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EXHIBIT 10.26
AGREEMENT
On the Creation and Functions of the Joint Venture
"[ILLEGIBLE]"
The parties to this Agreement are the Main Trunk Lines Control Centre
of the Ministry of Posts and Telecommunications of the U.S.S.R., a legal entity
organized and existing under the laws of the U.S.S.R., with its principal
office at 00, Xxxxxxxx xxxxxx, 000000 Xxxxxx, U.S.S.R. ("MTLCC"), and Sovinet,
a general partnership organized and existing under Virginia law, with its
principal office at 0000 Xxx Xxxxxx Xxxx, XxXxxx, Xxxxxxxx 00000, X.X.X.
("SOVINET"). SOVINET is a general partnership by and between GTE International
Communication Services Corporation, a Delaware corporation with its principal
office at 0000 Xxx Xxxxxx Xxxx, XxXxxx, Xxxxxxxx 00000, X.X.X., and San
Francisco/Moscow Teleport, Inc., a California corporation with its principal
office at 0000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000, X.X.X. The
parties hereby agree to the following:
ARTICLE 1
Establishment and Purposes
MTLCC and SOVINET (collectively the "Participants") hereby establish a
joint venture under the laws of the U.S.S.R., to be created in the U.S.S.R. in
the city of Moscow ("the Venture"). The Venture is to be established for the
following purposes:
(1) to enhance communications services between the USSR and third
countries, and within the USSR;
(2) for this purpose, to design, construct, and operate a modern,
digital, private international telecommunications network (the "Network")
incorporating microwave, cellular telephone, international satellite, and other
types of communications media, in
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order to provide voice, data, and facsimile services to customers in exchange
for freely convertible foreign ("hard") currency in Moscow, and in other cities
in the U.S.S.R. as permitted by appropriate governmental authorities;
(3) to obtain (by import or otherwise, as the Venture may
determine) all equipment, supplies, services, and raw materials that the
Venture deems necessary for its operations;
(4) to enter into agreements with hotels, businesses, enterprises,
joint ventures, and other persons and entities of all types, in connection with
the operation and/or use of the Network;
(5) to apply for and obtain all necessary approvals,
authorizations and permits for these purposes;
(6) to engage in other means of provision of telecommunications
services, both on the Soviet domestic market and internationally, in order to
provide voice, data, and facsimile services in exchange for hard currency; and
(7) to borrow funds in hard currency or Soviet rubles ("rubles"),
as the Venture deems necessary or convenient for its operations and programs,
and to repay the principal and interest due in respect of such loans in hard
currency or rubles.
To pursue these goals, the Venture may also carry out other business
and commercial activities of all types which are permitted in the U.S.S.R., and
provide goods and services to customers in the U.S.S.R., as the Venture
determines from time to time. The Venture will independently develop and
approve its own program of economic, production, and trade activities.
ARTICLE 2
Name and Location
Name for the Venture:
In Russian: "[ILLEGIBLE]".
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In English: "EDN".
Principal Location of the Venture: 00, Xxxxxxxx xxxxxx, 00000 Moscow,
U.S.S.R.
ARTICLE 3
Duration
The Venture will be established and will operate, and the term of its
existence and activities will continue, until the earlier of (1) December 31,
2001, or (2) the effective date of its liquidation pursuant to Article 23.
ARTICLE 4
Applicable Law
The Venture will be a legal entity organized and existing under the
laws of the U.S.S.R. The Venture will be established, function and conduct its
activities in accordance with this Agreement, its Charter, which is attached
as Exhibit 1, and applicable Soviet law. Where any terms of this Agreement and
any terms of the Charter appear contradictory or inconsistent, the terms of
this Agreement will prevail. This Agreement will be governed by, and
interpreted and enforced in accordance with, the internal, substantive laws of
Sweden applicable to agreements negotiated, executed and performed entirely in
Sweden by parties resident in Sweden, and without regard to any conflicts of
law principles.
ARTICLE 5
Effective Date
(1) This Agreement will become effective upon its execution
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by the Participants, and the Venture will be created and begin its operations
on and from the date of its registration with the U.S.S.R. Ministry of Finance.
The Participants will use their best efforts to secure such registration as
promptly as possible.
(2) Notwithstanding anything to the contrary in this Agreement, in
the event that the Venture is not registered by the U.S.S.R. Ministry of
Finance within three (3) months of the date of execution of this Agreement by
the Participants, or such longer period as MTLCC and SOVINET may mutually agree
upon in their sole discretion, then this Agreement will terminate and will have
no further force or effect, and the Participants will have no liability to one
another in respect hereof, except that their respective obligations under
Articles 16, 17 and 30(7) shall survive the termination. Upon such termination,
at its own expense, MTLCC shall promptly return to SOVINET any and all cash
and/or property imported into the U.S.S.R. by or for SOVINET for use by, or as
a capital contribution to, the Venture.
ARTICLE 6
Capital Contributions; Financing and Other Matters
(1) The capital stock of the Venture will initially consist of
cash to be contributed by the Participants as follows, subject to the
conditions precedent set forth in Article 22:
(a) MTLCC will contribute rubles in an amount equal to
One Million United States Dollars (U.S.$1,000,000), converted at the official
exchange rate of the U.S.S.R. Gosbank on the day of the contribution, and MTLCC
will correspondingly own fifty percent (50%) of the capital stock of the
Venture.
(b) SOVINET will contribute U.S. Dollars in the amount of
One Million United States Dollars (U.S.$1,000,000), and SOVINET will
correspondingly own fifty percent (50%) of the capital stock of the Venture.
(2) MTLCC and SOVINET will make these contributions to the
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capital stock of the Venture, respectively, within ninety (90) days of the date
of registration of the Venture with the U.S.S.R. Ministry of Finance.
(3) Promptly upon the registration of the Venture, the
Participants will use their best efforts to obtain one or more loans, from
banking or financial institutions of international reputation, inside or
outside the U.S.S.R., to the Venture, in the aggregate principal amount of Ten
Million United States Dollars (U.S.$10,000,000) at interest rates, at a
repayment schedule, and on such other terms and conditions as shall be mutually
agreeable to the Participants. The Participants agree that their intent is to
obtain such loan(s) on a basis that would require SOVINET, or one of its equity
owners, to guarantee no more than fifty percent (50%) of the total amount of
Ten Million United States Dollars (U.S.$10,000,000) and, accordingly, the
Participants agree that each of them will apply its best efforts to obtain the
loan(s) on this basis. If the Venture borrows funds from any bank whose
principal office is not located in the U.S.S.R., or opens bank accounts or
establishes banking relationships with any such bank, the Venture shall first
obtain the permission of U.S.S.R. Vneshekonombank for such action to the extent
required by Soviet law, and MTLCC shall be principally responsible for
obtaining, and shall use its best efforts to obtain, such required permission.
(4) Within thirty (30) days of the date of registration of the
Venture, the Participants shall cause the Venture to execute and deliver to GTE
Spacenet International Corporation, and SOVINET shall cause GTE Spacenet
International Corporation to execute and deliver to the Venture, an Equipment
Purchase and Installation Agreement ("Equipment Agreement") in form reasonably
satisfactory to both parties and incorporating such terms and conditions as the
Venture and GTE Spacenet International Corporation may mutually agree upon.
ARTICLE 7
Changes in Capital Stock
The Board of Directors of the Venture (as described in Article
6
11) ("Board") may increase the amount of the capital stock of the Venture, in
its discretion, upon a unanimous vote of the members of the Board. In
accordance with the terms of such decision, the Board may accept supplementary
contributions from the Participants, or may cause all or a portion of the
profits of the Venture to be contributed to the capital stock, to the extent of
the authorized capital stock. No Participant will be required to make any
supplementary contributions to the capital stock of the Venture, except as both
Participants may expressly agree in advance, in writing.
ARTICLE 8
Funds
The following operating capital accounts or funds ("Funds") will be
established out of the balance profits (as defined below) and certain other
capital of the Venture to support certain of the Venture's activities, as
specified below, and to provide benefits to its employees:
(1) a reserve fund of up to twenty-five percent (25%) of the
amount of the capital stock ("Reserve Fund").
(2) a fund for production and development related to the
activities of the Venture ("Production and Development Fund").
(3) a fund for employee benefits.
The amounts and procedures for allocating capital to the Funds, if
any, and the use of the Funds, will be as determined by the Board from time to
time, in its sole discretion, and will be reviewed by the Board at least once
per year and set forth in each annual budget of the Venture. The proceeds of
loans in hard currency obtained by the Venture may also be allocated to the
Production and Development Fund, and the repayment of principal under such
loans may be charged against the Production and Development Fund.
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ARTICLE 9
Valuation
The valuation of any capital goods, real property, intangible assets,
contract rights, know-how and/or other assets acquired by the Venture (other
than pursuant to Article 6) will be established by prior written agreement of
the Participants, with due regard for then current world market prices. Where
necessary and solely for the purposes of keeping the books of the Venture that
are denominated in rubles, the recalculation into rubles of the value of such
acquired property, assets, rights, and other items, will be conducted in
accordance with the official U.S.S.R. Gosbank rate of exchange, or other
applicable exchange rate, on the day of the acquisition.
ARTICLE 10
Insurance
If the Board so determines, the property and interests of the Venture
and of the Participants may be insured (against damage, casualty, fire, theft,
or other loss, or business or political risk) by Ingosstrakh at its current
rates, or by other Soviet or foreign insurance companies at their current
rates, and payment to the Venture under such insurance may be made in hard
currency. Upon a decision of the Board to this effect, the Venture may also
obtain health, life, or other insurance on behalf of its employees.
ARTICLE II
Governance
(1) The Venture will be governed as follows. The Venture will have
a Board consisting of six (6) members, three (3) of whom will be appointed by
MTLCC and three (3) of whom will be appointed by SOVINET. The members of the
Board appointed by MTLCC will represent its interests and act on its behalf,
and the members of the Board appointed by SOVINET will represent its interests
and act on
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its behalf. The Board will have ultimate authority and control over all actions
and decisions of the Venture, its Management and its Audit Committee (as those
terms are defined below), its personnel, and its other bodies or committees, if
any. Day-to-day operations of the Venture and the implementation of decisions
of the Board will be carried out by the senior executive employees of the
Venture (collectively the "Management"), as specified below, who will remain
subject at all times to the authority and control of the Board.
(2) The Management will consist of a Director General, a First
Deputy Director, a Technical/Engineering Director, a Marketing/Sales Director,
and a Finance/Accounting Director, each of whom will be appointed by the Board,
subject to the following selection process. The individual who serves as First
Deputy Director also may serve, simultaneously, in one of the other Director
positions. The Director General will be nominated by MTLCC and approved by
SOVINET. The parties acknowledge that it will be highly desirable that the
Director General speak both Russian and English. Each of the First Deputy
Director, Marketing/Sales Director and Finance/Accounting Director will be
nominated by SOVINET and approved by MTLCC. Further, during the period prior to
operation of the Network, the Technical/Engineering Director will be nominated
by SOVINET and approved by MTLCC. Once the Network commences operation, the
Technical/Engineering Director will be nominated by MTLCC and approved by
SOVINET. Each of these positions may be filled by Soviet or foreign citizens.
Each member of the Management will have the duties set forth in the Charter,
unless otherwise determined by the Board. The Director General will be entitled
to attend meetings of the Board, but will have no voting rights.
(3) Except to the extent expressly authorized in Article 6 of this
Agreement or in the approved annual budget of the Venture then in effect, or as
may be required pursuant to any contract or agreement of the Venture which was
approved and entered into pursuant to this Agreement, the prior written
approval of the Board (or the approval of the Director General, with the prior
written consent or approving signature of the First Deputy Director to such
action) will be, required for the taking of each of the following actions by
the Venture, or by any of its personnel on behalf of the Venture:
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(a) During any twelve (12) month period, undertaking any of the
following transactions with a value in excess of U.S. $10,000:
(i) Capital investments in or purchases of equipment;
(ii) Sale, lease, or other disposition of assets, other
than in the ordinary course of business; or
(iii) Borrowing or lending funds of any kind, except for
trade credits granted or received in the ordinary course of business;
(b) Mergers and acquisitions, investments in other entities, or
similar transactions;
(c) Selection of the Venture's accountants, auditors, or legal
counsel;
(d) Settlement of any legal action in excess of U.S. $10,000;
(e) Mortgaging, encumbering or granting any lien or security
interest in any or all of the assets of the Venture;
(f) Making or modifying any material term of contracts,
agreements or business arrangements with a value in excess of U.S. $10,000;
(g) Designation of the persons or entities entitled to disburse or
withdraw from deposit the operating capital or cash balances of the Venture;
(h) Establishing any office or place of business outside of the
U.S.S.R.;
(i) Conducting negotiations concerning, entering into, or
modifying any material term of any definitive agreement with Intourist or any
successor organization ("Intourist"), or any other governmental organization in
the U.S.S.R.;
(j) Inviting or assigning specialists to travel or work pursuant
to Article 18;
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(k) opening or closing bank accounts, or
(l) providing telecommunications services to customers in
the U.S.S.R. in exchange for rubles.
(4) The Venture shall also have an Audit Committee which shall be
formed, and which shall conduct periodic audits, as described in the Charter.
(5) All matters relating to the governance or administration of
the Venture and not specifically addressed by this Agreement will be handled as
provided in the Charter or, if the Charter does not specifically address them,
by decision of the Board.
(6) The Board will have two co-chairmen, one of whom will be
designated by each Participant and acceptable to the other Participant. The
Board will meet at least four (4) times per year for the first two (2) years
after registration of the Venture with the U.S.S.R. Ministry of Finance.
Thereafter, it will meet at least twice per year, and more often if deemed
necessary by the Participants. Where applicable, the co-chairman appointed by
the Participant in whose home country the meeting is being held will preside at
the meeting; if the meeting is held in a third country, the Board will select
the presiding co-chairman. Except with respect to decisions that under this
Agreement or the Charter require the unanimous consent of all Board members,
all decisions of the Board will require the affirmative vote of at least four
(4) members, either in person or by written proxy, and four (4) members must be
present for any valid meeting to be held. The agenda for each Board meeting
shall be discussed and agreed upon in principle by the Board members not less
than thirty (30) days in advance of the meeting.
(7) The Board will establish the annual budgets and activities of
the Venture. Budgets for each fiscal year will be prepared by the Director
General and circulated to the Board members for their review at least ninety
(90) days prior to the commencement of such fiscal year. Budgets shall be
approved and become effective upon the decision of the Board. Each annual budget
shall set forth the proposed expenditures and disbursements of the Venture for
the relevant fiscal year, and shall project the estimated revenues, income, and
profits for that fiscal year, in both rubles and hard
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currency. Until an annual budget is approved for a given fiscal year, the
Venture shall follow the annual budget adopted by the Board for the previous
fiscal year.
(8) The Venture shall compensate members of the Board in hard
currency for their reasonable expenses, including without limitation travel and
hotel expenses, incurred in connection with their attendance at meetings of the
Board.
ARTICLE 12
Cooperation of Participants
The Participants agree to cooperate exclusively with each other to
create and operate the Network to serve the hotels and business centers listed
in Exhibit 2. In addition, the Participants will use their best efforts to
include other and new international hotels and business centers in Moscow as
customers served by the Network. Each of the Participants promises not to
create or enter into another joint enterprise, directly or indirectly (for
SOVINET - with a Soviet partner; for MTLCC - with a foreign partner), to
construct and/or operate another network in Moscow similar to the Network. The
Participants agree that the obligations set forth in this Article 12 are
essential to the success of the Venture in view of the innovative nature of the
Network, the need to keep the know-how and marketing plans of the Venture
confidential (pursuant to Article 17), and the special requirements of the
business to be conducted by the Venture.
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ARTICLE 13
Distribution of Profits
(1) The profits of the Venture in each fiscal year (which shall be
the calendar year, unless otherwise determined by the Board) will be determined
and distributed as follows. The following amounts will be deducted from the
gross revenues of the Venture (which will not include the proceeds of loans
obtained by the Venture) for each fiscal year:
(a) all expenditures for commercial purposes for that
fiscal year,
(b) all deductions for depreciation and loss carry-
forwards (as set forth in Article 21(4)) for that fiscal year, and
(c) all repayments of principal and payments of interest
under the loan obligations of the Venture (including without limitation the
loan(s) described in Article, 6(3)) in that fiscal year.
(2) After such deductions are made (and any other deductions or
credits permitted by applicable Soviet law are applied), the resulting amount
of revenue will be known as the "balance profit" of the Venture for that fiscal
year. From the balance profit will then be deducted all amounts allocated by
the Board to the Reserve Fund and Production and Development Fund of the
Venture for that fiscal year. The resulting amount of revenue will be known as
the "taxable profit" of the Venture for that fiscal year. The Venture will pay
Soviet income taxes of thirty percent (30%), or such lesser percentage as may
be available under applicable law, on such taxable profit, except as provided
in Article 21 or otherwise in this Agreement. All Soviet income taxes due will
be paid to the U.S.S.R. State Budget, or as may be otherwise required by
Soviet law, in rubles. For the purposes of calculating Soviet income taxes that
are due in rubles with respect to the taxable profits of the Venture that are
actually received in hard currency, the applicable exchange rate will be either
the official exchange rate of the U.S.S.R. Gosbank on the date of actual
payment, or the official rate of the U.S.S.R. Gosbank on the date of execution
of this Agreement by the
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Participants, whichever is more favorable to the Venture.
(3) Up to ten percent (10%) of any amounts remaining after payment
of such taxes, or such greater percentage as the Board may determine, may be
allocated by the Venture for employee benefits, social and cultural needs of
personnel, and housing, as and when determined by the Board. Any amounts
remaining after such payment and allocation shall be known as "distributable
profits," and shall be distributed to the Participants in proportion to their
respective percentages of the capital stock of the Venture, as and when
determined by the Board, but in any event not later than sixty (60) days after
the end of the fiscal year in question. All amounts due to SOVINET in respect of
the distributable profits of the Venture which are denominated in hard currency
shall be distributed to SOVINET in U.S. dollars or other hard currency. SOVINET
will have the right at all times to transfer its distribution of the Venture's
distributable profits in hard currency abroad without restriction. Distributions
of distributable profits shall be made to all Participants at the same time.
ARTICLE 14
Contracts
(1) The Venture may enter into and perform contracts and
agreements of all types with the Participants, their affiliates (as defined in
(3) below), and third parties, subject to the limitations set forth in the
other provisions of this Agreement and the Charter. Where required by the terms
of such contracts or agreements, the Venture may pay fees, royalties or costs
owed under such contracts or agreements in hard currency, to the extent
permitted by the hard currency cash balances of the Venture.
(2) Where the Venture negotiates concerning, or enters
into, definitive agreements with Intourist, Sovincenter, Expocenter, or other
persons or entities in the U.S.S.R. designated by the Board, each of the
Participants (or persons designated by the Participants) shall be entitled to
participate directly in such negotiations and in the preparation, drafting and
execution of such definitive agreements.
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(3) The Venture shall only enter into contracts,
agreements or business arrangements requiring aggregate payments in any fiscal
year in excess of US$10,000 (or the performance of services or provision of
goods in excess of such value in such period) (a) with a Participant, (b) with
an equity owner of SOVINET, or (c) with any other person or entity controlling,
controlled by, or under common control with a Participant or such an equity
owner (hereafter, an "affiliate" of the Participant or equity owner), upon
the unanimous consent of the members of the Board; provided, however, that all
such contracts, agreements or arrangements entered into pursuant to an express
provision of this Agreement are hereby deemed approved unanimously by the
Board.
ARTICLE 15
Independent Status
The Venture may carry out its activities freely in the
U.S.S.R. The Venture will have independent economic status, will be governed by
the principles of self-financing and self-management, will finance and support
its own activities, and will generate its own sources of rubles and hard
currency. The Venture may conduct its own export and import activities
independently, as well as through Soviet foreign trade organizations or other
Soviet or foreign organizations engaging in foreign economic activity, as
determined by the Board in its sole discretion. The Venture shall automatically
be entitled to all rights and privileges that may subsequently become available
to joint ventures (or other legal entities involving foreign equity
participation) under Soviet law after the date of execution of this Agreement.
ARTICLE 16
Intellectual and Other Property
The Venture will have its own intellectual and industrial
property rights, under and in accordance with Soviet law,
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safeguarding such property of the Venture as patents, unpatented inventions,
"know-how," copyrights, trade secrets, industrial designs and trademark rights.
Procedures for the commercial usage, protection, and defense of these rights by
the Venture will be determined by the Board. The Participants will not possess
any individual rights to any such property of the Venture, or to any other
goods, rights, property or assets contributed by either Participant to the
capital stock of the Venture. Notwithstanding the foregoing, the Venture will
not have any rights to any patents, inventions, "know-how," trademarks,
copyrights, trade secrets, industrial designs, software, or other intellectual
or industrial property which may be licensed or sublicensed to the Venture by
MTLCC, or by SOVINET or its affiliates, except as expressly provided in the
Venture's applicable license agreement(s), if any. The Venture will be entitled
to own real property, but may not have rights to ownership of the earth,
innermost depths of the earth, bodies of water, or forests, except as permitted
by Soviet law.
ARTICLE 17
Confidentiality
The Venture and each Participant will, and will cause their
respective agents, representatives and employees to, maintain strict
confidentiality with respect to all technical, financial, commercial, and other
information received from the Venture or from a Participant and identified as
confidential in writing by the disclosing party, and take all reasonable
measures to protect such information from unauthorized use or disclosure, until
the date that falls five (5) years after the date of termination or liquidation
of the Venture; provided, however, that MTLCC shall be entitled to disclose
such financial information to third parties in the Soviet Union, and SOVINET
shall be entitled to disclose such financial information to third parties in
the United States, to the extent required by applicable laws; provided,
further, that this Agreement shall not restrict the disclosure of any
information to the extent that it (1) is or becomes generally available to the
public without breach of this Agreement; (2) is received from a third party
without limitation or restrictions; (3) is information which the recipient
Participant independently developed; (4) became known to the recipient
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Participant without restriction on use or disclosure; or (5) is disclosed
pursuant to the compulsory requirement of a governmental agency, court order,
injunction, writ, order, or other legal process in the United States or the
U.S.S.R., provided that the Participant subject to any such legal requirement
shall (i) notify the other Participants and the Venture in writing immediately
upon becoming aware of any such requirement, and (ii) provide the other
Participants and the Venture full opportunity to contest such disclosure prior
to making any such disclosure.
ARTICLE 18
Specialists
In conducting its activities (including without limitation
export and import operations, licensing, distribution, sales and marketing),
and subject to the prior approval of the Board, the Venture will have the right
to invite foreign specialists to the U.S.S.R., to send Soviet or foreign
specialists abroad on business trips, and to make arrangements to pay all
reasonable travel, lodging, meals, and other expenses incurred by such
specialists in connection with such trips, in rubles or hard currency.
ARTICLE 19
Refraining from Harm to Venture
At all times until the date of liquidation of the Venture, the
Participants will use their best efforts to refrain from conducting activities
that might inflict material harm on the Venture or on either Participant;
provided, however, that this Article 19 shall not prevent any Participant or an
affiliate of SOVINET from engaging in any commercial or investment activity in
the normal course of its business, or in any activity permitted by Article 12,
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ARTICLE 20
Information and Records
Each Participant will have the right, through its participation on the
Board, or otherwise promptly upon written request to any member of Management,
to receive complete, current, and accurate information on the Venture's
activities; on the status of the Venture's property, inventory, accounts,
contracts and agreements, labor relations, profits and losses; and on all other
matters involving the Venture. The Venture will, in accordance with Soviet law,
keep and prepare accurate and current records, which shall be located at its
principal office in Moscow (or elsewhere as determined by the Board), and will
conduct periodic audits as provided in the Charter. The following information
and records of the Venture will be kept in Russian and in English, unless
otherwise determined by the Board: audit reports, accounting books and records,
tax records, Board minutes and agendas, contracts and other agreements with
third parties, and other information and records designated by the Board as
subject to this requirement.
ARTICLE 21
Tax Matters
(1) Notwithstanding Article 13 or any other provision of
this Agreement, the Venture will be exempt from all Soviet income taxes imposed
by the national government of the U.S.S.R. for a period of two (2) years
commencing on the first day of the first fiscal year after the first fiscal
year in which the Board determines that the Venture earned a balance profit,
and shall continue to be so exempt thereafter to the maximum extent permitted
by applicable law; further, at all times the Venture shall be exempt from all
income, sales or other taxes which may be imposed by regional, local or
municipal authorities in the U.S.S.R. "Balance profit" means a balance profit
calculated as provided in Article 13, and appearing on the official financial
statements of the Venture. (In determining the first fiscal year in which the
Venture has earned a balance profit, foreign exchange profits or gains based on
conversion of SOVINET's capital
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contributions to the Venture shall not be counted.)
(2) All distributable profits actually paid to SOVINET by
or from the Venture shall be subject to applicable Soviet withholding tax, if
any, at a rate of up to twenty percent (20%), or at such lesser rate as may be
imposed by applicable Soviet laws and international tax treaties, whichever
rate is most favorable to SOVINET. All other payments to SOVINET and its
affiliates by or from the Venture will be exempt from all withholding,
repatriation, or other transfer taxes (i.e., taxes imposed upon the remission
of funds across national boundaries) which may be imposed by Soviet law. The
Participants shall also use their best efforts to obtain similar exemption from
all such withholding, repatriation, and other transfer taxes for all payments
by the Venture to GTE Spacenet International Corporation under the Equipment
Agreement.
(3) All products or services which the Venture imports
into the U.S.S.R. for use in its activities, or for use in constructing or
operating the Network, will be exempt from all Soviet customs duties, tariffs,
or similar charges.
(4) Notwithstanding any other provision of this Agreement
to the contrary:
(a) the Venture shall be entitled to carry forward any
losses, and to deduct them from its gross revenues prior to calculating its
balance profit, in any of the five (5) fiscal years subsequent to the year in
which the loss occurred, and
(b) the tangible assets of the Venture may be
depreciated on a straight-line basis at a rate of ten percent (10%) per fiscal
year, or such other rates as the Board may select, and the Venture shall be
entitled to deduct the amounts so depreciated from its gross revenues prior to
calculating its balance profit in each applicable fiscal year.
(5) The Participants understand that upon the registration of the
Venture by the U.S.S.R. Ministry of Finance, the Venture will be entitled to
the tax privileges, benefits and exemptions set forth in this Agreement. The
Participants are relying upon such understanding in entering into this
Agreement.
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ARTICLE 22
Excuse for Failure to Perform
(1) Failure by either Participant to perform any of its
responsibilities under this Agreement will not be a violation of this Agreement
if and to the extent that such performance is rendered impossible by fires,
floods, other acts of nature, riots or civil disturbances, freight embargoes,
acts of war or hostilities of any nature; provided, however, that this Article
22(l) shall not apply to the responsibilities of the Participants to make
contributions under Article 6.
(2) Notwithstanding anything to the contrary in this Agreement,
the obligations of the Participants to make their respective capital
contributions under Article 6 shall be contingent upon and subject to the prior
occurrence of each of the following events:
(a) registration of the Venture with the U.S.S.R.
Ministry of Finance within three (3) months of the date of execution of this
Agreement, or such longer period as the Participants may agree upon;
(b) within one (1) month of the date of registration of
the Venture, or such longer period as the Participants may agree upon, the
negotiation, execution and delivery of a definitive agreement with the
management of each of the hotels and business centers listed in Exhibit 2,
granting the Venture the exclusive right to provide Network services to hard
currency customers in such hotels and business centers;
(c) the granting by the appropriate governmental
authorities in the United States and elsewhere of all approvals, consents,
licenses, permits, and authorizations which are necessary, in the reasonable
opinion of SOVINET's legal counsel, for SOVINET to enter into this Agreement
and to make its capital contributions hereunder (including, without limitation,
all licenses and authorizations which may be necessary under the U.S. Export
Administration Act of 1979, as amended, and the regulations
20
thereunder);
(d) the Venture and GTE Spacenet International
Corporation shall have entered into the Equipment Agreement in form reasonably
satisfactory to both parties and incorporating the terms and conditions
described in Article 6(4), together with such other terms and conditions as
the Venture and GTE Spacenet International Corporation may mutually agree upon;
and
(e) within one (1) month of the date of registration of
the Venture with the U.S.S.R. Ministry of Finance, or such longer period as the
Participants may agree upon in their sole discretion, the Venture shall have
obtained the loans described in Article 6(3).
ARTICLE 23
Liquidation and Withdrawal; Transfers
(1) The Venture will be liquidated if:
(a) the Participants agree in writing upon its
liquidation;
(b) the Council of Ministers of the U.S.S.R. reasonably
determines, after due inquiry, that the activities of the Venture have
materially failed to conform to the aims and purposes set forth in this
Agreement, and provides ninety (90) days' advance written notice of such
determination to the Venture and both Participants;
(c) the term of the Venture as specified in Article 3
expires, and is not renewed by mutual agreement of the Participants;
(d) either Participant commits a material breach of its
obligations under Articles 6 or 12, and such breach is not cured within ninety
(90) days after written notice by the other Participant to the breaching
Participant;
(e) either Participant fails to perform any of its
obligations under this Agreement due to circumstances described in Article
22(l), and such failure continues for one (1) year after
21
written notice to the failing Participant by the other Participant (which
notice may be given or withheld in the notifying Participant's sole
discretion); or
(f) any interest of SOVINET in the Venture is
expropriated or nationalized by governmental authorities in the U.S.S.R., or
Soviet laws, regulations or governmental actions materially prevent the Venture
from conducting its activities and pursuing its purposes as described in
Article 1, or from distributing profits as described in Article 13, and such
events are not cured within ninety (90) days after written notice of such
events is delivered by SOVINET to MTLCC (or any successor organization), which
notice may be given or withheld in SOVINET's sole discretion.
(2) In the event of liquidation of the Venture, the assets of the
Venture will be distributed by the Board, upon its review of the report of the
Liquidation Committee (as described in the Charter), to the Participants as
follows, after the repayment of all loans and the satisfaction of all other
debts owed by the Venture to the Participants, their affiliates, or third
parties:
(a) First, all tangible assets contributed by each of the
Participants will be returned to them, respectively, at their addresses as set
forth below. Notwithstanding the foregoing, at the election of the contributing
Participant, any or all of the tangible assets that it contributed may instead
be sold at public auction, and the proceeds of sale distributed to the
contributing Participant. The contributing Participant shall be entitled to bid
at the auction, and to repurchase the tangible asset(s) in question if its bid
is highest; provided, however, that upon such repurchase, the purchase price
shall be paid into the remaining funds of the Venture, and distributed as
described in (b) below.
(b) Second, the hard currency and other assets of the
Venture will be distributed to the Participants in proportions corresponding to
their respective percentage ownership of the capital stock of the Venture at
the moment of liquidation. Where tangible assets which the Venture has acquired
from third parties are to be distributed, the Liquidation Committee shall take
into account the preferences of the Participants and the fair market value of
the assets in determining the distribution. Notwithstanding the
22
foregoing, upon agreement of the Participants, any or all such tangible assets
may instead be sold at public auction, and the proceeds of the sale distributed
between the Participants as described in the first sentence of this Article
23(2)(b). Either Participant shall be entitled to bid at the auction, and to
repurchase the tangible asset(s) in question if its bid is highest; provided,
however, that upon such repurchase, the purchase price shall be paid into the
remaining funds of the Venture, and distributed as described in the first
sentence of this Article 23(2)(b).
The Board will undertake all steps described above and supervise the
distribution of assets to the Participants.
(3) No Participant shall be entitled to transfer its ownership
interest in the Venture to a third party without the prior, written consent of
the other Participants. New parties shall not be admitted as Participants to
the Venture without the prior written consent of all existing Participants.
ARTICLE 24
Resolution of Disputes
(1) In the event that disagreements or disputes arise with respect
to the interpretation or performance of this Agreement or any of its provisions
the Participants will use their best efforts to resolve them through
consultation. Disagreements or disputes that have not been settled by such
consultation within ninety (90) days after they first arise will be submitted
to, and conclusively settled by, binding arbitration.
(2) Each disagreement or dispute relating to the operations of the
Venture which is between Soviet members of the Management and employees of the
Venture who are Soviet citizens, or between the Venture and third parties
(except as otherwise agreed between the Venture and such third parties in
writing), will be resolved by the Court of Arbitration of the U.S.S.R. Chamber
of Commerce and Industry in proceedings conducted according to the rules
thereof in Moscow, U.S.S.R.
23
(3) All disputes among the Participants or their respective
appointed Board members, among one or more Participants and the Venture, or in
any way involving SOVINET or its equity owners, will be conclusively resolved
by an arbitrator appointed by the Stockholm Chamber of Commerce in proceedings
conducted in Stockholm, Sweden, in English and in accordance with the
arbitration rules of that Chamber (but without regard to the conflicts of law
rules thereof or of the laws of Sweden).
(4) In conducting the proceedings and rendering a decision, the
arbitrator will apply the governing law specified in the last sentence of
Article 4, without regard to the place of execution of this Agreement. In such
proceedings and in any other court, arbitral, administrative, or formal
proceeding involving SOVINET or this Agreement, MTLCC irrevocably waives all,
and shall not raise any, defenses based on sovereign immunity. Further, to the
extent that MTLCC has or hereafter acquires any immunity from the jurisdiction
of any proceedings, arbitral tribunals, courts or from any legal process
(whether through service of notice or otherwise) with respect to itself or its
property, MTLCC hereby irrevocably waives such immunity in respect of its
obligations under this Agreement. The foregoing waiver is intended to be
effective to the fullest extent now or hereafter permitted by the applicable
law of any jurisdiction in which any arbitration, suit, action or proceeding
with respect to this Agreement may be commenced.
(5) All decisions resulting from such arbitration will be final
and binding on the Participants, the Venture and any other parties thereto.
Each Participant shall be separately responsible for its expenses in connection
with the arbitration. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction. The arbitrators shall determine
all questions of fact and law relating to any controversy, claim or dispute
hereunder, including but not limited to whether or not any such controversy,
claim or dispute is subject to the arbitration provisions contained herein. If
a controversy, claim or dispute arises between the parties which is subject to
the arbitration provisions hereunder, and there exists or later arises a
controversy, claim or dispute between the parties and any third party, which
controversy, claim or dispute
24
arises out of or relates to the same transaction or series of transactions,
said third party controversy, claim or dispute shall be consolidated with the
arbitration proceedings hereunder; provided, however, that any such third party
must be a party to an agreement with a party hereto which provides for
arbitration or disputes thereunder in accordance with rules and procedures
substantially the same in all material respects as provided for herein or, if
not, must consent to arbitration as provided for hereunder. Any demand for
arbitration hereunder shall be made within a reasonable time after the claim,
dispute or other matter in question has arisen, and in no event shall it be
made after the date when institution of legal or equitable proceedings based on
such claim, dispute or other matter in question would be barred by the
applicable statutes of limitations.
ARTICLE 25
Changes and Additions
Changes and additions to this Agreement and/or the Charter will be
valid only if they are presented in written form and signed by authorized
representatives of both Participants.
ARTICLE 26
Personnel
The personnel of the Venture will primarily consist of Soviet citizens
who will be employed by the Venture, and will include foreign citizens who will
primarily be employed by SOVINET or the equity owners thereof (and who will
remain employees of SOVINET or such equity owners, unless otherwise agreed by
the Participants). Foreign employees or consultants employed by or assigned to
work for the Venture will have the rights and privileges and be compensated as
set forth in the Charter, as determined by the Board, and as otherwise provided
by Soviet law. The Management may consist of any number of Soviet and/or
foreign citizens. The actions and decisions of the Management will be subject
to the supervision of the Board. The employees of the Venture who are Soviet
citizens may be assigned to work in one of the three (3) eight-hour shifts to
25
be operated by the Venture per day, subject to the collective bargaining
agreement to be entered into with the trade union of such employees. The
Venture will operate seven (7) days per week, or as determined by the Board.
ARTICLE 27
Representations and Warranties
(1) MTLCC represents and warrants to SOVINET as follows:
(a) MTLCC is a production enterprise duly organized and
validly existing under the laws of the U.S.S.R., and has the full legal power
and authority to own and operate its properties and to enter into and perform
the terms of this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by MTLCC, its performance of the
provisions hereof, and the provision of telecommunications services in the
U.S.S.R. and operation of the Network by the Venture, have all been duly
authorized by all necessary legal action of MTLCC, and of the Ministry of Posts
and Telecommunications of the U.S.S.R. This Agreement will be executed on
behalf of MTLCC by persons with due authorization to execute international
contracts on its behalf, in compliance with Soviet law and, without limitation,
with Decree No. 122 of the U.S.S.R. Council of Ministers, "On the Procedure for
Signing Foreign Trade Transactions," dated February 14, 1978. MTLCC has
obtained all licenses from the U.S.S.R. Ministry of Foreign Economic Relations
necessary to engage in foreign trade and to enter into this Agreement. Upon its
execution by MTLCC, this Agreement will constitute a valid and binding
obligation of MTLCC, enforceable in accordance with its terms. Neither the
execution and delivery of this Agreement nor the performance of the
transactions contemplated hereby will constitute a violation of, or default
under, or will conflict with any terms of the charter or foundation documents
of MTLCC, of any existing law, regulation, rule, order, judgment or decree of
any court or governmental authority in the U.S.S.R., or of any material
contract, agreement, or business relationship to which MTLCC is a party or by
which it is bound.
(b) According to the document of which a copy is
26
attached as Exhibit 3, MTLCC has the authority to operate, and to cooperate
with SOVINET through the Venture to operate, the Network as contemplated by
this Agreement.
(2) SOVINET hereby represents and warrants to MTLCC as follows:
(a) SOVINET is duly organized and validly existing under
the laws of the state of Virginia, U.S.A., and has the full legal power and
authority to own and operate its properties and to enter into and perform the
terms of this Agreement and the transactions contemplated hereby. The execution
and delivery of this Agreement by SOVINET and its performance of the provisions
hereof have been duly authorized by all necessary legal action of SOVINET. Upon
its execution by SOVINET, this Agreement will constitute a valid and binding
obligation of SOVINET, enforceable in accordance with its terms. Neither the
execution and delivery of this Agreement nor the performance of the
transactions contemplated hereby will constitute a violation of, or default
under, or will conflict with any terms of the agreement establishing SOVINET,
of any existing law, regulation, rule, order, judgment or decree of any court
or governmental authority in the U.S.A., or of any material contract,
agreement, or business relationship to which SOVINET is a party or by which it
is bound.
(b) According to its foundation documents, copies of
certain of which are attached as Exhibit 4, SOVINET has the authority to
operate, and to cooperate with MTLCC through the Venture to operate, the
Network as contemplated by this Agreement.
ARTICLE 28
Liability for Damages
(1) Each of the Participants shall be liable to the others for its
material breach of a provision of this Agreement, or the material failure or
inaccuracy of any of its representations or warranties in this Agreement, which
causes the other Participant(s) to incur actual damages; provided, however,
that the extent of the
27
liability shall be limited to the direct damages actually incurred; and
provided, further, that to be entitled to damages under this Article 28, a
damaged Participant must first have notified the breaching Participant of such
breach or failure, and such breach or failure must not have been cured or
corrected within thirty (30) days of the date of the notice. All damages due
under this Article 28 shall be payable in hard currency.
(2) No Participant shall be liable for the debts, obligations or
liabilities of the Venture, or of the other Participants, except for
liabilities which the Participant has expressly agreed in writing to assume.
Upon the termination or liquidation of the Venture, neither Participant will
have any liability to the other in consequence of this Agreement or the
Venture, except for liabilities that arose prior to the effective date of the
liquidation.
ARTICLE 29
Notices
All notices and other communications required or permitted to be given
under this Agreement shall be deemed given when actually received by the
addressee, shall be in writing and shall be either (1) mailed by registered or
certified air mail, postage prepaid; (2) delivered by hand; or (3) given by
"tested" telex (i.e., a telex for which the proper answer back has been
received) or facsimile transmission. In each case, the notice shall be
addressed to the relevant Participant at its address set forth below, or, where
the appropriate telex or facsimile numbers of the notified Participant have
previously been designated to the other Participant pursuant to this Article
29, to such number.
ARTICLE 30
Miscellaneous
(1) From the moment this Agreement is executed by the Participants,
all previous agreements or other correspondence and all negotiations relating
to this Agreement or the subject matter
28
hereof will have no further force or effect.
(2) The Exhibits to this Agreement are integral parts hereof.
(3) This Agreement is executed on the 18 day of 1990, in four (4)
original copies, in Russian and in English, both versions being identical and
equally valid.
(4) The parties agree to do such further acts and things and to
execute and deliver such additional agreements and instruments as the other may
reasonably require to consummate, evidence or confirm the agreements contained
herein in the manner contemplated hereby.
(5) Time is of the essence with respect to this Agreement and the
performance hereof.
(6) Whenever possible, this Agreement shall be interpreted in such
a manner as be to effective, valid and enforceable under applicable law, but if
any provision of this Agreement should be prohibited or invalid under
applicable law, such provisions shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
(7) Except as expressly provided to the contrary in this
Agreement, each party shall be solely responsible for its expenses incurred in
connection with its negotiation and performance of this Agreement. Without
limitation, each party shall pay its own costs with respect to the hiring of
auditors and attorneys.
(8) The addresses of the Participants for notice purposes will
be:
MTLCC: 00, Xxxxxxxx xxxxxx, 000000
Xxxxxx, U.S.S.R.
Telex:
-------------
Attention: Xxxxxxx Xxxxxxx, Director
SOVIET: 0000 Xxx Xxxxxx Xxxx,
XxXxxx, Xxxxxxxx 00000, X.X.X.
29
Telex:
Attention: Xxxxx Xxxxx and Xxxxx Xxx Xxxx,
Members of the Management Committee
Signed for the Participants as follows:
SOVINET Main Trunk Lines Control
Centre of the U.S.S.R.
Ministry of Posts and
Telecommunications
("MTLCC")
By: GTE International Communication
Services Corporation, a General
Partner
By: /s/ XXXXX XXXXX By: /s/ [ILLEGIBLE]
---------------------------- -------------------------------
Its: President Its: Director
---------------------------- -------------------------------
Date: May 7, 1990 Date: 18.06, 1990
By:
-------------------------------
Its:
------------------------------
Date: , 1990
-----------------------
By: San Francisco/Moscow Teleport,
Inc., a General Partner
By: /s/ XXXXX XXX XXXX
----------------------------
Its: Chairman
----------------------------
Date: May 8, 1990
By: /s/ [ILLEGIBLE]
----------------------------
Its: President
----------------------------
Date: May 8, 1990
30
Supplement to the Agreement on the
Creation and Functions of the Joint
Venture "EDN"
THE CHARTER OF THE JOINT VENTURE
The joint venture "EDN", to be referred to below as the "Venture", is
established by the Agreement on the Creation and Functions of the Joint Venture
to which this Charter is attached, to be referred to below as "Agreement"
and dated 18-06, 1990. All terms used herein and defined in the Agreement
shall have the meanings set forth in the Agreement. Where the terms of the
Agreement and this Charter are inconsistent or conflicting, the terms of the
Agreement shall prevail.
ARTICLE 1
The Participants in the Venture are the Main Trunk Lines Control
Centre of the Ministry of Posts and Telecommunications of the U.S.S.R., a
juridical entity governed by Soviet law, which will be referred to below as
"MTLCC", and SOVINET, a juridical entity governed by the laws of the state of
Virginia, U.S.A., which will be referred to below as "SOVINET".
ARTICLE 2
The Venture is established for the general purposes described in the
Agreement. The Venture is also established for the purposes of providing and
achieving stable and profit-making activities for itself. The Venture may
conduct all activities authorized by the Agreement.
31
ARTICLE 3
(1) The Venture is a legal entity governed by the laws of the
Union of Soviet Socialist Republics. The Venture has full rights as a legal
entity from the moment it is registered with the U.S.S.R. Ministry of Finance.
The Venture has the right to conclude contracts on its own behalf, to acquire
property rights and other rights, and to fulfill its commitments. The Venture
may be called as a plaintiff or a defendant in court or in arbitration, as the
case may be. The Venture has the right to carry out directly licensing,
marketing, distribution, sales, and export or import operations that it deems
necessary or convenient for its economic activities, and to establish
independent prices for its services. Upon decision of the Board, the Venture
can create branches and representative offices in one or more locations in the
countries of the Participants, and in third countries. The branches of the
Venture will be separate legal entities, and will not have to answer for any
obligations of the Venture, nor will it have to answer for the obligations of
its branches.
(2) To carry out its functions, the Venture has the right to
procure and pay for necessary transport (including by the purchase or rental of
vehicles), communications, and other goods and services in the U.S.S.R.,
U.S.A., and other countries, in Soviet rubles ("rubles") or freely convertible
foreign currency ("hard currency"). The Venture has the right to purchase or
rent plots of land, buildings (including factories, storage and shipping
facilities, and housing for the Venture's foreign personnel), and other
properties; to receive and pay for communal and other services; and to decide
on questions concerning the design and construction of all of its buildings and
properties. The Venture has the right to sign contracts with accounting,
insurance, transportation, and all other individuals and organizations that
provide goods or services. The Venture has the right to transfer information,
within and outside of the U.S.S.R., related to its manufacturing, marketing,
sales, design, economic, commercial and/or organizational functions with the
aid of mail or printed correspondence, telegraphs, telephones, teletype and
telefax, and through all types of digital, analog and satellite information
transfer.
32
(3) The Venture may obtain credit on a commercial basis:
(a) in hard currency from the U.S.S.R. Vneshekonombank,
from banks in foreign countries, or from other organizations; or
(b) in rubles from the U.S.S.R. Gosbank or from the
U.S.S.R. Vneshekonombank.
The credit obtained may be guaranteed by the property of the Venture or any
portion thereof. Guarantees of the Venture's obligations may also be granted by
any third party, including each of the Participants. The Venture will have
accounts in the U.S.S.R. Gosbank and in the U.S.S.R. Vneshekonombank. The
Venture has the right to exchange hard currency =according to the official
exchange rates of the U.S.S.R. Gosbank or other applicable exchange rates,
within the limits of the Venture's own hard currency funds and in accordance
with established procedures. The Venture will also have the maximum rights
permitted by Soviet law to buy or sell hard currency in public or private
auctions or in other legal circumstances.
(4) The Venture will own and use its property within the
guidelines of Soviet law, and in accordance with its goals and the nature of
the property. The Venture will use all of its property to cover its
obligations. The Soviet government and the Participants in the Venture will not
be separately liable for any of the Venture's obligations except to the extent
they may expressly assume such liability, and the Venture will not be liable
for the obligations of the Soviet government or its Participants.
(5) The Venture's activities will be governed by Soviet or other
applicable law, by the Agreement, and by this Charter, subject to applicable
inter-state and inter-governmental agreements mutually established by the
U.S.S.R. and the U.S.A.
(6) The Venture will have a seal, as approved by the Board of the
Venture. The headquarters of the Venture will be located at 00, Xxxxxxxx
xxxxxx, 000000 Xxxxxx, U.S.S.R. The official languages of the Venture are
Russian and English, and these languages are also the working languages of the
Venture.
33
ARTICLE 4
The Venture will form its capital stock from the contributions of the
Participants, as set forth in the Agreement, to enable the functions of the
Venture to be carried out. The size of this capital stock, the relative shares
of the Participants, and the procedure for forming the capital stock are set
forth in the Agreement. The Board will issue certificates documenting the
Participants' contributions to the capital stock and their ownership of the
capital stock.
ARTICLE 5
The profits in hard currency and rubles obtained by the Venture may be
retained for use in the activities of the Venture, or may be allocated to the
Funds or distributed to the Participants in accordance with the Agreement.
ARTICLE 6
(1) The highest body of the Venture is the Board, which is
comprised of members appointed by the Participants, as described in the
Agreement. A member of the Board may have an assistant, who will have no voting
power or formal authority.
(2) Unless otherwise provided in the Agreement, the Board has the
right to make decisions on any question concerning the functions of the
Venture. Without limitation, and subject to the Agreement, unless otherwise
agreed by the Participants, or unless the Board delegates such authority to the
Management, the Board will have the exclusive right and authority:
(a) subject to Article 8 of this Charter, to introduce
changes and additions in or to this Charter;
34
(b) to determine major policies and directions for the
operations of the Venture, and to approve its current and long-term plans,
reports of its activities, and annual budgets;
(c) to determine the administrative structure of the
Venture;
(d) subject to Article 11 of the Agreement and to Article
9 of this Charter, to supervise and review the activities of, and, if the Board
so determines, remove from duty the Director General and the First Deputy
Director and other members of the Management;
(e) to approve the members of the Audit Committee, and to
approve of its reports and conclusions, as described in Article 10 below;
(f) to determine the schedule for creating and using the
Funds and earnings of the Venture, the distribution of its profits in
accordance with the Agreement, and the procedures for covering or otherwise
managing losses;
(g) to deal with questions pertaining to the
establishment and closing of branches and representative offices;
(h) to make decisions on obtaining credit;
(i) to propose the admission of new Participants to the
Venture;
(j) to appoint and remove the members of the Liquidation
Committee, and to approve its reports and decisions;
(k) to decide on the compensation, if any, of the members
of the Board, Management, and members of the Audit Committee; and
(l) subject to Article 11 of the Agreement, to approve
contracts (whether between the Venture and either or both of the Participants,
or with third parties) or expenditures of any type that are not authorized in
advance by the Agreement or by the Board in
35
the annual budget for that year, and that require the Venture to spend more
than 10,000 U.S. dollars or the equivalent in hard currency.
ARTICLE 7
- - - - -
(1) The Board will review issues pertaining to the activities of
the Venture, and will make decisions concerning them, at its meetings. Each of
the members of the Board, and the Director General of the Venture, will have
the right to introduce issues for the consideration of the Board.
(2) The appropriate co-chairman (as stipulated by Article 11(6) of
the Agreement) will preside at each meeting of the Board. The presiding
co-chairman will appoint a secretary who will be responsible for keeping the
minutes of each meeting, or causing them to be kept, in both Russian and
English. All of the members of the Board will have an opportunity to review the
minutes. The minutes will state who was present at the meeting, how the members
voted, what matters were discussed, which decisions were made, and what
particular opinions were presented. Each member of the Board will sign the
minutes after being personally satisfied of their accuracy.
(3) Members of the Board may participate in meetings in person or
by telephone provided that all members can hear one another. Any member of the
Board who is unable to participate in a meeting may create a written proxy,
granting to his representative the power to participate in the meeting and to
cast votes on his behalf. Representatives so appointed will strictly observe
the directions of the appointing member regarding participation and voting, as
set forth in the written proxy. A representative, pursuant to a duly-authorized
proxy, may sign the minutes on behalf of a member of the Board.
(4) By unanimous action of the members of the Board, decisions and
votes of the Board may be validly made in written form (including agreement by
telex or electronic means) without an actual meeting, and will have the same
power and legal force as a
36
decision made at a valid meeting of the Board.
(5) Each member of the Board, including the presiding co-chairman,
will have one vote. Meetings will be deemed validly held if at least four (4)
of the six (6) members of the Board are present.
(6) The Board will discuss the results of each fiscal year's
activities at an annual meeting to be held no later than sixty (60) days after
the end of that year.
(7) A vacancy on the Board due to illness, death, resignation or
recall of a member by a Participant will be filled by the Participant who
initially designated the absent member. A member of the Board may be recalled
or replaced at any time by the appointing Participant.
ARTICLE 8
- - - - -
A vote of at least four (4) of the members of the Board will be
required to decide all issues or questions presented to the Board, with the
exception of issues or questions for which the Agreement or this Charter may
expressly require a unanimous vote. A unanimous vote of all of the members of
the Board or their authorized representatives will be necessary when dealing
with the following issues:
(1) any alterations of or additions to this Charter;
(2) approvals of proposals for changes in the size of the capital
stock of the Venture; and
(3) determining the size, procedure, and terms of requests for
additional capital contributions from the Participants.
37
ARTICLE 9
- - - - -
(1) Except as otherwise expressly provided in the Agreement or
this Charter, the day-to-day activities of the Venture will be conducted by the
Management, headed by the Director General. The structure and staff of the
Management will be determined and approved by the Board. The Director General
will report to the Board and will have operational responsibility for the
actions of the Venture and the fulfillment of the tasks and functions assigned
to the Director General.
(2) The Director General of the Venture, who will be appointed as
set forth in the Agreement:
(a) will be responsible for implementing current and
future business plans of the Venture;
(b) will hire and dismiss employees, with the exception
of members of the Management;
(c) will carry out all decisions of the Board and present
reports to the Board concerning their implementation;
(d) will manage and protect the property of the Venture,
as directed by the Board;
(e) subject to Article 11 of the Agreement and Article
6(2)(1) of this Charter, and with the assistance and participation of the First
Deputy Director, will conclude commercial contracts on behalf of the Venture,
and ensure that they are fully performed;
(f) will perform all other functions stipulated in the
Agreement and this Charter or specified by the Board; and
(g) Subject to Article 11 of the Agreement and Article
6(2)(1) of this Charter, and with the assistance and participation of the First
Deputy Director, will represent the Venture in dealings with other
organizations, ventures and entities, and also with government organizations of
participating countries and third countries, with respect to all matters
concerning the Venture or its activities as
38
permitted by the Agreement or this Charter.
(3) The Director General will have the right to make decisions on
all other matters concerning the Venture that are not within the exclusive
jurisdiction of the Board. Subject to Article 11 of the Agreement and Article
6(2)(1) of this Charter, the Director General, the First Deputy Director and
other person(s) so appointed in writing by the Board may sign contracts and
other legal documents on behalf of the Venture.
(4) The First Deputy Director, and Technical/Engineering,
Marketing/Sales, and Finance/Accounting Directors, will have the respective
duties specified in the Agreement or this Charter, or otherwise determined by
the Board.
ARTICLE 10
- - - - -
(1) The Venture will have independent economic status and will
function on the basis of complete self-support, and hard currency
self-repayment, and carry out its activities in accordance with the annual
productivity plan and other plans approved by the Board.
(2) The Venture will conduct its bookkeeping, statistical
recordkeeping, and reporting activities in accordance with applicable Soviet
law, and will keep the resulting records in both Russian and English. In
addition, at the written request of SOVINET to the Venture at any time, the
Venture will also conduct its bookkeeping activities in accordance with
generally accepted accounting principles in the United States, and will keep a
second set of books in English for this purpose. In this event, SOVINET will
provide reasonable assistance to the Venture to assist its personnel in
conducting such activities, but the Venture shall otherwise bear all costs of
keeping such second set of books.
(3) Expenses and revenues will be entered on the books of the
Venture in rubles or in foreign currency, as they are actually incurred or
received. For internal bookkeeping purposes only, and not for purposes of
valuing a Participant's contribution, conversion of
39
all amounts from rubles into foreign currency or vice versa will be conducted
at the official exchange rate of the U.S.S.R. Gosbank, or other applicable
exchange rate under Soviet law, on the day of the conversion.
(4) The Venture may obtain credit from Soviet and/or foreign
finance organizations and from foreign firms in accordance with applicable
procedures.
(5) The fiscal year of the Venture will begin on January 1 and end
on December 31 of each calendar year.
(6) The duration of the first fiscal year will be determined by
the Board, but will not extend beyond December 31 of the year in which the
Venture is registered.
(7) At the end of each fiscal year or promptly thereafter at a
time and place specified by the Board, the Director General will present a
report of the activities of the Venture during that fiscal year, including
proposals concerning the distribution of profits, to the Board for its review.
(8) Periodic audit reviews of the economic and commercial
activities of the Venture will be conducted by a Soviet self-financing
organization selected by the Board (such as Inaudit), which will be paid for
this service at its standard rates. In addition, at the written request of
SOVINET, an international accounting firm of established reputation and
selected by the Board will be retained to conduct its own audit review of the
activities of the Venture, and of the manufacturing, financial, sales and other
books and records of the Venture. As a result of the audit review, the firm
will be asked to prepare financial statements setting forth the profits and
losses of the Venture, and the current assets and liabilities of the Venture,
for the immediately preceding twelve (12) month period (or, at the request of
SOVINET, for the last preceding fiscal year of the Venture). SOVINET shall be
entitled to cause such an audit review to be conducted not more than twice per
fiscal year. The Venture will bear all of the costs of these audit reviews, and
the results of the reviews will be provided in writing to each of the
Participants, in English and in Russian.
40
(9) The general supervision and monitoring of the financial and
economic activities of the Venture and its branches will be carried out by the
Audit Committee, which shall consist of two (2) members. One (1) member of the
Audit Committee will be nominated by each of the Participants, and both members
will be subject to approval by the Board. SOVINET will initially appoint one
of its designated representatives as the chairman of the Audit Committee, to
serve for a two (2) year term, and thereafter the Participants will take turns
in appointing such a chairman on an alternating, biannual basis. The members of
the Audit Committee will hold office for terms of two (2) years and may be
reappointed. The Audit Committee will be directly responsible to the Board and
will submit its audit reports, as well as its commentary on those reports, to
the Board in writing at least two (2) times per year. One of the required audit
reports will include financial statements setting forth the profits and losses
of the Venture, and the assets and liabilities of the Venture, for the
immediately preceding twelve (12) month period. The second of the required
audit reports will set forth such financial statements for the last preceding
fiscal year of the Venture, and will be prepared and submitted within sixty
(60) days of the end of each fiscal year. In preparing such audit reports, the
Audit Committee will take into consideration the audit reviews described in (8)
above. Such audit reports will become effective upon approval by the Board. The
Venture will not be required to submit audit reports or financial, technical,
commercial, or other information to any third parties, except to the extent
that financial reporting is required to comply with applicable Soviet tax laws
or U.S. laws applicable to SOVINET.
Article 11
(1) The Management of the Venture will conclude a collective
bargaining agreement with the trade union associated with the Venture. The
content of this agreement will be consistent with Article 26 of the Agreement.
(2) Subject to Article 26 of the Agreement, and to applicable
41
Soviet law, the salaries, work hours, vacation and social security benefits
available to Soviet employees of the Venture will be as determined by the
Board.
(3) The Venture may hire foreign specialists to work for the
Venture. The salaries, vacations, pensions, and other benefits available to
foreign employees or foreign consultants of, or assigned to, the Venture
(collectively "personnel" of the Venture) will be governed by individual
contracts to be concluded by the Management of the Venture with each such
person. All foreign personnel of the Venture will be paid in hard currency,
except as otherwise determined by the Board.
(4) The Venture will pay sums to the U.S.S.R. State Budget as
required by Soviet law, for the social insurance of Soviet and foreign
employees and the pensions of Soviet employees, in amounts and at rates
applicable to Soviet organizations.
(5) The pension benefits of foreign employees hired by the Venture
will be transferred directly to the appropriate pension funds of the country of
their permanent residence.
(6) The salaries and bonuses of foreign personnel paid in hard
currency and not spent in the U.S.S.R. may be freely transferred abroad at the
request and in the sole discretion of these persons, and such transfer shall
not be subject to Soviet transfer, repatriation or withholding taxes. All
foreign personnel of the Venture will be entitled to the maximum extent
possible to all rights, exemptions from taxes, and other benefits which are
currently or may subsequently be permitted or granted to foreign personnel
under Soviet law.
(7) The Venture will have the independent right to hire and
dismiss its employees in accordance with the labor agreements it may have
concluded with them.
ARTICLE 12
(1) A Liquidation Committee consisting of four (4) members,
42
two (2) of whom will be appointed by each of the Participants, will be
established promptly if there is a decision to liquidate the Venture pursuant
to Article 23 of the Agreement.
(2) If the Venture is liquidated:
(a) the Board will form the Liquidation Committee, which will
prepare a statement of the Venture's affairs, assets and liabilities, and a
proposed liquidation schedule, and will present them to the Board for approval
within sixty (60) days of the decision to liquidate the Venture;
(b) subject to and in accordance with the applicable
provisions of the Agreement, the Board will then decide how to dispose of all
property of the Venture;
(c) all property leased or loaned to the Venture will be
returned to the owners thereof; all fees or royalties due to each Participant
and unpaid at the moment of liquidation will be added to the total amount due
to that Participant upon the final division of funds; and
(d) the capital stock of the Venture, and other funds and
assets remaining after satisfying the valid demands of the Venture's creditors,
will be divided among the Participants to the Venture in accordance with the
applicable provisions of the Agreement. The liquidation will be registered with
the U.S.S.R. Ministry of Finance.
ARTICLE 13
This Charter will take effect on and from the date of registration of
the Venture with the U.S.S.R. Ministry of Finance.
43
ARTICLE 14
The addresses of the Participants for notice purposes will be:
MTLCC: 00, Xxxxxxxx xxxxxx, 000000
Xxxxxx, U.S.S.R.
Telex:
Attention: Xxxxxxx Xxxxxxx, Director
SOVINET: 0000 Xxx Xxxxxx Xxxx,
XxXxxx, Xxxxxxxx 00000, X.X.X.
Telex:
Attention: Xxxxx Xxxxx and Xxxxx Xxx Xxxx,
Members of the Management Committee
44
Exhibit 2
List of Hotels and Business Centers
Savoy
Slavyanskaya
Expocenter
Sovincenter - Hotel Portion
Sovincenter - Business Offices
Cosmos
Metropol
Penta
45
Exhibit 4
SOVINET Foundation Documents
(Attached)
46
SIGNATURE PAGE
[ILLEGIBLE]
Xxxxx Xxxxx and Xxxxx Xxx Xxxx, Members of the Management Committee
/s/ XXXXX X. XXXXX /s/ [ILLEGIBLE]
-------------------- --------------------
Xxxxx X. Xxxxx [ILLEGIBLE]
May 7, 1990 18.06 1990
/s/ XXXXX XXX XXXX
--------------------
Xxxxx Xxx Xxxx
May 8, 1990
/s/ [ILLEGIBLE]
--------------------
[ILLEGIBLE]
May 8, 1990
