SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/ / Definitive Information Statement
YAPALOT COMMUNICATIONS HOLDINGS INC.
-----------------------------------------------
(Name of Registrant As Specified In Its Charter)
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/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
YAPALOT COMMUNICATIONS HOLDINGS INC.
4884 Dufferin Street, Unit 1
Toronto, Ontario M3H 5S8
NOTICE OF ACTION TAKEN WITHOUT A MEETING
To the stockholders of Yapalot Communications Holdings Inc.:
Notice is hereby given that the owners of approximately 80% of the
issued and outstanding shares of common stock of Yapalot Communications Holdings
Inc., a Delaware corporation, have delivered to Yapalot written consents by
which the stockholders have consented to approving the Agreement and Plan of
Merger between Yapalot and a wholly-owned subsidiary of Internet VIP, Inc.
The actions taken by written consent will be effective on the 21st day
(approximately October ___, 2001) after the date this Notice and the attached
Information Statement are first mailed to all stockholders of Yapalot.
All necessary corporate approvals in connection with the matters
referred to in this Notice have been obtained. The accompanying Information
Statement is furnished to all stockholders of record of Yapalot pursuant to
Section 14(c) of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder solely for the purpose of informing the
stockholders of these corporate actions before they take effect. We are not
asking for a proxy or vote on any of the matters described in the Information
Statement.
We encourage you to read the Notice and Information Statement
carefully.
By Order of the Board of Directors,
Yuval Barzakay
Chief Executive Officer
September ___, 2001
YAPALOT COMMUNICATIONS HOLDINGS INC.
4884 Dufferin Street, Unit 1
Toronto, Ontario M3H 5S8
INFORMATION STATEMENT
September __, 2001
This Information Statement is furnished by the Board of Directors of
Yapalot Communications Holdings Inc. (the "Company" or "Yapalot") in connection
with the previous approval of the corporate actions referred to herein by the
written consent (the "Written Consent") of holders of a majority of the
outstanding shares of the Company. Accordingly, all necessary corporate
approvals in connection with the matters referred to herein have been obtained,
and this Information Statement is furnished solely for the purpose of informing
stockholders, in the manner required under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), of these corporate actions before they take
effect.
The record date for determining stockholders entitled to receive this
Information Statement has been established as the close of business on September
___, 2001 (the "Record Date"). This Information Statement will be first mailed
on or about September __, 2001 to stockholders of record at the close of
business on the Record Date. As of the Record Date, there were outstanding
20,000,000 shares of the Company's Common Stock.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
Action Taken by Written Consent of a Majority of stockholders
On May 18, 2001, two stockholders of the Company owning an aggregate of
16,000,000 shares of the Company's Common Stock, representing 80% of the issued
and outstanding shares on that date, executed a written consent approving the
Agreement and Plan of Merger (the "Merger Agreement") between the Company and a
wholly-owned subsidiary of Internet VIP, Inc. (the "Merger").
The Merger will become effective on the 21st day after this Information
Statement is first mailed to stockholders, or approximately October ___, 2001.
The Written Consent is sufficient under the Delaware General
Corporation Law and the Company's By-Laws to approve the Merger. Accordingly,
the Merger will not be submitted to the other stockholders of the Company for a
vote and this Information Statement is being furnished to stockholders to
provide them with certain information concerning the Merger in accordance with
the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the regulations promulgated thereunder, including Regulation
14C.
Since the Merger has been duly approved by the Consenting stockholders
holding a majority of the outstanding Common Stock, approval or consent of the
remaining stockholders is not required and is not being solicited hereby or by
any other means.
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS.................................................... 3
SUMMARY TERM SHEET....................................................... 4
MARKET PRICE INFORMATION................................................. 8
THE MERGER............................................................... 9
The Merger Agreement - Terms........................................... 9
Merger Consideration................................................... 9
Effective Time......................................................... 9
Effects of Merger...................................................... 10
Background of the Merger............................................... 11
Reasons for the Merger; Recommendations of the Board of Directors...... 11
Interests of Certain Persons in the Merger............................. 12
Material Federal Income Tax Considerations............................. 13
Anticipated Accounting Treatment....................................... 13
Dissenters' Rights..................................................... 14
Restrictions on Sale of Shares......................................... 18
Operations Following the Merger........................................ 18
Exchange of Stock Certificates......................................... 18
BUSINESS AND PROPERTIES OF INTERNET VIP.................................. 18
MANAGEMENT'S DISCUSSION - PLAN OF OPERATIONS OF INTERNET VIP............. 22
SUMMARY UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA......... 24
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......... 29
DESCRIPTION OF INTERNET VIP CAPITAL STOCK................................ 30
COMPARISON OF RIGHTS OF HOLDERS OF YAPALOT COMMON STOCK AND INTERNET
VIP COMMON STOCK....................................................... 31
INDEX TO FINANCIAL STATEMENTS............................................ 36
APPENDICES
A Agreement and Plan of Merger
B Section 262 of the Delaware General Corporation Law
QUESTIONS AND ANSWERS
Q: WHAT TRANSACTION IS PROPOSED?
A: Yapalot is proposing to merge with a wholly-owned subsidiary of Internet
VIP, Inc. after which Yapalot will be a wholly-owned subsidiary of Internet
VIP. (See page 9).
Q: WHAT IS THE REASON FOR THE MERGER?
A: Because we believe the combined company offers benefits, including
diversification of operations and access to capital, which we believe will
maximize the value to the stockholders of both Internet VIP and Yapalot.
For Yapalot, the merger provides an attractive vehicle to raise capital to
launch additional gateways.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: After the merger is completed, you will receive 1.4 shares of Internet VIP
common stock for each share of Yapalot stock held. (See page 9).
Q: WHAT VOTE OF STOCKHOLDERS IS REQUIRED TO APPROVE THE MERGER?
A: Approval of the merger requires the affirmative vote of a majority of all
outstanding shares of Yapalot. Yuval Barzakay and Marilyn Benlolo, our
controlling stockholders, have consented in writing to the merger and
adopted the merger agreement. This action by our controlling stockholders
is sufficient to obtain the stockholder vote necessary to adopt the merger
agreement and approve the merger without the approval of any other
stockholder of Yapalot. Therefore, your vote is not required and is not
being sought.
Q: SHOULD I SEND MY STOCK CERTIFICATE NOW?
A: No. Promptly after the merger is completed, you will receive a letter of
transmittal for use in surrendering your stock certificates and obtaining
new certificates of Internet VIP. (See page 18).
Q: DO I HAVE APPRAISAL RIGHTS?
A: Yes. If you so choose, you will be entitled to exercise appraisal rights
upon completion of the merger so long as you take all the steps required to
perfect your rights under Delaware law. These steps are described under
"Appraisal Rights" in this information statement. (See page 14).
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. We
expect to complete the merger 21 days after the date of this information
statement. (See page 9).
Q: WHOM DO I CALL IF I HAVE QUESTIONS ABOUT THE MERGER?
A: If you have any questions, require assistance, or need additional copies of
this information statement or other related materials, please call James
Hal at (416) 505-4363 or Yuval Barzakay at (416) 736-8882 x303.
SUMMARY TERM SHEET
The following summary highlights selected information from this information
statement and may not contain all of the information that is important to you.
You should carefully read this entire information statement, including the
appendices, and the other documents we refer to for a more complete
understanding of the merger.
The Companies
-- Internet VIP, Inc. (See page 18)
1155 University Street, Suite 602
Montreal, Quebec H3B 3A7
(514) 448-4847
Internet VIP Inc., founded in November, 1998, provides International long
distance telephone and telecommunication services using VoIP - Voice over
Internet Protocol. IVIP's network is accessed from three IP gateway centers, in
Montreal (Canada), Moscow, and St. Petersburg (Russia) and is capable of
terminating in over 240 countries and territories using various Tier 1 carriers.
IVIP also has facilities in New York and Toronto.
-- Yapalot Communications Holdings Inc.
4884 Dufferin Street, Unit 1
Toronto, Ontario M3H 5S8
(416) 663-8473
Yapalot is a development stage company formed in April 2000 to provide VoIP
solutions in international markets. Yapalot offers unlimited long distance
services for a flat monthly fee. With its vast IP gateways, Yapalot provides
communications services at cost effective rates to consumers, worldwide,
including USA, Canada, Spain, France, Italy, the United Kingdom, Israel, Russia,
Hong Kong, Germany, the Netherlands, Belgium, Australia, Austria, Denmark,
Ireland, New Zealand, Switzerland and Norway.
The Merger (See page 9)
IVIP and Yapalot have entered into a merger agreement that provides for the
merger of Yapalot into a wholly-owned subsidiary of IVIP. As a result of the
merger, Yapalot will become a wholly owned subsidiary of IVIP. You are
encouraged to read the merger agreement, as amended, a copy of which is attached
hereto as Appendix A.
Stockholder Approval
Stockholders of Yapalot holding a majority of the outstanding shares of common
stock have signed a written consent approving the merger. Accordingly, no
meeting of the stockholders of Yapalot will be called and no proxies of
stockholders are requested.
4
Reasons For The Merger (See page 11)
Our Board of Directors believes that the proposed merger is fair to and in the
best interest of Yapalot and its stockholders. The Board of Directors of Yapalot
unanimously
-approved the form, terms and provisions of the merger and the merger agreement;
-determined that the merger is fair to and in the best interest of Yapalot and
its public stockholders; - approved and declared the merger and the merger
agreement advisable; and - recommended that Yapalot's stockholders approve and
adopt the merger and the merger agreement.
Important factors in the Board of Director's determination included perceived
benefits from access to IVIP's network and cost savings anticipated from
elimination of overlapping expenses and investments.
Conditions To Completion Of The Merger
The respective obligations of the parties to complete the merger are subject to
the prior satisfaction or waiver (if permitted by applicable law) of conditions
specified in the merger agreement. The following conditions, among others, must
be satisfied or waived before the merger can be completed:
o all necessary consents, approvals and authorizations from governmental
entities must be obtained except where a failure to obtain any such
consent, approval or authorization could not be reasonably expected to have
a material adverse effect on IVIP and Yapalot;
o no court of competent jurisdiction or governmental entity has issued or
entered any order, writ, injunction or decree prohibiting or preventing its
completion;
o our respective representations and warranties in the merger agreement must
have been materially true and correct at the date the merger agreement was
executed and must remain materially true and correct;
o we must perform and comply in all material respects with our respective
covenants in the merger agreement; and
o no event, change, condition or effect that is or is reasonably likely to be
materially adverse to either company or its subsidiaries, taken as a whole,
occurs.
Termination of the Merger Agreement
The merger agreement may be terminated:
o if IVIP and Yapalot agree to terminate it; or
o by either of us if the conditions to completion of the merger would not be
satisfied because of a breach of a representation, warranty, covenant or
agreement in the merger agreement by the other party, if the breaching
party does not take reasonable steps within fifteen days to cure the
breach.
In addition, the merger agreement may be terminated by either of us if a final
court or governmental order prohibiting the merger is issued and is not
appealable.
Waiver and Amendment
We may jointly amend the merger agreement and each of us may waive our right to
require the other party to adhere to the terms and conditions of the merger
agreement.
5
Restrictions on Alternative Transactions
Subject to limited exceptions, the merger agreement prohibits each party from
soliciting or participating in discussions with third parties about transactions
that may prohibit consummation of the merger. In addition, each company is
obligated to notify the other party of information of such transactions. The
restrictions, however, do not prohibit the boards from taking such actions as
are necessary to fulfill their respective fiduciary duties.
Management and Operations Following the Merger (See page 30)
Following the merger, IVIP and Yapalot will continue to carry on their
historical operations in substantially the same manner as they were carried on
prior to the merger.
The present managements of each company will initially continue to manage their
respective companies. The board of directors of IVIP will be comprised of three
members with one member to be selected by both Yapalot and IVIP, and one outside
director.
Stock Ownership of Management and Certain stockholders (See page 28)
On the record date, directors and executive officers of Yapalot may be deemed to
be the beneficial owners of approximately 48% of the voting power of Yapalot.
Interests of Certain Persons in the Merger (See page 12)
Directors and officers of Yapalot have the following interests in the merger
that are different from, or in addition to, yours:
o Upon consummation of the merger, the directors and officers of Yapalot and
their affiliates will beneficially own approximately 50% of the then
outstanding shares of IVIP common stock.
o The merger agreement provides that Yapalot shall be entitled to designate
Yuval Barzakay to the IVIP board of directors.
United States Federal Income Tax Consequences of the Merger (See page 13)
The merger have been structured so that no gain or loss will be recognized for
federal income tax purposes on the exchange of shares of Yapalot common stock
for shares of IVIP common stock except to the extent holders exercise
dissenter's rights.
Anticipated Accounting Treatment of the Merger (See page 13)
The merger is expected to be accounted for using the purchase method of
accounting in accordance with generally accepted accounting principles.
6
Restrictions on the Ability to Sell IVIP Stock (See page 18)
All shares of IVIP common stock issued in connection with the merger will be
restricted stock for purposes of the Securities Act of 1933. Shares of common
stock received in the merger may be sold only pursuant to a registration
statement or exemption under the Securities Act.
Dissenters' Rights (See page 14)
Under Delaware law, Yapalot's common stockholders may have the right to an
appraisal of the value of their shares of common stock in connection with the
merger. A discussion of these rights is included on pages [14] through [17]. We
encourage Yapalot common stockholders to read it.
Forward-Looking Statements in this Information Statement
This information statement contains forward-looking statements within the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations and business of IVIP
and Yapalot. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions indicate
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements.
Dividend Information (See page 8)
IVIP has never paid any cash dividends on its stock, and anticipates that it
will continue following the merger to retain any earnings for the foreseeable
future for use in the operation of its business.
7
MARKET PRICE INFORMATION
Market Information
- IVIP Market Price Data
IVIP's common stock commenced trading, under the symbol "IVIP", on the
OTC Bulletin Board on April 15, 2001.
On May 29, 2001, the last trading day before the announcement of the
signing of the merger agreement, the closing price per share of IVIP common
stock on the OTC Bulletin Board was $0.36. On May 22, 2001, five business days
before the announcement of the signing of the merger agreement, the closing
price per share of IVIP common stock on the OTC Bulletin Board was $0.39. On
September 10, 2001, the latest practicable trading day before the printing of
this information statement, the closing price per share of IVIP common stock on
the OTC Bulletin Board was $.15.
Because the market price of IVIP common stock is subject to
fluctuation, the market value of the IVIP common stock that holders of Yapalot
common stock will receive in the merger may increase or decrease prior to and
following the merger. No assurance can be given as to the future price or
markets for IVIP common stock.
- Yapalot Market Price Data
There is presently no trading market in the common stock of Yapalot.
Holders
On September 13, 2001, there were approximately 400 holders of record
of IVIP's common stock.
On September 13, 2001, there were approximately 75 holders of record of
Yapalot's common stock.
Dividends
IVIP has had no earnings to date, nor has IVIP declared any dividends
to date. The payment by IVIP of dividends, if any, in the future, rests within
the discretion of its Board of Directors and will depend, among other things,
upon IVIP's earnings, its capital requirements and its financial condition, as
well as other relevant factors.
8
THE MERGER
This section of the information statement describes material aspects of
the proposed merger, including the merger agreement. While we believe that the
description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important to Yapalot stockholders. stockholders should read the entire merger
agreement and the other documents we refer to carefully and in their entirety
for a more complete understanding of the merger.
The following discussion of the terms and background of the merger and
the parties' reasons for the merger and the potential benefits that could result
from the merger contains forward-looking statements that involve risks and
uncertainties. Readers are cautioned not to place undue reliance on these
forward-looking statements. The actual results could differ materially from
those anticipated in these forward-looking statements.
The Merger Agreement - Terms
On May 30, 2001, Yapalot Acquisition Corp. ("Acquisition"), Internet
VIP, Inc. ("IVIP"), Yapalot Communications, Inc. ("Subsidiary") and Yapalot
Communications Holdings Inc. (the "Company" or "Yapalot") entered into an
agreement and plan of merger ("Merger Agreement"). Pursuant to the Merger
Agreement, the Company will be merged with and into Acquisition. The Company's
stockholders shall transfer and convey to Acquisition all of each stockholder's
right, title and interest in and to all of the issued and outstanding shares of
Company Common Stock by transferring and delivering to Acquisition (for
cancellation) their certificates, properly endorsed in blank or accompanied by a
properly executed stock power, representing all of the issued and outstanding
shares of Company Common Stock. Regardless of whether the stockholders actually
perform as described, at the Effective Time (as described below) their shares of
Company Common Stock will only evidence ownership of IVIP.
Merger Consideration
In consideration of and in exchange for all of the issued and
outstanding shares of Company Common Stock, IVIP shall issue to the stockholders
shares of IVIP Common Stock in the ratio of 1.4:1, or 1.4 shares of IVIP Common
Stock for each share of Company Common Stock.
Effective Time
At the closing of the merger, the parties will cause the merger to
become effective by filing a certificate of merger with the Secretary of State
of the State of Delaware. It is anticipated that the merger will be completed
approximately 21 days after the date hereof . The merger shall become effective
upon the filing of the certificate of merger with the Secretary of State of the
State of Delaware (the "Effective Date").
9
Effects of the Merger
At the Effective Time (i) the separate existence of the Company shall
cease and the Company shall be merged with and into Acquisition (the Company and
Acquisition are sometimes herein referred to as the "Constituent Corporations"
and Acquisition is sometimes referred to herein as the "Surviving Corporation");
(ii) the certificate of incorporation of Acquisition, as amended by the
certificate of merger, as in effect immediately prior to the Effective Time
shall continue to be the certificate of incorporation of the Surviving
Corporation; and (iii) the bylaws of the Company as in effect immediately prior
to the Effective Time shall become the bylaws of the Surviving Corporation.
At and after the Effective Time, the Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the foregoing, at the
Effective Time, Acquisition as the Surviving Corporation shall possess all the
rights, privileges, powers and franchises of a public as well as a private
nature, and be subject to all the restrictions, disabilities and duties of each
of the Constituent Corporations, and all singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well as for stock subscriptions and all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
Acquisitions as the Surviving Corporation and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, in either of the Constituent Corporations, shall not revert or be in
any way impaired; but all rights of creditors and all liens upon any property of
either of the Constituent Corporation shall thenceforth attach to Acquisition as
the Surviving Corporation, and may be enforced against it to the same extent as
if said debts and liabilities had been incurred by it.
Conversion of Stock and Derivatives
As of the Effective Time, by virtue of the merger and without any
action on the part of any holder of shares of Company common stock or shares of
stock held by IVIP as sole stockholder of Acquisition ("Acquisition Stock"):
Each issued and outstanding share of Acquisition Stock and IVIP Stock
shall continue to be issued and outstanding and shall not be affected by the
merger.
The shares of Company common stock issued and outstanding as of the
Effective Time shall be converted on a 1 to 1.4 basis into shares of IVIP Stock,
as sole stockholder of Acquisition (i.e., for every share of Company common
stock, a Stockholder will receive 1.4 shares of IVIP Stock.) All such shares of
Company common stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of IVIP
Stock (or appraisal rights, if applicable) to be issued or paid in consideration
therefore upon the surrender of such certificate for exchange to Acquisition at
the Closing (as hereinafter defined). All currently outstanding derivative
securities of the Company shall, following the Closing, become exercisable into,
or convertible for, the same number of shares of IVIP stock, and upon the same
terms, as if the Closing had not occurred and they were being exercised into, or
convertible for, shares of Company common stock.
10
Background of the Merger
In April 2001, Mr. James Hal, a consultant to Yapalot, knowing the business
plans and aspirations of the Company and cognizant of the strengths and possible
deficiencies of the Company to realize its plans, and also aware of the
potential assistance that IVIP could offer to help overcome these deficiencies,
contacted Messrs. David and Mayer Amsel, stockholders of IVIP, to discuss the
potential synergies of the two entities. After several meetings, these
stockholders decided to present to the Boards of their respective companies the
suggestion of the merger. Further discussion, meetings and negotiations during
May, 2001, between representatives of the two companies resulted in the
Agreement, signed on May 30, 2001.
Reasons for the Merger; Recommendation of the Boards of Director
The decision by Yapalot's board to approve the merger was based on
several potential benefits of the merger that it believes will contribute to the
success of the combined company and maximization of stockholder value.
Yapalot's board reviewed a number of factors in evaluating the merger,
including, but not limited to, the following:
. historical information concerning Yapalot's and IVIP's respective
businesses, financial performance and condition, operations, technology and
management;
. Yapalot management's view of the financial condition, results of
operations and businesses of Yapalot and IVIP before and after giving effect to
the merger and the Yapalot board's determination of the merger's effect on
stockholder value;
. current financial market conditions and historical market prices,
volatility and trading information;
. the consideration Yapalot's stockholders will receive in the merger in
light of comparable merger transactions;
. the belief that the terms of the merger agreement are reasonable;
. the impact of the merger on Yapalot's customers and employees; and
. results of the due diligence investigation conducted by Yapalot's
management, accountants, financial advisors and counsel.
11
The Yapalot board also identified and considered a number of
potentially negative factors in its deliberations concerning the merger
including the following:
. the risk that the potential benefits of the merger may not be realized;
. the level of dilution to be experienced by Yapalot stockholders;
. the possibility that the merger may not be consummated;
. the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined company, key
technical, sales and management personnel might not remain employed by the
combined company; and
. other applicable risks.
Yapalot's board concluded, however, that, on balance, the merger's
potential benefits to Yapalot and its stockholders outweighed the associated
risks. The discussion of the information and factors considered by Yapalot's
board reflects all material factors considered by the board. In view of the
variety of factors considered in connection with its evaluation of the merger,
Yapalot's board did not find it practicable to, and did not quantify or
otherwise assign relative weight to, the specific factors considered in reaching
its determination.
In reaching its determination, Yapalot's board of directors also
considered and evaluated, among other things, (i) the results and scope of the
due diligence review conducted by members of the management of, and advisors to,
Yapalot with respect to the business and operations of IVIP, (ii) information
with respect to recent and historical trading prices of IVIP common stock and of
telecommunications stocks generally, (iii) information concerning the results of
operations, performance, financial condition and prospects of Yapalot and the
financial condition and prospects of IVIP on a company-by-company basis and on a
combined basis, (iv) the terms of the merger agreement and the other agreements
contemplated thereby, (v) the structure of the merger and (vi) the tax
consequences of the merger.
Interests of Certain Persons in the Merger
Upon consummation of the merger, it is anticipated that the directors
and officers of Yapalot and their affiliates will beneficially own approximately
50% of the then outstanding shares of IVIP common stock, calculated on the basis
set forth under the heading "Securities Ownership of Certain Beneficial Owners
and Management."
Under the merger agreement, at the consummation of the merger, each
stock option, warrant or derivative security of Yapalot which is outstanding and
unexercised immediately prior to the effective time of the merger, will be
assumed by IVIP and converted into a IVIP stock option, warrant or derivative
security to purchase 1.4 shares of IVIP common stock for each share of Yapalot
stock purchaseable and at the same exercise price as prior to the merger. See
"Description of IVIP Capital Stock" for a description of the outstanding IVIP
stock options, warrants and derivative securities and Yapalot stock options and
warrants that will become IVIP stock options upon consummation of the merger.
12
The board of directors of IVIP will be comprised of three members with
one individual from Yapalot, one from IVIP and one outside member. The directors
shall serve for a period of not less than one year, serving from the effective
time of the merger until their successors shall be duly elected and qualified.
See "The Merger - Operations Following the Merger."
The merger agreement also provides that IVIP shall assume the
employment contract between Yuval Barzakay and Yapalot.
Material Federal Income Tax Considerations
The following discussion is based upon current provisions of the Code,
currently applicable Treasury regulations, and judicial and administrative
decisions and rulings. There can be no assurance that the Internal Revenue
Service (the "IRS") will not take a contrary view, and no ruling from the IRS or
opinion of tax counsel has been or will be sought. Future legislative, judicial
or administrative changes or interpretations could alter or modify the
statements and conclusions set forth herein, and any such changes or
interpretations could be retroactive and could affect the tax consequences to
the stockholders of Yapalot.
The following discussion does not purport to deal with all aspects of
federal income taxation that may affect particular stockholders in light of
their individual circumstances, and is not intended for stockholders subject to
special treatment under the federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, stockholders
who do not hold their stock as capital assets and stockholders who have acquired
their stock upon the exercise of employee options or otherwise as compensation).
In addition, the discussion below does not consider the effect of any applicable
state, local or foreign tax laws.
The merger is intended to qualify as a tax-free reorganization under
Section 368 of the Code under which a holder of Yapalot Common Stock who,
pursuant to the merger, exchanges Yapalot Common Stock for IVIP Common Stock,
will not recognize gain or loss upon such exchange. Such holder's tax basis in
the IVIP Common Stock received pursuant to the merger will be equal to its tax
basis in the Yapalot Common Stock surrendered, and its holding period for the
IVIP Common Stock will include its holding period for the Yapalot Common Stock
surrendered.
Exercise of Dissenters' Rights. Holders of Yapalot Common Stock who
exercise their statutory dissenters' rights will recognize gain or loss equal to
the difference between their tax basis in their Yapalot Common Stock and the
amount of cash they receive in exchange therefor or ordinary income equal to the
amount of cash received.
13
Anticipated Accounting Treatment
The merger is expected to be accounted for using the purchase method of
accounting in accordance with generally accepted accounting principles. For
purposes of preparing future consolidated financial statements, a new accounting
basis will be established for Yapalot's respective tangible and intangible
assets and liabilities based upon their respective estimated fair values and the
aggregate purchase price, including the costs of the transaction. A final
determination of required purchase accounting adjustments and the fair value of
Yapalot's assets and liabilities has not yet been made. Accordingly, the
purchase accounting adjustments made in connection with the development of the
unaudited pro forma condensed consolidated financial statements appearing
elsewhere in this Information Statement are preliminary and have been made
solely for purposes of developing such pro forma financial information to comply
with disclosure requirements of the Securities and Exchange Commission. See
"Summary Unaudited Pro Forma Combined Consolidated Financial Data."
Dissenters' Rights
Unless the shares of IVIP to be issued in the merger have been listed
on a national securities exchange or on the NASDAQ National Market or are held
of record by more than 2,000 holders, the holders of the Yapalot common stock
who do not vote for the approval and adoption of the merger agreement and who
otherwise comply with the applicable statutory procedures of Section 262 of the
Delaware General Corporation Law summarized herein may be entitled to appraisal
rights under Section 262. In order to exercise and perfect appraisal rights, the
record holder of Yapalot common stock must follow the steps summarized below
properly and in a timely manner. A person having a beneficial interest in shares
of Yapalot common stock held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect appraisal
rights.
Section 262 of the DGCL is reprinted as Appendix B to this Information
Statement. Set forth below is a summary description of Section 262. The
following summary is not a complete statement of the law relating to appraisal
rights and is qualified in its entirety by reference to Appendix B. All
references in Section 262 and this summary to "Holder" are to the record holder
of the shares of Yapalot common stock immediately prior to the effective time as
to which appraisal rights are asserted. Failure to comply strictly with the
procedures set forth in Section 262 of the DGCL will result in the loss of
appraisal rights.
Under the DGCL, holders of Yapalot common stock who follow the
procedures set forth in Section 262 will be entitled to have their shares
appraised by the Delaware Court of Chancery and to receive payment in cash of
the "fair value" of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262, where a proposed merger is approved by written
consent without a stockholders meeting, as in the case of the merger, the
corporation, before the effective date of the merger or within 10 days following
the effective date, must notify each of its stockholders who was a stockholder
on the record date with respect to such shares for which appraisal rights are
available, that appraisal rights are so available, and must include in each such
notice a copy of Section 262. This Information Statement constitutes such notice
to the holders of Yapalot common stock and Section 262 of the DGCL is attached
to this Information Statement as Appendix B. Any Holder who wishes to exercise
such appraisal rights or who wishes to preserve his right to do so should review
the following discussion and Appendix B carefully, because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under the DGCL.
14
A Holder wishing to exercise appraisal rights must deliver to Yapalot,
within 20 days after the date of mailing of this Information Statement, a
written demand for appraisal of such holder's shares of Yapalot common stock.
A demand for appraisal will be sufficient if it reasonably informs
Yapalot of the identity of the Holder and that such Holder intends thereby to
demand appraisal of such Holder's shares of Yapalot common stock. A Holder
wishing to exercise appraisal rights must be the record holder of such shares of
Yapalot common stock on the date the written demand for appraisal is made and
must continue to hold such shares through the Effective Time. Accordingly, a
Holder who is the record holder of shares of Yapalot common stock on the date
the written demand for appraisal is made, but who thereafter transfers such
shares prior to the Effective Time, will lose any right to appraisal in respect
of such shares.
Only a holder of record of shares of Yapalot common stock is entitled
to assert appraisal rights for the shares of Yapalot common stock registered in
that holder's name. A demand for appraisal should be executed by or on behalf of
the holder of record, fully and correctly, as the holder's name appears on the
stock certificates and must state that such person intends thereby to demand
appraisal of his, her or its shares of Yapalot common stock. If the shares are
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand for appraisal should be made in that
capacity, and if the shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one for two or more
joint owners, may execute the demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for such owner or owners.
A record holder such as a broker who holds shares as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of Yapalot common stock held for one or more beneficial owners while not
exercising such rights with respect to the shares held for other beneficial
owners; in such case, the written demand should set forth the number of shares
as to which appraisal is sought. Where the number of shares of Yapalot common
stock is not expressly stated, the demand will be presumed to cover all shares
held in the name of the record owner. Holders who hold their shares in brokerage
accounts or other nominee form and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such nominee.
15
All written demands for appraisal of shares must be mailed or delivered
to: Yapalot Communications Holdings Inc., 4884 Dufferin Street, Unit 1, Toronto,
Ontario M3H 5S8.
Within ten days after the Effective Time, Yapalot will notify each
Holder who properly asserted appraisal rights under Section 262.
Within 120 days after the Effective Time, but not thereafter, Yapalot
or any Holder who has complied with the statutory requirements summarized above
may file a petition in the Delaware Court demanding a determination of the fair
value of the shares held by such Holder. If no such petition is filed, appraisal
rights will be lost for all Holders who had previously demanded appraisal of
their shares. Yapalot is not under any obligation, and has no present intention,
to file a petition with respect to appraisal of the value of the shares.
Accordingly, Holders who wish to exercise their appraisal rights should regard
it as their obligation to take all steps necessary to perfect their appraisal
rights in the manner prescribed in Section 262.
Within 120 days after the Effective Time, any Holder who has complied
with the provisions of Section 262 will be entitled, upon written request, to
receive from Yapalot a statement setting forth the aggregate number of shares of
Yapalot common stock not voted in favor of the approval and adoption of the
merger agreement and with respect to which demands for appraisal were received
by Yapalot, and the number of holders of such shares. Such statement must be
mailed within ten days after the written request for such statement has been
received by Yapalot.
If a petition for an appraisal is timely filed and a copy thereof
served upon Yapalot, Yapalot will then be obligated within 20 days to file with
the Delaware Register in Chancery a duly verified list containing the names and
addresses of the Holders who have demanded appraisal of their shares and with
whom agreements as to the value of their shares have not been reached. After
notice to the Holders as required by the Delaware Court, the Delaware Court is
empowered to conduct a hearing on such petition to determine those Holders who
have complied with Section 262 and who have become entitled to appraisal rights
thereunder. The Delaware Court may require the Holders who demanded appraisal
rights of their shares of Yapalot common stock to submit their stock
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceeding; and if any Holder fails to comply with such direction,
the Delaware Court may dismiss the proceedings as to such Holder.
After determining which Holders are entitled to appraisal, the Delaware
Court will appraise the "fair value" of their shares of Yapalot common stock,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Holders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 262 could be more than, the same as or less than the consideration
they are entitled to receive pursuant to the merger agreement if they did not
seek appraisal of their shares and that investment banking opinions as to
fairness from a financial point of view are not necessarily opinions as to fair
value under Section 262. In determining "fair value" of shares, the Delaware
Court shall take into account all relevant factors. In Weinberger v. UOP, Inc.,
the Delaware Supreme Court has stated that such factors include "market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which were known or which could be ascertained as of the date of the
merger which throw any light on future prospects of the merged corporation." In
Weinberger, the Delaware Supreme Court stated, among other things, that "proof
of value by any techniques or methods generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. In addition, the Delaware Court has decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy.
16
The Delaware Court will also determine the amount of interest, if any,
to be paid on the amounts to be received by persons whose shares of Yapalot
common stock have been appraised. The costs of the action may be determined by
the Delaware Court and the parties taxed as the Delaware Court deems equitable.
The Delaware Court may also order that all or a portion of the expenses incurred
by any Holder in connection with an appraisal, including without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the shares
entitled to appraisal. In the absence of such determination or assessment, each
party bears its own expenses.
Any Holder who has duly demanded and perfected an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote his or her shares for any purpose or be entitled to the payment of
dividends or other distributions thereon, except dividends or other
distributions payable to holders of record of shares of Yapalot common stock as
of a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any Holder will
have the right to withdraw his or her demand for appraisal and to accept the
merger consideration. After this period, a Holder may withdraw his or her demand
for appraisal only with the written consent of Yapalot. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, a Holder's right to appraisal will cease and he or she will be entitled to
receive the merger consideration, without interest, as if he or she had not
demanded appraisal of his or her shares. No petition timely filed in the
Delaware Court demanding appraisal will be dismissed as to any Holder without
the approval of the Delaware Court, and such approval may be conditioned on such
terms as the Delaware Court deems just.
If any Holder who properly demands appraisal of his or her shares of
Yapalot common stock under Section 262 fails to perfect, or effectively
withdraws or loses, his right to appraisal, as provided in the DGCL, the shares
of such Holder will be converted into the right to receive the consideration
receivable with respect to such shares in accordance with the merger agreement.
A Holder will fail to perfect, or effectively lose or withdraw, his right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the Effective Time, or if the Holder delivers to Yapalot a written
withdrawal of his demand for appraisal. Any such attempt to withdraw an
appraisal demand more than 60 days after the Effective Time will require the
written approval of Yapalot.
Holders desiring to exercise their appraisal rights must strictly
comply with the procedures set forth in Section 262 of the DGCL.
Failure to take any required step in connection with the exercise of
appraisal rights will result in the termination or waiver of such rights.
17
Restrictions on Sale of Shares
The shares of IVIP common stock to be issued in connection with the
merger will be issued pursuant to an exemption from registration under the
Securities Act and will be "restricted stock" under the Securities Act . The
shares of IVIP common stock to be issued to Yapalot stockholders may only be
resold pursuant to an effective registration statement or an available exemption
from registration such as that provided by Rule 144.
Operations Following the Merger
Following the merger, Yapalot will operate as a wholly owned subsidiary
of IVIP. Both Yapalot and IVIP will continue to pursue their respective
businesses in a manner consistent with their operations prior to the merger.
Upon consummation of the merger, it is anticipated that the boards of directors
will be restructured to include Dr. Ilya Gerol, Yuval Barzakay and Daniel Ansel.
The stockholders of Yapalot will become stockholders of IVIP, and their rights
as stockholders will be governed by IVIP's certificate of incorporation and
bylaws and the laws of the State of Delaware.
Exchange of Stock Certificates
IVIP's transfer agent, Intercontinental Registrar and Transfer Agency
of Boulder City, Nevada, will act as exchange agent in connection with the
merger. Promptly after the effective time, the exchange agent will mail to
Yapalot stockholders a letter of transmittal and instructions for surrendering
their Yapalot stock certificates in exchange for IVIP stock certificates.
Yapalot stockholders should not submit their stock certificates for
exchange until they have received the letter of transmittal and instructions
referred to above.
BUSINESS AND PROPERTIES OF INTERNET VIP
Internet VIP, Inc. ("IVIP"), a Delaware corporation, was organized on
November 13, 1998. IVIP also operates through a wholly owned Canadian subsidiary
corporation IVIP Telcom Canada, Inc., previously known as V.I. Internet
Telecommunications Inc. IVIP has not been involved with any bankruptcy,
receivership or similar proceedings. On May 17, 2001 IVIP announced a joint
venture with Polykvart Telecom, a Russian entity, to create "PT-Intertel XXI",
in which IVIP would hold 51% of the venture. PT-Intertel XXI would offer
telecommunication services to and from Russia and the Commonwealth of
Independent States ("C.I.S.").
Overview
IVIP was formed to sell international long distance telephone services
through the use of Internet based technology, specifically, Voice over Internet
Protocol ("VoIP").
IVIP's business has been organized into two separate, yet
complementary, divisions so that its revenues are derived from two markets:
18
1. (Wholesale) Providing carrier and termination services, worldwide, for
other telecom companies, at competitive rates; and
2. (Retail) Providing telephone calling origination and termination, at
attractive prices, servicing areas of the world that currently have
expensive and/or poor quality long distance service, primary through the
use of pre-paid telephone cards. Competitive rates are to be achieved by
using low-cost Internet Protocol gateways and taking advantage of the
efficacy of VoIP technology.
Business Strategy
The major determining factors as to where IVIP seeks to locate its
gateways (POPs), and where IVIP intends to focus its services are driven by (a)
existing high tariffs and (b) the termination points for IVIP's customers of
pre-paid telephone cards.
(a) High Tariff Regions
IVIP intends to locate its POPs in geographic regions based on the
following criteria:
1. that currently have high telephone tariffs
2. that have antiquated telephone infrastructure
3. where contacts, especially governmental, underlie most business development
4. where the telecommunications industry is undergoing a modernization
5. where IVIP understands the cultural and business environment
6. that have a large ex-patriot community in the "west".
Then, to develop in each selected geographic location, IVIP:
7. uses its worldwide contacts to seek out a local Joint Venture (JV) partner;
(usually a government or very prominent local commercial entity),
8. obtains a license to operate a telecom business in that jurisdiction,
9. builds and operates one or more IP gateways,
10. link up this gateway to the rest of IVIP's network through private leased
fiber-optic lines or IP telephony,
11. supplies immediate inbound traffic from existing customers, and
12. works with IVIP's new JV partners to develop outbound traffic from three
major market sectors; government, industrial, and retail (pre-paid cards).
(b) Pre-Paid Customers
Most of IVIP's pre-paid telephone cards are directed at specific ethnic
communities and therefore can be expected to generate high volume traffic to
very specific global termination points. IVIP plans to either install its own
gateways at these destinations or seek strategic partnerships that yield the
lowest cost for IVIP to terminate traffic there.
19
Operations
In Canada, IVIP operates through a wholly owned Canadian subsidiary,
IVIP Telcom Canada, that shares office space at IVIP's head offices in Montreal.
IVIP Telcom was formed to develop business in Canada and is responsible for
oversight and maintaining IVIP's equipment and gateway located in Montreal.
All of IVIP's technology is state of the art, but IVIP is not dependent
on any one vendor in particular. For the hardware in the switching centers in
Montreal, Moscow, and St. Petersburg, IVIP employs a configuration and equipment
manufactured by Ericsson Inc.
In the pre-paid card division IVIP is directing its efforts towards
so-called "switch-less operators" as an important part of its customer base.
"Switch-less operators" are those companies that have an established and
well-developed distribution network, and have begun utilizing their channels to
sell and distribute pre-paid long distance telephone cards, yet they do not own
or maintain any telecom equipment. IVIP has made its network available to these
types of companies, whereby IVIP provides a "turnkey" telecom network underlying
the service that these distributors sell. IVIP has, to date, signed up one such
customer and during IVIP's first 5 months had $970,171 in revenue. IVIP is
currently negotiating with several additional such operators.
International Division
IVIP's initial international operation is in Russia. Currently, IVIP
operates two IP telephony gateway centers in that country, one in Moscow, and
the other in St. Petersburg. Both centers are connected to IVIP's hub in
Montreal, and serve as the core switches that allow calls to be routed from
anywhere in North America or from Russia to over 240 countries and territories
at very low cost.
IVIP's potential customers in Russia can be characterized into three
subgroups. The first subgroup is government ministry and related agencies. The
second group are large users derived from industry that are to receive
preferential rates. And finally, the third group of customers are individuals or
small corporate users that will have purchased prepaid calling cards or
contracts. As with most prepaid calling card systems, the customer places a call
from any telephone in Russia, by dialing a local access number to reach IVIP's
equipment and then inputs his card number and personal identification number
("PIN"). The equipment validates the card number and PIN and then gives the
caller a second dial tone allowing him to make the long distance call. For all
types of customers, IVIP's technology and equipment will process these steps in
milliseconds and the customer will be unable to detect the difference between a
traditional long distance call between Moscow and the world and a call utilizing
IVIP's network. The process for a call to Moscow originating in North America
over IVIP's network operates the same way with the customer calling an "800"
number to access the Montreal platform in the same manner as if he were using a
conventional calling card.
20
In Russia, IVIP operates its business under the corporate name Intertel
XXI which is a Russian entity owned 100% by IVIP. IVIP had owned 80% and the
remaining 20% of the Russian company was owned by the "Special Technique and
Communication Services Institute", an agency of the Russian Ministry of
Interior, but this 20% was repurchased by IVIP for a nominal amount.
IVIP has letters of intent with governmental and industrial entities
expressing an interest to purchase telephone service for calls from Russia to
the world. The network has been installed and tested and is now fully
functional. However, the commencement of revenues from Russia suffered an
unexpected delay due to the fact that the Ericsson equipment installed by IVIP
was the most advanced available and had as yet not been certified for use in
Russia, by the Ministry of Communications. This procedure was finally completed
April 11, 2001.
With this successful certification, IVIP continues the process of
converting the letters of intent to firm contracts. If IVIP is successful in
converting these letters to firm contracts, IVIP anticipates that by the end of
the first year of long distance service between Russia and the world IVIP will
be providing 1,000,000 minutes of long distance traffic per month. However,
there can be no assurance that such usage and/or revenue levels, if any, will be
attained.
In addition, IVIP is still in the process of analyzing the long
distance traffic between Russia and Europe. However, there can be no assurance
that any business will develop in this market.
Technology
Conventional telephone service (PSTN) is a circuit-switched technology.
When a call is placed, the system switches open a direct connection between the
sender, and then over a series of switching facilities, to the receiving party.
The connection remains open during the duration of the telephone call. Since no
one else can use the circuit while a call is in progress, more circuits are
required, which leads to inefficiency and expense. This, together with high
tariffs in many jurisdictions, are the basic reasons why telephone companies,
and the intermediate switching companies, charge high prices for their services.
Internet Protocol (IP) telephony is a packet-switched technology, the
basis of all Internet communication. IP breaks network data up into small chunks
or packets, which is then sent out on the Net. These packets are routed using
the most expedient path available at the time, until they reach their
destination. The data can consist of e-mail, video, and for IVIP's purposes -
voice. Additionally, IP compression techniques allow five to ten times the
number of voice calls over the same bandwidth as compared to traditional
circuit-switched voice traffic, substantially reducing the cost of carrying this
traffic.
Thus, a caller does not have to place a conventional long-distance
telephone call to reach a party anywhere in the world, since with IP telephony,
every call is simply a "voice" e-mail away. The caller initiates a local call to
a specialized switching center or gateway connected to an IP provider. The call
travels over the Internet to the receiver's geographic area and a switching
center in that area completes the call over that local's telephone lines. A
growing number of individuals, governments, and corporations are using this
technology every day to send data, voice conversations, and even money.
21
On the North American side, IVIP has established a presence with a
prepaid telephone card distributor in the New York City area. On May 3, 2001
IVIP received a purchase order of approximately $2.6 million USD. IVIP continues
to develop and market its services throughout Canada and the United States as
well as the Caribbean.
IVIP does not expect to incur any material costs in complying with
environmental laws.
Employees
IVIP has total of 5 employees all of whom are full time employees,
including 3 members of management. None of IVIP's employees are members of a
union and IVIP believes that it has a good relationship with its employees.
Property
IVIP maintains its corporate offices at 1155 University Street, Suite
602, Montreal, Canada where it has approximately 1,550 square feet at an annual
rental of approximately $20,000 per year which includes all utilities and
applicable taxes. The lease expires on November 30, 2002.
IVIP's Moscow facility is comprised of approximately 1,750 square feet
and is located at 6 Marksistki per, Moscow, Russia. The lease was for six months
expiring on December 31, 2000. The annual rent is approximately $37,200
annually. IVIP continues to maintain its office at this location on a month to
month basis with the same monthly rent amount.
Legal Proceedings
IVIP is not currently involved in any material legal proceedings.
MANAGEMENT'S DISCUSSION - PLAN OF OPERATIONS OF INTERNET VIP
The following discussion should be read in conjunction with the
financial statements and related notes that are included herewith. Statements
made below which are not historical facts are forward-looking statements.
Forward-looking statements involve a number of risks and uncertainties
including, but not limited to, general economic conditions, IVIP's ability to
market its services, competitive factors and other risk factors as stated in
other of IVIP's public filings with the Securities and Exchange Commission.
IVIP was formed in November 1998 to sell long distance international
telephone services using the technology, Voice over Internet Protocol ("VoIP').
From its control center in Montreal, Canada, calls are to be routed from
anywhere in North America to anywhere in the world using VoIP technology. The
first phase of operations plans to encompass calls, primarily, from North
America to St. Petersburg and/or Moscow, Russia and vice versa.
22
IVIP established its business presence in Montreal, with the opening of
an office at 1155 University Avenue in February 1999. This office has become
IVIP's worldwide headquarters and the hub of its telecommunications network.
Three Months ended May 31, 2001 and 2000
During the three month period ending May 31, 2001, IVIP incurred a loss
of $898,910 compared to a loss of $1,382,544 for the same period ended May 31,
2000. IVIP has an accumulated deficit since inception of $5,275,557. This
decrease was primarily driven by a decrease in expenses incurred in prior
periods to bring IVIP operational and to develop business in Europe and the
Caribbean region, but was offset by increases in losses due to direct costs of
IVIP's services. During the three month period ending May 31, 2001, IVIP
generated revenue from sales of products and services of $105,320, compared to
$19,147 for the same period ended May 31, 2000. Revenue generated since
inception from sales of products and services is $1,075,491.
Years ended February 28, 2001 and 2000
IVIP continues to be in the development stage. During the year ended
February 28, 2001, IVIP incurred an operating loss of $2,706,361 as compared to
an operating loss of $1,451,275 for the year ended February 29, 2000. The
increased loss is primarily due to an increase in marketing efforts, the
recognition of salaries payable to management and staff and additional
administrative expenditures. Since inception (November 13, 1998) IVIP has
incurred an operating loss of $4,376,646. Revenues were generated for the first
time since inception during the year ended February 28, 2001. Revenues totaled
$970,171. To date, all revenues have come from the sale of pre-paid calling
cards. In fact, all sales have been to one customer. High concentration of sales
are generally viewed with some apprehension and IVIP hopes to attract additional
customers. At the moment, IVIP's relationship with its customer is good and as
discussed below, IVIP expects additional sales.
As reflected in IVIP's May 31, 2001 and February 28, 2001 balance
sheets, IVIP has minimal cash on hand and negative working capital. IVIP's
operations are not generating sufficient cash to maintain its present
operations. IVIP currently has five employees in its Montreal office, which
includes the President, Vice President and Chief Executive Officer. Projected
annual salaries are an aggregate of $250,000, which is based on the current
headcount with no additional hiring of personnel. Projected annual rent for the
next twelve months in Montreal is approximately $20,000. Professional fees are
expected to be significantly lower than prior years since IVIP has completed the
registration process with the Securities and Exchange Commission. Projected
annual professional fees are $100,000 based on the company maintaining reporting
compliance. Travel in the past was necessary to develop the Russian hubs. Since
these locations are now operational, travel is expected to be reduced and
limited primarily as a monitoring tool. Projected annual travel expense is
$50,000. During the year IVIP increased its marketing activity in an effort to
generate more sales. Projected marketing costs for the next twelve months are
$100,000. IVIP is also reviewing all non essential activities and expenditures
and fixed costs such as line rentals, office leases, salaries and consulting
fees and will be aggressively curtailing these items to assist in reducing the
cash used in operating activities.
23
North American operations has seen increased activity in the sale of
prepaid calling cards. A major customer in New York has agreed to order
approximately $2.6 million USD in prepaid calling cards. Although this is a
significant order and will contribute cash to cover some of the monthly
operating expenses, IVIP believes that it will still be deficient in satisfying
its cash requirements over the next 12 months. IVIP anticipates that it will
have to raise additional funds in the next twelve months through equity
financing. IVIP is also exploring areas of strategic alliances with other
organizations in an effort to better position itself in the telecommunciations
market.
Operations in Russia have required major cash outlays to develop the
necessary infrastructure for its operations. IVIP does not anticipate any more
major cash outlays in this area since at this time the operations are fully
functional. Efforts in this area will now focus on selling services to the
targeted markets.
On May 30, 2001, IVIP entered into an agreement to acquire 100% of the
common shares of Yapalot.
IVIP believes the merger with Yapalot entails a synergy strongly
beneficial to both entities, as Yapalot has installed, to date, 13 VoIP POPs in
various first world countries, while IVIP has shown its forte in obtaining
telecom licenses and operating in the emerging markets. The merger is also
expected to substantially reduce IVIP's cost for terminating traffic in those
locations where Yapalot has their installations.
SUMMARY UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial statements for Internet
VIP, Inc. is based on the historical financial statements of Internet VIP, Inc.
(collectively with its subsidiaries) and Yapalot Communications Holdings Inc.
(collectively with its subsidiary) which appear elsewhere in this Joint Proxy
Statement/Prospectus and has been prepared on a pro forma basis to give effect
to the merger under the purchase method of accounting, as if the transaction had
occurred at May 31, 2001. The pro forma information was prepared based upon
certain assumptions described below and may not be indicative of results that
actually would have occurred had the merger occurred at the beginning of the
last full fiscal year presented or of the results which may occur in the future.
The unaudited pro forma consolidated financial data and accompanying notes
should be read in conjunction with the annual and interim financial statements
and notes thereto of Internet VIP, Inc. and Yapalot Communications Holdings Inc.
appearing elsewhere herein and incorporated by reference into this Joint Proxy
Statement/Prospectus.
24
The stockholders of Yapalot Communications Holdings Inc. will receive one point
four shares of common stock of Internet VIP, Inc. for each share of Yapalot
Communications Inc., resulting in the current stockholders of Yapalot
Communication Holdings Inc. owning approximately 50% of Internet VIP, Inc. The
proposed plan of merger is subject to a number of conditions including, but not
limited to, regulatory approvals and the receipt of stockholders approval from
Yapalot Communications Holdings Inc.
The unaudited pro forma consolidated results are based on estimates and
assumptions which are preliminary and have been made solely for the purpose of
developing such pro forma information. The unaudited pro forma consolidated
results are not necessarily an indication of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future.
The unaudited pro forma results should be read in conjunction with the
historical consolidated financial statements and notes thereto as set forth
herein, and other financial information pertaining to Internet VIP, Inc. and
Yapalot Communications Inc., including "Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors".
25
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
PRO-FORMA STATEMENT OF INCOME
Yapalot
(Audited) Yapalot Internet VIP Holdings
Internet VIP Holdings Inc. Inc.
Inc. Inc. Three Months Three Months
Year Ended Year Ended Ended Ended
February 28 December 31 May 31 March 31
2,001 2,000 2,001 2001
(Audited) (Audited) Pro-Forma Unaudited Unaudited Pro-Forma
--------------- ------------ ----------- ------------ ------------ ---------
Revenues 970,171 168,273 1,138,444 105,320 222,384 327,704
Cost of Sales 2,012,437 343,551 2,355,988 619,290 171,089 790,379
--------- ------- --------- ------- ------- -------
Gross profit (1,042,266) (175,278) (1,217,544) (513,970) 51,295 (462,675)
----------- --------- ----------- --------- ------ ---------
Operating Expenses:
Marketing 390,334 389,086 779,420 94,000 22,431 116,431
Salaries and payroll related 419,230 226,960 646,190 79,403 161,955 241,358
Professional Fees 258,427 161,182 419,609 148,593 71,180 219,773
Travel 97,596 20,411 118,007 14,753 512 15,265
Rent 54,008 24,892 78,900 4,446 7,834 12,280
Selling, general and administrative
expenses 374,469 106,748 481,217 15,677 17,888 33,565
------- ------- ------- ------ ------ ------
Total Operating Expenses 1,594,064 929,279 2,523,343 356,872 281,800 638,672
Loss before other income
(expense) (2,636,330) (1,104,557) (3,740,887) (870,842) (230,505) (1,101,347)
Other income (expense):
Interest income 176 0 176 226 0 226
Interest expense (63,516) (20,983) (84,499) (25,354) (19,006) (44,360)
Foreign exchange gain (loss) (6,691) 326,325 319,634 (2,942) 0 (2,942)
------- ------- ------- ------- - -------
Total other income (expense)(70,031) 305,342 235,311 (28,070) 19,006 (47,076)
Profit (Loss) for the period (2,706,361) (799,215) (3,505,576) (898,912) (249,511) (1,148,423)
----------- --------- ----------- --------- --------- -----------
Loss per common share (0.10947) (0.04559) (0.13541) (0.03606) (0.01248) (0.03352)
--------- --------- --------- --------- --------- ---------
Weighted average number of
common shares outstanding 24,722,640 17,529,412 25,889,306 24,927,072 20,000,000 34,260,405
---------- ---------- ---------- ---------- ---------- ----------
Read the accompanying summary accounting notes to
financial statements, which are an integral part of this financial statement.
INTERNET VIP INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
(Unaudited)
Yapalot
Internet VIP Holdings
Inc. Inc.
May 31 March 31
2,001 2,001 Pro-Forma
Unaudited Unaudited Adjustments Pro-Forma
------------ --------- ----------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 59,468 67,530 126,998
Accounts receivables, net 58,339 4,978 63,317
Other receivables 166,751 3,782 170,533
Prepaid expenses 1,120 7,002 8,122
----- ---- -----
Total Current Assets 285,678 95,857 0 381,535
Goodwill from Pro-Forma 11,645,468 11,645,468
Property and equipment, net 339,168 1,004,450 1,343,618
Other assets 14,674 0 14,674
------ - ------
Total assets 639,520 1,100,307 11,645,648 13,385,295
------- --------- ---------- ----------
13,755,070
Liabilities and stockholders' Equity
Current Liabilities
Accounts payable 2,124,935 684,446 2,809,381
Short term borrowings (principally related parties) 133,608 0 133,608
Deferred revenues 300,000 0 300,000
Current portion of bank term loan 0 34,479 34,479
Other current liabilities 1,916 0 1,916
----- - -----
Total current liabilities 2,560,459 1,718,925 0 3,279,384
Long Term Debt 200,100 133,739 333,839
Other Liabilities 2,735 0 2,735
----- - -----
Total Liabilities 2,763,294 1,153,775 0 3,917,069
--------- --------- - ---------
stockholders' Equity
Common Stocks, $0.0001 par value; 50,000,000 shares authorized,
issued and outstanding- 54,330,232 2,633 20,000 (20,000)
2,800 5,433
Paid in capital 3,149,150 1,024,143 (1,024,143)
11,589,200 14,738,350
Foreign currency translation adjustment 0 (48,885) 48,885 0
Deficit accumulated during the development stage (5,275,557) (1,048,726) 971,122(5,275,557)
----------- ----------- ------------------
Total stockholders' equity (2,123,774) (53,468) 11,645,468 9,468,226
Total Liabilities and stockholders' equity 639,520 1,100,307 11,645,468 13,385,295
----------- ----------- ---------- ----------
Read the accompanying summary accounting notes to
financial statements, which are an integral part of this
financial statement.
26
INTERNET VIP, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA
MAY 31, 2001
On May 30, 2001 Internet VIP, Inc. (collectively with its subsidiaries) and
Yapalot Communications Holdings Inc. (collectively with its subsidiary) entered
into a definitive plan of Reorganization and Merger. Under the terms of the Plan
of Reorganization and Merger, Yapalot Communications Holdings Inc. will become a
wholly owned subsidiary of Internet VIP, Inc. The stockholders of Yapalot
Communications Holdings Inc. receive one point four shares of common stock of
Internet VIP, Inc. for each share of Yapalot Communications Holdings Inc. held,
resulting in the current stockholders of Yapalot Communications Holdings Inc.
owning approximately 50% of Internet VIP, Inc. common stock. The proposed plan
of merger is subject to a number of conditions including, but not limited to,
regulatory approvals and the receipt of stockholder approval from Yapalot
Communications Holdings Inc.
Pro Forma Adjustments
To record the purchase of Yapalot Communications Holdings Inc. through the
issuance of 28,000,000 shares of common stock of Internet VIP, Inc. to the
stockholders of Yapalot Communications Holdings Inc., the transaction was
accounted for as a purchase, resulting in goodwill of $11,645,468 being
recorded. The purchase price and goodwill was determined as follows:
Internet VIP, Inc. shares issued for purchase 28,000,000
Estimated fair value of shares issued $ 0.414 (a)
Total purchase price 11,592,000
Yapalot Communications Holdings Inc.
Net book value (53,468)
Resulting goodwill $ 11,645,468
(a) The estimated fair value of shares issued was determined using the average
closing market price of Internet VIP, Inc. for the 3 days prior and 3 days
subsequent to the signing of the merger agreement.
27
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 14, 2001
with respect to persons known to be beneficial owners of more than 5% of our
voting common stock. The table also states the beneficial ownership of such
common stock by each director and by all directors and executive officers as a
group.
Name and Address of
Beneficial Owner Number of Shares Percent
-------------------- ------------------ ---------
Yuval Barzakay 9,600,000 48.0%
4884 Dufferin Street, Unit 1
Toronto, Ontario
Canada M3H 5S8
Marilyn Benlolo 6,400,000 32.0%
4884 Dufferin Street, Unit 1
Toronto, Ontario
Canada M3H 5S8
Albert Kshoznicek - *
4884 Dufferin Street, Unit 1
Toronto, Ontario
Canada M3H 5S8
Alon Barzakay - *
4884 Dufferin Street, Unit 1
Toronto, Ontario
Canada M3H 5S8
Directors and executive officers
as a group (3 persons) 9,600,000 48.0%
28
DESCRIPTION OF INTERNET VIP CAPITAL STOCK
General
IVIP is authorized to issue 50,000,000 shares of Common Stock, $0.0001
par value, and no shares of Preferred Stock, of which 29,354,337 shares of
Common Stock and no shares of Preferred Stock were issued and outstanding as of
September 14, 2001.
Common Stock
Each outstanding share of Common Stock is entitled to one (1) vote,
either in person or by proxy, on all matters that may be voted upon the owners
thereof at meetings of the stockholders. The holders of Common Stock (i) have
equal ratable rights to dividends from funds legally available therefore, when
and if declared by the Board of Directors of IVIP; (ii) are entitled to share
ratably in all of the assets of IVIP available for distribution to holders of
Common Stock upon liquidation, dissolution or winding up of the affairs of IVIP;
(iii) do not have preemptive, subscription or conversion rights, or redemption
or sinking fund provisions applicable thereto; and (iv) are entitled to one
non-cumulative vote per share on all matters on which stockholders may vote at
all meetings of stockholders. Holders of Shares of Common Stock of IVIP do not
have cumulative voting rights, which means that the individuals holding Common
Stock with voting rights to more than 50% of eligible votes, voting for the
election of directors, can elect all directors of IVIP if they so choose and, in
such event, the holders of the remaining shares will not be able to elect any of
IVIP's directors.
Convertible Securities and Warrants
At September 14, 2001, IVIP was a party to various loans which are
convertible into IVIP common stock, including: (1) a $30,000 loan convertible at
any time, at the lender's option, in whole or in part, to common shares of the
Company at a conversion rate of $0.25 per share; (2) a $20,000 loan convertible
at any time, at the lender's option, in whole or in part, to common shares of
the Company at a conversion rate of $0.25 per share; (3) a $300,000 CAD
($200,100 USD) debenture convertible, at the discretion of the holder, into
common shares at a rate of 1 share per $1.00 USD of the balance outstanding; and
(4) a $111,400 convertible at any time, at the lender's option, in whole or in
part, to common shares of the Company at a conversion rate of $0.16 per share.
At September 14, 2001, IVIP had 1,254,250 warrants issued and
outstanding, consisting of (1) 600,000 Class A warrants entitling the holder to
purchase one Share of restricted Common Stock at an exercise price of $1.00,
subject to adjustment, until December 31, 2002, and (2) 354,250 Class B warrants
entitling the holder to purchase one Share of restricted Common Stock at an
exercise price of $1.50, subject to adjustment, until March 31, 2003, and
300,000 Class C warrants at an exercise price of $0.50, subject to adjustment,
until March 31, 2006.
29
Registrar and Transfer Agent
IVIP's registrar and transfer agent is Intercontinental Registrar and
Transfer Agency of Boulder City, Nevada.
COMPARISON OF RIGHTS OF HOLDERS OF YAPALOT COMMON STOCK
AND INTERNET VIP COMMON STOCK
The following is a summary of the material differences between the
rights of holders of IVIP common stock and Yapalot common stock before the
merger and the rights of the holders of IVIP common stock after the merger.
Because IVIP and Yapalot are both organized under the laws of fo the State of
Delaware, the differences arise solely from differences between various
provisions of their respective Certificates of Incorporation and Bylaws.
The discussion of the comparative rights of the stockholders of IVIP
and Yapalot set forth below does not purport to be complete and is subject to
and qualified in its entirety by reference to the Certificates of Incorporation
and Bylaws of IVIP and Yapalot.
Authorized Capital
The total number of shares IVIP will have the authority to issue will
be 50,000,000 shares of common stock, par value $.0001 per share. The total
number of shares of capital stock which Yapalot has authority to issue is
50,000,000, shares of common stock, par value $.0001 per share.
Number and Terms of Directors
The DGCL provides that the board of directors of a Delaware corporation
will consist of one or more directors as fixed by the certificate of
incorporation or bylaws. IVIP's Bylaws provide for a Board of Directors of at
least one director, as fixed by the Board of Directors or the stockholders from
time to time. Pursuant to the terms of the merger agreement, the Board of
Directors of IVIP will consist of three members with one of the directors to be
designated by each of IVIP and Yapalot and one outside member. Each director of
IVIP will serve for a term of one year or until their successors are duly
elected and qualified.
Yapalot's Bylaws provide that the Board of Directors shall be elected
from time to time by the stockholders at a meeting of the stockholders. The term
of office of a director not elected for an expressly stated term shall commence
at the close of the meeting of stockholders at which he is elected and shall
terminate at the close of the first annual meeting of stockholders following his
election.
Committees of the Board
IVIP's bylaws provide that its Board of Directors may establish one or
more directors to constitute an Executive Committee which shall possess and may
exercise all the power and authority of the Board of Directors in the management
of the affairs of the corporation between meetings of the Board (except to the
extent prohibited by applicable provisions of the General Corporation Law),
and/or such other committee or committees, which, to the extent provided in the
resolution, shall have and may exercise the powers of the Board of Directors in
the management of the business affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. All such
committees shall serve at the pleasure of the Board. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
30
Yapalot's Bylaws provide that the board may appoint from among their
number an executive committee and may by resolution delegate to the executive
committee any powers of the board, subject to such restrictions as may be
implied from time to time by resolution of the board and subject to the limits
on authority contained in the Canada Business Corporations Act.
Removal of Directors
The DGCL provides that a director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors, except (i) in the case of a
corporation whose board is classified, that directors may be removed only for
cause unless the certificate of incorporation provides otherwise, or (ii) if the
corporation has cumulative voting, in which event if less that the entire board
is removed, no director may be removed without cause if the votes cast against
the director's removal would be sufficient to elect that director if voted
cumulatively either at an election of the entire board of directors or for
classes of the board. IVIP's Certificate of Incorporation does not provide for
directors to be removed without cause or provide for cumulative voting.
Yapalot's Certificate of Incorporation does not classify its board of directors
and does not provide for cumulative voting. IVIP's Bylaws provide that any or
all of the directors may be removed for cause or without cause by the
stockholders. Yapalot's Bylaws provide that the stockholders may by ordinary
resolution at a special meeting of stockholders remove any directors from office
and may by ordinary resolution at such special meeting elect a person to fill
the vacancy caused by the removal of such director.
Amendment to Bylaws
Under the DGCL, bylaws may be altered, amended, supplemented or
repealed, or new bylaws adopted, by the stockholders entitled to vote, by the
board of directors, or by any other manner as may be authorized by the
certificate of incorporation. IVIP's Certificate of Incorporation provides that
the Board of Directors has the power to adopt, amend, or repeal the bylaws.
IVIP's Bylaws provide that stockholders entitled to vote in the election of
directors or the direct or the directors may amend or repeal the Bylaws and may
adopt new Bylaws.
Yapalot's Certificate of Incorporation provides that the Board of
Directors is expressly authorized to make, alter or repeal the Bylaws of the
corporation and conduct such business in the best interest's of the corporation.
31
Amendment to Certificates of Incorporation
Under the DGCL, amendment of the Certificate of Incorporation will be
made by a resolution of the board of directors setting forth the amendment,
declaring its advisability, and either calling a special meeting of the
stockholders entitled to vote or directing that the amendment proposed be
considered at the next annual meeting of the stockholders. At such stockholder's
meeting, a majority of the outstanding shares entitled to vote is required to
approve the amendment. If an amendment would increase or decrease the number of
authorized shares of such class, increase or decrease the par value of a class
of outstanding shares so as to affect the class adversely, then a majority of
shares of that class must approve the amendment as well. The DGCL also permits a
corporation to make provision in its certificate requiring a greater proportion
of voting power to approve a specified amendment. IVIP's Certificate of
Incorporation and Bylaws do not provide any special provisions regarding
amendments to its Certificate of Incorporation. Yapalot's Certificate of
Incorporation and Bylaws do not provide any special provisions regarding
amendments to its Certificate of Incorporation.
Action by Written Consent of Holders of Common Stock
The DGCL contains provisions permitting actions by holders of common
stock without providing notice and convening a meeting of such holders. IVIP's
Bylaws permit any actions to be taken by stockholders without a meeting, by
written consent, provided such written consent sets forth the actions taken and
is signed by not less than one-half of the votes thereon had there been an
actual meeting and they were present and voted. Yapalot's Certificate of
Incorporation and Bylaws do not address action by written consent of holders of
common stock.
Indemnification
The DGCL contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers and employees. While
indemnification is permitted only if certain statutory standards of conduct are
met, the DGCL provides for indemnification if the person acted in good faith and
in a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
DGCL provides that indemnification of officers, directors and employees is
merely permissive. The one exception to the DGCL's permissive indemnification
rule is that a corporation must indemnify a person who is successful on the
merits or otherwise in the defense of certain specified actions, suits or
proceedings for expenses and attorneys' fees actually and reasonably incurred in
connection therewith. Although indemnification is permissive in Delaware, the
DGCL allows a corporation, through its certificate of incorporation, bylaws or
other intracorporate agreements, to make indemnification mandatory. Pursuant to
this authority, IVIP's Bylaws provide that IVIP will indemnify its directors,
officers, employees or agents of the corporation that serve at the request of
the corporation to the fullest extent permitted by law. Yapalot's Bylaws provide
that Yapalot shall indemnify its directors and officers if they acted in good
faith with a view to the best interests of the corporation; and in the case of a
criminal or administrative action or proceeding, that is enforced by a monetary
penalty, he had reasonable grounds for believing that his conduct was lawful.
32
DGCL does not permit indemnification in a stockholder derivative suit
if the person is found liable to the corporation unless and only to the extent
that the Delaware Court of Chancery, as appropriate, or the court in which such
action or suit was brought determines that the person is fairly and reasonably
entitled to indemnification. Further, the corporation may indemnify such persons
only for attorneys' fees and other expenses.
The advancement of expenses is permissive under the DGCL. The Bylaws of
IVIP provide for the advancement of expenses incurred by a director, officer or
a person or entity serving at the request of the corporation.
Liability of Directors
Under the DGCL, a corporation's certificate of incorporation may
contain a provision limiting or eliminating a director's personal liability to
the corporation or its stockholders for monetary damages for a director's breach
of fiduciary duty subject to certain limitations. IVIP's Certificate of
Incorporation and Yapalot's Certificate of Incorporation do not include such a
provision. Under the DGCL, IVIP's Bylaws and Yapalot's Bylaws, indemnification
is provided if the person seeking indemnification acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation (and, in cases of liability involving criminal
violations, only if the person had no reasonable cause to believe that his
conduct was unlawful), provided, however, that if the person seeking
indemnification is adjudged liable to the corporation by a court,
indemnification is provided only if the court, upon application, determines that
such indemnification is fair and reasonable in view of all the circumstances of
the case.
Stockholder Meetings
In accordance with IVIP's Bylaws, annual meetings of stockholders will
be held on such date as may be fixed by IVIP's Board of Directors provided that
each successive annual meeting shall be held on a date within thirteen months
after the date of the preceding annual meeting. Special meetings of stockholders
may be called by the directors, or by any officer instructed by the directors to
call the meeting or by the President. Pursuant to Yapalot's Bylaws, annual
meetings of stockholders will be held on such date as may be fixed by Yapalot's
Board of Directors not later than fifteen months after holding the last
preceding annual meeting, and special meetings of stockholders may be called by
the Board of Directors, the Chairman of the Board or the President. The DGCL and
IVIP's Bylaws require that whenever stockholders are required or permitted to
take action at a meeting, a written notice stating the place, time and date of
the meeting and , in the case of a special meeting, the purpose or purposes for
which the meeting is called, must be sent to all stockholders of record entitled
to vote thereon not less than 10 nor more than 60 days before the meeting.
Yapalot's Bylaws require that whenever stockholders are required or permitted to
take action at a meeting, a written notice stating the place, time and date of
the meeting and , in the case of a special meeting, the purpose or purposes for
which the meeting is called, must be sent to all stockholders of record entitled
to vote thereon not less than 21 and not more than 50 days before the meeting.
Under the DGCL, notice of a meeting to consider an agreement of merger must be
sent at least 20 days prior to the date of the meeting.
33
Mergers and Consolidations
In order to effect a merger under the DGCL, a corporation's board of
directors must adopt an agreement of merger and recommend it to the
stockholders. The agreement must be adopted by holders of a majority of the
outstanding shares of the corporation entitled to vote thereon.
34
INDEX TO FINANCIAL STATEMENTS
INTERNET VIP, INC. AND SUBSIDIARIES
Unaudited financial statements for the three months ended
May 31, 2001...............................................................F- 2
Independent Auditors' Report...............................................F- 7
Balance Sheets - February 28, 2001 and February 29, 2000...................F- 8
Statement of Operations - From inception (November 13, 1998) to
February 28, 2001 and for the Twelve Months Ended February 28,
2001 and February 29, 2000.................................................F- 9
Statement of stockholders' Equity - From inception (November 13, 1998)
to February 28, 2001.......................................................F-10
Statement of Cash Flows - From inception (November 13, 1998) through
February 28, 2001 and for the Twelve Months Ended February 28, 2001
and February 29, 2000......................................................F-12
Notes to Consolidated Financial Statements - February 28, 2001.............F-13
F-1
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET AT MAY 31, 2001
(UNAUDITED)
Assets
Current assets
Cash and cash equivalents $ 59,468
Accounts receivable, net 58,339
Other receivables 166,751
Other current assets 2,852
---------
Total current assets 287,409
Property and equipment, net 339,168
Other assets 14,674
---------
Total assets 641,251
=========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 2,126,665
Short term borrowings (principally related parties) 133,608
Deferred revenue 300,000
Other current liabilities 1,916
----------
Total current liabilities 2,562,190
Long Term Debt 200,100
Other Liabilities 2,735
----------
Total Liabilities 2,765,024
Shareholders' Equity
Common Stock, $.0001 par value; authorized 50,000,000 2,633
shares; issued and outstanding - 26,330,232
Paid in Capital 3,149,150
Deficit accumulated during the development stage (5,275,557)
Total Shareholder's Equity (2,123,774)
Total liabilities and shareholder's equity $ 641,251
==========
Read the accompanying accounting notes to financial statements,
which are an integral part of this financial statement.
F-2
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FROM INCEPTION (NOVEMBER 13, 1998) TO MAY 31, 2001
FOR THE THREE MONTHS ENDED MAY 31, 2001 AND 2000
Inception
(November 13, 1998) Three months ended
through May 31, May 31,
May 31, 2001 2001 2000
--------------------- ---------- ----------
Revenues $ 1,075,491 $ 105,320 $ 19,147
Cost of Sales 2,895,648 619,290 182,793
----------- ---------- ---------
Gross Profit (1,820,157) (513,970) (163,646)
Operating expenses:
Marketing 635,164 94,000 688,878
Salaries and payroll related 610,741 79,304 174,102
Professional Fees 997,729 148,593 129,199
Travel 327,536 14,753 45,221
Amortization of deferred compensation 100,000 - -
Rent 141,739 4,446 6,667
Selling, general and administrative expenses 488,557 15,775 91,639
----------- ---------- ---------
Total operating expenses 3,301,466 356,870 1,135,706
Loss before other income (expense) (5,121,623) (870,840) (1,299,352)
Other income (expense):
Interest income 402 226 -
Interest expense (144,703) (25,354) (83,192)
Foreign exchange gain (loss) (9,633) (2,942) -
----------- ---------- ---------
Total other income (expense) (153,934) (28,070) (83,192)
----------- ---------- ---------
Net Loss (5,275,557) (898,910) (1,382,544)
=========== ========== ==========
Basic weighted average common shares outstanding 24,927,072 23,843,523
============ ===========
Basic Loss per common share $ (0.0361) $ (0.0580)
============ ===========
Read the accompanying accounting notes to financial statements, which
are an integral part of this financial statement.
F-3
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FROM INCEPTION (NOVEMBER 13, 1998) THROUGH MAY 31, 2001
FOR THE THREE MONTHS ENDED MAY 31, 2001 AND 2000
Inception
(November 13, 1998) Three months ended
through May 31, May 31,
May 31, 2001 2001 2000
------------------ ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (5,275,557) $ (898,910) $(1,382,544)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 170,609 41,950 33,682
Amortization of employee stock based compensation 100,000 16,666 8,334
Stock issued for compensation 100,000 - 100,000
Stock issued for marketing services 289,433 75,000
Stock issued for consulting services 521,021 94,000 725,775
Stock issued for interest 88,890 20,352 81,941
Warrants issued for interest 35,000 - -
Changes in Operating assets and liabilities:
Receivables and other current assets (240,216) 133,546 (29,321)
Accounts payable and other liabilities 2,429,583 541,704 (56,654)
-------------------- ------------- --------------
Net cash provided by/(used in) operating activities (1,781,237) 24,308 (518,787)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and equipment (479,775) 61 (24,528)
-------------------- ------------- --------------
Net cash provided by/(used in) investing activities (479,775) 61 (24,528)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Stockholder's capital contribution, net 1,945,439 54,000 654,900
Convertible debentures 200,100 - -
Short-term borrowing, net 174,941 (46,380) 52,604
-------------------- ------------- --------------
Net cash provided by/(used in) financing activities 2,320,480 7,620 707,504
-------------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 59,468 31,989 164,189
Cash and cash equivalents, beginning of period - 27,480 24,673
-------------------- ------------- --------------
Cash and cash equivalents, end of period $ 59,468 $ 59,469 $ 188,862
==================== ============= ==============
Supplemental Schedule of noncash investing and financing activities:
Common stock issued for noncash consideration 100,000
Warrants issued for non-cash equipment purchase 30,000
Shares issued to extinguish short term borrowings 42,000
Common stock issued pursuant to employment agreement 100,000
Read the accompanying accounting notes to financial statement, which
are an integral part of this financial statement.
F-4
1 -BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Internet
VIP, Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. The financial statements reflect all
adjustments consisting of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the periods
shown. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
These financial statements should be read in conjunction with the
audited financial statements and footnotes thereto for the fiscal year ended
February 28, 2001 included in Internet VIP, Inc.'s Form 10-KSB filed with the
Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted 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 that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - REVENUE RECOGNITION
The company sources of revenues are in the form of sales from prepaid
calling cards, dedicated line rentals, sales from telephone line usage on a time
basis. Revenues from prepaid calling cards are recognized when the calling cards
are used, any unused time is considered deferred revenue. Revenues from line
rentals are recognized over the contractual life of the line rental agreement.
Revenues from sales from telephone line usage are recognized when the line is
used.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provide guidance for disclosures
related to revenue recognition policies. Management believes that Internet VIP,
Inc.'s revenue recognition practices are in conformity with the guidelines of
SAB 101.
NOTE 3 - NET LOSS PER SHARE
Earnings (Loss) per common share are calculated under the provisions of
SFAS No. 128, "Earnings per Share," which establishes standards for computing
and presenting earnings per share. SFAS No. 128 requires the Company to report
both basic earnings (loss) per share, which is based on the weighted-average
number of common shares outstanding during the period, and diluted earnings
(loss) per share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Options and
warrants are not considered in calculating diluted earnings (loss) per share
since considering such items would have an anti-dilutive effect.
F-5
INTERNET VIP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 31, 2001
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The company reported a net loss of
$898,910 For the three months ended May 31, 2001 (unaudited) and a net loss of
$5,275,557 since inception (unaudited). As reported on the statement of cash
flows, the Company incurred negative cash flows from operating activities of
$1,781,237 from inception (unaudited). To date, this has been financed
principally through the sale of common stock ($1,945,439) (unaudited).
Management believes the company will have sufficient funds available from
proceeds of private placements, debt issuance and estimated revenues for the
year ended February 28, 2002 to finance the Company's operations until February
2002. Management has continued to develop a strategic plan to develop a
management team, maintain reporting compliance and seek new expansive areas in
Voice over Internet Protocol.
NOTE 5 - STOCKHOLDER'S EQUITY
In May 2001, the Company sold 350,000 shares of common stock in a
private placement at a price of $0.15 per share.
In May 2001, the Company issued 64,500 shares of common stock in
settlement of interest in the amount of $20,352.
In May 2001, the Company issued 737,500 shares of common stock in
settlement for services in the amount of $168,992.
F-6
Mark Cohen C.P.A.
1772 East Trafalgar Circle
Hollywood, Fl 33020
(954) 922 - 6042
-------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and stockholders of Internet VIP, Inc.
We have audited the accompanying balance sheet of Internet VIP, Inc. (a company
in the development stage) and its subsidiaries as of February 28, 2001 and the
related statements of operations, stockholders' equity (deficiency) and cash
flows for the year ended. 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. The financial statements of Internet
VIP, Inc. and its subsidiaries as of February 29, 2000, were audited by other
auditors whose report dated September 23, 2000, expressed an unqualified opinion
on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Internet VIP, Inc. and its
subsidiaries at February 28, 2001, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has experienced an operating loss and
management has determined that it will require additional capital to continue
funding operations and meet its obligations as they come due. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/Mark Cohen, C.P.A.
Mark Cohen C.P.A.
A Sole Proprietor Firm
Hollywood, Florida
May 2, 2001
F-7
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
February 28, February 29,
2001 2000
---------------- ----------------
Assets
Current assets
Cash and cash equivalents $ 27,480 $ 24,673
Accounts receivable, net 177,934 -
Other receivables 176,957 -
Other current assets 4,197 12,802
---------- ----------
Total current assets 386,568 37,475
Property and equipment, net 381,177 379,660
Other assets 14,674 -
--------- --------------
Total assets $782,419 $417,135
======== ========
Liabilities and stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 1,659,496 239,174
Short term borrowings (principally related parties) 179,321 55,000
Deferred revenue 216,025 -
Other current liabilities 9,623 -
------------ -------------
Total current liabilities 2,064,465 294,174
Long Term Debt 200,100 -
Other Liabilities 2,735 -
------------ -------------
Total Liabilities 2,267,300 294,174
stockholders' Equity
Common Stock, $.0001 par value; 2,510 2,335
authorized 50,000,000 shares;
issued and outstanding - 25,178,232
and 23,351,027 respectively
Paid in Capital 2,905,921 1,790,911
Deferred Compensation (16,666) -
Deficit accumulated during
the development stage (4,376,646) (1,670,285)
----------- -----------
Total Stockholder's Equity (1,484,880) 122,961
Total liabilities and stockholder's equity $ 782,419 $ 417,135
========= =========
Read the accompanying accounting notes to
financial statements, which are an integral part of this
financial statement
F-8
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FROM INCEPTION (NOVEMBER 13, 1998) TO FEBRUARY 28, 2001
FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
Inception Twelve months ended
(November 13, 1998) February 28, February 29,
through February 28, 2001 2001 2000
------------------------- ------------- --------------
Revenues $ 970,171 $ 970,171 $ -
Cost of Sales 2,276,358 2,012,437 255,921
--------- --------- -------
Gross Profit (1,306,187) (1,042,266) (255,921)
Operating expenses:
Marketing 541,164 390,334 145,600
Salaries and payroll related 531,437 419,230 97,540
Professional Fees 849,136 258,427 514,373
Travel 312,783 97,596 119,740
Amortization of deferred compensation 100,000 - 100,000
Rent 137,293 54,008 79,235
Selling, general and administrative expenses 472,782 374,469 83,033
---------- ---------- ----------
Total operating expenses 2,944,595 1,594,064 1,139,521
--------- --------- ---------
Loss before other income (expense) (4,250,783) (2,636,331) (1,395,442)
Other income (expense):
Interest income 176 176 -
Interest expense (119,349) (63,516) (55,833)
Foreign exchange gain (loss) (6,691) (6,691) -
------------- ---------------------------
Total other income (expense) (125,864) (70,031) (55,833)
----------- ----------- ----------
Net Loss $(4,376,646) $(2,706,361) $(1,451,275)
============ ============ ============
Basic weighted average
common shares outstanding 24,722,640 22,289,828
========== ==========
Basic Loss per common share $ (0.1095) $ (0.0651)
========== ==========
Read the accompanying accounting notes to
financial statements, which are an integral part of this
financial statement.
F-9
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION (NOVEMBER 13, 1998) TO FEBRUARY 28, 2001
Common Stock Paid-in Deferred
--------------------
Shares Amount Capital Compensation
------- ------ ------- ------------
Balance, inception (November 13, 1998) - $ - $ - $ -
Issuance of common stock to founders 18,772,600 1,877
Issuance of common stock in a private
placement ($0.05 per share) 1,184,000 118 59,082
Issuance of common stock in a private
placement ($0.05 per share), net 718,200 72 339,028
Issuance of common stock for consulting
services 200,000 20 99,980 (100,000)
Net loss year ended February 28, 1999 - - - -
--------------- ----------- ------------------------------
Balance, February 28, 1999 20,874,800 2,087 498,090 (100,000)
Issuance of common stock in a private
placement ($0.05 per share), net 1,672,727 167 831,195
Issuance of common stock for consulting
services 743,500 75 371,632
Issuance of common stock in lieu of
interest 60,000 6 59,994
Issuance of warrants for purchase of
equipment 30,000
Amortization of deferred compensation 100,000
Net loss year ended February 29, 2000 - - - -
------------- -------------------------------------------
Balance, February 29, 2000 23,351,027 2,335 1,790,911 -
Issuance of common stock in a private
placement ($0.50 per share) 20,000 2 9,998
Issuance of common stock in a private
placement ($0.77 per share) 30,400 3 23,397
Issuance of common stock in a private
placement ($1.00 per share) 626,500 63 626,437
Issuance of common stock in lieu of
interest 179,840 18 43,548
Issuance of common stock for marketing
services 643,400 64 214,369
Issuance of common stock to executive
per employment agreement 100,000 10 99,990 (100,000)
Amortization of deferred compensation 83,334
Issuance of common stock for other services 185,065 19 55,295
Issuance of common stock for conversion of debt 42,000 4 41,996
Net loss year ended February 28, 2001 - - - -
---------------- -------------------------------------------
Balance, February 28, 2001 25,178,232 $ 2,510 $2,905,921 $(16,666)
========== ======= ========== =========
Read the accompanying accounting notes to
financial statements, which are an integral part of
this financial statement.
F-10
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY FROM
INCEPTION (NOVEMBER 13, 1998) TO FEBRUARY 28, 2001
(CONT.)
Accumulated
Deficit during Total
Development stockholders'
Stage Equity
----------------- ----------------
Balance, inception (November 13, 1998) $ - $ -
Issuance of common stock to founders 1,877
Issuance of common stock in a private
placement ($0.05 per share) 59,200
Issuance of common stock in a private
placement ($0.05 per share), net 339,100
Issuance of common stock for consulting
services -
Net loss year ended February 28, 1999 (219,010) (219,010)
--------- ---------
Balance, February 28, 1999 (219,010) 181,167
Issuance of common stock in a private
placement ($0.05 per share), net 831,362
Issuance of common stock for consulting
services 371,707
Issuance of common stock in lieu of
interest 60,000
Issuance of warrants for purchase of
equipment 30,000
Amortization of deferred compensation 100,000
Net loss year ended February 29, 2000 (1,451,275) (1,451,275)
------------ -----------
Balance, February 29, 2000 (1,670,285) 122,961
Issuance of common stock in a private
placement ($0.50 per share) 10,000
Issuance of common stock in a private
placement ($0.77 per share) 23,400
Issuance of common stock in a private
placement ($1.00 per share) 626,500
Issuance of common stock in lieu of
interest 43,566
Issuance of common stock for marketing
services 214,433
Issuance of common stock to executive
per employment agreement -
Amortization of deferred compensation 83,334
Issuance of common stock for other services 55,314
Issuance of common stock for conversion of debt 42,000
Net loss year ended February 28, 2001 (2,706,361) (2,706,361)
----------- -----------
Balance, February 28, 2001 $(4,376,646) $(1,484,880)
============ ============
Read the accompanying accounting notes to
financial statements, which are an integral part of
this financial statement.
F-11
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FROM INCEPTION (NOVEMBER 13, 1998) THROUGH FEBRUARY 28, 2001
FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
Inception
(November 13, 1998) Twelve months ended
-------------------
through February 28, February 29,
February 28, 2001 2001 2000
----------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (4,376,646) $ (2,706,361) $(1,451,275)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 128,659 128,659 -
Amortization of employee stock based compensation 83,334 83,334
Stock issued for compensation 100,000 100,000
Stock issued for marketing services 214,433 214,433
Stock issued for consulting services 427,021 55,314 371,707
Stock issued for interest 103,538 47,705 55,833
Changes in Operating assets and liabilities:
Receivables and other current assets (373,762) (365,127) (7,834)
Accounts payable and other liabilities 1,887,879 1,648,705 170,916
--------- --------- -------
Net cash provided by/(used in) operating activities (1,805,544) (893,338) (760,653)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and equipment (479,836) (130,176) (324,660)
--------- --------- ---------
Net cash provided by/(used in) investing activities (479,836) (130,176) (324,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Stockholder's capital contribution, net 1,891,439 659,900 831,362
Convertible debentures 200,100 200,100 -
Short-term borrowing, net 221,321 166,321 55,000
----------- ---------- ----------
Net cash provided by/(used in) financing activities 2,312,860 1,026,321 886,362
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 27,480 2,807 (198,951)
Cash and cash equivalents, beginning of period - 24,673 223,624
----------- ---------- ----------
Cash and cash equivalents, end of period $ 27,480 $ 27,480 $ 24,673
=========== ========== ==========
Supplemental Schedule of noncash investing and
financing activities:
Common stock issued for noncash consideration 100,000
=======
Warrants issued for non-cash equipment purchase 30,000 30,000
====== ======
Shares issued to extinguish short term borrowing 42,000 42,000
====== ======
Common stock issued pursuant to employment agreement 100,000 100,000
======= =======
Read the accompanying accounting notes to
financial statement, which are an integral part of this
financial statement.
F-12
INTERNET VIP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2001
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Internet VIP, Inc. (the "Company") was incorporated in the State of Delaware on
November 13, 1998. The Company was formed to sell long distance international
telephone services using the technology, Voice over Internet Protocol ("VoIP").
The Company also operates through a wholly owned Canadian subsidiary
corporation, IVIP Telcom Canada Inc.
Internet VIP, Inc. prepares its consolidated financial statements in accordance
with generally accepted accounting principles. This basis of accounting involves
the application of accrual accounting; consequently, revenues and gains are
recognized when earned, and expenses and losses are recognized when incurred.
Financial statement items are recorded at historical cost and may not
necessarily represent current values.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of Internet VIP, Inc.
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, 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. Certain amounts
included in the financial statements are estimated based on currently available
information and management's judgment as to the outcome of future conditions and
circumstances. Changes in the status of certain facts or circumstances could
result in material changes to the estimates used in the preparation of financial
statements and actual results could differ from the estimates and assumptions.
Every effort is made to ensure the integrity of such estimates.
Fair value of financial instruments:
The carrying amounts of cash and equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their fair values because of the
short duration of these instruments.
F-13
Impairment of long-lived assets:
Long-lived assets held and used by the Company are reviewed for possible
impairment whenever
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the assets to the future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Cash and cash equivalents:
The Company considers all highly liquid investments with original maturities of
ninety days or less to be cash and cash equivalents. Such investments are valued
at quoted market prices.
Receivables:
The Company believes that the carrying amount of receivables at February 28,
2001 approximates the fair value at such date.
Property, equipment and depreciation:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated
useful lives as follows when the property and equipment is placed in service:
Estimate Useful Life
(In Years)
Office Furniture 10
Computer Equipment 3
Software 3
Repairs and maintenance are charged to operations as incurred, and expenditures
for significant improvements are capitalized. The cost of property and equipment
retired or sold, together with the related accumulated depreciation, are removed
from the appropriate asset and depreciation accounts, and the resulting gain or
loss is included in operations.
Revenue Recognition:
The company sources of revenues are in the form of sales from prepaid calling
cards, dedicated line rentals, sales from telephone line usage on a time basis.
Revenues from prepaid calling cards are recognized when the calling cards are
used, any unused time is considered deferred revenue. Revenues from line rentals
are recognized over the contractual life of the line rental agreement. Revenues
from sales from telephone line usage are recognized when the line is used.
F-14
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC.
SAB 101 outlines the basic criteria that must be met to recognize revenue and
provide guidance for disclosures related to revenue recognition policies.
Management believes that Internet VIP, Inc.'s revenue recognition practices are
in conformity with the guidelines of SAB 101.
Earnings (Loss) per share calculation:
Earnings (Loss) per common share are calculated under the provisions of SFAS No.
128, "Earnings per Share," which establishes standards for computing and
presenting earnings per share. SFAS No. 128 requires the Company to report both
basic earnings (loss) per share, which is based on the weighted-average number
of common shares outstanding during the period, and diluted earnings (loss) per
share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Options and
warrants are not considered in calculating diluted earnings (loss) per share
since considering such items would have an anti-dilutive effect.
Stock based compensation:
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". The Company accounts for stock based compensation granted to non
employees in accordance with SFAS No. 123. The Company has determined that it
will continue to account for employee stock-based compensation under Accounting
Principles Board No. 25 and elect the disclosure-only alternative under SFAS No.
123.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recent Accounting Pronouncements:
In September 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards Board (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities", amended by Statements of
Financial Accounting Standards Board (SFAS) No. 137, "Accounting for Derivati
.ve Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement 133" and Statement of
Financial Accounting Standards Board (SFAS) No. 138, "Accounting for Derivative
Instruments and Hedging Activities - an amendment of FASB Statement 133." These
new standards establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the consolidated balance sheet
and measure those instruments at fair value. This Statement is effective for all
fiscal quarters of all fiscal years beginning after September 15, 2000. The
adoption of this statement by the Company did not have a material impact on its
financial condition or results of operations.
F-15
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
February 28, February 29,
2000 1999
------------ -------------
Office Furniture $ 4,505 $ -
Computer Equipment 403,312 349,660
Software 102,019 30,000
---------- ----------
509,836 379,660
Less: Accumulated depreciation 128,659 -
---------- ----------
$381,177 $ 379,660
NOTE 4 - SHORT TERM BORROWINGS
The Company has received loans from an affiliated company (an entity owned by a
stockholder). These loans bear 10% interest per annum on the outstanding
balance. At February 28, 2001 the balance due, including interest was $17,921.
On February 1, 2000, the Company entered into a $30,000 loan agreement with a
nonaffiliated party for an initial period of six months which has been extended
indefinitely. The loan bears interest of 5% per month, payable in cash or 6,000
common shares of the Company, at the Company's option. The loan is convertible
at any time, at the lender's option, in whole or in part, to common shares of
the Company at a conversion rate of $0.25 per share. The interest expense
resulting from the beneficial conversion feature has been charged to the
statement of operations for the years ended February 28, 2001 and February 29,
2000. Substantially all of the Company's assets are pledged to guarantee the
repayment of the loan. The balance of the loan at February 28, 2001 was $30,000.
On March 14, 2000, the Company entered into a $25,000 loan agreement with a
nonaffiliated party for an initial period of three months which has been
extended indefinitely. The loan bears interest of 15% per annum, payable in cash
or common shares of the Company, at the Company's option, at a conversion rate
of 1 share for $0.0625 of interest. The loan is convertible at any time, at the
lender's option, in whole or in part, to common shares of the Company at a
conversion rate of $0.25 per share. The interest expense resulting from the
beneficial conversion feature has been charged to the statement of operations
for the year ended February 28, 2001. Substantially all of the Company's assets
are pledged to guarantee the repayment of the loan. During the year, $5,000 of
the principal was repaid. The balance of the loan at February 28, 2001 was
$20,000.
On September 15, 2000, the Company entered into an agreement to borrow up to
$150,000 from a nonaffiliated party. The repayment of the total amount borrowed
is due on February 28, 2001 which has been extended indefinitely. The loan bears
interest of 10% per annum, payable in common shares of the Company at a
conversion rate of 20 shares per $1,000 of the average
F-16
NOTE 4 - SHORT TERM BORROWINGS (CONTINUED):
monthly outstanding loan balance. The interest expense resulting from the
beneficial conversion feature has been charged to the statement of operations
for the year ended February 28, 2001. Substantially all of the Company's assets
are pledged to guarantee the repayment of the loan. During the year, $5,000 of
the principal was repaid. The balance of the loan at February 28, 2001 was
$111,400.
NOTE 5 - CONVERTIBLE DEBENTURE
On September 22, 2000 the Company entered into a convertible debenture agreement
with a nonaffiliated party. The amount of the debenture was $300,000 CAD
($200,100 USD). The debenture bears interest of 10% per annum and expires on
September 30, 2002. The debenture can be converted , at the discretion of the
holder, at any time up to the expiring date into common shares of the Company at
a rate of 1 share per $1.00 USD of the balance outstanding.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Lease agreements
By way of an assignment from an affiliated company (an entity owned by a
stockholder, director and officer) , the Company has entered into an office
lease agreement for its Montreal office on September 15, 2000. The lease expires
on November 30, 2002. Monthly rent amounts, which include taxes, are $2,555 CAD.
On September 26, 2000, the company entered into a six month office lease
agreement for its Moscow office which started on September 1, 2000 and expired
on December 31, 2000. Monthly rent amounts, which included all applicable taxes,
were equivalent to $3,050 USD. Starting January 1, 2001, the Company continued
to maintain its office at this location on a month to month basis with the same
monthly rent amount.
The following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of February 28, 2001:
Year ending February 28,
2002 - $ 30,660
2003 - 22,995
------
$ 53,655
F-17
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
Facilities Management:
On October 01, 2000 the Company entered into a one-year agreement with RACO
Remote Access Company where RACO will provide the Company with facilities for
its equipment for a monthly charge of $650 CAD as well as maintenance and
technical support for such equipment for variable monthly considerations.
Telecommunication Service Agreement:
On April 19, 2000 the Company entered into a three-year agreement with Primelink
Inc. in which Primelink will provide telecommunication services to the Company
for variable monthly considerations.
Employment Contract:
On April 28, 2000 the Company entered into a one-year employment agreement,
automatically renewable each year ,with its Chief Executive Officer. The
agreement is effective May 1, 2000 and ends on April 30, 2001. The Company
agreed to an annual salary of $90,000 USD, issuance of 100,000 shares of common
stock at par value, 100,000 options (See Note 10) exercisable annually at $0.05
as long as the employment contract is in effect and a monthly car allowance of
$500 CAD. The company also agreed to purchase billing software from the CEO in
the amount of $35,000 USD. At February 28, 2001 approximately $47,795 USD of
salaries was unpaid.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company reported net losses of $2,706,361
and $1,451,275 for the twelve months ended February 28, 2001 and February 29,
2000 respectively as well as reporting net losses of $4,376,646 from inception
(November 13, 1998) to February 28, 2001. As reported on the statement of cash
flows, the Company incurred negative cash flows from operating activities of
$893,338 and $760,653 for twelve months February 28, 2001 and February 29, 2000
respectively and has reported deficient cash flows from operating activities of
$1,805,544 from inception (November 13, 1998). To date, these losses and cash
flow deficiencies have been financed principally through the sale of common
stock ($1,891,439) Additional capital and/or borrowings will be necessary in
order for the Company to continue in existence until attaining and sustaining
profitable operations.
NOTE 8 - RELATED PARTIES
The Company received investment relations services from an affiliated company
(an entity owned by a stockholder). Fees for such services which totaled $38,105
for the year ended February 28, 2001 and were settled by the issuance of 146,315
shares of common stock.
F-18
NOTE 9 - INCOME TAXES
The Company did not provide any current or deferred United States federal, state
or foreign income tax provision or benefit for the period presented because it
has experienced operating losses since inception. The Company has provided a
full valuation allowance on the deferred tax asset, consisting primarily of net
operating loss carry-forwards, because of uncertainty regarding its
realizability.
NOTE 10 - EMPLOYEE STOCK BASED COMPENSATION
In April 2000 the Company entered into an employment agreement with its Chief
Executive Officer in which 100,000 options were granted at an exercise price of
$0.05 and expire on March 31, 2001.
The Company has determined that it will continue to account for employee
stock-based compensation under Accounting Principles Board No. 25 and elect the
disclosure-only alternative under SFAS No. 123.
FAS 123 "Accounting for stock based compensation"
Year ended
February 28, February 29,
Paragraph 47 (a) 2001 2000
-------------- --------------
1. Beginning of year - outstanding
i. number of options 0 0
ii. weighted average exercise price 0 0
2. End of year - outstanding
i. number of options 100,000 0
ii. weighted average exercise price .05 0
3. End of year - exercisable
i. number of options 0 0
ii. weighted average exercise price 0 0
4. During the year - Granted
i. number of options 100,000 0
ii. weighted average exercise price .05 0
5. During the year - Exercised
i. number of options 0 0
ii. weighted average exercise price 0 0
6. During the year - Forfeited
i. number of options 0 0
ii. weighted average exercise price 0 0
7. During the year - Expired
i. number of options 0 0
ii. weighted average exercise price 0 0
F-19
NOTE 10 - EMPLOYEE STOCK BASED COMPENSATION (CONTINUED):
Paragraph 47 (b) Weighted-average grant-date fair value of options granted
during the year:
1. Equals market price 0.00 0.00
2. Exceeds market price 0.00 0.00
3. Less than market price 0.00 0.00
Paragraph 47(C)Equity instruments other
than options none none
Paragraph 47(d) Description of the method and significant assumptions used
during the year to estimate the fair value of options:
The Black Scholes option pricing model is the method used to calculate The fair
value of options.
Year ended
February 28, February 29,
2001 2000
------------ -----------
1. Weighted average risk-free interest rate 6.00% 0.00%
2. Weighted average expected life (in months) 12.00 0.00
3. Weighted average expected volatility 0.00% 0.00%
4. Weighted average expected dividends 0.00 0.00
Paragraph 47(e) Total compensation cost recognized in 0 0
income for stock-based employee compensation awards.
Paragraph 47(f) The terms of significant modifications none none of outstanding
awards.
F-20
NOTE 10 - EMPLOYEE STOCK BASED COMPENSATION (CONTINUED):
Paragraph 48 - Options outstanding at the date of the latest statement of
financial position presented:
1. (a) Range of exercise prices $0.05 $ 0.00
(b) Weighted-average exercise price .95 0.00
2. Weighted-average remaining contractual 12.00 0.00
life (in months)
Inception
Nov. 13, 1998
Year ended Year ended Through
After proforma effect Feb. 28, 2001 Feb 29, 2000 February 28, 2001
-------------- ------------ -----------------
Net Income (2,801,361) (1,451,275) (4,471,646)
Earnings per share $ (0.1095) $ (0.0651)
F-21
Appendix A
ss. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to ss. of this title
shall be entitled to an appraisal by the Court of Chancery of the fair value of
the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to ss. 251 (other than a merger effected pursuant to ss. 251(g) of this
title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to ss.ss. 251, 252, 257, 258,
263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in lieu
of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to
a merger effected under ss. 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss. 228 or ss. 253
of this title, each consitutent corporation, either before the effective date of
the merger or consolidation or within ten days thereafter, shall notify each of
the holders of any class or series of stock of such constitutent corporation who
are entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in such
notice a copy of this section; provided that, if the notice is given on or after
the effective date of the merger or consolidation, such notice shall be given by
the surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either
(i) each such constitutent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constitutent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if the
notice is given on or after the effective date of the merger or consolidation,
the record date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the close
of business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
APPENDIX B
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
this 30th day of May, 2001, between Yapalot Acquisition Corp., a Delaware
corporation ("Acquisition"), Internet VIP Inc., a Delaware corporation ("IVIP"),
Yapalot Communications Inc., a Canadian Federal Corporation ("Subsidiary"),
Yapalot Communications Holdings Inc., a Delaware corporation ("Yapalot") and the
individuals listed on Schedule 5.1 (the "Escrowers").
WITNESSETH:
WHEREAS, the authorized capital stock of Yapalot consists of 50,000,000
shares of common stock, $.0001 par value ("Yapalot Stock"), of which 20,000,000
shares of Yapalot Stock are issued and outstanding as of the date hereof;
WHEREAS, Yapalot is solely a holding company with no operations of its own
and owns all of the issued and outstanding shares of Subsidiary;
WHEREAS, references herein to Yapalot shall mean to Yapalot on a
consolidated basis with Subsidiary;
WHEREAS, Acquisition is inactive and was formed by IVIP solely for the
purposes of this transaction and is wholly-owned by IVIP;
WHEREAS, the authorized capital stock of IVIP consists of 50,000,000 shares
of common stock, par value $.0001 per share ("IVIP Stock") of which
_________________ shares are issued and outstanding as of the date hereof;
WHEREAS, the respective boards of directors of IVIP, Acquisition,
Subsidiary and Yapalot deem it advisable and in the best interests of IVIP,
Acquisition, Subsidiary and Yapalot that Yapalot merge with and into Acquisition
(the "Merger") pursuant to the terms of this Agreement and the applicable
provisions of the laws of the State of Delaware;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger will qualify as a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
ARTICLE I
TERMS OF THE MERGER
1.1 Merger. Upon the terms and subject to the conditions set forth in
this Agreement, Yapalot shall be merged with and into Acquisition. The
stockholders of Yapalot (the "Securityholders") shall transfer and convey to
Acquisition all of each Securityholder's right, title and interest in and to all
of the issued and outstanding shares of Yapalot Stock by transferring and
delivering to Acquisition (for cancellation) their certificates, properly
endorsed in blank or accompanied by a properly executed stock power,
representing all of the issued and outstanding shares of Yapalot Stock.
Regardless of whether the Securityholders actually perform as described, at the
Effective Time (as described below) their shares of Yapalot Stock will only
evidence ownership of IVIP, pursuant to the terms hereof.
1.2 Merger Consideration. In consideration of and in exchange for all of
the issued and outstanding shares of Yapalot Stock as set forth in Section 1.1
above, IVIP shall issue to the Securityholders shares of IVIP Stock in the ratio
of 1.4:1, or 1.4 shares of IVIP Stock for each share of Yapalot Stock.
1.3 Effective Time of Merger. Subject to the terms and conditions of
this Agreement, the certificate of merger, in substantially the form of Exhibit
1.3 (the "Certificate of Merger"), required by Section 252 of the Delaware
General Corporation Law (the "DGCL") shall be duly executed and acknowledged by
Yapalot and IVIP and thereafter delivered to the Secretary of the State of
Delaware for filing pursuant to the DGCL, on the day immediately following the
Closing Date (as hereinafter defined). The Merger shall become effective (the
"Effective Time") upon the filing of the Certificate of Merger with the
Secretary of the State of Delaware.
1.4 Effects of the Merger.
---------------------
(a) At the Effective Time: (i) the separate existence of
Yapalot shall cease and Yapalot shall be merged with and into Acquisition
(Yapalot and Acquisition are sometimes referred to herein as the "Constituent
Corporations" and Acquisition is sometimes referred to herein as the "Surviving
Corporation"); (ii) the certificate of incorporation of Acquisition, as amended
by the Certificate of Merger, as in effect immediately prior to the Effective
Time shall continue to be the certificate of incorporation of the Surviving
Corporation; and (iii) the bylaws of Acquisition as in effect immediately prior
to the Effective Time shall become the bylaws of the Surviving Corporation.
(b) At and after the Effective Time, the Merger shall have the
effects set forth in Section 259 of the DGCL. Without limiting the foregoing, at
the Effective Time, Acquisition as the Surviving Corporation shall possess all
the rights, privileges, powers and franchises of a public as well as a private
nature, and be subject to all the restrictions, disabilities and duties of each
of the Constituent Corporations, and all singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well as for stock subscriptions and all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
Acquisition as the Surviving Corporation and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, in either of the Constituent Corporations, shall not revert or be in
any way impaired; but all rights of creditors and all liens upon any property of
either of the Constituent Corporation shall thenceforth attach to Acquisition as
the Surviving Corporation, and may be enforced against it to the same extent as
if said debts and liabilities had been incurred by it.
1.5 Directors and Officers of the Surviving Corporation. The directors
and officers of Acquisition immediately after the Effective Time shall be the
directors and officers designated on Schedule 1.5 hereto. Such directors and
officers shall serve until their successors shall have been duly elected,
appointed and/or qualified or until their earlier death, resignation or removal
in accordance with the certificate of incorporation and bylaws.
1.6 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of any holder of shares of Yapalot
Stock or shares of stock held by IVIP as sole stockholder of Acquisition
("Acquisition Stock"):
(a) Acquisition and IVIP Stock. Each issued and outstanding
share of Acquisition Stock and IVIP Stock shall continue to be issued and
outstanding and shall not be affected by the Merger.
(b) Conversion of Yapalot Stock and Derivatives. The shares of
Yapalot Stock issued and outstanding as of the Effective Time shall be converted
on a one-to-one point four basis into shares of IVIP Stock, as sole stockholder
of Acquisition (i.e., for every share of Yapalot Stock, a Securityholder will
receive 1.4 shares of IVIP Stock). All such shares of Yapalot Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of IVIP Stock (or appraisal
rights, if applicable) to be issued or paid in consideration therefor upon the
surrender of such certificate for exchange to Acquisition at the Closing (as
hereinafter defined). All currently outstanding derivative securities of Yapalot
shall, following the Closing, become exercisable into, or convertible for, the
same number of shares of IVIP Stock, and upon the same terms, as if the Closing
had not occurred and they were being exercised into, or convertible for, shares
of Yapalot Stock.
1.7 Restrictions on Resale of IVIP Stock. The shares of IVIP Stock
received by the Securityholders pursuant to this Agreement shall be issued by
IVIP in reliance upon exemptions from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") and may not be sold,
assigned, pledged, hypothecated or transferred, or any interest therein conveyed
to any other person, except in accordance with the registration provisions of
the federal and state securities laws or applicable exemption therefrom, and the
certificates representing such shares shall contain an appropriate legend to
that effect.
1.8 Tax-Free Reorganization. (i) The parties intend that the Merger
qualify as a tax-free reorganization under Section 368(a)(1)(A) of the Code.
Unless required by a final determination of the Internal Revenue Service (or
other governing body having jurisdiction over these matters) or a court of
competent jurisdiction, the parties shall not take any position on any
subsequently filed tax return inconsistent with this section. Each party hereto
represents to each other that there exists no indebtedness between Yapalot and
IVIP and/or Acquisition, and that no such party is an investment company as
defined in Subsections 368(a)(2)(F)(iii) and (iv) of the Code.
(ii) In furtherance of the foregoing, IVIP hereby represents, warrants
and covenants that:
(a) it has no plan or intention to reacquire any IVIP Stock issued to
the Securityholders;
(b) it has no plan or intention to sell or otherwise dispose of any of
the assets of Yapalot, except for transfers described in Section
368(a)(2)(C) of the Code;
(c) there is no plan or intention by IVIP to acquire, directly or
through parties related to IVIP (within the meaning of Section
1.368-1(c)(1) and (2) of the Treasury Regulations) shares of IVIP Stock
issued to the Securityholders hereunder such that the continuity of
interest requirement set forth in Section 1.368-1(e) of the Treasury
Regulations (the "Continuity of Interest Requirement") would be violated;
and
(d) following the Closing, IVIP will continue the business of Yapalot
in accordance with Section 1.368-1 of the Treasury Regulations.
(iii) In furtherance of the foregoing, Yapalot hereby represents,
warrants and covenants that:
(a) prior to the Closing, the liabilities of Yapalot were incurred by
Yapalot in the ordinary course of business;
(b) Yapalot is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code;
(c) as of the date hereof, the fair market value of the assets of
Yapalot equal or exceed the sum of the liabilities of Yapalot; and
(d) there is no plan or intention by the Securityholders to sell,
exchange or otherwise dispose of shares of IVIP Stock received by them
hereunder to IVIP or persons or parties related to IVIP such that the
Continuity of Interest Requirement of the Code would be violated.
ARTICLE II
CLOSING
2.1 Date and Time of Closing. Subject to satisfaction of the conditions set
forth in this Agreement and compliance with the other provisions hereof, the
closing of the Merger (the "Closing") shall take place on July 31, 2001, at
11:00 a.m., at the offices of Yapalot Communications Inc, 4884 Dufferin St #1,
Toronto, Ontario, M3H 5S8, Canada,unless otherwise extended by mutual agreement
of the parties hereto (the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Yapalot. Yapalot (including
Subsidiary) represents and warrants to IVIP and Acquisition as follows:
(a) Authorization. The execution, delivery and performance of
this Agreement and consummation of the Merger have been duly authorized, adopted
and approved by the boards of directors of Yapalot and the majority of
Securityholders. This Agreement has been duly and validly executed and delivered
by an officer of Yapalot on its behalf, and assuming that this Agreement is the
valid and binding obligation of IVIP and Acquisition, is the valid and binding
obligation of Yapalot, enforceable against Yapalot in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights
generally and except that the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
Yapalot has the legal ability to consummate the Merger.
(b) Organization; Subsidiaries. Yapalot is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Yapalot has the corporate power and authority to own and lease its
assets and to carry on its business as it is now being conducted and is duly
qualified to do business as a foreign corporation in each jurisdiction where it
conducts business, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, earnings, prospects, assets
or condition (financial or otherwise) of Yapalot. As of the date hereof, Yapalot
is qualified to do business in Delaware, and in the jurisdictions listed on
Schedule 3.1(b) and is not currently conducting substantive business in any
other jurisdiction. Yapalot does not own any shares of capital stock or other
interest in any corporation, partnership, association or other entity.
(c) Capitalization. The number of authorized, issued and
outstanding shares of Yapalot Stock as of the date hereof is as set forth above
in the recitals to this Agreement. The outstanding shares of Yapalot Stock have
been duly authorized, validly issued and are fully paid and non-assessable.
Yapalot has not issued any shares of capital stock which could give rise to
claims for violation of any federal or state securities laws (including any
rules or regulations promulgated thereunder) or the securities laws of any other
jurisdiction (including any rules or regulations promulgated thereunder). As of
the date hereof, except as set forth on Schedule 3.1(c), there are no options,
warrants, calls, convertible securities or commitments of any kind whatsoever
relating to the shares of Yapalot Stock subject hereto or any of the unissued
shares of capital stock of Yapalot, and there are no voting trusts, voting
agreements, securityholder agreements or other agreements or understandings of
any kind whatsoever which relate to the voting of the capital stock of Yapalot.
(d) Yapalot Documents. Yapalot has heretofore delivered to IVIP
unaudited financial statements as at March 31, 2001 and audited financial
statements for the year ended December 31, 2000 (the "Financial
Statements"). The Financial Statements present fairly, in all material
respects, the financial position of Yapalot and the results of operations
and cash flows of Yapalot for the periods indicated applied on a consistent
basis. IVIP and Acquisition have been provided access to all documents
relating to Yapalot and its federal securities filings available at
www.sec.gov. The Financial Statements and Yapalot's securities filings,
available at the aforedescribed web site are collectively referred to
herein as "Written Information."
(e) Owned Real Property. Except as disclosed in the Written
Information, Yapalot does not own (of record or beneficially), nor does it
have any interest in, any real property.
(f) Leased Property; Tenancies. Except as disclosed in the Written
Information or on Schedule 3.1(f), Yapalot does not lease any property,
real or otherwise.
(g) Title. Yapalot's only assets are those reflected on the balance
sheet of the Financial Statements. Yapalot has good and marketable title to
all of such assets and those assets purchased by Yapalot after the date
thereof. The assets reflected on the balance sheet of the Financial
Statements, in the Written Information and those purchased by Yapalot after
the date thereof, are owned free and clear of all adverse claims, liens,
mortgages, charges, security interests, encumbrances and other restrictions
or limitations of any kind whatsoever, except: (A) as stated in the
Financial Statements (including the notes thereto) and the Written
Information; (B) for liens for taxes or assessments not yet due and
payable; (C) for minor liens imposed by law for sums not yet due or which
are being contested by Yapalot in good faith; and (D) for imperfections of
title, adverse claims, charges, restrictions, limitations, encumbrances,
liens or security interests that are minor and which do not detract in any
material respect from the value of any of the assets subject thereto or
which do not impair the operations of Yapalot in any material respect or
affect the present use of the assets in any material respect. Yapalot has
not made any commitments or received any notice, oral or written, from any
public authority or other entity with respect to the taking or use of any
of Yapalot's assets, whether temporarily or permanently, for any purpose
whatsoever, nor is there any proceeding pending or, to the knowledge of
Yapalot, threatened which could adversely affect any asset owned or used by
Yapalot as of the date hereof.
(h) Condition of Assets. All documents and agreements pursuant to
which Yapalot has obtained the assets or the right to use any assets are
valid and enforceable in all respects in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject
to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. All licenses, permits and
authorizations related to the location or operation of the business of
Yapalot are in good standing and are valid and enforceable in all respects
in accordance with their respective terms. There is not, under any of the
foregoing instruments, documents or agreements, any existing default, nor
is there any event which, with notice or lapse of time or both, would
constitute a default arising through Yapalot or any third party which
could: (i) have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of
Yapalot; or (ii) materially adversely affect its use of any assets. To
Yapalot's knowledge, it is not in violation of and has complied with all
applicable codes, statutes, regulations, ordinances, notices and orders of
any governmental authority with respect to the use, maintenance, condition,
operation and improvement of any assets, except where the failure to comply
with which would not have a material adverse effect on the business,
assets, operations, earnings, prospects or condition (financial or
otherwise) of Yapalot. To Yapalot's knowledge, its use of any improvements
for the purposes for which any of the assets are being used as of the date
hereof does not violate any such code, statute, regulation, ordinance,
notice or order. Yapalot possesses all licenses, permits and authorizations
required to be obtained by Yapalot with respect to Yapalot's ownership,
operation and maintenance of the assets for all uses for which such assets
are operated or used by Yapalot as of the date hereof, except where the
failure to do so would not have a material adverse effect on the business,
assets, operations, earnings, prospects or condition (financial or
otherwise) of Yapalot. All of the assets are in good operating condition
and repair, subject to normal wear and use and each such item is usable in
a manner consistent with current use by Yapalot.
(i) Intangible Rights. All patents, patent applications, copyrights,
registered and unregistered trademarks, and tradenames, and licenses
(collectively "Intangibles") owned by Yapalot are set forth in Schedule
3.1(i). To Yapalot's knowledge, the Intangibles do not infringe or conflict
with asserted rights of other parties in the jurisdictions in which such
Intangibles are currently being employed or reasonably anticipated to be
employed. To Yapalot's knowledge, there are no judicial, arbitration or
other adversary proceedings pending, or threatened against Yapalot
concerning any of the Intangibles. Yapalot is not aware of any respect in
which its use or sale of the Intangibles violates or infringes on any
Intangible of any person, firm or corporation. Except as set forth in
Schedule 3.1(i), to Yapalot's knowledge, it has good and marketable title
under the laws of the United States and any other jurisdiction as required
to any such Intangibles. Except as listed on Schedule 3.1(i), the
Intangibles are free of restrictions on or conditions to transfer or
assignment, and are free and clear of all liens, encumbrances and claims.
(j) Accounts Receivable. Except as disclosed in the Written
Information, as of the date hereof, Yapalot has no material accounts
receivable.
(k) Accounts Payable. Except as disclosed in the Written Information,
as of the date hereof, Yapalot has no material accounts payable.
(l) Absence of Undisclosed Liabilities. To the best knowledge of
Yapalot, other than as set forth in the Written Information, Yapalot has
not had nor does it have any indebtedness, loss or liability of any nature
whatsoever, whether accrued, absolute, contingent or otherwise and whether
due or become due, which is material to Yapalot's business, assets,
operations, prospects, earnings or condition (financial or otherwise) of
Yapalot.
(m) Absence of Certain Changes or Events. Except as set forth on
Schedule 3.1(m) and except as expressly set forth in this Agreement
(including the Schedules) or in a deliverable hereunder, Yapalot has not,
since the date of the most recent Annual Report on Form 10-KSB:
(i) issued, sold, granted or contracted to issue,
sell or grant any of its stock, notes, bonds, other securities or any
option to purchase any of the same;
(ii) amended its articles of incorporation or bylaws;
(iii) made any capital expenditures or commitments
for the acquisition or construction of any property, plant or equipment
(iv) entered into any transaction, which could be
deemed to be material to Yapalot or its business;
(v) incurred any damage, destruction or any other
loss to any of its assets in an aggregate amount exceeding Ten Thousand
Dollars ($10,000) whether or not covered by insurance;
(vi) suffered any loss in an aggregate amount
exceeding Ten Thousand Dollars ($10,000) and, Yapalot has not become
aware of any intention on the part of any client, dealer or supplier to
discontinue its current relationship with Yapalot, the loss or
discontinuance of which, alone or in the aggregate, could have a
material adverse effect on Yapalot's business, assets, operations,
earnings, prospects or condition (financial or otherwise) of Yapalot;
(vii) entered into, modified, amended or altered any
contractual arrangement with any client, dealer or supplier, the
execution, performance, modification, amendment or alteration of which,
alone or in the aggregate, could have a material adverse effect on
Yapalot's business, assets, operations, earnings, prospects or
condition (financial or otherwise) of Yapalot;
(viii) incurred any material liability or obligation
(absolute or contingent) or made any material expenditure;
(ix) experienced any material adverse change in
Yapalot's business, assets, operations, earnings, prospects or
condition (financial or otherwise) of Yapalot or experienced or have
knowledge of any event which could have a material adverse effect on
Yapalot's business, assets, operations, earnings, prospects or
condition (financial or otherwise) of Yapalot;
(x) declared, set aside or paid any dividend or other
distribution in respect of the capital stock of Yapalot;
(xi) redeemed, repurchased, or otherwise acquired any
of its capital stock or securities convertible into or exchangeable for
its capital stock or entered into any agreement with respect to any of
the foregoing;
(xii) purchased, disposed of or contracted to
purchase or dispose of, or granted or received an option or any other
right to purchase or sell, any of its assets;
(xiii) increased the rate of compensation payable or
to become payable to the officers or employees of Yapalot, or increased
the amounts paid or payable to such officers or employees under any
bonus, insurance, pension or other benefit plan, or made any
arrangements therefor with or for any of said officers or employees;
(xiv) adopted or amended any collective bargaining,
bonus, profit-sharing, compensation, stock option, pension, retirement,
deferred compensation or other plan, agreement, trust, fund or
arrangement for the benefit of its employees; or
(xv) changed any material accounting principle,
procedure or practice followed by Yapalot or changed the method of
applying such principle, procedure or practice.
(n) Agreements. The Written Information contains a true,
correct and complete list of all contracts, agreements and other instruments
material to the business or operation of Yapalot, including without limitation,
those to which Yapalot is a party and those by which any of its assets are bound
(the "Material Agreements"). Copies of all such agreements have heretofore been
delivered or made available by Yapalot to IVIP. Other than as described in the
Written Information or in this Agreement, there is no contract, agreement or
other instrument to which Yapalot or any Securityholder is a party or which
affects the assets, liabilities or outstanding securities of Yapalot. None of
the Material Agreements limits the freedom of Yapalot to compete in any line of
business or with any person or other entity in any geographic region within or
outside of the United States of America.
Neither Yapalot nor to Yapalot's knowledge, any third party is
in default and no event has occurred which, with notice or lapse of time or
both, could cause or become a default by Yapalot, or any third party, under any
Material Agreement. Each Material Agreement is enforceable in accordance with
its terms, against all other parties thereto, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(o) Non-Contravention; Consents. Neither the execution and
delivery of this Agreement by Yapalot, nor consummation of the Merger, does or
will: (i) violate or conflict with any provision of the articles of
incorporation or bylaws of Yapalot; (ii) violate or, with the passage of time,
result in the violation of any provision of, or result in the acceleration of or
entitle any party to accelerate any obligation under, or result in the creation
an imposition of any lien, charge, pledge, security interest or other
encumbrance upon any of the assets, which are material to the business or
operation of Yapalot, pursuant to any provision of any mortgage, lien, lease,
agreement, permit, indenture, license, instrument, law, order, arbitration
award, judgment or decree to which Yapalot is a party or by which it or any of
such assets are bound, the effect of which violation, acceleration, creation or
imposition could have a material adverse effect on the business, assets,
operations, earnings, prospects or (financial or otherwise) of Yapalot; (iii)
violate or conflict with any other restriction of any kind whatsoever to which
Yapalot is subject or by which any of its assets may be bound, the effect of any
of which violation or conflict could have a material adverse effect on the
business, assets, operations, earnings, prospects or (financial or otherwise) of
Yapalot; or (iv) constitute an event permitting termination by a third party of
any Material Agreement to which Yapalot is a party or is subject, which
termination could have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of
Yapalot. No consent, authorization, order or approval of, or filing or
registration with, any governmental commission, board or other regulatory body
is required in connection with the execution, delivery and performance of the
terms of this Agreement and consummation of the Merger.
(p) Employee Benefit Plans. Except as described on Schedule
3.1(p), Yapalot does not have any "employee benefit plans" as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (the "Benefit Plans") covering the employees of Yapalot.
Schedule 3.1(p) also contains all documentation relating to the Benefit Plans.
(q) Labor Relations. There are no agreements with or pending
petitions for recognition of any labor union or association as the exclusive
bargaining agent for any or all of the employees of Yapalot and to Yapalot's
knowledge no such petition has been pending at any time since Yapalot's
inception. To Yapalot's knowledge, there has not been any organizing effort by
any union or other group seeking to represent any employees of Yapalot as its
exclusive bargaining agent at any time since Yapalot's inception. There are no
labor strikes, work stoppages or other labor disputes now pending or threatened
against Yapalot, nor to Yapalot's knowledge has there been any such labor
strike, work stoppage or other labor dispute or grievance at any time since
Yapalot's inception. Yapalot has no any knowledge that any executive, key
employee or any group of employees of Yapalot has any plans to terminate his/her
employment with Yapalot.
(r) Insurance. Yapalot has no insurance policies or
binders of insurance or programs of self-insurance except as described on
Schedule 3.1(r).
(s) Tax Matters. Yapalot has timely filed with the appropriate
taxing authorities all returns (including, without limitation, information
returns and other material information) in respect of Taxes (as defined below)
required to be filed through the date hereof. The information contained in such
returns is complete and accurate in all material respects. Yapalot has not
requested any extension of time within which to file returns (including, without
limitation, information returns) in respect of any Taxes. Yapalot has accurately
computed and timely paid all Taxes for periods beginning before the date hereof,
or an adequate reserve has been established therefor. No liens for Taxes exist
against any assets to be acquired by Acquisition in the Merger. Acquisition
shall have no obligation or liability for or with respect to (a) any Taxes or
other assessments as a consequence of the transactions contemplated by this
Agreement all of which Taxes shall be paid by Yapalot or, or (b) any other Taxes
or assessments of Yapalot of any kind whatsoever or any penalties or interest
with respect to such Tax liabilities. Yapalot has withheld or collected from
each payment made to each of its employees, consultants, contractors and other
payees the amount of Taxes required to be withheld and collected therefrom for
all periods through the date hereof. Any liability for Taxes due and payable
through the date of this Agreement for which no returns are due or have been
filed (including, without limitation, property, payroll and withholding taxes)
have been properly accrued or provided for on the books of Yapalot. No material
deficiencies for Taxes have been claimed, proposed, or assessed by any taxing or
other governmental authority against Yapalot. There are no pending or, to the
best knowledge of Yapalot, threatened audits, investigations or claims for or
relating to any material liability in respect of Taxes, and there are no matters
under discussion with any governmental authorities with respect to Taxes that,
in the reasonable judgment of Yapalot, or its counsel is likely to result in a
material amount of Taxes. The federal, state and local returns of Yapalot have
never been audited, and Yapalot has not been notified that any taxing authority
intends to audit a return for any period. No extension of a statute of
limitations relating to Taxes is in effect with respect to Yapalot. Yapalot: (i)
has been an includible corporation in an affiliated group that files
consolidated income tax returns; (ii) is not a party to any tax-sharing
agreements or similar arrangements; (iii) is not a "foreign person" as defined
in section 1445(f)(3) of the Code; and (iv) has not made or become obligated to
make, and will not, as a result of the Merger, make or become obligated to make,
an "excess parachute payment" as defined in section 280G of the Code.
The term "taxes" or "tax" as used in this section, section 3.2
or referred to elsewhere in this Agreement shall mean all taxes, charges, fees,
levies, penalties, or other assessments, including without limitation, income,
capital gain, profit, gross receipts, ad valorem, excise, property, payroll,
withholding, employment, severance, social security, workers' compensation,
occupation, premium, customs duties, windfall profits, sales, use, and franchise
taxes, imposed by the United States, or any state, county, local or foreign
government or any subdivision or agency thereof, and including any interest,
penalties or additions attributable thereto.
(t) Compliance with Applicable Law. Yapalot has been and is in
compliance with all federal, state and local laws, statutes, ordinances, rules
and regulations applicable to its business, except where the failure to comply
with which would not materially adversely affect the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of Yapalot
or which would subject any officer or director of Yapalot to civil or criminal
penalties or imprisonment. Yapalot has complied with the rules and regulations
of all governmental agencies having authority over its business and its
operations, including without limitation, agencies concerned with intra-state
and interstate commerce, occupational safety and employment practices, except
where the failure to comply would not have a material adverse effect on the
business, operations, earnings, prospects, assets or condition (financial or
otherwise) of Yapalot. Yapalot has no knowledge of nor received any notice of
violation of any such rule or regulation since Yapalot's inception which could
result in any liability of Yapalot for penalties or damages or which could
subject Yapalot to any injunction or government writ, order or decree. To the
knowledge of Yapalot, there are no facts, events or conditions that could
interfere with, prevent continued compliance with or give rise to any liability
under any foreign, federal, state or local governmental laws, statutes,
ordinances or regulations applicable to the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of Yapalot, except
where the failure to do so would not have a material adverse effect on the
business, operations, earnings, prospects, assets or condition (financial or
otherwise) of Yapalot.
(u) Litigation. There is no action, suit, proceeding or
investigation pending or, to the knowledge of Yapalot, threatened, which could
restrict the ability of Yapalot to perform its obligations hereunder or could
have a material adverse effect on the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of Yapalot. Yapalot is not in
default in respect of any judgment, order, writ, injunction or decree of any
court or any federal, state, local or other governmental agency, authority,
body, board, bureau, commission, department or instrumentality which could have
a material adverse effect on the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of Yapalot.
(v) Permits. Yapalot holds all permits, licenses, orders and
approvals of all federal, state or local governmental or regulatory authorities,
agencies or bodies required for the conduct and operation of Yapalot 's business
as currently conducted, except where the failure to do so would not have a
material adverse effect on the business, operations, earnings, prospects, assets
or condition (financial or otherwise) of Yapalot. All such permits, licenses,
orders, and approvals are in full force and effect and no suspension,
termination or revocation of any of the foregoing is threatened. None of such
permits, licenses, orders or approvals will be materially adversely affected by
consummation of the Merger. Yapalot has no knowledge of nor has received any
notice of violation of any of such rules or regulations since Yapalot's
inception which would result in any liability of Yapalot for penalties or
damages or which would subject Yapalot to any injunction or governmental writ,
order or decree.
(w) Unlawful Payments. None of Yapalot, nor any of its
officers, directors, employees, agents or representatives has made, directly or
indirectly, any bribe or kickback, illegal political contribution, payment from
corporate funds which was incorrectly recorded on the books and records of
Yapalot, unlawful payment from corporate funds to governmental or municipal
officials in their individual capacities for the purpose of affecting their
action or the actions of the jurisdiction which they represent to obtain
favorable treatment in securing business or licenses or to obtain special
concessions of any kind whatsoever, or illegal payment from corporate funds to
obtain or retain any business.
(x)Reporting Requirements. Yapalot is subject to the reporting
requirements of Section 12(g) of the Securities Exchange Act of 1934,as amended;
is current in its filings with the exception of that of Q1 2001 QSB which was
filed late and all of its filings are accurate and complete.
(y) Officers, Directors and Employees. Schedule 3.1(y) hereto
sets forth a true, correct and complete list of all of the officers, directors
and employees of Yapalot as of the date hereof, including their respective
names, titles, salaries and bonuses. Yapalot has also made available and
disclosed the existence of one employment agreement between Yapalot and one of
the foregoing officers, directors and employees of Yapalot in effect as of the
date hereof.
(z) Loans to or from Affiliates. Except as disclosed in the
Written Information, there exist no other outstanding loans by Yapalot to any
current or former officer, director, employee, consultant or securityholder of
Yapalot or any affiliate of any of the foregoing and there are no outstanding
loans to Yapalot by any current or former officer, director, employee,
consultant or securityholder of Yapalot.
(aa) Books and Records.
-----------------
(i) The books of account and other financial records of Yapalot
are complete and correct and have been maintained in accordance with
good business practices.
(ii) All material corporate action of the boards of directors of
Yapalot (including any committees) has been authorized, approved
and/or ratified in the respective minute books.
(bb) Agreements with Affiliates. Except as disclosed in the
Written Information or herein, Yapalot is not a party to any instrument,
license, lease or other agreement, written or oral, with any officer or director
of Yapalot.
(cc) Securities Laws. Schedule 3.1(cc) lists all unregistered
sales of securities by Yapalot along with the exemption relied upon for the
sale. All sales were in compliance with all federal and state securities laws.
Schedule 3.1(cc) lists the dates of all filings of Forms D and the States in
which Yapalot has made any Blue-Sky filings.
(dd) Accuracy of Information Furnished. Yapalot represents
that no statement made by Yapalot set forth herein or in the exhibits or the
schedules hereto or in Yapalot's Written Information, and no statement set forth
in any certificate or other instrument or document required to be delivered by
or on behalf of Yapalot pursuant hereto or in connection with the consummation
of the Merger, contained, contains or will contain any untrue statement of a
material fact, or omits, omitted or will omit to state any material fact which
is necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
3.2 Representations and Warranties of IVIP. IVIP represents
and warrants to Yapalot as follows:
(a) Authorization. The execution, delivery and performance of
this Agreement and consummation of the Merger have been duly authorized, adopted
and approved by the boards of directors of IVIP, for itself and in its capacity
as sole stockholder of Subsidiary. IVIP has taken all necessary corporate action
and has all of the necessary corporate power to enter into this Agreement and to
consummate the Merger. This Agreement has been duly and validly executed and
delivered by an officer of IVIP on its behalf, and assuming that this Agreement
is the valid and binding obligation of the other parties hereto, is the valid
and binding obligation of IVIP, enforceable against IVIP in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect, or by legal or equitable principles, relating to or limiting creditors'
rights generally and except that the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. IVIP has the legal ability to consummate the Merger.
(b) Organization; Subsidiaries. IVIP is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. IVIP has the corporate power and authority to own and lease its assets
and to carry on its business as it is now being conducted and is duly qualified
to do business as a foreign corporation in each jurisdiction where it conducts
business, except where the failure to be so qualified would not have a material
adverse effect on the business, operations, earnings, prospects, assets or
condition (financial or otherwise) of IVIP. As of the date hereof, IVIP is
qualified to do business in Delaware, and in the jurisdictions listed on
Schedule 3.2(b) and is not currently conducting substantive business in any
other jurisdiction. IVIP does not own any shares of capital stock or other
interest in any corporation, partnership, association or other entity, other
than Subsidiary or as listed on Schedule 3.2(b).
(c) Capitalization. The number of authorized, issued and
outstanding shares of IVIP Stock as of the date hereof is as set forth above in
the recitals to this Agreement. The outstanding shares of IVIP Stock have been
duly authorized, validly issued and are fully paid and non-assessable. IVIP has
not issued any shares of capital stock which could give rise to claims for
violation of any federal or state securities laws (including any rules or
regulations promulgated thereunder) or the securities laws of any other
jurisdiction (including any rules or regulations promulgated thereunder). As of
the date hereof, except as set forth on Schedule 3.2(c), there are no options,
warrants, calls, convertible securities or commitments of any kind whatsoever
relating to the capital stock of IVIP, and, except as listed on Schedule 3.2(c),
there are no voting trusts, voting agreements, securityholder agreements or
other agreements or understandings of any kind whatsoever which relate to the
voting of the capital stock of IVIP.
(d) IVIP Documents. IVIP has heretofore delivered to Yapalot
unaudited financial statements as at November 30, 2000 and audited financial
statements for the year ended February 29, 2000 (the "Financial Statements").
The Financial Statements present fairly, in all material respects, the financial
position of IVIP and the results of operations and cash flows of IVIP for the
periods indicated applied on a consistent basis. Yapalot has been provided
access to all documents relating to IVIP and its federal securities filings
available at www.sec.gov. The Financial Statements and IVIP's securities
filings, available at the aforedescribed web site are collectively referred to
herein as "Written Information."
(e) Owned Real Property. Except as disclosed in the Written
Information, IVI does not own (of record or beneficially), nor does it have any
interest in, any real property.
(f) Leased Property; Tenancies. Except as disclosed in
the Written Information or on Schedule 3.2(f), IVIP does not lease any property,
real or otherwise.
(g) Title. IVIP's only assets are those reflected on the
balance sheet of the Financial Statements. IVIP has good and marketable title to
all of such assets and those assets purchased by IVIP after the date thereof.
The assets reflected on the balance sheet of the Financial Statements, in the
Written Information and those purchased by IVIP after the date thereof, are
owned free and clear of all adverse claims, liens, mortgages, charges, security
interests, encumbrances and other restrictions or limitations of any kind
whatsoever, except: (A) as stated in the Financial Statements (including the
notes thereto) and the Written Information; (B) for liens for taxes or
assessments not yet due and payable; (C) for minor liens imposed by law for sums
not yet due or which are being contested by IVIP in good faith; and (D) for
imperfections of title, adverse claims, charges, restrictions, limitations,
encumbrances, liens or security interests that are minor and which do not
detract in any material respect from the value of any of the assets subject
thereto or which do not impair the operations of IVIP in any material respect or
affect the present use of the assets in any material respect. IVIP has not made
any commitments or received any notice, oral or written, from any public
authority or other entity with respect to the taking or use of any of IVIP's
assets, whether temporarily or permanently, for any purpose whatsoever, nor is
there any proceeding pending or, to the knowledge of IVIP, threatened which
could adversely affect any asset owned or used by IVIP as of the date hereof.
(h) Condition of Assets. All documents and agreements pursuant
to which IVIP has obtained the assets or the right to use any assets are valid
and enforceable in all respects in accordance with their respective terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights
generally and except that the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
All licenses, permits and authorizations related to the location or operation of
the business of IVIP are in good standing and are valid and enforceable in all
respects in accordance with their respective terms. There is not, under any of
the foregoing instruments, documents or agreements, any existing default, nor is
there any event which, with notice or lapse of time or both, would constitute a
default arising through IVIP or any third party which could: (i) have a material
adverse effect on the business, assets, operations, earnings, prospects or
condition (financial or otherwise) of IVIP; or (ii) materially adversely affect
its use of any assets. To IVIP's knowledge, it is not in violation of and has
complied with all applicable codes, statutes, regulations, ordinances, notices
and orders of any governmental authority with respect to the use, maintenance,
condition, operation and improvement of any assets, except where the failure to
comply with which would not have a material adverse effect on the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
IVIP. To IVIP's knowledge, its use of any improvements for the purposes for
which any of the assets are being used as of the date hereof does not violate
any such code, statute, regulation, ordinance, notice or order. IVIP possesses
all licenses, permits and authorizations required to be obtained by IVIP with
respect to IVIP's ownership, operation and maintenance of the assets for all
uses for which such assets are operated or used by IVIP as of the date hereof,
except where the failure to do so would not have a material adverse effect on
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of IVIP. All of the assets are in good operating condition and
repair, subject to normal wear and use and each such item is usable in a manner
consistent with current use by IVIP.
(i) Intangible Rights. All patents, patent applications,
copyrights, registered and unregistered trademarks, and tradenames, and licenses
(collectively "Intangibles") owned by IVIP are set forth in Schedule 3.2(i). To
IVIP's knowledge, the Intangibles do not infringe or conflict with asserted
rights of other parties in the jurisdictions in which such Intangibles are
currently being employed or reasonably anticipated to be employed. To IVIP's
knowledge, there are no judicial, arbitration or other adversary proceedings
pending, or threatened against IVIP concerning any of the Intangibles. IVIP is
not aware of any respect in which its use or sale of the Intangibles violates or
infringes on any Intangible of any person, firm or corporation. Except as set
forth in Schedule 3.2(i), to IVIP's knowledge, it has good and marketable title
under the laws of the United States and any other jurisdiction as required to
any such Intangibles. Except as listed on Schedule 3.2(i), the Intangibles are
free of restrictions on or conditions to transfer or assignment, and are free
and clear of all liens, encumbrances and claims.
(j) Accounts Receivable. Except as disclosed in the Written
Information or on Schedule 3.2(j), as of the date hereof, IVIP has no material
accounts receivable.
(k) Accounts Payable. Except as disclosed in the Written
Information or on Schedule 3.2(k), as of the date hereof, IVIP has no material
accounts payable.
(l) Absence of Undisclosed Liabilities. To the best knowledge
of IVIP, other than as set forth in the Written Information, IVIP has not had
nor does it have any indebtedness, loss or liability of any nature whatsoever,
whether accrued, absolute, contingent or otherwise and whether due or become
due, which is material to IVIP's business, assets, operations, prospects,
earnings or condition (financial or otherwise) of IVIP.
(m) Absence of Certain Changes or Events. Except as set forth
on Schedule 3.2(m) and except as expressly set forth in this Agreement
(including the Schedules) or in a deliverable hereunder, IVIP has not, since the
date of the most recent Annual Report on Form 10-KSB:
(i) issued, sold, granted or contracted to issue,
sell or grant any of its stock, notes, bonds, other securities or any
option to purchase any of the same;
(ii) amended its articles of incorporation or bylaws;
(iii) made any capital expenditures or commitments
for the acquisition or construction of any property, plant or
equipment;
(iv) entered into any transaction, which could be
deemed to be material to IVIP or its business;
(v) incurred any damage, destruction or any other
loss to any of its assets in an aggregate amount exceeding Ten Thousand
Dollars ($10,000) whether or not covered by insurance;
(vi) suffered any loss in an aggregate amount
exceeding Ten Thousand Dollars ($10,000) and, IVIP has not become aware
of any intention on the part of any client, dealer or supplier to
discontinue its current relationship with IVIP, the loss or
discontinuance of which, alone or in the aggregate, could have a
material adverse effect on IVIP's business, assets, operations,
earnings, prospects or condition (financial or otherwise) of IVIP;
(vii) entered into, modified, amended or altered any
contractual arrangement with any client, dealer or supplier, the
execution, performance, modification, amendment or alteration of which,
alone or in the aggregate, could have a material adverse effect on
IVIP's business, assets, operations, earnings, prospects or condition
(financial or otherwise) of IVIP;
(viii) incurred any material liability or obligation
(absolute or contingent) or made any material expenditure;
(ix) experienced any material adverse change in
IVIP's business, assets, operations, earnings, prospects or condition
(financial or otherwise) of IVIP or experienced or have knowledge of
any event which could have a material adverse effect on IVIP's
business, assets, operations, earnings, prospects or condition
(financial or otherwise) of IVIP;
(x) declared, set aside or paid any dividend or other
distribution in respect of the capital stock of IVIP;
(xi) redeemed, repurchased, or otherwise acquired any
of its capital stock or securities convertible into or exchangeable for
its capital stock or entered into any agreement with respect to any of
the foregoing;
(xii) purchased, disposed of or contracted to
purchase or dispose of, or granted or received an option or any other
right to purchase or sell, any of its assets;
(xiii) increased the rate of compensation payable or
to become payable to the officers or employees of IVIP, or increased
the amounts paid or payable to such officers or employees under any
bonus, insurance, pension or other benefit plan, or made any
arrangements therefor with or for any of said officers or employees;
(xiv) adopted or amended any collective bargaining,
bonus, profit-sharing, compensation, stock option, pension, retirement,
deferred compensation or other plan, agreement, trust, fund or
arrangement for the benefit of its employees; or
(xv) changed any material accounting principle,
procedure or practice followed by IVIP or changed the method of
applying such principle, procedure or practice.
(n) Agreements. The Written Information contains a true,
correct and complete list of all contracts, agreements and other instruments
material to the business or operation of IVIP, including without limitation,
those to which IVIP is a party and those by which any of its assets are bound
(the "Material Agreements"). Copies of all such agreements have heretofore been
delivered or made available by IVIP to Yapalot. Other than as described in the
Written Information or in this Agreement, there is no contract, agreement or
other instrument to which IVIP is a party or which affects the assets,
liabilities or outstanding securities of IVIP. None of the Material Agreements
limits the freedom of IVIP to compete in any line of business or with any person
or other entity in any geographic region within or outside of the United States
of America.
Neither IVIP nor to IVIP's knowledge, any third party is in
default and no event has occurred which, with notice or lapse of time or both,
could cause or become a default by IVIP, or any third party, under any Material
Agreement. Each Material Agreement is enforceable in accordance with its terms,
against all other parties thereto, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(o) Non-Contravention; Consents. Neither the execution and
delivery of this Agreement by IVIP, nor consummation of the Merger, does or
will: (i) violate or conflict with any provision of the articles of
incorporation or bylaws of IVIP; (ii) violate or, with the passage of time,
result in the violation of any provision of, or result in the acceleration of or
entitle any party to accelerate any obligation under, or result in the creation
an imposition of any lien, charge, pledge, security interest or other
encumbrance upon any of the assets, which are material to the business or
operation of IVIP, pursuant to any provision of any mortgage, lien, lease,
agreement, permit, indenture, license, instrument, law, order, arbitration
award, judgment or decree to which IVIP is a party or by which it or any of such
assets are bound, the effect of which violation, acceleration, creation or
imposition could have a material adverse effect on the business, assets,
operations, earnings, prospects or (financial or otherwise) of IVIP; (iii)
violate or conflict with any other restriction of any kind whatsoever to which
IVIP is subject or by which any of its assets may be bound, the effect of any of
which violation or conflict could have a material adverse effect on the
business, assets, operations, earnings, prospects or (financial or otherwise) of
IVIP; or (iv) constitute an event permitting termination by a third party of any
Material Agreement to which IVIP is a party or is subject, which termination
could have a material adverse effect on the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of IVIP. No consent,
authorization, order or approval of, or filing or registration with, any
governmental commission, board or other regulatory body is required in
connection with the execution, delivery and performance of the terms of this
Agreement and consummation of the Merger.
(p) Employee Benefit Plans. Except as described on Schedule
3.2(p), IVIP does not have any "employee benefit plans" as such term is defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (the "Benefit Plans") covering the employees of IVIP. Schedule
3.2(p) also contains all documentation relating to the Benefit Plans.
(q) Labor Relations. There are no agreements with or pending
petitions for recognition of any labor union or association as the exclusive
bargaining agent for any or all of the employees of IVIP and to IVIP's knowledge
no such petition has been pending at any time since IVIP's inception. To IVIP's
knowledge, there has not been any organizing effort by any union or other group
seeking to represent any employees of Yapalot as its exclusive bargaining agent
at any time since IVIP's inception. There are no labor strikes, work stoppages
or other labor disputes now pending or threatened against IVIP, nor to IVIP's
knowledge has there been any such labor strike, work stoppage or other labor
dispute or grievance at any time since IVIP's inception. IVIP has no any
knowledge that any executive, key employee or any group of employees of IVIP has
any plans to terminate his/her employment with IVIP.
(r) Insurance. IVIP has no insurance policies or binders of
insurance or programs of self-insurance except as described on Schedule 3.2(r).
(s) Tax Matters. Except as disclosed on Schedule 3.2(s), IVIP
has timely filed with the appropriate taxing authorities all returns (including,
without limitation, information returns and other material information) in
respect of Taxes required to be filed through the date hereof. The information
contained in such returns is complete and accurate in all material respects.
IVIP has not requested any extension of time within which to file returns
(including, without limitation, information returns) in respect of any Taxes.
IVIP has accurately computed and timely paid all Taxes for periods beginning
before the date hereof, or an adequate reserve has been established therefor.
Acquisition shall have no obligation or liability for or with respect to (a) any
Taxes or other assessments as a consequence of the transactions contemplated by
this Agreement, or (b) any other Taxes or assessments of IVIP of any kind
whatsoever or any penalties or interest with respect to such Tax liabilities.
IVIP has withheld or collected from each payment made to each of its employees,
consultants, contractors and other payees the amount of Taxes required to be
withheld and collected therefrom for all periods through the date hereof. Any
liability for Taxes due and payable through the date of this Agreement for which
no returns are due or have been filed (including, without limitation, property,
payroll and withholding taxes) have been properly accrued or provided for on the
books of IVIP. No material deficiencies for Taxes have been claimed, proposed,
or assessed by any taxing or other governmental authority against IVIP. There
are no pending or, to the best knowledge of IVIP, threatened audits,
investigations or claims for or relating to any material liability in respect of
Taxes, and there are no matters under discussion with any governmental
authorities with respect to Taxes that, in the reasonable judgment of IVIP, or
its counsel is likely to result in a material amount of Taxes. The federal,
state and local returns of IVIP have never been audited, and IVIP has not been
notified that any taxing authority intends to audit a return for any period. No
extension of a statute of limitations relating to Taxes is in effect with
respect to IVIP. IVIP: (i) has not been an includible corporation in an
affiliated group that files consolidated income tax returns; (ii) is not a party
to any tax-sharing agreements or similar arrangements; (iii) is not a "foreign
person" as defined in section 1445(f)(3) of the Code; and (iv) has not made or
become obligated to make, and will not, as a result of the Merger, make or
become obligated to make, an "excess parachute payment" as defined in section
280G of the Code.
(t) Compliance with Applicable Law. IVIP has been and is in
compliance with all federal, state and local laws, statutes, ordinances, rules
and regulations applicable to its business, except where the failure to comply
with which would not materially adversely affect the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of IVIP or
which would subject any officer or director of IVIP to civil or criminal
penalties or imprisonment. IVIP has complied with the rules and regulations of
all governmental agencies having authority over its business and its operations,
including without limitation, agencies concerned with intra-state and interstate
commerce, occupational safety and employment practices, except where the failure
to comply would not have a material adverse effect on the business, operations,
earnings, prospects, assets or condition (financial or otherwise) of IVIP. IVIP
has no knowledge of nor received any notice of violation of any such rule or
regulation since IVIP's inception which could result in any liability of IVIP
for penalties or damages or which could subject IVIP to any injunction or
government writ, order or decree. To the knowledge of IVIP, there are no facts,
events or conditions that could interfere with, prevent continued compliance
with or give rise to any liability under any foreign, federal, state or local
governmental laws, statutes, ordinances or regulations applicable to the
business, assets, operations, earnings, prospects or condition (financial or
otherwise) of IVIP, except where the failure to do so would not have a material
adverse effect on the business, operations, earnings, prospects, assets or
condition (financial or otherwise) of IVIP.
(u) Litigation. Other than as described in the Written
Information, there is no action, suit, proceeding or investigation pending or,
to the knowledge of IVIP, threatened, which could restrict the ability of IVIP
to perform its obligations hereunder or could have a material adverse effect on
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of IVIP. IVIP is not in default in respect of any judgment, order,
writ, injunction or decree of any court or any federal, state, local or other
governmental agency, authority, body, board, bureau, commission, department or
instrumentality which could have a material adverse effect on the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
IVIP.
(v) Permits. IVIP holds all permits, licenses, orders and
approvals of all federal, state or local governmental or regulatory authorities,
agencies or bodies required for the conduct and operation of IVIP's business as
currently conducted, except where the failure to do so would not have a material
adverse effect on the business, operations, earnings, prospects, assets or
condition (financial or otherwise) of IVIP. All such permits, licenses, orders,
and approvals are in full force and effect and no suspension, termination or
revocation of any of the foregoing is threatened. None of such permits,
licenses, orders or approvals will be materially adversely affected by
consummation of the Merger. IVIP has no knowledge of nor has received any notice
of violation of any of such rules or regulations since IVIP's inception which
would result in any liability of IVIP for penalties or damages or which would
subject IVIP to any injunction or governmental writ, order or decree.
(w) Unlawful Payments. None of IVIP, nor any of its officers,
directors, employees, agents or representatives has made, directly or
indirectly, any bribe or kickback, illegal political contribution, payment from
corporate funds which was incorrectly recorded on the books and records of IVIP,
unlawful payment from corporate funds to governmental or municipal officials in
their individual capacities for the purpose of affecting their action or the
actions of the jurisdiction which they represent to obtain favorable treatment
in securing business or licenses or to obtain special concessions of any kind
whatsoever, or illegal payment from corporate funds to obtain or retain any
business.
(x) Reporting Requirements. IVIP is subject to the reporting
requirements of Section 12(g) of the Securities Exchange Act of 1934,as amended;
is current in its filings with the exception of that of Q1 2001 QSB which was
filed late, all of its filings are accurate and complete.
(y) Officers, Directors and Employees. Schedule 3.2(y) hereto
sets forth a true, correct and complete list of all of the officers, directors
and employees of IVIP as of the date hereof, including their respective names,
titles, salaries and bonuses. IVIP has also provided true, correct and complete
copies of any employment agreements between IVIP and any of the foregoing
officers, directors and employees of IVIP in effect as of the date hereof.
(z) Loans to or from Affiliates. Except as disclosed in the
Written Information or on Schedule 3.2(z), there exist no outstanding loans by
IVIP to any current or former officer, director, employee, consultant or
securityholder of IVIP or any affiliate of any of the foregoing and there are no
outstanding loans to IVIP by any current or former officer, director, employee,
consultant or securityholder of IVIP.
(aa) Books and Records.
-----------------
(i) The books of account and other financial records of IVIP are
complete and correct and have been maintained in accordance with good
business practices.
(ii) All material corporate action of the boards of directors of
IVIP (including any committees) has been authorized, approved and/or
ratified in the respective minute books.
(bb) Agreements with Affiliates. Except as disclosed in the
Written Information or herein, IVIP is not a party to any instrument, license,
lease or other agreement, written or oral, with any officer or director of IVIP.
(cc) Securities Laws. Schedule 3.2(cc) lists all unregistered
sales of securities by IVIP along with the exemption relied upon for the sale.
All sales were in compliance with all federal and state securities laws.
Schedule 3.2(cc) lists the dates of all filings of Forms D and the States in
which IVIP has made any Blue-Sky filings.
(dd) Accuracy of Information Furnished. IVIP represents that
no statement made by IVIP set forth herein or in the exhibits or the schedules
hereto or in IVIP's Written Information, and no statement set forth in any
certificate or other instrument or document required to be delivered by or on
behalf of IVIP pursuant hereto or in connection with the consummation of the
Merger, contained, contains or will contain any untrue statement of a material
fact, or omits, omitted or will omit to state any material fact which is
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
3.3 Representations and Warranties of Acquisition. Acquisition
represents and warrants to Yapalot that (i) it is a newly formed Delaware
corporation with no operations, assets or liabilities; (ii) it is wholly-owned
by IVIP; (iii) it was formed solely for purposes of the Merger; (iv) the
execution, delivery and performance of this Agreement and consummation of the
Merger have been duly authorized, adopted and approved by its board of directors
and it has taken all necessary corporate action and has all of the necessary
corporate power to enter into this Agreement and to consummate the Merger; (v)
this Agreement has been duly and validly executed and delivered by its officers
on its behalf and, assuming that this Agreement is the valid and binding
obligation of the other parties hereto, is the valid and binding obligation of
IVIP, enforceable against it in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect, or by legal or
equitable principles, relating to or limiting creditors' rights generally and
except that the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the discretion
of the court before which any proceeding therefore may be brought.
3.4 Survival of Representations and Warranties. The
representations and warranties set forth in Sections 3.1, 3.2 and 3.3 hereof
shall survive until the close of business on the second anniversary of the
Closing Date, provided that, notice or demand with respect to any alleged breach
thereof is given as required pursuant to Article V hereof.
ARTICLE IV
CONDITIONS
4.1 Conditions to Obligations of Acquisition. The obligation of
Acquisition to consummate the Merger is subject to the fulfillment of each of
the following conditions, which may be waived in whole or in part by Acquisition
to the extent permitted by applicable law:
(a) No Material Adverse Change. No material adverse change in
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Yapalot, and no event which would materially and adversely affect
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Yapalot not disclosed herein shall have occurred since the date of
the Financial Statements and Written Information.
(b) Copies of Resolutions. Yapalot shall have furnished
Acquisition with certified copies of resolutions duly adopted by the board of
directors of Yapalot authorizing the execution, delivery and performance of the
terms of this Agreement and all other necessary or proper corporate action to
enable Yapalot to comply with the terms of this Agreement.
(c) Certificate of Good Standing. At the Closing, Yapalot
shall have furnished Acquisition with certified copies of certificates of good
standing of Yapalot dated not more than ten (10) business days prior to the
Closing Date.
(d) Accuracy of Representations and Warranties. Each of the
representations and warranties of Yapalot set forth in this Agreement shall have
been true, correct and complete in all material respects when made and shall
also be true, correct and complete in all material respects at and as of the
Closing Date, with the same force and effect as if made at and as of the Closing
Date. Yapalot shall have performed and complied in all material respects with
all agreements and covenants required by this Agreement to be performed by
Yapalot at or prior to the Closing Date.
(e) Delivery of Officers' Certificates. Yapalot shall have
delivered to Acquisition certificates, dated as of the Closing Date, and signed
by the President of Yapalot representing and affirming that: (i) the
representations and warranties made by Yapalot as set forth in Section 3.1 of
this Agreement and referred to in Subsection 4.1(d) above were and are true,
correct and complete as required by Subsection 4.1(d) above and the conditions
set forth in this Section 4.1 have been satisfied. Yapalot shall also have
delivered certificates signed by the Secretary with respect to the authority and
incumbency of the officers of Yapalot executing this Agreement and any documents
required to be executed or delivered in connection therewith.
(f) Delivery of Stock Certificates. At the Closing, the
Securityholders shall have delivered to Acquisition certificates representing
all of the issued and outstanding capital stock of Yapalot, which certificates
shall be properly endorsed in blank or shall be accompanied by a properly
executed stock power and an affidavit by the President of Yapalot identifying by
name and amount the parties entitled to receive shares of IVIP Stock.
(g) Consents and Waivers. Any and all necessary consents,
authorizations, orders or approvals described in Subsection 3.1(o) above shall
have been obtained, except as the same shall have been waived by Acquisition.
(h) Litigation. There shall be no effective injunction, writ
or preliminary restraining order or any order of any kind whatsoever with
respect to Yapalot or the Securityholders issued by a court or governmental
agency (or other governmental or regulatory authority) of competent jurisdiction
restraining or prohibiting the consummation of the Merger or making consummation
thereof unduly burdensome to Yapalot or the Securityholders. No proceeding or
lawsuit shall have been commenced, be pending or have been threatened by any
governmental or regulatory agency or authority or any other person with respect
to the Merger.
(i) Reporting Compliance. Yapalot shall have delivered to
Acquisition either prior to Closing or within the appropriate time period, if
after Closing, audited financial statements of Yapalot for all periods and in
the form required by Regulation S-X (17 CFR Part 210) sufficient to enable IVIP
to timely satisfy its reporting requirements under the Securities Exchange Act
of 1934, including the reporting obligations of a Section 12(g) reporting
company, and pursuant to all other applicable securities laws.
(j) Delivery of Documents and Other Information. Yapalot shall have
delivered to Acquisition all of the agreements, contracts, documents and other
instruments required to be delivered pursuant to the provisions of this
Agreement.
(k) Stockholder Approval. Yapalot's President shall certify that the
necessary stockholder approval for the Merger was obtained in compliance with
the DGCL and Section 14 of the Securities Exchange Act of 1934.
4.2 Conditions to Obligations of Yapalot. The obligations of Yapalot to
consummate the Merger are subject to the fulfillment of each of the following
conditions, which may be waived in whole or in part by Yapalot to the extent
permitted by law:
(a) Copies of Resolutions. Acquisition shall have furnished
Yapalot with certified copies of resolutions duly adopted by the board of
directors of Acquisition authorizing the execution, delivery and performance of
the terms of this Agreement and all other necessary or proper corporate action
to enable Acquisition to comply with the terms of this Agreement.
(b) Certificates of Good Standing. Acquisition and IVIP shall
have furnished Yapalot with certified copies of certificates of their good
standing dated not more than ten (10) business days prior to the Closing Date.
(c) Accuracy of Representations and Warranties. Each of the
representations and warranties of IVIP and Acquisition set forth in this
Agreement shall have been true, correct and complete in all material respects
when made and shall also be true, correct and complete in all material respects
at and as of the Closing Date, with the same force and effect as if made at and
as of the Closing Date. IVIP and Acquisition shall have performed and complied
with in all material respects all agreements and covenants required by this
Agreement to be performed by IVIP and Acquisition at or prior to the Closing
Date.
(d) Delivery of Officers' Certificates. IVIP and Acquisition
shall have delivered to Yapalot certificates, dated the Closing Date and signed
by the Chief Executive Officer of Acquisition, affirming that: (i) the
representations and warranties of Acquisition as set forth in Section 3.3 of
this Agreement and referred to in Subsection 4.2(c) above were and are true,
correct and complete as required by Subsection 4.2(c) above; and (ii) the
conditions set forth in this Section 4.2 have been satisfied. Acquisition shall
also have delivered a certificate signed by the Secretary of Acquisition with
respect to the authority and incumbency of the officers of Acquisition executing
this Agreement and any documents required to be executed or delivered in
connection therewith.
(e) Stock Certificates. At the Closing, IVIP shall issue
irrevocable instructions to its transfer agent to issue and deliver to the
Securityholders certificates representing the shares of IVIP Stock issuable
pursuant hereto, which certificates shall be in the name of the respective
Securityholders and in the amounts, as set forth on Schedule A hereto.
(f) Consents and Waivers. Any and all necessary consents,
authorizations, orders or approvals described in Subsection 3.2(d) above shall
have been obtained, except as the same shall have been waived by Yapalot.
(g) Litigation. There shall be no effective injunction, writ
or preliminary restraining order or any order of any kind whatsoever with
respect to Acquisition or IVIP issued by a court or governmental agency (or
other governmental or regulatory authority) of competent jurisdiction
restraining or prohibiting the consummation of the Merger or making the
consummation thereof unduly burdensome to Acquisition or IVIP. On the Closing
Date and immediately prior to consummation of the Merger, no proceeding or
lawsuit shall have been commenced, be pending or have been threatened or by any
governmental or regulatory agency or authority or any other person with respect
to the Merger.
(h) No Material Adverse Change. No material adverse change in
the business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Acquisition or IVIP, and no event which would materially and
adversely affect the business, assets, operations, earnings, prospects or
condition (financial or otherwise) of Acquisition or IVIP not disclosed herein
shall have occurred since the date of the financial statements and Written
Information.
(i) Delivery of Documents and Other Information. IVIP and Acquisition shall
have delivered to Yapalot all of the agreements, contracts, documents and other
instruments required to be delivered pursuant to the provisions of this
Agreement.
ARTICLE V
ESCROW PROVISIONS
5.1 Terms of the Escrow. At the Closing, and ____________ (the Yapalot
"Escrowers") will deliver into escrow an aggregate of __________ shares of IVIP
Stock received pursuant to the Merger (the "Yapalot Escrow"); and the
stockholders of IVIP listed on Schedule 5.1 (the "IVIP Escrowers") shall deliver
into escrow (the "IVIP Escrow") the shares of IVIP Stock listed next to their
name thereon and totaling in the aggregate __________ shares of IVIP Stock. The
shares will remain in escrow, unless earlier delivered or released pursuant
hereto, until May 31, 2002, at which time they will be released to the Escrowers
(as listed on Schedule 5.1). The purpose of the Yapalot Escrow is to have an
available source to pay any valid claims brought against the Surviving
Corporation by a pre-Merger creditor of Yapalot not reserved for on the Yapalot
Financial Statements or disclosed in the Written Information or Schedules
hereto; and the purpose of the IVIP Escrow is to have an available source to pay
any valid claims brought against the Surviving Corporation by a pre-Merger
creditor of IVIP not reserved for on the IVIP financial statements or disclosed
in the Written Information or Schedules hereto. The period of the Escrow can be
extended by written notice from the Escrow Agent (as defined below), in its sole
discretion, to cover any valid claims made regardless of the method by which the
Escrow Agent is notified, whether by litigation notice, claim letter or
otherwise, prior to June 1, 2002. The second sentence of this provision
notwithstanding, the escrowed shares may be earlier released provided they are
replaced by cash. The amount of cash necessary to replace the escrowed shares
shall be $1.50 per share. The law firm of Heller, Horowitz & Feit, P.C. shall be
the escrow agent (the "Escrow Agent").
5.2 Responsibility of Escrow Agent.
(a) The Escrow Agent shall, in its sole discretion, determine if a claim
has been made which could result in a charge against the escrow. In the event it
determines such a claim exists, the Escrow Agent shall immediately inform the
Surviving Corporation and send a copy of such notice to the relevant Escrowers
pursuant to Section 8.8. The Escrow Agent shall take instructions from the
Surviving Corporation regarding a response to such claim and, as stated in
Section 5.2(e), can represent the Surviving Corporation in any resulting
litigation. In the event the value of the portion of the escrow deposited by the
relevant Escrowers is at least equal to the maximum amount of the claim, the
relevant Escrowers, acting by vote of a majority of such escrowed shares, may
take over defense of the litigation at their own expense. In the event the value
of the portion of the escrow deposited by the relevant Escrowers does not exceed
the claim, the relevant Escrowers, or any of them, may, at their own expense,
appoint co-counsel to defend the claim, provided that it is understood that the
Surviving Corporation's counsel shall be the lead counsel with authority to make
all final decisions. In the event a claim is awarded to the claimant, the Escrow
Agent is authorized to disburse from the escrow the required amount of shares
from the relevant part of the escrow. It is agreed and understood that no
portion of Yapalot Escrow may be used to cover claims made by pre-Merger
creditors of IVIP and likewise, no portion of the IVIP Escrow may be used to
cover claims made by pre-Merger creditors of Yapalot. Upon the advice of the
Surviving Corporation and the written consent of the Escrowers, acting by vote
of a majority of the escrowed shares, the Escrow Agent may settle any claim and
deliver out of escrow the amount of the settlement.
(b) Other than this Article V, the Escrow Agent shall not be bound in any
way or be deemed to have any responsibility or obligation under or in respect of
any agreement or contract to which either party hereto is a party (whether or
not it has knowledge thereof) and its only duties or responsibilities shall be
as specifically set forth herein. The Escrow Agent acting in good faith may
assume that any notice or instruction received by it hereunder is authentic and
has been duly and validly given, pursuant to due authorization, by or on behalf
of the person by which or on behalf of which it purports to be given, and the
Escrow Agent shall have no duty to inquire with respect thereto.
(c) Each group of Escrowers, on the one hand, and the surviving
Corporation, on the other hand, each hereby agree to, jointly and severally,
indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability, damage, claim or expense (including the reasonable fees and
disbursements of its attorneys) incurred by or asserted against the Escrow
Agent, arising out of or in connection with the performance of its duties
hereunder and otherwise with respect hereof, including the costs and expenses of
defending itself against any claim or liability except that the parties hereto
shall not be liable hereunder as to matters in respect of which the Escrow Agent
is determined to have acted in bad faith, provided, that if the Escrow Agent
shall assert any claim for indemnity, it shall assert such claim and bring any
action with respect thereto against both the relevant group of Escrowers and the
Surviving Corporation. The Escrow Agent shall have no liability to the parties
hereto or any other person in respect of any action taken or any failure to act
in respect of its duties hereunder if such action was taken or omitted to be
taken in good faith.
(d) If any dispute shall arise among the parties with respect to the
escrow, the Escrow Agent may (i) commence an interpleader or similar action
permitted to escrow agents in the courts of the State of New York and deposit
the disputed portion of the escrow into the Court where such action has been
commenced, or (ii) whether or not such dispute involves litigation, retain the
escrow pending either a settlement of such dispute or final determination of the
rights of the respective parties thereto.
(e) Notwithstanding any provisions of this Article V or the Escrow Agent's
position as escrowee, the Escrow Agent shall at all times (including without
limitation during and with respect to disputes between the parties, whether or
not involving litigation) be able to represent the Surviving Corporation as its
attorney in connection with the transactions contemplated by this Agreement or
any resulting litigation.
(f) In the event of litigation with respect to the escrow, the expenses and
fees incurred by the Escrow Agent shall be borne by the party who does not
prevail in such litigation.
5.3 Release of Escrow. Before releasing the escrow, or any of it, the
Escrow Agent shall give notice to the Surviving Corporation and the relevant
group of Escrowers of its intentions. The Escrow Agent shall not release the
escrow pursuant to the notice until two (2) business days after the notice has
been sent to both parties. If the relevant group of Escrowers or the Surviving
Corporation dispute the Escrow Agent's proposed delivery of the escrow as
disclosed in the notice, the Escrow Agent shall continue to hold all of the then
remaining disputed part of the escrow until the issue of who is entitled to the
escrow is finally determined in a Court of competent jurisdiction. The escrow
may not be terminated except by delivery or release of all of the escrow in
accordance with the terms of this article V. The above notwithstanding, if no
valid claims have been presented on or prior to May 31, 2002, the Escrow Agent
shall promptly release the escrow to the relevant group of Escrowers without
notice.
ARTICLE VI
TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
6.1 Termination by Mutual Agreement. This Agreement may be terminated
at any time prior to the Closing by unanimous consent of the parties hereto,
provided that such consent to terminate is manifested in writing and is signed
by each of the parties hereto.
6.2 Termination for Failure to Close. This Agreement may be terminated
by any of the parties hereto if the Closing shall not have occurred by
_______________, 2001, provided that, the right to terminate this Agreement
pursuant to this section shall not be available to any party whose failure to
fulfill any of its obligations hereunder has been the cause of or resulted in
the failure to consummate the Merger by the foregoing date.
6.3 Termination by Operation of Law. This Agreement may be terminated
by any of the parties hereto if, in the reasonable opinion of counsel to the
respective parties hereto, there shall be any statute, rule or regulation that
renders consummation of the Merger illegal or otherwise prohibited, or a court
of competent jurisdiction or any government (or governmental authority) shall
have issued an order, decree or ruling, or has taken any other action
restraining, enjoining or otherwise prohibiting the consummation of such
transactions and such order, decree, ruling or other action shall have become
final and nonappealable.
6.4 Effect of Termination or Default; Remedies. In the event of
termination of this Agreement as set forth above, this Agreement shall forthwith
become void and there shall be no liability on the part of any Non-Defaulting
Party (as defined below). The foregoing shall not relieve any Defaulting Party
from liability for damages actually incurred as a result of such party's breach
of any term or provision of this Agreement.
6.5 Remedies; Specific Performance. In the event that any party shall
fail or refuse to consummate the Merger (except pursuant to Sections 6.1, 6.2 or
6.3 above) or if any default under or breach of any representation, warranty,
covenant or condition of this Agreement on the part of any party (the
"Defaulting Party") shall have occurred that results in the failure to
consummate the Merger, then in addition to the other remedies provided herein,
the non-defaulting party (the "Non-Defaulting Party") shall be entitled to seek
and obtain money damages from the Defaulting Party and/or may seek to obtain an
order of temporary or permanent injunctive relief and/or specific performance
thereof against the Defaulting Party from a court of competent jurisdiction,
provided that, the Non-Defaulting party seeking any injunctive relief or
specific performance must file its request with such court within forty-five
(45) days after it becomes aware of the Defaulting Party's failure, refusal,
default or breach and further provided, that in no event shall a Defaulting
Party be liable for special, incidental or consequential damages. In addition,
the Non-Defaulting Party shall be entitled to obtain from the Defaulting Party
court costs and attorneys' fees incurred in connection with or in pursuit of
enforcing the rights and remedies provided hereunder.
ARTICLE VII
POST-CLOSING ACTIONS
7.1 Officers and Directors. Following the Merger, the Directors of IVIP
and Acquisition shall resign except for Dr. Ilya Gerol who will remain a
Director and Chairman of IVIP and Acquisition and Dr. Gerol shall appoint Mr.
Yuval Barzakay as Director, President and CEO of IVIP and Acquisition. Upon a
successful equity financing for a minimum of US$1 million it is agreed that Mr.
Alon Barzakay shall be appointed to the Board of Directors of IVIP and
Acquisition. In such event, the Board shall create an additional seat pursuant
to the By-Laws.
7.2 International Business. Following the Merger, the parties hereto
agree that IVIP will continue to promote its international business. Ilya Gerol
and Viatscheslav Makarov will head the international division. They will operate
through Interservice Group Inc. which will seek to develop business in the Far
East and Asia. This entity shall not receive any payments from IVIP for their
efforts unless and until their efforts generate gross profits (i.e., revenues
less cost of goods sold). It is understood that Interservice Group Inc. shall
then initially receive $4,000 a month. This fee will be reviewed by the Board of
Directors after three months and may be increased up to $8,000 per month. These
fees are contingent on the profitability of the international division. In
addition, the international division shall receive from any equity financing
10-15% or as may be required from time to time based upon quarterly budgets and
analysis review.
7.3 Reverse Split. Shortly after the Effective Date, IVIP shall
implement a reverse split of its outstanding securities in a ratio to be
determined by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS
8.1 Fees and Expenses. Except as otherwise described herein, each party
hereto shall pay its own expenses incident to negotiation, execution, delivery
and performance of the terms of this Agreement and the consummation of the
Merger.
8.2 Modification, Amendments and Waiver. The parties hereto may amend,
modify or otherwise waive any provision of this Agreement by unanimous consent,
provided that such consent and any amendment, modification or waiver is in
writing and is signed by each of the parties hereto.
8.3 Assignment. Neither Yapalot, the Securityholders, the Escrowers,
Acquisition or IVIP shall have the authority to assign its rights or obligations
under this Agreement without the prior written consent of the other parties
hereto.
8.4 Burden and Benefit. This Agreement shall be binding upon and, to
the extent permitted in this Agreement, shall inure to the benefit of the
parties and their respective successors and assigns. In the event of a default
by Yapalot, Subsidiary or the Securityholders of any of their respective
obligations hereunder, the sole and exclusive recourse and remedy of Acquisition
or IVIP shall be against Yapalot and Subsidiary and any of their assets; under
no circumstances shall any officer or director of Yapalot and Subsidiary be
liable in law or equity for any obligations of Yapalot and Subsidiary hereunder,
. In the event of a default by Acquisition or IVIP of any of its respective
obligations hereunder, the sole and exclusive recourse and remedy of the
Securityholders and Yapalot shall be against Acquisition or IVIP and its assets;
under no circumstances shall any officer, director, Stockholder or affiliate of
Acquisition or IVIP be liable in law or equity for any obligations of
Acquisition or IVIP hereunder.
8.5 Brokers. Yapalot represent and warrant to IVIP that there are no
brokers or finders entitled to any brokerage or finder's fee or other commission
or fee based upon arrangements made by or on behalf of Yapalot, or any
Securityholder or any other person in connection with this Agreement or the
Merger. IVIP represents and warrants to Yapalot and the Securityholders that no
broker or finder is entitled to any brokerage or finder's fee or other
commission or fee based upon arrangements made by or on behalf of IVIP in
connection with this Agreement or the Merger.
8.6 Entire Agreement. This Agreement and the exhibits, lists and other
documents referred to herein contain the entire agreement among the parties
hereto with respect to the Merger and supersede all prior agreements with
respect thereto, whether written or oral.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard, however, to
such jurisdiction's principles of conflicts of laws. Any action brought by
either party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York located in New
York City or in the federal courts located in the Southern District of New York.
All parties and the individuals executing this Agreement agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
8.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto shall be in writing and delivered
personally, by facsimile transmission or telex, or sent by commercial overnight
delivery service or registered or certified mail (return receipt requested),
postage prepaid, addressed as follows:
If to Yapalot, Yapalot Communications Holdings Inc.
Subsidiary or 4884 Dufferin Street, Unit 1
Yapalot Escrowers: Toronto, Ontario M3H 5S8
Attn: Yuval Barzakay
Facsimile: 416-645-7688
With a copy to: Vanderkam & Sanders
440 Louisiana, #475
Houston, TX 77002
Attn: David M. Loev, Esq.
Facsimile: (713) 547-8910
If to IVIP,
Acquisition or IVIP Internet VIP Inc.
Escrowers: 1155 University Street, Suite 602
Montreal, Quebec H3B 3A7
Attn: Ilya Gerol
Facsimile: (514) 448-4848
with a copy to: Heller, Horowitz & Feit, P.C.
292 Madison Avenue, 20th Floor
New York, New York 10017
Attn: Irving Rothstein, Esq.
Facsimile: (212) 696-9459
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. If sent as aforesaid, the date any such notice
shall be deemed to have been delivered on the first business day after
transmission of a facsimile or telex, the first business day after delivery to a
commercial overnight delivery service, or five (5) days after delivery into a
United States Postal facility.
8.9 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be an original or a facsimile copy, but all of
which shall constitute but one agreement.
8.10 Rights Cumulative. All rights, powers and privileges conferred
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any power
given any party hereunder or to insist upon strict compliance by any other party
shall not constitute a waiver of any party's right to demand exact compliance
with any of the terms or provisions hereof.
8.11 Severability of Provisions. The provisions of this Agreement shall
be considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
8.12 Headings. The headings set forth in the articles and sections of
this Agreement and in the exhibits and the schedules to this Agreement are
inserted for convenience of reference only and shall not be deemed to constitute
a part hereof.
8.13 Knowledge Standard. When used in this Agreement, the phrase "to
the best knowledge of, " "knowledge of, " "known to" or similar phrases shall
mean the actual knowledge of: (i) with respect to Yapalot, the current officers
and directors of IVIP; (ii) with respect to Yapalot or Subsidiary, the current
officers and directors of Yapalot; and (iii) the named individual.
8.14 Joint Preparation. This Agreement was jointly prepared by IVIP and
Yapalot and is not to be construed against any party hereto. Should any
provision of this Agreement be found to be illegal or unenforceable by any court
of competent jurisdiction and cannot be modified to be enforceable, such
provision shall immediately become null and void leaving the remainder of this
Agreement in effect.
* * * * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the date and year first above written.
INTERNET VIP INC. YAPALOT COMMUNICATIONS HOLDINGS
By: /s/ Ilya Gerol By: /s/ Yuval Barzakay
-------------------------- ------------------------------
Ilya Gerol Yuval Barzakay
YAPALOT ACQUISITION CORP. YAPALOT COMMUNICATIONS INC.
By: /s/ Ilya Gerol By: /s/ Yuval Barzakay
-------------------------- ------------------------------
Ilya Gerol Yuval Barzakay
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___________________, solely as Escrower
HELLER, HOROWITZ & FEIT, P.C. ___________________________________
___________________, solely as Escrower
By:______________________________ ___________________________________
Authorized Officer, ___________________, solely as Escrower
solely as Escrow Agent.
-----------------------------------
___________________, solely as Escrower
--------------------------
___________________, solely as Escrower
--------------------------
___________________, solely as Escrower
-----------------------------------
___________________, solely as Escrower