $2,658,000 $(2,658,000) $ 0 Long Term Debt.............................. 361,000 (361,000) 361,000 Stockholders' Deficiency Common Stock -- $.01 par value, authorized 15,000,000, issued and outstanding; 2,235,000 shares at December 31, 1996: 2,985,000 shares -- Proforma Merger; 4,385,000 shares -- Proforma Offering............................... 22,350 $ 7,500 14,000 43,850 Preferred Stock -- $.01 par value, authorized 1,000,000 shares, issued and outstanding at December 31, 1996: 0.... -- -- -- -- Additional Paid in Capital.................. 2,340,000 3,150,000 6,438,000 11,928,000 Accumulated Deficit......................... (3,316,000) (3,185,000) (6,501,000) Total Stockholders' Deficiency.............. (953,650) (27,500) 6,452,000 5,470,850 ------------ ----------- ----------- ----------- Total Capitalization........................ $2,065,350 $ (27,500) $3,794,000 $ 5,831,850 ============ ========== ========== ===========
- --------------- (1) Reflects the issuance of 250,000 shares of Russian Wireless' common stock to Mr. Nathan and 500,000 shares of such common stock to Mr. Leibov at a value of 60% of the assumed public offering price of the Company's Common Stock. See "Certain Relationships and Related Transactions." (2) Net equity impact of the issuance of 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants offered hereby at assumed public offering prices of $7.00 per share and $.50 per Redeemable Warrant. ----------------------------- DIVIDEND POLICY The Company has never paid cash dividends on its Common Stock. The Board of Directors does not anticipate paying cash dividends on its Common Stock in the foreseeable future as it intends to retain future earnings to finance the growth of the business. The payment of future cash dividends on the Common Stock will depend on such factors as earnings levels, anticipated capital requirements, the operating and financial condition of the Company and other factors deemed relevant by the Board of Directors. 29 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The discussion set forth below with regard to the Company relates to the business operations conducted by the Company from the time of its organization in April 1994, through December 31, 1996. Such operations were conducted on a limited basis while the Company's management devoted the bulk of their time and resources to the tasks of developing what was then anticipated to be the Company's intended business, i.e., the provision, as a competitive access provider (a "CAP"), of single source local and long distance telecommunications services to commercial customers in the New York Metropolitan area. See "Business -- General Overview." The limited operations which the Company conducted during said period consisted of the provision of services as an agent to a reseller of long distance telecommunications services to commercial customers. Corbina maintains its books and records on the basis of a fiscal year which ends on September 30. The discussion set forth below with regard to Corbina relates to the business operations conducted by it during the period from December 1, 1995 (Corbina's date of organization) through September 30, 1996. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 The Company The Company generated revenues in the form of commission income earned with regard to the income generated by long distance telephone service providers for whom the Company acted as an agent during 1995 and 1996 in the amount of $21,172 and $8,043, respectively. The 62% decrease in such revenues was directly attributable to the conclusion reached by the Company in mid-1996 that it would have to re-position the Company in a different segment of the telecommunications industry. Operating expenses amounted, in the aggregate, to $851,318 and $792,881 during the years ended December 31, 1995 and 1996, respectively. Although the comparative difference between the aggregate amounts varied by less than 7% between 1995 and 1996, the primary components thereof, consisting of officers' salaries and selling, general and administrative expenses varied significantly between such years. By reason of a reduction from three executives to one which took place during and at the end of 1995, officers' salaries were reduced by approximately 51% from $203,125 in 1995 to $100,000 in 1996. The Company's employee salary payment obligations began to increase on February 1, 1997, i.e., the date of commencement of Mr. Leibov's employment by the Company. See "Management -- Executive Employment Agreements." Selling, general and administrative expenses increased by approximately 13% from $426,228 in 1995 to $482,891 in 1996. Such expenses were incurred by the Company in 1995 as it undertook to create, with the proceeds of its first and second private placements of securities, the infrastructure which it would need to engage in business as a single source local and long distance telecommunications service provider to commercial customers in the New York Metropolitan area. Although the Company curtailed expenditures relating to its originally anticipated business activities by mid-1996, it continued to incur general and administrative expense obligations while it undertook to explore opportunities involving the delivery of various categories of telecommunications products and services in the Russian Federation and elsewhere. During 1995 and approximately the first half of 1996, the Company conducted business on a limited basis as a reseller of long distance telecommunications services to commercial customers while it undertook to develop and establish its anticipated business activities as a competitive access provider of telecommunications services. By reason of the high level of general and administrative expenses incurred during such periods, as compared to the minimal revenues generated from the Company's limited long distance telephone reselling activities, the Company incurred operating losses of $830,146 and $784,848, respectively, in 1995 and 1996. Such operating losses, when coupled with the interest expense incurred by the Company in connection with its outstanding principal indebtedness aggregating $1,724,000 at December 31, 1995 and $3,531,000 at December 31, 1996, resulted in net losses of $1,227,502 ($.34 per share) in 1995 and, $1,470,878 ($.64 per share) in 1996. 30 34 PERIOD ENDED DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 Corbina Corbina was organized on December 1, 1995 and began providing long distance telecommunications services to customers in the Moscow Region in March 1996. During the ten month period which ended on September 30, 1996, the first five of which were primarily devoted to organizational and start-up activities, Corbina generated revenue of $561,820. During the ten month period between May 1996 and February 1997, Corbina's business has grown from a few customers purchasing approximately 30,000 minutes of long distance services per month to approximately 350 customers purchasing approximately 282,000 minutes per month. The following chart presents the month by month growth in Corbina's business, expressed in terms of aggregate monthly minutes of long distance telecommunications services purchased by Corbina's customers and Corbina's aggregate monthly billings to such customers (in US$) between May 1996 and February 1997.
1996 MINUTES PURCHASED AGGREGATE BILLINGS ------------------------------------ ----------------- ------------------ May................................. 31,605 $ 34,449 June................................ 47,447 51,717 July................................ 66,808 72,821 August.............................. 114,673 114,673 September........................... 106,453 101,130 October............................. 123,750 117,563 November............................ 175,817 158,235 December............................ 166,800 141,840 1997 ------------------------------------ January............................. 184,177 156,550 February............................ 281,784 228,245
During the ten month period ended September 30, 1996, one customer accounted for 23% of Corbina's revenues and 40% of its accounts receivable. No customer is currently responsible for 10% or more of Corbina's revenues or accounts receivable. By reason of the facts that (a) the efforts of Corbina's management during the ten month period ended September 30, 1996 were primarily directed toward (i) negotiating agreements with Rustelnet and Global One, and (ii) the establishment of a network of field services representatives to market Corbina's services; and (b) Corbina's operations were in the early stages of expansion in business volume that is still taking place, the selling, general and administrative expenses incurred by Corbina in providing the services purchased by its customers were $281,467, which was $110,659 greater than the $138,805 gross profit which Corbina generated from its revenues during said period. By reason thereof, Corbina sustained a loss from operations, and a net loss for the period amounting to $142,662, and $204,908, respectively. Corbina's management believes that the investment it has heretofore made in creating its existing operating infrastructure, coupled with the investment that it will be making with the proceeds of this Offering, will be sufficient to support its operations at a profitable level. Corbina's management further believes that Corbina's business operations, as they are currently being implemented, will result in an increase in its customer base, and a concomitant increase in telephone traffic purchased by such customers. However, no assurances can be given that the growth in Corbina's customer base, and/or the growth in telephone services purchased by those customers from Corbina will continue at the rates heretofore experienced, or at all. In the event of a slowdown or cessation of such growth, Corbina would continue to suffer operating losses which would have a material adverse effect on Corbina and the Company. 31 35 LIQUIDITY AND CAPITAL RESOURCES The Company financed its initial operations, and it has been financing the activities it has been conducting in the Russian Federation, with the investment capital that it has raised through three private placements of its securities and the Bridge Financing. The Company obtained $750,000 pursuant to its initial private placement (the "First Private Placement") which was completed in June 1994. In connection therewith, the Company issued 12% unsecured promissory notes in the aggregate principal amount of $735,000, and warrants to purchase 750,000 shares of Common Stock. See "Description of Securities -- Warrants Issued in Private Placements." The Company obtained $1,000,000 pursuant to its second private placement (the "Second Private Placement") which was completed in October 1994. In connection therewith, the Company issued 12% unsecured promissory notes in the aggregate principal amount of $980,000, and warrants to purchase 500,000 shares of Common Stock. The Company used $750,000 of the proceeds of the Second Private Placement to pay off the indebtedness its owed to the holders of the promissory notes issued in the First Private Placement. In connection with an agreement to rescind a $98,000 investment made by one of the investors in the Second Private Placement, the Company has agreed to pay $100,000 to such investor in four monthly installments, the first of which became due and was paid on February 15, 1997, and such investor's warrant to purchase 50,000 shares of Common Stock has been canceled. The balance of the Company's indebtedness to the holders of the promissory notes issued in the Second Private Placement will become due and payable on June 19, 1997, or three days after the closing of this Offering, whichever first occurs. The Company intends to use a portion of the proceeds of this Offering to pay such indebtedness in full. See "Use of Proceeds;" and "Description of Securities -- Warrants Issued in Private Placements." The Company obtained $1,050,000 pursuant to its third private placement (the "Third Private Placement") which was completed in February 1996. In connection therewith, the Company issued 8% unsecured promissory notes in the aggregate principal amount of $1,050,000, 300,000 shares of Common Stock and warrants to purchase 2,000,015 shares of Common Stock. The Company's indebtedness to the holders of the promissory notes issued in the Third Private Placement will become due and payable in August 1997, or upon closing of this Offering, whichever first occurs. The Company intends to use a portion of the proceeds of this Offering to pay such indebtedness in full. See "Use of Proceeds;" "Description of Securities -- Warrants Issued in Private Placements;" and "Selling Securityholders." Pursuant to a private placement transaction in December 1996, the Company borrowed $250,000 from each of Messrs. L.W. Cave, James Condakes and Howard M. Pack, none of whom is affiliated with the Company (the "Bridge Financing"). The Company must repay said $750,000, together with interest thereon accruing at a rate of 8% per annum on the earlier to occur of (i) three business days following the receipt by the Company of the net proceeds of the Offering or (ii) October 31, 1998. As an inducement to such lenders to make such loans, the Company originally issued 150,000 shares of Common Stock to each of them, for no additional consideration. The issuance of such shares resulted in a $1,890,000 discount of the Bridge Financing debt and a corresponding increase to capital. The Company intends to use a portion of the proceeds of this Offering to pay off its indebtedness to the Bridge Financing Lenders. See "Use of Proceeds." The Company will rely exclusively upon the proceeds of the Offering to provide the financing that it will need to expand Corbina's operations, and to develop CompTel's proposed wireless local loop network. BASIS OF PRESENTATION OF FINANCIAL RESULTS Corbina and CompTel maintain their records and prepare their statutory financial statements in accordance with Russian accounting principles and tax legislation. The financial statements presented in this Prospectus have been prepared from Russian accounting records for presentation in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). These financial statements and results differ from the financial statements issued for statutory purposes in Russia in that they reflect certain adjustments not recorded in either Corbina's or CompTel's Russian accounting records, which are appropriate to present the financial position, results of operations and cash flows in accordance with U.S. GAAP. The principal 32 36 adjustments relate to: (i) revenue recognition; (ii) recognition of interest expense and other operating expenses; (iii) valuation and depreciation of property and equipment; (iv) foreign currency translation; (v) deferred income taxes; (vi) capitalization and amortization of telephone line capacity; (vii) valuation allowances for unrecoverable assets; and (viii) capital leases. Corbina pays, and CompTel will pay, taxes computed on income reported for Russian tax purposes. This computation is based on Russian accounting principles which differ substantially from U.S. GAAP. Certain items that are capitalized under U.S. GAAP are recognized under Russian accounting principles as an expense in the year paid. As a consequence, the effective tax charges of Corbina and CompTel are lower under Russian accounting principles than under U.S. GAAP. See Note 2 to Corbina's Financial Statements. INFLATION The Russian economy is in transition and has been characterized by high rates of inflation. The Russian Government adopted a number of measures in 1995 and 1996 and these have begun to have a favorable impact on inflation rates. In 1994, the average monthly inflation rate was 10.0%. In 1995, the average monthly inflation rate decreased to 7.2% and during 1996, the average monthly inflation rate was 1.8%. The devaluation of the rouble in recent years has not kept pace with inflation. Corbina prices its services, and CompTel intends to price its equipment and services in U.S. dollars thereby mitigating the effects of the devaluation of the rouble. However, the Company believes that such pricing may not be able to fully offset the effects of inflation because a substantial portion of all collections will be in roubles. In addition, the Company also believes that Corbina and CompTel may experience increased costs in hard currency terms due to the devaluation of the rouble. If the Subsidiaries are unable to maintain prices in line with inflation, due to competitive pressures or otherwise, it may have a material adverse effect on the Company. FOREIGN CURRENCY TRANSLATION Corbina reports, and CompTel will report, to the Russian tax authorities in roubles and its accounting records are maintained in that currency. The financial statements of Corbina contained elsewhere in this Prospectus have been prepared in accordance with U.S. GAAP and are stated in U.S. dollars. Corbina's functional currency is, and CompTel's functional currency will be, the U.S. dollar because the majority of their respective revenues, costs, property and equipment purchased, and debt and trade liabilities are, or will be in the case of CompTel, either priced, incurred, payable or otherwise measured in U.S. dollars. Accordingly, transactions and balances not already measured in U.S. dollars have been remeasured into U.S. dollars in accordance with the relevant provision of FAS No. 52, "Foreign Currency Translation" as applied to entities in highly inflationary economies. Under FAS No. 52, revenues, costs, capital and non-monetary assets and liabilities are translated at historical exchange rates prevailing on the transaction dates. Monetary assets and liabilities are translated at exchange rates prevailing on the balance sheet date. Exchange gains and losses arising from remeasurement of monetary assets and liabilities that are not denominated in U.S. dollars are credited or charged to operations. The operating currency of Corbina and CompTel is Russian roubles. This currency is not convertible outside of Russia and has been very volatile in the past. From 1995 to date, the Russian Government and Central Bank have successfully kept the rouble trading within a fixed band and as a result the currency has been declining at a relatively stable rate. Corbina does not engage, and neither Corbina nor CompTel plan to engage, in hedging or other transactions intended to manage risks relating to fluctuations in foreign currency exchange rates, inflation or interest rates. However, to minimize the risk of rouble fluctuations and consequent devaluation, the Subsidiaries have adopted a number of measures, including listing tariffs for customers in U.S. dollars and calculating customers' monthly bills in U.S. dollars and requesting payment in roubles (in accordance with the applicable law) based on the exchange rate on the date the bill is sent to the customer. All invoices include a 1% charge to cover the devaluation exposure for the 15-day payment period. Payments received after 15 days are converted into U.S. dollars at the prevailing rate of exchange on the date payment is received and adjustments due to any rouble fluctuations from the date of billing are made to the customer's account in the next billing period. See "Risk Factors -- Currency Risks." 33 37 BUSINESS GENERAL OVERVIEW The Company through its Subsidiaries, is a provider of local, domestic and international telecommunications services, principally in the Moscow Region. It intends to increase the volume of telecommunications business that it conducts within the Moscow Region, and expand its business by offering its telecommunications services in other urban areas of the Russian Federation. The Company was formed in April 1994 under the name of Telcom Group USA, Inc. ("Telcom Group"). On August 19, 1994, the Company was certified by the New York State Public Service Commission to operate as a reseller of all forms of telephone services via landline telephone company and other common carrier facilities located in New York. During the period between the Company's inception and December 31, 1996, the Company conducted business on a limited basis as a reseller of long distance telecommunications services to commercial customers. Such services were provided by the Company while it attempted to finance and establish the business which it originally had intended to undertake, i.e., the provision, as a CAP, of single source local and long distance telecommunications services to commercial customers in the New York Metropolitan area. CAPs enable users of local and long distance telephone services to connect the network of telephones and other telecommunication devices which comprise the telephone system employed within the customer's business via dedicated telephone transmission lines leased by the CAP from the local exchange carrier (e.g., NYNEX) directly to their long distance carriers, thereby bypassing all, or most of the local exchange carrier's network and charges. By integrating local and long distance services on a single network, the Company believed that its prospective customers would be able to obtain less expensive local and long distance service through it by reason of its anticipated ability to make volume purchases of local telephone transmission lines, and the ability of the long distance carrier to avoid payment of a portion of the access charges imposed by the local exchange carrier on switched access long distance telephone traffic. However, with the passage of the Federal Telecommunications Act of 1996 (and the subsequent entry into the local telephone markets by long distance carriers) the Company determined that future growth lay in the international arena -- particularly in the Russian Federation. In 1996, the Company's management undertook to explore opportunities involving the delivery of various categories of telecommunications products and services throughout the former Soviet Union. On January 28, 1997, TelCom Group exercised an option to purchase 75% of the outstanding capital stock of Corbina which had been granted to it by Mr. Leibov in July 1996. See "Business -- The Company's Acquisition of Corbina;" and "Certain Relationships and Related Transactions." On February 10, 1997, the Company changed its name to Russian Wireless Telephone Company, Inc. in connection with the merger of a Delaware corporation with and into the Company which had been known by that name ("Russian Wireless"). Russian Wireless was formed by Messrs. Nathan and Leibov to provide wireless local loop telecommunications services to business customers in the Moscow Region, particularly to subscribers who generate significant amounts of outgoing domestic and international long distance traffic. Such services will be provided through CompTel. TELECOMMUNICATIONS INDUSTRY General. The Company believes that the current international telecommunications landscape is being reshaped by the convergence of three major trends: (i) the accelerating growth in demand for high speed, high capacity digital telecommunication services, (ii) the deregulation of telecommunications markets; and (iii) the rapid advances in wireless technologies. The growth in demand for high speed digital telecommunications services is being driven by the revolution in microprocessor power and advances in new multimedia and on-line applications such as the Internet. The ability to access and distribute information quickly has become critical to business and government users of telecommunications services. The rapid growth of local area networks ("LANs"), Internet services, video teleconferencing and other data intensive applications is significantly increasing the volume of broadband telecommunications traffic. The inability of the existing infrastructure to meet this demand is creating a "last mile" bottleneck in the copper wire networks of the 34 38 incumbent local exchange carriers ("LECs"). This increasing demand, together with changes in the regulatory environment, is creating, in the Company's view, an opportunity to offer cost effective, high capacity access using wireless local loop solutions. Russia. In the Soviet era, telecommunications in the Russian Federation (and in the other republics of the former Soviet Union) was viewed as existing principally to serve the defense and security needs of the state. As a result, the public telecommunications network in the Soviet Union was underdeveloped. With the break-up of the Soviet Union and the liberalization of the economies of its former republics, the demand for telecommunications services has increased significantly. However, Russia and the governments of the countries of the former Soviet Union do not currently have the significant capital necessary for the development of the telecommunications infrastructure. As a result, they have actively encouraged market liberalization, privatization and foreign investment in the telecommunications sector. This has resulted in significant development in the area of fixed wire overlay systems, private networks and cellular and data services. As modern telecommunications capability is critical to the successful transition to a market economy, it is expected that the next stage of development will focus on basic local telecommunications infrastructure. The Company believes that the lack of highly developed local and long distance telecommunications systems in Russia has created a significant market opportunity for the Company. Inadequate investment in public telecommunications during the Soviet era and restrictions on access to advanced Western technology have resulted in an underdeveloped telephone system in the Russian Federation. According to published reports, the number of access lines per 100 people in the Russian Federation is significantly lower than in most developed countries. As private enterprise has developed in the Russian Federation since the break-up of the former Soviet Union, the demand for quality telecommunications services has increased dramatically. According to the MOC, there were approximately 26 million telephone lines in Russia with a waiting list for telephone line installation of 9.7 million at year end 1995, indicating significant pent-up demand. The lack of highly developed wireline telecommunications systems in Russia has resulted in some subscribers looking to wireless telecommunications systems, primarily cellular, as a substitute, rather than a supplement, to wireline systems. The Company believes that the high cost and lengthy time required to build the infrastructure necessary to install and upgrade local wireline services makes it feasible for the Company to provide wireless local loop services as a primary form of telecommunications in certain ares of the Moscow Region where wireline services are inadequate or non-existent. The Company believes that the Moscow Region, as the commercial and political center of the Russian Federation, has the greatest demand for quality telecommunications services. According to the MOC, in the Moscow Region there was a waiting list for line installation of over 164,000 at December 31, 1995. The Company believes that the Moscow Region, which has a per capita income level approximately three times the national average of the Russian Federation, has the ability to support a significant increase in local telecommunications subscribers. The telecommunications market in the Moscow Region, an area with a population of approximately twelve million, is characterized by low activated penetration rates, substantial bottlenecks on the public network and outdated switching technology. The Company believes the Moscow Region is an attractive market for the provision of integrated telecommunications services due to the current inadequacies of the public network as well as the rapid development of Russian and foreign businesses in the city. According to published reports, the public telecommunications market in the Moscow Region, with current spending of approximately $4.5 billion per annum, has grown by 350% since 1992 in dollar terms. The Company believes that the Moscow Region does not currently have the financial resources to develop the network infrastructure required to accommodate what it perceives to be a continuing and increasing market demand for more and better local and long distance telecommunications services. COMPTEL'S PROPOSED WIRELESS LOCAL LOOP OPERATIONS The Company intends to construct and operate, through CompTel, state-of-the-art wireless local loop telecommunications systems in "under-telephoned" target markets in the Russian Federation and other countries of the former Soviet Union. The first system will be built in the Moscow Region. 35 39 A wireless local loop system is a radiotelephone system that provides telecommunications service to fixed locations, such as homes and businesses, without the traditional network of poles and two-wire copper cables. It utilizes a conventional telephone handset that is plugged into a radio receiver unit and operates in exactly the same manner as a conventional telephone. In addition, the system provides the customer at least limited mobility; the communications system is fully accessible as long as the subscriber moves around within the system's coverage area. The primary advantage of wireless local loop network over traditional wireline technology is speed of implementation. The current worldwide backlog of telephone service, estimated by the Company at over forty million lines, is, in the Company's estimation, a direct result of the labor intensive nature of the traditional deployment process involving laying cables and hard-wiring each line to the switch. A telephone switch typically takes several weeks to install, and individual phone lines, in both remote as well as urban areas, can require several years, depending on the size of the proposed system. With a wireless local loop system, however, several thousand customers inside a typical coverage area (with a radius of approximately 18 miles) can obtain instant access to the network when the system is activated. Deployment of a wireless local loop system drastically reduces installation time to a few weeks for an entire communications system. The "local loop" is the critical segment of a telecommunications network that connects a customer's premises to the nearest local telephone company switch or central office. The Company believes that CompTel's technical expertise, capital investment and management capability will enable it to provide subscribers with fully integrated "bundled" telecommunications services, including access to high quality local, and cost-effective long distance and international telecommunications services (through Corbina), cellular and paging (as an agent for Moscow Region-based providers) as well as value-added services including prepaid calling cards, Internet, ISDN, voice mail, call-waiting, call-forwarding and three-way call conferencing features. It is the Company's intention that CompTel will provide to its subscribers, primarily telecommunications intensive Russian and foreign commercial enterprises, non-profit organizations, diplomatic missions, and governmental authorities "one stop" shopping (and a single bill) for all telecommunications services and equipment. It will "bundle" this package of local, long distance and other services in a manner similar to the integrated services provided by AT&T prior to its divestiture and now offered in certain cities in the United States by carriers previously designated as primarily "local" (e.g. Ameritech) or "long distance" (e.g. MCI) carriers. NETWORK BUILD-OUT CompTel currently anticipates commencing the initial build-out of its wireless local loop network in the Moscow Region in the Summer of 1997, and will immediately begin to provide coverage to customers in built-out areas as such areas come "on-line." The Company expects that CompTel will complete its network build-out by the last calendar quarter of 1998. The Company anticipates that CompTel will be able to provide full wireless local loop service to as many as 3,000 customers within its Moscow Region license area by the end of 2000. However, no assurances can be given that the build-out will be completed within such time frame, or that CompTel will be able to attract and maintain as many customers as it is planning to service. CompTel intends to construct its wireless local loop network with equipment designed by Tadiran Telecommunications, Ltd. ("Tadiran"), a publicly owned Israeli company which has a class of securities which trades on the Nasdaq National Stock Market. The Tadiran system is closest in design to a cordless low power radio system and utilizes small radio ports rather than high power base stations. In the Company's estimation, it is best suited for deployment in dense urban areas, such as the Moscow Region. A wireless local loop system utilizing the Tadiran equipment is currently in place in Ryazan, Russia and Glasgow, Scotland. The build-out of CompTel's network will involve systems design (the initial stages of which have been completed by CompTel), acquisition of sites, equipment procurement, interconnection with other communications providers, purchase and installation of switches, and the purchase and implementation of advanced management information and billing systems. A planning and engineering team, comprised of engineering and operations employees and independent contractors and consultants, all of whom will be hired upon, and subject to completion of the Offering, will complete the design of CompTel's network based on the marketing and product requirements necessary to meet the Company's targets for consistency, uniformity and reliability. 36 40 CompTel's proposed equipment vendor, Tadiran will, in conjunction with CompTel's management, oversee the deployment of the network. CompTel will hire construction companies located within the Moscow Region as necessary. CompTel has initiated site selection in its proposed Moscow Region license area and has begun to hire key operating personnel, including a Chief Operating Officer. The initial coverage of the network will include a major metropolitan area within the Moscow Region. CompTel expects to complete the initial buildout of its network by the last calendar quarter of 1998 at which time its network is expected to cover approximately 80% of the population within the geographic area of the Moscow Region for which it expects to receive its license (the "Projected License Area"). As economic potential merits (and financing is available), the Company will consider seeking additional licenses and/or entering into joint ventures with other license holders and operators. PRODUCTS AND SERVICES CompTel intends to provide its customers (i) direct dial local, i.e., within the Moscow Region, telecommunications services utilizing wireless local loop technology; (ii) direct dial domestic and international long distance services (utilizing, its Corbina subsidiary, as well as other long distance carriers) for transmission services; (iii) value added services including prepaid phone cards, Internet, ISDN, voice-mail call waiting, call forwarding and three-way conferencing; and (iv) access to cellular and paging services as an agent for Moscow Region-based providers of these services. Local Telecommunications Services. If CompTel's license application is granted, CompTel intends to provide wireless local loop telecommunications services to its customers in the Projected License Area as, in effect, a competitive local exchange carrier competing with the local Moscow public network -- MGTS. The Company's management believes that there is a significant demand for quality, cost-effective local network services in the Moscow Region. The Company further believes that the aggregate of the per-subscriber income that CompTel expects to receive for one-time installation, line and number charges, and equipment charges will be less than CompTel's aggregate costs therefor, including the costs and charges payable by CompTel to MGTS for the lines and numbers. Once "connected," a CompTel customer will have complete access to any other telephone -- whether or not on the CompTel network -- as CompTel actually connects with the local public network for transmission and termination of the local and/or long distance call, as the case may be. Long Distance Services. CompTel intends to provide its customers both domestic and international long distance services through the Company's Corbina subsidiary as well as through primary long distance carriers. The telecommunications traffic of CompTel's customers within the Russian Federation will be connected at Corbina's switching station in the Moscow Region for delivery throughout the Russian Federation, usually via the long distance network owned and operated by Global One. CompTel intends to route its customers' international telecommunications traffic through Corbina, or such traffic will be directed to other carriers via Corbina's existing switching facility to their final destination. See " -- Corbina's Long Distance Telecommunications Operations -- Network and Operations." Value Added Services. CompTel intends to introduce a number of value-added services to complement the basic fixed local and long distance services it intends to provide to its customers. Management believes that the ability to provide such services on CompTel's proposed network will be a key competitive advantage in the Moscow Region marketplace. Planned services include the following: operator/prepaid calling card services, audiotext services offering a combination of recorded information and live entertainment, equipment sales offering CompTel's customers a wide range of telecommunications equipment as a means of enhancing its service, including PBXs, key systems, handsets, and a full range of customer terminals and maintenance service for the equipment and Internet access through Corbina which is currently offering services to its customers as an internet service provider ("ISP"). BILLING, TARIFFS AND INTERCONNECTION CHARGES Billing. CompTel intends to provide monthly and/or semi-monthly itemized bills to its customers denominated in U.S. Dollars. Installation and use/number charges, equipment charges, monthly line rental, value added services and local and domestic long distance call charges will be paid in Roubles at the U.S. 37 41 Dollar/Rouble exchange rate on the date when the customer makes payment. Currency regulations govern the currency in which international call charges may be paid and, usually, depend on the residency status of the customer. Russian resident customers are required to pay in Roubles while non-resident companies may pay in Roubles or U.S. Dollars. By denominating its bills in U.S. Dollars (and exchanging Roubles at the then current U.S. Dollar/Rouble Exchange rate), CompTel will limit the exchange rate risk otherwise associated with transacting business in a foreign currency. See Risk Factors -- Currency Controls; Restrictions on Repatriation of Payments. Tariffs. Currently, there are no specific regulations regarding tariffs which may be charged by CompTel for its various proposed product and service offerings. CompTel will set its tariffs taking into account those rates charged by MGTS (and long distance providers) and competitive pressures in the marketplace. CompTel will charge its customers separately for equipment, installation, line/number charges, and for local, domestic long distance, international long distance and value added services. Interconnection. CompTel's proposed network will connect to the Moscow public switched telephone network, (MGTS). Such interconnection is required to facilitate originating and terminating traffic between CompTel's facilities and both MGTS and long distance carriers. CompTel is negotiating, or intends to negotiate, interconnection agreements with telephone companies, including MGTS, operating or providing service in the areas where it intends to deploy its network. CompTel believes that it will be able to negotiate favorable tariffs for interconnection fees and carrier charges with MGTS and such other telephone companies. However, no assurances can be given in that regard. The failure to obtain an interconnection agreement with MGTS would, and the failure to obtain interconnection agreements with other telephone companies could, have a material adverse effect on the Company's business, in general, and CompTel's proposed business operations, in particular. See "Risk Factors -- Dependence on Interconnect Parties." TELECOMMUNICATIONS LICENSE On November 20, 1996, CompTel applied for a license to provide local, long distance and international telecommunication services within the Projected License Area. It is expected that the license will be granted, and that it will designate a specific geographic area within the Moscow Region, the number of lines which CompTel may have as well as set requirements that a certain number of such lines be in place and in operation by a certain date. If the MOC failed or refused, for any reason, to grant CompTel's license application, the Company's business, in general, and CompTel's proposed business operations, in particular would be materially adversely affected by reason of CompTel's resulting inability to construct or operate its proposed wireless local loop network. See "Risk Factors -- Government Regulation -- Licensing and Frequency Allocation Requirements -- CompTel's Inability to Conduct Operations if License is Not Granted." MARKETING, SALES AND DISTRIBUTION The Company's marketing objective is to create demand for CompTel's services by clearly differentiating its service offerings from those of other providers of similar services. It is anticipated that CompTel will use both mass marketing and specific customer segment marketing. Mass marketing efforts will emphasize the value of the high-quality, innovative services which it intends to provide. CompTel also plans to create marketing programs for particular customer segments. For each targeted segment CompTel intends to create a specific marketing program including a service package, pricing plan, promotional strategy and distinctive distribution channels. Initially, CompTel plans to be positioned as a provider of high quality telecommunications services to a select group of potential commercial customers including Russian and foreign businesses, governmental organizations, diplomatic missions, non-profit groups and wealthy individuals with high monthly telecommunications expenditures. In addition to these market segments, substantial demand is expected to come from new customer segments as the number of small and mid-sized Russian and foreign businesses increase in the Moscow Region. CompTel intends to develop a distribution network to market its telecommunications services including an in-house sales force as well as independent dealer/agents. It plans to solicit direct sales from entities such as large corporate accounts and embassies with each such account having a designated account representative. 38 42 It is anticipated that independent agents engaged for such purposes will receive a one-time payment per customer installation as well as ongoing commissions based on the monthly volume of traffic -- local and long distance -- of the subscribers enrolled by such dealer/agent. COMPETITION The Company believes that providers of strictly local telecommunications services in Russia do not currently compete to attract and retain customers on the basis of services and enhancements offered, customer service and price. Nevertheless, CompTel intends to build and operate its business in a highly competitive Moscow Region environment as MGTS is an entrenched provider. CompTel will not have an exclusive license to provide telecommunications services in the Moscow Region, and a number of other entities, including Russian companies and international joint ventures, may compete with CompTel for shares of the local telecommunications market in the Moscow Region. Many of such companies will be (or their joint venture partners are) larger than CompTel and have significantly greater financial and other resources. MGTS and CompTel must be regarded as competitors inasmuch as MGTS can offer its customers the same core local services as CompTel intends to offer to its customers. Although CompTel believes that MGTS would require substantial additional capital to modernize its network, MGTS is free, at any time, to enter into joint venture arrangements with other foreign partners to modernize its network. See "Risk Factors -- Competition" Other local and long distance competitors to CompTel currently include: (i) Combellga, a joint venture of Comin Com, BelgaCom, Alcatel Bell and MGTS which operates an international overlay network in the Moscow Region; (ii) Global One, which provides national and international voice and data services to certain destinations; and (iii) Metrocom, which provides local data access in St. Petersburg and has additional capacity through Comstar in Moscow. In addition, there are currently three Russian cellular operators in the Moscow Region who will be competitors of CompTel as they, too, offer local, long distance and international access. Potential users of wireless local loop systems may find their communications needs satisfied by other current and developing technologies, particularly in the broadband personal communications services. In the future, cellular service may also compete more directly with traditional wireline as well as wireless local loop telephone service providers. Continuing technological advances in telecommunications make it impossible to predict the extent of future competition. Several consortiums including Motorola Corporation, Globalstar, Odyssey and ICO, have plans to provide mobile satellite service in Russia for low-orbit or medium-orbit satellite systems that would offer a customer worldwide voice and data mobile communications coverage. See "Risk Factors -- Technological Obsolescence and New Technology." There can be no assurance that the Company will be able to compete effectively in any aspect of its current or proposed business activities or that developments by others will not render the Company's products and services noncompetitive. Moreover, the Company may have to compete with unlicensed businesses or with businesses capitalizing on personal relationships with the fluid power structure in the Russian Federation. In the Russian Federation, in addition to competition from private telecommunications companies, the Company may be competing with partially and wholly state-owned communications enterprises. There can be no assurance that competition in the Company's targeted markets will not increase as economic activity grows and that larger, better capitalized competitors will not enter the market in these areas. CORBINA'S LONG DISTANCE TELECOMMUNICATIONS OPERATIONS OVERVIEW Corbina is engaged primarily as a provider of long distance telecommunications services to commercial customers in the Moscow Region. Corbina does not operate on the basis of a telecommunications license, and instead, operates through agency agreements entered into with long distance companies, primarily Rustelnet, TelMos and Global One, through which it offers long distance service through its private telecommunications network. Inasmuch as Corbina contracts with other long distance carriers to provide network transmission, it has not needed to commit significant capital for its own network and transmission facilities. As a result, Corbina's 39 43 ability to expand has not been limited by the capacity, geographic coverage or configuration of a particular network. As the volume of its customers' traffic has reached sufficient levels in certain metropolitan markets, Corbina has expanded and upgraded its switch capacity to direct call traffic over selected transmission networks. Such flexibility in the routing of calls (which is referred to as "least cost routing") enables Corbina to realize higher per call profit margins by directing a call over the network which, at the particular time of day, and to the destination in question, costs Corbina the least amount. Although the long distance resale business in the United States is a major component of the overall long distance industry with annual revenue estimated in excess of one billion dollars, in Russia it is still in its infancy. As is the case in the United States, however, primary carriers in Russia require alternative means of marketing their long distance services in order to increase total traffic volume. Providers, such as Corbina, by offering effective and dedicated marketing efforts, are able to attract customers more effectively (and with fewer direct costs) than the carriers themselves. In order to attract (and retain) this new customer base, the primary carriers are willing to accept lower per-minute rates than the rates offered to their direct customers. Corbina's customers include numerous offices of major Western and Russian businesses located within the Moscow Region. An integral component of long distance telecommunications transmission is the switching equipment necessary to direct calls or data over the appropriate transmission line. Facilities-based providers, like Corbina, maintain their own switches as part of their networks. Smaller non-facilities-based providers generally contract for the use of switches in connection with their contractual arrangements for the use of a network. THE CORBINA ACQUISITION On July 23, 1996, the Company acquired from Mr. Leibov, the then sole owner of all of Corbina's 140 shares of outstanding capital stock, an option (the "Option") expiring on December 31, 1997 to purchase 105, i.e., 75%, of such shares for $190,000. Between July 23, 1996, and November 20, 1996, the Company made loans to Mr. Leibov in the aggregate principal amount of $190,000. Each of said loans was payable on demand, and bore interest at the rate of 8% per annum. On January 28, 1997, the Company exercised the Option, and paid the $190,000 exercise price by canceling and returning to Mr. Leibov the promissory notes which had been issued by him to the Company in the aggregate amount of $190,000. INDUSTRY BACKGROUND The Company believes that the Russian long distance market remains relatively underdeveloped, with poor network infrastructure resulting in limited network capacity. The size of the Russian long distance market, according to published reports, has grown significantly, with international and long distance services accounting for approximately 57% of the estimated $4.5 billion market which currently exists for telecommunications services throughout the Russian Federation. The Company also believes that the volume of international and long distance telephone services will continue to grow as current and planned improvements to the Russian Federation's long distance telecommunications network infrastructure are made by Rostelecom, and other privately held licensed long distance carriers.. There are several impediments impacting expansion of long distance telecommunications services in Russia, among which are: (1) relative backwardness of the currently installed systems; (2) Soviet style structure and management of major telephone companies; (3) lack of capital for infrastructure development; (4) slow development of market-oriented economic environment, limiting capital investment and the attraction of Western services; and (5) limited adherence to international telecommunications standards. The Company believes that significant opportunities exist in the Russian Federation (and the former Soviet Union) for long distance companies capable of establishing and maintaining telephone services typically available throughout the United States and Western Europe. 40 44 PRODUCTS AND SERVICES Through contractual arrangements with facilities-based carriers and other providers, Corbina offers a wide-variety of long distance telecommunications services. To date, substantially all of Corbina's revenues have been generated by basic outgoing long distance services. Corbina offers switched and dedicated outbound long distance services carried by large national or regional long distance carriers such as Global One and Rustelnet. The Company believes that Corbina has been successful as a provider of these basic services because of the discounts it has been able to negotiate with its underlying carriers, and its ability to route its customers' traffic over the transmission networks of more than one carrier. Corbina can direct a single customer's calls among different carriers' networks to take advantage of the most favorable rates to different destinations at different times of the day. Direct Dial. Corbina's primary focus has been the provision of domestic and international long distance services to business customers in the Moscow Region including those which generate significant amounts of outgoing international traffic. Corbina targets both foreign and, increasingly, Russian businesses which have requirements for high quality and cost-effective long distance and international telecommunications services. As of December 31, 1996, foreign businesses represented approximately 60% of Corbina's business customers and Russian businesses represented the balance. Corbina intends to expand its provision of direct dial capability by entering into agreements with various international carriers to lease capacity on private lines (e.g. Moscow -- New York) which will significantly increase Corbina's gross profit margins on such traffic. By so doing, it will no longer rely on its present carriers for transmission, but will, in effect operate its own long distance network and enhanced switching facilities. Value Added Services. In addition to basic outgoing services, Corbina has recently expanded its product line to provide its customers with access to the Internet. Corbina intends to further expand its product line to provide its customers with additional value-added services that generally produce higher margins than basic long distance service including, voicemail and information services, private lines for voice and data transmission over all-digital fiber-optic transmission facilities, fax broadcast services that will allow a user to send a facsimile to many destinations simultaneously, fax mailbox services which will provide for the storage and retrieval of facsimiles in a manner similar to electronic mail and prepaid phone cards which will permit users to place long distance and international calls from touchtone telephones, eliminating the need for coins and collect calls. Card users will be able to easily access telephone service by dialing a toll-free number and entering a personal identification number (PIN) printed on the back of the card. Corbina intends to use approximately $150,000 of the $655,000 capital contribution which the Company will be paying to it upon completion of this Offering to enable it to provide voicemail and information services, fax and debit card services through its existing switch. Corbina anticipates that it will be offering such enhanced services during the fourth calendar quarter of 1997. No assurance can be given that the offer of such enhanced services will increase Corbina's revenues, or that it will derive any profits with respect thereto. See "Use of Proceeds." MARKETING AND SALES Corbina markets its services by direct sales and through independent distributors. Corbina targets commercial customers with telecommunications usage of under $10,000 per month. Corbina's target customers generally do not qualify for the major carriers' volume discounts or for the level of support services made available to higher volume users. Corbina intends to use approximately $155,000 of the $655,000 capital contribution which the Company will be paying to it upon completion of this Offering to purchase print and other forms of advertising through which it intends to create greater awareness among potential customers of Corbina and its services. Corbina relies heavily on its direct sales and field service representatives. Typically, businesses become customers of Corbina by purchasing long distance service from its direct sales representatives, who receive an initial commission for securing the sale and a trailing commission so long as that customer remains with Corbina. Thereafter, Corbina's field service representatives follow up with existing customers by offering them new value-added services, for which the representatives also receive a commission. On February 28, 1997, 41 45 Corbina had eight direct sales and field service representatives. Corbina's future growth will depend in part on expansion of its direct sales force. Corbina intends to supplement its direct sales efforts by increasing to approximately 20, the number of independent distributors, who solicit customers for Corbina and receive commissions on the business they generate for Corbina. Corbina anticipates that some of its new distributors will employ telemarketing programs, and it is expected that sales through this channel will increase the number of Corbina's customers with smaller volumes of use. Although there are higher costs associated with sales to smaller customers, sales to such customers generally have higher margins. At February 28, 1997, Corbina had seven independent distributors. NETWORK AND OPERATIONS Corbina currently operates an advanced telecommunications network consisting of a digital switch capable of handling up to 1,000 concurrent telephone communications, leased fiber-optic transmission lines and sophisticated network management systems designed to optimize traffic routing. Corbina's network currently originates traffic within the entire Moscow Region. Corbina operates an "open network," meaning that any customer within the Moscow Region can access Corbina's long distance network by dialing one of Corbina's access codes, or by pre-subscribing to the Company as its long distance service provider and utilizing its routes. Switching Facilities. Corbina currently operates a digital telecommunications switch in Moscow. Switches are digital computerized routing facilities that receive calls, route calls through transmission lines to their destination and record information about the source, destination and duration of the calls. The Company's switch, a Northern Telecom Meridian Model 61 is capable of handling up to 1,000 simultaneous telephone transmissions. As Corbina's long distance traffic routing needs increase, it intends to expand its existing switch and acquire additional switches to increase its call routing capacity The Company believes that Corbina's intended acquisition of additional switching equipment will improve Corbina's gross margins and provide greater control over its customers. Leased Fiber-Optic Transmission Lines. Corbina presently leases fiber-optic transmission lines from the Moscow Area Communications Network ("Macomnet"), an unaffiliated company which has constructed a fiber-optic telecommunications transmission network in the Moscow Region. Through its Macomnet lines, Corbina's switching facilities are directly connected to the international fiber-optic transmission lines operated by Global One. Corbina also employs its Macomnet-provided fiber-optic lines to establish direct fiber-optic connections between Corbina's long distance customers and its switching facilities. Corbina may also lease fiber-optic and wire-based transmission lines from a variety of facilities-based and long distance carriers. Corbina will contract with these entities with terms ranging from 12 to 60 months. Corbina may supplement its leased "on-network" capacity with "off-net" services from a variety of facilities-based long distance carriers. Network Management Systems. Once calls are originated over circuits, i.e., loops, connecting Corbina's customers to the Moscow public switched telephone network (MGTS), the calls are routed over the public switched network to Corbina's switching facility, and then re-routed on a least-cost basis over leased digital, fiber-optic, e.g., Macomnet's, transmission facilities to one of Corbina's long distance carriers. Corbina utilizes a state-of-the-art system to electronically cross-connect circuits thereby increasing call routing and circuit provisioning efficiency and providing better network monitoring capabilities. This network protocol reduces connect time delays and provides additional technical capabilities and efficiencies for call routing. Network Surveillance and Diagnostics. Macomnet provides, pursuant to its five year fiber-optic transmission lines lease agreement with Corbina, network surveillance and diagnostic services which generally enable Corbina to anticipate and correct problems before they result in service interruption. Macomnet's technicians monitor Corbina's network 24 hours a day, 7 days a week. To reduce the potential impact of any equipment or transmission failure, Corbina intends to use approximately $100,000 of the $655,000 capital contribution which the Company will be paying to it upon completion of this Offering to purchase or lease an additional switch which will enable it to which will provide it with the standby transmission capacity needed to 42 46 reroute or restore transmissions in the event that its primary system goes off line. Corbina's technicians monitor the network for fraud on a real-time basis, using computer systems that detect unusual or high volume calling patterns. See "Use of Proceeds." Customer Installation Services. Corbina maintains a staff of installation technicians who perform the services necessary to enable a customer to route its long distance calls through Corbina's switching facility. Such services typically include installation of a pre-programmable routing device at the customer's premises permits the customer to make long distance calls through Corbina without having to manually dial an access number or personal identification number. The routing device can also be programmed to route calls to other telecommunications providers and to prevent a customer's employee from attempting to route a call through an unauthorized telecommunications provider. Such installation services also may encompass the wiring of a customer's premises or the building housing the customer's business either to provide access, or increased access to the Moscow public switched telephone network. Corbina intends to use approximately $250,000 of the $655,000 capital contribution which the Company will be paying to it upon completion of this Offering as working capital to be used, among other purposes, for the purchase of an inventory of the above-described routing devices, and to finance the costs which it incurs in providing the above-mentioned building and premises wiring services. Billing and Management Reports. Corbina is currently able to collect many call data items for each phone call placed by a customer, including employee name, call origination point, call destination point, billing code, minutes, date, time and rate code. From this data, Corbina can organize the customer's monthly phone calls into a wide variety of report formats. The Company believes that Corbina's focus on billing as a differentiating service has been and will continue to be an important factor in its ability to successfully compete for its targeted customer. Revenue Management Systems. Corbina has implemented a revenue management process which enables it to monitor costs and volumes of use for each of its products and services. Customer Information. Corbina is able to process customer information from the initiation of the customer's order by permitting its sales personnel to enter data about a new customer into the system either from Corbina's field offices or directly from a customer's office. This capability is intended to minimize both delays in provisioning and the repetition of tasks that could lead to error. Corbina has other features designed to minimize error, such as its ability to recognize and reject inconsistent or incomplete information from suppliers. INFORMATION SYSTEMS The Company believes that maintaining sophisticated and reliable billing and customer service information systems that integrate billing, accounts receivable and customer support is a core capability necessary to record and process the massive amounts of data that are generated by a telecommunications service provider. Corbina has developed new proprietary information systems which will integrate customer service, management information, billing and financial reporting. These systems, which are in the process of being phased in: (i) provide sophisticated billing information tailored to the requirements of its customer base, (ii) increase the accuracy and speed of customer billing, (iii) respond promptly to customer needs, (iv) integrate acquired customer bases, (v) facilitate customer retention by identifying customers who change their usage patterns, (vi) verify payables to suppliers, and (vii) support operations and collection efforts. LONG DISTANCE CARRIERS Corbina has supply contracts with Rustelnet, Global One and TelMos for long distance telecommunications services. Corbina determines which carrier to use for its traffic on the basis of routing costs per unit of time. All of such costs are programmed into Corbina's switch which makes all routing decisions instantaneously on the basis of such programmed data. During 1996, TelMos, Rustelnet and Global One were responsible for carrying traffic representing approximately 15%, 60% and 25%, respectively, of Corbina's revenues. During the first two months of 1997, 43 47 TelMos, Rustelnet and Global One were responsible for carrying traffic representing approximately 40%, 5% and 55%, respectively, of Corbina's revenues. In addition to its contracts with TelMos, Rustelnet and Global One, Corbina intends to enter into contracts with other carriers. Corbina has not been required to commit to purchase minimum volumes of long distance services during stated periods. Each month Corbina receives invoices from its underlying carriers. Due to the multitude of billing rates and discounts which must be applied by carriers to the calls completed by Corbina customers, Corbina has disagreements, at times, with its carriers concerning the sums invoiced for its customers' traffic. It has been Corbina's experience that the amounts it is invoiced often do not precisely reflect actual call traffic. Accordingly, the carrier may consider Corbina to be in arrears in its payments until the amount in dispute is resolved. These disputes have generally been resolved on terms favorable to Corbina, although there can be no assurance that this will continue to be the case. In accordance with generally accepted accounting principles, Corbina records as expense amounts in dispute that correspond to the aggregate amount that the Company believes it will be required to pay and adjusts that amount as the underlying disputes are resolved. COMPETITION The long distance telecommunications industry in Russia is highly competitive and affected by regulatory and rapid technological change. Many competitors, including among them, Rostelecom, Sovintel (a joint venture between Global Telesystems and Rostelecom), Comstar, TelMos, Combellga and Global One, have considerably greater resources than those of the Company and Corbina, and there can be no assurance that Corbina will remain competitive in this environment. The Company believes that the principal competitive factors in Corbina's business include pricing, customer service, network quality, value-added services and the flexibility to adapt to changing market conditions. While the Company believes that Rostelecom and Corbina's other larger competitors, all of whom are considered by Corbina to be dominant in the Russian long distance telecommunications industry, historically have chosen not to concentrate their direct sales efforts at Corbina's target group of customers, i.e., smaller commercial users, these carriers have recently introduced new services and pricing options that are attractive to smaller commercial users, and there can be no assurance that they will not market to these customers more aggressively. The Company believes that Corbina currently competes favorably in its targeted market segment, principally due to its economies of scale, personalized service and enhanced billing and reporting. The Company also believes that Corbina's ability to succeed as a competitor in the Russian long distance telecommunications industry will increasingly depend on its ability to offer on a timely basis new services based on evolving technologies and industry standards. There can be no assurance that new technologies or services will be made available to Corbina on favorable terms. Regulatory trends in the Russian Federation have had, and may have in the future, significant effects on competition in the telecommunications industry. Under current industry conditions, the underlying carriers do not have access to information regarding Corbina's customers for which they provide the actual call transmissions. If this situation were to change and since these carriers are potential competitors of Corbina, they could use information about its customers, such as their calling volume and patterns of use, to their advantage in attempts to gain such customers' business, although the Company believes that such practices could be unlawful. In addition, Corbina's future success will depend, in part, on its ability to continue to buy transmission services from these carriers at a significant discount below the rates these carriers otherwise make available to Corbina's target customers. International Telecommunications Services. In providing international circuits and direct dial services to business customers in the Moscow Region, Corbina faces competition from a number of operators in the Moscow Region offering similar services. Such operators, including Comstar, Combellga, Telmos and Sovintel, all of whom are significantly larger and better capitalized than Corbina, are primarily targeting Russian and foreign businesses in the Moscow Region, replicating the services that Corbina is providing. In terms of providing international circuits, Corbina faces direct competition from Rostelecom, the state owned operator which transmits calls both to Intelsat and the Russian satellites, and indirectly from Rostelecom, 44 48 which also owns capacity in and operates the international cable facilities connecting the Russian Federation to the telecommunications networks of the major global carriers. Russian Long Distance Services. In terms of the Russian long distance market, Corbina's competition will come from a number of sources both on a national and regional basis. Nationally, Corbina will face competition from Rostelecom, as the operator of the terrestrial public long distance network of the Russian Federation. There are no other commercial national networks of the same scale as the Rostelecom network, although there are a number of private networks, including those of the Ministries of Defense and Railways, that could, if funding were made available, provide further competition to Corbina. In addition, Sviazinvest has been offered a long distance carrier's license and may, if it becomes adequately capitalized, become a serious competitor. See "Risk Factors -- Competition. Corbina will face satellite-based competition from Russian TeleSystems ("RTS"), an affiliate of Global TeleSystems Group, a privately owned US-Russian joint venture which has been developing a digital overlay satellite network for transmission of long distance and international telecommunications traffic within the countries which comprised the former Soviet Union. Management believes that RTS has a small number of regional sites in operation offering connectivity between regions of the Russian Federation and the Moscow Region. Corbina will also face competition from a number of satellite-based service providers focusing on providing service in and between specific regions of the Russian Federation. EMPLOYEES As of the date of this Prospectus, the Company had four employees, including Messrs. Nathan and Leibov, Corbina had 23 full time employees, including Mr. Leibov, and CompTel had three full time employees, including Mr. Leibov. As CompTel's proposed network begins to grow over the next three years, it intends to hire approximately 20 full time employees, 15 of whom will provide installation services to its customers, three of whom will provide customer service, and two of whom will be involved in accounting and bill collection activities. In order to support anticipated increased growth in Corbina's service offerings, Corbina expects to hire up to five new full time employees over the next 12 months, three of whom will provide programming and technical support services, and two of whom will provide customer support services. The Company's future success will depend in significant part on the continued service Mr. Leibov, and the key technical sales and service management personnel employed by its Subsidiaries. There can be no assurance that the Company can retain such key management, sales and technical employees or that it can attract, assimilate or retain other highly qualified technical sales and management personnel in the future. Neither the Company nor either of its Subsidiaries has experienced any work stoppages, and the Company believes that its relationships with its employees, and the relationships which its Subsidiaries have with their respective employees are good. FACILITIES Pursuant to a lease expiring on April 30, 2001, the Company leases approximately 2,000 square feet of space at 780 Third Avenue, Suite 1600, New York, New York 10017 which it uses as an executive and administrative office at an annual rent of approximately $76,000 per year. Corbina leases approximately 186 square meters of space in Moscow at 30-15 Ryazansky Prospect, Moscow, Russian Federation. In accordance with its lease, Corbina must pay rent of approximately $38,000 per year during the five year term ending in 2000. CompTel has entered into a lease for approximately 182 square meters of space on a different floor of the same building which houses Corbina's offices in Moscow. Such lease obligates CompTel to pay rent of approximately $37,000 per year during the five year term ending in 2002. LITIGATION Neither the Company nor either of its Subsidiaries is involved in any legal or administrative proceedings. 45 49 REGULATION OF TELECOMMUNICATIONS IN THE RUSSIAN FEDERATION The provision of telecommunications services in the Russian Federation falls within federal jurisdiction. The principal legal act regulating telecommunications in the Russian Federation is the federal Law on Communications, enacted on February 16, 1995 (the "Communications Law"), which establishes the legal basis for all activities in the telecommunications sector and provides, among other things, for licensing to provide communication services, the requirement to obtain a radio frequency allocation, certification of equipment, and fair competition and freedom of pricing. The Communications Law is a framework law which anticipates and references various regulations to be enacted by the competent supervisory authorities. No substantial regulations have been promulgated since the enactment of the Communications Law. The practice in the Russian Federation is for regulations which were promulgated under a predecessor law to continue to be applied until new regulations are issued to the extent such pre-existing regulations do not contradict the newly enacted law. There is no indication that the MOC or other regulatory authorities are taking a different approach at this time. The Communications Law provides for equal rights of individuals and legal entities to participate in the telecommunications operations and does not contain any special restrictions with regard to participation by foreign persons. All users and operators have access to the Interconnected Telecommunications Network ("ITN"), a centrally managed complex of telecommunications networks belonging to different enterprises and governmental agencies of the Russian Federation, and have the right to interconnect their networks with ITN in compliance with the connection conditions set forth in their licenses. Regulatory Authorities. The MOC and the Federal Agency of Governmental Communications and Information under the President of the Russian Federation ("FAPSI") are the federal organizations which have executive power over the telecommunications industry. The MOC is responsible for allocating federal budget resources in the telecommunications industry and has supervisory responsibility for the technical condition and development of all types of communications. The role of FAPSI is not clearly defined in the Communications Law. FAPSI is subordinate to the President of the Russian Federation on matters within the President's jurisdiction pursuant to the Russian Constitution. In addition, the State Commission on Radio Frequencies and the State Supervisory Commission on Communications (the "SSCC") are regulatory agencies under the MOC. The State Commission on Radio Frequencies is primarily responsible for the development and implementation of a long-term policy for frequency allocation and issues frequency permits. The SSCC is responsible for technical supervision of network and equipment throughout Russia, including supervision of compliance of network operators with applicable regulations and of licensees with the terms of their licenses. Licensing to Provide Services. The Communications Law requires that any person providing telecommunications services must obtain a license prior to commencing such services, unless such services are essentially "in house" (including within an automobile, on a ship, in an airplane or another means of transportation), or are for internal production or technological purposes, or are used solely to service public administration, defense, security and law enforcement authorities. The Communications Law expressly provides that any person, including foreign legal entities and citizens, is authorized to own and operate communication facilities, but equally provides that Russian legislation may establish a list of communications facilities which may be owned exclusively by the state. Such a list has not yet been established. Licenses to provide telecommunications services are issued by the MOC on the basis of a decision by the Licensing Commission of the MOC. No new licensing regulations have been issued since the enactment of the Communications Law and in practice the MOC continues to issue licenses based on the "Regulations on Licensing in the field of Telecommunications in the Russian Federation" which were enacted by decree No. 642 of the Russian Government on June 5, 1994 (the "Licensing Regulations") prior to the enactment of the Communications Law. 46 50 Under the Licensing Regulations, licenses for rendering telecommunications services may be issued and renewed for periods ranging from 3 to 10 years and several different licenses may be issued to one person. Renewals may be obtained upon application to the MOC and verification by appropriate government authorities that the licensee has conducted its activities in accordance with the licenses. Officials of the MOC have fairly broad discretion with respect to both the issuance and renewal procedures. Both the Communications Law and the Licensing Regulations provide that a license may not be transferred. Thus, a license cannot be contributed to the capital stock of another person. Furthermore, this restriction is interpreted to prohibit assignment or pledge of a license to provide collateral for obligations of the licensee or a third party. however, pursuant to a letter issued by the Deputy Minister of Communications, a licensee may enter into agreements with third parties in connection with the provision of services under the licensee's license. Licenses to provide telecommunications services may be revoked or suspended by the MOC for several reasons. The Licensing Regulations provide that licenses may be suspended for the following reasons: - failure to comply with the terms and conditions of the license; - failure to provide services within three months from the start-of-service date set forth in the license; - provision of inaccurate information bout the communication services rendered to consumers; and - refusal to provide documents requested by the MOC. Licenses may be revoked for the following reasons: - failure to remedy the circumstances which resulted in a suspension of the license within the established time; - established practices of unfair competition by the license holder in performing the licensed services; and - other grounds set forth by Russian law or international treaties. The fees for issuing licenses are established as multiples of the monthly minimum wage ("MMW") (which is currently 85,900 roubles or approximately US$15.00). Currently, licensing fees vary from 20 times the MMW for local telephone services, 30 times the MMW for mobile radio-communication services, 40 times the MMW for mobile radiotelephone and cellular communication services to 90 times the MMW for inter-city and international communication services. Licenses generally contain a number of other detailed conditions, including a date by which service must begin, requirements for adhering to technical standards, and often a schedule of the number of lines which must be in service and percentage of the licensed territory which must be covered by specified dates. Corbina has been informed by the MOC that it does not need to have a license to conduct operations in the manner which it currently employs, i.e., as a reseller of long distance services provided by carriers licensed by the MOC. CompTel has filed a license application for its proposed wireless local loop activities, which application, if granted, will also include appropriate licensing for the provision of domestic and international long distance services. Radio Frequency Allocation Regulation of the use of radio frequencies and spectrum allocation are under the exclusive control of the Russian Government represented by the MOC which has for this purpose established the State Commission on Radio Frequencies within the MOC. A frequency allocation by the State Commission on Radio Frequencies is a preliminary condition to receiving a license for providing radio telephone communication services. Once a licensee receives a license and general frequency allocation from the State Commission on Radio Frequencies, the licensee must develop its frequency allocation and site plan, which is subject to approval by the SSCC. The plan is then reviewed by the SSCC and may be corrected in order to ensure electromagnetic compatibility of the proposed cellular network with other radio equipment operating in the area. Based on the results of this study, the SSCC gives its final approval to use specific frequencies in specific areas. 47 51 Each licensee must pay to the SSCC certain fees. No assurance can be given as to the effect of such fees on the Company's future results of operations. Equipment Certification Certain telecommunication equipment used in the Russian Federation is subject to mandatory certification to confirm its compliance with the established standards and technical requirements. Certificates of Compliance are issued to the supplier by the MOC on the basis of a decision by the Department of Certification. Certificates of Compliance have been issued by the MOC for all of the equipment currently employed by Corbina. Further, all radio-electronic (high-frequency) equipment (involving frequencies in excess of 9KHz) manufactured or used in, or imported into, the Russian Federation require special permission from the SSCC. Such special permissions are issued to a person for its own use and do not permit use of such radio-electronic equipment by other persons. In addition, a Presidential Decree requires a license and equipment certification from FAPSI to design, produce, sell, use or import encryption devices. Some commonly-used digital cellular telephones are designed to be capable of encryption of communications, whether or not this feature is activated on the network in which they are used, and therefore must be certified by FAPSI. Competition and Pricing The Communications Law requires the federal regulatory agencies to encourage and promote fair competition in the provision of communication services and prohibits abuse of a dominant position to hinder, limit or distort competition. The Communications Law also provides that tariffs for communication services may be established on a contractual basis between the provider and the user of telecommunications services, thus confirming the liberalization of prices for telecommunications services introduced by Presidential decree in 1992. However, the Communications Law simultaneously provides that "tariffs may be regulated by the state for some types of communication services." Presidential Decree No. 221, dated February 28, 1995, "On Measures for Streamlining State Regulation of Prices ("Tariffs") and its implementing Governmental Decree No. 239, dated March 7, 1995, as amended, provide that the prices and tariffs on certain telecommunications services to be established by the subjects of the Russian Government are subject to state regulation. Governmental Decision No. 793, dated August 7, 1995, as amended, has established that the following communication services are subject to such price controls by the executive authorities of the Russian Federation: subscription charges, installation fees, charges for local calls and charges for international calls using zonal systems. Further, Presidential Decree No. 220 of February 28, 1995 "On Certain Measures for the State Regulation of Natural Monopolies in the Russian Federation" classifies activities in the field of public telecommunications services as a "natural monopoly" and calls for the creation of a specialized federal agency to regulate providers of telecommunications services. Subsequently, the Federal Service of Regulating the Natural Monopolies of Communications was created and bestowed with responsibility for tariff regulation in the sector of public. telecommunications. 48 52 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ----------------------------- --- ------------------------------------------ Jack W. Buechner............. 56 Chairman of the Board Ronald G. Nathan............. 52 Director and President, Chief Executive Officer, Treasurer and Chief Financial Officer Richard N. Holwill........... 51 Director Steven D. Dreyer............. 50 Director and Secretary
Former Congressman Buechner has been a director of the Company since October 1994, the Chairman of the Board of the Company since January 1995 and has been a partner in the Washington, D.C. office of Manatt, Phelps and Phillips, a Los Angeles based law firm since 1994. He specializes in Russian and Eastern European matters including those dealing with international financial institutions. Between 1993 and 1994, Mr. Buechner was engaged in various national and international government and industry related projects as a Principal of The Hawthorne Group, a Virginia based public affairs firm. Between 1991 and 1993, he served as President of the International Republican Institute, the international arm of the Republican Party. In that capacity, Mr. Buechner participated in the development of civil governance programs for countries located in the former Soviet Union and Eastern Europe. Between 1986 and 1991, he was a member of the United States House of Representatives from St. Louis County, Missouri, and served in the leadership of the House as Deputy Minority Whip and Vice Chairman of the Republican Study Committee. Mr. Buechner received a B.A from St. Benedict's College in Atkinson, Kansas in 1958, and a J.D. from St. Louis University in 1962. Mr. Nathan has been the Company's President and Chief Executive Officer, Treasurer (Chief Financial Officer) and a Director since its inception in April 1994, and was the Company's Chairman of the Board from April 1994 until January 1995. Mr. Nathan received a Masters degree from the London School of Economics in 1967 and a law degree from the University of Pennsylvania in 1970. He was a law clerk for the Hon. James Hunter III, at the United States Court of Appeals for the Third Judicial Circuit from 1970 to 1971, and he was employed as an associate in the Washington, D.C. law firm of Arnold & Porter from 1971 to 1978. In 1978, Mr. Nathan was appointed by President Carter (with U.S. Senate confirmation) to the Board of Directors of the National Railroad Passengers Association (AMTRAK) on which he served through 1982. From 1982 to the present, Mr. Nathan has been an independent businessman involved in various business ventures including, among other things, the structuring and financing of business opportunities in the telecommunications industry, particularly cellular telecommunications. In 1993, he formed a telecommunications company to engage in, among other things, long distance resale, the operations of which were terminated in 1994 so that he could concentrate his efforts on the business of the Company. From 1988 until 1993, Mr. Nathan was a principal of Omni Investments, a privately owned firm which specialized in acquiring energy and petrochemical assets in addition to being engaged in international petroleum marketing. Hon. Richard N. Holwill served as Counsellor to the United States Arms Control and Disarmament Agency from 1990 to 1993, and as United States Ambassador to the Republic of Ecuador from 1988 to 1990. From 1983 to 1988, he served as Deputy Assistant Secretary of State for Inter-American Affairs. During 1985 to 1988, Mr. Holwill also served as a member of the Board of Directors of the Panama Canal Commission. Since January 1993, Mr. Holwill has been Managing Director of Pierce Investment Banking, Inc., a privately held investment banking firm. He graduated from Louisiana State University in 1968 and has undertaken post-graduate studies in Finance at the University of Missouri and in Economics at the Wharton School of Business. Mr. Holwill was elected to the Board on February 10, 1997. Mr. Dreyer has been a practicing attorney in New York City since 1971, and has specialized in representing corporations and other business entities in connection with public and private capital formation, acquisition and divestiture transactions for the last 15 years. From 1984 to February 1995, he was a partner in 49 53 the law firm of Ohrenstein & Brown, and since March 1995, he has been a partner in the law firm of Hall Dickler Kent Friedman & Wood, LLP, the Company's corporate and securities counsel. Mr. Dreyer received a B.A. from the University of California at Los Angeles in 1968, and J.D. and Ll.M. (Taxation) degrees in 1971 and 1981, respectively, from The New York University School of Law. He was elected to the Board, and appointed as Secretary of the Company, on February 10, 1997. MANAGEMENT OF THE SUBSIDIARIES Mikhail Leibov is the Managing Director and Chief Executive Officer of Corbina and CompTel. Mr. Leibov was born in Moscow, Russia in 1950, and emigrated to the United States in 1977. In 1972, Mr. Leibov earned an MS degree in applied mathematics (specializing in telecommunications and computer sciences) from Moscow University. Between 1972 and 1976, he served as project manager for the Soviet Ministry of Railroad Transportation in connection with the creation of the first real-time railroad tracking system built in the USSR. Between 1977 and 1986, Mr. Leibov was employed by IBM, and served as a member of the software architecture group that designed and implemented one of the world's first distributed databases. From 1986 to 1987, he was employed by AT&T as project manager with respect to the design and implementation of large databases. From 1987 to 1994, Mr. Leibov was employed by Prodigy Corporation as a developer of the Prodigy Information Services. Between 1994 and 1995, Mr. Leibov was employed by Access General Corporation, a corporation he organized as a designer and developer of specialized tools for tuning very large local and remote databases. In 1995, he organized Corbina as a provider of long distance telecommunications services in Moscow, and has been involved in its management on a full time basis since its inception. EXECUTIVE EMPLOYMENT AGREEMENTS The Company entered into an employment with Mr. Nathan pursuant to which he has been employed as the Company's Chief Executive Officer for a term which commenced on January 1, 1995, and which has been extended from its original termination date of December 31, 1997 to December 31, 1999. Such agreement, as extended, provides that Mr. Nathan must perform services consistent with his position, but does not require him to devote full time services in the performance of his duties. In accordance with such agreement, Mr. Nathan receives an annual base salary of $100,000, and is entitled to such bonuses as the Board of Directors may deem appropriate. The agreement contains a non-competition covenant which is applicable during the term of the agreement, and the one year period immediately following such term. The agreement further provides for a severance payment of two year's salary which is payable to Mr. Nathan upon termination of his employment due to a change of control of the Company. In connection with the Company's acquisition of its 75% ownership interest in Corbina, the Company has entered into an employment agreement with Mr. Leibov, pursuant to which he has agreed to serve as chief executive officer of Corbina and CompTel during the five year term which commenced on February 1, 1997. Such agreement further provides that (i) between February 1, 1997 and the last day of the month in which the closing of this Offering occurs, Mr. Leibov shall be paid a base salary by the Company of $125,000 per annum, less the aggregate amount of the annual salaries which he shall receive from Corbina and CompTel; (ii) during the balance of the term of the agreement, his base salary shall be $175,000 per annum, less the aggregate amount of the annual salaries which he shall receive from Corbina and CompTel; (iii) he shall be paid such cash bonuses and other additional compensation as the Company's Board of Directors may, in its absolute discretion, determine to award to him, (iv) his life shall be insured to the extent of $500,000 which shall be paid to the beneficiary of his choice; (v) he and his immediate family will be covered by Company-provided and paid for health insurance; (vi) as soon after the Offering as is reasonably possible, the Company shall issue 25,000 shares of the Company's Common Stock to Mr. Leibov pursuant to the Omnibus Plan, subject to such vesting conditions as the Compensation Committee of the Company's Board of Directors shall reasonably determine; and (vii) Mr. Leibov shall receive incentive compensation benefits, as follows: 1) in the event that Corbina's operating income for any of its fiscal years ending during the five year term (the "Term") of the employment agreement (the "Income"), determined pursuant to the same US generally acceptable accounting principles which would be applicable if Corbina's financial statements were to be prepared in the 50 54 same manner as the Company's annual audited financial statements, shall be greater than US$3,400,000, then, the Company shall transfer, subject to the restrictions on transfer and right of first refusal hereinbelow described, a block of the Corbina shares held by it equal to 10% of the total number of outstanding shares of Corbina (the "Corbina Incentive Shares"), thereby reducing the Company's ownership of Corbina to 65%; and 2) if, during any fiscal year of the Term which shall be subsequent to the fiscal year in which Mr. Leibov shall have earned the Corbina Incentive Shares, Corbina's Income shall be greater than $3,400,000, Mr. Leibov shall receive from the Company, pursuant to the Omnibus Plan, shares of the Company's common stock, valued at the mean of the bid and asked prices therefor on the ten trading dates immediately preceding the issuance thereof, equal to the difference between the Income and $3,400,000. The number of shares of the Company's Common Stock to be issued to Mr. Leibov pursuant to the foregoing provisions shall not exceed 250,000, in the aggregate. Mr. Leibov shall not be entitled to transfer any ownership interest in any of the Corbina Incentive Shares to any person, firm or entity affiliated or associated with him (a "Related Transferee") unless, prior to such transfer, the Related Transferee agrees to be bound in writing by the provisions of the right of first refusal described in the immediately succeeding sentence. In the event that Mr. Leibov intends to sell any of the Corbina Incentive Shares to any person, firm or entity who is not a Related Transferee, and who has made a bona fide offer to purchase such shares for value, the Company shall have a right of first refusal to purchase such shares subject to such offer pursuant to the same terms and conditions pertaining thereto. EXECUTIVE COMPENSATION The following table sets forth compensation awarded to, earned by or paid to the Chief Executive Officer during the three years ended December 31, 1996. No other officer of the Company earned a salary and bonus of more than $100,000 during such periods. During said three year period, the Company did not grant any restricted stock awards, options, or pay compensation that would qualify as "All Other Compensation" and it did not make payments to any executive officer which may be categorized as "LTIP Payouts." SUMMARY COMPENSATION TABLE
OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING COMPEN- STOCK OPTIONS/ NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) AWARDS($) SARS(#) - ---------------------------------------- ---- -------- -------- -------- -------- -------- Ronald G. Nathan, Pres.................. 1996 $100,000 -- -- -- -- 1995 100,000 -- -- -- -- 1994 100,000 $180,000 -- -- --
OMNIBUS STOCK INCENTIVE PLAN The Company has adopted an Omnibus Stock Incentive Plan (the "Omnibus Plan") to permit the grant of awards to employees of the Company (including officers and directors who are employees of the Company or a subsidiary of the Company) of restricted shares of the Company's common stock, performance shares of the Company's Common Stock, stock appreciation rights relative to the Company's common stock and both incentive stock options and non-qualified options to purchase shares of the Company's common stock. A maximum of 1,000,000 shares may be issued under the Omnibus Plan. The Omnibus Plan was adopted in order that the participants in the Omnibus Plan will have financial incentives to contribute to the Company's growth and profitability, and to enhance the ability of the Company to attract and retain in its employ individuals of outstanding ability. As of the date of this Prospectus, no grants or awards have been made under the Omnibus Plan, except for one option issued to Jack Buechner. See "-- Option Issued to Non-Employee Director." OPTION ISSUED TO NON-EMPLOYEE DIRECTOR On August 22, 1995, the Board of Directors of the Company granted an option to Mr. Buechner entitling him to purchase 25,000 shares of Common Stock at an exercise price of $2.00 over the three year period 51 55 ending on August 21, 1998. The shares of Common Stock issuable upon exercise of said option are being offered for sale, subject to their issuance, on a non-underwritten basis by Mr. Buechner pursuant to a separate prospectus included in the Registration Statement of which this Prospectus forms a part. See "Concurrent Registration of Securities." INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's By-Laws provide that, except as expressly prohibited by the Delaware Corporation Law, the Company shall indemnify each person made or threatened to be made a party to any action or proceeding, whether civil or criminal, by reason of the fact that such person, or such person's testator or administrator was a director, officer or employee of the Company, against judgments, fines, penalties, amounts paid in settlement and reasonable expenses, including attorney's fees, incurred in connection with such action or proceeding, or any appeal therein. Such By-Laws further provide that no such indemnification shall be made if (i) a judgment establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled, and (ii) a settlement or other non-adjudicated disposition of a threatened or pending action or proceeding occurs without the Company's prior consent thereto. The Company has entered into indemnification agreements with each of its directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. The Company has applied for directors' and officers' liability insurance providing for limits of $1,000,000 per occurrence. DIRECTORS' COMPENSATION Directors do not receive cash compensation for services rendered to the Company in such capacity. Non-employee directors are reimbursed for the reasonable costs of travel to and from meetings of the Board of Directors. 52 56 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In connection with the Company's organization in April 1994, Ronald G. Nathan, the then Chairman of the Board and Chief Executive Officer of the Company, received 1,178,000 shares of Common Stock for services rendered in the amount of $11,780. In addition, during December 1994, the Company granted Mr. Nathan a bonus in the amount of $180,000. In January 1995, the Company issued 600,000 shares of Common Stock to Mr. Nathan as payment for such $180,000 obligation. Such shares were subsequently resold by Mr. Nathan during January 1995 at a price of $.30 per share. In June 1995, 628,000 shares of Common Stock were contributed back to the Company by Mr. Nathan for no consideration. A founder and principal stockholder of the Company, Harvey Bloch, received 1,160,000 shares of Common Stock at inception for financial consulting services rendered prior to inception and for services rendered through June 15, 1994 in the amount of $11,600. In addition, Mr. Bloch received $74,167 and $40,832 during the period from June 16, 1994 to December 31, 1994 and the five months ended May 31, 1995, respectively, for consulting services rendered to the Company. In June 1995, 595,000 shares of Common Stock were contributed back to the Company by Mr. Bloch for no consideration. In August 1995, the Company repurchased 488,000 shares of Mr. Bloch's Common Stock in exchange for the issuance to Mr. Bloch of a promissory note in the aggregate principal amount of $244,000, bearing interest at the rate of 2% per annum. The Company paid $100,000 of said obligation in February 1996. The Company intends to apply approximately $150,000 of the net proceeds of the Offering to repay the remaining balance (including accrued interest) of the note. See "Use of Proceeds." Mr. Leibov and Mr. Nathan were the sole stockholders of Russian Wireless. In October 1996, Mr. Nathan subscribed for 250,000 shares of Russian Wireless' $.01 par value common stock (the "Russian Wireless Common Stock") and agreed to pay $2,500 therefor, and in January 1997, Mr. Leibov received 500,000 shares of Russian Wireless Common Stock in consideration for his services rendered during the period between October 1996 and December 1996 in organizing Russian Wireless' operations in the Russian Federation. Upon consummation of the merger of Russian Wireless with and into the Company, Messrs. Leibov and Nathan received, respectively, 500,000 shares and 250,000 shares of the Company's Common Stock in exchange for and extinguishment of their shares of Russian Wireless' common stock. Although no specific measures to resolve conflicts of interest have been formulated, the officers and directors of the Company have a fiduciary obligation to deal fairly and in good faith with the Company. The Company's management believes that the terms and conditions pertaining to each of the foregoing transactions were comparable to and competitive with the terms and conditions which it would have obtained if such transactions had been effected with persons and entities unaffiliated with the Company. All ongoing and future transactions between the Company and any of its affiliates will be no less favorable to the Company than such transactions would be if consummated with unaffiliated third parties, and will be approved by a majority of the Company's disinterested directors. The directors intend to exercise reasonable judgment and take such steps as they deem necessary under all of the circumstances in resolving any specific conflict of interest which may occur and will determine what, if any, specific measures, such as retention of an independent advisor, independent counsel or special committee, may be necessary or appropriate. There can be no assurance that the Company will employ any of such measures or that conflicts of interest will be resolved in the best interest of the shareholders of the Company. 53 57 PRINCIPAL SECURITY HOLDERS The following table sets forth the holdings of the Common Stock of the Company as of the date of this Prospectus by (1) each person or entity known to the Company to be the beneficial owner of more than five percent (5%) of the outstanding shares of common stock of the Company; (2) each director and named executive officer; and (3) all directors and executive officers as a group. All of the holders of the Company's Common Stock are entitled to one vote per share. See "Description of Securities."
COMMON STOCK -------------------------------------------------------------- NAME OF NUMBER OF SHARES PERCENT OWNED PRIOR PERCENT OWNED AFTER BENEFICIAL OWNER BENEFICIALLY OWNED TO OFFERING (1) OFFERING (2) - ---------------------------------- ------------------ ------------------- ------------------- Ronald G. Nathan (3).............. 800,000 26.8% 18.2.% Mikhail Leibov (4)................ 500,000 16.8% 11.4% Paul Signoracci (5)............... 285,000 9.5% none(6) J. P. Downey (7).................. 285,000 9.5% none(6) Ernest Ferrante (8)............... 285,000 9.5% none(6) Howard M. Pack (9)................ 160,000 5.4% 3.6% Royal Bank of Scotland (10)....... 150,000 5.0% 3.4% James Condakes (11)............... 150,000 5.0% 3.4% L. W. Cave (12)................... 150,000 5.0% 3.4% Jack W. Buechner (3).............. 25,000(13) * * All Directors and Executive Officers as a Group (4 Persons)........................ 825,000(13) 27.4% 18.7%
- --------------- * Represents less than one percent (1) Based on 2,985,000 shares of Common Stock outstanding as of the date of this Prospectus. (2) Based upon 4,385,000 shares of Common Stock outstanding after the Offering. Does not include up to 7,088,265 shares of Common Stock issuable in the events that (i) all of the 750,000 First Private Placement Warrants, the 450,000 Second Private Placement Warrants and the 2,000,015 Third Private Placement Warrants are fully exercised; (ii) the Company issues 338,250 shares of Common Stock upon full exercise of Underwriters' over-allotment option (and 300,000 shares of Common Stock are issued upon full exercise of the Redeemable Warrants to be issued in connection therewith); (iii) all 1,000,000 of the shares of Common Stock which have been reserved for issuance under the Company's Omnibus Stock Incentive Plan shall be issued; (iv) up to 250,000 shares of Common Stock are issued to Mr. Leibov pursuant to the Company's employment agreement with him; and (v) the 25,000 shares of Common Stock underlying the Option are issued. See "Management;" and "Underwriting." (3) The address of Messrs. Nathan and Buechner is 870 Third Avenue, Suite 1600, New York, NY. (4) Mr. Leibov's address is c/o Corbina, Ryazansky Prospect 30/15, Moscow, Russian Federation. (5) The address of Mr. Signoracci is 2716 Grand Avenue, Belmore, NY. (6) The shares of Common Stock held by Messrs. Signoracci, Downey and Ferrante have been registered for sale by them under the Securities Act, pursuant to the Registration Statement of which this Prospectus is a part, are being purchased by the Underwriters pursuant to the Underwriting Agreement among the Company, the Selling Stockholders and the Representative and are being offered for sale a part of the Offering. See "Selling Stockholders," and "Underwriting." (7) The address of Mr. Downey is 29 Hewlett Road, Towaco, NJ. (8) The address of Mr. Ferrante is 88A Bay Terrace, Staten Island, NY. (9) The address of Mr. Pack is 12 Herkimer Road, Scarsdale, NY. (10) The address of the Royal Bank of Scotland is Talstr. 82 Positach 6084, Zurich, 8023 Switzerland. (11) The address of Mr. Condakes is 100 Everette Avenue, Chelsea, MA. (12) The address of Mr. Cave is 3800 Airport Boulevard, Suite 201, Mobile, AL. (13) Includes 25,000 shares of Common Stock which Mr. Buechner has the right to acquire within 60 days from the date hereof upon the exercise of options held by him. Such shares are being offered for sale by Mr. Buechner, subject to their issuance, on a non-underwritten basis pursuant to a separate prospectus included in the Registration Statement of which this Prospectus forms a part. See "Concurrent Registration of Securities." 54 58 SELLING STOCKHOLDERS The following table sets forth the name of each Selling Stockholder, the number of shares of Common Stock that each Selling Stockholder beneficially owned directly or indirectly on the date immediately preceding the date of this Prospectus, the number of shares of Common Stock that are being offered under this Prospectus on behalf of each of the Selling Stockholders hereunder, the amount of Common Stock to be owned by each Selling Stockholder after completion of the offering and the percentage of Common Stock which such Selling Stockholder will own after the Offering is completed. None of the Selling Stockholders was an officer, director, or employee of the Company during the past three years, or had any other relationship with the Company during such period, other than as an investor. See "Underwriting."
SHARES OF COMMON STOCK SHARES OF SHARES OF TO BE OWNED AFTER COMMON STOCK COMMON STOCK OFFERING OWNED PRIOR BEING ------------------------ NAME TO OFFERING OFFERED NUMBER PERCENT - -------------------------------- ------------ ------------ ------ ------- Paul Signoracci................. 285,000 285,000 -0- -0- Ernest Ferrante................. 285,000 285,000 -0- -0- J. P. Downey.................... 285,000 285,000 -0- -0-
CONCURRENT REGISTRATION OF SECURITIES Concurrently with this Offering, 2,450,015 Redeemable Warrants (and the shares of Common Stock issuable upon exercise thereof), and 325,000 shares of Common Stock, 25,000 of which are issuable upon exercise of an option issued by the Company to Mr. Buechner, have been registered for sale under the Securities Act for immediate resale. Except for Mr. Buechner, who is Chairman of the Company's Board of Directors, none of holders of such securities or their affiliates has ever held any position or office with the Company or had any material relationship with the Company. The holders of such securities have agreed with the Representative not to sell any of the registered securities for a period of 24 months from the date of this Prospectus without the prior written consent of the Representative. DESCRIPTION OF SECURITIES GENERAL The Company, a Delaware corporation, is authorized to issue 15,000,000 shares, of which 14,000,000 may be Common Stock, $.01 par value, and 1,000,000 may be preferred shares, $.01 par value, which may be authorized for issuance by the Board and issued without further action by the shareholders in classes or series possessing such designations, powers, preferences and relative, participating, optional or other special rights within each class or series, and further possessing such qualifications, limitations and restrictions as the Board may determine, subject to any limitations imposed thereon by the Company's Certificate of Incorporation. COMMON STOCK As of the date of this Prospectus, 2,985,000 shares of Common Stock are issued and outstanding. Except as otherwise required by law, each holder of Common Stock is entitled to one vote per share on all matters on which shareholders are entitled to vote. There are no cumulative voting rights regarding elections of directors. Holders of shares of Common Stock are entitled to share pro rata in dividends, if any, as may lawfully be declared on the Common Stock from time to time by the Company's Board of Directors. PREFERRED STOCK The Board of Directors has the authority, without further action by the shareholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including divided rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series and the designation of such series. The issuance 55 59 of preferred stock could, among other things, adversely affect the voting power of holders of Common Stock and could have the effect of delaying, deferring or preventing a change in control of the Company. As of the date of this Prospectus, no shares of preferred stock of any class or series have been issued, or have been authorized to be issued by the Board. The Company has no present intention to issue any preferred shares in the foreseeable future. However, no assurance can be given regarding the change of such intentions in the event that the Board deems it appropriate to issue such securities in connection with any transaction or other circumstance which is not presently known to the Board. REDEEMABLE WARRANTS The Redeemable Warrants will be exercisable at a price of $7.25 per share at any time during the three year period commencing [on the second anniversary of the date of this Prospectus] until [ ] [the day immediately preceding the fifth anniversary of the date of this Prospectus], provided, that, the Redeemable Warrants may be exercised during the one year period between [the first anniversary of the date of this Prospectus] and [the second anniversary of the date of this Prospectus] upon the express written consent of the Representative. Commencing on [the second anniversary of the date of this Prospectus], the Redeemable Warrants are subject to redemption at $.50 per Redeemable Warrant, upon 30 days' prior written notice, if the closing bid price of the Common Stock as quoted on the principal market on which it shall then be trading shall be not less than $14.50 per share during any period of 20 consecutive trading days ending on the third day preceding the date of such notice, provided, that, with the Representative's express written consent, the Redeemable Warrants may be redeemed commencing on [ ] [the first anniversary of the date of this Prospectus] at the aforementioned redemption price, subject to the aforementioned trading price conditions, if the Redeemable Warrants shall have been exercisable for a period of not less than 30 days prior to the date upon which notice of redemption shall be given. The Redeemable Warrants contain protections against dilution affecting both the exercise price of, and number of shares of Common Stock purchasable under, such warrants. Such protections shall become operative upon (a) any issuance of Common Stock, warrants or other securities convertible into Common Stock at a price below the then market value of the Common Stock during a period of five years from the date of this Prospectus; (b) any issuance of Common Stock, warrants or other securities convertible into Common Stock as a dividend; or (c) a subdivision or combination of the outstanding Common Stock, warrants or other securities convertible into Common Stock as the result of a merger, consolidation, spin-off or otherwise. The holders of the Redeemable Warrants have no right to vote on matters submitted to the shareholders of the Company and have no right to receive dividends. The holders of the Redeemable Warrants are not entitled to share in the assets of the Company in the event of liquidation, dissolution, or the winding up of the Company's affairs. The Redeemable Warrants issued pursuant to this Prospectus may not be exercised unless the Company maintains an effective registration statement covering the shares of Common Stock issuable upon exercise of the Redeemable Warrants with the SEC and the various securities administrators for the states in which the Redeemable Warrant holders reside, or unless issuance of such shares of Common Stock is exempt from registration. Although the Company will make every reasonable effort to maintain the effectiveness of such registration, no assurances can be given that the Company will be successful in this regard. The Redeemable Warrants may not be exercised after [nine months after the date of this Prospectus] unless and until a Post-Effective Amendment has been filed with the SEC and becomes effective. Although the Company has undertaken and intends to file and keep current a prospectus that will permit the purchase and sale of the Common Stock underlying the Redeemable Warrants, there can be no assurance that the Company will be able to do so. The Redeemable Warrants, which will be issued pursuant to a warrant agreement between the Company and American Stock Transfer & Trust Company, will be in registered form and will be saleable, assignable, and conveyable separately and apart from the Common Stock. American Stock Transfer & Trust Company, as warrant agent, will be responsible for all record keeping and administrative functions in connection with the 56 60 Redeemable Warrants. A copy of the form of Redeemable Warrant Agreement is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The discussion of the Redeemable Warrants herein does not purport to be complete and is qualified in its entirety by reference to the Warrant Agreement. WARRANTS ISSUED IN PRIVATE PLACEMENTS The Company issued warrants to purchase 3,200,015 shares of its Common Stock to investors who participated in three private placements during 1994 and 1995. In accordance with the documents which governed each of such placements, such warrants will be automatically converted into Redeemable Warrants on the date of closing of this Offering. First Private Placement In June 1994, the Company successfully completed a $750,000 private placement of 7.5 units, each of which consisted of an unsecured 12% promissory note in the principal amount of $98,000, and a warrant to purchase 100,000 shares of Common Stock (750,000 shares in the aggregate) at an exercise price of $1.00 per share during the three year period ending on December [ ], 1998 (the "First Private Placement Warrants"). In accordance with the provisions of the First Private Placement Warrants, if a Registration Statement with respect to an initial public offering of securities is filed under the Securities Act with the SEC by the Company during the term of the First Private Placement Warrants, then upon the declaration of effectiveness of such Registration Statement, any unexercised First Private Placement Warrants would be automatically converted into warrants having terms identical to those of the Redeemable Warrants offered hereby. Inasmuch as none of the 750,000 First Private Placement Warrants has been exercised as of the date of this Prospectus, all of such First Private Placement Warrants are deemed to have been automatically converted into Redeemable Warrants to purchase 750,000 shares of Common Stock at an exercise price of $7.25 per share, during the same term, and in accordance with the same provisions which are applicable to the Redeemable Warrants. None of such warrants is being registered for sale by the holders thereof. Second Private Placement In October 1994, the Company successfully completed a $500,000 private placement of 10 units, each of which consisted of an unsecured 12% promissory note in the principal amount of $98,000, and a warrant to purchase 50,000 shares of Common Stock (500,000 shares in the aggregate) at an exercise price of $1.00 per share during the three year period ending on February [ ], 1999 (the "Second Private Placement Warrants"). The Second Private Placement Warrants contain automatic conversion provisions which are identical to the conversion provisions of the First Private Placement Warrants. Inasmuch as none of the 500,000 Second Private Placement Warrants has been exercised as of the date of this Prospectus, all of such Second Private Placement Warrants are deemed to have been automatically converted into Redeemable Warrants to purchase 500,000 shares of Common Stock at an exercise price of $7.25 per share, during the same term, and in accordance with the same provisions which are applicable to the Redeemable Warrants. All of such Redeemable Warrants are being offered for sale by the holders thereof on a non-underwritten basis pursuant to a separate prospectus included in the Registration Statement of which this Prospectus forms a part. See "Concurrent Registration of Securities." Third Private Placement In February 1996, the Company successfully completed a $1,050,000 private placement of 30 units, each of which consisted of an unsecured 8% promissory note in the principal amount of $35,000, 10,000 shares of Common Stock (300,000 shares in the aggregate) and a warrant to purchase 66,667 shares of Common Stock (2,000,015 shares in the aggregate) at an initial exercise price of $5.75 per share during the five year period commencing on the effective date of the Registration Statement relating to the Company's initial public offering of securities (the "Third Private Placement Warrants). The provisions of the Third Private Placement Warrants obligate the Company to issue one share of Common Stock in exchange for each Third Private Placement Warrant in the event that no initial public offering of the Company's securities is consummated before July 1, 1997. The provisions of the Third Private Placement Warrants further provide that upon consummation of the Company's initial public offering of securities, the Third Private Placement Warrants will be automatically converted into warrants having terms identical to those of the Redeemable Warrants offered hereby. Accordingly, all 2,000,015 Third Private Placement Warrants are deemed to have been automatically converted into Redeemable Warrants to purchase 2,000,015 shares of Common Stock at an exercise price of $7.25 per share, during the same term, and in accordance with the same provisions which 57 61 are applicable to the Redeemable Warrants. All of such Redeemable Warrants are being offered for sale by the holders thereof on a non-underwritten basis pursuant to a separate prospectus included in the Registration Statement of which this Prospectus forms a part. See "Concurrent Registration of Securities." REGISTRATION RIGHTS The Representative's Warrant confers certain registration rights upon the holders thereof. See "Underwriting -- Representative's Warrant." The holders of the First Private Placement Warrants were given, pursuant to the First Private Placement's offering documents, the right to include in this Offering the Redeemable Warrants into which their First Private Placement Warrants were converted, and the shares of Common Stock issuable upon exercise thereof. However, such registration rights were subject to the right of the Representative to exclude such warrants and shares from the Offering, subject to the proviso that an election by the Representative to effect such exclusion would thereupon confer upon the holders of the First Private Placement Warrants to demand on only one occasion that the Company file a registration statement with the SEC registering the shares of Common Stock underlying the First Private Placement Warrants for sale under the Securities Act. Such demand registration rights may be exercised at any time during the period commencing six months after the date of this Prospectus and the expiration of the term of the Redeemable Warrants into which the First Private Placement Warrants have been converted, and must be exercised by the holders of a majority of the First Private Placement Warrants. If such rights are exercised, the Company must prepare and file a registration statement on an appropriate form to register the Common Stock underlying the Redeemable Warrants into which the First Private Placement Warrants of the electing holders have been converted, so as to permit a public offering and sale thereof for a period of nine months. The Company must bear all costs of such registration, except for filing fees, any underwriter's discounts and commissions, any stock transfer taxes and the fees and expenses of such holders' counsel. The Representative has elected to exclude from the Registration Statement of which this Prospectus is a part the shares of Common Stock issuable upon exercise of the Redeemable Warrants into which the First Private Placement Warrants have been converted. Accordingly, the holders of such warrants now possess the above-described demand registration rights. In accordance with the provisions of the offering documents pertaining to the Second Private Placement Warrants and the Third Private Placement Warrants, (i) the Redeemable Warrants into which the Second Private Placement Warrants have been converted, and the shares of Common Stock issuable upon exercise of such warrants, have been included in a separate prospectus included in the Registration Statement of which this Prospectus forms a part; and (iii) the Redeemable Warrants into which the Third Private Placement Warrants have been converted, and the shares of Common Stock issuable upon exercise of such warrants, have been included in this Prospectus, at the Company's sole cost and expense, except the fees and expenses of the counsel for the holders of such securities, if any, and any underwriting or selling commissions or other charges of any broker-dealer acting on behalf of such holders. The above-described registration rights pertaining to the First Private Placement Warrants could result in substantial future expense to the Company and could adversely affect the Company's ability to complete future equity or debt financings. Furthermore, the registration and sale of securities of the Company held by or issuable to the holders of registration rights, or even the potential of such sales, could have an adverse effect on the market price of the securities offered hereby. TRANSFER AGENT, WARRANT AGENT AND REGISTRAR American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005, serves as the transfer agent and registrar of the Common Stock, and as warrant agent of the Redeemable Warrants. 58 62 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have outstanding 4,385,000 shares of Common Stock (4,723,250 shares if the Underwriters' over-allotment option is exercised in full). Of these shares, 2,255,000 shares will be freely tradeable without restriction under the Securities Act. The remaining 2,130,000 shares of Common Stock held by existing shareholders are restricted securities within the meaning of Rule 144. In accordance with Rule 144, 1,380,000 of such shares are presently eligible for sale to the public notwithstanding the fact that they have not been registered under the Securities Act. In general, under Rule 144 as currently in effect, an affiliate of the Company, or a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least two years but less than three years, will be entitled to sell in any three month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately 43,850 shares immediately after the Offering) or (ii) the average weekly trading volume during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or person whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned his or her shares for at least three years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above. Rule 144A under the Act as currently in effect permits the immediate sale of restricted shares to certain qualified institutional buyers without regard to volume restrictions. The Commission has adopted an amendment to Rule 144, effective April 30, 1997, which reduces the above mentioned two year and three year holding periods to one year and two years, respectively. The Representative has required, as a condition to the closing of the Offering, that each of the holders of said 2,130,000 shares, as well as the holders of warrants and an option to purchase 3,225,015 shares of the Company's Common Stock must execute written lockup agreements providing that, for a period of 24 months from the date of this Prospectus, they shall not offer, register, sell, contract to sell, grant an option for the sale of, issue, assign, transfer or otherwise dispose of any of the Company's securities held by them without the Representative's prior written consent. The lockup agreements will have no effect on the date on which shares become eligible for sale pursuant to Rule 144. There has been no prior market for the Common Stock or the Redeemable Warrants, and there can be no assurance a significant public market for such securities will develop or be sustained after the offering. Sales of substantial amounts of Common Stock or Redeemable Warrants in the public market could adversely affect the market prices of the Company's securities. 59 63 UNDERWRITING The underwriters named below, for whom J.W. Barclay & Co., Inc. is acting as the Representative (the "Underwriters"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company and the Selling Stockholders, and the Company and the Selling Stockholders have agreed to sell to the Underwriters, the respective numbers of shares of Common Stock and Redeemable Warrants set forth opposite each Underwriter's name below:
NUMBER OF --------------------- UNDERWRITERS SHARES WARRANTS -------------------------------------------------------- --------- --------- J.W. Barclay & Co., Inc. ............................... --------- --------- Total......................................... 2,255,000 2,000,000 ========= =========
The Company and the Selling Stockholders are obligated to sell, and the Underwriters are obligated to purchase, all of the shares of Common Stock and Redeemable Warrants offered hereby through the Representative, if any are purchased. The Company and the Selling Stockholders have been advised by the Representative that, the Underwriters propose initially to offer the Common Stock and Redeemable Warrants to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow concessions of not more than $[ ] and $[ ] per share of Common Stock and Redeemable Warrant, respectively, to selected dealers; and the Underwriters may allow, and such dealers may reallow, concessions of not more than $[ ] and $[ ] per share of Common Stock and Redeemable Warrant, respectively, to certain other dealers. After the consummation of the Offering, the concessions to selected dealers and the reallowances to other dealers may be changed by the Underwriters. The Common Stock and Redeemable Warrants are offered subject to receipt and acceptance by the Underwriters and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted to the Underwriters an option to purchase up to 338,250 additional shares of Common Stock and/or up to 300,000 additional Redeemable Warrants solely to cover over-allotments, if any. The option is exercisable within 45 days from the date of this Prospectus at the prices to public, less the underwriting discounts and commissions set forth for such securities on the cover page of this Prospectus. To the extent the Underwriters exercise the option, the Underwriters will be committed, subject to certain conditions, to purchase the additional shares of Common Stock and/or Redeemable Warrants. See "Shares Eligible For Future Sale" for a description of certain lock-up agreements. The Company and the Selling Stockholders have agreed to indemnify the Underwriters against, or contribute to the losses arising from, certain liabilities, including liabilities arising under the Securities Act. The Company and the Selling Stockholders have agreed to pay the Underwriters a non-accountable expense allowance equal to 3% of the aggregate offering price of the Common Stock and Redeemable Warrants to be sold in the Offering. The Company has paid the Representative a $25,000 advance with respect to its expense allowance obligation. 60 64 The Company has agreed to sell to the Representative or its designees, at a price of $10, the Representative's Warrants, which entitle the Representative to purchase up to 225,500 shares of Common Stock of the Company and 200,000 Redeemable Warrants to purchase up to an additional 200,000 shares of Common Stock of the Company, respectively. The Representative's Warrants will be exercisable at a price of $[ ] per share and $[ ] per Redeemable Warrant, respectively, for a period of four years commencing one year from the date of this Prospectus, and will not be transferable except to selected dealers and officers and partners of the Representative and such selected dealers. The Company has agreed, that on one occasion during the period of five years from the date of this Prospectus, it will file a post-effective amendment to the Registration Statement of which this Prospectus forms a part with respect to the registration of the Representative's Warrants and the underlying securities under the Securities Act at its expense, and at the expense of the holders thereof on another occasion, upon the request of a majority of the holders thereof. The Company has also agreed to certain "piggy-back" registration rights for the holders of the Representative's Warrants and the underlying securities. Such piggy-back registration rights will expire seven years from the date of this Prospectus. The Representative has informed the Company that it does not expect sales to be made to discretionary accounts to exceed 1% of the shares of Common Stock and Redeemable Warrants offered hereby. The Underwriting Agreement also provides that the Company, its current or future subsidiaries, if any, and its principal stockholders, or their respective affiliates, will for a period of three years from the Effective Date provide the Representative with a right of first refusal with respect to any public or private offering of securities to raise capital. The Representative must agree to undertake any such financing on the same or better terms as any other financing proposal. The Company has agreed for itself, and for its current and future subsidiaries, and its officers, directors and its 5% or greater stockholders have agreed that, during the five year period commencing on the date of closing of the Offering, the Representative shall have a right of first refusal with respect to any public or private offering of their respective securities. The Company has agreed that, during the five year period commencing on the date of closing of the Offering, the Representative shall have the right to engage a designee of the Representative to serve as an advisor to the Company's Board of Directors who shall receive notice of, and have the right to attend, all meetings of the Board. Such advisor shall be entitled to receive compensation equal to the entitlement of all non-employee directors, and shall be entitled to reimbursement of all costs incurred in attending such meetings. In lieu of the designation of an advisor to the Board, the Representative shall have the right, during the same five year period, to designate one person for election to the Company's Board of Directors. The Company must utilize its best efforts to obtain the election of such person, and if he or she is elected, such director shall be entitled to receive the same compensation and the same rights of reimbursement enjoyed by all other non-employee directors of the Company. The Representative has advised the Company that, as of the date of this Prospectus, the Representative has not made any determination as to whether, and if so, when, it may exercise either of the above-described rights. The Company has entered into an agreement with the Representative providing that, during the three year period which commenced on [ ], 1997, it will pay the Representative a sum equal to 2% of the net proceeds derived by the Company from the sale of the Common Stock and Redeemable Warrants offered hereby, i.e., $177,420. In the event that the over-allotment option is exercised in full, such fee will be approximately $221,229. The foregoing is a summary of the principal terms of the Underwriting Agreement and does not purport to be complete. Reference is made to the forms of Underwriting Agreement and Representative's Warrant Agreement, copies of which are on file as exhibits to the Company's Registration Statement of which this Prospectus forms a part. See "Additional Information." 61 65 LEGAL MATTERS The validity of the Common Stock and Redeemable Warrants being offered hereby will be passed upon for the Company by Hall Dickler Kent Friedman & Wood, LLP, New York, New York. Steven D. Dreyer, Esq., a partner of said firm, is a director of the Company. Certain legal matters concerning Russian law will be passed upon by Irina Igitova, Esq., Moscow, Russian Federation, Russian counsel for the Company. Certain legal matters in connection with this Offering will be passed upon for the Representative by Gusrae, Kaplan & Bruno, New York, New York. EXPERTS The financial statements of Russian Wireless Telephone Company, Inc. at December 31, 1996, and for each of the two years in the period ended December 31, 1996 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon (which contains an explanatory paragraph with respect to the going concern mentioned in Note 1 to the financial statements) appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as an expert in accounting and auditing. The financial statements of Corbina Telecommunications at September 30, 1996, and for the period December 1, 1995 (inception) through September 30, 1996 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young (CIS) Limited, independent auditors, as set forth in their report thereon (which contains an explanatory paragraph with respect to the going concern mentioned in Note 1 to the financial statements) appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as an expert in accounting and auditing. 62 66 INDEX TO FINANCIAL STATEMENTS RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) AUDITED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 & 1995
PAGE ----------- Report of Independent Auditors.................................................. F-2 Balance Sheet as of December 31, 1996........................................... F-3 Statements of Operations for the years ended December 31, 1996 and 1995......... F-4 Statements of Shareholders' Deficiency for the years ended December 31, 1996 and 1995.......................................................................... F-5 Statements of Cash Flows for the years ended December 31, 1996 and 1995......... F-6 Notes to Financial Statements................................................... F-8
CORBINA TELECOMMUNICATIONS AUDITED FINANCIAL STATEMENTS FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 Report of Independent Auditors.................................................. F-16 Balance Sheet................................................................... F-17 Statement of Operations......................................................... F-18 Statement of Shareholder's Deficiency........................................... F-19 Statement of Cash Flows......................................................... F-20 Notes to Financial Statements................................................... F-21
F-1 67 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders Russian Wireless Telephone Company, Inc. We have audited the accompanying balance sheet of Russian Wireless Telephone Company, Inc. (formerly Telcom Group USA, Inc., "the Company") as of December 31, 1996, and the related statements of operations, stockholders' deficiency, and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Russian Wireless Telephone Company, Inc. (formerly Telcom Group USA, Inc.) at December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations, a working capital deficiency and shareholders' deficiency raise substantial doubt about its ability to continue as a going concern. Management's plans as to those matters are also described in Note 1. The 1996 financial statements do not include any adjustments that might result from the outcome of this uncertainty. ERNST & YOUNG LLP New York, New York February 28, 1997 F-2 68 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) BALANCE SHEET DECEMBER 31, 1996 ASSETS Current assets: Cash and cash equivalents.................................................. $ 487,772 Due from affiliate......................................................... 30,000 Deferred financing costs, net of accumulated amortization of $210,000...... 1,680,000 Prepaid expenses and other current assets.................................. 79,445 ----------- Total current assets............................................................ 2,277,217 Loan receivable................................................................. 190,000 Equipment, net of accumulated depreciation of $15,851........................... 19,596 Security deposits and other assets.............................................. 47,053 ----------- Total assets.................................................................... $2,533,866 =========== LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current liabilities: Notes payable, net of discounts of $266,000................................ $2,658,000 Accrued interest payable................................................... 358,813 Accounts payable and accrued expenses...................................... 109,663 ----------- Total current liabilities....................................................... 3,126,476 Long-term debt, net of discount of $239,000..................................... 361,000 Commitments and contingencies Shareholders' deficiency: Preferred stock, par value $.01; 1,000,000 shares authorized; none issued and outstanding Common stock, par value $.01; 15,000,000 shares authorized; 2,235,000 shares issued and outstanding.................................. 22,350 Additional paid-in capital................................................. 2,340,218 Accumulated deficit........................................................ (3,316,218) ----------- Total shareholders' deficiency.................................................. (953,610) ----------- Total liabilities and shareholders' deficiency.................................. $2,533,866 ===========
See accompanying notes. F-3 69 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------- 1996 1995 ---------- --------- Commission income............................................ $ 8,043 $ 21,172 ----------- Operating expenses: Officers' salaries...................................... 100,000 203,125 Selling, general and administrative..................... 482,891 426,228 Amortization of deferred financing costs................ 210,000 221,965 ----------- Total operating expenses..................................... 792,891 851,318 ----------- Operating loss............................................... (748,848) (830,146) Interest, including $497,500 ($36,500 in 1995) of amortization of discount on notes payable, and financing expenses, net.................................... 686,030 397,356 ----------- Net loss..................................................... $(1,470,878) $(1,227,502) =========== Net loss per common share.................................... $ (.67) $ (.34) =========== Weighted average number of shares outstanding................ 2,210,000 3,603,614 ===========
See accompanying notes. F-4 70 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) STATEMENTS OF SHAREHOLDERS' DEFICIENCY
COMMON STOCK ADDITIONAL -------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT TOTAL --------- -------- ---------- ---------- ---------- Balance at December 31, 1994....... 4,707,000 $ 47,070 $ 31,538 $ (617,838) $ (539,230) Contribution of shares............. (2,834,000) (28,340) 28,340 Issuance of common stock for services rendered in January 1995............................. 600,000 6,000 174,000 180,000 Issuance of common stock........... 300,000 3,000 27,000 30,000 Repurchase and retirement of common stock in exchange for promissory note in May 1995................. (800,000) (8,000) (277,000) (285,000) Repurchase and retirement of common stock in exchange for promissory note in August 1995.............. (488,000) (4,880) (201,120) (206,000) Net loss........................... (1,227,502) (1,227,502) --------- -------- ---------- ---------- ---------- Balance at December 31, 1995 1,485,000 14,850 (217,242) (1,845,340) (2,047,732) Issuance of common stock and warrants in connection with a private placement in February 1996............................. 300,000 3,000 645,000 648,000 Issuance of common stock in connection with a private placement in December 1996....... 450,000 4,500 1,912,500 1,917,000 Net loss........................... (1,470,878) (1,470,878) --------- -------- ---------- ---------- ---------- Balance at December 31, 1996....... 2,235,000 $ 22,350 $2,340,258 $(3,316,218) $ (953,610) ========= ======== ========== ========== ==========
See accompanying notes. F-5 71 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................................... $(1,470,878) $(1,227,502) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation........................................... 6,604 6,490 Amortization of organization costs..................... 1,227 1,229 Amortization of deferred financing costs............... 210,000 221,965 Write-off of deferred underwriting costs............... -- 61,652 Amortization of discount on notes payable.............. 486,500 36,500 Changes in operating assets and liabilities: Due from affiliate................................ (30,000) -- Prepaid expenses and other current assets......... (66,984) 8,742 Security deposits................................. (12,828) 7,315 Accounts payable and accrued expenses............. (210,870) 242,815 Accrued interest payable.......................... 198,377 142,061 ---------- ---------- Net cash used in operating activities....................... (888,852) (498,733) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of stock option.................................... (5,000) -- Acquisition of property and equipment....................... (14,832) (2,403) Deferred registration fees.................................. (25,000) -- ---------- ---------- Net cash used in investing activities....................... (44,832) (2,403) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable................................. 1,800,000 100,000 Loan receivable............................................. (190,000) -- Repayment of notes payable.................................. (200,000) -- Proceeds from issuance of common stock...................... -- 30,000 ---------- ---------- Net cash provided by financing activities................... 1,410,000 130,000 ---------- ---------- Net increase (decrease) in cash and cash equivalents........ 476,316 (371,136) Cash and cash equivalents at beginning of year.............. 11,456 382,592 ---------- ---------- Cash and cash equivalents at end of year.................... $ 487,772 $ 11,456 ========== ==========
See accompanying notes. F-6 72 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEARS ENDED DECEMBER 31, ------------------------- 1996 1995 -------- -------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of 600,000 shares of common stock for services rendered...................................................... $ -- $180,000 Repurchase and retirement of 1,288,000 shares of common stock in exchange for promissory notes payable......................... -- 491,000 Contribution of 2,834,000 shares of common stock................ -- 28,340 Issuance of 300,000 shares of common stock and 2,000,000 warrants in connection with a private placement offering...... 648,000 -- Issuance of 450,000 shares of common stock in connection with a private placement offering.................................... 1,917,000 --
See accompanying notes. F-7 73 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. ORGANIZATION Description of Business Telcom Group USA, Inc. ("Telcom") was incorporated on April 26, 1994 under the laws of the State of Delaware. On August 19, 1994, Telcom obtained the required State of New York Public Service Commission Certification allowing it to operate as a reseller of all forms of telephone services via landline telephone company or other common carrier facilities located in New York State. Telcom was engaged primarily as a provider of long distance telecommunications services to commercial customers, initially in the New York metropolitan area. With the passage of the Federal Telecommunications Act of 1996 and the subsequent entry into the local markets by long distance carriers, Telcom began to phase out operations in New York State and focused its efforts on the international markets, particularly the Russian Federation. In 1996, Telcom's management began exploring opportunities involving the delivery of various categories of telecommunications products and services throughout the former Soviet Union including Russia, Georgia, Latvia and Aberbaijan. In July 1996, Telcom purchased an option for $5,000 to purchase for $190,000, 75% of Corbina Telecommunications, ("Corbina"), a closed joint stock company organized under the laws of the Russian Federation which has been providing long distance telephone services to businesses located in the Moscow metropolitan area since March 1996. Corbina does not operate on the basis of a telecommunication license but, rather, through agreements entered into with long distance companies, primarily Rustelnet, Global One and TelMos, through which it offers long distance service features through its private telecommunications network. In connection with this option purchase, during 1996, Telcom loaned Corbina's sole shareholder $190,000 bearing interest at 8% per annum, receivable on demand. On February, 10, 1997, Telcom changed its name to Russian Wireless Telephone Company, Inc.("Russian Wireless") in connection with the merger of a Delaware corporation with and into Telcom which had been known by that name (Telcom and Russian Wireless collectively the "Company"). Russian Wireless was formed on October 21, 1996 by Telcom's chief executive officer and by Corbina's sole shareholder to provide wireless local loop telecommunications services to business customers in Moscow, particularly to subscribers who generate significant amounts of outgoing domestic and international long distance traffic. The shareholders of Russian Wireless exchanged all of the issued and outstanding shares for 750,000 shares of Telcom's common stock. Russian Wireless has had minimal activity from the date of inception (October 21, 1996) through December 31, 1996. At December 31, 1996 and for the period from the date of inception through December 31, 1996, Russian Wireless' financial position and result of operations were as follows: Total Assets............................................... $ 68 Shareholder's Deficiency................................... $34,932 Net Loss................................................... $35,032
On January 28, 1997, Telcom exercised its option to purchase 75% of Corbina and the $190,000 loan to Corbina's sole shareholder was exchanged for the shares of Corbina. In October 1996, CompTel Ltd. ("CompTel") a closed joint stock Company organized under the laws of the Russian Federation was formed to operate a wireless local loop network in the Russian Federation. In March 1997, the Company acquired a 75% interest in CompTel. F-8 74 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1996 1. ORGANIZATION -- (CONTINUED) Basis of Presentation During the years ended December 31, 1996 and 1995, the Company incurred losses from operations aggregating $784,848 and $830,146, respectively, and had a working capital deficiency and stockholders' deficiency of $659,259 and $953,610, respectively, at December 31, 1996. Such losses and the above-described deficiencies were primarily attributable to the facts that, (i) from the time of its organization in April 1994, through December 31, 1996, the Company conducted operations on a limited basis while the Company's management devoted the bulk of their time and resources to the tasks of developing what was then anticipated to be the Company's intended business, i.e., the provision, as a competitive access provider of single source local and long distance telecommunications services to commercial customers in the New York Metropolitan area; and (ii) by reason of the passage of the Federal Telecommunications Act of 1995 (and the subsequent entry into the local telephone markets by long distance carriers), the Company undertook during 1996 to explore other opportunities in the telecommunications industry, particularly in international venues. In order to meet its obligations and finance the activities it undertook during the two year period ended December 31, 1996 in the absence of any meaningful revenues generated from operations, the Company made use of funds obtained through private placement financing transactions. The foregoing factors have resulted in a deterioration of the Company's financial condition and raise substantial doubt about its ability to continue as a going concern. These financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that may result form the outcome of this uncertainty. In order for the Company to strengthen its financial condition and to operate profitably in future periods, (a) its 75% owned Russian subsidiary, Corbina Telecommunications ("Corbina"), must attain a sustaining level of profitability from operations through expansion of its service offerings and continued increases in the telecommunications traffic purchased from it by its existing and new customers, (b) the Company's other 75% owned Russian subsidiary, CompTel must successfully construct and then operate profitably the wireless local loop telecommunications network which it proposes to establish in the Moscow metropolitan area, and ( c) both subsidiaries must provide the Company with sufficient distributions from the income that they intend to derive from such operations so that the Company will be able to finance its activities solely from such distributions. The Company intends to provide its subsidiaries with the financial necessary for them to achieve the requisite levels of operations through an IPO transaction which it intends to commence during 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Equipment Equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives (five years) of the underlying assets. F-9 75 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1996 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Deferred Financing Costs Deferred financing costs, related principally to the issuance of debt, are amortized over the period of the related debt. Organization Costs Organization costs are being amortized over a period of five years. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At December 31, 1996, the Company has substantially all of its cash in one financial institution. Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Notes Payable: The carrying amounts of the Company's notes payable approximate their fair value due to the short-term nature of these instruments. Long-Term Debt: The fair value of the Company's long-term debt is estimated using discounted cash flow analysis, based on the Company's incremental borrowing rate for similar types of borrowing arrangements and approximates fair value. Stock-Based Compensation In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 is effective for all fiscal years beginning after December 15, 1995 and prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the new fair value method. The Company is accounting for its stock-based compensation plans in accordance with the provisions of APB 25. Income Taxes Income taxes are recorded pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 prescribes the liability method of accounting for deferred income taxes, which bases such deferred income taxes on the temporary differences between the financial reporting and income tax bases of assets and liabilities, using currently-enacted income tax rates and regulations. F-10 76 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1996 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Revenue Recognition The Company recognizes commission income in its capacity as a reseller of long distance telephone service when the customers they have contracted with on behalf of long distance carriers are billed for usage. Net Loss Per Share Net loss per share computations are based upon net loss divided by the weighted average number of shares of common stock outstanding during the respective periods. The weighted average number of common stock outstanding have been calculated in accordance with Staff Accounting Bulletin 83 ("SAB 83") of the Securities and Exchange Commission. SAB 83 requires that shares of common stock, warrants and options issued one-year prior to the initial filing of a registration statement relating to an initial public offering at amounts below the public offering price be considered outstanding for all periods presented in the Company's registration statement. 3. DUE FROM RUSSIAN WIRELESS Amounts due from Russian Wireless represent non-interest bearing advances receivable on demand which were advanced to by Telcom prior to the merger. 4. RELATED PARTY TRANSACTIONS In December 1994, the Company granted its Chief Executive Officer a bonus in the amount of $180,000. In January 1995, the Company issued 600,000 shares of its common stock as payment of the $180,000 obligation. 5. NOTES PAYABLE Pursuant to a Second Private Placement (the "Second Placement") which closed on October 19 and November 3, 1994, the Company sold to five accredited investors, an aggregate of ten units of 12% interest bearing notes aggregating $980,000 and 500,000 warrants for an aggregate of $20,000. Each unit was comprised of a $98,000 12% interest bearing note and 50,000 warrants. The principal and interest on the promissory notes is payable at the earlier of (i) June 19, 1997 or (ii) the Company's consummation of a public or private financing of its equity securities raising net proceeds equal to or greater than the gross proceeds raised in the Second Placement. The Company received net proceeds of $870,000 after payment of $100,000 in commissions and $30,000 in other costs paid to the placement agent. The $130,000 in commissions and placement agent fees were amortized over the original maturity of the promissory notes (February 19, 1996). The Company used $765,447 of the proceeds from the Second Placement to repay in full the notes and accrued interest outstanding under the first private placement. On February 6, 1997, the Company and one of the accredited investors agreed to rescind the purchase of one unit. In consideration thereof, the Company is to pay the sum of $100,000, without any interest, to the investor in four equal monthly installments of $25,000 commencing February 15, 1997. As part of this rescission, 50,000 warrants were immediately canceled. F-11 77 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1996 5. NOTES PAYABLE -- (CONTINUED) On August 29, 1995, the Company purchased and retired 488,000 shares of its common stock from a shareholder in exchange for a $244,000 note payable. The note accrues interest at 2% per annum. The Company recorded a discount on this note payable in the amount of $38,000 based on its incremental borrowing rate at the time of the transaction. The discount is being amortized as interest expense over twenty months. The unamortized balance at December 31, 1996 is $7,500. Proceeds from the Third Private Placement on February 2, 1996 (the "Third Placement") were used to repay $100,000 of this note with the balance payable at consummation of the Company's Initial Public Offering (the "IPO"). Pursuant to the Third Placement, the Company sold to sixteen accredited investors 30 units of 8% interest bearing notes aggregating $1,050,000. Each unit was comprised of (i) the Company's promissory note in the principal amount of $35,000 (ii) 10,000 shares of the Company's common stock and (iii) 66,667 warrants; each warrant entitles the holder to purchase one share of common stock at $5.75 per share (or such other exercise price as will be the exercise price of the warrants to be issued in conjunction with the Company's IPO). The Company recorded a discount on these notes payable in the aggregate amount of $648,000 based on its incremental borrowing rate at the time of the transaction and management's estimate of the value of the common stock issued. The discount is being amortized as interest expense over fourteen months (through the anticipated IPO date). The unamortized balance at December 31, 1996 is $237,000. The promissory notes and accrued interest are due and payable on the earlier of eighteen months from the date of issuance, or the consummation of the Company's IPO. If the Company's IPO is not consummated by August 2, 1997 based upon the Company's decision not to proceed with the IPO, the notes payable (including all accrued interest) will become immediately due and payable and each warrant will convert into one share of common stock. If the Company's IPO is not consummated for any other reason by August 2, 1997, the promissory notes (including all accrued interest) will become immediately due and payable and each warrant will become null and void. On December 19, 1996, the Company issued promissory notes to three accredited investors in the aggregate amount of $750,000. The notes bear interest at 8% per annum and are due upon the earlier of consummation of the Company's IPO or October 31, 1998. If the Company fails to file a Registration Statement with the Securities and Exchange Commission relating to the Company's IPO by March 31, 1997, the notes will become due and payable immediately. The Company recorded a discount on these notes payable in the amount of $27,000 based on its incremental borrowing rate at the time of the transaction. The discount is being amortized over four and one-half months (through the anticipated IPO date). The unamortized balance at December 31, 1996 is $21,500. In connection with the December 19, 1996 promissory notes, the Company issued 150,000 shares of common stock to each of the three accredited investors. The Company valued these shares of common stock at $4.20 per share, representing 60% of the anticipated IPO price. As a result, the Company incurred deferred financing costs of $1,890,000 which are being amortized over four and one-half months (through the anticipated IPO date). During 1996, $210,000 was amortized into expense leaving an unamortized balance at December 31, 1996 of $1,680,000. F-12 78 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1996 6. LONG-TERM DEBT On May 22, 1995, the Company repurchased and retired 800,000 shares of its common stock from a shareholder in exchange for a $600,000 note payable. The note accrues interest at 2% per annum and is due on May 22, 2000. The Company recorded a discount on this note payable in the amount of $315,000, based on its incremental borrowing rate at the time of the transaction, which is being amortized as interest expense over the life of the note. 7. STOCK OPTIONS AND WARRANTS In May 1995, the Company under its 1995 Director's Stock Option Plan (the "Directors Plan") granted to each of its two Directors, at that time, options to purchase 25,000 shares of the Company's common stock at an exercise price of $2.00 per share. These options are currently exercisable and expire in May 1998. As of December 31, 1996, an aggregate of 50,000 shares of the Company's common stock are reserved for issuance. The Option Plan have been replaced by the options issued under the Omnibus Plan. Pursuant to the Company's First Private Placement (the "First Placement") on June 15, 1994, the Company sold to eleven accredited investors an aggregate of 750,000 warrants for $15,000. Each warrant entitles the holder to purchase one share of the Company's common stock at $1.00 per share. The warrants are exercisable for a period of three years commencing on December 15, 1995. On October 19, and November 3, 1994, pursuant to the Second Placement, the Company granted to five accredited investors warrants to purchase 500,000 shares of common stock at a price of $1 per share. The warrants are exercisable for a period of three years commencing on February 19, 1996. On February 2, 1996, pursuant to the Third Placement, the Company granted to sixteen accredited investors warrants to purchase 2,000,015 shares of common stock at a price of $5.75 per share or such other exercise price as will be the exercise price of the warrants to be issued in conjunction with the IPO. The warrants are exercisable during the period commencing on the effective date of the registration statement to be filed by the Company in connection with its IPO and terminating on the close of business on the five-year anniversary of the effective date. In accordance with the terms of the offering documents of the First, Second and Third Placements, upon completion of the IPO, all of the aforementioned warrants will be replaced by warrants setting forth the same terms as the warrants the Company intends to issue in its IPO. As of December 31, 1996, no warrants have been exercised and an aggregate of 3,250,015 shares of the Company's common stock are reserved for issuance under the warrants. On February 6, 1997, 50,000 warrants were canceled. Subsequent to December 31, 1996, the Company has adopted an Omnibus Stock Incentive Plan (the "Omnibus Plan") to permit the grant of awards to employees of the Company (including officers and directors who are employees of the Company or a subsidiary of the Company) of restricted shares of the Company's common stock, performance shares of the Company's Common Stock, stock appreciation rights relative to the Company's common stock and both incentive stock options and non-qualified options to purchase shares of the Company's common stock. A maximum of 1,000,000 shares may be issued under the Omnibus Plan. No grants or awards have been made under the Omnibus Plan, except for one option issued to the Company's Chairman. F-13 79 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1996 8. INCOME TAXES The significant components of deferred tax assets consist of the following:
1996 1995 ----------- ----------- Start-up expenditures........................ $ 70,000 $ 98,000 Net operating loss carryforwards............. 1,446,000 730,000 ----------- ----------- Total deferred tax assets.................... 1,516,000 828,000 Valuation allowance.......................... (1,516,000) (28,000) ----------- ----------- Net deferred taxes........................... $ 0 $ 0 =========== ===========
The Company has a net operating loss carryforward of $3.2 million as of December 31, 1996 of which $338,000 expires by 2009; $1,285,000 expires by 2010 and $1,580,000 expires by 2011. The difference between the statutory federal income tax rate of 34% and the income taxes reported in the Statement of Operations are as follows:
FOR THE YEARS ENDED DECEMBER 31, ----------------------------- 1996 1995 ----------- ----------- Net loss..................................... ($1,534,378) ($1,227,502) ----------- ----------- Statutory benefit............................ (521,689) (417,351) Loss for which no benefit was provided....... 521,609 417,351 ----------- ----------- Total taxes.................................. $ 0 $ 0 =========== ===========
9. COMMITMENTS AND CONTINGENCIES Employment Agreements The Company has entered into an employment agreement with its Chief Executive Officer for a term of five years commencing January 1, 1995. The agreement provides for an annual base salary of $100,000 per year and further provides for a severance payment of two years salary upon termination of employment due to a change of control of the Company. The Company entered into an employment agreement dated September 30, 1994 pursuant to which an individual was employed as the Executive Vice President of Sales and Marketing of the Company for a term of three years commencing October 21, 1994. The employment agreement provided for an annual base salary of $100,000. The Company terminated the employment agreement on June 13, 1995 for cause. In connection with the Company's exercise of its option to acquire a 75% ownership interest in Corbina, the Company has entered into an employment agreement with Corbina's minority stockholder pursuant to which he has agreed to serve as chief executive officer of Corbina and CompTel (collectively the subsidiaries) for a five year term commencing on February 1, 1997. Such agreement further provides a base salary of $125,000 per annum (prior to the date of closing at the IPO, and $175,000 per annum thereafter), less the aggregate amount of the annual salary to be paid by the subsidiaries; (ii) cash bonuses and other additional compensation as the Company's Board of Director may, in its absolute discretion, determine to award to him, (iii) life insurance to the extent of $500,000 which shall be paid to the beneficiary of his choice, (iv) he and F-14 80 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (FORMERLY TELCOM GROUP USA, INC.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1996 9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED) his immediate family to be covered by Company-provided and paid for health insurance; (v) as soon after the IPO as is reasonably possible, the Company shall issue 25,000 shares of the Company's Common Stock to the minority stockholder pursuant to the Omnibus Plan; subject to such vesting conditions as the Compensation Committee of the Company's Board of Directors shall reasonably determine and (vi) should Corbina's operating income during any of the years of the agreement exceed $3,400,000, the Company will transfer 10% of the outstanding shares of Corbina to the Chief Executive Officer. Additionally, should Corbina's revenue after the aforementioned fiscal year exceed $3,400,000, the Chief Executive Officer will be entitled to shares of the Company's stock equal to the difference between operating income less $3,400,000 divided by the share price, as defined. Shares of the Company's stock issued to the Chief Executive Officer will be limited to 250,000 shares. The Company leases office space for its operations under an operating lease. Future minimum rent payments at December 31, 1996 are as follows: Year ending December 31: 1997............................... $ 76,000 1998............................... 76,000 1999............................... 76,000 2000............................... 76,000 2001............................... 25,000 ----------- $ 329,000 ===========
Total rent expense incurred for the years ended December 31, 1996 and 1995 amounted to approximately $32,000 and $43,000, respectively. 10. INITIAL PUBLIC OFFERING The Company intends to enter into an underwriting agreement for an initial public offering ("IPO") of its common stock. F-15 81 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Corbina Telecommunications We have audited the accompanying balance sheet of Corbina Telecommunications (a Russian legal entity) as of September 30, 1996, and the related statements of operations, shareholder's deficiency, and cash flows for the period December 1, 1995 (inception) through September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Corbina Telecommunications as of September 30, 1996, and the results of its operations and its cash flows for the period December 1, 1995 (inception) through September 30, 1996 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company experienced a net loss of $204,908, has a working capital deficiency of $127,847 and has a shareholder's deficiency of $84,594. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The accompanying financial statements do not include adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties. ERNST & YOUNG (CIS) LIMITED Moscow, Russian Federation January 24, 1997 F-16 82 CORBINA TELECOMMUNICATIONS BALANCE SHEET SEPTEMBER 30, 1996 (US dollars) ASSETS Current assets: Cash and cash equivalents.................................................. $ 3,493 Accounts receivable, net of allowance for doubtful accounts of $43,300..... 250,427 Prepaid expenses and other current assets.................................. 31,175 --------- Total current assets............................................................ 285,095 Property and equipment (Note 4)................................................. 53,549 Less accumulated depreciation................................................... (10,296) --------- 43,253 --------- TOTAL ASSETS.................................................................... $ 328,348 ========= LIABILITIES AND SHAREHOLDER'S DEFICIENCY Current liabilities: Trade payables............................................................. $ 192,832 Accrued taxes and other liabilities........................................ 149,610 Deferred tax liabilities (Note 3).......................................... 70,500 --------- Total current liabilities....................................................... 412,942 Shareholder's deficiency: Common stock, one million roubles par value, 140 shares authorized, issued and outstanding (Note 4).................................................. 30,568 Common stock receivable.................................................... (5,504) Additional paid-in capital (Note 4)........................................ 95,250 Accumulated deficit (204,908) --------- TOTAL SHAREHOLDER'S DEFICIENCY.................................................. (84,594) --------- TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIENCY.................................. $ 328,348 =========
See accompanying notes. F-17 83 CORBINA TELECOMMUNICATIONS STATEMENT OF OPERATIONS FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (US dollars) Revenues......................................................................... $561,820 Cost of services................................................................. 423,015 -------- Gross profit..................................................................... 138,805 Selling, general and administrative expenses..................................... 281,467 Foreign exchange translation gain on net monetary items.......................... (8,254) -------- Loss before provision for income taxes........................................... 134,408 Provision for income taxes (Note 3).............................................. 70,500 -------- Net loss......................................................................... $204,908 ======== Loss per share................................................................... $ 1,464 Weighted average shares outstanding.............................................. 140
See accompanying notes. F-18 84 CORBINA TELECOMMUNICATIONS STATEMENT OF SHAREHOLDER'S DEFICIENCY FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (US dollars)
COMMON STOCK COMMON ADDITIONAL ---------------- STOCK PAID-IN ACCUMULATED SHARES AMOUNT RECEIVABLE CAPITAL DEFICIT TOTAL ------ ------- ---------- ---------- ----------- -------- Capital contribution December 1, 1995................................ 140 $30,568 (5,504) $ 25,064 Capital contributions, 1996........... $ 95,250 95,250 Net loss.............................. $(204,908) (204,908) --- ------- ------- ------- --------- -------- Balance at September 30, 1996......... 140 $30,568 $ (5,504) $ 95,250 $(204,908) $(84,594) === ======= ======= ======= ========= ========
See accompanying notes. F-19 85 CORBINA TELECOMMUNICATIONS STATEMENT OF CASH FLOWS FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (US dollars) OPERATING ACTIVITIES Net loss........................................................................ $(204,908) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation............................................................... 10,296 Provision for doubtful accounts............................................ 43,300 Write-down of equipment.................................................... 40,000 Foreign exchange gain...................................................... (8,254) Deferred income tax provision.............................................. 70,500 Changes in operating assets and liabilities: Accounts receivable........................................................ (293,727) Prepaid expenses and other assets.......................................... (31,175) Trade payables............................................................. 201,086 Accrued taxes and other liabilities........................................ 149,610 --------- NET CASH USED BY OPERATING ACTIVITIES........................................... (23,272) Investing activities -- Purchases and advances for property and equipment....... (68,485) FINANCING ACTIVITIES -- Capital contributions................................... 95,250 --------- Net increase in cash and cash equivalents....................................... 3,493 Cash and cash equivalents at beginning of period................................ -- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 3,493 ========= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of 140 shares of common stock in exchange for equipment........... $ 25,064
See accompanying notes. F-20 86 CORBINA TELECOMMUNICATIONS NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (In US Dollars unless otherwise indicated) 1. DESCRIPTION OF BUSINESS Corbina Telecommunications (the "Company"), a Russian legal entity registered as a closed joint stock company, was founded on December 1, 1995. The Company is engaged primarily as a provider of long distance telecommunications services to commercial customers, in the Moscow metropolitan area. The Company does not operate on the basis of a telecommunication license but, rather, through agreements entered into with long distance companies, primarily Rustelnet, a Russian legal entity, through which it offers long distance service features through its private telecommunications network. From December 1, 1995 (inception) through September 30, 1996, the Company incurred losses aggregating $204,908, and as of September 30, 1996, its current liabilities exceeded its current assets by $127,847 and its total liabilities exceeded total assets by $84,594. Such losses were primarily attributable to the facts that, during said period of time, (1) management's efforts were primarily directed toward negotiating agreements with Rustelnet and other primary and regional long distance carriers and the establishment of a network of field service representatives to market its services, and (2) the Company was unable to generate a volume of long distance telecommunications traffic with its customers which was large enough to provide sufficient revenues to support its operations. These matters have resulted in a deterioration of the Company's financial condition and raise substantial doubt about its ability to continue as a going concern. These financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty. In order for the Company to strengthen its financial condition and to operate profitably in future periods, it will need to continue to increase the telecommunications traffic purchased from it by its customers. Such increases are largely dependent upon the Company's ability to expand its existing customer base. The Company intends to achieve such increases through an enhancement of the product and service offerings made available to its existing customers, and that it intends to make available to prospective customers, and by engaging in a marketing and advertising campaign to be disseminated by print and other media. In order to acquire the capital which the Company will need in order to be able to provide such enhanced products and services, and to engage in such advertising and marketing activities, the Company's original shareholder has entered into an agreement with Russian Wireless Telephone Company, Inc. ("Russian Wireless"), a Delaware corporation with which such shareholder is affiliated, which provides, among other things, that upon completion of an initial public offering transaction which Russian Wireless intends to commence during the first half of 1997, Russian Wireless will contribute $655,000 to the Company's capital. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates in Preparation of Financial Statements The preparation of these financial statements, in conformity with accounting principles generally accepted in the United States of America ("US GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation The Company maintains its records and prepares its financial statements in Russian roubles in accordance with the requirements of Russian accounting and tax legislation. The accompanying financial statements differ from the financial statements used for statutory purposes in Russia in that they reflect certain F-21 87 CORBINA TELECOMMUNICATIONS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (In US Dollars unless otherwise indicated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) adjustments, not recorded on the Company's books, which are appropriate to present the financial position, results of operations and cash flows in accordance with US GAAP. The principal adjustments are related to foreign currency translation, revenue recognition, depreciation and valuation of property and equipment, and certain debt, equity and expense transactions. Foreign Currency Translation The Company's functional currency is the US dollar because the majority of its revenues, costs, property and equipment purchased, and debt and trade liabilities are either priced, incurred, payable or otherwise measured in US dollars. Accordingly, transactions and balances not already measured in US dollars (primarily Russian roubles) have been remeasured into US dollars in accordance with the relevant provisions of US Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation". Under SFAS No. 52, revenues, costs, capital and non-monetary assets and liabilities are translated at historical exchange rates prevailing on the transaction dates. Monetary assets and liabilities are translated at exchange rates prevailing on the balance sheet date. Exchange gains and losses arising from remeasurement of monetary assets and liabilities that are not denominated in US dollars are credited or charged to operations. The exchange rate used for translation purposes is the rate established by the Central Bank of Russia ("CBR"). The CBR rate at September 30, 1996 for one US dollar was RUR 5,376. At January 24, 1997, the CBR rate had increased to RUR 5,609. The effect of this devaluation of the rouble on monetary assets and liabilities has not been determined. The rouble is not a convertible currency outside the territory of Russia. Within Russia official exchange rates were determined principally through trading on the Moscow Interbank Currency Exchange ("MICEX") until May 17, 1996. Although MICEX rates do occasionally diverge from market rates, they are generally considered to be a reasonable approximation. Beginning May 17, 1996, official exchange rates were determined daily by the Central Bank of Russia and are generally considered to be a reasonable approximation of market rates. The translation of rouble denominated assets and liabilities into US dollars for the purpose of these financial statements does not indicate that the Company could realize or settle in US dollars the reported values of the assets and liabilities. Likewise, it does not indicate that the Company could return or distribute the reported US dollar values of capital to its shareholders. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and in the bank. Accounts Receivable Accounts receivable are shown at their net realizable value which approximates their fair value. Property and Equipment Property and equipment are recorded at their historical cost. Depreciation and amortization are provided on the straight-line method over the following estimated useful lives: F-22 88 CORBINA TELECOMMUNICATIONS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (In US Dollars unless otherwise indicated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Network equipment................................... 7 years Computers........................................... 5 years Office furniture and equipment...................... 5 years
Revenue Recognition and Taxes on Revenue Revenues from telecommunication traffic are recognized in the period in which the traffic occurs. Revenues are stated net of any value-added taxes ("VAT") charged to customers. Certain other taxes on revenues were charged at rates ranging from 1.9% to 3% during the period, and are charged to selling, general and administrative expenses. Net Loss Per Common Share Net loss per common share is based on the weighted average number of common shares outstanding during the period. Average common equivalent shares outstanding have not been included, as the computation would not be dilutive. Weighted average common shares outstanding were 140 for the period ended September 30, 1996. Advertising The cost of advertising, which is minimal, is expensed as incurred. Income Taxes Company computes and records income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Government Pension Funds The Company contributes to the Russian Federation state pension fund, medical insurance fund, social funds and unemployment charters on behalf of all its Russian employees. Contributions are 38.5% of salaries and are expensed as incurred. Concentration of Credit Risk and Major Customers Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivables. The Company deposits its available cash with a Russian financial institution. The Company's sales and accounts receivables are made to and due from a variety of international and Russian business customers. In 1996, one customer accounted for 23% of revenues and 40% of accounts receivable. As of September 30, 1996, the Company had no other significant concentrations of credit risk. Fair Value of Financial Instruments The fair value of financial instruments included in current assets and liabilities are considered to be their carrying values. F-23 89 CORBINA TELECOMMUNICATIONS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (In US Dollars unless otherwise indicated) 3. INCOME TAXES The provision for income taxes consists of the following: Deferred............................................................ $ 70,500 Current............................................................. -- -------- Total............................................................... $ 70,500 --------
Income taxes were paid during the period. The provision for income taxes differs from the amount computed by applying the statutory rate of 35% because of the effect of the following items: Tax at statutory rate............................................... $(47,000) Non-deductible expenses and non-taxable foreign exchange differences....................................................... 55,000 Deferred tax valuation allowances................................... 62,500 ------- Provision for income taxes.......................................... $ 70,500 =======
Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes purposes. The significant components of the Company's deferred tax balance are as follows: Deferred tax assets: Depreciation differences........................................ $ 3,400 Accruals not currently deductible............................... 29,200 Tax loss carryforwards.......................................... 45,100 Valuation allowance............................................. (62,500) ------- 15,200 Deferred tax liability -- revenue recognition................... 85,700 ------- $ 70,500 =======
As of September 26, 1996, for Russian income tax purposes, the Company had tax loss carryforwards of $129,000 which may be used, subject to certain restrictions, in 20% increments over each of the five calendar years from 1997 to 2001. 4. COMMON STOCK The Company's common stock was issued in exchange for a contribution of fixed assets and software. All items were new at the time of contribution and were valued at their invoiced costs. Common stock receivable represents the portion of the contribution not made as of the balance sheet date. Additional paid-in capital represents amounts paid by the Company's shareholder to fund the operations of the business. F-24 90 CORBINA TELECOMMUNICATIONS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FOR THE PERIOD DECEMBER 1, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996 (In US Dollars unless otherwise indicated) 5. COMMITMENTS The Company has an operating lease for office space with a term of five years. The total future minimum lease commitments are as follows: 1997............................................................ $ 38,000 1998............................................................ 38,000 1999............................................................ 38,000 2000............................................................ 9,586 -------- ................................................................ $123,586 --------
Total rent expense for the period was $29,000. 6. CONTINGENCIES The tax and legal systems in Russia are evolving as the central government transforms from a command to a market oriented economy. The Russian Federation has and continues to introduce laws, decrees and related regulations. These laws, decrees and regulations are not always clearly written and are, at times, conflicting. In addition, their interpretation is subject to the opinions of a variety of local, regional and federal tax inspectors, Central Bank officials and the Ministry of Finance. Instances of inconsistent opinions among and between these authorities are not unusual. The current regime of penalties and interest related to reported and discovered violations of Russia's laws, decrees and related regulations are severe. Penalties include confiscation and/or fines of up to 300% of the amounts at issue. Interest is assessable at rates of 0.3% to 0.7% per day. As a result, penalties and interest often result in amounts that are multiples of any unreported taxes. Also, the authorities have the right to seize bank accounts and detain individuals for known or suspected violations. The Company's policy is to accrue contingencies in the accounting period in which a loss is deemed probable and the amount is reasonably determinable. In this regard, because of the uncertainties associated with the Russian tax and legal systems, the ultimate taxes as well as penalties and interest, if any, assessed may be in excess of the amount expensed to date and accrued at September 30, 1996. Although such future assessments are possible and may be material, it is the opinion of the Company's management that such amounts, if any, will not have a material effect on the financial condition of the Company. The Company's operations and financial position will continue to be affected by Russian political developments, including the application of existing and future legislation and tax regulations. The likelihood of such occurrences and their effect on the Company could have a significant impact on the Company's ability to continue operations. F-25 91 APPENDIX A GLOSSARY OF SELECTED TERMS Set forth below are certain technical terms defined as they are used in this Prospectus. ACCESS: Access refers to the means by which a call is connected from the end user's telephone to a long distance carrier (i.e., regular local lines or dedicated private lines). See Dedicated Access and Switched Access. BASE STATION: Transmitter, receiver, signaling and related equipment located within an area served by CompTel's proposed wireless local network. COMMON CARRIERS: Companies which own or operate transmission facilities and offer telecommunication services to the general public on a non-discriminatory basis. COMPETITIVE ACCESS PROVIDERS: or CAPs, are businesses that offer local transport, i.e., telecommunications facilities to other interconnecting carriers in competition with the LEC. DEDICATED ACCESS: Access to a long-distance network over private lines-analog or digital-reserved for the specific use of a single entity. DIGITAL: A method of storing, processing and transmitting information through the use of distinct electronic or optical pulses that represent the binary digits 0 and 1. Digital transmission/switching technologies employ a sequence of descrete, distinct pulses to represent information, as opposed to the continuously variable analog signal. EXCHANGE An exchange is a call switching center, or an area in which a carrier provides services under the regulations and tariffs for that area. FACILITIES-BASED: A facilities-based provider of telecommunications services possesses it own call switching equipment and transmission lines, regionally or nationally. FACILITY: A facility is a transmission path between two or more points provided by a carrier. FIBER-OPTIC: A technology using light as a transmission mechanism. LATA: Local Access Transport Area -- a geographic area within which a LEC can provide telephone services, and between which a long distance carrier provides services. LEC: A LEC is a local exchange carrier-that is, a carrier which provides local exchange services in a LATA or LATAs, but not between LATAs. LOCAL LOOP: That portion of the public telecommunications network which extends from the service provider's switch to the individual home or business end-user. LOCAL LOOP SERVICES: Local telephony services. PROTOCOL: An all-inclusive term used to describe the various control functions, tuning and methodology standards by which a communications system operates, as well as any other equipment system characteristics necessary to ensure compatibility. SWITCH: A switch is equipment that routes local and long distance telephone calls over communications paths between geographic points, opens or closes A-1 92 circuits or selects the paths or circuits to be used for transmission of voice or data. Switching is the process of interconnecting circuits to form a transmission path between users. SWITCH-BASED RESELLER: Switch-based resellers lease facilities from national carriers or large private line networks. They resell long distance services over those facilities under their own name and provide sales, customer service, billing and technical support. Switch-based resellers own or lease their own call switching equipment and, in some cases, own their own transmission facilities. They typically provide originating telecommunications service on a regional basis. SWITCHED ACCESS: Access to long distance carriers via switches over lines that are provided for public use rather than over dedicated private lines. WIRELESS LOCAL LOOP Wireless Local Loop is a system that eliminates the need for a wire (loop) connecting users to the public switched telephone network, which is used in conventional wired telephone systems, by transmitting voice messages over radio waves for the "last mile" connection between the location of the customer's telephone and a base station connected to the network equipment. A-2 93 APPENDIX B THE RUSSIAN FEDERATION The information set forth in this appendix has been derived from various governmental and private publications which have not been prepared or independently verified by the Company the Selling Stockholders or the Underwriters or any of their respective advisors or affiliates. The Company is not aware of any material misstatement with respect to the information set forth in this appendix. Statistical data may vary from source to source as a result of differences in the underlying assumptions or methodology used. Furthermore, because of significant political, economic and other structural changes in Russia in recent years, any such historical information presented herein may not be indicative of future developments. In addition, the Company makes no representation that any correlation will exist between Russia or its economy in general and the performance of the Company. Prospective investors should consider carefully the factors discussed in the Prospectus under "Risk Factors." GENERAL The Russian Federation is constituted as a federation of republics, territories, regions (one of which is an autonomous region), cities of federal importance and autonomous areas, all of which are equal subjects of the Russian Federation. It is the largest state to emerge from the former Union of Soviet Socialist Republics (the "Soviet Union"), covering an area of approximately 17,075,000 square kilometers, which is approximately 76% of the territory of the former Soviet Union. Spanning eleven time zones, Russia covers one-eighth of the world's land surface, making it the largest country in the world, almost twice the size of the United States. The Russian Federation has a population of approximately 148 million people. Russia is a member of the United Nations (and a permanent member of its Security Council), the International Monetary Fund (the "IMF"), the World Bank, the International Finance Corporation and the European Bank for Reconstruction and Development. The Russian Federation succeeded to the former Soviet Union's observer status to the General Agreement on Tariffs and Trade which was granted in May 1990 and has been granted Most Favored Nation status by some members of the Organization for Economic Cooperation and Development ("OECD"). Russia and eleven other former Soviet republics joined together to form the Commonwealth of Independent States (the "CIS") on December 21, 1991. Members of the CIS have entered into a series of political and economic agreements among themselves. POLITICAL STRUCTURE AND RECENT POLITICAL DEVELOPMENTS The Soviet Union, established in 1922, was a centralized communist system comprised of 15 republics, including the Russian Soviet Federation Socialist Republic (the "RSFSR"). In the mid-1980s, then-Soviet President Mikhail Gorbachev introduced economic reforms under the principles of "glasnost" and "perestroika." In August 1991, certain high ranking members of the Soviet military and the Communist Party attempted a military coup which failed and indirectly led to the disintegration of the Soviet Union. After the collapse of the Soviet Union, Boris Yeltsin, who had been elected President of the RSFSR in June 1991, continued to hold office as President of the Russian Federation (the successor of the RSFSR). The Congress of People's Deputies and the Supreme Soviet, the members of which were elected under the Soviet Union, continued to act as the Russian Parliament until it was dissolved in October 1993 by President Yeltsin. In response to such dissolution, on October 3, 1993, certain members of the dissolved parliament and their supporters led an insurrection which failed after President Yeltsin ordered the military to take over the parliament building in Moscow. On December 12, 1993, a new constitution (the "Constitution"), drafted largely by President Yeltsin's administration and approved in a national referendum, was adopted. The Constitution established a federal democracy with a strong executive branch. The Constitution provides for a President with broad powers, and a B-1 94 bicameral parliament. The lower house of parliament, called the State Duma, comprises 450 deputies, half of whom are elected based on their party affiliation. The other half are elected by a majority of voters in single constituencies. The upper house, the Federation Council, is comprised of two representatives from each of the country's 89 regions, one from the regional legislative body and one from the regional executive body. Because the President appoints the head of the regional executive body, the President can indirectly influence the appointment of one-half of the upper house. The President appoints the head of government, the Prime Minister, who must then be approved in a majority vote by the State Duma. The Prime Minister, in close consultation with the President, then designates a cabinet of ministers. The President retains considerable power in his ability to dissolve parliament. Following the most recent parliamentary vote in December 1995, the parliament was highly fragmented with the largest party in the State Duma, the Communist Party of the Russian Federation, failing to achieve an absolute majority. The next parliamentary vote is due before December 17, 1999. President Boris Yeltsin, who has served as President of the Russian Federation since the dissolution of the Soviet Union in December 1991, was re-elected on July 3, 1996. He will serve a four-year term, with the next presidential election due in June 2000. In the event that President Yeltsin is forced to step down due to his poor health, becomes incapacitated or dies, the Prime Minister would serve as acting head of state for three months, during which time an election for a new President would be organized. Viktor Chernomyrdin has served as Prime Minister since December 1992. ECONOMIC CONDITIONS AND RECENT ECONOMIC DEVELOPMENTS In the aftermath of the dissolution of the Soviet Union, particularly in 1991 and 1992, Russia's centrally planned economy experienced a crisis, evidenced by a decline in living standards and gross domestic product ("GDP"), hyperinflation and a rapid devaluation of the rouble. In order to facilitate the redirection and stabilization of the economy, the Russian government began in 1991 to implement several new policy initiatives. Partly as a result of such initiatives, several economic indicators began to show positive improvements. For example, the budget deficit contracted from 11.1% of GDP in 1994 to 4.2% of GDP in 1995 and to 3.5% of GDP in 1996; and inflation declined from 224% in 1994 to 131% in 1995 and to 21.8% in 1996. In addition, high real interest rates and a 75% real appreciation of the exchange rate were accompanied by a current account surplus and a reduction in the GDP decline, with GDP falling 4% in 1995 as compared to 15% in 1994. Although certain economic indicators improved, other aspects of the economy have remained stagnant or worsened over the same period. Reported unemployment rose to 8.2% by the end of 1995 from 7.1% a year earlier, and household incomes declined 12% during 1995. Since 1991, the rouble has experienced a substantial devaluation. On December 31, 1991, the Rouble/Dollar exchange rate set by the Moscow Interbank Currency Exchange (the "MICEX"), the largest currency exchange in Russia, was 130 roubles per dollar. On July 5, 1995, the Russian Government and the Central Bank announced their intention to support the rouble within a band of 4,300 to 4,900 roubles per dollar until October 1, 1995 and later extended the band until December 31, 1995. The policy was subsequently extended to June 30, 1996 within a new band of 4,550 to 5,150 roubles per dollar, and the policy was re-extended to December 31, 1996 with the establishment of a new "crawling corridor" declining from 5,000 to 5,600 roubles per dollar as of July 1, 1996 to 5,500 to 6,100 roubles per dollar as of December 31, 1996. On May 16, 1996, the day the new "crawling" rouble corridor was announced, the Central Bank effectively replaced the daily MICEX exchange rate with a new daily fixing, known as the Central Bank mid-market rate. On December 31, 1996, the MICEX rate was 5,547 roubles per dollar. During the first part of 1996, monthly inflation slowed from 4.1% in January to 0.8% in July. The rouble steadily devalued from 4,689 roubles per dollar in January to 5,547 roubles per dollar in December, while remaining within the rouble band. The budget deficit rose from 1.5% of GDP in January to over 3.5% of GDP by the end of 1996. A Presidential decree in mid-1996 ordered a transfer of 5 trillion roubles of Central Bank "profits" to cover the budget deficit. Also, in 1996, an agreement was reached with the Paris Club of B-2 95 international creditors (a committee of sovereign creditors to Russia) to reschedule US$40 billion of debt over 25 years with an initial six-year grace period on principal payments. Final terms and conditions for the restructuring of US$32 billion of the London Club (a committee of commercial creditors of Russia). Both Paris and London Club restructurings are expected to enable Russia to access the global capital markets. LEGAL ENVIRONMENT The Russian Federation has a legal system based on civil law, of which the fundamental body of legislation is the Civil Code, which has priority over most other legislation. Bodies of law which were non-existent in the Soviet period have been adopted in the last few years, covering a wide range of substantive areas including, among other things, antitrust, banking, bankruptcy, corporate, privatization, property and securities. For instance, substantial sections of the First and Second Parts of the Civil Code became effective in January 1995 and March 1996, respectively, the Federal Law on Joint Stock Companies became effective in January 1996, the Federal Law on the Securities Market in April 1996 and the Federal Law on Banks and Banking Activities became effective in February 1996. The Russian judicial system consists of three branches of courts. General practice cases fall within the jurisdiction of district courts and regional courts under the supervision of the Supreme Court of the Russian Federation. Disputes regarding commercial matters fall within the jurisdiction of a system of civil courts under the supervision of the High Arbitration Court of the Russian Federation. Constitutional matters are resolved by the Constitutional Court. In instances involving a foreign party (or a Russian party which has foreign shareholders) or an economic activity outside the Russian Federation; parties may submit a dispute to arbitration before the International Commercial Arbitration Court established under the Chamber of Trade and Industry of the Russian Federation. FOREIGN INVESTMENT Since 1991, the Government has undertaken a number of legal and economic measures designed to stimulate foreign investment. The first major step was the adoption of the Law on Foreign Investment in July 1991 (the "Foreign Investment Law"), which permits a wide range of foreign investment activities in Russia. The Foreign Investment Law is the primary body of legislation relating to foreign investment although specific provisions in various other legislation including the basic corporate, tax, customs, accounting and other laws applicable to businesses operating in Russia often create practical difficulties for foreign investors. The Foreign Investment Law allows the repatriation of profits, duty-free import and export of goods and services for enterprises with over 30% foreign equity participation and lower tax rates for foreign investment in certain sectors of the economy. The Foreign Investment Law prohibits nationalization without quick, adequate and effective compensation. According to information provided by the MOC, the aggregate amount of direct foreign investment (excluding portfolio investments), including investment credits, in the Russian telecommunications industry approximated US$520.3 million in 1995. EXCHANGE CONTROLS AND REPATRIATION Russian currency exchange legislation limits the exchange of roubles for foreign currency and the use of foreign currency in Russia. Russian currency legislation currently permits, and Russian foreign investment legislation currently guarantees, the right of foreign investors to transfer abroad income received on investments in Russia (including, without limitation, profits, dividends and interest), provided such income was received in foreign currency and was subject to payment of all applicable taxes and duties. Russian currency legislation also permits legal entities to convert roubles into foreign currency for purposes of making dividend and interest payments. Foreign currency may be freely exchanged for roubles in Russia, but the exchange of roubles for foreign currency in Russia is restricted and roubles may not be exported or exchanged outside of Russia. Residents are required to convert 50% of all amounts received in foreign currency from export transactions into roubles, but may exchange roubles for foreign currency if they can document "current" foreign currency transactions B-3 96 (including payments of interest and dividends), or have permission from the Central Bank to engage in certain other transactions. Non-residents may freely convert foreign currency into roubles, but may only do so through rouble accounts which are subject to strict regulations. The currency exchange rules govern transactions in foreign currency and currency valuables (including foreign currency-denominated securities) between Russian residents (including citizens, permanent residents and legal entities established under Russian law) and between residents and non-residents. Russian currency legislation distinguishes between "current" foreign exchange transactions and foreign currency transactions involving a "movement of capital." "Current" foreign currency transactions generally may be freely carried out between residents and between residents and non-residents. "Movement of capital" transactions in foreign currency, including the purchase and sale of securities and real estate transactions, generally require a license from the Central Bank. The prevailing view is that the license is only required for Russian residents involved in such "movement of capital" transactions. Cash transactions in foreign currency are generally prohibited within the Russian Federation; however, certain obligations may be paid in foreign currency by means of credit cards or wire transfers. Foreign investors which are legal entities may purchase rouble-denominated shares from, and sell rouble-denominated shares to, Russian residents with settlement in roubles via a special rouble investment account. Foreign investors may also use such rouble investment account to receive rouble proceeds from investments in rouble-denominated shares (profit, dividends and proceeds from the sale of such rouble-denominated shares). Roubles received into such rouble investment account may be converted into foreign currency and subsequently may be repatriated, subject to payment of all applicable taxes and duties. Russian tax legislation currently requires a foreign investor to register with the tax authorities prior to opening such a rouble investment account. The Central Bank recently further relaxed restrictions on the use of roubles by foreign investors for transactions in government securities. TAXATION AND DUTIES Entities engaged in commercial activity in Russia must be registered with the tax inspectorate in each location in which they operate and must submit an annual tax declaration. Taxes are charged by federal, regional and local authorities. The profit tax, which is imposed on the basis of federal legislation, is payable to the federal tax authorities at the rate of 13% and to the regional tax authorities at rates which the regional tax authorities establish, but in no case more than 22%. The profit tax is calculated on the basis of a company's net profits, calculated according to Russian accounting principles, which does not provide for deduction of certain expenses which would be deductible under U.S. GAAP. Social security contributions by employers are payable to four different funds and total 38.5% of wages and salaries paid to Russian employees (or more, depending on the locality). A value-added tax ("VAT") of 20% is imposed on the customs value of imported goods, on goods supplied within the Russian territory and on certain services. Exemptions from VAT are available in certain circumstances for goods imported as contributions to the capital stock of Russian companies. Customs duties are imposed at high rates on a wide range of imports. In addition to the foregoing taxes and duties, each Russian jurisdiction may impose certain regional and local taxes. In Moscow, for example, such taxes include an advertising tax (currently 5% of the value of advertising services purchased), a transport tax (currently 1% of salary expenses), an education tax (currently 1% of salary expenses), a housing tax (currently 1.5% of revenues), and a road-users tax (currently 2.5% of revenues). CITY OF MOSCOW Moscow is the largest city of the Russian Federation. According to the Russian State Statistical Committee ("Goskomstat"), the City of Moscow has a population of nearly 8,717,400, with a further B-4 97 6,625,700 in the surrounding region. Moscow is the capital of the Russian Federation, Russia's principal commercial and financial center and is also a major Russian industrial center. Like many other Russian cities, Moscow has experienced a significant downturn in the industries that were the traditional base of its economy, including the automobile, heavy equipment, chemicals, pharmaceutical and food processing industries. Many major companies have been forced to suspend operations temporarily for various periods. This reduction in economic activity has been somewhat ameliorated by substantial growth in the financial, tourist and service sectors in Moscow, the development of the hotel sector and the growth of private wealth among a small but growing class of entrepreneurs based primarily on trading activities. Thus, although the purchasing power of most Moscow residents has fallen since 1991, there is a growing group of entrepreneurs and individuals employed directly or indirectly by domestic and international firms and joint ventures in Russia, hotels, banks and investment institutions that have substantially more purchasing power than they had in 1991. This is evidenced by the rapidly growing market for imported consumer goods in Moscow. B-5 98 ====================================================== NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ---- Available Information................. Prospectus Summary.................... Risk Factors.......................... Use of Proceeds....................... Capitalization........................ Dividend Policy....................... Management's Discussion and Analysis of Financial Condition and Results of Operations....................... Business.............................. Management............................ Certain Transactions.................. Principal Security Holders............ Selling Stockholders.................. Concurrent Registration of Securities.......................... Shares Eligible for Future Sale....... Underwriting.......................... Legal Matters......................... Experts............................... Financial Statements..................
UNTIL , 1997 (TWENTY-FIVE DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTIONS. ====================================================== ====================================================== RUSSIAN WIRELESS TELEPHONE COMPANY, INC. 1,400,000 SHARES OF COMMON STOCK AND 2,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS ------------------------ PROSPECTUS ------------------------ J. W. BARCLAY & CO., INC. , 1997 ====================================================== 99 [ALTERNATE PROSPECTUS -- COVER PAGE] PROSPECTUS RUSSIAN WIRELESS TELEPHONE COMPANY, INC. 2,450,015 FIVE YEAR REDEEMABLE WARRANTS AND 2,450,015 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS 30,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF AN OPTION OFFERED BY CERTAIN SELLING SECURITYHOLDERS This Prospectus relates to 300,000 shares of the Common Stock, $.01 par value (the "Common Stock"), of Russian Wireless Telephone Company, Inc., a Delaware corporation (the "Company"), 2,450,015 Five Year Redeemable Common Stock Purchase Warrants (the "Redeemable Warrants"), and the shares of Common Stock issuable upon exercise thereof, as well as 25,000 shares of Common Stock issuable upon exercise of a three year common stock purchase option held by one of the Company's directors (the "Option"), all of which are being offered by certain selling securityholders (the "Selling Securityholders"). The Company will not receive any of the proceeds from the sale of such securities. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock, at an exercise price of $7.25 (the "Exercise Price"), subject to adjustment, commencing two years from the date of this Prospectus (the "Effective Date") until the close of business on [ ], 2002 [the fifth anniversary of the Effective Date]. The Redeemable Warrants are redeemable, in whole or in part, by the Company at a price of $.50 per Redeemable Warrant commencing two years after the Effective Date and prior to their expiration, provided that (i) prior written notice of not less than 20 days is given to the holders of the Redeemable Warrants, and (ii) the closing bid price (as defined) for the 20 consecutive trading days immediately prior to the date on which notice of redemption is given shall have exceeded $14.50 per share. Notwithstanding the foregoing, the Redeemable Warrants may be exercised or redeemed during the one year period commencing on [ ], 1998 [the first anniversary of the Effective Date] upon the express written consent of the Representative. See "Description of Securities -- Redeemable Warrants." Prior to this offering, there has been no market for either the Common Stock or the Redeemable Warrants being offered by the Company concurrently with this Offering. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE [ ] AND "DILUTION". The Company has made applications for inclusion of the Common Stock and Redeemable Warrants on the Nasdaq SmallCap Market under the symbols [RWTC] and [RWTW], respectively, and for listing of the Common Stock and Redeemable Warrants on the Boston Stock Exchange and the Pacific Stock Exchange under the symbols [RWT] and [RWTW], respectively. There can be no assurance that any of such applications will be granted, or if any of such applications is granted, that an active and liquid market in such securities will develop. See "Risk Factors." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ THE DATE OF THIS PROSPECTUS IS , 1996 100 [Alternate Prospectus Page] THE OFFERING SECURITIES OFFERED BY The Selling Securityholders............... 300,000 shares of Common Stock; 2,450,015 Redeemable Warrants; and 25,000 shares of Common Stock, subject to issuance upon exercise of the Option OFFERING PRICE per share of Common Stock......................... $[ ] per Redeemable Warrant... $[ ] Net proceeds to the Company... The Company will not receive any proceeds from the sale of shares offered by the Selling Securityholders Common Stock Outstanding Before the Offering (1)..... 2,985,000 shares Common Stock to be Outstanding After the Offering (2)...... 4,385,000 shares Redeemable Warrants Outstanding Before the Offering.................... - 0 - Redeemable Warrants to be Outstanding After the Offering (3) 5,200,015 Exercise Terms........... Each Redeemable Warrant entitles the holder thereof to purchase one share of Common Stock for $7.25 (subject to adjustment in certain circumstances) during the three year period commencing two years after the Effective Date. (4) Expiration Date.......... [ ], 2002 [the fifth anniversary of the Effective Date]. Redemption............... Redeemable by the Company, in whole or in part, at a price of $.50 per Redeemable Warrant commencing two years after the Effective Date and prior to their expiration (subject to earlier redemption with the Representative's written consent), provided that (i) prior written notice of not less than 20 days is given to the holders of the Redeemable Warrants, and (ii) the closing bid price (as defined) for the 20 consecutive trading days immediately prior to the date on which notice of redemption is given shall have exceeded $14.50 per share. (4) PROPOSED NASDAQ SYMBOLS Common Stock.................. RWTC Redeemable Warrants........... RWTCW PROPOSED BOSTON AND PACIFIC STOCK EXCHANGE SYMBOLS Common Stock.................. [ ] Redeemable Warrants........... [ ] 101 CONCURRENT OFFERING BY THE COMPANY Securities offered by the Company....................... 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants Offering price per share...... $7.00 Offering price per Redeemable Warrant..................... $.50 Net Proceeds to the Company... $8,871,000 Use of proceeds............... To provide additional capital to Corbina, to purchase switching hardware and software for connection of CompTel's customers to the Moscow public telephone system, to purchase equipment and to acquire antenna sites to be used in connection with the establishment of CompTel's wireless local loop telecommunications system in the Moscow Region, to repay $750,000 borrowed in connection with the Offering and for working capital. See "Use of Proceeds." Risk Factors.................. The Offering involves a high degree of risk including, but not limited to, (i) risks of a political, economic and social nature regarding the Russian Federation; (ii) currency, and dividend payment restrictions pertaining to the Company's Russian subsidiaries; (iii) risks pertaining to the Russian legal system; and (iv) risks relating to the Company, such as its limited operating history, its dependence on key management in the US and the Russian Federation, the Company's ability to manage the growth and expansion that will be necessary to achieve profitability, the competitive environment for long distance services in the Russian Federation, the problems inherent in introducing new telecommunications technology such as wireless local loop service; and (v) other risks, such as the absence of a prior market for the Company's securities, the large number of shares of the Company's Common Stock that will be available for future sale and substantial immediate dilution. See "Risk Factors" beginning on page [ ]. - --------------- (1) Does not include up to 4,475,015 shares of Common Stock issuable upon (i) exercise of (a) 750,000 common stock purchase warrants issued to investors in the Company's first private placement of securities (the "First Private Placement Warrants"); (b) 450,000 common stock purchase warrants issued to investors in the Company's second private placement of securities (the "Second Private Placement Warrants"), all of which are being offered for sale pursuant to this prospectus by the Selling Securityholders; (c) 2,000,015 common stock purchase warrants issued to investors in the Company's third private placement of securities (the "Third Private Placement Warrants"), all of which are being offered for sale pursuant to this prospectus by the Selling Securityholders; and (d) an option to purchase 25,000 shares of Common Stock issued to one of the Company's directors (the "Option"); and (ii) issuance of (a) 1,000,000 of Common Stock reserved for issuance under the Company's Omnibus Stock Option Plan; and (b) 250,000 shares of Common Stock issuable to Mr. leibov pursuant to his employment agreement with the Company. See "Description of Securities -- Warrants Issued in Private Placements;" "Management -- Option Issued to Non-Employee Director;" " -- Executive Employment Agreements;" and "Concurrent Registration of Securities." (2) Does not include up to 5,113,265 shares of Common Stock issuable in the events that (i) all of the 750,000 First Private Placement Warrants, the 450,000 Second Private Placement Warrants and the 2,000,015 Third Private Placement Warrants are fully exercised; (ii) the Company issues 338,250 shares 102 of Common Stock upon full exercise of Underwriters' over-allotment option (and 300,000 shares of Common Stock are issued upon full exercise of the Redeemable Warrants to be issued in connection therewith); (iii) all 1,000,000 of the shares of Common Stock which have been reserved for issuance under the Company's Omnibus Stock Incentive Plan shall be issued; (iv) up to 250,000 shares of Common Stock are issued to Mr. Leibov pursuant to the Company's employment agreement with him; and (v) the 25,000 shares of Common Stock underlying the Option are issued. See "Management;" "Description of Securities;" and "Underwriting." (3) Consists of 750,000 First Private Placement Warrants, 450,000 Second Private Placement Warrants and 2,000,015 Third Private Placement Warrants which will be automatically converted into Redeemable Warrants upon closing of this Offering. See "Description of Securities." (4) Consists of (i) 2,000,000 Redeemable Warrants being offered by the Company in the Offering; (ii) 2,450,015 Redeemable Warrants which are being offered for sale by Selling Securityholders on a non-underwritten basis pursuant to this prospectus (including 450,000 Second Private Placement Warrants); and (iii) 750,000 First Private Placement Warrants which will be automatically converted into Redeemable Warrants upon closing of this Offering. See "Concurrent Registration of Securities;" "Description of Securities;" and "Underwriting." 103 [ALTERNATE PROSPECTUS PAGE] CONCURRENT OFFERING BY THE COMPANY Concurrently with this Offering, the Company is Offering, the Company is offering, pursuant to a separate prospectus included in the Registration Statement of which this Prospectus forms a part, 1,400,000 shares of Common Stock and 2,000,000 Redeemable Warrants. The Common Stock and Redeemable Warrants offered by the Company will be separately tradeable immediately upon issuance and may be purchased separately. Investors will not be required to purchase shares of Common Stock and Redeemable Warrants together or in any particular ratio. 104 [ALTERNATE PROSPECTUS PAGE] SELLING SECURITYHOLDERS In accordance with the Company's obligations to the investors who purchased securities in the Second Private Placement and the Third Private Placement, the Company has registered for sale, pursuant to this Prospectus, 300,000 shares of Common Stock and 2,450,015 Redeemable Warrants for sale by the Selling Securityholders identified below. The Company has also registered for sale, pursuant to this Prospectus, 25,000 shares of Common Stock which shall be issuable to Jack W. Buechner, the Chairman of the Company's Board of Directors, upon his exercise of a three year option to purchase such shares at an exercise price of $2.00 per share (the "Option"). Said Option will expire on May 21, 1998. Except for Mr. Buechner, none of the Selling Securityholders was an officer, director, or employee of the Company during the past three years, or had any other relationship with the Company during such period, other than as an investor. Such securities represent each investor's total beneficial holdings of the Company's Common Stock and Redeemable Warrants. The Selling Securityholders have agreed with J.W. Barclay & Co., Inc. (the "Representative"), the representative of the Underwriters of the concurrent offering being made by the Company, not to sell any of the securities which have been registered for sale pursuant to the Registration Statement of which this Prospectus forms a part for a period of 24 months from the date of this Prospectus without the prior written consent of the Representative. All of the Common Stock and Redeemable Warrants held by the Selling Securityholders are being offered for sale pursuant to this Prospectus for their respective accounts. Accordingly, it is anticipated that none of such securities will be owned by such Selling Securityholders after completion of the Offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Plan of Distribution." The following table sets forth the name of each Selling Securityholder, and the number of shares of Common Stock and Redeemable Warrants that each Selling Securityholder beneficially owned directly or indirectly on the date of this Prospectus.
SECURITIES OWNED AND OFFERED BY EACH SELLING SECURITYHOLDER --------------------------------- REDEEMABLE NAME COMMON STOCK WARRANTS ----------------------------------------- ------------ ------------------ Royal Bank of Scotland................... 150,000 1,000,005 Per Eric Dahl............................ 350,000 Jerome and Ann Coppola................... 40,000 266,668 Harold Singer............................ 30,000 200,001 Jack W. Buechner(1)...................... 25,000 Dale Bertling............................ 10,000 66,667 Kenneth Delonge.......................... 10,000 66,667 Howard M. Pack........................... 10,000 66,667 Michael Ciasulli......................... 50,000 Wayne and Louella Adams.................. 5,000 33,334 Christopher Cirillo...................... 5,000 33,334 Boyd Corliss............................. 5,000 33,334 Richard David............................ 5,000 33,334 Leon Feldan.............................. 5,000 33,334 David Hanos, Jr.......................... 5,000 33,334 Bernard Kolkana.......................... 5,000 33,334 Charles Leithauser....................... 5,000 33,334 E. Dale Miller........................... 5,000 33,334 Thomas Zenick............................ 5,000 33,334 Lawrence Dunn............................ 25,000 Slate Daiagi Realty...................... 25,000 325,000 2,450,015 ============== ==================
- --------------- (1) As of the date of this Prospectus, Mr. Buechner does not own, but does possess, pursuant to the Option, the right to purchase such shares of Common Stock. Such shares are being offered hereby subject to their issuance upon Mr. Buechner's timely exercise of the Option. 105 PLAN OF DISTRIBUTION The Selling Securityholders have advised the Company that sales of their Common Stock and Redeemable Warrants may be effected from time to time in transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. The Selling Securityholders may effect such transactions by selling the their Common Stock and Redeemable Warrants directly to purchasers or to or through broker-dealers which may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Selling Securityholders' Common Stock and/or Redeemable Warrants for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Selling Securityholders and any broker-dealer that acts in connection with the sale of the Selling Securityholders' Common Stock and/or Redeemable Warrants might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act. Each of the Selling Securityholders is obligated to comply with certain rules promulgated by the SEC designed to prevent manipulative and deceptive practices, including Rules 10b-2, 10b-6 and 10b-7 promulgated under the Securities Exchange Act of 1934. The Representative does not currently plan to participate in the sale of securities of the Selling Securityholders. At the time any offer of securities is made by or on behalf of a Selling Securityholder, a prospectus supplement might need to be circulated to disclose the number of shares being offered and the terms of the offering, the name or names of any underwriters, dealers or agents participating in the offering, the purchase price paid by any underwriter for shares purchased from the Selling Securityholders, and any discounts, commissions or concessions allowed or reallowed or paid to dealers, and the proposed selling price to the public. The Selling Securityholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of their securities against certain liabilities, including liabilities arising under the Securities Act. All costs, expenses and fees in connection with the registration of the shares of Common Stock and Redeemable Warrants offered by the Selling Securityholders will be borne by the Company. Brokerage commissions, if any, attributable to the sale of the securities offered by the Selling Securityholders will be borne by the Selling Securityholders. 106 [ALTERNATE OUTSIDE BACK PROSPECTUS COVER PAGE] ====================================================== NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ---- Available Information................. Prospectus Summary.................... Risk Factors.......................... Use of Proceeds....................... Capitalization........................ Dividend Policy....................... Management's Discussion and Analysis of Financial Condition and Results of Operations....................... Business.............................. Management............................ Certain Transactions.................. Principal Security Holders............ Selling Securityholders............... Plan of Distribution.................. Shares Eligible for Future Sale....... Concurrent Offering by the Company.... Legal Matters......................... Experts............................... Financial Statements..................
====================================================== ====================================================== 2,450,015 FIVE YEAR REDEEMABLE WARRANTS 2,450,015 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS 30,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF AN OPTION OFFERED BY CERTAIN SELLING SECURITYHOLDERS OF RUSSIAN WIRELESS TELEPHONE COMPANY, INC. ------------------------ PROSPECTUS ------------------------ , 1997 ====================================================== 107 PART II -- INFORMATION NOT REQUIRED IN PRO SPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article VIII of the bylaws of Russian Wireless Telephone Company, Inc. (the "Company") provides for the indemnification of directors and officers to the fullest extent permitted by law. Section 102(b)(7) of the General Corporation Law of the State of Delaware grants corporations the right to limit or eliminate the personal liability of their Directors in certain circumstances in accordance with provisions therein set forth. Article 10 of the Company's Certificate of Incorporation, a copy of which is filed as an exhibit to this Registration Statement, and incorporated herein by reference, provides for the elimination of personal liability of a Director to the Corporation or its stockholders for monetary damages for the breach of the Director's fiduciary duty to the full extent allowable under Section 102(b)(7). Section 145 of the General Corporation Law of the State of Delaware grants corporations the right to indemnify their Directors, officers, employees and agents in accordance with the provisions therein set forth. Article 8 of the Company's Bylaws, filed as an exhibit to this Registration Statement, and incorporated herein by reference, provides for indemnification of such person to the full extent allowable under applicable law. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. The Company has applied for directors' and officers' liability insurance coverage with limits of $1,000,000 per occurrence. In the Underwriting Agreement relating to the Common Stock and Warrants being offered hereunder, the underwriters have agreed to indemnify the Company's directors and certain of its officers, upon the terms and under the circumstances described therein, as to certain civil liabilities, including liabilities under the Securities Act. The Company has also entered into indemnification agreements with each of its directors and officers which provide for indemnification to the fullest extent permitted by law. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of Common Stock being registered. All amounts are estimates except the registration fee, the NASD and Nasdaq SmallCap Market fees and the Boston Stock Exchange and Pacific Stock Exchange fees.
AMOUNT TO BE PAID --------- SEC Registration fee............................................. $ 18,445 NASD Filing fee.................................................. 6,587 Nasdaq SmallCap Market fees...................................... 10,000 Boston Stock Exchange listing fees............................... 15,000 Pacific Stock Exchange filing fees............................... 22,500 Printing expenses................................................ 75,000 Legal fees and expenses.......................................... 175,000 Accounting fees and expenses..................................... 150,000 Blue sky fees and expenses....................................... 45,000 Warrant agent fees............................................... 7,500 Stock and Redeemable Warrant certificates........................ 5,000 Miscellaneous.................................................... 19,968 -------- Total..................................................... $550,000
II-1 108 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. During the three year period which ended on the date of filing of this Registration Statement, the Registrant sold the unregistered securities hereinbelow described: April 26, 1994 -- issuance of 550,000 shares of Registrant's Common Stock, $.01 par value (the "Common Stock") to Ronald G. Nathan in consideration for payment of $11,600. No underwriter, no discounts, no commissions. Exempt from registration pursuant to Section 4(2) of the Securities Act. June 15, 1994 -- issuance of 488,000 shares of Common Stock to Harvey Bloch at inception for financial consulting services rendered prior to inception and for services rendered through June 15, 1994 in the amount of $11,600. Exempt from registration pursuant to Section 4(2) of the Securities Act. December 15, 1994 -- issuance of 600,000 shares of Common Stock to Ronald G. Nathan in consideration for services rendered to the Registrant in the amount of $180,000. Exempt from registration pursuant to Section 4(2) of the Securities Act. December 23, 1994 -- issuance of 800,000 shares of Common Stock to Inversiones Santa Catalina, N.V. in consideration for payment in the amount of $8,000. Exempt from registration pursuant to Section 4(2) of the Securities Act. December 23, 1994 -- issuance of 5,000 shares of Common Stock to Solomon Klotz in consideration for payment in the amount of $50.00. Exempt from registration pursuant to Section 4(2) of the Securities Act. December 23, 1994 -- issuance of 5,000 shares of Common Stock to James Staff in consideration for payment in the amount of $50.00. Exempt from registration pursuant to Section 4(2) of the Securities Act. December 23, 1994 -- issuance of 5,000 shares of Common Stock to Thomas Turnure in consideration for payment in the amount of $50.00 Exempt from registration pursuant to Section 4(2) of the Securities Act. June 1994 -- Registrant issued 12% unsecured promissory notes in the aggregate principal amount of $735,000, and warrants to purchase 750,000 shares of Common Stock to the investors identified below in connection with a private placement of 7.5 units consisting of such securities at an offering price of $100,000 per unit which was exempt from registration pursuant to Regulation D promulgated under the Securities Act ("Reg D") and/or Section 4(2) of the Securities Act. White Rock Partners & Co., Inc. served as placement agent in connection with said placement and received a consulting fee and non-accountable expense allowance of $75,000 and $22,500, respectively, in connection therewith.
NUMBER NUMBER OF OF NAME UNITS WARRANTS -------------------------------------------------------- ------- -------- Hilda O'Connor.......................................... 1/4 25,000 Timothy Martin.......................................... 1-1/2 150,000 Elliot Braun............................................ 1/2 50,000 Jeffrey Muhlgeier....................................... 1/2 50,000 James Noonan............................................ 1/2 50,000 Jai Guar................................................ 1/2 50,000 Leah Hammerman.......................................... 1/4 25,000 George Rutland.......................................... 1-1/2 150,000 Charles Burkridge....................................... 1/2 50,000 Zoger Investment Corp................................... 1 100,000 Sean Leahy.............................................. 1/2 50,000 ----- ------- Total............................................ 7-1/2 750,000
October 1994 -- Registrant issued 12% unsecured promissory notes in the aggregate principal amount of $980,000, and warrants to purchase 500,000 shares of Common Stock to the investors identified below in II-2 109 connection with a private placement of 10 units consisting of such securities at an offering price of $100,000 per unit which was exempt from registration pursuant to Reg D and/or Section 4(2) of the Securities Act. White Rock Partners & Co., Inc. and CMA Analytical Service, Inc. served as placement agents in connection with said placement and received a consulting fee and non-accountable expense allowance of $100,000 and $30,000, respectively, in connection therewith.
NAME NUMBER OF UNITS NUMBER OF WARRANTS --------------------------------------- --------------- ------------------ Slate Daiagi Realty.................... 1/2 25,000 Larry Dunn............................. 1/2 25,000 Michael Ciasulli....................... 1 50,000 Lehman Brothers........................ 7 350,000 Colonial Electric...................... 1 50,000 -- ------- Total........................... 10 500,000
February 1996 -- Registrant issued 8% unsecured promissory notes in the aggregate principal amount of $1,050,000, 300,000 shares of Common Stock and warrants to purchase 2,000,015 shares of Common Stock to the investors identified below in connection with a private placement of 30 units consisting of such securities at an offering price of $35,000 per unit which was exempt from registration pursuant to Reg D and/or Section 4(2) of the Securities Act. J.W. Barclay & Co., Inc. served as placement agent in connection with said placement and received a consulting fee and non-accountable expense allowance of $105,000 and $31,500, respectively, in connection therewith.
NO. OF NO. OF NO. OF NAME UNITS SHARES WARRANTS --------------------------------------- ----------- ------------ -------------- Dale Bertling.......................... 1 10,000 66,667 Howard Pack............................ 1 10,000 66,667 Thomas Zenick.......................... 1/2 5,000 33,334 Royal Bank of Scotland................. 15 150,000 1,000,005 David Hanos, Jr........................ 1/2 5,000 33,334 Charles Leithauser..................... 1/2 5,000 33,334 Bernard Kolkana........................ 1/2 5,000 33,334 Richard Davis.......................... 1/2 5,000 33,334 Leon Feldan............................ 1/2 5,000 33,334 Jerome and Ann Coppola................. 4 40,000 266,668 E. Dale Miller......................... 1/2 5,000 33,334 Boyd Corliss........................... 1/2 5,000 33,334 Wayne Adams and Lovella Adams.......... 1/2 5,000 33,334 Kenneth A. DeLonge..................... 1 10,000 66,667 Harold H. Singer....................... 3 30,000 200,001 Christopher Cirillo.................... 1/2 5,000 33,334 --- ------- --------- Total........................... 30 300,000 2,000,015
December 19, 1996 -- Registrant borrowed the principal amount of $250,000 from each of Messrs. L.W. Cave, James Condakes and Howard M. Pack pursuant to agreements which provided for the repayment of such principal, together with interest accruing thereon at the rate of 8% per annum at the time of closing of the offering being made pursuant to prospectus contained in this Registration Statement, or October 31, 1998. As an inducement to such lenders to make such loans, the Registrant issued 150,000 shares of Common Stock to each of them, for no additional consideration. Such transactions were exempt from registration pursuant to Reg D and/or Section 4(2) of the Securities Act. February 10, 1997 -- Registrant issued 250,000 shares of Common Stock to Ronald G. Nathan and 500,000 shares of Common Stock to Mikhail Leibov pursuant to the merger of Russian Wireless Telephone Company, Inc. ("Russian Wireless") with and into the Registrant, and in consideration for the receipt and II-3 110 cancellation of 250,000 and 500,000 shares, respectively, of the common stock of Russian Wireless from them. Such transactions were exempt from registration pursuant to Section 4(2) of the Securities Act. ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------- 1.1 -- Form of Underwriting Agreement.* 1.2 -- Form of Agreement Among Underwriters.* 1.3 -- Form of Selected Dealers Agreement.* 2.1 -- Certificate of Merger Between the Company and Russian Wireless Telephone Company, Inc. 3.1 -- Certificate of Incorporation of the Company. 3.2 -- Bylaws of the Company. 4.1 -- The Company's Omnibus Stock Incentive Plan. 4.2 -- Specimen Stock Certificate of the Company's Common Stock. 4.3 -- Specimen Redeemable Warrant Certificate.* 4.4 -- Form of Redeemable Warrant Agreement.* 4.5 -- Form of Lockup Agreement.* 4.6 -- Form of Representative's Warrant Agreement and Representative's Warrant Certificate.* 5 -- Opinion of Hall Dickler Kent Friedman & Wood, regarding the legality of the Common Stock and the Redeemable Warrants.* 10.1 -- Option Agreement Between the Company and Mikhail Leibov. 10.2 -- Option Exercise Agreement Between the Company and Mikhail Leibov. 10.3 -- Employment Agreement Between the Company and Ronald G. Nathan. 10.4 -- Extension of Employment Agreement Between the Company and Ronald G. Nathan. 10.5 -- Employment Agreement Between the Company and Mikhail Leibov. 10.6 -- Lease Between 780 Third Avenue Associates and the Company.* 10.7 -- Lease Between Public Joint Stock Company PKB Proyektenergomash and Corbina Telecommunications.* 10.8 -- Lease Between CompTel and its Landlord.* 10.9 -- Financial Consulting Agreement Between the Company and the Representative.* 10.10 -- Form of Indemnity Agreement to be entered into between the Company and its Directors and Officers. 10.11 -- Redemption Agreement between the Company and Harvey Block.* 11 -- Computations of Earnings (Loss) Per Share. 21 -- Subsidiaries of the Company. 23.1 -- Consent of Independent Auditors (See Part II, Page 7). 23.2 -- Consent of Independent Auditors (See Part II, Page 8). 23.3 -- Consent of Counsel (See Part II, Page 9). 23.4 -- Consent of Counsel (See Part II, Page 10). 24 -- Power of Attorney (See Part II, Page 6).
- --------------- * To be filed by amendment. II-4 111 ITEM 28. UNDERTAKINGS. A. CERTIFICATES The Registrant hereby undertakes to provide to the Underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. B. RULE 415 OFFERING The Registrant hereby undertakes: (1) To file, during any period in which it offers or sells any of the securities which are the subject of the prospectus included within this Registration Statement, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events which, individually or together, represent fundamental change in the information set forth in the Registration Statement; (iii) to include any additional or changed material information with respect to the plan of distribution. (2) For purposes of determining any liability under the Securities Act, the Registrant will treat each post-effective amendment as a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. C. REQUEST FOR ACCELERATION OF EFFECTIVE DATE The Company may elect to request acceleration of the effective date of the Registration Statement under Rule 461 of the Securities Act of 1933. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. D. RELIANCE ON RULE 430A (1) For purposes of determining liability under the Securities Act, the Registrant will treat the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act (sec.sec.230.424(b)(1), (4) or 230.497(h)) as part of this Registration Statement as of the time the Commission declared it effective. (2) For purposes of determining liability under the Securities Act, the Registrant will treat each post-effective amendment as a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 112 SIGNATURES IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY, COUNTY AND STATE OF NEW YORK ON THE 28TH DAY OF MARCH, 1997 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. By: /s/ RONALD G. NATHAN ------------------------------------ Ronald G. Nathan, President (Principal Executive Officer) IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES STATED. KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS RONALD G. NATHAN HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENT, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULL TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT AND AGENT OR EITHER OF THEM OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ --------------- /s/ JACK W. BUECHNER Director, Chairman of the March 28, 1997 - --------------------------------------------- Board Jack W. Buechner /s/ RONALD G. NATHAN Director, President, Treasurer March 28, 1997 - --------------------------------------------- (Principal Executive and Ronald G. Nathan Principal Financial Officer) /s/ RICHARD N. HOLWILL Director March 28, 1997 - --------------------------------------------- Richard N. Holwill /s/ STEVEN D. DREYER Director, Secretary March 28, 1997 - --------------------------------------------- Steven D. Dreyer
II-6 113 CONSENT OF INDEPENDENT AUDITORS Russian Wireless Telephone Company, Inc. We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 28, 1997 in the Registration Statement (Form SB-2) and related prospectus of Russian Wireless Telephone Company, Inc. dated March 28, 1997. ERNST & YOUNG LLP New York, New York March 28, 1997 II-7 114 CONSENT OF INDEPENDENT AUDITORS Corbina Telecommunications We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 24, 1997 with respect to the financial statements of Corbina Telecommunications included in the Registration Statement (Form SB-2) and related prospectus of Russian Wireless Telephone Company, Inc. dated March 28, 1997. ERNST & YOUNG (CIS) LIMITED Moscow, Russian Federation March 28, 1997 II-8 115 CONSENT OF COUNSEL We consent to the use of our firm's name and to the statements made with respect to our Firm, as they appear under the heading "Legal Matters" in the Prospectus which is included in Part I of this Registration Statement. HALL DICKLER KENT FRIEDMAN & WOOD LLP New York, New York March 28, 1997 II-9 116 CONSENT OF COUNSEL I consent to the use of my name and to the statements made with respect to me, as they appear under the heading "Legal Matters" in the Prospectus which is included in Part I of this Registration Statement. IRINA IGITOVA Moscow, Russian Federation March 28, 1997 II-10 117 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE ------- --------------------------------------------------------------- ----------- 2.1 -- Certificate of Merger Between the Company and Russian Wireless Telephone Company, Inc. ..................................... 3.1 -- Certificate of Incorporation of the Company.................... 3.2 -- Bylaws of the Company.......................................... 4.1 -- The Company's Omnibus Stock Incentive Plan..................... 4.2 -- Specimen Stock Certificate of the Company's Common Stock....... 10.1 -- Option Agreement Between the Company and Mikhail Leibov........ 10.2 -- Option Exercise Agreement Between the Company and Mikhail Leibov....................................................... 10.3 -- Employment Agreement Between the Company and Ronald G. Nathan.. 10.4 -- Extension of Employment Agreement Between the Company and Ronald G. Nathan............................................. 10.5 -- Employment Agreement Between the Company and Mikhail Leibov.... 10.10 -- Form of Indemnity Agreement to be entered into between the Company and its Directors and Officers....................... 11 -- Computations of Earnings (Loss) Per Share...................... 21 -- Subsidiaries of the Company.................................... 23.1 -- Consent of Independent Auditors (See Part II, Page 7).......... 23.2 -- Consent of Independent Auditors (See Part II, Page 8).......... 23.3 -- Consent of Counsel (See Part II, Page 9)....................... 23.4 -- Consent of Counsel (See Part II, Page 10)...................... 24 -- Power of Attorney (See Part II, Page 6)........................
EX-2.1 2 CERTIFICATE OF MERGER 1 Exhibit 2.1 CERTIFICATE OF MERGER OF RUSSIAN WIRELESS TELEPHONE COMPANY, INC. INTO TELCOM GROUP USA, INC. It is hereby certified by the undersigned corporation as follows: FIRST: That the names and states of incorporation of each of the constituent corporations of the merger are as follows: State of Name Incorporation ---- ------------- Russian Wireless Telephone Company, Inc. Delaware Telcom Group USA, Inc. Delaware SECOND: That the Agreement of Merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations pursuant to the unanimous written consent of the stockholders of Russian Wireless Telephone Company, Inc. dated January 31, 1997, and pursuant the vote of a majority of the stockholders of Telcom Group USA, Inc. at the Annual Meeting of stockholders held on February 10, 1997. THIRD: That the name of the surviving corporation of the merger is Telcom Group USA, Inc., a Delaware corporation. FOURTH: That the Certificate of Incorporation of Telcom Group USA, Inc. shall be the Certificate of Incorporation of the surviving corporation, provided that simultaneously with the filing of this Certificate, the name of Telcom Group USA, Inc. shall be changed to Russian Wireless Telephone Company, Inc. In order to effect such name change, Article 1. of the Certificate of Incorporation of Telcom Group USA, Inc. shall be amended to read as follows: "The name of the Corporation is Russian Wireless Telephone Company, Inc." 2 FIFTH: That the executed Agreement and Plan of Merger is on file at the principal place of business of the surviving corporation. The address of said principal place of business is 780 Third Avenue, Suite 1600, New York, N.Y. 10017. SIXTH: That a copy of the Agreement and Plan of Merger will be furnished on request and without cost to any stockholder of any constituent corporation. IN WITNESS WHEREOF, said Telcom Group USA, Inc. has caused this Certificate to be executed by its officers thereunto duly authorized this 10th day of February, 1997. TELCOM GROUP USA, INC. By: _____________________________ Ronald G. Nathan, President ATTEST: ________________________________ Steven D. Dreyer, Secretary 2 EX-3.1 3 CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 CERTIFICATE OF INCORPORATION OF TELCOM GROUP USA, INC. * * * * * 1. The name of the Corporation is TELCOM GROUP USA, INC. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act so activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the Corporation shall have authority to issue is sixteen million (16,000,000), of which stock fifteen million 1 2 (15,000,000) shares of the par value of One Cent ($.01) each, amounting in the aggregate to One Hundred Fifty Thousand Dollars ($150,000.00), shall be common stock ("Common Stock") and of which one million (1,000,000) shares of the par value of One Cent ($.01) each, amounting in the aggregate to Ten Thousand Dollars ($10,000.00), shall be preferred stock ("Preferred Stock"). (a) Preferred Stock The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock with such designations, powers, preferences and rights as may be determined from time to time by the Board of Directors. The Board of Directors is further authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. (b) Common Stock (1) Dividends. The Board of Directors may, in its discretion, out of funds legally available for the payment of dividends and at such times and in such manner as determined by the Board of Directors, declare and pay dividends on the outstanding shares of Common Stock of the Corporation. 2 3 (2) Liquidation. Subject to the provisions of this Certificate of Incorporation, in the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment of any preferential amount due to the holders of shares of any other class or series of stock, the holders of shares of Common Stock shall be entitled to receive ratably, based on the number of shares of Common Stock held by such holders, any assets of the Corporation available for distribution to holders of Common Stock. (3) Voting Rights. The holders of shares of Common Stock shall have the following voting rights: A. Each share of Common Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the stockholders of the Corporation. B. Except as otherwise required by law or the provisions of this Certificate of Incorporation, the holders of shares of Common Stock shall not be entitled to vote separately as a class on any matter submitted to a vote of the stockholders of the Corporation. (4) Reacquired Shares. Any shares of Common Stock purchased or otherwise acquired by the Corporation in any manner whatsoever that 3 4 have been retired shall upon their retirement become authorized but unissued shares of Common Stock. (c) Number of Authorized Shares. The number of authorized shares of any class of capital stock of the Corporation may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Corporation having a majority of the votes entitled to be cast on matters submitted to a vote of the stockholders of the Corporation, and no class vote shall be required in connection therewith. 5. (a) The name and mailing address of each incorporator is as follows: NAME MAILING ADDRESS ------------- ---------------------------- M. A. Brzoska Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 K. A. Widdoes Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 L. J. Vitalo Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 (b) The name and mailing address of each person, who is to serve as a director until the first annual meeting of the stockholders or until a successor is elected and qualified, is as follows: 4 5 NAME MAILING ADDRESS ------------------- --------------------------- HARVEY M. BLOCH 154 West 57th Street New York, New York 10019 RONALD G. NATHAN 154 West 57th Street New York, New York 10019 6. The Corporation is to have perpetual existence. 7. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, alter or repeal the by-laws of the Corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole board, to designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The by-laws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, 5 6 may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the by-laws of the Corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the by-laws of the Corporation; and, unless the resolution or by-laws, expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. When and as authorized by the stockholders in accordance with statute, to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the Corporation. 6 7 8. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the Corporation. Whenever a compromise or arrangement is proposed (between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said 7 8 compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. 9. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 10. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby 8 9 declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set our hands this 26th day of April , 1994. /s/ M. A. Brzoska -------------------- /s/ K. A. Widdoes -------------------- /s/ L. J. Vitalo -------------------- 9 EX-3.2 4 BYLAWS OF THE COMPANY 1 Exhibit 3.2 BY-LAWS of Russian Wireless Telephone Company, Inc. ( f/k/a Telcom Group USA, Inc.) a Delaware Corporation (the "Corporation") ARTICLE I - OFFICES Section 1.1. Location. The address of the registered office of the Corporation in the State of Delaware and the name of the registered agent at such address, if any, shall be as specified in the Certificate of Incorporation or, if subsequently changed, as specified in the most recent certificate of change filed pursuant to law. The Corporation may also have other offices at such places within or without the State of Delaware as the Board of Directors may from time to time designate or the business of the Corporation may require. Section 1.2. Change of Location. In the manner permitted by law, the Board of Directors may change the address of the Corporation's registered office in the State of Delaware and the Board of Directors may make, revoke or change the designation of the registered agent. ARTICLE II - STOCKHOLDERS Section 2.1 Place of Meetings. Meeting of stockholders shall be held at the principal office of the Corporation or at such place within or without the State of Delaware as the Board of Directors shall authorize. Section 2.2 Annual Meeting. The annual meeting of stockholders shall be held each year on a date and at a time to be selected by the President or the Board of Directors at least 30 days before such meeting or, in the event the President or the Board of Directors shall not make such selection at least 30 days prior to the following indicated date, at 10:00 A.M. on the last Friday in June of each year (if not a legal holiday, and if a legal holiday, then on the next business day), at such place within or without the State of Delaware as shall be stated in the notice of meeting. At such meeting, or at any special meeting in lieu of the annual meeting, the 2 stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. The notice of the meeting shall be in writing and signed by the President or a Vice President or the Secretary or an Assistant Secretary. Such notice shall state the purpose or purposes for which the meeting is called and the time when and the place within or without the State where such meeting is to be held, and a copy thereof shall be served, either personally or by mail upon each stockholder of record entitled to vote at such meeting, and upon each stockholder of record, who, by reason of any action proposed at such meeting, would be entitled to have his stock appraised if such action were taken, not less than ten or more than fifty days before the meeting. If mailed, it shall be directed to a stockholder at his address as it appears on the stock book unless he shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. Section 2.3 Special Meetings. Special meetings of the stockholders may be called at any time by the Chairman of the Board, by the President and by the President or the Secretary at the request in writing of either (a) a majority of the Board of Directors, or (b) stockholders owning a majority in amount of the shares issued and outstanding. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at a special meeting shall be confined to the purposes stated in the notice. Section 2.4. List of Stockholders Entitled to Vote. The officer who has charge of the stock ledger of the Corporation shall prepare and make, or cause to be prepared and made, at least ten days before every meeting of stockholders, a complete list, based upon the record date for such meeting determined pursuant to Section 5.8, of the stockholders entitled to vote at the meeting, 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 such place shall not be so specified, at the place where said 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 (i) to examine the stock ledger, the list of stockholders entitled 2 3 to vote at any meeting, or the books of the Corporation, or (ii) to vote in person or by proxy at any meeting of stockholders. Section 2.5. Notice of Meetings. Written notice of each annual and special meeting of stockholders, other than any meeting the giving of notice of which is otherwise prescribed by law, stating the place, date and hour of the meeting, and, in the case of a special meeting, indicating the purpose or purposes thereof and that it is being issued by or at the direction of the person or persons calling the meeting, shall be delivered or mailed in writing at least ten but not more than sixty days before such meeting, to each stockholder required or permitted to take any action or entitled to vote thereat. If mailed, such notice shall be deposited in the United States mail, postage prepaid, directed to such stockholder at his address as the same appears on the records of the Corporation. An affidavit of the Secretary, an Assistant Secretary or the transfer agent of the Corporation that notice has been given by mail shall be evidence of the facts stated therein. Section 2.6. Adjourned Meetings and Notice Thereof. Any meeting of stockholders may be adjourned to another time or place, and the Corporation may transact at any adjourned meeting any business which might have been transacted at the original meeting. Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless (a) any adjournment or series of adjournments cause the original meeting to be adjourned for more than thirty days after the date originally fixed therefor, or (b) a new record date is fixed for the adjourned meeting. If notice of any adjourned meeting is given, such notice shall be given to each stockholder of record entitled to vote at the adjourned meeting in the manner prescribed in Section 2.5 for giving of notice of meetings. Section 2.7. Quorum. At any meeting of stockholders, except as otherwise expressly required by law, or by the Certificate of Incorporation, the holders of record of at least a majority of the outstanding Capital Shares entitled to vote or act at such meetings shall be present or represented by proxy in order to constitute a quorum for the transaction of any business, but less than a quorum shall have power to adjourn any meeting unless a quorum shall be present. When a quorum is once present to organize a meeting, the quorum cannot be destroyed by the subsequent withdrawal or revocation of the proxy of any stockholder. Capital shares owned by the Corporation or by another corporation, if a majority of its shares entitled to vote in the election of directors is held by the Corporation, shall not be counted for quorum purposes or entitled to vote. Section 2.8. Voting. At any meeting of stockholders each stockholder holding, as of the record date, shares entitled to be voted on any matter at such 3 4 meeting shall have one vote on each such matter submitted to vote at such meeting for each such share held by such stockholder as of the record date as shown by the list of stockholders entitled to vote at the meeting, unless the Certificate of Incorporation provides for more or less than one vote for any share on any matter, in which case every reference to a required proportion of shares shall refer to the proportion of the votes of such shares. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, provided that no proxy shall be voted or acted upon after eleven months from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest, whether in the shares themselves or in the Corporation, sufficient in law to support an irrevocable power. Section 2.9 Waivers of Notice of Meetings. Notice of meeting need not be given to any stockholder who signs a waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any 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. Section 2.10. Action by Consent of Stockholders. Unless otherwise provided in the Certificate of Incorporation, whenever any action by the stockholders at a meeting thereof is required or permitted by law, the Certificate of Incorporation, or these By-Laws, such action may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall be signed by the holders of all the outstanding shares entitled to vote thereon. ARTICLE III - BOARD OF DIRECTORS Section 3.1. General Powers. The property, business and affairs of the Corporation shall be managed by the Board of Directors. The Board of Directors may exercise all such powers of the Corporation and have such authority and do all such lawful acts and things as are permitted by law, the Certificate of Incorporation or these By-Laws. 4 5 Section 3.2. Number of Directors. The Board of Directors of the Corporation shall consist of at least one and not more than seven members. Subject to the foregoing limitations, the number of directors constituting the entire Board of Directors shall be such number as shall be designated from time to time by resolution of the Board of Directors. Section 3.3. Qualification. Directors must be at least eighteen years of age, but need not be stockholders of the Corporation. Section 3.4. Election. Except as otherwise provided by law, the Certificate of Incorporation, or these By-Laws, after the first meeting of the Corporation at which directors are elected, directors of the Corporation shall be elected in each year at the annual meeting of stockholders, or at a special meeting in lieu of the annual meeting called for such purpose, by a plurality of votes cast at such meeting. The voting on directors at any such meeting need not be written ballot. Section 3.5. Term. Each director shall hold office until the expiration of the term for which he is elected and until his successor has been elected and qualified, or until his prior resignation or removal. Section 3.6. Resignation and Removal. Any director may resign at any time upon written notice to the Board of Directors, the President or the Secretary. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any or all of the directors may be removed for cause by vote of the stockholders or by action of the Board of Directors. Directors may be removed without cause only by vote of the stockholders. Section 3.7. Vacancies. Vacancies in the Board of Directors (unless the vacancy be caused by the removal of a director without cause) and newly created directorships resulting from any increase in the authorized number of directors shall be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. A vacancy caused by the removal of a director without cause shall be filled by a vote of the holders of a majority of the shares entitled to vote for the election of directors. If one or more directors shall resign from the Board of Directors 5 6 effective at a future date, a majority of the directors then in office, including those who have so resigned at a future date, shall have power to fill such vacancy or vacancies, the vote thereon to take effect and the vacancy to be filled when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section for the filling of other vacancies. Each director chosen to fill a vacancy on the Board of Directors shall hold office until the next annual election of directors and until his successor shall be elected and qualified. Section 3.8. Quorum and Voting. Unless the Certificate of Incorporation provides otherwise, at all meetings of the Board of Directors a majority of the total number of directors (but not less than one-third of the total number of directors) shall be present to constitute a quorum for the transaction of business. A director interested in a contract or transaction may be counted in determining the presence of a quorum at a meeting of the Board of Directors which authorizes the contract or transaction. In the absence of a quorum, a majority of the directors present may adjourn the meeting until a quorum shall be present. Unless the Certificate of Incorporation provides otherwise, members of the Board of Directors or any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such meeting for all purposes. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the Certificate of Incorporation or these By-Laws shall require a vote of a greater number. Section 3.9. Regulations. The Board of Directors may adopt such rules and regulations for the conduct of the business and management of the Corporation, not inconsistent with law or the Certificate of Incorporation or these By-Laws, as the Board of Directors may deem proper. The Board of Directors may hold its meetings and cause the books and records of the Corporation to be kept at such place or places within or without the State of Delaware as the Board of Directors may from time to time determine. The Corporation shall keep at its registered office in the State of Delaware a record containing the names and addresses of all stockholders of the Corporation, the number and class of shares held by each stockholder, and the dates when they respectively became the owners of record. A member of the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made 6 7 to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or any committee of the Board of Directors or in relying in good faith upon other records of the Corporation. Section 3.10. Annual Meeting of Board of Directors. An annual meeting of the Board of Directors shall be called and held for the purpose of organization, election of officers and transaction of any other business. If such meeting is held promptly after and at the place specified for the annual meeting of stockholders, no notice of the annual meeting of the Board of Directors need by given. Otherwise such annual meeting shall be held at such time (not more than thirty days after the annual meeting of stockholders) and place as may be specified in a notice of the meeting. Section 3.11. Regular Meetings. Regular meetings of the Board of Directors shall be held at the time and place, within or without the State of Delaware, as shall from time to time be determined by the Board of Directors. After there has been such determination and notice thereof has been given to each member of the Board of Directors, no further notice shall be required for any such regular meeting. Except as otherwise provided by law, any business may be transacted at any regular meeting. Section 3.12. Special Meetings. Special meetings of the Board of Directors may, unless otherwise prescribed by law, be called from time to time by the Chairman of the Board or the President, and shall be called by the President or Secretary upon the written request of a majority of the whole Board of Directors directed to the President or the Secretary. Except as provided below, notice of any special meeting of the Board of Directors, stating the time when and place where such special meeting shall be held, shall be given to each director. Section 3.13. Notice of Meetings. Notice of any meeting of the Board of Directors shall be deemed to be duly given to a director (i) if mailed to such director, addressed to him at his address as it appears upon the books of the Corporation, or at the address last made known in writing to the Corporation by such director as the address to which such notices are to be sent, at least two days before the day on which such special meeting is to be held, or (ii) if sent to him at such address by telegram, mailgram, cable, overnight courier, e.g., Federal Express, radio or wireless not later than the day before the day on which such meeting is to be held, or (iii) if delivered to him personally or orally, by telephone or otherwise, not later than the day before the day on which such special meeting is to be held. Each notice shall 7 8 state the time and place of the meeting. Section 3.14. Committees of Directors. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of three or more of the directors of the Corporation. Except as herein provided, vacancies in membership of any committee shall be filled by the vote of a majority of the whole Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Members of a committee shall hold office for such period as may be fixed by a resolution adopted by a majority of the whole Board of Directors, subject, however, to removal at any time, with or without cause, by the vote of a majority of the whole Board of Directors. Section 3.15. Powers and Duties of Committees. Any committee, to the extent provided in the resolution or resolutions creating such committee, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. No such committee shall have any power or authority with regard to (a) any action that requires stockholder approval, (b) filling of vacancies in the Board of Directors or in any committee, (c) fixing of compensation of the directors for serving on the Board or on any committee, (d) amending or repealing the By-Laws of the Corporation, or adopting new By-Laws, and (e) amending or repealing any resolution, which by its terms is not amendable or repealable. The Board of Directors, by specific resolution, may grant to such committee the power and authority to declare a dividend or authorize the issuance of stock. Each committee may adopt its own rules of procedure and may meet at stated times or on such notice as such committee may determine. Except as otherwise permitted by these By-Laws, each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Section 3.16. Compensation of Directors. The Board of Directors may from time to time, in its discretion, fix the amounts which shall be payable to directors and to members of any committee of the Board of Directors for attendance 8 9 at the meetings of the Board of Directors or of such committee and for services rendered to the Corporation. Section 3.17. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE IV - OFFICERS Section 4.1 Principal Officers. The principal officers of the Corporation shall be elected by the Board of Directors and shall include a Chief Executive Officer, a Secretary and a Treasurer and may, at the discretion of the Board of Directors, also include a Chief Operating Officer and/or one or more Vice Presidents, and a Controller. Except as otherwise provided in the Certificate of Incorporation or these By-Laws, one person may hold the offices and perform the duties of any two or more of said principal offices except the offices and duties of President and Vice President or of the President and Secretary. Section 4.2 Election of Principal Officers; Term of Office. The principal officers of the Corporation shall be elected annually by the Board of Directors at each annual meeting of the Board of Directors. Failure to elect any principal officer annually shall not result in or constitute grounds for the dissolution of the Corporation. If the Board of Directors shall fail to fill any principal office at an annual meeting, or if any vacancy in any principal office shall occur, or if any principal office shall be newly created, such principal office may be filled at any regular or special meeting of the Board of Directors. Each principal officer shall hold office for the term for which he is elected and until his successor is duly elected or appointed, and qualified, or until his earlier death, resignation or removal. Section 4.3. Subordinate Officers, Agents and Employees. In addition to the principal officers, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and such other subordinate officers, agents and employees as the Board of Directors may deem advisable, each of whom shall hold 9 10 office for such period and have such authority and perform such duties as the Board of Directors, the Chairman of the Board, the President, or any officer designated by the Board of Directors, may from time to time determine. The Board of Directors at any time may appoint and remove, or may delegate to any principal officer the power to appoint and remove, any subordinate officer, agent or employee of the Corporation. Section 4.4. Delegation of Duties of Officers. The Board of Directors may delegate the duties and powers of any officer of the Corporation to any other officer or to any director for a specified period of time for any reason that the Board of Directors may deem sufficient. Section 4.5. Removal of Officers. Any officer of the Corporation may be removed with or without cause by resolution adopted by a majority of the directors then in office at any regular or special meeting of the Board of Directors or by a written consent signed by all of the directors then in office. Section 4.6. Resignations. Any officer may resign at any time by giving written notice of resignation to the Board of Directors, to the President or to the Secretary. Any such resignation shall take effect upon receipt of such notice or at any later time specified in such notice. Unless otherwise specified in the notice, the acceptance of a resignation shall not be necessary to make the resignation effective. Section 4.7 Vacancies: Any vacancy in the offices of Chief Executive Officer, Chief Operating Officer, President, Treasurer, and Secretary shall be filled promptly by the Board. Any vacancy in any other office may be filled by the Board at its discretion. Section 4.8 Chief Executive Officer. The Chairman of the Board shall be the President and Chief Executive Officer of the Corporation and, as such, shall have general supervision over the business and affairs of the Corporation, subject to the control of the Board of Directors. The Chairman shall be a member ex officio of each standing committee (except the Audit Committee) to which he or she is not personally appointed. Subject to the control of the Board of Directors, the Chairman may enter into any contract or execute and deliver any instruments on behalf of the Corporation. The Chairman shall preside at all meetings of the shareholders and all meetings of the Board of Directors that he or she attends. In general, the Chairman shall perform all duties incident to the office of the Chief Executive Officer of the Corporation and any other duties that may be assigned by the Board of Directors. 10 11 Section 4.9. Vice Presidents. The Executive Vice Presidents, Senior Vice Presidents and Vice Presidents (if any) shall have such powers and shall perform such duties as may be prescribed by the Chief Executive officer or the Board of Directors. In the absence or disability of the Chief Executive Officer or if the office of the Chief Executive Officer and the Chief Operating Officer shall be vacant, the Vice Presidents in the order determined by the Board of Directors, or if no such determination has been made in the order of their seniority, shall perform the duties and exercise the powers of the Chief Executive Officer, subject to the right of the Board of Directors at any time to extend or confine such powers and duties or to assign them to others. Any Vice President may have such additional designation in his title as the Board of Directors may determine. The Vice Presidents shall generally assist the President in such manner as the President shall direct. Each Vice President shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or the Chief Executive Officer. Section 4.10. Secretary. The Secretary shall act as Secretary of all meetings of stockholders and of the Board of Directors at which he is present, shall record all the proceedings of all such meetings in a book to be kept for that purpose, shall have supervision over the giving and service of notices of the Corporation, and shall have supervision over the care and custody of the corporate records and the corporate seal of the Corporation. The Secretary shall be empowered to affix the corporate seal to documents, the execution of which on behalf of the Corporation under its seal, is duly authorized, and when so affixed may attest the same. The Secretary shall have all powers and duties usually incident to the office of Secretary, except as specifically limited by a resolution of the Board of Directors or the President. Section 4.11. Treasurer. The Treasurer shall have general supervision over the care and custody of the funds and over the receipts and disbursements of the Corporation and shall cause the funds of the Corporation to be deposited in the name of the Corporation in such banks or other depositories as the Board of Directors may designate. The Treasurer shall have supervision over the care and safekeeping of the securities of the Corporation. The Treasurer shall have all powers and duties usually incident to the office of the Treasurer except as specifically limited by a resolution of the Board of Directors. The Treasurer shall have other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or the President. Section 4.12. Controller. The Controller shall be the chief accounting officer of the Corporation and shall have supervision over the maintenance and 11 12 custody of the accounting operations of the Corporation, including the keeping of accurate accounts of all receipts and disbursements and all other financial transactions. The Controller shall have all powers and duties usually incident to the office of the Controller except as specifically limited by a resolution of the Board of Directors. The Controller shall have other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or the President. Section 4.13. Bond. The Board of Directors shall have power, to the extent permitted by law, to require any officer, agent or employee of the Corporation to give bond for the faithful discharge of his duties in such form and with such surety or sureties as the Board of Directors may determine. ARTICLE V - CAPITAL SHARES Section 5.1. Issuance of Certificates for Shares. Each stockholder of the Corporation shall be entitled to a certificate or certificates in such form as is prescribed by law and as shall be approved by the Board of Directors, certifying the number of capital shares of the Corporation owned by such stockholder. Section 5.2. Signatures on Share Certificates. Certificates for capital shares of the Corporation shall be signed by, or in the name of the Corporation by, the Chairman of the Board, the President or a Vice President and by the Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer and shall bear the corporate seal of the Corporation or a printed or engraved facsimile thereof. If any such certificates are countersigned by a transfer agent other than the Corporation or its employee, or by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if such signer were such officer, transfer agent or registrar at the date of issue. Section 5.3. Stock Ledger. A record of all certificates for capital shares issued by the Corporation shall be kept by the Secretary or any other officer, employee or agent designated by the Board of Directors. Such record shall show the name and address of the person, firm or corporation in which certificates for capital shares are registered, the number of shares represented by each such certificate, the 12 13 date of each such certificate, and in case of certificates which have been cancelled, the date of cancellation thereof. The Corporation shall be entitled to treat the holder of record of capital shares as shown on the stock ledger as the owner thereof and as the person entitled to receive dividends thereon, to vote such shares and to receive notice of meetings, and for all other purposes. The Corporation shall not be bound to recognize any equitable or other claim to or interest in any capital share on the part of any other person whether or not the Corporation shall have express or other notice thereof. Section 5.4. Regulations Relating to Transfer. The Board of Directors may make such rules and regulations as it may deem expedient, not inconsistent with law, the Certificate of Incorporation or these By-Laws, concerning issuance, transfer and registration of certificates for capital shares of the Corporation. The Board of Directors may appoint, or authorize any principal officer to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars and may require all certificates for capital shares to bear the signature or signatures of any of them. Section 5.5. Transfers. Transfer of capital shares shall be made on the books of the Corporation only upon delivery to the Corporation or its transfer agent of (i) a written direction of the registered holder named in the certificate or such holder's attorney lawfully constituted in writing, (ii) the certificate for the capital shares being transferred, and (iii) a written assignment of the capital shares evidenced thereby. Section 5.6. Cancellation. Each certificate for capital shares surrendered to the Corporation for exchange or transfer shall be cancelled and no new certificate or certificates shall be issued in exchange for any existing certificate (other than pursuant to Section 5.7) until such existing certificate shall have been cancelled. Section 5.7. Lost, Destroyed, Stolen, and Mutilated Certificates. In the event that any certificate for capital shares of the Corporation shall be mutilated the Corporation shall issue a new certificate in place of such mutilated certificate. In case any such certificate shall be lost, stolen, or destroyed the Corporation may, in the discretion of the Board of Directors or a committee designated thereby with power so to act, issue a new certificate for capital shares in the place of any such lost, stolen or destroyed certificate. The applicant for any substituted certificate or certificates shall surrender any mutilated certificate or, in the case of any lost, stolen or destroyed certificate, furnish satisfactory proof of such loss, theft or destruction of 13 14 such certificate and of the ownership thereof. The Board of Directors or such committee may, in its discretion, require the owner of a lost, stolen or destroyed certificate, or his representatives, to furnish to the Corporation a bond with an acceptable surety or sureties and in such sum as will be sufficient to indemnify the Corporation against any claim that may be made against it on account of the lost, stolen or destroyed certificate or the issuance of such new certificate. A new certificate may be issued without requiring a bond when, in the judgment of the Board of Directors, it is proper to do so. Section 5.8. Fixing of Record Dates. (a) The Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of any meeting of stockholders, nor more than sixty days prior to any other action, for the purpose of determining stockholders entitled to notice of or to vote at such meeting of stockholders or any adjournment thereof, or to express consent or dissent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of shares or for the purpose of any other lawful action. (b) If no record date is fixed by the Board of Directors: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the date next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution or consents to the action relating thereto. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VI - DIVIDENDS Subject to the provisions of the certificate of incorporation and to applicable law, dividends on the outstanding shares of the Corporation may be declared in such amounts and at such time or times as the Board of Directors may 15 determine. Before payment of any dividend, there may be set aside out of the net profits of the Corporation available for dividends such sum or sums as the Board of Directors from time to time in its absolute discretion deems proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve. ARTICLE VII - INDEMNIFICATION Section 7.1. Indemnification of Directors, Officers and Employees. The Corporation shall indemnify to the full extent authorized by law any person made or threatened to be made a party to any action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director, officer or employee of the Corporation or serves or served at the request of the Corporation any other enterprise as a director, officer or employee. For purposes of this By-law, the term "other enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifyable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation. Section 7.2 Advance Payments. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of such director or officer to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article VII. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 7.3 Non-Exclusivity. The indemnification provided by this Article VII shall not be deemed exclusive of any rights to which those seeking indemnification may be entitled under any By-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall 15 16 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 person. Section 7.4 Reliance on Provisions. Each person who shall act as a director, officer, employee or agent of the Corporation shall be deemed to be doing so in reliance upon the rights of indemnification provided by this Article VII. ARTICLE VIII - MISCELLANEOUS PROVISIONS Section 8.1. Corporate Seal. The Corporation's seal shall be inscribed with the name of the Corporation, the year of its incorporation, and the words "Delaware." The seal may be used by causing it or a facsimile to be impressed or reproduced on a document or instrument, or affixed to a document or instrument. Section 8.2. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January of each year. Section 8.3. Waiver of Notice. Whenever any notice is required to be given under any provision of law, the Certificate of Incorporation, or these By-Laws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 8.4. Execution of Instruments, Contracts, etc. All checks, drafts, bills of exchange, notes or other obligations or orders for the payment of money shall be signed in the name of the Corporation by such officer or officers or person or persons, as the Board of Directors may from time to time designate. Except as otherwise provided by law, the Board of Directors, any committee given specific authority in the premises by the Board of Directors, or any 16 17 committee given authority to exercise generally the powers of the Board of Directors during the intervals between meetings of the Board of Directors, may authorize any officer, employee or agent, in the name of and on behalf of the Corporation, to enter into or execute and deliver deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. All applications, written instruments and papers required by any department of the United States Government or by any state, county, municipal or other governmental authority, may be executed in the name of the Corporation by any principal officer or subordinate officer of the Corporation, or, to the extent designated for such purpose from time to time by the Board of Directors, by an employee or agent of the Corporation. Such designation may contain the power to substitute, in the discretion of the person named, one or more other persons. ARTICLE IX - AMENDMENTS Section 9.1. By Stockholders. These By-Laws may be altered, amended, repealed or added to, or new By-Laws may be adopted by the affirmative vote of the holders of not less than a majority of the outstanding shares entitled to vote for the election of any director at an annual meeting or at a special meeting called for that purpose, provided, however, that a written notice shall have been sent to each stockholder of record entitled to vote at such meeting, in conformity with the requisites of Section 2.5 hereof, which notice shall state the alterations, amendments, additions or changes which are proposed to be made in such By-Laws. Section 9.2. By Directors. To the extent permitted by the Certificate of Incorporation, these By-Laws may be amended, added to, altered or repealed, or new By-laws may be adopted at any regular or special meeting of the Board of Directors by a resolution adopted by affirmative vote of a majority of the whole Board of Directors; provided, however, that: (a) any By-law adopted by the Board of Directors may be altered, amended or repealed by majority vote of the stockholders entitled to vote for the election of directors; and (b) if any By-law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of stockholders for the election of directors the by-law so adopted, amended or repealed, together with a concise statement of the changes made. 17 EX-4.1 5 OMNIBUS STOCK INCENTIVE PLAN 1 Exhibit 4.1 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. OMNIBUS STOCK INCENTIVE PLAN ARTICLE I DEFINITIONS 1.01. Agreement means a written agreement between the Company and a Participant or any written instrument issued by the Company to a Participant (including any amendment or supplement thereto) specifying the terms and conditions of an award of Restricted Shares or Performance Shares or a grant of an Option or SAR made to such Participant. 1.02. Board means the Board of Directors of the Company. 1.03. Code means the Internal Revenue Code of 1986, as amended. 1.04. Committee means the Compensation Committee of the Board, consisting solely of not less than two non-employee directors who have been appointed to administer the Plan. 1.05. Common Stock means the Company's common stock, $.01 par value. 1.06. Company means Russian Wireless Telephone Company, Inc. 1.07. Corresponding SAR means a SAR that is granted in relation to a particular Option and that can be exercised only upon the surrender to the Company, unexercised, of that portion of the Option to which the SAR relates. 1.08. Date of Exercise means (i) with respect to an Option, the date that the Option price is received by, and (ii) with respect to a SAR, the date that the notice of exercise is received by, the Company. 1.09. Fair Market Value of the Common Stock shall be the mean between the following prices, as applicable, for the date as of which fair market value is to be determined, as quoted in The Wall Street Journal (or in such other reliable publication as the Committee, in its discretion, may determine to rely upon): (a) if the Common Stock is listed on the New York Stock Exchange, the highest and lowest sales prices per share of the Common Stock as quoted in the NYSE-Composite Transactions listing for such date, (b) if the Common Stock is not listed on such exchange, the highest and lowest sales prices per share of Common Stock for such date on (or on any composite index including) the principal United States 2 securities exchange registered under the Exchange Act on which the Common Stock is listed, or (c) if the Common Stock is not listed on any such exchange, the highest and lowest sales prices per share of the Common Stock for such date on the Nasdaq Stock Market or any successor thereto ("Nasdaq"). If there are no such sale price quotations for the date as of which fair market value is to be determined, but there are such sale price quotations within a reasonable period both before and after such date, then fair market value shall be determined by taking a weighted average of the means between the highest and lowest sales prices per share of the Common Stock as so quoted on the nearest date before and the nearest date after the date as of which fair market value is to be determined. The average should be weighted inversely by the respective numbers of trading days between the selling dates and the date as of which fair market value is to be determined. If there are no such sale price quotations on or within a reasonable period both before and after the date as of which fair market value is to be determined, then fair market value of the Common Stock shall be the mean between the bona fide bid and asked prices per share of Common Stock as so quoted for such date on Nasdaq, or if none, the weighted average of the means between such bona fide bid and asked prices on the nearest trading date before and the nearest trading date after the date as of which fair market value is to be determined, if both such dates are within a reasonable period. The average is to be determined in the manner described above in this paragraph. If the fair market value of the Common Stock cannot be determined on the basis previously set forth in this paragraph on the date as of which fair market value is to be determined, the Committee shall in good faith determine the fair market value of the Common Stock on such date. Fair market value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. 1.10 Incentive Stock Option shall have the meaning given to it by Section 422 of the Code. 1.11. Initial Value means, with respect to a SAR, the Fair Market Value of one share of Common Stock on the date of grant, as set forth in an Agreement. 1.12 Involuntary Termination means a Termination of Employment for a reason other than death, Retirement, Total Disability or voluntary resignation. 1.13 Non-Employee Director means a director who: (a) is not currently an officer of the Company or a parent or subsidiary of the Company, or otherwise currently employed by the Company or a parent or subsidiary of the Company; (b) does not receive compensation, either directly or indirectly, for services rendered as a consultant or in any capacity other than as a director, except for an amount which does not exceed the dollar amount for which disclosure would be 2 3 required pursuant to any provision of Regulations S-K promulgated by the Commission; (c) does not possess an interest in any other transaction for which disclosure would be required by any provision of said Regulation S-K; and (d) is not engaged in a business relationship for which disclosure would be required by any provision of said Regulation S-K. 1.14 Nonstatutory Option means any Option granted by the Company pursuant to this Plan which is not an Incentive Stock Option. 1.15. Option means any stock option that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement. 1.16. Participant means an employee of the Company, or of a Subsidiary, including an employee who is a member of the Board, or a non-employee director, and any other person who satisfies the requirements of Article IV and is selected by the Committee or by the Board to receive a Restricted Share or Performance Share award, an Option, a SAR, or a combination thereof. 1.17 Performance Period means an accounting period of the Company or a Subsidiary of not less than one year, as determined by the Committee in its discretion. 1.18. Performance Share means an award, expressed in dollars or shares of Common Stock, granted to a Participant with respect to a Performance Period. Awards of Performance Shares expressed in dollars may be established as fixed dollar amounts, as a percentage of salary, as a percentage of a pool based on earnings of the Company, a Subsidiary or Subsidiaries or any branch, department or other portion thereof or in any other manner determined by the Committee in its discretion, provided that the amount thereof shall be capable of being determined as a fixed dollar amount as of the close of the Performance Period. 1.19 Performance Target means that level of performance established by the Committee which must be met in order for an award of Performance Shares to be fully earned. The Performance Target may be expressed in terms of earnings per share, return on assets, asset growth, ratio of capital to assets or such other level or levels of accomplishment by the Company, a Subsidiary or Subsidiaries, any branch, department or other portion thereof or the Participant individually as may be established or revised from time to time by the Committee. 1.20. Plan means the Russian Wireless Telephone Company, Inc. Omnibus Stock 3 4 Incentive Plan. 1.21. Restricted Shares means shares of Common Stock awarded to a Participant under Article VII. Shares of Common Stock shall cease to be Restricted Shares when, in accordance with the terms of the applicable Agreement, they become transferable and free of substantial risks of forfeiture. 1.22. Retirement means a Termination of Employment by reason of a Participant's cessation of employment (or, in the case of a non-employee director, the cessation of his or her tenure as such), other than by reason of a Total Disability or Termination for Cause. 1.23. SAR means a stock appreciation right that entitles the holder to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the amount determined by the Committee and specified in an Agreement. In the absence of such a determination, the holder shall be entitled to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the excess of the Fair Market Value on the Date of Exercise over the Initial Value. References to "SARs" include both Corresponding SARs and SARs granted independently of Options, unless the context requires otherwise. 1.24. Subsidiary means any "subsidiary corporation" as such term is defined in Code section 424. 1.25 Termination of Employment means with respect to (a) Participants who are employees of the Company or a Subsidiary, the time when the employee-employer relationship between the Participant and the Company ceases to exist for any reason including, but not limited to termination by resignation, discharge, death, Total Disability or Retirement; and (b) Participants who are non-employee directors, the time when the Participant ceases to be a director by reason of his or her resignation, failure to stand for re-election or dismissal. 1.26 Termination for Cause means an Involuntary Termination of a Participant: (a) if the Participant has a written employment agreement with the Company or any Subsidiary, "for cause" as that or a similar term is defined in the employment agreement; or (b) if the Participant does not have a written employment agreement with the Company or any Subsidiary, by reason of (i) the Participant's dishonesty or misconduct (including substance abuse) in the performance of his or her duties; or (ii) a wilful failure by the Participant to perform his or her assigned duties which adversely affects the Company; of (iii) the conviction of the Participant of a felony or other criminal act. All determinations of whether or not a Termination for Employment is "for cause" will be made by the Committee in its sole and absolute discretion. 4 5 1.27 Total Disability means the inability of a Participant to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. All determinations as to the date and extent of disability of a Participant will be made by the Committee in its sole and absolute discretion. ARTICLE II PURPOSES The Plan is intended to assist the Company in recruiting and retaining employees and directors with ability and initiative by enabling them to participate in its future success and to associate their interests with those of the Company and its shareholders. The Plan is intended to permit the award of Restricted Shares, the award of Performance Shares, the grant of SARs, and the grant of both Incentive Stock Options and Nonstatutory Options. The proceeds received by the Company from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes. ARTICLE III ADMINISTRATION Except as provided in this Article III, the Plan shall be administered by the Committee. The Committee shall have authority to award Restricted Shares and Performance Shares and to grant Options and SARs upon such terms (not inconsistent with the provisions of this Plan) as the Committee may consider appropriate. Such terms may include conditions (in addition to those contained in this Plan) on the exercisability of all or any part of an Option or SAR or on the transferability or forfeitability of Restricted Shares. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which any Option or SAR may be exercised or the time at which Restricted Shares may become transferable or nonforfeitable. In addition the Committee shall have complete authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. Any decision made, or action taken, by the Committee or in connection with the administration of this Plan shall be final and conclusive. No member of the Committee shall be liable for any act done in good faith with 5 6 respect to this Plan or any Agreement, or Option, SAR, Restricted Share award or Performance Share award. All expenses of administering this Plan shall be borne by the Company. The Committee, in its discretion, may delegate to one or more officers of the Company all or part of the Committee's authority and duties with respect to Participants who are not subject to the reporting and other provisions of Section 16 of the Securities Exchange Act of 1934, as in effect from time to time (the "Exchange Act"). In the event of such delegation, and as to matters encompassed by the delegation, references in the Plan to the Committee shall be interpreted as a reference to the Committee's delegate or delegates. The Committee may revoke or amend the terms of a delegation at any time, but such action shall not invalidate any prior actions of the Committee's delegate or delegates that were consistent with the terms of the Plan. In addition to, and not in substitution or replacement of, the powers and authority conferred upon the Committee pursuant to this Plan, the Board shall also be entitled to award Restricted Shares or Performance Shares and/or to grant one or more Options, SARs, or Options and SARs to any eligible Participant, and when it makes such awards and/or grants, all of the provisions of this Plan which pertain to the Committee shall be construed as though the word "Board" appeared in place of the word "Committee," and the Board shall have, and shall be entitled to exercise, all of the powers and authority conferred upon the Committee when making, amending, modifying canceling, settling or rescinding any of such awards and/or grants. ARTICLE IV ELIGIBILITY 4.01. General. Any employee of the Company or of any Subsidiary (including any corporation that becomes a Subsidiary after the adoption of this Plan) is eligible to participate in this Plan if the Committee, in its sole discretion, determines that such person has contributed or can be expected to contribute to the profits or growth of the Company or a Subsidiary. Any such employee may be awarded Restricted Shares or Performance Shares or may be granted one or more Options, SARs, or Options and SARs. A director of the Company who is an employee of the Company or a Subsidiary, and a non-employee director of the Company or a Subsidiary, may be awarded Restricted Shares and Performance Shares and may be granted Options or SARs under this Plan. Further, the Committee may from time to time in its sole discretion award Restricted Shares and Performance Shares and may grant Options or SARs to non-employees or non-key employees in conjunction with mergers and acquisition transactions. 6 7 4.02. Grants. The Committee will designate individuals to whom Restricted Shares and Performance Shares are to be awarded and to whom Options and SARs are to be granted and will specify the number of shares of Common Stock subject to each award or grant. An Option may be granted with or without a related SAR. The Committee may grant Incentive Stock Options and Nonstatutory Options to the same Participant, but not in tandem. A SAR may be granted with or without a related Option. All Restricted Shares and Performance Shares awarded, and all Options and SARs granted, under this Plan shall be evidenced by Agreements which shall be subject to the applicable provisions of this Plan and to such other provisions as the Committee may adopt. No Participant may be granted Incentive Stock Options or related SARs (under all Incentive Stock Option plans of the Company and its Subsidiaries) which are first exercisable in any year for Common Stock having an aggregate Fair Market Value (determined as of the date an Option is granted) exceeding $100,000. ARTICLE V COMMON STOCK SUBJECT TO PLAN 5.01. Source of Shares. Upon the award of Restricted Shares and when a Performance Share is earned, the Company may issue authorized but unissued shares of Common Stock. Upon the exercise of an Option or SAR, the Company may deliver to the Participant (or the Participant's broker if the Participant so directs), authorized but unissued Common Stock. 5.02. Maximum Number of Shares. The maximum aggregate number of shares of Common Stock that may be issued pursuant to the exercise of Options and SARs and the award of Restricted Shares and the settlement of Performance Shares under this Plan is 1,000,000, subject to increases and adjustments as provided in this Article V and Article IX. 5.03. Replenishment. The maximum number of shares authorized for issuance under this Plan pursuant to Section 5.02 shall be increased each year by 8% (the "Replenishment Percentage") of the amount, if any, by which the total number of shares of Common Stock outstanding as of the last day of the Company's fiscal year exceeds the total number of shares of Common Stock outstanding as of the first day of such fiscal year. Provided, however, that in no event shall the total number of shares authorized for issuance under this Plan exceed 8% of the authorized and outstanding shares of Common Stock as of the time of any replenishment adjustment. The issuance of shares of Common Stock under this Plan and the application of Article IX shall be disregarded for purposes of applying the preceding sentence. This Section 5.03 shall first apply with respect to the fiscal year of the Company beginning on July 1, 1996. 7 8 5.04 Forfeitures, etc. If an Option or SAR is terminated, in whole or in part for any reason other than its exercise, the number of shares of Common Stock allocated to the Option or SAR or portion thereof may be reallocated to other Options, SARs granted, or Restricted Shares and Performance Share awards to be granted under this Plan. Any Restricted Shares that are forfeited or Performance Shares that are unearned may be reallocated to other Options or SARs granted, or Restricted Shares awarded, under this Plan. ARTICLE VI OPTIONS AND STOCK APPRECIATION RIGHTS 6.01 Nonstatutory Options. The Committee may grant Nonstatutory Options under this Plan. Such Nonstatutory Stock Options must comply with all applicable requirements of this Plan except for those which pertain solely to Incentive Stock Options. 6.02 Incentive Stock Options. The Committee may grant Incentive Stock Options under this Plan which shall comply with all of the restrictions and limitations set forth in Section 422 of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall constitute a Nonstatutory Stock Option. 6.03 Vesting of Options. The Participant's Agreement shall specify the date or dates on which the Participant may begin to exercise all or a portion of his Option. Subsequent to such dates or dates, the Option shall be deemed "vested." Notwithstanding the terms of any Agreement, the Committee at any time may accelerate such date or dates and otherwise waive or amend any conditions of the grant. 6.04 Grant and Exercise of SARs. SARs may be granted to Participants by the Committee independently of any Option granted pursuant to this Article or as a Corresponding SAR. In the case of a Corresponding SAR granted in tandem with a Nonstatutory Option, such SAR may be exercised either at or after the time of the exercise of such Nonstatutory Option. In the case of a Corresponding SAR granted in tandem with an Incentive Stock Option, such SAR may be exercised only at the time of the exercise of such Incentive Stock Option. A Corresponding SAR, shall terminate and no longer be exercisable upon the termination or exercise of related Option. However, if a Corresponding SAR is granted with respect to less than the full number of shares covered by a related Option, such SAR shall terminate only if and to the extent that the number of shares covered by the exercise or termination of the related Option exceeds the number of shares not covered by such SAR. 8 9 6.05 Exercise of Options and SARs Conditioned on Continuous Employment. Except as otherwise provided in this Plan or by the Compensation Committee, no Participant may exercise an Option or SAR unless at the time of exercise he or she has been continuously in the employ of the Company or a Subsidiary since the date of grant thereof. 6.06 Terms and Conditions of Stock Appreciation Rights. SARs shall be subject to such terms and conditions as shall be determined from time to time by the Committee and embodied in the Agreements and in procedures established by the Committee. The Committee at any time may accelerate the exercisability of any SAR and otherwise waive or amend any conditions of the grant of a SAR. 6.07. Maximum Option or Stock Appreciation Right Period. The maximum period in which an Option or SAR may be exercised shall be determined by the Committee on the date of grant except that no Option that is an Incentive Stock Option and any Corresponding SAR that relates to such Option shall be exercisable after the expiration of ten years from the date the Option or SAR was granted. The terms of any Option or SAR may provide that it is exercisable for a period less than such maximum period. 6.08 Option Exercise Price. The price per share for Common Stock purchased on the exercise of an Option shall not be less than 100% of the Fair Market Value of the Common Stock on the date the Option is granted. 6.09. Payment of Option Exercise Price. Unless otherwise provided by the Agreement, payment of the Option exercise price shall be made in cash or a cash equivalent acceptable to the Committee. If the Agreement so provides, payment of all or part of the exercise price may be made by surrendering shares of Common Stock to the Company. If Common Stock is used to pay all or part of the exercise price, the shares surrendered must have a Fair Market Value (determined as of the day preceding the Date of Exercise) that is not less than such price or part thereof. 6.10. Determination of Payment of Cash and/or Common Stock Upon Exercise of SAR. At the Committee's discretion, the amount payable as a result of the exercise of a SAR may be settled in cash, Common Stock, or a combination of cash and common Stock. A Fractional share shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu thereof. 6.11 Reload Options. The Committee shall have the authority to specify at the time of grant that a Participant shall be granted another Option (a "Reload Option") in the event such Participant exercises all or part of a Nonstatutory Option (an "Original Option") by surrendering in accordance with Section 6.08 hereof already owned shares of Common Stock in full or partial payment of the exercise price under such Original Option, subject to the availability of shares of Common Stock 9 10 under the Plan at the time of exercise. Each Reload Option shall cover a number of shares of Common Stock equal to the number of shares of Common Stock surrendered in payment of the exercise price, shall have an exercise price per share of Common Stock equal to the Fair Market Value of the Common Stock on the date of grant of such Reload Option and shall expire on the stated expiration date of the Original Option. A Reload Option shall be exercisable at any time and from time to time from and after the date of grant of such Reload Option (or, as the Committee, in its sole discretion, shall determine at the time of grant, at such time or times as shall be specified in the Reload Option); provided, however, that a Reload Option granted to a Participant subject to the provisions of Section 16(b) of the Exchange Act shall not be exercisable during the first six months from the date of grant of such Reload Option. The first such Reload Option may provide for the grant, when exercised, of one subsequent Reload Option to the extent and upon such terms and conditions, consistent with this Section 6.11, as the Committee, in its sole discretion, shall specify at or after the time of grant of such Reload Option. A Reload Option shall contain such other terms and conditions which may include a restriction on the transferability of the number of shares of Common Stock received upon exercise of the Original Option reduced by a number of shares equal in value to the tax liability incurred upon exercise as the Committee, in its sole discretion, may deem desirable which may be set forth in the Agreement evidencing the Reload Option. 6.12. Nontransferability. Any Option or SAR granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. In the event of any such transfer, the Option and any Corresponding SAR that relates to such Option must be transferred to the same person or persons or entity or entities. During the lifetime of a Participant to whom an Option or SAR is granted, the Option or SAR may be exercised only by the Participant. No right or interest of a Participant in any Option or SAR shall be liable for, or subject to, any lien, obligation, or liability of such Participant. 6.13 Cancellation and New Grant of Options. The Committee shall have the authority to effect, at any time, and from time to time, with the consent of the affected Participants, the cancellation of any or all outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of Common Stock having an Option exercise price per share which may be lower or higher than the exercise price per share of the canceled Options. 6.14. Shareholder Rights. No Participant shall have any rights as a shareholder with respect to shares subject to an Option or SAR until the Date of Exercise of such Option or SAR. 6.15 Retirement of Holder of Options or Stock Appreciation Rights. If there is a Termination of Employment of a Participant to whom an Option and/or SAR has 10 11 been granted due to Retirement, each Incentive Stock Option held by the retired Participant, whether or not then vested, may be exercised until the earlier of (a)the end of the three month period immediately following the date of such Termination of Employment; or (b)the expiration of the term specified in the Option or SAR. In the case of a Nonstatutory Option, there shall be substituted the words, "the end of the twelve month period" for the words "the end of the three month period" in the immediately preceding sentence. 6.16 Total Disability of Holder of Options or Stock Appreciation Rights. If there is a Termination of Employment of a Participant to whom an Option and/or a SAR has been granted by reason of his or her Total Disability, each Option and/or SAR held by the Participant, whether or not then vested, may be exercised until the earlier of: (a)the end of the twelve month period immediately following the date of such Termination of Employment; or (b)the expiration of the term specified in the Option or SAR. 6.17 Death of Holder of Options or Stock Appreciation Rights. If there is a Termination of Employment of a Participant to whom an Option or SAR has been granted by reason of his or her death, or (b)the death of a former employee within three months following the date of his or her Retirement (or, in the case of a Non-statutory Option, within twelve months following the date of his or her Retirement), or (c) the death of a former employee within twelve months following the date of his or her Termination of Employment by reason of Total Disability, then each Option and SAR held by the person at the time of his or her death, whether or not then vested, may be exercised by the person or persons to whom the Option or SAR shall pass by will or by the laws of descent and distribution (but by no other persons) until the earlier of (i)the end of the twelve month period immediately following the date of death (or such longer period as is permitted by the Committee); and (ii)the expiration of the term specified in the Option or SAR. 6.18 Termination of Employment for Cause: Voluntary Termination Prior to Retirement. If there is a Termination of Employment for Cause of a Participant to whom an Option or SAR has been granted under this Plan, or if a Participant voluntarily terminates his or her employment prior to Retirement (other than by reason of Total Disability), then all Options and SARs held by such Participant, whether or not then vested, shall automatically be canceled at the time of such Termination of Employment and shall be of no further force or effect thereafter. This section shall not affect any Common Stock acquired by the Participant upon exercise of Options or SARs prior to such Termination of Employment by the Participant. 11 12 ARTICLE VII RESTRICTED SHARE AWARDS 7.01. Award. In accordance with the provisions of this Article VII, the Committee will designate each individual to whom an award of Restricted Shares is to be made and will specify the number of shares of Common Stock covered by the award. 7.02. Vesting. The Committee, on the date of the award, may prescribe that a Participant's rights in the Restricted Shares shall be forfeitable or otherwise restricted for a period of time set forth in the Agreement. By way of example and not of limitation, the restrictions may postpone transferability of the shares or may provide that the shares will be forfeited if the Participant separates from the service of the Company and its Subsidiaries before the expiration of a stated term or if the Company and its Subsidiaries or the Participant fail to achieve stated objectives. 7.03. Shareholder Rights; Escrow. Prior to their forfeiture in accordance with the terms as the Agreement and while the shares are Restricted Shares, a Participant will have all rights of a shareholder with respect to Restricted Shares, including the right to receive dividends and vote the shares; provided, however, that (a) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of Restricted Shares, (b)the Company shall retain custody of the certificates evidencing Restricted Shares and (c) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to each award of Restricted Shares. The limitations set forth in the preceding sentence shall not apply after the shares cease to be Restricted Shares. 7.04 Restricted Share Agreement. Restricted Share awards shall be evidenced by an Agreement in the form prescribed by the Committee which shall set forth such terms, conditions and restrictions as the Committee in its discretion deems appropriate. Restricted Share awards shall be effective only upon execution of the applicable Agreement on behalf of the Company by the Chief Executive Officer (if other than the President), the President or any Vice President, and by the Participant. ARTICLE VIII PERFORMANCE SHARE AWARDS 8.01 Award. The Committee may award Performance Shares which shall be earned by a Participant based on the level of performance over a specified period of time by the Company, a Subsidiary or Subsidiaries, any branch, department or other portion thereof or the Participant individually, as determined by the Committee. 12 13 8.02 Procedure for Earning Award. A Participant shall earn awarded Performance Shares in full by meeting the Performance Target for the Performance Period. If the Minimum Target has not been attained at the end of the Performance Period, no part of the Performance Share shall have been earned by the Participant. If the Minimum Target is attained but the Performance Target is not attained, the portion of the Performance Share award earned by the Participant shall be determined on the basis of a formula established by the Committee. 8.03 Adjustments to Awards. At any time prior to the end of a Performance Period, the Committee may adjust downward (but not upward) the Performance Target and/or the Minimum Target as a result of major events unforeseen at the time of the Performance Share award, such as changes in the economy, the industry, laws affecting the operations of the Company or a Subsidiary or any other event the Committee determines would have a significant impact upon the probability of attaining the previously established Performance Target. 8.04 Payment of Awards. Payment of earned Performance Shares shall be made to Participants following the close of the Performance Period as soon as practicable after the time the amount payable is determined by the Committee. Payment in respect of earned Performance Shares, whether expressed in dollars or shares, may be made in cash, in shares of Common Stock, or partly in cash and partly in shares of Common Stock, as determined by the Committee at the time of payment. For this purpose, Performance Shares expressed in dollars shall be converted to shares, and Performance Shares expressed in shares shall be converted to dollars, based on the Fair Market Value of the Common Stock as of the date the amount payable is determined by the Committee. 8.04 Effects of Termination of Employment. If prior to the close of the Performance Period the employment of a Participant who received an award of Performance Shares is voluntarily terminated with the consent of the Company or a Subsidiary or the Participant retires, or if the Participant dies during employment, the Committee may in its absolute discretion determine to pay all or any part of the Performance Share award based upon the extent to which the Committee determines the Performance Target or Minimum Target has been achieved as of the date of termination of employment, retirement or death, the period of time remaining until the close of the Performance Period and/or such other factors as the Committee may deem relevant. If the Committee in its discretion determines that all or any part of the Performance Share award shall be paid, payment shall be made to the Participant or his or her estate as promptly as practicable following such determination and may be made in cash, in shares of Common Stock, or partly in cash and partly in shares of Common Stock, as determined by the Committee at the time of the payment. For this purpose, Performance Shares expressed in dollars shall be converted to shares, and Performance Shares expressed in shares shall be converted to dollars, based on the Fair Market Value of the Common Stock as of the 13 14 date the amount payable is determined by the Committee. If, prior to the close of a Performance Period, a Termination of Employment of a Participant who received an award of Performance Shares occurs for any reason other than voluntary termination with the consent of the Company or a Subsidiary, Retirement or death, the Performance Shares of the Participant shall be deemed not to have been earned, and no portion of such Performance Shares may be paid. Whether Termination of Employment is a voluntary termination with the consent of the Company or a Subsidiary shall be determined, in its discretion, by the Committee. Any determination by the Committee on any matter with respect to Performance Shares shall be final and binding on both the Company and the awardee. 8.05 Performance Share Agreement. Performance Share awards shall be evidenced by an Agreement in the form prescribed by the Committee which shall set forth the amount or manner of determining the amount of the Performance Shares, the Performance Period, the Performance Target and any Minimum Target and such other terms and conditions as the Committee in its discretion deems appropriate. Performance Share awards shall be effective only upon execution of the applicable Performance Share Agreement on behalf of the Company by the Chief Executive Officer (if other than the President), the President or any Vice President, and by the Participant. ARTICLE IX ADJUSTMENT UPON CHANGE IN COMMON STOCK The maximum number of shares that may be issued pursuant to the exercise of Options and SARs and the award of Restricted Shares and the settlement of Performance Shares under this Plan and the Replenishment Percentage in Section 5.03 shall be proportionately adjusted, and the terms of outstanding Restricted Share awards, Performance Share Awards, Options, and SARs shall be adjusted, as the Committee shall determine to be equitably required in the event that (a) the Company (i)effects one or more stock dividends, stock split-ups, subdivisions or consolidations of shares or (ii) engages in a transaction to which Code section 424 applies or (b) there occurs any other event which, in the judgment of the Committee necessitates such action. Any determination made under this Article IX by the Committee shall be final and conclusive. The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company 14 15 convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, outstanding awards of Restricted Shares, Performance Shares, Options or SARs. The Committee may award Restricted Shares and Performance Shares, may grant Options, and may grant SARs in substitution for stock awards, stock options, stock appreciation rights, or similar awards held by an individual who becomes an employee of the Company or a Subsidiary in connection with a transaction described in the first paragraph of this Article IX. Notwithstanding any provision of the Plan (other than the limitations of Article V), the terms of such substituted Restricted Share and Performance Share awards and Option or SAR grants shall be as the Committee, in its discretion, determines is appropriate. ARTICLE X COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES No Option or SAR shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements) and the rules of all domestic stock exchanges on which shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any share certificate issued to evidence Common Stock for which Restricted Shares are awarded, Performance Shares were earned or for which an Option or SAR is exercised may bear such legends and statements as the Committee may deem advisable to assure compliance with federal and state laws and regulations. No Option or SAR shall be exercisable, no Common Stock shall be issued, no certificate for shares shall be delivered, and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Committee may deem advisable from regulatory bodies having jurisdiction over such matters. ARTICLE XI GENERAL PROVISIONS 11.01. Effect on Employment. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or a Subsidiary or in any way affect any right and power of the Company or a Subsidiary to terminate the employment of any employee at any time with or without assigning a reason therefor. 15 16 11.02. Unfunded Plan. The Plan, insofar as it provides for grants and awards, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants or awards under this Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company or any Subsidiary 11.03. Rules of Construction. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. 11.04. Employee Status. For purposes of determining the applicability of Code section 422 (relating to Incentive Stock Options), or in the event that the terms of any Option or SAR provide that it may be exercised or that awards of Restricted Shares or Performance Shares may become vested or earned only during employment or within a specified period of time after Termination of Employment, the Committee may decide to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment. 11.05 Tax Withholding. Each Participant shall, no later than the date as of which the value of a grant of an Option or SAR, or an award of any Restricted Shares or Performance Shares or other amount received thereunder first becomes includable in the gross income of the Participant for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Committee may permit payment of such taxes to be made through the tender of cash or Common Stock, the withholding of Common Stock or cash to be received through grants or awards of any other arrangement satisfactory to the Committee. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. 11.06 Indemnification. No member of the Board or the Committee shall be liable for any action or determination taken or made in good faith with respect to this Plan nor shall any member of the Board or the Committee be liable for any Agreement issued pursuant to this Plan or any grants or awards made under it. Each member of the Board and the Committee shall be indemnified by the Company against any losses incurred in such administration of the Plan, unless his or her action constitutes serious and willful misconduct. 11.07 Other Compensation Plans. The adoption of the Plan shall not affect any 16 17 other existing or future incentive or compensation plans for directors, officers or employees of the Company or its Subsidiaries. Moreover, the adoption of this Plan shall not preclude the Company or its Subsidiaries from: (a) establishing any other forms for incentive or other compensation for directors, officers or employees of the Company or its Subsidiaries; or (b) assuming any forms of incentives or other compensation of any person or entity in connection with the acquisition or the business or assets, in whole or in part, of any person or entity. 11.08 Non-Contravention of Securities Laws. Notwithstanding anything to the contrary expressed in this Plan, any provisions hereof that vary from or conflict with any applicable Federal or State securities laws (including any regulations promulgated thereunder) shall be deemed to be modified to conform to and comply with such laws. 11.09 Unenforceability of a Particular Provision. The unenforceability of any particular provision of this document shall not affect the other provisions, and the document shall be construed in all respects as if such unenforceable provision were omitted. ARTICLE XII AMENDMENT The Board may amend or terminate this Plan from time to time; provided, however, that no amendment may become effective until shareholder approval is obtained if (i) the amendment increases the aggregate number of shares of Common Stock that may be issued under the Plan or (ii) the amendment changes the class of individuals eligible to become Participants. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any outstanding Restricted Share or Performance Share award or under any Option or SAR outstanding at the time such amendment is made. ARTICLE XIII DURATION OF PLAN No Restricted Shares or Performance Shares may be awarded and no Option or SAR may be granted under this Plan after December 31, 2001. Restricted Share and Performance Share awards and Option and SAR grants made before that date shall remain valid in accordance with their terms. Restricted Shares and Performance Shares may be awarded and Options and SARs may be granted under this Plan upon its adoption by the Board, provided that 17 18 no Restricted Share or Performance Share award, or Option or SAR grant will be effective unless this Plan is approved by a majority of the Company's shareholders voting either in person or by proxy at a duly held shareholders' meeting within twelve months of such adoption. EX-4.2 6 SPECIMEN STOCK CERTIFICATE 1 Exhibit 4.2 [LOGO] RWC RUSSIAN WIRELESS TELEPHONE COMPANY, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE COMMON STOCK CUSIP SEE REVERSE FOR DEFINITIONS THIS IS TO CERTIFY that is the owner of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE OF RUSSIAN WIRELESS TELEPHONE COMPANY, INC., transferable on the books of the Corporation by the holder hereof in person or by duly authorized ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER AGENT. WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FASIMILE SIGNATURES OR ITS AUTHORIZED OFFICERS. [SEAL] DATED: ________ ______________________ _____________________________________ SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER 2 RUSSIAN WIRELESS TELEPHONE COMPANY, INC. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS TO STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations TEN COM - as tenants in common UNIF GIFT MIN ACT - ...Custodian...... (Cust) (Minor) TEN ENT - as tenants by the entireties under Uniform Transfer to Minors JT TEN - as joint tenants with right Act _________________ of survivorship and not as (State) tenants in common Additional abbreviations may also be used though not in the above list. For Value Received,...............hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________________ ________________________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated: __________________________ __________________________ EX-10.1 7 OPTION AGREEMENT 1 Exhibit 10.1 THIS OPTION AGREEMENT is made as of the 23rd day of July 1996 by and between Mikhail Leibov, residing at 11 Golar Drive, Monsey, New York 10952 ("Leibov"), and Telcom Group USA, Inc., a Delaware corporation having an office for the transaction of business at 780 Third Avenue, New York, New York 10017 (the "Investor"). WHEREAS, ZAO Corbina Telecommunications (the "Company"), a closed joint stock company organized and existing under the laws of the Russian Federation has authorized charter capital consisting of 140,000,000 roubles divided into 140 ordinary registered shares, each of which has a nominal value of 1,000,000 roubles; and WHEREAS, Leibov is the actual beneficial owner of all 140 ordinary registered shares of the Company's charter capital which are registered in the name of Vladimir A. Khachaturyan, a resident of Moscow, Russian Federation ("Khachaturyan"), as nominee for Leibov; and WHEREAS, the Investor desires to acquire from Leibov an option to purchase 105 shares (the "Option Shares") of said 140 ordinary registered shares in accordance with the terms, and subject to the conditions hereinbelow set forth; and WHEREAS, Leibov is willing to grant such an option to the Investor in accordance with such terms, and subject to such conditions, NOW, THEREFORE, in consideration of the foregoing, and the mutual terms and conditions hereinbelow set forth, it is agreed by the parties, as follows: 1. Grant of Option. In consideration of the Investor's payment of the sum of $5,000 to Leibov, the receipt whereof is hereby acknowledged by Leibov, Leibov hereby grants to the Investor the right and option to purchase the Option Shares from Leibov at any time during the period commencing on the date first above-written and ending at 5:00 P.M. Eastern Standard Time on December 31, 1997 at an exercise price of $190,000 (the "Purchase Price"). 2. Amendment and Re-Registration of the Company's Charter. Leibov hereby covenants and agrees that, upon his receipt of full payment of the Purchase Price, he will cause the Company's Charter to be amended, and as so amended, to be re-registered with the appropriate governmental authorities, to record the Investor's ownership of the Option Shares. 3. Representations and Warranties by Leibov. In order to induce the Investor to enter into this Agreement and, upon exercise of the option granted 2 hereby, to purchase the Option Shares, the Shareholder hereby represents and warrants to the Investor, as follows: (a) Organization, Standing etc. The Company is a closed joint stock company duly organized, validly existing and in good standing under the laws of the Russian Federation, and has all requisite power and authority to carry on its business, to own and hold its properties and assets, to enter into this Agreement, to carry out the provisions hereof, and the terms of its Charter. The Company has no subsidiaries or direct or indirect interest (by way of stock ownership or otherwise) in any firm, partnership, corporation, association or business enterprise. (b) Charter Capital. As of the date hereof the authorized charter capital of the Company consists of 140 ordinary registered shares, all of which have been issued to, and are registered in the name of, Khachaturyan, who holds such shares as nominee for Leibov. The Company has no outstanding subscription, option, warrant, call, contract, demand, commitment, convertible security or other instruments, agreement or arrangement of any character or nature whatever under which the Company is or may be obligated to issue any security of any kind. (c) Shareholder's Agreements, Registration Rights. There is no voting trust, shareholders' agreement or other arrangement affecting any portion of the ordinary registered shares issued in respect of the Company's charter capital. (d) Leibov's Power and Authority, and Right, Title and Interest. Leibov is the sole beneficial owner of the Option Shares which are registered in the name of Khachaturyan, as Leibov's nominee, and Leibov's ownership thereof is free and clear of all liens, claims and encumbrances thereon. Leibov has all requisite power and authority to execute this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Leibov does not, and the consummation of the transactions contemplated hereby will not, violate any provision of any law, rule, regulation, mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment or decree to which Leibov is a party or by which Leibov is bound. This Agreement is a valid and binding agreement of Leibov and is enforceable against Leibov in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally. (e) Appointment of Investor Representatives on Company's Board. Upon the Investor's timely exercise of the option granted hereunder, Leibov's receipt of the Purchase Price, and the re-registration of the Option Shares to record the Investor's ownership thereof, Leibov shall take such action jointly with the Investor as shall be necessary to appoint individuals designated by the Investor 2 3 to serve on and comprise not less than 75% of all of the members of the Company's Board of Directors or similar governing body. 4. Capital Contribution to be Made by the Investor; Preferential Distributions; Return of Option Shares in Certain Circumstances. (a) Capital Contribution. In the event that the Investor exercises the Option and Purchases the Option Shares, the Investor further agrees that it will establish, in accordance with the Currency Law of the Russian Federation, and Instruction 16 of the Central Bank of the Russian Federation, a type "I" special rouble account at an authorized bank located within the Russian Federation; and it will make capital contributions to the Company denominated in roubles which shall be equivalent to US$655,000. Such capital contribution shall be due and payable by the Investor on the fifth day after the closing of the Investor's initial public offering of securities (the "IPO") in the United States of America (the "Closing Date"). (b) Preferential Distributions. Leibov and the Investor hereby agree that: (i) in the event that the Company makes any distributions of charter capital in respect of its ordinary registered shares, the entire amount of any such distribution shall be allocated and paid to the Investor until such time as it shall have recouped $425,000 of its additional capital contributions to the Company; and ii) after the Investor shall have recouped $425,000 of its additional capital contributions, all further distributions by the Company in respect of its ordinary registered shares shall be made on a pro rata basis. (c) No IPO Closing. In the events that (i) the Investor withdraws the IPO prior to the declaration of effectiveness by the Securities and Exchange Commission (the "Commission") of the Registration Statement pertaining thereto, or (ii) the Investor otherwise ceases to proceed with registration under the Securities Act of 1933 of the securities it intends to offer to the public in its IPO, or (iii) J.W. Barclay & Co., Inc. fails, for any reason, to seek an order of effectiveness of said Registration Statement from the Commission on or before December 31, 1997, then, upon Leibov's payment of the sum of $95,000 to the Investor, the Investor shall transfer all of its right, title and interest in all of the Option Shares to Leibov. In such event, the Investor hereby covenants and agrees that it will execute all instruments and documents, and undertake all actions necessary to cause the Company's Charter to be amended, and as so amended, to be re-registered with the appropriate governmental authorities, to record the transfer of ownership of the Investor's ownership of 105 ordinary registered shares of the Company's Charter Capital to Leibov. 3 4 5. Brokerage. There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement binding upon the Investor or Leibov, other than the claims of Schneur Genack and Marvin Katz. The Investor and the Company (as directed by Leibov jointly with the Investor) shall pay brokerage commissions to Messrs. Genack and Katz at such time after the Investor shall have exercised the option granted to it hereunder, in a manner and in amounts to be mutually agreed upon. Leibov and the Investor will indemnify, and hold each other harmless against any liability, loss or expense (including, without limitation, reasonable attorney's fees and out-of-pocket expenses) arising in connection with any such claim, other than the claims of Messrs. Genack and Katz. 6. Notices. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be delivered personally or sent by next day overnight delivery, facsimile transmission, or by registered or certified mail, postage prepaid, addressed in each case, to the parties at their respective addresses first above-written, or at such other address as either party may specify by written notice to the other party, and each such notice, request, consent and other communication shall for all purposes of the Agreement be treated as being effective or having been given when delivered, if delivered personally, or, if sent by mail, at the earlier of its actual receipt or three (3) days after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid. 7. Parties in Interest. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective permitted successors and assigns, whether so expressed or not. 8. Headings. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and, except as otherwise provided herein, supersedes all prior agreements or understandings, written or oral, in respect thereto. 10. Choice of Law; English Language. It is the intention of the parties that the internal substantive laws, and not the laws of conflicts, of New York should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. The English original of this Agreement shall prevail over any translation hereof. 4 5 11. Consent to Jurisdiction. The parties hereto hereby irrevocably submit the exclusion jurisdiction of any New York State or Federal court sitting in the State of New York, for any action or proceeding arising out of or related to this Agreement, and the parties hereto hereby irrevocably agree that all claims in respect of any such action or proceeding may be heard and determined in New York State court or, to the extent permitted by law, in such Federal court. The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of any such action or proceeding. 12. Survival of Representations and Warranties. The parties hereby agree that each representation made by Leibov hereunder shall remain in full force and effect, and shall be true and correct on the date when the Investor shall timely exercise the option granted to it hereunder. 13. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. [The Balance of This Page Has Been Left Blank Intentionally] 5 6 14. Further Assurances. Each of the parties hereby covenants that he and/or it shall execute such instruments and documents, and shall undertake such acts as may be reasonably required in order to give effect to or implement any term, covenant or condition of this Agreement. The provisions of this section shall be enforceable for a period of one year following the date first above written. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TELCOM GROUP USA, INC. By: _____________________________ Ronald G. Nathan, President _____________________________ Mikhail Leibov 6 EX-10.2 8 OPTION ECERCISE AGREEMENT 1 Exhibit 10.2 THIS AGREEMENT is made as of the 28th day of January 1997 by and between Mikhail Leibov, residing at 11 Golar Drive, Monsey, New York 10952 ("Leibov"), and Telcom Group USA, Inc., a Delaware corporation having an office for the transaction of business at 780 Third Avenue, New York, New York 10017 (the "Investor"). WHEREAS, the parties heretofore executed an option agreement (the "Option Agreement") dated as of the 23rd day of July, 1996, pursuant to which Leibov granted to the Investor an option (the "Option") to purchase 105 shares (the "Option Shares") of the 140 ordinary registered shares of ZAO Corbina Telecommunications (the "Company") at an exercise price of $190,000 (the "Purchase Price"); and WHEREAS, Leibov has heretofore borrowed principal amounts from the Investor in the aggregate amount of $190,000; and WHEREAS, the Investor desires to exercise the Option, and pay the Purchase Price by canceling and returning to Leibov the promissory notes that he made and issued to the Investor as evidence of his obligation to repay the aggregate principal amount of $190,000 to the Investor; and WHEREAS, Leibov is willing to effectuate the exercise of the Option in such manner, NOW, THEREFORE, in consideration of the foregoing, and the mutual terms and conditions hereinbelow set forth, it is agreed by the parties, as follows: 1. Exercise of Option. The Investor hereby exercises its Option, and hereby purchases the Option Shares from Leibov. 2. Payment of Purchase Price. (a) Return of Canceled Promissory Notes. Leibov hereby acknowledges receipt from the Investor of the following promissory notes (the "Notes"), each of which has been marked "canceled," that he heretofore made and issued to the Investor as evidence of his indebtedness to the Investor in the aggregate principal amount of $190,000: (i) a promissory note dated July 23, 1996 payable on demand to the order of the Investor in the principal amount of $30,000, and bearing interest on said principal at the rate of 8% per annum; 2 (ii) a promissory note dated July 26, 1996 payable on demand to the order of the Investor in the principal amount of $27,500, and bearing interest on said principal at the rate of 8% per annum; (iii) a promissory note dated July 29, 1996 payable on demand to the order of the Investor in the principal amount of $62,500, and bearing interest on said principal at the rate of 8% per annum; (iv) a promissory note dated September 5, 1996 payable on demand to the order of the Investor in the principal amount of $25,000, and bearing interest on said principal at the rate of 8% per annum; (v) a promissory note dated October 1 1996 payable on demand to the order of the Investor in the principal amount of $20,000, and bearing interest on said principal at the rate of 8% per annum; and (vi) a promissory note dated November 20, 1996 payable on demand to the order of the Investor in the principal amount of $25,000, and bearing interest on said principal at the rate of 8% per annum. (b) Acknowledgement of Payment of Purchase Price. Leibov hereby acknowledges and agrees that the return of the Notes, and the cancellation of his indebtedness to the Investor in the aggregate principal amount of $190,000 in connection therewith, constitutes full payment of the Purchase Price. 3. Amendment and Re-Registration of the Company's Charter. Leibov hereby covenants and agrees that, he will cause the Company's Charter to be amended, and as so amended, to be re-registered with the appropriate governmental authorities, to record the Investor's ownership of the Option Shares. 4. Payment of Accrued Interest. The parties agree that (a) interest in the aggregate amount of $7,566 has accrued on Leibov's aforementioned indebtedness to the Investor pursuant to the Notes; and (b) payment of such accrued interest shall be due and owing by Leibov the Company 30 days after the date of commencement of the term of his employment by the Investor pursuant to a written employment agreement. 2 3 5. Further Assurances. Each of the parties hereby covenants that he and/or it shall execute such instruments and documents, and shall undertake such acts as may be reasonably required in order to give effect to or implement any term, covenant or condition of this Agreement. The provisions of this section shall be enforceable for a period of one year following the date first above written. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TELCOM GROUP USA, INC. By: _____________________________ Ronald G. Nathan, President _____________________________ Mikhail Leibov 3 EX-10.3 9 EMPLOYMENT AGREEMENT 1 Exhibit 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made and entered into as of January 1, 1995, between TELCOM GROUP USA, INC., a Delaware corporation (the "Corporation"), and Ronald G. Nathan (the "Executive"). W I T N E S S E T H: WHEREAS, the Corporation desires to employ the Executive, and the Executive desires to be employed by the Corporation, upon the terms and conditions hereinafter provided. NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I: Employment. A. The Corporation hereby employs the Executive as an executive of the Corporation (as his duties are more particularly described in Paragraph B of this Article I) for the period commencing on January 1, 1995 and terminating on December 31, 1997, unless Executive's employment is terminated earlier pursuant to Article THIRD of this Agreement (the "Employment Period"). B. The Executive shall serve as the Chief Executive Officer of the Corporation and any such other position or positions within the Corporation as the Corporation and Executive shall mutually agree upon. C. The Executive accepts such employment, and agrees to perform such services as may from time to time be assigned to him by, or pursuant to the authorization of, the Board of Directors of the Corporation (the "Board") or by the Chairman of the Board of the Corporation consistent with his position as Chief 2 Executive Officer, provided, however, that Executive shall not be required to render full time services in the performance of his duties hereunder. The Executive agrees that during the Employment Period he will not, directly or indirectly, engage or participate in, or become employed by, or render advisory or other services to, any business entity which competes directly with the Company's current business (namely the provision of competitive access services and the resale of long distance services), except in the performance of his duties for the Corporation. ARTICLE II: Compensation: A. The corporation shall pay to the Executive, and the Executive shall accept from the Corporation, for the Executive's services during the Employment Period, a salary at the rate of One Hundred Thousand Dollars ($100,000) per annum. The compensation to be paid to the Executive as provided for in this Section A shall be payable in accordance with the Corporation's customary employee payroll policy as in effect from time to time. B. The Executive shall also be entitled to such bonuses as the Board of Directors of the Corporation shall formulate. C. The Executive shall be entitled to participate, on the same basis, subject to the same qualifications, as other executive employees of the Corporation, in any life insurance, health insurance, hospitalization, disability, stock option and other fringe benefit plans and policies in effect from time to time with respect to executives of the Corporation, as well as any commission or bonus plan for the solicitation of business for the Company. D. The Corporation shall reimburse the Executive for membership 2 3 fees in professional associations not to exceed $3,000 annually and all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder after the Corporation's receipt of (i) an itemized written account within thirty (30) days after such expenses have been incurred, and (ii) other appropriate documentation thereof. ARTICLE III: Termination: A. Notwithstanding any other provision hereof, the Corporation may terminate the Executive's employment under this Agreement at any time for cause. The termination shall be evidenced by written notice thereof to the Executive, specifying the cause for termination. For purposes hereof, the term "cause" shall mean the inability of the Executive, through medical disability including mental or physical illness, to perform his duties under this Agreement for a period in excess of one hundred eighty (180) consecutive days during any period of twelve (12) consecutive months; death of the Executive; material dishonesty relating to the business; and conviction of a felony related to the business. B. The medical disability referred to in Section A of this ARTICLE III shall be confirmed and/or rejected by an independent medical examination performed by a licensed medical doctor of the Corporation's choice located in New York, New York. The Executive agrees to provide the Corporation, upon request, with all medical reports with regard to medical disability obtained by the Executive from the Executive's physicians. In the event the Executive disagrees with the determination of such doctor, then the issue of disability shall be determined by 3 4 arbitration in the City of New York by the American Arbitration Association by a panel of three physicians. C. The Corporation agrees that in the event that the Executive should be disabled as provided above, he shall be entitled to receive one hundred percent (100%) of his salary during the first ninety days of his disability and eighty percent (80%) of said salary during the next ninety days of his disability, after which 180 day period the Executives' compensation under this Agreement shall thereupon cease during said disability, and the Corporation may elect to terminate the Executive's employment pursuant to Paragraph A of this Article III. D. In the event the Executive is terminated by the Corporation in accordance with this ARTICLE III, the obligations of the Corporation under this Agreement shall cease, except for any sums owed to the Executive accruing for services rendered, or commissions earned, prior to the date of termination and except as provided in Paragraph E of this Article III below. E. Notwithstanding the other paragraphs of this Article III, in the event that there shall occur any Change of Control of the Corporation (as defined below) and (b) at any time subsequent to the date of any such Change of Control of the Corporation, the Company shall terminate the employment of Executive for any reason other than for "cause" pursuant to the other provisions of this Article III, then, in any such event, (i) immediately upon such termination, the Corporation shall pay to Executive an amount in cash equal to Executive's annual salary, determined as of the date of such termination, multiplied by three (subject to 4 5 applicable payroll and/or other taxes required by law to be withheld) and (ii) any and all stock options granted to Executive under any stock option plan of the Corporation as may from time to time be in effect, which shall not by their terms have vested on or before the date of such termination, shall vest on such date. Notwithstanding anything to the contrary set forth in this Paragraph E of Article III, the amount paid by the Corporation to Executive shall be limited to the maximum amount which will not constitute a "parachute payment," as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended. This limitation shall first be applied to amounts provided pursuant to clause (ii) of the first paragraph of this Paragraph E above (otherwise included in the calculation of a parachute payment) to the extent thereof and then to amounts provided pursuant to clause (i) of the first paragraph of this Paragraph E above. For purposes of this Paragraph E of Article III, "Change of Control" shall mean any change in control of the Corporation of a nature which would be required to be reported (a) in response to Item 6(e) of Schedule 14A of Regulation 14A, as in effect on the date of this Agreement, promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (b) in response to Item 1 of the Current Report on the Form 8-R, as in effect on the date of this Agreement, promulgated under the Exchange Act, or (c) in any filing by the Company with the United States Securities and Exchange Commission; provided, however, that, without limitation, a Change in Control of the Corporation shall be deemed to have occurred if: 5 6 (i) subsequent to the date of this Agreement, any "person" (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than the Corporation, any subsidiary of the Corporation or any compensation, retirement, pension or other employee benefit plan or trust of the Corporation or any subsidiary of the Corporation, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Corporation or any successor to the Corporation (whether by merger, consolidation or otherwise) representing twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities; (ii) during any period of two consecutive years, the individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority of such Board of Directors, unless the election of each director who was not a director at the beginning of such period has been approved in advance by the directors representing at least two-thirds of the directors then in office who were directors at the beginning of such period; (iii) the Corporation shall merge or consolidate with or into another corporation or other entity, or enter into a binding agreement to merge or consolidate with or into another corporation or other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving 6 7 corporation or entity) not less than eighty percent (80%) of the combined voting power of the voting securities of the Corporation or such surviving corporation or entity outstanding immediately after such merger or consolidation; (iv) the Corporation shall sell, lease, exchange or otherwise dispose of all or substantially all of its assets, or enter into a binding agreement for the sale, lease, exchange or other disposition of all or substantially all of its assets, in one transaction or in a series of related transactions; or (v) the Corporation shall liquidate or dissolve, or any plan or proposal shall be adopted for the liquidation or dissolution of the Corporation. ARTICLE IV: Confidentiality: A. The Executive agrees, during the term of this Agreement and at all times after the termination of this Agreement, to keep secret and confidential all confidential information heretofore or hereafter acquired or possessed by him or accessible to him concerning the Corporation's business and affairs and/or the business and affairs of any of its affiliates, as may be established from time to time, and further agrees that he will at no time during the Employment Period or thereafter use any such information or disclose any such information to any person, firm or corporation, other than to the Corporation, its Board, officers, employees, auditors and legal advisors, other than in connection with the regular course of business of the Corporation or any of its affiliates. As used hereinabove, "confidential information . . . concerning the Corporation's business and affairs" shall be deemed to include, without limitation, all client and customer lists, pricing policies, operational methods, technology, 7 8 computer software programs, other programs, systems applications, designs, customer (and potential customer) information and requirements, applications, trade secrets, "know-how" and other proprietary information, and all other confidential business information of every kind and description. The foregoing requirements shall not apply to information (a) that is or becomes available to the public through no action of the Executive, or (b) that is disclosed with the approval of the Corporation, or (c) that is required by law to be disclosed. B. The Executive also agrees to return to the Corporation, upon termination of the Employment Period, all materials coming into the Executive's or any of his agents' possession relating to the Corporation, its business, any of its affiliates or any of its affiliates' businesses. No termination or cancellation of this Agreement shall relieve the Executive of any of the obligations under this Article IV. As used in this Agreement, "affiliate" shall mean any corporation, partnership or other business entity controlled by or under common control with the Corporation. ARTICLE V.: Non-compete: A. The Executive agrees that he shall not, during the Employment Period and for six (6) months thereafter, (i) solicit for himself, or any other person or entity, any customer or potential customer who did business with the Corporation or its affiliates within one year prior to the termination of this Agreement, or cause any such customer to cease contracting with the Corporation; (ii) hire, or otherwise seek to engage the services of, or cause the cessation of employment or engagement by the Corporation of, any employee, 8 9 agent, consultant, "wholesaler", independent contractor, sales or other representative, or any other party who has performed services for the Corporation or any of its affiliates within one year prior to the termination of this Agreement. B. The obligations in this Article V shall survive the termination of this Agreement for six months. The necessity of protection of the Corporation against the competition of the Executive, and the nature and scope of such protection, has been carefully considered by the parties hereto. The parties agree and acknowledge that the duration, scope and restrictions applicable to the covenant not to compete described in this Article V are fair, reasonable and necessary, that adequate compensation has been received by the Executive for such obligations, and that these obligations do not prevent the Executive from earning a livelihood. C. The Executive agrees that if he shall violate any of the provisions of this Article V, the Corporation shall be entitled to an accounting and repayment of all profits, compensation, commissions, remuneration or other benefits that the Executive, directly or indirectly, may realize arising from or related to any such violation. These remedies shall be in addition to, and not in limitation of, any injunctive relief or other rights to which the Corporation may be entitled. D. The Executive acknowledges and agrees that, because of the unique and extraordinary nature of his services, any breach or threatened breach of the provisions of Article IV and this Article V hereof will cause irreparable injury and incalculable harm to the Corporation and that it shall, accordingly, be entitled to injunctive or other equitable relief. The foregoing, however, shall not be deemed to 9 10 waive or to limit in any respect any other right or remedy which the Corporation may have with respect to such breach. The prevailing party shall be paid or reimbursed by the losing party for all costs and expenses (including, without limitation, legal fees and Court costs) incurred or paid by the prevailing party in protecting its rights and remedies hereunder. E. Executive represents to the Corporation that he is not subject to any agreement or restriction of any kind which would prevent his entering into this Agreement. ARTICLE VI: Notices: All notices hereunder shall be in writing and shall be sent by registered or certified mail, return receipt requested. If intended for the Corporation, such notice shall be addressed to it, attention of the Chairman, 575 Lexington Avenue, Suite 410, New York, New York 10022, or at such other address of which the Corporation shall have given notice to the Executive in the manner herein provided; and if intended for the Executive shall be addressed to the Executive at 22 East 36th Street, New York, New York 10016 or at such other address of which the Executive shall have given notice to the Corporation in the manner herein provided. ARTICLE VII: Entire Agreement: This Agreement constitutes the entire and exclusive understanding between the parties with respect to the matters referred to herein, and no waiver of or modification to the terms hereof shall be valid unless in writing signed by the party to be charged and only in that specific instance and to the extent therein set forth. All prior and contemporaneous 10 11 agreements, understandings, and representations with respect to the subject matter of this Agreement are hereby terminated and superseded by this Agreement. ARTICLE VIII: Severability: If any provision of this Agreement is invalid, illegal or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. ARTICLE IX: Non-Assignability: This Agreement is for personal services and may not be assigned by the Executive in any manner, by operation of law or otherwise, without the written consent of the Corporation. This Agreement shall be binding on all successors and assigns of the Corporation. ARTICLE X: Governing Law: This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and to be performed solely within said state. ARTICLE XI: Article Headings: The Article headings herein have been inserted for convenience of reference only and shall in no way modify, restrict or affect any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. TELCOM GROUP USA, INC. By: ________________________ ________________________ Ronald G. Nathan 11 EX-10.4 10 EXTENSION OF EMPLOYMENT AGREEMENT 1 Exhibit 10.4 AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") made as of February 1, 1997, by and between Russian Wireless Telephone Company, Inc. (f/k/a Telcom Group USA, Inc.), a corporation organized and existing under the laws of the state of Delaware (the "Corporation"), and Ronald G. Nathan (the "Executive"). WHEREAS, the Executive is employed by the Corporation pursuant to that certain employment agreement between the parties dated as of January 1, 1995 (the "Employment Agreement"); and WHEREAS, the parties desire to extend the term of the Employment Agreement through December 31, 1999, NOW, THEREFORE, in consideration of the foregoing, and the mutual terms and conditions hereinbelow set forth, it is agreed as follows: 1. Extension of Employment Agreement. Paragrpah A of Article I of the Employment Agreement is hereby deemed to have been deleted, and replaced in its entirety by the following new Paragraph A: Article I: Employment. A. The Corporation hereby employes the Executive as an executive of the Corporation (as his duties are more particularly described in Paragraph B of this Article I) for a period commencing on January 1, 1995 and terminating on December 31, 1999, unless Executive's employment is terminated earlier pursuant to Article III of this Agreement (the 'Employment Period')." 5. Continuation of Employment Agreement in Full Force and Effect. The Employment Agreement, as modified by the provisions of this Amendment thereto, shall continue, from and after the date hereof, in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RUSSIAN WIRELESS TELEPHONE COMPANY, INC. By: ________________________________ Jack W. Buechner, Chairman ________________________________ Ronald G. Nathan EX-10.5 11 EMPLOYMENT AGREEMENT: MIKHAIL LEIBOV 1 Exhibit 10.5 THIS EMPLOYMENT AGREEMENT is made as of the 28th day of January 1997 by and between Mikhail Leibov, residing at 11 Golar Drive, Monsey, New York 10952 (the "Executive"), and Telcom Group USA, Inc., a Delaware corporation having an office for the transaction of business at 780 Third Avenue, New York, New York 10017 (the "Company"). W I T N E S S E T H WHEREAS, the Company desires to employ the Executive, pursuant to the terms, and subject to the conditions hereinbelow set forth, to serve as Chief Executive Officer of (a) its Russian long-distance telecommunications subsidiary, ZAO Corbina Telecommunications ("Corbina"); and (b) its Russian wireless local loop telecommunications subsidiary in-formation, ZAO CompTel Ltd. ("CompTel"); and WHEREAS, the Executive desires to accept such employment in accordance with such terms, and subject to such conditions, NOW, THEREFORE, in consideration of the foregoing, and the mutual terms, covenants and conditions hereinbelow set forth, it is agreed, as follows: ARTICLE 1 EMPLOYMENT Section 1.1 Employment of the Executive. Commencing on February 1, 1997 (the "Commencement Date") and continuing during the five year period ending on January 31, 2002 (the "Term"), the Executive shall serve as Chief Executive Officer of Corbina and as Chief Executive Officer of CompTel, reporting to the Chief Executive of the Company. During the Term, the Executive shall devote as much of his time and effort to the business of Corbina and CompTel as shall be necessary to properly oversee the management of each of such companies' operations. ARTICLE 2 COMPENSATION; BENEFITS Section 2.1 Minimum Base Salary. In consideration of his services hereunder, the Executive shall receive a minimum base salary determined, as follows: (a) During the period of the Term commencing on the Commencement Date and continuing until the end of the calendar month in which the closing of the Company's initial public offering of securities in the United States 2 of America occurs (the "Salary Transition Month"), the Company shall pay to the Executive an annual minimum base salary equal to the difference between $125,000 and the aggregate amount of the annual base salary which the Executive shall receive from Corbina during such period. (b) Commencing on the first day of the month immediately succeeding the Salary Transition Month, and continuing during each 12 month period or part thereof remaining during the Term, the Company shall pay to the Executive an annualized minimum base salary equal to the difference between $175,000 and the aggregate amount of the base salaries which the Executive shall receive from Corbina, CompTel and the majority owned subsidiary of CompTel which will be licensed by the Russian Ministry of Communications to operate a wireless local loop telecommunications system in Moscow during the same 12 month periods or part thereof. (c) The payment of such salary to Leibov hereunder shall be made in twice monthly installments and shall be subject to all applicable withholding obligations imposed upon the Company by US federal, state and local taxing authorities. Section 2.2 Salary Increases; Bonuses. The Board of Directors, or the Compensation Committee of the Board, may in its discretion approve periodic increases to the Executive's base salary, and one or more bonuses to the Executive based on performance or such other circumstances as the Board or said Committee deems appropriate. Section 2.3 Incentive Compensation. In order to stimulate the efforts of the Executive, strengthen his desire to remain with the Company and provide him with a more direct interest in its welfare, the Company shall provide to the Executive the following compensation benefits: (a) The Company shall grant to the Executive, pursuant to its Omnibus Stock Incentive Plan (the "Plan"), 25,000 shares of the Company's common stock, the vesting of which shall be subject to such conditions as the compensation Committee of the Company's Board of Directors shall reasonably determine. (b) In the event that the Corbina's operating income for any of its fiscal years ending during the Term (the "Income"), determined pursuant to the same US generally acceptable accounting principles which would be applicable if the Company's financial statements were to be prepared in the same manner as the Company's annual audited financial statements, shall be greater than US$3,400,000, then, the Company shall transfer to the Executive, subject to the restrictions on transfer and right of first refusal hereinbelow described, 14 ordinary registered shares 2 3 of the charter capital of Corbina registered in the Company's name (the "Corbina Incentive Shares"). (c) If, during any of Corbina's fiscal years ending during the Term which shall be subsequent to the fiscal year in which the Executive shall have earned the Corbina Incentive Shares, Corbina's Income shall be greater than US$3,400,000, the Executive shall receive from the Company, pursuant to the Plan, shares of the Company's common stock, having a value equal to the difference between the Income and US$3,400,000. Such common Stock shall be valued at the mean of the bid and asked prices therefor, as quoted during the ten trading dates immediately preceding the issuance thereof on the principal market on which such shares shall then be (or if no trading in the Company's common stock shall have taken place on such date, then on the next preceding date on which such trading shall have occurred). If the Company's common stock shall not then be registered under the Securities and Exchange Act of 1934 and publicly traded on the Nasdaq Stock Market or any other exchange, the value of such shares of common stock shall be determined by mutual agreement between the Company's Board of Directors and the Executive. (d) Anything herein contained to the contrary notwithstanding, the number of shares of the Company's common stock to be issued to the Executive pursuant to the provisions of Section 2.3 (c) hereof shall not exceed 250,000, in the aggregate. (e) The Executive shall not be entitled to transfer any ownership interest in any of the Corbina Incentive Shares to any person, firm or entity affiliated or associated with him (a "Related Transferee") unless, prior to such transfer, the Related Transferee agrees to be bound in writing by the provisions of the right of first refusal described in the immediately succeeding sentence. In the event that the Executive intends to sell any of the Corbina Incentive Shares to any person, firm or entity who is not a Related Transferee, and who has made a bona fide offer to purchase such shares for value, the Company shall thereupon have a right of first refusal to purchase the Corbina Incentive Shares subject to such offer pursuant to the same terms and conditions pertaining thereto. Section 2.4 Employee Benefits. The Company will provide the Executive and his spouse and children during the Term of this Agreement with health insurance coverage commensurate with the coverage provided to the Company's Chief Executive Officer. Section 2.5 Vacation. The Executive shall be entitled to three weeks of paid vacation during each year of the term of this Agreement. Section 2.6 Life Insurance. The Company shall also acquire, continue, 3 4 renew and/or replace, as necessary, and shall pay all premiums due and owing with respect to, one or more policies insuring the life of the Executive in the aggregate amount of $500,000. The proceeds of such insurance shall be payable to the Executive's chosen beneficiary. Section 2.7 Expense Reimbursement. The Company shall pay or reimburse the Executive for all reasonable expenses actually incurred by her in performing the services to be rendered by her hereunder. Such payment/reimbursement shall be made within a reasonably prompt time in accordance with, and upon the Executive's compliance with, the Company's then pertaining expense reimbursement policies and procedures. ARTICLE 3 COMPETITIVE ACTIVITIES Section 3.1 During the term of his employment hereunder, the Executive shall not: (a) Perform any services, directly or indirectly, for any person or entity competing, directly or indirectly, with the Company, Corbina or CompTel; (b) Own, directly or indirectly, an interest (other than a common stock ownership interest of not more than 5% of a corporation listed on a US or Russian national securities exchange or traded through NASDAQ) in any entity competing, directly or indirectly, with the Company, Corbina or CompTel; and (c) Compete, directly or indirectly, with any products or services marketed or offered by the Company, Corbina or CompTel. Section 3.2 During the one year period after any suspension or termination of the Executive's employment with the Company, the Executive shall not contact, directly or indirectly, any of the customers of Corbina or CompTel with whom he had contact during the last year of his employment hereunder for the purpose of soliciting business. ARTICLE 4 TERMINATION OF AGREEMENT Section 4.1 Events of Termination. The employment of the Executive shall terminate prior to the end of the Term of this Agreement under any of the following circumstances. (a) The death of the Executive. 4 5 (b) In the event that the Executive shall substantially fail to perform his duties hereunder due to illness or other incapacity, and if such illness or other incapacity shall continue for a period of six months, the Company shall have the right, by notice sent to the Executive at his residence of record with the Company, to terminate the Executive's employment hereunder as of a date (not less than four months after the date of the sending of such notice) to be specified in such notice. (c) In the event of gross malfeasance, gross misconduct or a felony conviction of the Executive, or for other similar good cause materially detrimental to the Company, as determined by a court of competent jurisdiction, the Company shall have the right, by notice thereof sent to the Executive at his residence of record with the Company, to terminate the Executive's employment hereunder "for cause" as of a date specified in such notice. (d) In the event that the Executive resigns as the Chief Executive Officer of Corbina or CompTel. (e) In the event that (i) a majority of the Company's outstanding Common Stock is acquired by a third party; (ii) substantially all of the Company's assets are acquired by a third party; or (iii) the Company is merged with another entity and the Company is not the survivor of such merger, and in any of such events, such third party or entity or the Executive elects to terminate his employment hereunder. (f) In the events that (i) the Company withdraws the Registration Statement on Form SB-2 pertaining to its initial public offering of securities (the "IPO") prior to the declaration of effectiveness by the Securities and Exchange Commission (the "Commission") of such Registration Statement, or (ii) the Company otherwise ceases to proceed with registration under the Securities Act of 1933 of the securities it intends to offer to the public in its IPO, or (iii) J.W. Barclay & Co., Inc. fails, for any reason, to seek an order of effectiveness of said Registration Statement from the Commission on or before December 31, 1997. Section 4.2 The Executive's Entitlements Upon Termination - General. (a) Except to the extent specifically provided for herein, the Executive shall not be entitled to receive any severance pay or other form of compensation upon termination of his employment hereunder. (b) In the event that the Executive's employment hereunder shall terminate pursuant to any of the provisions of Section 4.1 hereof, the Executive (or his estate in the event of his death) shall be entitled to receive all 5 6 unpaid Compensation(1) and bonuses which shall have accrued through the date of termination. Section 4.3 The Executive's Entitlements Upon Termination - Death. In the event of termination of this Agreement due to the Executive's death, the sole obligation which the Company shall owe to the Executive's estate (or any other beneficiary of the Executive's choosing) shall be to pay or cause to be paid the insurance benefits described in Section 2.6 hereof. Section 4.4 The Executive's Entitlements Upon Termination - Illness or Incapacity. In the event of termination of this Agreement due to illness or other incapacity, the Executive shall also receive severance pay equal to one year's salary payable in the amount equivalent to his annual salary at the time when the Company shall have sent to the Executive the notice specified in Section 4.1(b) hereof. Unless otherwise agreed by the Company, such severance shall be paid in the same manner as the Executive's salary would have been paid to his during the course of the applicable period of time. Section 4.5 The Executive's Entitlements Upon Termination - Change of Control. In the event that the Executive's employment shall terminate pursuant to any of the provisions of Section 4.1(e) hereof, the Executive shall be entitled to receive, in lieu of any benefit or provision made pursuant to any other section or subsection of this Agreement: (a) all salary which otherwise would be due to him during the remainder of the Term of this Agreement pursuant to Section 2.1 hereof, payable in the manner provided in such section; (b) all benefits which otherwise would be due to him during the remainder of the Term of this Agreement pursuant to Sections 2.3 and 2.5 hereof, to be provided in the manners provided in such sections; and (c) the sum of $125,000 which shall be payable in a lump sum (less required tax withholdings) not later than 30 days after the date of such termination. The provisions of this Section 4.5 shall survive the termination of this Agreement, and shall be binding upon any third party or entity which acquires a majority of the Company's outstanding Common Stock or substantially all of its assets, or which is the surviving constituent of a merger with the Company. - ----------- (1) i.e., the aggregate amount reportable by the Company on the Executive's IRS W-2 form with respect to the salary and benefits which he would have received through the date on which termination or death occurs, including all sums payable to the Executive for accrued but unused vacation time, less all payments made during such year to him or for his benefit pursuant to Section 2.1 hereof. 6 7 ARTICLE 5 INDEMNIFICATION Section 5.1 The Executive's Entitlements. Subject to any limitations imposed by applicable law, the Certificate of Incorporation and/or Bylaws of the Company, and until such time as the Company shall enter into a separate indemnification agreement with the Executive, the Company will indemnify and defend the Executive hereunder to the fullest extent permitted by applicable law with respect to all claims for compensatory damages (but not punitive damages or the expenses incurred by the Executive in defending against such claims) alleged against the Executive in any action, suit or proceeding commenced against him by reason of his status as a present or former officer, director or employee of the Company, or any majority-owned subsidiary or affiliate of the Company, including actions brought by or in the right of the Company to procure a judgment in its favor. The provisions of this Article shall survive the termination of this Agreement. ARTICLE 6 LITIGATION EXPENSES Section 6.1 Payment by the Company. In the event the Executive becomes a party to any litigation regarding any matter pertaining to this Agreement, or any act of commission or omission alleged to have been made by the Executive while employed by the Company, including actions brought by or in the right of the Company to procure a judgment in its favor (each of which shall hereinafter be referred to as a "Covered Proceeding"), the Executive shall have the right to have his expenses, including, but not limited to all of his legal fees in prosecuting or defending such proceeding, paid by the Company as such expenses are incurred during the course of such Covered Proceeding. This right shall be in addition to any other rights of indemnification the Executive may have under the Certificate of Incorporation or Bylaws of the Company, or pursuant to any Indemnity Agreement or to applicable law. The provisions of this Article shall survive the termination of this Agreement. ARTICLE 7 MISCELLANEOUS Section 7.1 Assignability. This Agreement shall not be assignable by the Executive. This Agreement shall not be assignable by the Company without the prior written consent of the Executive except to a corporation which is the surviving entity in any merger involving the Company, or to a corporation which acquires all or substantially all of the stock or assets of the Company. Section 7.2 Notices. All notices, advices, demands and other communications under this Agreement shall be in writing and shall be deemed to 7 8 have been duly given to made on the next business day if delivered by facsimile transmission, overnight courier or Express Mail, or on the tenth business day after being mailed by first class, certified mail, postage prepaid, and properly addressed to a party at his or its respective address first above written, or to such other address as either party may designate by notice given in accordance with this Article. Section 7.3 Benefit. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successor and assigns. Section 7.4 Entire Agreement; Modification Waiver. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained herein and supersedes all prior and contemporaneous agreements, representations and understandings of the parties. No termination, modification or amendment of this Agreement shall be binding, unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Section 7.5 Sections Headings. The section headings of this Agreement are included for convenience only and shall not affect in any way the construction of interpretation of any of the provisions hereof. Section 7.6 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to its conflict of laws principles. 8 9 Section 7.7 Severability. In the event that any one or more of the provisions contained in this Agreement shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Agreement shall not be in any way impaired. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TELCOM GROUP USA, INC. By: _____________________________ Ronald G. Nathan, President _____________________________ Mikhail Leibov 9 EX-10.10 12 INDEMNITY AGREEMENT 1 Exhibit 10.10 INDEMNITY AGREEMENT AGREEMENT, dated and effective as of the date set forth at the foot hereof, by and between RUSSIAN WIRELESS TELEPHONE COMPANY, INC. (the "Company") and the undersigned, a director and/or officer of the Company (the "Indemnitee"). In view of the substantial increase in directors' and officers' litigation costs and risks and the periodic limitations on the availability and coverage of liability insurance, and in view of the desire of the Company that the Indemnitee continue to render valuable services to the Company, this Agreement is intended to provide assurance that the Company will indemnify the Indemnitee to the full extent permitted by the laws of Delaware. NOW, THEREFORE, in consideration of the Indemnitee's agreeing to serve or continuing to serve as an officer and/or director of the Company, the parties hereto agree as follows: 1. Indemnification. To the fullest extent permitted by the provisions of the Company's Certificate of Incorporation and/or the laws of Delaware as from the time in effect, the Company shall indemnify the Indemnitee and any persons referred to in the second sentence of Section 9 against any expense (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any actual or threatened action or proceeding, whether civil or criminal, to which the Indemnitee or such person is made or threatened to be made a party by reason of the fact that the Indemnitee then is or was a director or officer of the Company, of then serves of has served any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity, at the request of the Company. To the full extent so permitted, the foregoing shall apply to actions by or in the right of the Company and require the Company to pay expenses in advance of final disposition. 2. Notice to Company. Not later than thirty (30) days after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding to which the Indemnitee is or may be named a party, Indemnitee shall, if a claim in respect thereof is to be made by the Indemnitee against the Company under this Agreement, notify the Company of the commencement thereof; but the omission so to notify the Company will not relieve it from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Indemnitee notifies the Company of the commencement thereof, the Company shall be entitled to participate therein at its own expense; except as otherwise provided below, the Company shall have the right 2 but not the obligation, at its option and jointly with any other indemnifying party similarly notified and electing to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense thereof, the Company will not be liable to Indemnitee under this Agreement, Delaware law, the Company's Certificate of Incorporation or otherwise for any legal or other expense subsequently incurred by Indemnitee in connection with the defense thereof. Indemnitee shall have the right to employ separate counsel in such action, suit or proceeding, but the fees and expenses of such counsel, incurred after notice from the Company of its assumption of the defense thereof, shall be at the expense of Indemnitee unless (i) Indemnitee is a non-employee director of the Company, (ii) the employment of counsel by Indemnitee has been authorized by the Company, (iii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action, or (iv) the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expense of Indemnitee's separate counsel shall be at the expense of the Company. If more than one non-employee director shall be made a party to an action, the fees and expenses of only one separate counsel to be employed on behalf of all such non-employee directors, as a group, shall be borne by the Company unless one or more of such non-employee directors shall have reasonably concluded that there may be a conflict of interest among the non-employee directors, in which case, a sufficient number of separate counsel may be employed, at the cost of the Company, to avoid such conflict. The single separate counsel employed to represent the nonemployee directors, as a group, shall be satisfactory to all such directors but their approval shall not be unreasonably withheld or delayed. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company. The Company shall not be liable to indemnify Indemnitee under this Agreement, the Company's Certificate of Incorporation or otherwise, for any amounts paid in settlement of any action or claim effected without the Company's prior written consent which, in a case where Indemnitee is represented by separate counsel, shall not be unreasonably withheld or delayed. The Company shall not settle any action or claim in any manner which would impose any damages, fines, penalties or limitations on Indemnitee without Indemnitee's written consent, which consent shall not be unreasonably withheld or delayed. 3. Enforcement Procedure. Any right to indemnification or advances granted by this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in the forum in which the proceeding is or was pending or, if such forum is not convenient or available, in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied by the Company, in whole or in part, or (ii) no disposition of such claim is made within thirty (30) days of request therefor. Indemnitee, in such enforcement action, shall be entitled to be paid also 2 3 the expense of prosecuting his or her claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition when the required undertaking has been tendered to the Company) that Indemnitee is not entitled to indemnification because of the limitations set forth in Section 5 hereof, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors of its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors or its stockholders) that such indemnification is improper shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise. 4. Change in Control. Following a Change in Control (as hereinafter defined), any finding of whether indemnification is permitted by the laws of Delaware shall, if the Indemnitee so elects, be based upon the written opinion of special independent counsel selected by the Indemnitee and approved by the Company (which approval shall not be unreasonably withheld or delayed). A. Such counsel shall render an opinion to the Board of Directors and the Indemnitee as to whether indemnification is permitted by the laws of Delaware. The Company shall pay the reasonable fees of such counsel. B. A "Change in Control" shall be deemed to have occurred on: (i) the date on which more than one half of the members of the Board of Directors shall consist of persons other than Current Directors (for these purposes, a "Current Director" shall mean any member of the Board of Directors as of January 1, 1993, and any successor of a Current Director who has been approved by a majority of the Current Directors then on the Board); or (ii) the date of approval by the stockholders of the Company of an agreement providing for (1) the merger or consolidation of the Company with another corporation where the stockholders of the Company immediately prior to the merger or consolidation would not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where the members of the Board of Directors of the Company immediately prior to the merger or consolidation, would not, constitute more than one half of the Board of Directors of the Company immediately after the merger or consolidation, or (2) the sale or other disposition of all or substantially all the assets of the Company. 5. Limitations on Indemnity. No indemnity or advance payment 3 4 pursuant to Sections 1, 6 or 7 hereof (including, unless the Board of Directors otherwise determines, any provisions thereof pertaining to pre-judgment payment of Indemnitee's legal expenses), Delaware law, the Company's Certificate of Incorporation or otherwise shall be paid by the Company: A. in respect of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; B. in respect of Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest, or to constitute willful misconduct; C. in respect of Indemnitee's conduct which is finally adjudged to have constituted a breach of Indemnitee's duty of loyalty to the Company or resulted in any personal profit or advantage to which Indemnitee was not legally entitled; D. for which payment is actually made to Indemnitee under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, by-law or agreement, except in respect of any excess beyond payment under such insurance, clause by-law or agreement; E. if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful; (and, in this respect, both the Company and Indemnitee acknowledge their understanding to the effect that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or F. in connection with any proceeding (or part thereof) initiated by Indemnitee or any proceeding by Indemnitee against the Company or its directors, officers, employees or other agents, prior to a Change of Control unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Company, or (iii) such indemnification is available from the Company under Delaware law. 6. Partial Indemnification. Indemnitee shall be entitled under this Agreement to indemnification by the Company for a portion of the expenses (including attorney's fees), witness fees, damages, judgment, fines and amounts paid in settlement and any other amounts that Indemnitee becomes legally obligated to 4 5 pay in connection with any action, suit or proceeding referred to in Section 1 hereof, even if not entitled hereunder to indemnification for the total amount thereof, and the Company shall indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. 7. Litigation Expenses. In the event the Indemnitee becomes a party to any litigation regarding any matter pertaining to this Agreement, or any act of commission or omission alleged to have been made by the Indemnitee while employed by the Company, including actions brought by or in the right of the Company to procure a judgment in its favor (each of which shall hereinafter be referred to as a "Covered Proceeding"), the Indemnitee shall have the right to have his expenses, including, but not limited to all of his legal fees in prosecuting or defending such proceeding, paid by the Company as such expenses are incurred during the course of such Covered Proceeding. This right shall be in addition to any other rights of indemnification the Indemnitee may have under the Certificate of Incorporation or By-Laws of the Company, or pursuant to any Employment Agreement or to applicable law. The provisions of this Article shall survive the termination of this Agreement. 8. Subrogation. In the event of payment under this Agreement, Delaware law, the Company's Certificate of Incorporation or otherwise, the Company shall be subrogated to the extent of such payment to all of the rights, remedies and recoveries of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights, remedies and recoveries and to enable the Company effectively to bring suit to enforce such rights. 9. Other Rights; Continuation of Right to Indemnification. The indemnification and advances provided by this Agreement shall not be deemed exclusive of any other rights consistent with the laws of Delaware to which a director or officer seeking indemnification may be entitled under any law (common or statutory), provision of the Company's Certificate of Incorporation or by-laws, resolution of stockholders or directors, other agreement or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Company, and shall continue notwithstanding that the Indemnitee may have ceased to be a director or officer or to act as such employee or agent. The provisions of this Agreement shall inure to the benefit of the estate, heirs, executors, administrators and other personal representatives of the Indemnitee. 10. Amendments. This Agreement may not be amended without the agreement in writing of the Company and the Indemnitee. 11. Savings Clause. If any portion of this Agreement shall be 5 6 deemed invalid, illegal or enforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and the Company shall nevertheless indemnity the Indemnitee as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement to the full extent permitted by any portion of this Agreement that shall not have been invalidated and to the full extent permitted by applicable law. 12. Survival Clause. The Company acknowledges that, in providing services to the Company, the Indemnitee is relying on this Agreement. Accordingly, the Company agrees that regardless of when a claim is made or an action is threatened or commenced, its obligations hereunder will survive (i) any actual or purported termination of this Agreement by the Company or its successors or assigns either by operation of law or otherwise, (ii) any changes in the Company's Certificate of Incorporation or by-laws, and (iii) termination of the Indemnitee's services to the Company (whether such services were terminated by the Company or the Indemnitee). 13. Successors and Assigns of the Company. This Agreement shall be binding on the successors and assigns of the Company whether by operation of law or otherwise. 14. Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Delaware (without giving effect to the provisions thereof relating to conflict of laws). 6 7 15. Notice. Each notice required or permitted under this Agreement shall be in writing and signed by a duly authorized representative of the party initiating the same and shall be sent by registered or certified mail, return receipt requested, postage prepaid or delivered by hand, to the following addresses unless changed by written notice: To Indemnitee: at the address indicated on the signature page hereof To the Company: Russian Wireless Telephone Company, Inc. 780 Third Avenue New York, New York 10017 Attention: President IN WITNESS WHEREOF, this Agreement has been executed by the parties as of , 1997. Russian Wireless Telephone Company, Inc. By: _______________________________________ Name: _____________________________________ Title: ____________________________________ Indemnitee: ___________________________________________ Name: _____________________________________ Address: __________________________________ __________________________________ 7 EX-11 13 COMPUTATION OF EARNINGS (LOSS) PER SHARE 1 Exhibit 11 Russian Wireless Telephone Company, Inc. (formerly Telcom Group, USA) Computation of Earnings (Loss) Per Share Month of Weighted Average Issuance For Number of Shares Outstanding F/S Purposes Shares 1996 1995 - -------------------------------------------------------------------------------- Common Stock at January 1, 1995 4,536,876 4,536,876 4,536,876 January '95 600,000 600,000 600,000 May '95 (2,663,876) (1,553,928) (2,663,876) April '95 300,000 200,000 300,000 May '95 (800,000) (466,667) (800,000) August '95 (488,000) (462,667) (466,000) February '96 300,000 275,000 December '96 - Cheap Shares 450,000 450,000 450,000 --------- --------- --------- Weighted Average shares 2,235,000 3,603,614 2,210,000 ========= ========= ========= Net Weighted Net (Loss) YEAR (Loss) Avg Shares Per Share - ------------------------------------------------------ 1995 (1,227,502) 3,603,614 (0.34) 1996 (1,470,878) 2,210,000 (0.67) EX-21 14 SUBSIDIARIES OF THE COMPANY 1 Exhibit 21 Subsidiaries of Russian Wireless Telephone Company, Inc. The following entities are 75%-owned subsidiaries of the Registrant: 1. ZAO Corbina Telecommunications - a closed joint stock company organized under the laws of the Russian Federation. It conducts business under the name: Corbina Telecommunications. 2. ZAO CompTel Ltd. - a closed joint stock company organized under the laws of the Russian Federation. It conducts business under the name: ZAO CompTel Ltd. -----END PRIVACY-ENHANCED MESSAGE-----