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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
(AMENDMENT NO. 1)
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (12g) OF THE SECURITIES
EXCHANGE ACT OF 1934 OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER 333-5396-02
NWE CAPITAL (CYPRUS) LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
REPUBLIC OF CYPRUS
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
STASSINOS COURT
CORNER STASSINOS AVENUE AND ST. HELENS STREET, NO. 2
3RD FLOOR
NICOSIA, CYPRUS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
NONE NONE
</TABLE>
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(TITLE OF CLASS)
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT:
GUARANTEE OF THE OUTSTANDING 14% SENIOR DISCOUNT NOTES DUE 2004 OF PLD TELEKOM
INC.
GUARANTEE OF THE OUTSTANDING 9% CONVERTIBLE SUBORDINATED NOTES DUE 2006 OF PLD
TELEKOM INC.
(TITLE OF CLASS)
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock at of the close of the period covered by the annual
report: 3,246,174 shares of Common Stock.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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NWE CAPITAL (CYPRUS) LIMITED
FORM 20-F/A ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 37
Item 3. Legal Proceedings........................................... 38
Item 4. Control of Registrant....................................... 38
Item 5. Nature of Trading Market.................................... 38
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders..................................................... 38
Item 7. Taxation.................................................... 40
Item 8. Selected Financial Data..................................... 40
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 41
Item 9A. Quantitative and Qualitative Disclosure About Market Risk... 48
Item 10. Directors and Officers of the Registrant.................... 49
Item 11. Compensation of Directors and Officers...................... 49
Item 12. Options to Purchase Securities from Registrant or
Subsidiaries................................................ 49
Item 13. Interest of Management in Certain Transactions.............. 49
PART II
Item 14. Description of Securities to be Registered.................. 50
PART III
Item 15. Defaults Upon Senior Securities............................. 50
Item 16. Changes in Securities, Changes in Security for Registered
Securities and Use of Proceeds.............................. 50
PART IV
Item 17. Financial Statements........................................ 50
Item 19. Financial Statements and Exhibits........................... 50
</TABLE>
NWE CAPITAL (CYPRUS) LIMITED HEREBY AMENDS ITS ANNUAL REPORT ON FORM 20-F
FOR THE YEAR ENDED DECEMBER 31, 1998, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JUNE 25, 1999.
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
NWE Capital (Cyprus) Limited (the "Company") is a wholly owned subsidiary
of PLD Telekom Inc. ("PLD") which serves as a holding company for certain of
PLD's interests in telecommunications companies in the Russian Federation and
Kazakhstan. Through the Company, PLD holds (i) a 60% interest in PeterStar
Company Limited ("PeterStar"), which provides integrated local, long distance
and international telecommunications services in St. Petersburg through a fully
digital fiber optic network; (ii) a 50% interest in ALTEL (known until May 1998
as BECET International), which provides national cellular service in Kazakhstan;
and (iii) a 100% interest in C.P.Y. Yellow Pages Ltd. ("Yellow Pages"), which
publishes a yellow pages directory in St. Petersburg.
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), solely because
of the guarantees it has issued in respect of PLD's outstanding 14% Senior
Discount Notes due 2004 (the "Senior Notes") and 9% Convertible Subordinated
Notes due 2006 (the "Convertible Notes"). Upon the completion of PLD's merger
with Metromedia International Group, Inc. described below under "PLD Telekom
Inc.", the Company's guarantees will be terminated and it will cease to be
subject to the periodic reporting requirements of the Exchange Act.
The Company conducts no business other than the holding of its interests in
PeterStar, ALTEL and Yellow Pages.
PLD TELEKOM INC.
PLD, through its operating subsidiaries, is a major provider of local, long
distance and international telecommunications services in the Russian
Federation, Kazakhstan and Belarus. PLD's five principal operating businesses
are: (i) PeterStar; (ii) Technocom Limited ("Technocom"), which, through
Teleport-TP, provides dedicated international telecommunications services to
Russian and foreign businesses in Moscow and operates a satellite-based
pan-Russian long distance network; (iii) Baltic Communications Limited ("BCL"),
which provides dedicated international telecommunications services in St.
Petersburg; (iv) ALTEL; and (v) Belarus-Netherlands Belcel Joint Venture
("BELCEL"), which provides the only national cellular service in Belarus. In
addition, PLD is developing a portfolio of international long distance products
and services, under the name "PLDncompass", targeted at carriers and corporate
customers in the United States, the United Kingdom and Europe which require
telecommunications services to and from the countries of the former Soviet
Union. PLD's Common Stock is traded on the Nasdaq National Market under the
symbol "PLDI" and the Toronto Stock Exchange under the symbol "PLD".
In August 1998, News America Incorporated, through an affiliate ("News"),
acquired a 38% stake in PLD in a series of transactions with PLD and Cable and
Wireless plc ("Cable & Wireless"). Prior to the completion of these
transactions, Cable & Wireless had been, since 1994, PLD's principal
shareholder. As part of these transactions, PLD acquired an additional 11%
interest in PeterStar and its 50% interest in BELCEL.
On May 18, 1999, PLD entered into an agreement (the "Merger Agreement")
with Metromedia International Group, Inc. ("MMG") pursuant to which PLD would
merge with Moscow Communications, Inc., a newly formed, wholly owned subsidiary
of MMG. Upon consummation of the merger (the "Merger"), PLD will become a wholly
owned subsidiary of MMG, and the holders of shares of Common Stock of PLD will
receive shares of MMG on the basis of an exchange ratio specified in the Merger
Agreement.
In connection with the Merger, PLD's Senior Notes and Convertible Notes,
which are currently guaranteed by the Company, will be exchanged for senior
indebtedness of MMG and the Company's guarantees will be terminated. The new MMG
notes will not be guaranteed by the Company or any other subsidiary of PLD.
MMG is a global communications company engaged in the development and
operation of a variety of communications businesses, including cellular
telecommunications, fixed telephony, international and long distance telephony,
cable television, paging and radio broadcasting, in Eastern Europe, the former
Soviet Union,
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China and other selected emerging markets. Its common stock is listed on the
American and Pacific Stock Exchanges, under the symbol MMG.
RECENT DEVELOPMENTS
RUSSIAN ECONOMIC AND POLITICAL TURMOIL
During 1998 there was considerable turmoil and uncertainty in the Russian
financial markets, prompted in large part by a drop in commodity prices and
economic problems in Russia, together with the crisis in the Asian financial
markets which began in late 1997. These developments were accompanied by a
substantial decline in the Russian stock market. These developments led the
Russian government to raise interest rates significantly and to seek special
assistance from the International Monetary Fund. In August 1998, the Russian
government announced a substantial widening of the trading band in which the
Russian Rouble would be permitted to float, together with a moratorium on
certain foreign debt payments. Thereafter the Rouble dropped substantially in
value and traded outside of the high end of the band, and the Russian government
did not intervene to stop this trading, thereby effectively acquiescing to a
major devaluation of the Rouble. The latter part of 1998 and the first half of
1999 saw further declines in the value of the Rouble and this process is
expected to continue.
Also in August 1998 the Russian government announced a 90-day moratorium on
debt repayments. This moratorium caused considerable difficulties for Russian
banks and businesses with hard currency obligations, as well as significantly
impairing the ability of such banks and businesses, as well as the Russian
government itself, to access the Western capital markets. The difficulties
experienced by the Russian banks in turn caused difficulties for their
customers, as bank transfers and deposits were frozen in many cases. The Russian
government itself has effectively defaulted on substantial amounts of its debt,
and is engaged in negotiations with Western banks and institutions (which reach
back several months) to restructure this indebtedness. Continuation of these
conditions for any significant period of time could have serious long-term
effects on the Russian economy. At the present time, it is impossible to predict
whether or when any resolution of these problems is likely.
In August 1998, the Russian government experienced a significant upheaval,
with the dismissal of the reformist government led by Sergei Kiriyenko and its
replacement by one led by Yevgeny Primakov. The Primakov government did not
propose a plan to address Russia's economic and financial difficulties, one
result of which was to cause the International Monetary Fund to delay further
assistance to the Russian government. In 1999, further political upheavals
occurred, as President Boris Yeltsin first dismissed the Primakov government in
May 1999 and selected Sergei Stepashin as the new Prime Minister, and then in
turn replaced him with Vladimir Putin in August 1999. It is too soon to predict
what policies will be adopted by the new Putin government. These frequent
governmental reshufflings create increased uncertainty about the future
political situation in Russia, which in turn creates additional concern about
the ability of the government to deal with the many problems currently
afflicting the Russian economic system. See "Risk Factors -- Country
Risks -- Russian Economic and Political Turmoil."
WEAKENING ECONOMIC CONDITIONS IN KAZAKHSTAN
The drop in the prices of the principal commodities on which the Kazakhstan
economy depends, namely oil, gas and gold, in late 1998, coupled with a slow
down in economic activity prompted by the Russian financial crisis and poorer
economic conditions experienced by its other trading partners, led to a
reduction in economic activity in Kazakhstan during the early part of 1999.
Also, in April 1999 the Kazakh government made the determination to cease
supporting the Tenge, with the result that it experienced a significant decline
in value. While the price of oil has since recovered, the prospect for growth in
the Kazakh economy in the near term remains uncertain. Since ALTEL's business
depends in part upon such growth, this is likely to inhibit its own development,
and could exacerbate the negative effect of the other factors, such as increased
competition, with which it has to deal.
TRAVELERS FINANCING
In November 1997 PLD issued $12.32 million in 12% Series A secured
revolving credit notes (the "Series A Notes") and $3.1 million in 12% Series B
revolving credit notes (the "Series B Notes" and, together
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with the Series A Notes, the "Revolving Credit Notes") to The Travelers
Insurance Company and The Travelers Indemnity Company (collectively, the
"Travelers Parties") pursuant to a Revolving Credit Note and Warrant Agreement
dated November 26, 1997 between PLD and the Travelers Parties (the "Travelers
Agreement"). Both the Series A and the Series B Notes are secured by PLD's
inventory and accounts receivable. In addition, the Series A Notes are secured
by 28 ordinary shares of Technocom. The Revolving Credit Notes are guaranteed by
BCL, and by Wireless Technology Corporations Limited ("WTC"), a wholly owned
subsidiary of the Company through which it holds a 50% interest in ALTEL. In
addition, News, which owns 38% of PLD's outstanding shares of common stock, has
guaranteed up to $3.1 million of the amounts due under the Revolving Credit
Notes.
PLD has made required amortization payments on the Series B Notes totalling
$2.0 million. Currently a total of $13.42 million is due under the Revolving
Credit Notes. The Travelers Parties have given PLD a series of payment deferrals
with respect to amounts due under the Revolving Credit Notes, the last of which
was given in connection with the Merger Agreement and defers payment until the
Merger is consummated or terminated.
In the event that the Merger is consummated: (1) the News guarantee will be
released; (2) the amount due to the Travelers Parties will be paid, as to $8.5
million on the date the Merger is consummated, and as to the remainder in August
2000, together with interest at an annual rate of 10.5%; (3) the amount due to
the Travelers Parties will be guaranteed by PLD Holdings Limited ("PLD
Holdings"), a wholly owned subsidiary of PLD through which PLD holds 11% of its
total 71% interest in PeterStar, and by MMG; and (4) the Travelers Agreement
will be amended and restated to reflect the foregoing. The Travelers Parties
will continue to be paid interest monthly on the same basis as before until the
consummation of the Merger, and thereafter on the basis set forth above. All
existing security for the Revolving Credit Notes will remain in place until and
following the consummation of the Merger, as will the existing guarantees given
by BCL and WTC. The security and guarantees will be terminated once PLD has
repaid all of its indebtedness to the Travelers Parties, which is expected to
occur in August 2000. The Travelers Parties, have agreed not to exercise certain
rights which they have under the Travelers Agreement pending the consummation of
the Merger.
While agreements have been reached with substantially all of the holders of
the Senior Notes and the Convertible Notes and with the Travelers Parties on a
restructuring of PLD's indebtedness to such parties, those agreements are
conditioned upon the closing of PLD's Merger with MMG. If the Merger did not
close, PLD would remain obligated to pay interest on the Senior Notes and
Convertible Notes and there can be no assurance that the Travelers Parties would
not demand payment in full of PLD's obligations to them. PLD's failure to make
payment in full to the Travelers Parties could result in a cross-default under
and acceleration of the Senior Notes and Convertible Notes. In addition, any
failure by PLD to make interest payments on the Senior Notes and the Convertible
Notes could result in a default under and acceleration of those Notes.
Any such events could result in a claim being made against the Company
under its guarantee, which would have a material adverse effect on the Company
and raise substantial doubt about the Company's ability to continue as a going
concern.
Please also refer to "Risk Factors -- Risks Involving the
Company -- Guarantee of PLD Debt" for the issues that the Company will face if
the Merger is not consummated.
THE SENIOR AND CONVERTIBLE NOTES
In June 1996, PLD issued the following securities to a limited number of
U.S. institutional investors (the "June 1996 Placement"): (i) $123.0 million
aggregate principal amount at maturity of Senior Notes; (ii) 123,000 warrants
(the "Placement Warrants") to purchase an aggregate of 4,182,000 shares of
Common Stock (the "Placement Warrant Shares"); and (iii) $26.5 million aggregate
principal amount of Convertible Notes. The Senior Notes and the Placement
Warrants were initially issued as units (the "Units") and the Placement Warrants
became separable from the Senior Notes on December 10, 1996.
In March 1998, PLD commenced a consent solicitation (the "Consent
Solicitation") directed at the holders of the Senior Notes and the Convertible
Notes requesting their consent to certain amendments to the Indentures governing
such Notes, intended to give PLD more flexibility in conducting its business and
also to clarify certain provisions of those Indentures.
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The amendments were approved by the requisite number of holders of the
Notes and, following this, The Bank of New York, as trustee under the
Indentures, PLD, the Company and certain other parties executed a supplemental
indenture, dated March 20, 1998, bringing the amendments to the Indentures and
certain related documents into effect. In addition, PLD issued a total of
123,000 five-year warrants to purchase 1.8 shares of PLD Common Stock at $6.90
per share to the holders of the Senior Notes, and a total of 22,700 five-year
warrants to purchase 2 shares of PLD Common Stock at a price of $6.90 per share
to the holders of the Convertible Notes. If all of these warrants are exercised,
PLD will issue a total of 266,800 shares of Common Stock.
Unless the context clearly requires otherwise, references to the "Senior
Notes" and the "Convertible Notes" shall refer to such securities as so amended
pursuant to the Consent Solicitation, and references to the "Senior Note
Indenture", the "Convertible Note Indenture" and the "Indentures" shall refer to
such indentures, as so amended pursuant to the Consent Solicitation.
On July 30, 1998, the Securities and Exchange Commission declared effective
registration statements relating to: (i) an exchange offer (the "Exchange
Offer") pursuant to which the outstanding Senior Notes (the "Outstanding Senior
Notes") would be exchanged for identical Senior Notes which had been registered
under the Securities Act of 1933 (the "Exchange Notes"); (ii) the resale by the
holders thereof of the Convertible Notes and the shares of Common Stock issuable
upon the conversion thereof; and (iii) the resale by the holders thereof of the
Placement Warrants and the Placement Warrant Shares. As a result of the
effectiveness of the registration statement relating to the Convertible Notes
and the Common Stock issuable upon conversion thereof, Special Interest (as
defined in the Indentures) ceased to be payable with respect to the Convertible
Notes on July 30, 1998.
The Exchange Offer with respect to the Senior Notes commenced on August 28,
1998 and was completed at the close of business on October 9, 1998, with the
holders of 100% of the Outstanding Senior Notes tendering such Notes for
Exchange Notes. Upon completion of the Exchange Offer, the Exchange Notes were
issued in exchange for such Outstanding Senior Notes, in the form of a global
Exchange Note held through the facilities of the Depository Trust Company. As a
result of the completion of the Exchange Offer, Special Interest ceased to be
payable with respect to the Senior Notes on October 9, 1998.
In connection with the Merger, PLD's Senior and Convertible Notes, which
are currently guaranteed by the Company, will be exchanged for senior
indebtedness of MMG and the Company's guarantees will be terminated. The new MMG
notes will not be guaranteed by the Company or any other subsidiary of PLD.
Please also refer to "Risk Factors -- Risks Involving the
Company -- Guarantee of PLD Debt" for the issues that the Company will face if
the Merger is not consummated.
INCREASED INTEREST RATE ON INDEBTEDNESS
Under the terms of the Senior Notes and the Revolving Credit Notes, the
interest rate payable increased if PLD had not raised $20.0 million in
additional equity by May 31, 1998. PLD did not complete such an equity offering
by such date and accordingly the interest rate on the Senior Notes increased
from 14% to 14.5% per annum, and the interest rate on the Revolving Credit Notes
increased from 12% to 15% per annum, in each case effective June 1, 1998. Such
rates revert to their former levels once the equity offering has been completed.
Interest due on the Senior Notes (at 14.5% per annum) accreted until December 1,
1998, and thereafter is payable in cash, semi-annually, on each June 1 and
December 1 thereafter. In connection with the Merger, the holders of
substantially all of the Senior Notes and Convertible Notes have agreed to defer
until the date of closing of the Merger the payment of interest on such Notes
coming due during the period between the signing of the Merger Agreement and
related documents and the date of closing of the Merger or termination of the
Merger Agreement.
TELECOMMUNICATIONS IN THE FORMER SOVIET UNION
In the Soviet era, telecommunications in the Russian Federation and other
republics of the former Soviet Union were government owned and designed
principally to serve the defense and security needs of the state. The telephone
network itself was highly centralized, reflecting the centralized nature of the
Soviet economy.
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Telephonic links were directed towards the center of the network while
neglecting inter-regional links. As a result, the ability to direct calls
between regions without going through the center remains limited, which in turn
has been a major constraint on economic growth in regional markets. Being
committed to a "hub and spoke" network, the former Soviet Union never developed
a trunk "backbone" capable of providing network expansion on a nationwide basis.
Consistent with a political philosophy which limited access to the world
outside the former Soviet Union, all international calls originating in the
former Soviet Union until 1992 were routed through a single international
exchange in Moscow which had a capacity of only 3,200 circuits. Due to the
inadequacies of the public network, as well as to ensure secrecy, many
individual ministries and security organizations, including the Communist Party
itself, established their own private nationwide networks. These private
networks absorbed a substantial amount of the relatively limited resources
available for investment in telecommunications. At the same time, these networks
currently present an opportunity for the development of a national network apart
from the existing public network.
With the break-up of the Soviet Union and the liberalization of the
economies of its former republics, the demand for telecommunications services
increased significantly. However, the governments of the countries of the former
Soviet Union did not have the significant capital necessary for the development
of the telecommunications infrastructure. As a result, they have actively
encouraged market liberalization, privatization and foreign investment in the
telecommunications sector. This has resulted in significant development in the
areas of fixed wire overlay systems, private networks and cellular and data
services. They have also made their own efforts to develop a basic
telecommunications infrastructure, but lack of capital, exacerbated by recent
difficult economic conditions, has made progress towards this goal slow.
TELECOMMUNICATIONS IN THE RUSSIAN FEDERATION
The Russian telecommunications sector has experienced substantial
difficulty in meeting the rapidly growing demand for telecommunications services
in the Russian Federation. At the local level, there has been a significant
growth in joint ventures providing discrete telecommunications services, such as
international access and cellular service. While the bulk of this activity has
been in Moscow and St. Petersburg, it has occurred in other regions as well.
This trend has been encouraged by the Russian government which has issued over
10,000 licenses through the Ministry of Communications of the Russian Federation
(the "Former MOC") (which as of March 17, 1997 has been replaced by the Russian
Federal Committee on Telecommunications and Informatics (the "RFCTI")) to these
new service providers. Most joint ventures involve a Russian and a foreign
partner. Many of these joint ventures have remained moribund; however, where
they have commenced operations, there has been an immediate improvement in
telecommunications services in the targeted areas. Since much of the marketing
activity has been aimed at the business community, the benefits of these
improvements have not been (and for the foreseeable future are not likely to be)
widely felt by residential customers, particularly those outside major
metropolitan areas.
When the Former MOC was reorganized in 1991, the Russian government decided
to convert each regional telephone center into a separate, privatized company
with the government maintaining the controlling interest in the company. There
are 89 of these regional telephone companies. The government's interests in most
of these companies are now held through Sviazinvest.
The national and international long distance market in the Russian
Federation is dominated by Rostelecom, a formerly state-owned enterprise which
has been privatized, but in which the Russian government continues to hold a 38%
equity and 51% voting interest through Sviazinvest. Until 1991, Rostelecom was
the monopoly provider of national and international long distance service. Since
then, the Former MOC has issued licenses to approximately twenty other providers
of international services. Rostelecom itself has entered into a number of joint
ventures to develop its network and services, including through its
participation in Teleport-TP.
Sviazinvest, which was originally 100% owned by the Russian State Property
Committee (now the Ministry of State Property), is a holding company for the
Russian government's interests in the local and regional telephone companies
across the Russian Federation. In general, Sviazinvest has a portfolio that
comprises holdings of 35% of the equity interest and 51% of the voting
interests, with a number of notable exceptions, in
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these telephone companies. Sviazinvest is represented on the board of directors
of each of these companies, but does not participate in the day-to-day
management of the operations.
In 1997, it was reported that, notwithstanding previously announced plans
to have Sviazinvest compete with Rostelecom, the Russian government had
consolidated its telecommunications holdings in Sviazinvest and Rostelecom by
transferring its shareholding in Rostelecom (38% of the common stock, and 51% of
the voting stock) to Sviazinvest. The balance of the shares in Rostelecom remain
in the hands of private investors. In April 1997, the government announced that
it was seeking to sell 49% of Sviazinvest in two auctions, one as to a 25% stake
open to Russian and foreign investors and the other as to a 24% stake open only
to Russian investors. In July 1997, the government announced that the 25% stake
had been sold to a consortium which included Oneximbank and Renaissance Capital,
for a purchase price of $1.875 billion. Following this auction, the Russian
government announced its intention to increase the size of the other stake being
sold to 25% minus two shares. The schedule for the sale of the second stake has
been delayed following the August 1998 financial crisis, and the structure of
any such sale (including whether foreign participation will be permitted) has
not been announced. While it is not yet clear how the proceeds of this sale will
be employed, it is understood that the government wishes to have a substantial
part, if not all, of the proceeds allocated to its current budget deficit. Prior
to the August 1998 crisis, Sviazinvest had announced plans to raise $400 million
through a Eurobond offering in 1998, but that offering was also delayed as a
result of the Russian financial crisis. In light of all of the foregoing, it is
unclear what impact the consolidation of the government's telecommunications
holdings and the auction of significant stakes in Sviazinvest will have on the
Russian telecommunications market in general and the Company in particular.
The provision of telecommunications services is currently regulated by the
Law on Telecommunications which came into effect on February 22, 1995 (the
"Telecommunications Law"). While the Former MOC had significant regulatory
powers prior to the passage of the Telecommunications Law, principally through
the issuance of new licenses, telecommunications had traditionally been viewed
as the province of the military and security services. The Telecommunications
Law placed control of the Russian telecommunications network (except for the
networks of the government, military and security forces) in the hands of a
civilian regulatory authority. Under the Telecommunications Law, the Former MOC
was, and now the RFCTI is, charged with the responsibility of coordinating the
development of telecommunications in the Russian Federation and regulating the
provision of services. Specifically, the Former MOC was and now the RFCTI is,
given authority to issue telecommunications licenses, allocate frequencies and
certify equipment for use in Russia. The Telecommunications Law also establishes
a number of important principles in the telecommunications area, including the
guarantee of equal access for all providers of telecommunications services and
safeguards for private business activity in the telecommunications sector. The
Telecommunications Law extends these principles to foreign companies and
individuals, thereby recognizing the need to encourage foreign participation in
the development of the Russian telecommunications sector.
The Federal Committee for Regulating Natural Monopolies in
Telecommunications (now under the government of the Russian Federation) has been
empowered to regulate international and, since mid-1997, domestic long distance
tariffs, together with interconnect fees for public operators in the Russian
Federation. In addition, this Committee has the authority to establish the
framework for local fees and tariffs which, in the future, will be regulated by
newly-established Regional Committees for Regulating Natural Monopolies. At the
current time, regional governments set and regulate local tariffs, and it is
currently uncertain as to how, and when, local tariff regulation will be
transferred to the Regional Committees. While the Company's businesses are not
public operators and will therefore not be directly affected by any tariff
regulation imposed by the Federal or Regional Committees, their own pricing
policies are inevitably influenced by the tariffs charged by public operators.
While the RFCTI appears to have succeeded to all of the powers and
authorities of the Former MOC (with the exception of tariff regulation), it is
not yet clear whether it will in fact continue to operate in the same manner,
and wield the same influence as the Former MOC. In particular, it is not clear
whether the RFCTI will be able to control the actions of local governmental and
other regulatory authorities who may endeavor to impose their own informal
licensing and other regulatory requirements or conditions on operators. In
addition, in the area of tariff regulation, it is not yet clear how the various
Committees will interact with the regional governments, and the
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regional governments may continue to seek to regulate tariffs in their regions.
See "Risk Factors -- Risks Involving the Company -- Regulatory Uncertainties."
St. Petersburg. The telephone network serving St. Petersburg is operated by
Petersburg Telephone Network ("PTN"), the local telephone company which was
privatized in May 1993. PTN has 1,800,000 lines in operation, amounting to a
nominal penetration rate of 36%. PTN's intra-city traffic is carried through a
network of thirty-four transit exchanges distributed throughout St. Petersburg
and all connected to each other in a "cobweb" fashion. The existing PTN network
is outdated and overloaded, producing congestion, interference, "crossed lines"
and poor transmission quality. Only 23% of PTN's exchanges are
digital/electronic, and some of its equipment is over 40 years old. PTN has
recently installed a modern fiber optic loop which, once fully operational, will
significantly enhance its ability to deliver traffic throughout its service
area. PTN has also entered into a number of other, primarily wireless,
telecommunications joint ventures.
PTN routes long distance traffic through a gateway exchange operated by St.
Petersburg Intercity and International Telephone ("SPMMTS"). This traffic is
then passed to the Rostelecom long distance network for delivery throughout the
rest of the Russian Federation and the other countries of the former Soviet
Union. PLD held a 10.4% equity interest in SPMMTS from 1994 to June 1997.
SPMMTS is the gateway for international calls to and from St. Petersburg.
SPMMTS has a number of options for the forwarding of international calls. Such
calls can be directed to an international gateway owned by St. Petersburg
International ("SPI"), a joint venture between British Telecommunications plc
("BT") and SPMMTS which has satellite connections to the UK. In addition, SPMMTS
has access, via Rostelecom, to the undersea cable between Russia and Denmark for
international traffic. Finally, SPMMTS has the option to route international
traffic through the international gateway in Moscow. In addition to SPMMTS,
there are several independent dedicated networks which provide international
telecommunications access in St. Petersburg, including BCL. Under the terms of
its license, PeterStar is required to route its long distance and international
traffic via the public network gateway.
The telecommunications market in St. Petersburg also supports three
cellular operators (two analog and one digital) and a number of paging networks.
In 1994, PTN and SPMMTS formed Telecominvest, originally as a joint venture
to act as a holding company for their respective interests in a number of
telecommunications ventures in Northwest Russia. Subsequently, in 1996, a
Commerzbank affiliate acquired a 51% interest in Telecominvest. Currently
Telecominvest owns 29% of PeterStar, 31% of North West GSM ("NW GSM"), the
digital 900 MHZ operator for St. Petersburg, 49% of Neva Cable and 5% of Neda
Paging. It is understood that PTN intends to transfer all or part of its
interests in Delta Telecom and Neda Paging to Telecominvest, subject to final
agreement with their joint venture partners. Although as a result of this
activity Telecominvest will hold interests in regional cellular operators which
are customers of PeterStar, as well as other ventures which may be possible
customers for PeterStar, it is unclear what the exact nature of Telecominvest's
plans are with respect to these holdings or how such plans will affect
PeterStar.
TELECOMMUNICATIONS IN KAZAKHSTAN
At the time of Kazakhstan's independence in 1991, the Kazakh telephone
system consisted of the same outdated network equipment as the other telephone
systems in the former Soviet republics. Currently, only 11% of Kazakhstan's
population of approximately 17,000,000 has telephone lines. The existing
national telephone network consists of approximately 1,900,000 lines, of which
330,000 are in Almaty. Due to the poor condition of much of the
telecommunications infrastructure in Kazakhstan, basic telephone service is
characterized by poor transmission quality. However, some modernization has
taken place during the last few years and quality is improving. While the
installed exchange switching capacity has not increased significantly, the
introduction of digital exchanges will make for easier future expansion.
The national network is served by trunk switches in what were the 19
original regional centers throughout the country. New transit switches supplied
by Alcatel, Lucent and others have been installed in 15 of the 19 regional
centers, and three more will be installed by the summer of 1999. Some digital
local exchanges have been
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<PAGE> 10
installed in 16 of the regional centers, although many electromechanical
exchanges are expected to remain in use throughout the country for some time.
While the majority of inter-regional transmission capacity is still analog,
a limited amount of digital transmission has been added over some routes. Low
capacity digital microwave has been introduced on several routes, and a high
capacity microwave has been installed between Astana and Petropavlovsk. The
existing fiber optic cable between Astana and Karaganda will be extended to
Almaty by the summer of 1999, and there is a fiber optic spur from Petropavlovsk
to Omsk connecting to the Vladivostok-Moscow-Europe cable.
Until 1992, the sole means of international access to and from Kazakhstan
was through a central switch located in Moscow. Kazakhstan acquired its own
international gateway in August 1992 when a new AT&T 5ESS switch was installed
in Almaty. It now has approximately 800 direct international circuits via
satellite with 22 countries, including the United States, Japan, Australia,
Germany, France, Israel and Turkey and via analog cables to Moscow. Kazakhstan
is also participating in the fiber optic link between China and the countries of
Central Asia and Europe, and this system is already being used to provide
inter-regional capacity between Almaty, Taraz and Chimkent.
The Kazakh Law on Enterprises dated February 13, 1991 authorizes the
Cabinet of Ministers to issue licenses for certain types of activities in
Kazakhstan, including the provision of telecommunications services. The Cabinet
of Ministers delegated the authority to license telecommunication providers,
allocate frequencies and certify telecommunications equipment to the Kazakh
Ministry of Transport and Communications (the "KMOC"). Pursuant to this
delegation of authority, the KMOC adopted temporary procedures for the
consideration of applications for and the issuance of such licenses. In April
1995, President Nazarbayev issued a decree setting forth the licensing
procedures in greater detail. The decree also confirmed the authority of the
Cabinet of Ministers to grant licenses and the right of non-Kazakh companies and
individuals to equal treatment in the granting of licenses. However, apart from
these licensing procedures, there is virtually no other regulation in the
telecommunications sector, and no comprehensive regulatory framework.
Administration of the telecommunications sector is essentially left to the
discretion of the KMOC.
Actual operation of the public telephone network is carried out by
Kazakhtelekom, which was created for this purpose in June 1994, as well as
regional operators. A variety of functions previously carried out by other
governmental entities, including representation of the Kazakh government in
international telecommunications matters and the planning and development of the
network in Kazakhstan, have been transferred to Kazakhtelekom. Kazakhtelekom has
been granted a revised license giving it specific authority to act as the
exclusive operator of the Kazakh national network and to represent the Kazakh
government in international telecommunications matters, along with a broad
series of powers to enable it to fulfil this function. Kazakhtelekom carries out
its functions under the oversight and direction of the KMOC. In May 1997, the
Kazakh government announced that it had sold a 40% stake in Kazakhtelekom to
Daewoo. However, in March 1998, it was reported that Daewoo had sold a portion
of its stake (reported to be approximately 10%) to an unnamed third party. It
was later confirmed that Daewoo had sold its entire stake in Kazakhtelekom to
Kazcommertzbank, a commercial bank based in Kazakhstan. It is understood that
the Kazakh government is seeking to sell a 15% stake in Kazakhtelekom to private
investors.
PETERSTAR COMPANY LIMITED
OVERVIEW
PeterStar, in which the Company owns a 60% interest (and in which PLD holds
an additional 11% through PLD Holdings), operates a fully digital, city-wide
fiber optic telecommunications network in St. Petersburg that is interconnected
with the network of PTN, the local telephone company, as well as the Russian
national and international long distance systems. PeterStar provides integrated,
high quality, digital telecommunications services with modern transmission
equipment, including local, national and international long distance and value-
added services, to businesses in St. Petersburg. The PeterStar network provides
an alternative to the PTN network, which to date has been characterized by
significant capacity constraints. PeterStar is able to provide integrated
telecommunications services to business customers, including users of high
bandwidth voice, data and video communications services. PeterStar's network is
designed to support a wide range of telecommunications
8
<PAGE> 11
products and services with a high degree of reliability. Additionally, PeterStar
provides the three cellular operators in St. Petersburg with access to digital
switching and transmission capacity which significantly improves their ability
to consistently receive and deliver their customers' traffic. As of December 31,
1998, PeterStar had a total of 168,166 active lines, of which 108,278 were
provided to cellular operators.
PeterStar, which started limited service in 1993, generated net income for
the year ended December 31, 1998 of $17.8 million on operating revenues of $72.4
million, as compared to net income of $16.5 million on operating revenues of
$54.5 million for the year ended December 31, 1997. Subscriber lines installed
increased from 114,774 at the end of 1997 to 168,166 at December 31, 1998,
reflecting increased penetration of the business community, residential and
cellular operators. PeterStar accounted for 49.8% of PLD's operating revenues
for the year ended December 31, 1998, as compared to 47.6% for the year ended
December 31, 1997.
PeterStar, a Russian closed joint stock company, was incorporated in 1992.
STRATEGY
PeterStar's strategy is to continue to meet the growing demands of business
customers and other network operators in St. Petersburg. PeterStar has recently
added incremental transmission capacity and upgraded its transmission network
from STM-4 to STM-16, as well as introducing new service features such as ISDN
capability, which allows simultaneous transmission of voice, data, video and
still images. In addition, as part of its strategic relationship with PTN,
PeterStar intends to continue to provide targeted support to PTN in its efforts
to upgrade and modernize its network. While the August 1998 financial crisis and
its aftermath have caused some slowdown in business activity, the business
environment in St. Petersburg remains stable, and the prospects for continued
growth of small to mid-sized Russian and foreign businesses remain reasonably
positive. PeterStar has placed increased emphasis on this market segment in
order to capitalize on what it considers to be a significant market opportunity.
PeterStar is involved in several projects designed to expand its direct
dial services in St. Petersburg and Northwest Russia. PeterStar has undertaken
with PTN a major infrastructure project involving the replacement of analog
exchanges with digital exchanges for certain parts of the network on
Vassilievski Island, a city district in St. Petersburg. This project requires
the conversion of approximately 30,000 business and residential lines that have
previously been operated by PTN, after which such lines become a part of the
PeterStar network. In addition, PeterStar plans to further enhance its transit
network capabilities in order to provide continued support to the cellular and
other network providers in terminating traffic in St. Petersburg and to the
national and international gateway.
PRODUCTS AND SERVICES
PeterStar currently provides: (i) voice and data services to business and
residential customers; (ii) switched transit services for cellular and other
network operators; and (iii) value-added voice and data services. PeterStar
markets its products and services through its own direct sales force and agents
which target mainly corporate accounts.
PeterStar also provides a number of value-added voice and data services to
complement the basic fixed network services it currently provides. PeterStar
believes that the ability to provide such services on the PeterStar digital
network is a key competitive advantage in the St. Petersburg marketplace.
Current services include the following:
Data Services. PeterStar provides high speed data links across the city of
St. Petersburg. These connections provide links between the computer networks of
banks and large companies, allowing for data interchange between a variety of
back office systems. The target customer for such services is the financial
sector, with the Russian Stock Market, Sberbank, Promstroibank, and Bank St.
Petersburg all currently using PeterStar's services. Other applications for
these high speed links, such as Reuters, utilize PeterStar to deliver
value-added services to their own customers.
Frame Relay. PeterStar operates a frame relay data network service as an
enhanced feature of its current service offering. Customers include Citibank,
the Russian Central Bank and the Russian Stock Market.
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<PAGE> 12
ATM. PeterStar has installed an ATM service, including eight switches, for
selected customers to complement its existing service offering. Customers
include Coca-Cola and financial institutions such as Promstroibank and Bank St.
Petersburg, and it is anticipated that an expansion of this service will take
place once market demand has been confirmed.
Operator services. PeterStar has provided operator assistance service since
the third quarter of 1995 pursuant to a 1995 agreement with SPMMTS. The
agreement with SPMMTS provides PeterStar with primary access to the "07" (long
distance) operators connecting customers on a non-automatic dial destination
throughout the Russian Federation and the other countries of the former Soviet
Union. Other operator services offered include conference calling and
person-to-person calling. PeterStar also plans to provide access to wider
databases including those provided by Yellow Pages.
Calling Card Services. In November 1995, PeterStar launched a direct dial
calling card service, enabling customers to dial directly through to the
PeterStar network when using a tone dial telephone. The service, which provides
both debit and credit card service, is also available via the PeterStar operator
service for pulse and rotary dial telephones. PeterStar has expanded this
service offering through co-operation with Comstar, a network operator in
Moscow, providing PeterStar customers access in Moscow. PeterStar is currently
considering a further expansion of its calling card platform in conjunction with
the development of the Teleport-TP national network facilities.
Equipment Sales. PeterStar offers customers a wide range of
telecommunications equipment as a means of enhancing its service. It offers
PBXs, key systems, handsets, and the full range of customer terminals including
Partner, Partner Plus, Eurogenesis and Definity. PeterStar also offers a
maintenance service for the equipment.
ISDN. PeterStar has installed an ISDN platform to service the demand in the
local marketplace. PeterStar also offers international ISDN services, following
agreement on the standard for C-7 signaling and the upgrading of the
international gateway.
Internet. Since August 1996, PeterStar has provided its subscribers access
to the Internet via WEBplus, a local Internet service provider. PeterStar
provides dial-up and dedicated network access to customers wishing to use the
WEBplus service.
CUSTOMERS AND MARKETING
PeterStar's customer base currently consists of three general categories:
(i) business customers; (ii) cellular and other network operators; and (iii)
residential customers. PeterStar's primary focus is the provision of voice and
data services to business customers, focusing on those which generate large
amounts of outgoing long distance and international traffic.
PeterStar continues to experience a shift in its customer base, from
foreign companies (which tend to use the higher priced international services)
to predominantly Russian businesses and, to a lesser extent, residential
customers (for whom local calling is the principal usage).
The following table illustrates, as of December 31, 1998, 1997, 1996 and
1995, the number of lines on the PeterStar network, set forth by customer
segment:
<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF NO. OF
LINES LINES LINES LINES
AS OF % OF AS OF % OF AS OF % OF AS OF % OF
DEC. 31, 1998 DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1995
TYPE OF CUSTOMER 1998 TOTAL 1997 TOTAL 1996 TOTAL 1995 TOTAL
- ---------------- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Direct dial -- business......... 42,388 25% 24,344 21% 12,482 24% 4,840 23%
Direct dial -- consumer......... 17,500 11% 4,482 4% 2,310 4% 2,029 9%
Cellular........................ 108,278 64% 85,948 75% 37,213 72% 14,659 68%
------- --- ------- --- ------ --- ------ ---
Total................. 168,166 100% 114,774 100% 52,005 100% 21,528 100%
======= === ======= === ====== === ====== ===
</TABLE>
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<PAGE> 13
COMMERCIAL VOICE AND DATA SERVICES
PeterStar's digital overlay network provides its customers with improved
connectivity, as well as a package of exchange services such as call waiting,
call forwarding and three-way conferencing. PeterStar offers its customers a
choice between new digital installations or the upgrading of existing PTN analog
connections to digital capability. New lines are provided via either traditional
copper connections or fiber optic cables.
For domestic long distance connections, PeterStar offers dedicated digital
circuits to Moscow. Moscow is the destination of approximately 40% of the long
distance traffic from St. Petersburg, all other national traffic being directed
to the national switching center of Rostelecom in Moscow for delivery throughout
the Russian Federation.
SPMMTS is the gateway for international calls to and from St. Petersburg
and SPMMTS has a number of options for the forwarding of international calls.
Such calls can be directed to an international gateway owned by SPI, a joint
venture between BT and SPMMTS which has satellite connections to the UK. In
addition, SPMMTS has access, via Rostelecom, to the undersea cable between
Russia and Denmark for international traffic. Finally, SPMMTS has the option to
route international traffic through the international gateway in Moscow. In
addition to SPMMTS, there are several independent dedicated networks which
provide international telecommunications access in St. Petersburg, including
BCL.
Call revenues and total minutes in the commercial voice and data services
segment (i.e, non-cellular) amounted to $30.9 million, $22.5 million, $12.8
million and $6.2 million, and 220,022,000, 126,220,000, 71,128,000 and
19,995,000, in 1998, 1997, 1996 and 1995, respectively.
Business Customers. PeterStar's primary focus has been the provision of
telecommunications products and services to business customers, focusing on
those which generate large amounts of outgoing long distance and international
traffic. PeterStar targets both foreign and, increasingly, Russian businesses
which have requirements for high quality local, long distance and international
telecommunications services. As of December 31, 1998, Russian businesses, such
as Baltika Brewery and LenEnergo, represented approximately 70% of PeterStar's
42,388 business subscriber lines and foreign businesses, such as ABB, Rothmans
Inc., Pepsi, Alcatel, Nokia, McDonalds, Volvo, PricewaterhouseCoopers and Philip
Morris, represented the balance. Total call revenues from PeterStar's directly
connected business customers were $30.5 million in 1998.
Residential Customers. As of December 31, 1998, PeterStar had connected
17,500 residential customers to its network. Revenues from direct dial
residential customers (principally connection charges and line rentals) totaled
$0.7 million in 1998 (of which $0.4 million was call revenue). At present,
PeterStar does not directly receive any local call revenues from its residential
customers, but does bill and collect revenues for national and international
calls at the SPMMTS tariff. In 1999, PeterStar will complete a project with PTN
to upgrade telecommunications services on Vassilievski Island, a project which
is increasing the number of residential customers on the PeterStar network.
EXPANSION OF VOICE AND DATA SERVICES
PeterStar has undertaken with PTN an infrastructure project centering on
the replacement of analog step-by-step and cross-bar exchanges with digital
telecommunications equipment for Vassilievski Island, a city district in St.
Petersburg. The project requires the conversion of a total of approximately
30,000 business and residential lines that were previously operated by PTN,
after which such lines become part of the PeterStar network and the users become
PeterStar customers. As of December 31, 1998, approximately 13,000 lines had
been converted, with the balance expected to completed in the first half of
1999. While the business customers are charged either PeterStar or PTN tariffs
(based on their traffic patterns), the residential customers pay PeterStar the
equivalent PTN rate for the line rental. PeterStar collects the revenues on
national and international calling from these customers, although the level of
such calling for residential customers, who are the bulk of the new customers,
is not substantial. The total cost of the project is estimated at approximately
$25 million, of which $13 million is for network infrastructure and the balance
for civil works and local network upgrades. This amount also includes
approximately $3 million for an upgrade to the core PeterStar overlay network.
As of December 31, 1998, a total of $23.7 million had been spent, representing
approximately 95% of the project's total cost.
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<PAGE> 14
PeterStar also expects to increase its operating presence in Northwest
Russia through the targeted development of digital infrastructure to connect
business customers and to develop operational relationships with the regional
telephone companies. PeterStar is exploring the possibilities for closer
cooperation with both Teleport-TP and BCL (both of which are subsidiaries of
PLD) in connection with the expansion of its core business in St. Petersburg and
the implementation of its strategy in Northwest Russia.
The implementation of this expansion in direct dial services involves a
variety of risks, including those set forth in "-- Risk Factors -- Risks
Involving PeterStar Company Limited."
CELLULAR SERVICES
The three cellular operators in St. Petersburg currently utilize the
PeterStar network to deliver high quality services to their customers and
provide reliable access to the local, long distance and international networks.
PeterStar's digital infrastructure enhances the ability of the cellular
operators to consistently receive and deliver their customer's traffic, a
benefit that is not achievable by using the outdated PTN transmission network.
In addition, the lack of capacity on the PTN network provides a significant
constraint on the ability of the cellular operators to expand their capacity to
meet market demand. Access to the PeterStar network provides these cellular
operators with the additional capacity necessary to accommodate their planned
growth.
The number of cellular customers in St. Petersburg has increased from
approximately 6,400 at December 31, 1994 to over 110,000 at December 31, 1998,
as St. Petersburg has become one of the fastest growing cellular markets in
Russia. The cellular operators in St. Petersburg experienced a drop-off in the
number of subscribers following the August 1998 crisis, although there are signs
that the subscriber numbers are beginning to recover. Subscribers are primarily
business customers who use cellular service as a mobile telecommunications tool
rather than as an alternative to the wireline network.
The three cellular operators in St. Petersburg are:
Delta Telecom. Delta, the NMT 450 operator which is a joint venture between
PTN and an affiliate of MediaOne (formerly U.S. West Media Group, Inc.), was
connected to the PeterStar network in September 1995. As of December 31, 1998,
the majority of Delta's subscribers (of which 20,789 were active) were connected
to the PeterStar network.
North West GSM. NW GSM, the digital 900 MHZ operator for the city which is
a joint venture between Sonera, Telia, Telenor, Lensvyaz and Telecominvest, has
been connected to the PeterStar system since September 1994. As of December 31,
1998, all of NW GSM's subscribers (of which 73,673 were active) were connected
to the PeterStar network.
Fora Communications. Fora, a joint venture between Millicom International
Cellular ("Millicom") and the City of St. Petersburg, is an AMPS 800 cellular
system that has been connected to the PeterStar network since July 1994. As of
December 31, 1998, all of Fora's subscribers (of which 13,816 were active) were
connected to the PeterStar network.
The following table sets forth, for each cellular operator, the number of
active lines connected to PeterStar at December 31, 1995, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
OPERATOR 1998 1997 1996 1995
- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fora Communications................... 13,816 16,671 8,603 3,410
NorthWest GSM......................... 73,673 52,681 22,210 7,049
Delta Telecom......................... 20,789 16,596 6,400 4,200
</TABLE>
Call revenues and total minutes in the cellular segment amounted to $12.2
million, $9.0 million, $5.2 million and $2.2 million, and 178,370,000,
119,096,000, 57,729,000 and 17,830,000 minutes, in 1998, 1997, 1996 and 1995,
respectively.
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<PAGE> 15
NETWORK AND FACILITIES
PeterStar's network and facilities give it the ability to provide advanced
digital services to the telecommunications market in St. Petersburg, services
that the Company believes PTN, with its primarily analog network, will be unable
to provide in the near term due to internal funding constraints. The PeterStar
network consists of digital exchanges which are connected by fiber optic cables,
advanced transmission systems and remote switching units and concentrators. The
fiber optic network forms twelve rings, permitting traffic to be re-routed in
the event that a cable is cut or damaged. The network is fully interconnected
with the PTN network, with direct and indirect connections via approximately 680
kilometers of fiber optic cable to all thirty-four PTN transit exchanges
distributed throughout St. Petersburg. These direct connections to all of the
primary PTN exchanges enable callers to by-pass congestion on the PTN network.
The fiber optic cables also provide direct links to the national and
international switch, providing PeterStar customers with high quality long
distance and international access. PeterStar expects that it will continue to
incrementally add switching, transmission capacity and local loop infrastructure
to its core network in order to address its target market in St. Petersburg and
regional points of presence.
In addition to core network development, PeterStar, as part of its goal to
be the full service telecommunications provider to the business community in St.
Petersburg, has undertaken a number of specialized customer connections to its
network, tailoring the solution to the specific customers' needs. This involved
investment in, among other things, new cable, trunked radio, and customer
premises equipment. Customer contracts concluded in 1998 include those with the
Customs Authority, the Russian Mint, Lenexpo and Siemens.
PeterStar has signed a contract with Tadiran, an Israeli wireless equipment
manufacturer, to supply 1,500 lines of wireless local loop infrastructure.
PeterStar has deployed such equipment where: (i) local loop infrastructure is
non-existent or of poor quality; and (ii) the cost of installing cable would be
prohibitive. As of December 31, 1998, PeterStar had in operation 809 wireless
local loop lines and plans on expanding the wireless local loop service offering
during 1999 based on customer demand.
The PeterStar network currently consists of three AT&T 5ESS exchanges and
several remote concentrators. PeterStar's Vassilievski Island exchange now
serves as its main transit exchange, and is linked to the other PeterStar
exchange located in Ligovskaia, in the central business district of St.
Petersburg, as well as with PTN and SPMMTS. The Ligovskaia switch is being
upgraded in order to provide redundancy to the main Vassilievski Island transit
exchange. The Vassilievski Island exchange has the capacity to serve a large
number of customers, both in the immediate vicinity of Vassilievski Island and
at remote locations via the fiber optic network. This capacity enables PeterStar
to carry substantial volumes of traffic to and from the PTN network to other
network operators, such as cellular, Internet and paging operators, and to
provide high quality links for long distance and international calls. PeterStar
has added incremental transmission capacity and upgraded its transmission
network from STM-4 to STM-16, as well as working on the provision of new service
features. In addition, as part of its strategic relationship with PTN, PeterStar
intends to continue to provide targeted support to PTN in its effort to upgrade
and modernize its network. See "-- Expansion of Voice and Data Services" and
"-- Risk Factors -- Risks Involving PeterStar Company Limited -- Dependence on
PTN Facilities."
BILLING, TARIFFS AND INTERCONNECTION CHARGES
Billing
Except for the residential and business customers on Vassilievski Island
(which are billed in Roubles at the PTN rate), PeterStar denominates its tariffs
in U.S. Dollars, with its customers paying the monthly invoice in Roubles at the
U.S. Dollar/Rouble exchange rate on the date when the customer instructs its
bank to make payment. By denominating its tariffs in U.S. Dollars (and
exchanging Roubles at the then current U.S. Dollar/ Rouble exchange rate),
PeterStar reduces the exchange rate risk otherwise associated with transacting
business in a foreign currency. However, during the third and, to a lesser
extent, fourth quarters of 1998, significant delays occurred in the processing
of payments within the Russian banking system and led to exchange losses in
those periods. See "-- Risk Factors -- Country Risks -- Restrictions on Currency
Conversion; Historical Volatility in Currency Prices."
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<PAGE> 16
Tariffs
There are no specific regulations regarding tariffs charged by PeterStar
(except for customers on Vassilievski Island which are charged the PTN tariff).
PeterStar sets its tariffs taking into account those charged by PeterStar's
interconnect parties, namely PTN, SPMMTS and SPI, as well as competitive
pressures in the marketplace. PeterStar charges its customers for the
installation of equipment and initiation of service, line rental, local, long
distance and international calls and special services.
In the period during which PeterStar has operated, there has been
significant price convergence between PeterStar and public network national and
international call tariffs. As PeterStar has widened its customer base, it has
reduced its national and international call tariffs. At the same time, public
network tariffs have increased for long distance access. Until PTN introduces
local call metering to its customers, PeterStar will not receive any local
calling revenues from its residential customers, and the timing of the
introduction of such metering remains unclear.
PeterStar's published tariff for local calls differs according to whether
the call is made during peak times (8 AM to 8 PM) or at other times. For
domestic and international long distance calls, tariffs are based on the call's
destination and the time of the call. PeterStar offers discounts, based on call
volumes, for customers who make a large number of calls per month.
PeterStar charges a flat per line installation charge for telephone lines
and for 2Mb/s digital circuits, regardless of the number of lines or circuits
installed. In addition, customers are charged a monthly rental charge for the
telephone lines and digital circuits.
Business Customers. PeterStar business customers are charged the full
PeterStar published tariffs for installation and initiation charges, line rental
and local, long distance and international calls. Certain discounts are given
for installations based on the number of lines installed at a single customer
location and for call volumes.
Cellular Operators. The cellular companies pay PeterStar for the
installation and lease of 2 Mb/s links, a connection charge for each number
connected and a monthly rental fee for each number, plus volume related call
charges.
Residential Customers. PeterStar currently receives line rental and
connection charges from residential customers at the PTN rate. PeterStar will
not receive local call charges from residential customers until PTN imposes such
charges and then will only receive charges at the PTN rate. Long distance and
international calls are billed directly by PeterStar. For residential customers
connected as part of the Vassilievski Island project, PeterStar collects all
revenues for long distance and international calling, with charges at the PTN
tariff level.
Interconnection Charges
PeterStar has been able to negotiate favorable tariffs for interconnection
fees and carrier charges with both PTN and SPMMTS. PeterStar's current
interconnect agreements with PTN and SPMMTS are open-ended agreements, while the
interconnection fees and carrier charges payable under the interconnect
agreements are subject to renegotiation between the parties from time to time.
Commencing in 1998, PeterStar has been required to pay a local line rental
charge to PTN, although roughly half of the fee otherwise payable during 1998
was offset against amounts owed to PeterStar by PTN in respect of the
Vassilievski Island project. The aggregate amount paid to PTN in 1998 for line
rental charges was $1.3 million. The amount of the 1999 line rental charged has
not yet been determined, but PeterStar expects once again to be able to offset
amounts owing from PTN against such charges during 1999. See "-- Risk Factors --
Risks Involving PeterStar Company Limited -- Dependence on Interconnect
Parties."
TELECOMMUNICATIONS LICENSES
In June 1996, PeterStar was granted a license, which superseded a license
granted in November 1994, for an eight year term expiring November 2004 to
provide local, national and international telecommunications services within St.
Petersburg and the surrounding region. One of the conditions of this license is
that access to long distance and international communications be through the
public network. Other licenses that have been issued to
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<PAGE> 17
PeterStar include a dedicated network license (expiring September 2001), a data
communications license (expiring May 2001), a telematics license (expiring May
2001) and a videoconferencing license (expiring June 2001). Based on its
experience in renewing existing, and obtaining new, licenses and its general
knowledge of the licensing environment in Russia, management of PeterStar
believes that, so long as they are being actively utilized, all such licenses
will be renewed at the end of their respective terms.
The main PeterStar license, governing the provision of public
telecommunications services, sets the number of lines which PeterStar may have
in St. Petersburg and the surrounding region at 106,000, and requires that
capacity equal to 74,200 lines be introduced by June 1999. Based on its
experience in renewing existing, and obtaining new, licenses and its general
knowledge of the licensing environment in Russia, management of PeterStar
believes that the maximum and minimum number of lines are not strict
requirements but are instead designed to provide general guidance as to the
number of lines intended to be included on the system. As of December 31, 1998,
PeterStar had 168,166 lines, of which 108,278 were provided to cellular
operators. PeterStar does not believe that its license would be terminated or
re-negotiated, that it would be forced to reduce the number of its subscribers,
or that other penalties would be imposed, by reason of its exceeding its 106,000
line ceiling, but there can be no assurance that the RFCTI would not take a
different position which in turn could result in the revocation of the license
or its renegotiation on terms unfavorable to PeterStar or the imposition of
penalties. It is not possible to calculate the amount of any penalties which
might be imposed, which are in the discretion of the RFCTI.
The dedicated network license permits PeterStar to provide long distance
and international telephone transmission services to dedicated network operators
(such as BCL) in St. Petersburg and the surrounding region for a term expiring
in September 2001. The dedicated network license sets the number of lines which
PeterStar may have at 30,000 and requires that capacity equal to 21,000 lines be
introduced by September 1999. Once again, based on its experience in renewing
existing, and obtaining new, licenses and its general knowledge of the licensing
environment in Russia, management of PeterStar believes that the maximum and
minimum number of lines are not strict requirements but are instead designed to
provide general guidance as to the number of lines intended to be included on
the system. However, there can be no assurance that the RFCTI would not take a
different position which in turn could result in the revocation of the licenses
or their renegotiation on terms unfavorable to PeterStar or the imposition of
penalties. It is not possible to calculate the amount of any penalties which
might be imposed, which are in the discretion of the RFCTI. See "-- Risk Factors
- -- Risks Involving PeterStar Company Limited -- Reliance on Telecommunications
Licenses; Risks of Revocation or Renegotiation of Licenses."
EQUIPMENT AND OTHER OPERATING AGREEMENTS
Equipment. Lucent is PeterStar's primary network equipment supplier. In
recent years, equipment supply agreements have been entered into with Lucent for
the purchase of telecommunications equipment, including transmission systems,
switching equipment and related software, for the PeterStar network, including
for the Vassilievski Island project. In some cases, Lucent has provided vendor
financing, using Dutch export credit guarantees.
Cellular and Other Operators. Pursuant to interconnect agreements with
Delta, NW GSM and Fora, PeterStar provides interconnect service from the
cellular networks to the local network and a gateway for long distance and
international networks. Traffic interconnections are linked and made through
PeterStar's switch system. The interconnect agreements provide for the following
payments to be made by each cellular operator to PeterStar based on 2 Mb/s trunk
connections: monthly lease fees for each trunk; per-subscriber number fees and
per-minute tariffs. The Delta agreement is for a one year term, renewable for
additional one year periods by mutual agreement. The NW GSM agreement is for a
minimum period of two years, after which either party may terminate upon not
less than three months prior written notice. The agreement with Fora is for two
years and may be extended by mutual agreement for successive five year periods.
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EMPLOYEES
As of December 31, 1998, PeterStar had 412 employees, all of whom were
full-time. Of these employees, 411 were Russian nationals and one was an
expatriate manager. None of its employees is subject to a collective bargaining
agreement. PeterStar believes that its relations with its employees are good.
ALTEL
OVERVIEW
ALTEL, in which the Company (through WTC, a wholly owned British Virgin
Islands subsidiary) owns a 50% interest, currently operates the only nationwide
cellular network in Kazakhstan. ALTEL was formerly known as BECET International,
although marketing its services under the name "ALTEL". In May 1998 ALTEL
changed its corporate name to the name under which it was doing business. Also
in 1998, ALTEL introduced a prepaid cellular service (marketed under the name
"TUMAR") in Almaty which, as of December 31, 1998, had 6,964 active subscribers.
The other 50% of ALTEL is held by Kazakhtelekom, the operator of the
national telephone network in Kazakhstan. In May 1997, the Kazakh government
announced the sale of a 40% stake in Kazakhtelekom, the state-owned
telecommunications company, to Daewoo. However, in March 1998, it was reported
that Daewoo had sold a portion of its stake (reported to be approximately 10% of
Kazakhtelekom) to an unnamed third party. It was later confirmed that Daewoo had
sold its entire stake in Kazakhtelekom to Kazcommertzbank, a commercial bank
based in Kazakhstan. It is understood that the Kazakh government is seeking to
sell a 15% stake in Kazakhtelekom to private investors. Kazakhtelekom recently
received a revised license specifically naming it as the exclusive national
network operator in Kazakhstan, and giving it a wide range of powers to carry
out this function. During 1998, the KMOC issued two GSM licenses for the
development of national GSM networks in Kazakhstan. The two license recipients
(one of which is a joint venture including Kazakhtelekom) commenced active
marketing of their services in February 1999.
The Company's primary objectives for ALTEL are to increase revenues and
cash flows through increased penetration, usage and network coverage. Cellular
service provides a rapid and relatively inexpensive way to overcome the
deficiencies of the wireline telecommunications infrastructure in Kazakhstan.
ALTEL's cellular telecommunications network in Kazakhstan currently consists of
separate systems in Almaty, South Kazakhstan (Chimkent), Karaganda, Pavlodar,
Astana (formerly known as Akmola), Aktyubinsk, Kustanai, East Kazakhstan
(Ust-Kamenogorsk), Atyrau, Taraz, Petropavlovsk and Kyzl Orda. As of December
31, 1998, ALTEL's cellular telecommunications network covered a geographic area
of approximately 4,200,000 people, representing 24% of the total population, in
12 cities. ALTEL commenced cellular service in September 1994 and has since
experienced significant subscriber and revenue growth. As of December 31, 1998,
ALTEL had 21,395 active subscribers, of which 6,964 were customers of ALTEL's
prepaid service. This compares with 11,102 subscribers as of December 31, 1997.
ALTEL, which began operations in September 1994, generated net income for
the year ended December 31, 1998 of $9.2 million on operating revenues of $39.5
million, as compared to net income of $7.2 million on operating revenues of
$30.0 million for the year ended December 31, 1997. The subscriber base grew
from 2,882 at the end of 1995 to 21,395 at December 31, 1998 (of which 6,964
were customers of ALTEL's prepaid service). ALTEL accounted for 27.2% of PLD's
operating revenues for the year ended December 31, 1998, as compared to 26.2%
for the year ended December 31, 1997.
ALTEL, a Kazakh closed joint stock company, was incorporated in 1994.
STRATEGY
The Company believes the development of a market economy in Kazakhstan is
likely to increase demand for modern telecommunications services, including
wireless communications, as demonstrated by the subscriber growth experienced to
date by ALTEL. While the Kazakh telephone network is slowly being modernized,
the Company believes this is likely to be an expensive and lengthy process. The
Company believes that this environment provides ALTEL with the opportunity to
provide customers in Kazakhstan with a viable, high
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<PAGE> 19
quality alternative to wireline telephone service during the period it will take
to modernize the basic public network. Management of ALTEL currently believes
that, by virtue of its cost structure and its market penetration to date,
together with its recently introduced prepaid service, it is in a good position
to compete with the new GSM operations. However, ALTEL is currently assessing
the impact of the GSM licenses on its business, and there can be no assurance
that ALTEL will in fact be able to compete successfully with the new licensees.
NETWORK AND FACILITIES
As of December 31, 1998, ALTEL's cellular telecommunications network in
Kazakhstan consisted of separate systems in Almaty, South Kazakhstan (Chimkent),
Karaganda, Pavlodar, Astana, Aktyubinsk, Kustanai, East Kazakhstan
(Ust-Kamenogorsk), Atyrau, Taraz, Petropavlovsk and Kyzl Orda. Further
installations remain dependent upon many factors including the successful
location of additional cell sites and the results of marketing and other
studies. As of December 31, 1998, investment in ALTEL's cellular network
infrastructure and support facilities totaled approximately $43.4 million. ALTEL
anticipates that its capital expenditure program in 1999 will total
approximately $8.6 million and will be used to develop new installations, expand
network capacity in the existing cities and to upgrade equipment. The Company
currently believes that this funding will be provided by internally generated
cashflows.
All ALTEL systems are connected to the local telephone network and the
regional trunk switch in the cities where they are located. The system in Almaty
is also linked to an international trunk exchange and the Astana system will be
linked to a new international switch in that city when it becomes operational.
Long distance and international calls are completed using the national and
international network of Kazakhtelekom. International calls are switched through
a digital exchange in Almaty.
Space for most ALTEL switches, cell sites and associated equipment is
provided by Kazakhtelekom. ALTEL also uses space in a Kazakhtelekom exchange
building in Almaty for office and administrative purposes and leases other
premises in Almaty which combines its central warehouse and a larger customer
service center and retail outlet. ALTEL has also established, and will continue
to establish, customer service centers in each city in which service is offered.
Virtually all space for customer service centers and equipment not provided by
Kazakhtelekom is leased, although ALTEL has purchased its facilities in Taraz,
one base station site and building in Chimkent and a base station building in
Karaganda.
In November 1997, the official political capital of Kazakhstan was moved
from Almaty to Astana. Although ALTEL does have a presence in Astana, the
long-term effect of this move on ALTEL's business remains uncertain. For
example, ALTEL could need to incur the cost of moving its administrative
functions to Astana. Currently, both the number of customers in Astana and the
traffic between Almaty and Astana are increasing, but there is a risk that the
move could result in reduced cellular activity in Almaty in the future.
PRODUCTS AND SERVICES
ALTEL customers may choose from three types of cellular service: service
within a single city, service within Kazakhstan as a whole, and full service
including international access. Optional services include call waiting, three
party conferencing, call forwarding, voice mail and busy transfer. ALTEL markets
cellular telephones and related equipment manufactured by Motorola and Philips.
ALTEL offers a roaming facility between the home city of the subscriber and
other cities served by the ALTEL network. In addition, as of December 31, 1998,
ALTEL had established roaming agreements with a total of 18 other cellular
operators, including: (i) BEELINE (Vimpelcom) in Moscow and Samara; (ii) Fora in
St. Petersburg; (iii) Digital Sotovaya Svyaz in the Ukraine; (iv) Katel in
Kyrgyzstan; and (v) Uzdunrobita in Uzbekistan.
ALTEL introduced a prepaid cellular service in Almaty in August 1998 (under
the name "TUMAR"), thereby adding to its existing service offerings. ALTEL
expects to introduce the prepaid service in additional regions, include Astana,
during 1999. In addition to further reducing the potential for bad debts, this
system also permits ALTEL to market a portable unit having fewer features and
more economical pricing, thus enabling
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<PAGE> 20
ALTEL to expand into a new and potentially much larger market segment than that
to which it has addressed its marketing efforts to date. As of December 31,
1998, TUMAR had 6,964 active subscribers.
ALTEL markets its cellular services through its own outside direct sales
force, which targets corporate and government accounts and high volume
consumers, together with customer service centers. Although ALTEL's standard
service includes individuals, it has most appeal to businesses which constitute
around 90% of the customer base. In contrast, the TUMAR prepaid services are
targeted almost exclusively to middle income domestic individuals (including
students). With this differentiation, ALTEL believes that it has broad appeal
across the community.
ALTEL does business under the registered trade names "ALTEL" and "TUMAR"
and features these names in all of its marketing and promotional activity. ALTEL
uses a variety of marketing channels to promote its services, including
television, radio, newspapers, billboards and sponsorship of concerts and other
popular events. ALTEL believes that both the identification of the "ALTEL" and
"TUMAR" trade names with its services, and its marketing activities, have been
effective in stimulating demand for its products and services.
OPERATIONS
Billing and Tariffs
Tariffs for ALTEL customers are posted in U.S. Dollars. Government
regulations determine the currency in which invoices may be paid, which depends
upon the residency status of the customer. Domestic subscribers may pay only in
Tenge, while foreign subscribers are permitted to pay in Tenge or U.S. Dollars.
Commencing March 1998, ALTEL is now required to issue a tax invoice with each
bill stating the amount in Tenge as of the billing date. However, to date, ALTEL
has still been able to receive payment in Tenge at the U.S. dollar exchange rate
on the date payment is made.
Under the terms of its license, ALTEL is free to establish the rates for
all cellular services provided on its network, without prior approval from the
KMOC. ALTEL's pricing is subject to review by the Kazakh Anti-Monopoly
Commission. ALTEL currently employs one pricing structure for all of its
customers, but Kazakh government agencies are offered a 25% discount on
activation and a 35-40% discount on monthly access fees and airtime charges.
Currently, ALTEL has 123 subscribers in this category and management does not
expect this number to increase significantly over time.
A new ALTEL subscriber currently pays a one-time activation fee and makes a
security advance to cover monthly fees and usage charges which depends on
whether the subscriber has international, inter-city or local access,
respectively. Non-residents of Kazakhstan pay higher security advances. Monthly
access fees vary depending on whether the customer chooses local service alone,
inter-city service or full international service. Basic usage charges vary
between peak and off-peak calls, plus the applicable tariffs for international
and inter-city calls. In addition, there is a monthly fee for each optional
service, including call waiting, three party conferencing, call forwarding,
itemized billing and busy transfer. ALTEL also charges its subscribers a fee for
the ability to roam to other regional cities. ALTEL periodically offers special
tariff-related promotions which include discounts on certain elements of the
tariff schedule when packaged together. In addition, certain customers are
offered volume discounts on the tariff schedule. ALTEL has also introduced
air-time tariff plans, providing discounts to users, based on the periods that
they intend to use the phone and whether their calls are predominantly incoming
or outgoing. All tariffs include VAT at the rate of 20%.
The basic connection fee for the TUMAR prepaid service is a one time fee,
depending on whether the customer provides the handset or if the customer
purchases the handset from ALTEL. No monthly access fees are charged to TUMAR
customers, and the usage charges are higher for outgoing calls than they are for
incoming calls, but do not vary depending on the time the call is made or
received. TUMAR introduced a new tariff plan in February 1999, with a connection
fee, a per day usage charge and a charge for outgoing calls, but no charge for
incoming calls. TUMAR expects to introduce discounts to its air-time tariffs
during March 1999. TUMAR customers can currently only make local calls within
Almaty.
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ALTEL's tariffs have been recently revised in light of competition from the
GSM licenseholders, which have offered low introductory tariffs to attract
customers. ALTEL expects that competition from the GSM operators will continue
to exert downward pressure on the tariffs for both ALTEL and TUMAR.
Interconnection
ALTEL is dependent on its interconnection to networks operated by
Kazakhtelekom for the completion of its local, long distance and international
calls. ALTEL pays an annual license fee to the KMOC in lieu of all frequency or
interconnection charges, equal to up to 6% of its after-tax profits as
calculated by the Kazakh statutory audit. ALTEL pays Kazakhtelekom a tariff in
respect of local calls, and enjoys a preferential tariff in respect of long
distance and international calls which provides ALTEL with an average margin of
25% on such calls. Kazakhtelekom has recently been authorized, in connection
with its appointment as the exclusive operator of the Kazakh national network,
to levy interconnection charges, and to do this on a basis which yields it a
profit. There can be no assurance that Kazakhtelekom will not use this authority
to start assessing interconnection charges against ALTEL, notwithstanding that
ALTEL is already paying a license fee expressly stated to be in lieu of
interconnection charges.
TELECOMMUNICATIONS LICENSE
ALTEL holds a 15-year renewable license issued in February 1994 for the
creation and operation of cellular communications networks in Kazakhstan for
local, long distance and international calling, using the 800 MHZ frequency band
and "AMPS" technology. Under the terms of the license ALTEL was required to
provide cellular services to Almaty and ten to twelve additional regional
centers by the end of 1996, a condition which has been met. See "-- Network and
Facilities."
The license specifies that ALTEL is to be the exclusive provider of
cellular service in Kazakhstan for the first five years of the license term, a
period which expired in February 1999. The license is transferable upon approval
by 75% of ALTEL's shareholders.
In 1998, before the expiration of the exclusivity period, ALTEL commenced
discussions with the KMOC on substituting a new license with revised terms for
its existing license. One aspect of such new license would have been the
elimination of the exclusivity provisions in return for other concessions,
including an extension of the basic term of the license. Although the
exclusivity period has since expired according to the terms of the license,
ALTEL and the KMOC are continuing to discuss the terms of a new license for
ALTEL.
EQUIPMENT AND OTHER OPERATING AGREEMENTS
ALTEL purchased from Motorola the infrastructure equipment required for the
cellular systems to be installed in Almaty and eighteen other regional centers
throughout Kazakhstan. Pursuant to a separate agreement, Motorola agreed to
furnish services with respect to the equipment, which included system design,
installation, optimization, system engineering, program management, software
maintenance and on-site switch maintenance.
Both agreements expire in May 1999. Motorola and ALTEL are currently in
discussions regarding a new agreement.
EMPLOYEES
As of December 31, 1998, ALTEL had 340 employees, all of whom were
full-time. Of these employees, 337 were Kazakh nationals and three were
expatriate managers. The number of employees involved in branch operations was
140. None of its employees is subject to a collective bargaining agreement.
ALTEL believes that its relations with its employees are good.
CPY YELLOW PAGES LIMITED
Yellow Pages, a Cyprus company in which the Company holds a 100% interest,
is the owner of one of the most comprehensive databases of Russian and foreign
businesses in St. Petersburg and publisher of what is primarily a business to
business directory. As of December 31, 1998, Yellow Pages had 68 employees in
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St. Petersburg who handle all of the graphic design and database management.
Yellow Pages hires part-time workers for the periodic update of the directory.
The Company utilizes the database of Yellow Pages to the benefit of PeterStar
and BCL, particularly in achieving more effective target marketing and in
operator services.
COMPETITION
PETERSTAR COMPANY LIMITED
PeterStar is building and operating its business in a highly competitive
environment. PeterStar does not have an exclusive license to provide
telecommunications services in St. Petersburg, and a number of other entities,
including Russian companies and international joint ventures, are competing with
PeterStar for a share of the St. Petersburg telecommunications market. A number
of such companies (or their joint venture partners) are larger than PeterStar
and have greater access to capital or resources.
Although PTN has historically supported the development of PeterStar, PTN
and PeterStar must be regarded as competitors in the telephony segment. PTN can
offer its customers the same core services as PeterStar, notwithstanding the
lower transmission quality and call completion rates of the PTN network.
Furthermore, PTN has recently completed the installation of a modern fiber optic
loop in St. Petersburg which, when fully operational, will significantly enhance
its ability to carry traffic and could therefore compete with PeterStar.
Although PeterStar believes that PTN will require substantial additional capital
to completely modernize its network, PTN, either alone or through Telecominvest,
is free at any time to enter into joint venture arrangements with other foreign
partners to modernize its network independently of PeterStar. While PeterStar
believes that there is a constructive working relationship between PeterStar and
PTN, there can be no assurance that PTN will not in the future start to compete
more aggressively with PeterStar and/or that future disputes between the
partners will not occur and/or that PTN will not seek another partner. See
"-- Risk Factors -- Risks Involving PeterStar Company Limited -- Dependence on
Interconnect Parties" and "-- Ownership and Management of Operating
Subsidiaries -- PeterStar Company Limited."
The other major competitors to PeterStar are: (i) Global One, the
international joint venture between Sprint, DT, France Telecom and its Russian
partner, the telegraph office, which provides national and international voice
and data services to certain destinations; and (ii) Sovintel, a joint venture
between Rostelecom and GTS, which is currently based in Moscow, both of which
have been expanding their operations in St. Petersburg. Since they are generally
unable to compete effectively with PeterStar based on quality, these competitors
principally compete on the basis of price, thereby exerting some price pressure
on PeterStar.
Other competitors include: (i) Combellga, a joint venture of CominCom,
BelgaCom, Alcatel Bell and MMTS which operates an international overlay network
in Moscow and has been attempting to penetrate the St. Petersburg market,
offering international access similar to BCL, as well as long distance access to
Moscow; (ii) JS Leivo, a joint venture of LenEnergo and Imatran Voima of Finland
which provides outgoing international access; (iii) St. Petersburg Teleport,
which offers only outgoing international services and offers lower priced
services; and (iv) Metrocom, which provides local data access in St. Petersburg.
In addition, the three cellular operators in St. Petersburg are competitors of
PeterStar because they offer local, long distance and international access. At
the same time, each cellular operator uses PeterStar to deliver its traffic.
ALTEL
Until 1998, ALTEL was the only licensed national cellular operator in
Kazakhstan. In 1998, the KMOC awarded two licenses for the development of a
national GSM network in Kazakhstan. One license was issued to Kcell, a joint
venture of TurkCell and Kazakhtelekom, and the other license was issued to
Kmobile, a joint venture of Telsim, a Turkish company, and local Kazakh
interests. Active marketing was begun by Kcell in early February 1999 and by
Kmobile in mid-February 1999. Management of ALTEL currently believes that, by
virtue of its cost structure and its market penetration to date, together with
its recently introduced prepaid service, it is in a good position to compete
with the new GSM operations. However, ALTEL is currently assessing the impact of
the GSM licenses on its business, and there can be no assurance that ALTEL will
in fact be able to compete successfully with the new licensees.
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YELLOW PAGES
Yellow Pages faces a number of competitors in St. Petersburg which provide
similar directory and database services. Many of these competitors have greater
financial resources than does Yellow Pages and there can be no assurance that
Yellow Pages will be able to continue to compete successfully with the other
ventures.
OWNERSHIP AND MANAGEMENT OF OPERATING SUBSIDIARIES
PETERSTAR COMPANY LIMITED
Ownership Structure
PLD holds its 71% interest in PeterStar through the Company (60%) and PLD
Holdings (11%). PLD acquired its 60% interest held through the Company at
various times over the period 1992-96. PLD acquired PLD Holdings in August 1998
as part of the transactions with News and Cable & Wireless.
The remaining 29% of PeterStar is held by Telecominvest, which is in turn
owned 51% by an affiliate of Commerzbank AG, a major German bank, 25% by PTN and
24% by SPMMTS. Telecominvest was originally a joint venture between PTN and
SPMMTS formed to act as a holding company for their respective interests in a
number of telecommunications ventures in Northwest Russia.
Relationship with Other Equity Holders
Under the PeterStar foundation documents, a general meeting of shareholders
may take action through a simple majority of those present. Accordingly, since
PLD has a 71% interest in PeterStar, it should be assured of being able to take
whatever action it requires once a meeting is constituted. However,
representatives of 75% of the ordinary shares must first be present to
constitute a quorum. Thus, it is possible for Telecominvest (and Commerzbank,
through its control position in Telecominvest) to prevent action from being
taken by ensuring that there is no quorum at a shareholders meeting.
Also, pursuant to the PeterStar foundation documents, the shareholders have
rights of first refusal to purchase any shares which any shareholder wishes to
transfer, and to purchase any shares held by any shareholder who is bankrupt or
goes into liquidation.
PeterStar is dependent on PTN for the completion of most of its calls, and
the PeterStar network is linked to the PTN network, giving PeterStar access to
PTN's large local subscriber base. In addition, PeterStar is dependent on PTN's
buildings, ducts and tunnels in order to house its exchanges and to reach its
customers. Until 1998, PTN permitted PeterStar to house its exchanges in PTN
buildings and use its other facilities without paying rent or call charges.
Commencing in 1998, PeterStar has been required to pay a local line rental
charge to PTN, although roughly half of the fee otherwise payable during 1998
was offset against amounts owed to PeterStar by PTN in respect of the
Vassilievski Island project. The aggregate amount paid to PTN in 1998 for line
rental charges was $1.3 million. The amount of the 1999 line rental charged has
not yet been determined, but PeterStar expects once again to offset amounts due
from PTN against such charges during 1999. However, any change in the terms on
which PeterStar has access to PTN's facilities, or any restrictions imposed by
PTN on the completion of calls from the PeterStar network, could have a material
adverse effect on PeterStar and, in turn, the Company. Given the extent of the
reliance of PeterStar upon PTN, PTN is clearly in a position to exercise a high
degree of influence over PeterStar's affairs as a practical matter, even as an
indirect minority shareholder.
Notwithstanding its ability to influence PeterStar's affairs, the Company
believes that PTN will continue to support the development of PeterStar's
business as presently planned, and that PTN's business objectives are basically
consistent with PeterStar's own plans.
Management
The board of directors of PeterStar consists of eight individuals, with
three each being appointed by the Company and Telecominvest, and one being
appointed by PLD Holdings. The eighth director is the General Director, who is
nominated by the Company subject to final approval by the shareholders. As the
owner of the
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Company and PLD Holdings, PLD has the indirect right to appoint four of the
eight directors of PeterStar, and to nominate the General Director who also sits
on the Board.
Inasmuch as six of the eight directors must be present to constitute a
quorum, the possibility exists that the Telecominvest directors (or any three
other directors) may be able from time to time to prevent the creation of a
quorum. Once a quorum is present, however, PLD is currently reasonably assured
of a majority of the votes on the board, on the basis that the General Director,
who is a Company appointee, will vote with the four PLD-appointed directors.
Even if the General Director votes with the Telecominvest directors, PLD can
still achieve a majority of votes because the PeterStar foundation documents
specify that the person designated as Chairman of the Board (whom the Company is
entitled to appoint) also has a casting vote in the event of a tie vote among
the board of directors.
The day-to-day management of PeterStar is the responsibility of the General
Director and a management board which is composed of the PeterStar divisional
directors. The PeterStar operational divisions are: Sales and Marketing,
Finance, Technical and Operations and Administration.
The officers of PeterStar are as follows:
<TABLE>
<S> <C>
Sergei Kuznetsov..................................... General Director
Rick Macy............................................ Commercial Director
</TABLE>
Sergei Kuznetsov became General Director of PeterStar in September 1998.
Prior to joining PeterStar, he had been, since July 1995, the General Director
of Telecominvest, the company formed by PTN and SPMMTS to hold their interests
in St. Petersburg and Northwest Russia. Before that, Mr. Kuznetsov was the
initial General Director of Delta Telecom, Russia's first mobile
telecommunications company. Prior to that time Mr. Kuznetsov's career had been
in PTN where he rose to become the chief engineer of the Necrasovski regional
node. He received his degree from the North West Scientific Institute in St.
Petersburg. He received an MBA degree from Columbia University and attended the
management program at the Fuqua School of Management of Duke University. He is a
director of a number of companies including PTN, Telecominvest and PeterStar.
Rick Macy joined PeterStar as Commercial Director in April 1998, replacing
Stephen Gardner who then became Vice President -- Commercial, Russia for PLD.
Prior to joining PeterStar, Mr. Macy was the Commercial Director, Moscow for
Millicom, where he was responsible for the sales and marketing of all of
Millicom's Russian cellular joint ventures. Previously, he was Area Sales
Manager for Harris Corporation, responsible for their European markets. He also
spent four years as an electronics technician in the U.S. Navy.
Service Agreement
PeterStar entered into a service agreement, dated as of January 1, 1999,
with the Company, pursuant to which, for a one-year term, the Company will
provide management services to PeterStar, including advice and assistance with
respect to the design, implementation, operations, marketing and expansion of
PeterStar's network for a one-year term. PeterStar has had similar agreements
with the Company for all years dating back to 1992.
ALTEL
Ownership Structure
The Company's 50% interest in ALTEL is held by WTC, a British Virgin
Islands corporation and a wholly owned subsidiary of the Company. The other 50%
interest in ALTEL is currently held by Kazakhtelekom, a joint stock company
which is owned by the government of Kazakhstan and which operates the public
telephone network in that country (the authority to operate such network having
been recently confirmed by the grant to Kazakhtelekom of specific authority to
act as the exclusive operator of the public network in Kazakhstan and as
representative of the Kazakh government in international telecommunications
matters).
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Relationship with Other Equity Holders
The relationship between WTC and Kazakhtelekom is governed principally by
the terms of a joint venture agreement entered into in December 1993. The
agreement sets forth the respective capital contributions of the parties. In the
case of the Kazakh partner, these consisted of the cellular license and
frequencies, as well as all physical facilities required for the operation of
the cellular network. As required, WTC contributed cash, equipment, property and
services with an aggregate value of $20.0 million by February 1995. WTC has no
obligation to make any additional contributions. Should the board of directors
of ALTEL determine that ALTEL requires an additional capital contribution, then
each shareholder will be required to contribute its proportionate share of the
capital contribution or face dilution.
Each ALTEL shareholder has the same voting, distribution and liquidation
rights, except that upon a liquidation, WTC is entitled to receive out of any
distributions the first $20.0 million for its capital contribution plus any
subsequent capital contributions not matched by Kazakhtelekom.
Under current Kazakh legislation, neither party is permitted to sell,
assign, pledge or otherwise transfer its equity interest in ALTEL without first
offering such interest to the other party
ALTEL and Kazakhtelekom entered into an interconnection agreement pursuant
to which Kazakhtelekom agreed to provide ALTEL with access to the public
switched telephone network in Kazakhstan for the fifteen year term of ALTEL's
current license free of charge (but subject to payment of certain charges to
local operators for carriage and termination of calls from ALTEL's network).
While there is no reason to suppose that Kazakhtelekom will not honor this
commitment, the loss of, or any significant limitation on its access to the
network could have a material adverse effect on the operations of ALTEL.
While WTC may have the power, pursuant to the management structure
described below, to direct the operations or determine the strategies of ALTEL,
management believes that it is unlikely, in view of the pivotal importance of
Kazakhtelekom to the business of ALTEL, that any significant initiatives would
be undertaken by WTC without the consent of Kazakhtelekom. To date,
Kazakhtelekom has not used its position to undermine initiatives proposed by
WTC, nor to cause ALTEL to take any action to WTC's detriment; however, there
can be no assurance that it will not do so in the future.
It is not known what effect on ALTEL, or its license or business, the
recent designation of Kazakhtelekom as the exclusive operator of the public
network will have. In addition, Kazakhtelekom is a participant in one of the
joint ventures which was recently granted a national GSM license in Kazakhstan
and it remains unclear what impact this participation will have on ALTEL's
business. All of these developments will present new uncertainties and
challenges for ALTEL. See "-- Risk Factors -- Risks Involving ALTEL."
In connection with the grant of its telecommunications license in 1994, WTC
agreed to lend the KMOC up to $3 million on commercial terms for use for various
KMOC projects. During 1995, PLD advanced $3 million to Monogram Finance Group
Limited ("MFGL") in exchange for a convertible promissory note due on February
20, 2000. The note is convertible at any time prior to February 29, 2000 into
common stock of MFGL representing 50% of its total issued and outstanding common
stock. Its sole asset is an agreement to acquire a 50% interest in Monogram
Telecommunications Limited, a Bermuda company ("MTL"). MTL has an agreement to
acquire 100% of an Irish company known as Kazakhstan Telecommunications
Development Corporation Limited ("KTDC"). KTDC has agreed in principle with the
government of Kazakhstan to assist the government in connection with the
privatization of Kazakhtelekom. While the Company believes that this arrangement
satisfies the commitment given by WTC to the KMOC, there can be no assurance
that the KMOC will not still call upon WTC to advance, and that WTC will not be
obligated to pay, the $3 million.
Management
ALTEL is currently managed by a board of directors consisting of six
members, three designated by Kazakhtelekom and three by WTC. WTC designates the
Chairman of the Board who has a casting vote in the event of a tie vote. At
least four members of the board are required to approve any of the following
actions: amendment of ALTEL's charter, dissolution, voluntary bankruptcy,
approval of the annual budget, acquisition of assets or businesses in excess of
$5.0 million or any disposition or transfer of the ALTEL license, other
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<PAGE> 26
investments in excess of $1.0 million or incurring indebtedness in excess of
$2.0 million. These arrangements cannot be changed without WTC's consent.
Accordingly, while there may be some question about the enforceability of these
arrangements, WTC believes that it has the ongoing ability to make all
significant strategic, operating, financing and investing decisions on behalf of
ALTEL through the arrangements described above, although it is not likely that
it would choose to take action without the approval of Kazakhtelekom.
ALTEL has two co-chief executive officers ("Co-CEOs") and a treasurer who
is also the chief financial officer ("CFO"), and may appoint other officers as
the board determines. In addition, ALTEL has a chief Kazakh financial officer
("CKFO") who reports directly to the CFO and who is responsible for accounting
matters under Kazakh law as well as serving as a liaison between ALTEL and the
Kazakh tax authorities. One of the Co-CEOs and the CKFO are appointed by the
directors who are designees of Kazakhtelekom and the other Co-CEO and the CFO
are appointed by the directors who are designees of WTC. The Co-CEO appointed by
the WTC directors has the ultimate responsibility for the management of ALTEL,
subject to the authority of the board of directors.
The current officers are as follows:
<TABLE>
<S> <C>
Rex Power............................... Co-Chief Executive Officer
Maxut Sauranbekov....................... Co-Chief Executive Officer
Michael Leaver.......................... Chief Financial Officer
</TABLE>
Rex Power joined ALTEL in June 1997. He is a registered chartered engineer
and a registered European engineer. Prior to joining ALTEL, he worked for Cable
& Wireless for over 30 years, mostly in overseas assignments, including
management positions in Nigeria, Saudi Arabia and Macau. Additional positions
with Cable & Wireless included Regional Business Manager for the Bermuda,
Caribbean and Atlantic Islands Region and General Manager, Eastern
Russia/Director, Special Projects in the Northeast Asia Region, Hong Kong and
Japan.
Maxut Sauranbekov became Co-Chief Executive Officer of ALTEL in June 1997.
He joined ALTEL in October 1994 as Vice President for Marketing, Sales and
Customer Service and then served as Vice President for Corporate Affairs. Prior
to joining ALTEL, he worked for eight years in various other commercial and
financial ventures.
Michael Leaver joined ALTEL as Chief Financial Officer in April 1998. From
1995 until joining ALTEL, he was Deputy General Director of Uralwestcom, a
cellular telephony operator in Yekaterinburg. Previously, Mr. Leaver was the
Financial Director for Kiev Tetra Pak, a Ukrainian joint venture, for three
years during its start-up phase.
Recent changes in applicable Kazakh legislation will require that the
management arrangements described above will need to be revised. However,
although it seems clear that the existing arrangements cannot be completely
preserved in their present form, because of the imprecision in some of the
drafting and also because of the lack of precedents due to the newness of the
legislation, it is difficult to state to what extent these arrangements will
need to be revised. In addition, ALTEL is actively exploring the option of
converting to a different legal form which may permit the preservation of, if
not all, at least a substantial portion of the management arrangements described
above in their current form. ALTEL does not expect to resolve this issue before
the middle of 1999.
ALTEL entered into Consulting and Information Services Agreements with PLD
and Kazakhtelekom, each dated January 1, 1998, pursuant to which such parties
provide certain consulting, information, management services and personnel
expertise to ALTEL. In consideration for these services, ALTEL pays consulting
fees, in the case of PLD, of $25,000 per month plus 3.4% of ALTEL's gross
revenues, and, in the case of Kazakhtelekom, of 300,000 Tenge per month plus 1%
of ALTEL's gross revenues. These contracts are each for a one year term
automatically renewable for successive one year periods unless terminated by
either party.
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<PAGE> 27
RISK FACTORS
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to political, social and economic conditions in the
countries of the former Soviet Union and the Commonwealth of Independent States,
the commencement of certain programs and the proposed offering of certain
services by the Company's operating subsidiaries, proposed changes in the
Company's corporate structure and centers of operations and interpretations and
actions of certain regulatory authorities, including in Russia and Kazakhstan,
as well as information contained elsewhere in this Report where statements are
preceded by, followed by or include the words "believes," "expects,"
"anticipates" or similar expressions. For such statements the Company claims the
protection of the safe harbor for forward-looking statements contained in the
private Securities Litigation Reform Act of 1995. Actual events or results may
differ materially from those discussed in forward-looking statements as a result
of various factors, including without limitation, those discussed elsewhere in
this Report and in the documents incorporated herein by reference. Furthermore,
this document constitutes a Year 2000 Readiness Disclosure Statement, and the
statements herein are subject to the Year 2000 Information and Readiness
Disclosure Act, and the Company hereby claims the protection of such Act for
this document and all information contained herein.
COUNTRY RISKS
General. Foreign companies conducting operations through affiliates in the
Russian Federation and Kazakhstan face significant political, economic,
currency, legal and social risks. For example, a report released February 20,
1997 by the United States Embassy in Moscow on the commercial environment in the
Russian Federation listed the following general difficulties affecting trade and
investment in the Russian Federation, most of which are also encountered in
Kazakhstan, and some or all of which could affect the ability of the Company or
its operating businesses to conduct or realize income from their businesses:
- ownership disputes
- high taxes, and a frequently changing tax regime
- high operating costs
- lack of systematic and accessible credit information
- corruption and commercial crime
- financial illiquidity of many firms
- changing requirements from regulatory bodies
- lack of market information
- an infant commercial legal framework
- cultural and language differences
- infrastructure problems
- payments, arrears and frozen accounts
- frequent changes in governmental personnel
Political Risks. Since the breakup of the Soviet Union, the political
situation in the Russian Federation and Kazakhstan has been characterized by
uncertainty and instability.
Russia. In the Russian Federation, there have been significant tensions
between the executive and legislative branches of the government and efforts by
the regions and autonomous republics of the Russian Federation to gain a greater
degree of independence (the most dramatic example of which was the conflict in
Chechnya). Lack of consensus between local and regional authorities and the
federal government often results in the enactment of conflicting legislation at
various levels and may result in political instability. This lack of consensus
may have negative economic effects on the Company, which could be material to
its operations.
In addition, Communist and nationalist parties wield strong influence in
the lower house of Parliament (the Duma) and have made gains in regional
governorships which could result in a slow down or reversal of the development
of a free market economy.
During the transformation to a market-oriented economy in the Russian
Federation, legislation has been enacted to protect property against
expropriation and nationalization. However, a resurgence in nationalism could
25
<PAGE> 28
result in pressures for the reduction or even elimination of non-Russian
ownership of Russian businesses, and there can be no assurance that such
recently enacted protections would be enforced in the event of an attempted
expropriation or nationalization. Legislation to restrict foreign ownership in
the telecommunications industry is introduced from time to time and, while not
expected to become law, is symptomatic of these increasingly nationalistic
attitudes.
There is also significant instability in the executive branch. Boris
Yeltsin, President of the Russian Federation, has been unable because of
ill-health to carry out the many and significant responsibilities of that
office. Instead, he has increasingly delegated his responsibilities to
ministerial appointees, while at the same time endeavoring to retain, and
demonstrate, his continuing constitutional powers by making frequent changes in
his appointments. All of this has served to create significant uncertainty, not
only as to the policies his government will pursue, but also as to whether the
government is likely to take any action to deal with the many significant
problems which the Russian Federation faces.
Additionally, he has announced that he will not run for re-election in
2000, which has set off a race between a number of candidates anxious to succeed
him. The efforts of these other candidates to be elected as President, and the
resulting change in leadership at that time, could result in additional
political instability and also substantial changes in government policies. Any
such matters could have a material adverse effect on the Company.
Kazakhstan. The political situation in Kazakhstan is characterized by
one-man rule by President Nursultan Nazarbayev who demonstrates considerable
political power. While such concentration of power may at times be perceived as
providing a stabilizing influence, it also increases the risk of nepotism,
arbitrary decision-making and significant policy changes in the event of
succession.
Russian Economic and Political Turmoil. During 1998 there was considerable
turmoil and uncertainty in the Russian financial markets, prompted in large part
by a drop in commodity prices and economic problems in Russia, together with the
crisis in the Asian financial markets which began in late 1997. These
developments were accompanied by a substantial decline in the Russian stock
market. These developments led the Russian government to raise interest rates
significantly and to seek special assistance from the International Monetary
Fund. In August 1998, the Russian government announced a substantial widening of
the trading band in which the Russian Rouble would be permitted to float,
together with a moratorium on certain foreign debt payments. Thereafter the
Rouble dropped substantially in value and traded outside of the high end of the
band, and the Russian government did not intervene to stop this trading, thereby
effectively acquiescing to a major devaluation of the Rouble. In the latter part
of 1998 and the first months of 1999, the Rouble has further declined in value
and this process is expected to continue.
Also in August 1998 the Russian government announced a 90-day moratorium on
debt repayments. This moratorium caused considerable difficulties for Russian
banks and businesses with hard currency obligations, as well as significantly
impairing the ability of such banks and businesses, as well as the Russian
government itself, to access the Western capital markets. The difficulties
experienced by the Russian banks in turn caused difficulties for their
customers, as bank transfers and deposits were frozen in many cases. The Russian
government itself has effectively defaulted on substantial amounts of its debt,
and is engaged in negotiations with Western banks and institutions (which reach
back several months) to restructure this indebtedness. Continuation of these
conditions for any significant period of time could have serious long-term
effects on the Russian economy. At the present time, it is impossible to predict
whether or when any resolution of these problems is likely.
In August 1998, the Russian government experienced a significant upheaval,
with the dismissal of the reformist government led by Sergei Kiriyenko and its
replacement by one led by Yevgeny Primakov. The Primakov government did not
propose a plan to address Russia's economic and financial difficulties, one
result of which was to cause the International Monetary Fund to delay further
assistance to the Russian government. In 1999, further political upheavals
occurred, as President Boris Yeltsin first dismissed the Primakov government in
May 1999 and selected Sergei Stepashin as the new Prime Minister, and then in
turn replaced him with Vladimir Putin in August 1999. It is too soon to predict
what policies will be adopted by the new Putin government. These frequent
governmental reshufflings create increased uncertainty about the future
political situation in Russia,
26
<PAGE> 29
which in turn creates additional concern about the ability of the government to
deal with the many problems currently afflicting the Russian economic system.
At the present time, it is not possible to predict the complete effect of
the continuing economic, financial and political difficulties in Russia,
although they have made for a difficult business environment in Russia. Although
demand for the Company's telecommunications services continued during the
economic and banking crisis in the second half of 1998, the economic
difficulties in Russia have adversely affected the Company's operating
subsidiaries and the Company's consolidated results for the year ended December
31, 1998 and the first six months of 1999. The Company is not yet able to
predict the effects of the ongoing difficulties on its results for 1999 as a
whole, but the continuing economic difficulties in Russia will likely continue
to have an adverse effect on the Company in current and future reporting
periods, and there can be no assurance that such adverse effects will not be
material.
Economic Risks -- Uncertain Pace of, and Difficulties Experienced in,
Economic Reform; Reliance on Foreign Economic Aid. Until recently, the economies
of the Russian Federation and Kazakhstan were administered by the central
authorities of the former Soviet Union. Following the collapse of those
authorities and the command economy they managed, the governments of both the
Russian Federation and Kazakhstan sought to implement policies designed to
introduce free market economies into their respective countries. While these
policies have met with some success, the economies of both the Russian
Federation and Kazakhstan have been characterized by high unemployment, high
rates of business failure, the deterioration of certain sectors of the economy,
high government debt relative to gross domestic product and declining real
wages. In both the Russian Federation and Kazakhstan real economic improvement
has been limited to specific regions (the Moscow and St. Petersburg regions in
Russia, and Almaty in Kazakhstan). The Russian Federation is still experiencing
a lack of political consensus as to the scope, content and pace of free market
reforms. No assurance can be given that policies to introduce or support a free
market economy will continue to be implemented in either the Russian Federation
or Kazakhstan, that these countries will remain receptive to foreign investment
or that the economies of the Russian Federation or Kazakhstan will stabilize.
The failure of any of these to occur could have a material adverse effect on the
Company. In addition, the Russian Federation currently receives substantial
financial assistance from several foreign governments and international
organizations. To the extent any of this financial assistance is reduced or
eliminated, economic development in the Russian Federation may be adversely
affected, and any resulting difficulties in the Russian economy could have a
material adverse effect on the Company.
-- Limited Experience with Free Market Economy. Russian and Kazakh
businesses have limited operating history in free market conditions and have had
limited experience compared with Western companies with the entering into and
performance of contractual obligations. Accordingly, as compared to Western
companies, such businesses are often characterized by management that lacks
experience in responding to changing market conditions and limited capital
resources with which to develop their operations. In addition, the Russian
Federation and Kazakhstan have limited infrastructure to support a market
system, and banks and other financial systems are not well developed or well
regulated. Businesses therefore may experience difficulty in obtaining working
capital facilities. Moreover, these countries' banking system have faced and may
encounter in the future liquidity crises as well as other problems arising as a
result of under-capitalization of the banking sector as a whole. The experiences
gained from the financial and banking crisis in Russia in the last two quarters
of 1998 demonstrate how fragile the Russian banking system is, and at the same
time how dependent Western investors are on such system. Another general Russian
banking crisis in particular could have a material adverse effect on the
Company's operations and financial performance and on the ability of its
customers to pay amounts due. While Kazakhstan has not experienced a similar
crisis, there is the potential for such a crisis in that country and the effects
of any such crisis would likely be as severe.
Restrictions on Currency Conversion; Historical Volatility in Currency
Prices. Neither the Russian Rouble nor the Kazakh Tenge is convertible outside
of their home countries.
27
<PAGE> 30
In Russia and Kazakhstan, a market exists for the conversion of Roubles and
Tenge into other currencies, but it is limited in size and is subject to rules
limiting the purposes for which conversion may be effected. The history of
trading in the Russian Rouble and Kazakh Tenge against the U.S. Dollar has been
characterized by significant declines in value and considerable volatility,
although the Russian Rouble and the Kazakh Tenge experienced relative stability
against the U.S. dollar during 1996 and 1997. However, during 1998 and 1999, the
Russian Rouble has been under considerable pressure and suffered substantial
declines against the U.S. Dollar and other currencies. After remaining
relatively stable during 1998, the Kazakh Tenge has lost significant value in
the first six months of 1999, reflecting concerns about the health of the
country's economy and a decision by the government of Kazakhstan to cease
providing support for its currency. See "-- Russian Economic and Political
Turmoil."
In general, PeterStar and ALTEL post their tariffs in U.S. Dollars, and
receive payment in local currency at the U.S. dollar exchange rate prevailing on
the date of payment. These operating businesses face an exchange risk to the
extent that they experience any difficulty in converting the local currency
payment received into U.S. Dollars. In addition, they face a risk that the local
currency weakens against the U.S. Dollar during the period between the customer
instructing its bank to pay the operating business and the day the payment is
actually received by the operating business. Historically, this time period has
been short and the exchange risks arising from this particular issue have
therefore been minimal. However, the Company's operating businesses experienced
significant foreign exchange losses in the third and, to a lesser extent,
fourth, quarter of 1998, due principally to delays in clearing payments within
the Russian banking system.
All of these factors, and others, may serve to increase the Company's
exposure to foreign exchange losses in the future, the effect of which cannot
currently be predicted. No assurance can be given that the Company's operating
businesses which bill in U.S. dollar equivalents will be able to continue to
post their tariffs in U.S. Dollars and collect payments in local currencies in
amounts determined by reference to the value of the U.S. Dollar, or that they
will continue be able to process such payments without banking delays or to
exchange local currencies for U.S. Dollars without significant difficulties,
delays or costs.
It is not practical or economical for the Company to hedge its exchange
risks. See "Quantitative and Qualitative Disclosure About Market Risk." Any of
these factors, in conjunction with further declines, or volatility, in the value
of the Russian Rouble or the Tenge against the U.S. Dollar, could have a
material adverse effect on the Company. See also "-- Risks Involving the
Company -- Currency Controls."
Legal Risks -- Underdeveloped Legal System. The Russian Federation and
Kazakhstan lack fully developed legal systems. Russian and Kazakh law is
evolving rapidly and in ways that may not always coincide with market
developments, resulting in ambiguities, inconsistencies and anomalies, and
ultimately in investment risk that would not exist in more developed legal
systems. Furthermore, effective redress in Russian and Kazakh courts in respect
of a breach of law or regulation, or in an ownership dispute, may be difficult
to obtain.
Risks associated with the Russian and Kazakh legal systems include: (i) the
untested nature of the independence of the judiciary and its immunity from
economic, political or nationalistic influences; (ii) the relative inexperience
of judges and courts in commercial dispute resolution, and generally in
interpreting legal norms; (iii) inconsistencies among laws, presidential decrees
and governmental and ministerial orders and resolutions; (iv) often times
conflicting local, regional and national laws, rules and regulations; (v) the
lack of judicial or administrative guidance on interpreting the applicable
rules; (vi) retroactive changes in laws and regulations; and (vii) a high degree
of discretion on the part of government authorities and arbitrary decision-
making which increases, among other things, the risk of property expropriation.
The result has been considerable legal confusion, particularly in areas such as
company law, property, commercial and contract law, securities law, foreign
trade and investment law and tax law. No assurance can be given that the
uncertainties associated with the existing and future laws and regulations of
the Russian Federation or Kazakhstan will not have a material adverse effect on
the Company. In addition, there is no guarantee that a foreign investor would
obtain effective redress in any court. No treaty exists between the United
States and the Russian Federation or Kazakhstan for the reciprocal enforcement
of foreign court judgments.
Furthermore, the relative infancy of business and legal cultures in the
Russian Federation and Kazakhstan are reflected in the inadequate commitment of
local business people, government officials, agencies and the
28
<PAGE> 31
judicial system to honor legal rights and agreements, and generally to uphold
the rule of law. Accordingly, the Company may, from time to time, confront
threats of, or actual, arbitrary or illegal revision or cancellation of its
licenses and agreements, and face uncertainty or delays in obtaining legal
redress, any of which could have a material adverse effect on the Company.
-- Possible Additional Liability of Shareholders. The Civil Code of the
Russian Federation and the Law of the Russian Federation on Joint Stock
Companies generally provide that shareholders in a Russian joint stock company
are not liable for the obligations of the joint stock company, and only bear the
risk of loss of their investment. However, if a company (an "effective parent")
is capable of determining decisions by another company (an "effective
subsidiary"), and such capability is provided for in the charter of the
effective subsidiary or in a contract between the companies, and if the
effective parent gives obligatory directions to the effective subsidiary, such
effective parent bears joint and several responsibility for transactions
concluded by such effective subsidiary in carrying out such directions. In
addition, an effective parent is secondarily liable for an effective
subsidiary's debts in the event an effective subsidiary becomes insolvent or
bankrupt resulting from the action or inaction of an effective parent which is
capable of determining decisions of the effective subsidiary whether as a result
of the effective parent's ownership interest, pursuant to the terms of a
contract between the companies or in any other way. In such instances, other
shareholders of the effective subsidiary may claim compensation for the
effective subsidiary's losses from the effective parent which caused the
effective subsidiary to take action(s) or fail to take action(s) knowing that
such action(s) or failure to take action(s) would result in losses. Accordingly,
it is possible that the Company may be deemed to be an effective parent of
certain of its subsidiaries and therefore be liable in certain cases for the
debts of its effective subsidiaries. Such liability could have a material
adverse effect on the Company.
The Company believes that the applicable legislation in Kazakhstan does not
contain any similar provisions.
-- Limited Protection of Minority Shareholders. Russian laws regulating
ownership, control and corporate governance of Russian companies may, in some
cases, provide limited protection to shareholders, particularly minority
shareholders. Disclosure and reporting requirements, and anti-fraud and insider
trading legislation have only recently been enacted and most Russian companies
and managers are not accustomed to such restrictions on their activities. The
concept of fiduciary duties on the part of management or directors to their
companies or shareholders is also new and is not well developed. See "-- Risks
Involving the Company -- Potential Conflicts of Interest." Additionally,
procedural protections to which U.S. shareholders are accustomed, such as
contingent fee arrangements or the ability to bring class actions, are as yet
still unknown in Russia.
The concept of minority shareholder rights has not yet been tested in
Kazakhstan, and it is therefore difficult to predict how a court confronted with
the issue would rule.
Social Risks. The political and economic changes in the Russian Federation
and Kazakhstan since the break up of the former Soviet Union have resulted in
significant social dislocations, as existing governing structures have collapsed
and new ones are only beginning to take shape. The resulting broad decline in
the standard of living has often resulted in substantial political pressure on
the government to slow or even reverse the economic policies currently being
pursued. In addition, such decline in the standard of living has led in the
past, and could lead in the future, to labor and social unrest. Such labor and
social unrest may have political, social and economic consequences, such as
increased support for a renewal of centralized authority, increased nationalism
(with restrictions on foreign investment in the Russian or Kazakh economy) and
increased violence, any of which could have a material adverse effect on the
Company.
In addition, the local and international press have reported significant
organized criminal activity, particularly in large metropolitan centers,
directed at revenue-generating businesses, and an increased integration of
Russian organized crime with major international criminal organizations. A
substantial increase in property crime in large cities has also been reported.
Finally, the local and international press have reported high levels of official
corruption in the locations where the Company's operating businesses operate. No
assurance can be given that organized or other crime or claims that the Company
or any of its operating businesses has been involved in official corruption will
not in the future have a material adverse effect on the Company.
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<PAGE> 32
Official Data Reliability. The official data published by Russian federal,
regional and local governments and federal agencies, and by the Kazakh
government and its agencies, are substantially less complete or reliable than
those of Western countries, and there can be no assurance that the official
sources from which certain of the information set forth herein has been drawn
are reliable. Official statistics may also be produced on different bases than
those used in Western countries. Any discussion of matters relating to the
Russian Federation or Kazakhstan herein must therefore be subject to uncertainty
due to concerns about the completeness or reliability of available official and
public information.
RISKS INVOLVING THE COMPANY
Guarantee of PLD Debt. As it has disclosed in its Annual Report on Form
10-K, PLD has significant debt service requirements, including the payment of
interest on the Senior Notes and the Convertible Notes and amounts owing to the
Travelers Parties, and PLD does not presently have sufficient funds on hand to
meet its current debt obligations. The Company is a guarantor of the Senior
Notes and the Convertible Notes under the terms of the related indentures. A
wholly owned subsidiary of the Company is also a guarantor of this debt and of
other indebtedness of PLD to the Travelers Parties.
While agreements have been reached with substantially all of the holders of
the Senior Notes and the Convertible Notes and with the Travelers Parties on a
restructuring of PLD's indebtedness to such parties, those agreements are
conditioned upon the closing the Merger. If the Merger did not close, PLD would
remain obligated to pay interest on the Senior Notes and Convertible Notes and
there can be no assurance that the Travelers Parties would not demand payment in
full of PLD's obligations to them. PLD's failure to make payment in full to the
Travelers Parties could result in a claim being made against the Company's
subsidiary under its guarantee, as well as resulting in a cross-default under
and acceleration of the Senior Notes and Convertible Notes. In addition, any
failure by PLD to make interest payments on the Senior Notes and Convertible
Notes could result in a default under and acceleration of those Notes. Any such
default under the Notes could result in a claim being made against the Company
under its guarantee, which would have a material adverse effect on the Company
and would raise substantial doubt about the Company's ability to continue as a
going concern.
Year 2000. While the Company believes that it should not encounter material
problems as a result of its own equipment not being Year 2000 compliant, its
businesses may encounter disruptions in service as a result of noncompliance on
the part of other traffic carriers, particularly those in Russia and other
C.I.S. countries on which they are dependent for the completion of their calls.
The Company believes that the Year 2000 compliance of the Russian and other
C.I.S. parties with which the Company's operating businesses interact appears to
be substantially behind that of Western parties, and that it is unlikely that
those parties will be able to become fully Year 2000 compliant, given the
limited amount of time left for this, and the severe funding constraints faced
by those parties. Additionally, the Russian government has recently announced,
in response to the Kosovo crisis, an intention to limit its cooperation in
efforts to deal with potential Year 2000 problems. Accordingly, there is a
significant risk that the Company's operating businesses may experience
disruptions in their operations as a result of their C.I.S. interconnect
partners not being able to complete calls or pass traffic to those businesses.
Additionally, the billing systems of those interconnect partners may also be
disrupted, resulting in those partners being unable to make timely settlements
with the Company's operating businesses. All of these items have the potential
to adversely impact the operations of its operating subsidiaries, and such
adverse impact, on both the businesses of such subsidiaries and the Company's
own financial results, may be material. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000 Issues."
Holding Company Structure; Barriers to Realizing Cash from Subsidiaries. As
a holding company that conducts virtually all of its business through
subsidiaries, the Company has essentially no source of cash other than
distributions and other payments from its subsidiaries. The ability of the
Company's subsidiaries to make payments to the Company may be constrained by:
(i) their own ability to generate sufficient cash from their operations; (ii)
the level of taxation, particularly corporate profits and withholding taxes, in
the jurisdictions in which they operate; (iii) exchange controls and
repatriation restrictions in effect in the jurisdictions in which they operate;
and (iv) the ownership interests of other investors in the Company's
subsidiaries.
Taxation. Taxes payable by Russian and Kazakh companies are substantial and
include value-added taxes ("VAT"), excise taxes, export taxes and income taxes.
The tax risks of investing in the Russian Federation and
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Kazakhstan can be substantial. Obtaining the benefits of any relevant tax
treaties can be extremely difficult due to the documentary and other
requirements imposed by the Russian and Kazakh authorities and the unfamiliarity
of those administering the tax system with the international tax treaty system
or their unwillingness to recognize the treaty system. For example, a recent
instruction issued by the Russian State Tax Service mandates full withholding
regardless of tax treaty status and requires the recipient to seek to obtain a
refund for withholding in excess of treaty amounts. The need to deal with these
issues may negate or impair tax planning initiatives undertaken by the Company
to reduce its and its subsidiaries' overall tax obligations. Furthermore, the
taxation systems in the Russian Federation and Kazakhstan are at an early stage
of development and are subject to varying interpretations, frequent changes and
inconsistent and arbitrary enforcement at the federal, regional and local
levels. In certain instances, new taxes and tax regulations have been given
retroactive effect.
Currency Controls -- Risks of Changing Regulatory and Administrative
Environment. While applicable legislation in both the Russian Federation and
Kazakhstan currently permits the repatriation of profits and capital and the
making of other payments in hard currency, the ability of the Company to
repatriate such profits and capital and to make such other payments is dependent
upon the continuation of the existing legal regimes for currency control and
foreign investment, administrative policies and practices in the enforcement of
such legal regimes and the availability of foreign exchange in sufficient
quantities in those countries.
The Company's ability to repatriate distributions and other payments in
hard currency will be dependent upon the continued ability of the Company's
operating subsidiaries, where applicable, to bill their customers in U.S.
Dollars or the equivalent amount of local currency, as well as their ability to
freely exchange local currency receipts into U.S. Dollars. See "-- Country
Risks -- Restrictions on Currency Conversion; Historical Volatility in Currency
Prices." There can be no assurance that, because of future changes in Russian
and Kazakh currency regulations, the Company's ability to fully and/or on a
timely basis realize benefits from its operations in the Russian Federation and
Kazakhstan through the receipt of hard currency payments will continue.
-- Currency Licensing Requirements. Under current currency regulations in
the Russian Federation and Kazakhstan, while there do not appear to be
additional administrative requirements for the payment of dividends or interest
on debt, until January 1999, specific licenses from both the Central Bank and
the National Bank of Kazakhstan were required for repayments of principal on
debt with a term of more than 180 days. As of January 1999, the Central Bank
required licenses for any such obligations with a term of more than 90 days.
Failure to obtain such currency licenses where required can result in the
imposition of fines and penalties. While the requirements for obtaining such
licenses largely involve the production of documentation, not only are the
documentary requirements themselves burdensome, but there can be no assurance
that the entity granting the licenses may not impose additional, substantive
requirements for the grant of a license or deny a request for a license on an
arbitrary basis. See "-- Country Risks -- Legal Risks -- Underdeveloped Legal
System." Furthermore, the time typically taken by the Central Bank and the
National Bank of Kazakhstan to issue such licenses can be lengthy. In the case
of the Central Bank, delays of up to one year or more in the issuance of
licenses have not been uncommon. Failure to obtain currency licenses, where
required, can result in the imposition of fines and penalties, significant
delays in delivering equipment to the Company's operating businesses and
resulting difficulties in generating cash flows from the Company's operating
businesses in the Russian Federation.
Finally, the Company's ability to repatriate distributions and other
payments in hard currency will be dependent upon the continued ability of the
Company's operating subsidiaries in Russia and Kazakhstan to bill their
customers in the U.S. dollars or the equivalent amount of local currency, as
well as their ability to exchange freely local currency receipts into U.S.
dollars. There can be no assurance that, because of changes in Russian and
Kazakh currency regulations, and/or because of a recurrence of the financial,
banking and currency crises which afflicted the Russian Federation in the latter
part of 1998, the Company's ability to fully and/or on a timely basis realize
benefits from its operations in the Russian Federation and Kazakhstan through
the receipt of hard currency payments will continue.
-- Possible Effects of Currency Controls and Regulations on the Company's
Ability to Meet its Obligations. There can be no assurance that, due to the
risks outlined above, the Company will not experience difficulties or delays in
receiving cash flows from its operating subsidiaries. Any such difficulties or
delays could materially
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<PAGE> 34
affect the Company's ability to make payments on its outstanding indebtedness
(including its guarantees of PLD's Senior Notes and Convertible Notes) and could
result in defaults in the Company's payment obligations under that indebtedness.
In addition, the Company's ability to meet its working capital requirements or
to declare and pay dividends to its shareholder could be adversely affected by
any cash flow restrictions experienced by the Company.
Anti-Monopoly Committee Approval. Under Russian anti-monopoly legislation,
transactions which potentially influence competition in the Russian Federation
are subject to the disclosure to and/or prior consent of the Russian
Anti-Monopoly Committee. The Anti-Monopoly Committee generally has wide
discretion to approve or disapprove transactions falling within the scope of its
authority, though in practice transactions are rarely challenged. The time
typically required by the Anti-Monopoly Committee to review a proposed
transaction varies between three and four months. Failure to obtain prior
consent may constitute grounds for the Anti-Monopoly Committee to seek a court
decision declaring the relevant transaction null and void. In particular,
transactions (including rental or lease transactions) which involve the
acquisition of more than 20% of a Russian company's stock or the transfer of
assets amounting to more than 10% of the assets of a transferor to a transferee,
are subject to prior consent of the Anti-Monopoly Committee.
Absence of Complete Control; Dependence on Local Partners. The Company's
principal assets are its interests in its operating subsidiaries. The Company
holds a 60% ordinary share interest in PeterStar, a 50% interest in ALTEL and a
100% interest in Yellow Pages. While PLD and the Company may have the ability,
in the case of PeterStar and ALTEL, to direct the operations or determine the
strategies of such subsidiaries under the terms of their respective constituent
documents, the enforceability of some of the Company's rights is uncertain. See
"-- Country Risks -- Legal Risks." Further, the other shareholders may, as a
practical matter, be able to impede the Company's ability to exercise effective
control. In addition, PLD and the Company would be unlikely to take significant
initiatives without the approval, in the case of PeterStar, of Telecominvest and
PTN; and in the case of ALTEL, of Kazakhtelekom. See "-- Ownership and
Management of Operating Subsidiaries." PeterStar and ALTEL are dependent on
continued access, on favorable terms, to the facilities of certain of the
Company's partners, and this may adversely affect the Company's ability to rely
on its legal rights to influence the conduct of the business of its operating
subsidiaries. In summary, the absence of complete legal control by PLD and the
Company over the operations of PeterStar and ALTEL, coupled with the dependence
of these ventures on continued access to the facilities of PLD's partners, could
have a material adverse effect on the Company. Finally, PeterStar and ALTEL are
restricted subsidiaries under the Senior Note Indenture and the Convertible Note
Indenture, and PLD is required by the terms of such indentures not to permit its
restricted subsidiaries to violate the various covenants contained in such
Indentures. There can be no assurance that the Company will always be in a
position to comply with this obligation, and its failure to do so could cause a
default under the Senior Note Indenture or the Convertible Note Indenture.
Susceptibility to Political and Other Pressures. Although the governments
of the countries and regions in which the Company operates may be limited in the
extent to which they can legally direct the Company's policies, in practice they
may be able to exercise significant influence. As a consequence, not only may
the Company's activities be restrained if a governmental entity is not
supportive, but the Company may be forced to take action to support policies or
agendas of the government which are not in its commercial or other interests. In
addition, in order to maintain good working relationships with its partners, the
Company may need to take certain actions which may not necessarily be in its
commercial or business interests.
Competition. The Company is developing and operating its businesses in
highly competitive environments. A number of companies compete with the
Company's operating businesses, many of which have access to greater financial
and technical resources than the Company. There can be no assurance that the
Company will be able to overcome successfully the competitive pressures to which
it is subject, both in the markets in which it currently operates and in markets
into which it might expand. Furthermore, in many instances the Company's
partners in its operating businesses are also potential -- and in some cases
actual -- competitors. For example, PTN has recently completed the installation
of a fiber optic network in St. Petersburg which, when fully operational, will
improve call completion rates on the PTN network and could provide a serious
alternative to PeterStar's network and permit PTN to compete more effectively
for business in St. Petersburg. ALTEL's cellular network in Kazakhstan could be
seen as being in competition with the national network operated by
Kazakhtelekom. ALTEL
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also faces substantial competition from operators which were recently awarded
GSM licenses in Kazakhstan, one of which is a consortium which includes
Kazakhtelekom. At this time it is unclear what impact the consolidation of the
Russian government's holdings in Sviazinvest and Rostelecom and the sale of
significant stakes in Sviazinvest to Russian and foreign investors will have on
the Russian telecommunications market in general and the Company in particular.
Potential Conflicts of Interest. Each of the Company's principal partners
in PeterStar and ALTEL have interests that may conflict with those of the
Company.
PTN, which holds its interest in PeterStar through Telecominvest and is the
main provider of basic telephony services in St. Petersburg, already competes to
some degree with PeterStar for customers and may increasingly become a
substantial competitor with the eventual upgrading of its telecommunications
network. Kazakhtelekom, the public switched telephone network operator and the
Company's partner in ALTEL, may be a significant competitor for ALTEL's cellular
operations when it improves the telephony services it provides in Kazakhstan by
upgrading its fixed wire telecommunications network. In addition, Kazakhtelekom
is a participant in one of the joint ventures which was recently awarded a
national GSM license in Kazakhstan. Finally, certain directors of the Company's
operating subsidiaries also act as directors or officers of its partners in the
Russian Federation and Kazakhstan.
In light of these competing interests, and, in particular, the extent of
the legal and practical control that the Company's partners have over the
affairs of the Company and its operating subsidiaries, any or all of the
companies named above may use their influence, through the directors they
appoint to the boards of the Company's operating subsidiaries or otherwise, to
benefit themselves or other businesses in which they have an interest at the
expense of the Company and its operating subsidiaries, subject to such limited
fiduciary duties as they may have under applicable law. Moreover, such persons
are not obliged (except for such obligations as they may have under applicable
law) to allocate to the Company's operating businesses corporate opportunities
of which they become aware through the directors referred to above or otherwise.
No assurance can be given that the fiduciary duty and corporate opportunity
doctrines that exist under United States law will provide adequate protections
to the Company's shareholders against the pursuit of such conflicting interests.
Kazakh law currently provide no protection in this regard and, while Russian
corporate law has recently introduced the concept of the fiduciary duties of
corporate officers and directors, the law is too new for any prediction to be
made as to how much protection it will, in fact, provide. The pursuit of
conflicting interests by the persons referred to above could have a material
adverse effect on the Company.
Impact of Auction of Stakes in Sviazinvest on the Company and the
Telecommunications Market in Russia. In 1997, it was reported that,
notwithstanding its previously announced plans to have Sviazinvest compete with
Rostelecom, the Russian government had consolidated its telecommunications
holdings in Sviazinvest and Rostelecom by transferring its shareholding in
Rostelecom (38% of the common stock, and 51% of the voting stock) to
Sviazinvest. The balance of the shares in Rostelecom remain in the hands of
private investors. In April 1997, the government announced that it was seeking
to sell 49% of Sviazinvest in two auctions, one as to a 25% stake open to
Russian and foreign investors and the other as to a 24% stake open only to
Russian investors. In July 1997, the government announced that the 25% stake had
been sold to a consortium which included Oneximbank and Renaissance Capital, for
a purchase price of $1.875 billion. Following this auction, the Russian
government announced its intention to increase the size of the other stake being
sold to 25% minus two shares. The schedule for the sale of the second stake has
been delayed following the August 1998 financial crisis, and the structure of
any such sale (including whether foreign participation will be permitted) has
not been announced. While it is not yet clear how the proceeds of this sale will
be employed, it is understood that the government wishes to have a substantial
part, if not all, of the proceeds allocated to its current budget deficit. Prior
to the August 1998 crisis, Sviazinvest had announced plans to raise $400 million
through a Eurobond offering in 1998, but that offering was also delayed as a
result of the Russian financial crisis. In light of all of the foregoing, it is
unclear what impact the consolidation of the government's telecommunications
holdings and the auction of significant stakes in Sviazinvest will have on the
Russian telecommunications market in general and the Company in particular.
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Regulatory Uncertainties. The Company's operating businesses operate in
uncertain regulatory environments. The Russian telecommunications system is
currently regulated by the RFCTI and the Kazakh telecommunications system is
currently regulated by the KMOC, largely through the issuance of licenses.
Despite the 1995 enactment of the Telecommunications Law in Russia, considerable
uncertainty still exists as to the application and interpretation of many of its
terms. There is currently no comprehensive legal framework with respect to the
provision of telecommunications services in Kazakhstan, although a number of
laws, decrees and regulations govern or affect the telecommunications sector.
Further, the recently announced appointment of Kazakhtelekom as the exclusive
operator of the public telephone network in Kazakhstan and/or the participation
of Kazakhtelekom in one of the joint ventures recently granted a national GSM
license in Kazakhstan, may lead to restructuring of the telecommunications
sector in Kazakhstan, the effects of which are difficult to predict at the
present time.
While the RFCTI appears to have succeeded to all of the powers and
authorities of the Former MOC, it is not yet clear whether it will in fact
continue to operate in the same manner and wield the same influence as the
Former MOC. In particular, it is unclear whether the RFCTI will be able to
control the actions of local and regional governmental authorities who may
endeavor to impose new conditions upon operators in their respective
jurisdictions or areas of influence.
The absence of adequate regulation in the telecommunications sector has
meant that decisions, including the granting and renewal of licenses, may at
times be made by governmental officials without reference to precedent or
procedure.
Furthermore, the introduction of regulation of tariffs, or any other type
of regulation, could have far-reaching, and potentially materially adverse,
effects on the Company. In particular, there is considerable uncertainty as to
what impact the transfer of authority to regulate local tariffs to Regional
Committees will have on local tariffs in Russian. See "Telecommunications in the
Former Soviet Union -- Telecommunications in the Russian Federation."
Limitations on Ability to Transfer Interests. The terms of the PeterStar
and ALTEL shareholder and joint venture agreements impose restrictions on the
Company's ability to transfer its interests in such companies and give the other
shareholders in such companies certain pre-emptive and other similar rights. It
is likely that the Company's ability to transfer its interests in other future
investments will be similarly limited. The restrictions on, and other provisions
relating to the sale of these interests, and the lack of liquidity in the market
for interests the Company now holds or may acquire, may impede their resale by
the Company. While it may be possible to arrange for negotiated sales with one
or more buyers, the Company may not be able to realize value from these
interests, on acceptable terms, in a timely manner or at all.
RISKS INVOLVING PETERSTAR COMPANY LIMITED
Limited Operating History. PeterStar was formed in May 1992 and started
operating a modern digital telephone exchange network in St. Petersburg in
February 1993. While PeterStar generated a profit in the years ended December
31, 1997 and 1998, in view of its limited operating history there can be no
assurance that PeterStar will be able to generate sufficient revenues or control
its costs enough to remain profitable in the future.
Reliance on Telecommunications Licenses; Risks of Revocation or
Renegotiation of Licenses. PeterStar's business is dependent on the maintenance
of its principal telecommunications license which permits it to operate a public
telephone system in the Russian Federation for a term expiring in November 2004.
Other licenses that have been issued to PeterStar include a dedicated network
license (expiring September 2001), a data communications license (expiring May
2001), a telematics license (expiring May 2001) and a videoconferencing license
(expiring June 2001). The main PeterStar license, governing the provision of
public telecommunications services, sets the number of lines which PeterStar may
have in St. Petersburg and the surrounding region at 106,000, and requires that
capacity equal to 74,200 lines be introduced by June 1999. However, management
of PeterStar believes that the maximum and minimum number of lines are not
strict requirements but are instead designed to provide general guidance as to
the number of lines intended to be included on the system. As of December 31,
1998, PeterStar had 168,166 active lines, of which 108,278 were provided to
cellular operators. Based on its experience in renewing existing, and obtaining
new, licenses and its general knowledge of the
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licensing environment in Russia, management of PeterStar does not believe that
its license would be terminated or re-negotiated, that it would be forced to
reduce the number of its subscribers, or that other penalties would be imposed,
by reason of its exceeding its 106,000 line ceiling, but there can be no
assurance that the RFCTI would not take a different position. The dedicated
network license permits PeterStar to provide long distance and international
telephone transmission services to dedicated network operators (such as BCL) in
St. Petersburg and the surrounding region for a term expiring in September 2001.
The dedicated network license sets the number of lines which PeterStar may have
at no less than 30,000 and requires that capacity equal to 21,000 lines be
introduced by September 1999. Once again, based on its experience in renewing
existing, and obtaining new, licenses and its general knowledge of the licensing
environment in Russia, management of PeterStar believes that these maximum and
minimum number of lines are not strict requirements but are instead designed to
provide general guidance as to the number of lines intended to be included on
the system. There can be no assurance that the RFCTI would not interpret the
provisions of the licenses differently, which in turn could result in the
revocation of the licenses or their renegotiation on terms unfavorable to
PeterStar or the imposition of penalties. It is not possible to calculate the
amount of any penalties which might be imposed, which are in the discretion of
the RFCTI.
No assurance can be given that PeterStar will be able to maintain its
licenses, that the terms will not be interpreted, altered or renegotiated to its
disadvantage or that they will be renewed upon expiration. The loss of, or a
substantial limitation upon the terms of, PeterStar's licenses could have a
material adverse effect on the Company.
Dependence on Interconnect Parties. PeterStar is dependent on PTN, SPMMTS
and other operators for the completion of most of its calls. The PeterStar
network is linked to the PTN network, which gives PeterStar access to PTN's
large local subscriber base. PeterStar is required by the terms of its license
to route all long distance and international calls through the public network.
PeterStar has been able to negotiate favorable tariffs for interconnection fees
and carrier charges with both PTN and SPMMTS. PeterStar's current interconnect
agreements with PTN and SPMMTS are open-ended agreements, while the
interconnection fees and carrier charges payable under the interconnect
agreements are subject to renegotiation between the parties from time to time.
The agreements provide for automatic extensions at the end of their term unless
otherwise terminated by either party. The interconnection fees and carrier
charges payable under the interconnect agreements are subject to renegotiation
between the parties from time to time. There can be no assurance, however, that
PeterStar will continue to have access to the PTN network or that PeterStar will
continue to receive such favorable tariffs. The loss of access to such network
or increases in such tariffs could have a material adverse effect upon the
Company.
Dependence on PTN Facilities. PeterStar is also dependent on PTN's
buildings, ducts and tunnels in order to house its exchanges and to reach its
customers. Prior to 1998, PeterStar has not been required to pay rent to PTN to
house its exchanges in PTN buildings, nor has it paid rentals for ducts or
tunnels. Commencing in 1998, PeterStar has been required to pay a local line
rental charge to PTN, although roughly half of the fee otherwise payable during
1998 was offset against amounts owed to PeterStar by PTN in respect of the
Vassilievski Island project. The aggregate amount paid to PTN in 1998 for line
rental charges was $1.3 million. The amount of the 1999 line rental charged has
not yet been determined, but PeterStar expects to be able to offset amounts due
from PTN against such charges during 1999. However, any change in the terms on
which PeterStar has access to PTN's facilities, or any restrictions imposed by
PTN on the completion of calls from the PeterStar network, could have a material
adverse effect on PeterStar and, in turn, the Company.
Capital and Management Resources Required for Expansion of Direct Dial
Services; Management of Growth. PeterStar has commenced several projects
designed to expand its direct dial services in St. Petersburg and Northwest
Russia. PeterStar has undertaken with PTN an infrastructure project centering on
the replacement of analog exchanges with digital exchanges for certain parts of
the network on Vassilievski Island, a city district in St. Petersburg. This
project requires the conversion of approximately 30,000 business and residential
lines that have previously been operated by PTN, after which such lines become a
part of the PeterStar network. In addition, PeterStar plans to further enhance
its transit network capabilities in order to provide continued support to the
cellular and other network providers in terminating traffic in St. Petersburg
and to the national and international gateway. PeterStar also expects to
increase its operating presence in Northwest Russia through the targeted
development of digital infrastructure to connect business customers and develop
operational relationships
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with the regional telephone companies. These projects represent a major
expansion of PeterStar's operations which have and will require substantial
capital and special management efforts if they are to be carried into effect
successfully.
Pressure to Provide Residential Service. The Vassilievski Island project
also represents part of a continuing effort on the part of PTN to modernize a
portion of its network. The local calling element of residential service is
presently provided free of charge (other than connection fees and line rental
charges), and there has been considerable political resistance to the
introduction of time-based charges for local calls. Even after calling charges
have been introduced, it is likely to remain a low margin business for the
foreseeable future. Even though PTN has now been privatized, the Company does
not believe that the pressures on PTN to improve residential service have
lessened. Although the Company believes that PeterStar has fulfilled its
commitment to the residential customers, there can be no assurance that PTN will
not continue to try to involve PeterStar in this effort, or that PTN's continued
support for PeterStar's access to the business market may be linked to
PeterStar's further commitment to develop the residential market in St.
Petersburg.
RISKS INVOLVING ALTEL
Limited Operating History. ALTEL was formed in January 1994 and commenced
commercial operations in September 1994. Although ALTEL generated profits for
the years ended December 31, 1997 and 1998, there can be no assurance that ALTEL
will be able to generate sufficient revenues or control its costs sufficiently
to remain profitable in the future.
Reliance on Telecommunications License. ALTEL's business is dependent on
the 15-year renewable license issued in February 1994 for the creation and
operation of cellular communications networks in Kazakhstan for local, long
distance and international calling, using the 800 MHZ frequency band and "AMPS"
technology. Under the terms of the license ALTEL was required to provide
cellular services to Almaty and ten to twelve additional regional centers by the
end of 1996, a condition which has been met. The license specifies that ALTEL is
to be the exclusive provider of cellular service in Kazakhstan for the first
five years of the license term, which period expired in February 1999. In 1998,
before the expiration of the exclusivity period, ALTEL commenced discussions
with the KMOC on substituting a new license with revised terms for its existing
license. One aspect of any such new license would have been the elimination of
the exclusivity provisions in exchange for other concessions. Although such
exclusivity has since terminated according to the terms of the license, ALTEL
and the KMOC are continuing to discuss the terms of a new license for ALTEL. See
"-- ALTEL -- Telecommunications License." Although such discussions are
continuing, there can be no assurance that any new license issued by the KMOC
will not contain revised terms which are detrimental to ALTEL's business.
Issuance of Additional Telecommunications Licenses. Until 1998, ALTEL was
the only licensed national cellular operator in Kazakhstan. In 1998, the KMOC
awarded two licenses for the development of a national GSM network in
Kazakhstan. One license was issued to Kcell, a joint venture of included
TurkCell and Kazakhtelekom, and the other license was issued to Kmobile, a joint
venture of Telsim, a Turkish company, and local Kazakh interests. Active
marketing was begun by Kcell in early February 1999 and by Kmobile in mid-
February 1999. Management of ALTEL currently believes that, by virtue of its
cost structure and its market penetration to date, it is in a good position to
compete with the new GSM operations. However, ALTEL has already experienced some
downward pressure on its tariffs as a result of competition from the new
licensees. ALTEL is currently assessing its response to the new competition, and
there can be no assurance that it will in fact be able to compete successfully
with the new licensees.
Effect of Network Expansion on Management Resources; Management of
Growth.ALTEL has engaged in a significant expansion of its cellular network,
from its initial base of operations in Almaty to a total of 12 cities throughout
Kazakhstan as of December 31, 1998. The timing of such expansion was dictated by
the terms of the license, so that in some regions it occurred at a time when
economic activity in those regions was still at a sufficiently low level as to
raise a question as to whether, and if so, when, cellular service in such
regions will be commercially viable. Furthermore, because of the distances
involved, the difficulty of hiring, training and supervising staff at remote
locations and the underdeveloped nature of the business infrastructure, such as
banks and professional advisers in many of the proposed locations for expansion,
the establishment and provision of
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cellular service have presented, and will continue to present, significant
challenges to the management of ALTEL, and there can be no assurance that these
challenges will be met successfully in all cases. In addition, further network
development is planned on a targeted basis to address key market sectors.
Failure to manage the ALTEL network, and any future expansion of the network,
successfully could have a material adverse effect on the Company.
Effect of Sale of Stake in Kazakhtelekom on ALTEL and the
Telecommunications Market in Kazakhstan. Since its formation, ALTEL has been 50%
owned, directly or indirectly, by the government of Kazakhstan. ALTEL believes
that the attitude of the government towards its operations has generally been
favorable and that this has derived in some part from the government's interest
in ALTEL. Currently, the government's 50% interest in ALTEL is held through
Kazakhtelekom, which until May 1997 was owned 100% by the government. In May
1997, the Kazakh government announced that it had sold a 40% interest in
Kazakhtelekom to Daewoo, creating considerable uncertainty as to the
government's attitude towards Kazakhtelekom. In March 1998, it was reported that
Daewoo had sold a portion of its stake (reported to be approximately 10%) to an
unnamed third party. It was later confirmed that Daewoo had sold its entire
stake in Kazakhtelekom to Kazcommertzbank, a commercial bank based in
Kazakhstan. It is understood that the Kazakh government is seeking to sell a 15%
stake in Kazakhtelekom to private investors. In addition, the KMOC recently
issued a revised license to Kazakhtelekom specifically naming it as the
exclusive national network operator in Kazakhstan, and giving it a wide range of
powers to carry out this function. The Company has not yet fully assessed what
impact these matters may or will have on ALTEL and its business. There can be no
assurance that the government's favorable attitude towards ALTEL will continue
to the same degree. Any significant change in the government's attitude toward
ALTEL could have a material adverse effect on the Company.
Dependence on Interconnect Parties. Under the terms of its license, ALTEL
is entitled to interconnection free of charge to networks operated by
Kazakhtelekom, the public switched telephone network operator, for the
completion of its local, long distance and international calls. The loss of, or
any significant limitation on, its access to such network could have a material
adverse effect on the Company. Further, under its revised license, Kazakhtelekom
was directed to assess interconnection charges for connection to its network,
and to levy such charges on a basis which will yield it a profit. Kazakhtelekom
may try to use this authority to endeavor to assess interconnection charges on
ALTEL, notwithstanding the fact that its license exempts it from payment of such
charges. The imposition of such interconnection charges would impact ALTEL's
profitability, perhaps materially.
Effect of Recent Legislative Changes on Management Structure. Recent
changes in applicable Kazakh legislation will require that the management
arrangements for ALTEL will need to be revised. However, although it seems clear
that the existing arrangements cannot be completely preserved in their present
form, because of the imprecision in some of the drafting and also because of the
lack of precedents due to the newness of the legislation, it is difficult to
state to what extent these arrangements will need to be revised. In addition,
ALTEL is actively exploring the option of converting to a different legal form
which may permit the preservation of, if not all, at least a substantial portion
of its management arrangements in their current form. ALTEL does not expect to
resolve this issue before the middle of 1999.
ITEM 2. DESCRIPTION OF PROPERTY
PeterStar Company Limited. PeterStar's principal office, which it leases
from PTN, is located on Vassilievski Island, St. Petersburg, Russia. Its
principal switches are also located at this site. PeterStar also occupies other
space in St. Petersburg which is used to house other switching and transmission
equipment.
ALTEL. Space for most ALTEL switches, cell sites and associated equipment
is provided by Kazakhtelekom. ALTEL also uses space in a Kazakhtelekom exchange
building in Almaty for office and administrative purposes and leases other
premises in Almaty which combines its central warehouse and a larger customer
service center and retail outlet. ALTEL has also established, and will continue
to establish, customer service centers in each city in which service is offered.
Virtually all space for customer service centers and equipment not provided by
Kazakhtelekom is leased, although ALTEL has purchased its facilities in Taraz,
one base station site and building in Chimkent and a base station building in
Karaganda.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. CONTROL OF REGISTRANT
All of the issued and outstanding ordinary shares of the Company are held
directly by PLD.
ITEM 5. NATURE OF TRADING MARKET
None.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
THE RUSSIAN FEDERATION
Exchange Controls. Following the economic crisis in August and September
1998, the Russian Federation introduced more stringent procedural requirements
on Russian residents wishing to pay non-residents in hard currency. The main
reason for this was to attempt to reduce the level of illegal hard currency
outflows from the country. Significant documentary requirements may have to be
satisfied in respect of payments in U.S. Dollars between Russian residents
(which generally includes all Russian companies and citizens resident in Russia)
and non-residents (which generally includes non-Russian companies even if they
have a representative office or other permanent establishment in Russia) for
current currency transactions (generally those where payment is made within 90
days of the provision of goods and services). Payments in U.S. Dollars
classified as movements of capital (which generally includes direct investments,
portfolio investments, acquisition of real estate and payments made pursuant to
loan agreements, or agreements for the lease or sale of goods and services
having terms of over 90 days) are subject to licensing by the Central Bank. The
Company believes that all of its operating subsidiaries hold, or have applied
for and expect eventually to receive, all required Central Bank licenses. The
need to apply for Central Bank licenses can be burdensome, because of the
substantial documentary and other requirements involved and because of the
considerable length of time involved, often running into several months. Failure
to apply for the appropriate licenses, or to receive the outstanding licenses
could result in fines and penalties. See "Business -- Risk Factors -- Risks
Involving the Company -- Currency Controls." Finally, banks in Russia require
that certain hard currency transfers be accompanied by a "transaction passport"
setting forth that all required tax and regulatory requirements have been
followed. Other requirements may be introduced in the future by the Russian
Federation to further control hard currency payments from the country.
Payments between Russian residents must generally be made in Roubles.
Russian companies may exchange Roubles for U.S. Dollars if they can document
U.S. Dollar-denominated liabilities that are due and payable within specified
periods. Russian companies are required to convert 75% of most hard currency
earnings into Roubles, but (as noted in the preceding sentence) may be able to
reconvert such amounts into hard currency if they can document hard currency
denominated liabilities that are due and payable within a specified period.
Roubles may not be lawfully exported from, or converted into, other currencies
outside of Russia.
Availability of Hard Currency for Conversion Purposes. The ability of
foreign investors to convert Roubles into hard currency is also subject to the
availability of hard currency in the Russian currency markets. Although there is
an existing market within Russia for the conversion of Roubles into other
currencies, including the interbank currency exchange, over-the-counter and
currency futures markets, conversion of Roubles at times of crisis, such as in
August 1998, may be difficult.
Exchange Rates. Significant fluctuations in the value of the Rouble against
the U.S. Dollar and other hard currencies can also have a material impact on the
value of a foreign investor's Rouble dividend income or Rouble proceeds from the
sale of Rouble denominated securities. The history of trading in the Russian
Rouble against the U.S. Dollar has been characterized by significant declines in
value and considerable volatility, although the Russian Rouble experienced
relative stability against the U.S. dollar during 1996 and 1997. However, during
1998 and 1999, the Russian Rouble has been under considerable pressure and
suffered substantial declines against the U.S. Dollar and other currencies. 1998
exchange losses incurred by group companies in Russia amounted to $2.5 million
(1997: $0.4 million). Estimated losses expected to be incurred by group
companies in
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<PAGE> 41
Russia in the first three months of 1999 amount to $0.2 million. See "Risk
Factors -- Country Risks -- Russian Economic and Political Turmoil" and "--
Restrictions on Currency Conversion; Historical Volatility in Currency Prices."
Repatriation. Although Russian law governing foreign investment guarantees
foreign investors the right to repatriate their earnings from Russian
investments, the Russian exchange control regime, including licensing
requirements administered by the Central Bank, may materially affect their
ability to do so and may increase the cost of such repatriation. See "Business
- -- Risk Factors -- Risks Involving the Company -- Currency Controls."
Impact upon the Company. In general, the impact on the Company of the
Russian exchange controls regime has not been particularly adverse. While no
dividends have been paid by any of the operating subsidiaries in Russia,
payments of interest and management fees have been made relatively freely. The
need to apply for Central Bank licenses for certain types of transactions, and
the delays in the receipt of such licenses, has delayed the completion of
certain transactions. Additionally, the process of applying for such licenses
has been time consuming and expensive. See "Business -- Risk Factors -- Risks
Involving the Company -- Currency Controls -- Currency Licensing Requirements."
KAZAKHSTAN
Exchange Controls. Kazakhstan currently has in place relatively liberal
policies governing hard currency transfers by Kazakh residents to non-residents.
Residents (which generally includes all Kazakh companies and citizens resident
in Kazakhstan) can use hard currency to pay non-residents (which generally
includes all non-Kazakh companies and their branch offices and representative
offices in Kazakhstan) for current currency transactions (generally those where
payment is made within 180 days of the provision of goods or services). Payments
in U.S. Dollars classified as movements of capital (which generally includes
direct investments, portfolio investments, payments with respect to real estate
and payments made after 180 days for goods and services) are subject to
licensing by the National Bank of Kazakhstan.
Payments between Kazakh residents must generally be made in Tenge. Kazakh
companies may exchange Tenge for U.S. Dollars if they can document U.S.
Dollar-denominated liabilities that are due and payable within specified
periods. The National Bank of Kazakhstan does not currently require the
conversion of hard currency earnings into Tenge. Tenge may not be lawfully
exported from Kazakhstan or converted into other currencies outside of
Kazakhstan.
Availability of Hard Currency for Conversion Purposes. The ability of
foreign investors to convert Tenge into hard currency is also subject to the
availability of hard currency in the Kazakh currency markets. Although there is
an existing market within Kazakhstan for the conversion of Tenge into other
currencies, including the interbank currency exchange and the over-the-counter
markets, the development of this market is uncertain.
Exchange Rates. Significant fluctuations in the value of the Tenge against
the U.S. Dollar and other hard currencies can also have a material impact on the
value of a foreign investor's Tenge dividend income or Tenge proceeds for the
sale of Tenge-denominated securities. In Kazakhstan a market exists for the
conversion of Tenge into other currencies, but it is limited in size and is
subject to rules limiting the purposes for which conversion may be effected. The
history of trading in the Kazakh Tenge against the U.S. Dollar has been
characterized by significant declines in value and considerable volatility,
although the Kazakh Tenge experienced relative stability against the U.S. dollar
during 1996 and 1997. After remaining relatively stable during 1998, the Kazakh
Tenge has lost significant value in the first six months of 1999, reflecting
concerns about the health of the country's economy as a result of Russia's
economic and financial problems, and a decision by the government of Kazakhstan
to cease providing support for its currency. See "Risk Factors -- Country Risks
- -- Russian Economic and Political Turmoil."
Repatriation. Kazakhstan's foreign investment legislation provides that
earnings from investments made by foreign investors may be freely repatriated
provided that all applicable fees and taxes have been paid. However, the
exchange control regime in Kazakhstan may materially affect an investor's
ability to do so and may increase
39
<PAGE> 42
the cost of such repatriation. See "Business -- Risk Factors -- Risks Involving
the Company -- Currency Controls."
Impact upon the Company. The Company has not experienced particular
difficulties with the Kazakh exchange control regime. Both dividends and
management fees have been received from ALTEL during 1998. While there are
paperwork requirements in relation to hard currency transfers, these have not
delayed the making of such transfers.
ITEM 7. TAXATION
The Company and its subsidiaries are subject to a number of taxes in
different jurisdictions. The Company is subject to corporate income tax in
Cyprus at the rate of 4.25%. The most significant taxes affecting the Company's
subsidiaries are corporate income and other taxes in Russia and Kazakhstan
(including withholding taxes). Withholding taxes apply to distributions by the
Company's operating businesses in Russia and Kazakhstan and could apply to
distributions by intermediate level companies in jurisdictions outside Russia
and Kazakhstan. Obtaining the benefits of applicable tax treaties can be
extremely difficult due to the documentary and other requirements imposed by the
Russian and Kazakh authorities. For example, the Kazakh tax authorities require
withholding on almost any kind of out-payment, including management fees and
expense reimbursements, not just items of income, and additionally specify that
an exemption application be submitted in respect of every payment made (as
opposed to permitting blanket exemptions), while at the same time requiring
non-standard certifications from the home country taxing authority. In addition,
a recent instruction issued by the Russian State Tax Service mandates full
withholding regardless of any treaty and requires the recipient to seek to
obtain a refund for withholding in excess of treaty amounts, although in
practice those refunds can be difficult to obtain. The need to comply with these
provisions may negate or impair tax planning initiatives undertaken by the
Company to reduce its and its subsidiaries' overall tax obligations in Russia
and Kazakhstan.
In general, the Company's Russian and Kazakh operating businesses are faced
with a wide variety of taxes, including property taxes, advertising taxes, road
taxes, housing taxes, transport taxes and education taxes. In addition,
PeterStar and ALTEL are subject to corporate profits taxes of approximately 33%
and 30%, respectively. The tax systems in Russia and Kazakhstan have changed
rapidly in recent years and may undergo additional changes, which may have a
material adverse effect on the Company.
ITEM 8. SELECTED FINANCIAL DATA
The following summary consolidated financial and operating data was derived
from, and should be read in conjunction with, the audited Consolidated Financial
Statements of the Company and the related notes thereto,
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<PAGE> 43
and Management's Discussion and Analysis of Financial Condition and Results of
Operations, contained elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Operating revenues................. $113,041 $ 85,588 $ 52,651 $ 24,747 $ 8,526
Operating expenses:
Direct costs (excludes
depreciation)................. 29,081 23,120 17,527 8,636 3,172
General and administrative...... 29,679 20,559 14,481 12,108 5,399
Depreciation.................... 10,266 7,194 4,758 3,798 1,275
Amortization.................... 4,935 4,936 4,884 4,659 3,759
Taxes other than income taxes... 4,021 3,257 1,667 657 --
-------- -------- -------- -------- --------
Total operating expenses... 77,982 59,066 43,317 29,858 13,605
Operating income/(loss)............ 35,059 26,522 9,334 (5,111) (5,079)
Income/(loss) before income taxes
and minority interest........... 29,688 30,938 8,955 (3,072) (5,339)
Income taxes....................... 9,997 6,893 3,356 1,038 --
Income/(loss) before minority
interest........................ 19,691 24,045 5,599 (4,110) (5,339)
Minority interest.................. 11,721 12,336 2,615 -- --
-------- -------- -------- -------- --------
Net income/(loss).................. $ 7,970 $ 11,709 $ 2,984 $ (4,110) $ (5,339)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 2,816 $ 7,849 $ 5,185 2,898 $ 684
Non-cash working deficiency........ (32,298) (29,423) (41,808) (25,643) (17,489)
Property and equipment, net........ 106,542 79,002 56,613 39,101 21,059
Telecommunication license, net..... 37,663 42,286 46,715 49,583 54,098
Goodwill, net...................... 1,365 1,580 1,795 2,011 --
Other assets and receivables....... 2,422 3,292 369 765 103
Total assets....................... 168,168 155,188 120,168 102,313 79,752
Long-term debt (including advances
from other group companies)..... 11,834 14,602 7,370 -- 10,504
Shareholder's equity............... 78,563 70,593 58,884 (14,903) (10,793)
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to political, social and economic conditions in the
countries of the former Soviet Union and the Commonwealth of Independent States,
the commencement of certain programs and the proposed offering of certain
services by the Company's operating subsidiaries, the impact of Year 2000 issues
on the Company's operations and interpretations and actions of certain
regulatory authorities, including in Russia and Kazakhstan, as well as
information contained elsewhere in this report where statements are preceded by,
followed by, or include the words "believes," "expects," "anticipates," and
similar expressions. For such statements, the Company claims the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including without limitation, those discussed elsewhere in the
Report.
41
<PAGE> 44
Furthermore, this document constitutes a Year 2000 Readiness Disclosure
Statement, and the statements herein are subject to the Year 2000 Information
and Readiness Disclosure Act, and the Company hereby claims the protection of
such Act for this document and all information contained herein.
BASIS OF PRESENTATION
The Company's key interests at December 31, 1998 include a 60% interest in
PeterStar, which provides telecommunications services in St. Petersburg, Russia;
a 100% equity interest in WTC, which, in turn, holds a 50% equity interest in
ALTEL, which provides cellular services in Kazakhstan; and a 100% interest in
Yellow Pages, the owner of one of the most comprehensive databases of Russian
and foreign businesses in St. Petersburg and publisher of the St. Petersburg
business-to-business Yellow Pages directory.
EBITDA is used as a measure of operating performance and is defined as
earnings (or loss) from continuing operations before income taxes and minority
interest plus net interest (interest expense less interest and other income)
plus depreciation and amortization. It is presented as supplemental disclosure
because it assists in understanding the Company's operating results. EBITDA,
however, may not be comparable to similarly titled measures of other companies
and should not be considered in isolation or as a substitute for net income,
cash flow provided by operating activities, or other income or cash flow data
prepared in accordance with generally accepted accounting principles, or as a
measure of a company's profitability or liquidity.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
Overview. The definition of EBITDA is given in the previous section. It is
commonly used as an indicator of the ability of a business to generate cash
flows from its operating activities. Management therefore considers it to be a
relevant and useful measure for investors. For the year ended December 31, 1998,
the Company reported net income of $8.0 million and operating income of $35.1
million earned on revenues of $113.0 million compared to net income of $11.7
million and operating income of $26.5 million earned on revenues of $85.6
million in 1997. EBITDA of $45.4 million in 1998 compared to $43.3 million in
1997. In 1998 net cash provided by operating activities amounted to $37.7
million, with net cash used in financing and investing activities amounting to
$10.5 million and $32.2 million respectively. This compares to 1997 when net
cash provided by operating activities amounted to $24.2 million and net cash
used in financing and investing activities amounted to $2.3 million and $19.3
million respectively. Cash flows generated by operating subsidiaries are
generally retained by those businesses to finance capital expenditures, service
long term debt and provide working capital. Funds in excess of subsidiaries'
requirements are distributed to shareholders.
Revenues. Revenues increased 32.0% from $85.6 million to $113.0 million in
1998 reflecting the continued strong year-on-year growth in revenues achieved
within PeterStar and ALTEL which together account for 99.0% of NWE's
consolidated revenues. PeterStar's revenues increased 32.8% to $72.4 million in
1998 -- subscriber line numbers increased to 168,166 by the end of the year, up
53,392 over 1997. ALTEL's revenues increased 31.7% to $39.5 million in 1998 with
its number of subscribers increasing to 21,395, up 10,293 over 1997. Much of
ALTEL's revenue growth can be attributed to the introduction of prepaid cellular
service in August 1998. 1998 revenues at Yellow Pages remained relatively
unchanged from 1997 at $1.1 million.
Although still significant, the Company's 1998 revenue growth rate of 32.0%
was down from the 62.4% achieved in 1997. The reduced rate was largely the
result of a slow down in revenue growth late in the year attributable to the
Russian and Kazakh economic crises. These crises resulted in the loss of some
customers (principally customers of the three cellular operators in St.
Petersburg whose calls are routed over PeterStar's network) as well as reduced
calling activity among businesses that remained customers, while, in the case of
ALTEL, the customers' expectations of competition from new licensees in early
1999 caused downward pressure on tariffs.
Management believes that revenues in 1999 are unlikely to grow at the same
rate as they have in recent years given the many uncertainties in the Russian
and Kazakh political and economic landscape at present and the commencement of
operations by two new competitors to ALTEL early in the year. Further
deterioration in the
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<PAGE> 45
Russian and Kazakh economic situation would likely impact the Company's
businesses adversely. See "Risk Factors". While management believes that it is
taking all available measures to protect the Company and its businesses from the
negative effects of any further problems in Russia and Kazakhstan, there can be
no assurance that those measures will be successful.
Direct costs (excludes depreciation). Direct costs increased 26.0% to $29.1
million in 1998 from $23.1 million in 1997 reflecting the revenue growth
discussed above. As a percentage of revenues, direct costs decreased from 27.0%
in 1997 to 25.7% in 1998. Margins are generally expected to come under pressure
in 1999 due to the continuing impact of the Russian and Kazakh economic crises
and due to increased competition in Kazakhstan.
General and administrative expenses and management fees. General and
administrative expenses include salaries, sales and marketing and overhead
expenses at PeterStar, ALTEL and Yellow Pages. Management fees were paid to PLD
and Telecominvest, in connection with PeterStar, and to PLD and Kazakhtelekom in
connection with ALTEL. Combined, these expenses increased 44.2% from $20.6
million in 1997 to $29.7 million in 1998 and were required to fuel continued
revenue growth and expand product offerings within these businesses.
Depreciation. Depreciation increased 43.1% in 1998 to $10.3 million from
$7.2 million in 1997. The increase reflects the investment of over $37.9 million
in capital equipment in 1998 as well as a full year's depreciation on assets
placed in service in 1997. Depreciation will continue to grow as a result of
further anticipated investments in capital equipment in 1999, albeit at a slower
pace than evidenced in prior years. As a percentage of revenues, these expenses
increased from 8.4% in 1997 to 9.1% in 1998 but should decrease as both
PeterStar and ALTEL near completion of the build-out of their core networks.
Amortization expense. In 1998, the Company incurred total amortization
charges of $4.9 million, unchanged from 1997, of which $2.6 million related to
telecommunications licenses held by PeterStar, $2.1 million related to
telecommunications licenses held by ALTEL and $0.2 million related to goodwill
incurred in connection with the Company's acquisition of Yellow Pages in 1995.
Telecommunications licenses held by PeterStar and ALTEL are being amortized over
their remaining terms, which expire in 2004 and 2009, respectively. Goodwill
related to Yellow Pages is being amortized over a 10-year period ending April,
2005.
Taxes other than income taxes. Taxes other than income taxes, which include
road tax, property tax, employee-related taxes, etc., increased 21.2% from $3.3
million in 1997 to $4.0 million in 1998. This reflects the overall growth during
the year in the operating businesses' revenues, earnings, number of employees,
etc. on which such taxes are based.
Interest and other income. Interest and other income earned in 1998,
primarily on cash balances held by the operating subsidiaries, remained
unchanged from 1997 at $0.3 million.
Interest on long-term debt. Interest on long-term debt increased marginally
in 1998 to $0.8 million from $0.6 million in 1997 as a result of a number of
long-term supplier financing contracts entered into by PeterStar with PLD
Capital Asset (U.S.) Inc., a wholly owned subsidiary of PLD, and third party
suppliers.
Foreign exchange loss. The foreign exchange loss incurred in 1998 of $2.9
million compared with $0.7 million recorded in 1997. The significant increase in
the loss incurred in 1998 related to the substantial devaluation of PeterStar's
rouble cash balances in August and September when extreme market conditions
resulting from the Russian economic crisis caused major disruptions in the
Russian banking system. This prevented PeterStar from converting roubles into
hard currency at a time when the value of the rouble was depreciating
significantly. The Company has sought, and will continue to seek, to limit the
effects of such conditions by minimizing the amount of rouble balances held by
its subsidiaries and by taking measures to accelerate collection and currency
conversion procedures in so far as this is possible in the current banking and
legislative environment.
Income taxes. Income taxes increased from $6.9 million in 1997 to $10.0
million in 1998, notwithstanding a lower reported pre-tax and minority interest
figure of $29.7 million in 1998 compared to $30.9 million in 1997.
43
<PAGE> 46
The increase in taxes in 1998 reflects the non-deductibility of a number of
expenses incurred during the year as well as an adverse change in the valuation
allowance related to the Company's deferred tax assets.
Minority interest. Minority interest totaled $11.7 million in 1998 based on
a 40% minority interest in PeterStar and 50% minority interest in ALTEL applied
to their respective post-tax earnings. This compared with a total of $12.3
million in minority interest recorded in 1997.
YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
Overview. For the year ended December 31, 1997, the Company reported net
income of $11.7 million and operating income of $26.5 million on revenues of
$85.6 compared to $3.0 million in net income and $25.8 million in operating
income earned on revenues of $52.7 million in 1996. EBITDA of $43.3 million in
1997 compared to $18.2 million in 1996.
Revenues. Revenues increased 62.4% from $52.7 million to $85.6 million in
1997 reflecting the strong year-on-year growth in revenues achieved within
PeterStar and ALTEL which together account for 98.7% of NWE's consolidated
revenues. PeterStar's revenues increased 67.7% to $54.5 million in
1997 -- subscriber line numbers increased to 114,744 by the end of the year, up
from 52,005 in 1996. ALTEL's revenues increased 57.1% to $30.0 million in 1997
with its number of subscribers increasing to 11,102, up from 6,957 in 1996. 1997
revenues at Yellow Pages increased to $1.0 million from $0.8 million recorded in
1996.
Direct costs (excludes depreciation). Direct costs increased 32.0% to $23.1
million in 1997 from $17.5 million in 1996 reflecting the revenue growth
discussed above. As a percentage of revenues, direct costs decreased from 33.3%
in 1996 to 27.0% in 1997.
General and administrative expenses and management fees. General and
administrative expenses include salaries, sales and marketing and overhead
expenses at PeterStar, ALTEL and Yellow Pages. Management fees were paid to PLD
and Telecominvest, in connection with PeterStar, and to PLD and Kazakhtelekom in
connection with ALTEL. Combined, these expenses increased 42.1% from $14.5
million in 1996 to $20.6 million in 1997 and were required to expand the revenue
bases of the operating businesses.
Depreciation. Depreciation increased 50.0% in 1997 to $7.2 million from
$4.8 million in 1996. The increase reflects the investment of over $30.0 million
in capital equipment in 1997 as well as a full year's depreciation on assets
placed in service in 1996.
Amortization expense. In 1997, the Company incurred total amortization
charges of $4.9 million, unchanged from 1996, of which $2.6 million related to
telecommunications licenses held by PeterStar, $2.1 million related to
telecommunications licenses held by ALTEL and $0.2 million related to goodwill
incurred in connection with the Company's acquisition of Yellow Pages in 1995.
Taxes other than income taxes. Taxes other than income taxes increased
94.1% from $1.7 million in 1996 to $3.3 million in 1997 reflecting the overall
growth during the year in the operating businesses' revenues, earnings, number
of employees, etc. on which such taxes are based.
Interest and other income. Interest and other income earned in 1997,
primarily on cash balances held by the operating subsidiaries, decreased
marginally to $0.3 million in 1997 from $0.4 million in 1996.
Interest on long-term debt. Between 1996 and 1998 PeterStar entered into a
number of contracts for the purchase of telecommunications equipment from
certain wholly owned subsidiaries of PLD. The contracts envisaged payment by
PeterStar over periods of three to five years, with interest charged at a rate
of approximately 10% per annum. Also between 1996 and 1998 PeterStar entered
into further contracts for the purchase of telecommunications equipment from
third party suppliers in Russia and the Netherlands. Such contracts envisaged
payment by PeterStar over a five year period, with interest charged at a rate of
approximately 10% per annum. Interest on long-term debt of $0.6 million was
incurred in 1997 as a result of long-term supplier financing contracts entered
into by PeterStar with PLD Asset Leasing Ltd., a wholly owned subsidiary of PLD,
and third party suppliers.
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<PAGE> 47
Foreign exchange loss. A foreign exchange loss in 1997 of $0.7 million was
unchanged from the loss recorded in 1996 and was the result of unfavorable
movements in the rouble and tenge, vis-a-vis the U.S. dollar, as applied to the
Company's rouble and tenge denominated net monetary assets.
Income taxes. Income taxes increased from $3.4 million in 1996 to $6.9
million in 1997 reflecting the overall improvement in pre-tax earnings at
PeterStar and ALTEL.
Minority interest. Minority interest totaled $12.3 million in 1997 based on
a 40% minority interest in PeterStar and 50% minority interest in ALTEL applied
to their respective post-tax earnings. This compared with a total of $2.6
million recorded in 1996. The increase is a direct result of the overall
improvement in post-tax earnings at PeterStar and ALTEL.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, a total of $37.7 million in cash was
generated from operations (1997 -- $24.2 million; 1996 -- $15.0 million), $32.2
million was used in net investing activities (1997 -- $19.3 million;
1996 -- $20.7 million) and $10.5 million was used in net financing activities
(1997 -- $2.3 million; 1996 -- $8.0 million provided by net financing
activities). Investments consisted almost exclusively of capital expenditures on
telecommunications equipment within PeterStar and ALTEL while cash used in net
financing activities consisted primarily of repayment of long-term indebtedness
($2.6 million), intercompany indebtedness ($4.1 million) and dividends paid to
minorities ($3.0 million).
As of December 31, 1998, the Company reported a working capital deficiency
of $29.5 million (1997 -- $21.6 million). Excluding advances due to PLD and
other wholly-owned PLD subsidiaries, the Company's working capital position as
of December 31, 1998 improves to a positive $4.5 million (1997 -- $14.1
million).
As of December 31, 1998 the Company had received advances amounting to
$28.2 million (1997: $33.7 million) from PLD. The bulk of these advances were
re-advanced by the Company to PeterStar and ALTEL, the main operating businesses
for which the Company acts as an intermediate holding company, to meet capital
and operating expenses in the early stages of their development. Because these
advances are classified as current liabilities on the Company's consolidated
balance sheet, the Company is in a net current liability position, and as a
result requires the continued support of PLD in order to meet its obligations as
they fall due, principally through PLD agreeing not to require payment of
amounts owing to it. In addition, expatriate employees working for the PLD's
operating businesses in Russia, Kazakhstan and Belarus are employed through the
Company. On an overall basis, the funds received by the Company through
management fees and dividends are currently sufficient to enable it to make the
monthly salary and other payments due to such expatriates. However, due to
timing differences between receipt of management fees/dividends and requirements
to pay salaries etc on a regular basis, PLD periodically has to provide "top-up"
funding to the Company, but the amounts involved are insignificant. In the event
that going concern problems were to affect PLD's ability to make such advances
and caused PLD to seek repayment of all advances owing to it, these events would
have a material adverse effect on the Company and raise substantial doubt about
the Company's ability to continue as a going concern.
As of December 31, 1998, consolidated total assets were $168.2 million
($155.2 million as of December 31, 1997) and consisted primarily of $20.2
million in current assets (including $2.8 million in cash and cash equivalents),
net property and equipment of $106.5 million and unamortized telecommunications
licenses and goodwill of $39.0 million.
Long-term debt of $11.8 million, including $4.7 million with related
companies and $7.2 million with third party suppliers, as a percentage of total
assets, was 7.0% as of December 31, 1998 as compared to 9.4% as of December 31,
1997.
Shareholder's equity of $78.6 million as of December 31, 1998, which
consisted of $70.8 million in share capital and contributed surplus and $7.8
million in retained earnings, compared to $70.6 million recorded at the end of
1997. The Company's ratio of long-term indebtedness to equity at December 31,
1998 was 15.0% compared to 20.7% at the end of 1997.
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<PAGE> 48
The Company's ongoing operations (including advances to and investments in
its existing subsidiaries and affiliates for capital expenditures and
operational expenses) will continue to be financed from advances from PLD and
dividends and management fees from its subsidiaries. The Company's operating
businesses are now, for the large part, self-sustaining and have the ability to
source third party supplier and bank financing on their own. However, to the
extent that the operating businesses experience lower than expected revenues,
higher operating costs, or higher development costs in connection with the
build-out of their networks, or as a result of continuing economic difficulties
in Russia and Kazakhstan, the Company may need to seek other sources of
financing to fund such operations.
PeterStar has entered into a series of agreements with PLD Capital Asset
(U.S.) Inc. ("PLDCA"), a wholly owned subsidiary of PLD, whereby PLDCA has
purchased, or assumed obligations to purchase equipment required for the
development of PeterStar's business. Under such agreements, typically, PLDCA
undertakes to pay the equipment supplier in accordance with the terms of the
supply contract, and also to pay the cost of importing the equipment into
Russia, including customs duties and value added taxes which may be due. PLDCA
then resells the equipment at a price which includes a financing charge, with
such price being payable over a term between three and five years. As at
December 31, 1998 PeterStar's liability to PLDCA under such resale agreements
totalled approximately $10.2 million.
The Company's operating businesses have ongoing capital requirements
associated with the development of their businesses. Currently, they are able to
meet these out of internally generated cash flow from operations or by arranging
their own financing, including supplier financing. In no case is the Company
specifically obligated to provide capital to its operating businesses.
As it has disclosed in its Annual Report on Form 10-K, PLD has significant
debt service requirements, including the payment of interest on the Senior Notes
and the Convertible Notes and amounts owing to the Travelers Parties, and PLD
does not presently have sufficient funds on hand to meet its current debt
obligations. The Company is a guarantor of the Senior Notes and the Convertible
Notes under the terms of the related indentures. A wholly-owned subsidiary of
the Company is also a guarantor of this debt and of other indebtedness of PLD to
the Travelers Parties.
While agreements have been reached with substantially all of the holders of
the Senior Notes and the Convertible Notes and with the Travelers Parties on a
restructuring of PLD's indebtedness to such parties, those agreements are
conditioned upon the closing of the Merger. If the Merger did not close, PLD
would remain obligated to pay interest on the Senior Notes and Convertible Notes
and there can be no assurance that the Travelers Parties would not demand
payment in full of PLD's obligations to them. PLD's failure to make payment in
full to the Travelers Parties could result in a claim being made against the
Company's subsidiary under its guarantee, as well as resulting in a
cross-default under and acceleration of the Senior Notes and Convertible Notes.
In addition, any failure by PLD to make interest payments on the Senior Notes
and Convertible Notes could result in a default under and acceleration of those
Notes. Any such default under the Notes could result in a claim being made
against the Company under its guarantee, which would have a material adverse
effect on the Company and raise substantial doubt about the Company's ability to
continue as a going concern.
In connection with the Merger Agreement with MMG and the transactions
contemplated thereunder, the holders of the Senior and Convertible Notes have
agreed, subject to completion of the Merger and other transactions contemplated
by the Merger Agreement, to exchange their outstanding notes for new notes
issued by MMG which will not be guaranteed by the Company.
EFFECTS OF NEWLY-ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities", was
issued. SFAS 133 established accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS 133 cannot be applied
retroactively to financial statements of prior periods. At the current time the
Company has not evaluated the impact SFAS 133 will have, if any.
46
<PAGE> 49
The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1 (SOP 98-1) "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," and Statement of Position No. 98-5 (SOP
98-5) "Reporting on the Costs of Start-Up Activities" in 1998. SOP 98-1 requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software. SOP 98-5 requires costs of start-up activities and organization costs
to be expensed as incurred. The Company was required to adopt both new
statements in the first quarter of 1999. The adoption of these statements is not
expected to have a material effect on the Company's consolidated financial
statements.
YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications,
particularly older systems and applications, use a two-digit, rather than a
four-digit, date field to designate a particular year. As a result of the
century change, date-sensitive systems may recognize dates in the twenty-first
century (i.e., after 2000) as dates in the twentieth century (i.e., the
corresponding year commencing with the prefix 19--). Equally, such systems may
not recognize dates in the twenty-first century at all. All of this could lead
to system failures or miscalculations which could lead to disruption of
operations such as data being lost, an inability to process transactions,
incorrect data being generated and critical deadlines being overlooked. The
impact of these disruptions could be significant.
PLD has conducted, and has caused each of its operating subsidiaries to
conduct a survey of the equipment and software used by them.
The Company's business involves the supply of services. To the very limited
extent that it maintains actual inventory for sale (e.g., cellular telephone
equipment sold to subscribers for its cellular telephony services), it does not
manufacture such inventory itself but resells goods supplied by recognized
manufacturers of such goods.
Its survey has involved testing of equipment as well as contacting the
manufacturers of equipment and producers of software (or review of materials
published by such parties, including websites) to assess such parties' Year 2000
readiness. Such survey has indicated that, except in a few instances, the
equipment and software which it uses are Year 2000 compliant. The Company is
taking steps to upgrade or replace those items which are not compliant. In many
cases the items required to be upgraded or replaced were due to be upgraded or
replaced in any event, so that the Company's exposure has been the acceleration
of already planned expenditures, rather than new or unanticipated expenditures.
The Company expects that essentially all of its upgrading and replacement work,
and any remaining testing required, will be complete by the end of the third
quarter of 1999.
As of June 15, 1999, PLD has expended approximately $1.9 million for
remediation efforts and expects that its total remediation costs, including
scheduled upgrades and replacements of approximately $3.1 million, will be
approximately $4.0 million.
Starting in January 1998, all operating businesses were required to use
their best efforts to obtain specific warranties of Year 2000 compliance from
parties with which they contract for products or services thereafter. While
almost all new contracts for products or services entered into since that date
have contained some form of warranty, these have generally been limited to
recovering of direct losses, and not indirect or consequential losses, such as
loss of revenues or profits. In consequence, the actual efficacy of such
warranties may be somewhat limited.
Additionally, all operating businesses have been required to review the
terms under which they have heretofore supplied products and/or services to
third parties. No case has been identified in which any operating business has
specifically guaranteed Year 2000 compliance, and the Company has instituted a
policy regarding the giving of such guarantees in the future in order to control
and limit possible exposure thereunder. Further, since none of the operating
businesses manufacture equipment or produce proprietary software for customers
other than in exceptional cases, virtually all such transactions involve the
re-sale or assignment of products and services supplied by others. Accordingly,
the Company believes that, to the extent that such products and services are
either warranted or shown to be Year 2000 compliant, its own exposure is
commensurately reduced.
47
<PAGE> 50
While there can be no assurances that equipment failures will not occur,
the effect of such failures may be ameliorated by the fact that such equipment
is usually part of a network of facilities and equipment maintained by the
Company. This means that a failure in an individual component will not
necessarily cause a substantial disruption to the network as a whole, because no
individual item is critical to the operation of the network as a whole, and the
network also provides opportunities to by-pass the failure.
The foregoing indicates that, to the extent that its business depends upon
equipment, software, facilities and networks under its control, the Company
believes that, by the year 2000, it will have taken all steps reasonably
required to ensure that those items are Year 2000 compliant, and that it has
reasonable contingency arrangements to deal with failures.
The Company's principal Year 2000 risks arise from the fact that it is
dependent for the completion of its calls upon a variety of other traffic
carriers who provide interconnection and termination services. Since in many
cases there are a variety of routes over which traffic can be carried, it is
simply not possible for the Company to verify that each entity which could be
involved in providing telecommunications services to its operating subsidiaries
will be Year 2000 compliant. To a large extent, the Company is reliant in these
circumstances on the actions of the other telecommunications operators and
service providers to ensure that their counterparts are Year 2000 compliant.
While the Company believes that the parties providing these services which are
based in the United States and other Western countries are expected to be
substantially Year 2000 compliant, the Year 2000 compliance and readiness of the
Russian and other C.I.S. parties with which the Company's operating businesses
interact appears to be substantially behind that of Western parties. The Company
has been unable to determine with any degree of certainty the extent to which
its interconnect partners in the C.I.S. are non-compliant because those parties
have generally been reluctant to share this information. Nevertheless the
Company believes, based on such reluctance and anecdotal and other evidence,
that many of those partners, particularly in those in the less developed regions
of the Russian Federation or the C.I.S., are substantially non-compliant.
Furthermore, the likelihood that those parties will be able to become Year
2000 compliant seems problematical, given the limited amount of time left for
this, the severe funding constraints faced by those parties, principally as a
result of poor economic conditions in their home countries, and the possible
lack of governmental pressure on those parties.
Accordingly, there is a significant risk that the Company's operating
businesses may experience disruptions in their operations as a result of their
C.I.S. interconnect partners not being able to complete calls or pass traffic to
those businesses. While the Company is unable to predict the extent or duration
of such disruptions, the possibility exists that they could be extensive, and
also take considerable time, perhaps even months, to correct.
An additional risk is the likelihood that the billing systems of those
interconnect partners may also be disrupted, resulting in those partners being
unable to collect from their customers or to make timely settlements with the
Company's operating businesses.
Accordingly, the Company believes that there is a considerable risk that it
will experience disruptions in providing telecommunications services to and from
the countries of the C.I.S. which it serves, and that those disruptions may be
substantial. Given its inability to obtain an accurate assessment of the extent
to which its C.I.S. partners may be non-compliant, it is impossible for the
Company to predict either the extent or the magnitude of those disruptions.
Nevertheless, they have the potential to adversely impact the operations of its
operating subsidiaries, and such adverse impact may be material.
The Company has investigated the possibility of obtaining insurance against
liability arising out of claims that products or services supplied are not Year
2000 compliant, but has determined that such insurance is not obtainable upon
terms which are sufficiently comprehensive and/or is only obtainable upon terms
which are uneconomical given the level of perceived risk, and accordingly has
elected not to pursue such insurance.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PLD's finance department is responsible for the evaluation and, to the
extent practicable, management of the Company's exposure to market risks.
48
<PAGE> 51
The Company's primary market risk is related to the movement in foreign
currency exchange rates in the countries in which its operating businesses
operate: Russia and Kazakhstan. See "Risk Factors -- Country
Risks -- Restrictions on Currency Conversion; Historical Volatility in Currency
Prices" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Currency Controls." PLD and the Company periodically
evaluate the materiality of their foreign exchange exposures and the financial
instruments available to mitigate this exposure. However, PLD and the Company do
not currently believe that it is practical or economical to hedge these foreign
currency exchange risks and as a result will continue to experience foreign
currency gains and losses.
The Company does not use any derivative instruments, either as a trading or
non-trading activity.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
James R.S. Hatt has been a Director of the Company since 1996. Since 1995,
Mr. Hatt has been the Chairman, President and Chief Executive Officer of PLD,
the parent of the Company.
Clayton A. Waite has been a Director of the Company since 1996. Mr. Waite
is currently a consultant to PLD and has previously served as Vice President -
Administration and Group Financial Controller of PLD.
Christos Clerides has been a Director of the Company since 1994. Mr.
Clerides is currently a partner in a Cyprus law firm which provides legal and
corporate administrative services to the Company in Cyprus.
Phivos Clerides has been a Director of the Company since 1994.
None of the directors of the Company are citizens or residents of the
United States.
The directors of the Company are elected for an unspecified term, until
their successors are elected and duly qualified.
There are no officers of the Company.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The directors of the Company are not compensated by the Company or its
subsidiaries in their roles as directors. The Company pays the Cyprus law firm
of which Mr. Christos Clerides is a partner certain fees in respect of legal and
corporate administration services in Cyprus.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
None.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
PeterStar entered into a service agreement, dated as of January 1, 1999,
with the Company, pursuant to which, for a one-year term, the Company will
provide management services to PeterStar, including advice and assistance with
respect to the design, implementation, operations, marketing and expansion of
PeterStar's network for a one-year term. PeterStar has had similar agreements
with the Company for all years dating back to 1992.
ALTEL entered into Consulting and Information Services Agreements with PLD
and Kazakhtelekom, each dated January 1, 1998, pursuant to which such parties
provide certain consulting, information, management services and personnel
expertise to ALTEL. In consideration for these services, ALTEL pays consulting
fees, in the case of PLD, of $25,000 per month plus 3.4% of ALTEL's gross
revenues, and, in the case of Kazakhtelekom, of 300,000 Tenge per month plus 1%
of ALTEL's gross revenues. These contracts are each for a one year term
automatically renewable for successive one year periods unless terminated by
either party.
PeterStar has entered into a series of agreements with PLD Capital Asset
(U.S.) Inc. ("PLDCA"), a wholly owned subsidiary of PLD, whereby PLDCA has
purchased, or assumed obligations to purchase equipment required for the
development of PeterStar's business. Under such agreements, typically, PLDCA
undertakes to
49
<PAGE> 52
pay the equipment supplier in accordance with the terms of the supply contract,
and also to pay the cost of importing the equipment into Russia, including
customs duties and value added taxes which may be due. PLDCA then resells the
equipment at a price which includes a financing charge, with such price being
payable over a term of between three and five years. As at December 31, 1998
PeterStar's liability to PLDCA under such resale agreements totalled
approximately $10.2 million.
The Company's 60% owned subsidiary, PeterStar, has a number of business
arrangements with BCL, a wholly owned subsidiary of PLD. These include joint
marketing arrangements, cross referrals of customers, use by BCL of PeterStar
personnel to install telecommunications equipment, and mutual assistance in
transmission of traffic. The Company believes that all such arrangements have
been made on an arms-length basis. The revenues involved in the year ended
December 31, 1998 were insignificant.
As of December 31, 1998 the Company had received a total of $28.2 million
in advances from PLD. The Company anticipates that it will continue to require
that PLD advance funds to it from time to time to meet its obligations as they
fall due.
The Company is a guarantor of the Senior and Convertible Notes. In
addition, the Company's wholly owned subsidiary, WTC, is a guarantor of the
Senior and Convertible Notes and the Revolving Credit Notes. For further
details, please refer to "Description of Business--Recent
Developments--Travelers Financing" and "--The Senior and Convertible Notes."
Christos Clerides, a director of the Company, received fees and expenses
totaling $32,300 in 1998 ($2,700 in 1997) for legal and corporate administrative
services to the Company in Cyprus. The Company believes that these amounts
represent arms-length charges for the services performed.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
None.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its subsidiaries
are attached to this Report beginning on page F-1.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Consolidated balance sheets of the Company as of December 31, 1998
and 1997;
(ii) Consolidated statements of operations of the Company for the years
ended December 31, 1998, 1997 and 1996;
(iii) Consolidated statements of cash flows of the Company for the years
ended December 31, 1998, 1997 and 1996; and
50
<PAGE> 53
(iv) Consolidated statements of shareholder's equity of the Company for
the years ended December 31, 1998, 1997 and 1996.
(b) Exhibits
4.1 Indenture, dated as of May 31, 1996, among PLD Telekom Inc., as
Issuer, the Company, PLD Asset Leasing Limited, PLD Capital
Limited, Baltic Communications Limited and Wireless Technology
Corporations Limited as Guarantors, and The Bank of New York, as
Trustee, with respect to $123.0 million aggregate principal amount
at stated maturity of 14% Senior Discount Notes due 2004 (the
"Senior Note Indenture") (Exhibit 4.1)(1)
4.2 Indenture, dated as of May 31, 1996, among PLD Telekom Inc. as
Issuer, the Company, PLD Asset Leasing Limited, PLD Capital
Limited, Baltic Communications Limited and Wireless Technology
Corporations Limited as Guarantors, and The Bank of New York, as
Trustee, with respect to $26.5 million aggregate principal amount
of 9% Convertible Subordinated Notes due 2006. (Exhibit 4.1)(2)
4.3 First Supplemental Indenture, Amendment Agreement, Consent and
Waiver, dated as of March 20, 1998, among PLD Telekom Inc., as
Issuer, the Company, PLD Asset Leasing Limited, PLD Capital
Limited, Wireless Technology Corporations Limited and Baltic
Communications Limited, as Guarantors, Clayton A. Waite and Apropos
Investments Ltd., as nominee shareholders, and The Bank of New
York, as Trustee. (Exhibit 4.3)(1)
4.4 Second Supplemental Indenture, dated as of June 15, 1998, among PLD
Telekom Inc., as Issuer, the Registrant, PLD Asset Leasing Limited,
PLD Capital Limited, PLD Capital Asset (U.S.) Inc., Wireless
Technology Corporations Limited and Baltic Communications Limited,
as Guarantors, Clayton A. Waite and Apropos Investments Ltd., as
nominee shareholders, and The Bank of New York, as Trustee.
4.5 Third Supplemental Indenture, dated as of January 12, 1999, among
PLD Telekom Inc., as Issuer, the Registrant, PLD Asset Leasing
Limited, PLD Capital Limited, PLD Capital Asset (U.S.) Inc.,
Wireless Technology Corporations Limited and Baltic Communications
Limited, as Guarantors, Clayton A. Waite and Apropos Investments
Ltd., as nominee shareholders, and The Bank of New York, as
Trustee.
4.6 Global Exchange Note representing the 14% Senior Discount Notes due
2004 of PLD Telekom Inc.
4.7 Global Note representing the 9% Convertible Subordinated Notes due
2006 of PLD Telekom Inc.
4.8 NWE Cyprus Senior Note Security and Pledge Agreement, dated as of
May 31, 1996, by the Registrant in favor of The Bank of New York,
as Trustee under the Senior Note Indenture, as Trustee under the
Convertible Note Indenture, and as Collateral Agent.
4.9 Guaranty Agreement, dated as of November 26, 1997, made and given
by Wireless Technology Corporations Limited and Baltic
Communications Limited in favor of The Travelers Insurance Company
and The Travelers Indemnity Company.
10.1 Joint Venture Agreement, dated as of December 31, 1993, between
Wireless Technology Corporations Limited and Kompania Besprovodnye
Seti Sviazi.
10.2 Interconnection Agreement, dated as of February 4, 1994, between
the Ministry of Communications of the Republic of Kazakhstan and
ALTEL.
10.3 Amendment, dated February 28, 1996, to the Interconnection
Agreement between Kazakhtelekom and ALTEL.
10.4 License Granted to ALTEL for the Operation of a Cellular
Telecommunication System Providing Mobile Radiocommunications
Services dated as of February 4, 1994.
10.5 License No. 4904 issued by the RSCC to PeterStar Company Limited
for the provision of local, national and international
telecommunications services via a dedicated network.
51
<PAGE> 54
10.6 License No. 4274 issued by the RSCC to PeterStar Company Limited
for the provision of local and intercity telephone communications
services.
10.7 Cellular System Installation & Optimization Agreement dated as of
May 4, 1994 between ALTEL and Motorola Inc.
10.8 Cellular System Equipment Purchase Agreement dated as of May 4,
1994 between ALTEL and Motorola Inc.
99.1 Consent of KPMG.
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-5398).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3 (File No. 333-5396).
52
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Amendment No. 1 to this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized,
in New York, New York on August 30, 1999.
NWE CAPITAL (CYPRUS) LIMITED
By: /s/ CLAYTON A. WAITE
------------------------------------
Clayton A. Waite
Director
53
<PAGE> 56
NWE CAPITAL (CYPRUS) LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
Independent auditors' report................................ F-2
Consolidated balance sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated statements of operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated statements of cash flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-5
Consolidated statements of shareholder's equity for the
years ended December 31, 1998, 1997 and 1996.............. F-6
Notes to consolidated financial statements.................. F-7
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
Shareholder and Board of Directors of
NWE Capital (Cyprus) Ltd.:
We have audited the accompanying consolidated balance sheets of NWE Capital
(Cyprus) Ltd. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholder's equity and cash flows for
each of the years in the three year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NWE Capital
(Cyprus) Ltd. and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
16(d) to the consolidated financial statements, the Company's parent, PLD
Telekom Inc. (PLD) does not presently have sufficient funds on hand to meet its
current debt obligations. PLD's failure to make payment in full when required
could result in a cross-default under and acceleration of other debt obligations
for which the Company is a guarantor. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Without qualifying our opinion, we draw your attention to the information
contained in Note 1 to the financial statements regarding the uncertain
operating environment in Russia. The ultimate effect that these significant
economic uncertainties could have on the stated values, classification,
realisation or settlement of assets and liabilities stated in these financial
statements cannot presently be determined and accordingly no provisions have
been made.
Without qualifying our opinion, we draw your attention to the disclosures
in Note 16 to the financial statements concerning the uncertainty relating to
the effects of the Year 2000 problem.
KPMG
St. Petersburg, Russia
March 30, 1999
F-2
<PAGE> 58
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 7)........................ $ 2,816 7,849
Trade receivables, net of allowances of $1,788 and $3,002
respectively........................................... 11,260 12,725
VAT receivable............................................ -- 2,154
Other receivables and prepaids............................ 2,024 3,266
Due from related parties.................................. -- 468
Inventory................................................. 4,076 2,566
-------- -------
Total current assets.............................. 20,176 29,028
Property and equipment, net (note 6)........................ 106,542 79,002
Telecommunications licenses, net of amortization of $24,077
and $19,356, respectively (note 3)........................ 37,663 42,286
Other receivables (note 4).................................. 2,012 3,012
Goodwill, net of amortization $789 and $574, respectively
(note 5).................................................. 1,365 1,580
Other assets................................................ 410 280
-------- -------
Total assets...................................... $168,168 155,188
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 8)................................ $ -- 900
Accounts payable.......................................... 1,980 1,971
Accrued liabilities....................................... 2,640 3,044
Customer deposits and advances............................ 7,109 5,978
Advances from other group companies (note 10)............. 33,988 35,711
Due to related parties.................................... 462 818
Current portion of long-term debt (note 9)................ 3,479 2,180
-------- -------
Total current liabilities......................... 49,658 50,602
-------- -------
Long-term liabilities:
Advances from other group companies (note 10)............. 4,669 6,627
Long-term debt (note 9)................................... 7,165 7,975
-------- -------
Total long-term liabilities....................... 11,834 14,602
-------- -------
Minority interest........................................... 28,113 19,391
Commitments and contingencies (note 16)
Shareholder's equity (note 12):
Common stock, par value CY L1 per share. Authorised
3,246,174 shares in 1998 and 1997; Issued and
outstanding 3,246,174 shares in 1998 and 1997.......... 7,082 7,082
Contributed surplus....................................... 63,723 63,723
Accumulated surplus/(deficit)............................. 7,758 (212)
-------- -------
Total shareholders' equity........................ 78,563 70,593
-------- -------
Total liabilities and shareholders' equity........ $168,168 155,188
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Telecommunications revenues................................. $113,041 85,588 52,651
Operating expenses:
Direct costs (excludes depreciation)...................... 29,081 23,120 17,527
General and administrative................................ 28,030 15,742 12,396
Management fees........................................... 1,649 4,817 2,085
Depreciation.............................................. 10,266 7,194 4,758
Amortization.............................................. 4,935 4,936 4,884
Taxes other than income taxes............................. 4,021 3,257 1,667
-------- ------- -------
Total operating expenses.......................... 77,982 59,066 43,317
Operating income.................................. 35,059 26,522 9,334
Other income/(expense):
Interest and other income................................. 288 337 370
Interest on long-term debt................................ (769) (584) --
Foreign exchange loss (note 1)............................ (2,890) (676) (740)
Other expense............................................. (2,000) -- (9)
Settlement with minority shareholders (note 11)........... -- 5,339 --
-------- ------- -------
Income before income taxes and minority interest............ 29,688 30,938 8,955
Income taxes (note 13)...................................... 9,997 6,893 3,356
-------- ------- -------
Income before minority interest................... 19,691 24,045 5,599
Minority interest........................................... 11,721 12,336 2,615
-------- ------- -------
Net income........................................ $ 7,970 11,709 2,984
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 7,970 11,709 2,984
Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:
Depreciation and amortization.......................... 15,202 12,130 9,642
Minority interest...................................... 11,721 12,336 2,615
Settlement with minority shareholders (note 11)........ -- (5,339) --
Other.................................................. 2,000 133 9
Customer deposits and advances......................... 1,131 3,284 103
Changes in working capital (note 14)................... (332) (10,047) (331)
------- -------- -------
Net cash provided by operating activities............ 37,692 24,206 15,022
------- -------- -------
Cash flows from investing activities:
Capital expenditures...................................... (32,056) (19,367) (20,652)
Other assets.............................................. (130) 89 (58)
------- -------- -------
Net cash used in investing activities............. (32,186) (19,278) (20,710)
------- -------- -------
Cash flows from financing activities:
Bank indebtedness......................................... (900) 900 --
Long-term debt............................................ (2,558) -- 6,247
Advances from other group companies....................... (4,081) (3,591) 1,729
Recapitalisation of PeterStar............................. -- 1,427 --
Dividends paid............................................ (3,000) (1,000) --
------- -------- -------
Net cash (used in)/provided by financing
activities...................................... (10,539) (2,264) 7,976
------- -------- -------
(Decrease)/increase in cash and cash
equivalents..................................... (5,033) 2,664 2,288
Cash and cash equivalents at beginning of year............ 7,849 5,185 2,897
------- -------- -------
Cash and cash equivalents at end of year.................. $ 2,816 7,849 5,185
======= ======== =======
Supplementary disclosures:
Non-cash investing and financing activities:
Purchase of equipment with PLD advances and under
long-term contracts.................................... $ 5,833 10,641 1,597
======= ======== =======
Recapitalisation of PeterStar (note 4).................... $ -- 4,012 --
======= ======== =======
Interest paid............................................... $ 1,685 728 --
======= ======== =======
Income taxes paid........................................... $10,133 6,924 3,999
======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF CONTRIBUTED SURPLUS/
SHARES AMOUNT SURPLUS (DEFICIT) TOTAL
--------- ------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996......... 1,000 $ 2 $ -- $(14,905) $(14,903)
Conversion of promissory note from
PLD
Telekom Inc...................... 928,591 2,000 18,000 -- 20,000
Acquisition of WTC from PLD
Telekom Inc...................... 2,316,583 5,080 45,723 -- 50,803
Net income for the year............ -- -- -- 2,984 2,984
--------- ------ ------- -------- --------
Balance at December 31, 1996....... 3,246,174 7,082 63,723 $(11,921) $ 58,884
Net income for the year............ -- -- -- 11,709 11,709
--------- ------ ------- -------- --------
Balance at December 31, 1997....... 3,246,174 $7,082 $63,723 $ (212) $ 70,593
Net income for the year............ -- -- -- 7,970 7,970
--------- ------ ------- -------- --------
Balance at December 31, 1998....... 3,246,174 $7,082 $63,723 $ 7,758 $ 78,563
========= ====== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 62
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(THOUSANDS OF U.S. DOLLARS)
(1) BUSINESS, OPERATIONS AND FUTURE ACTIVITIES
(a) Background
The Company is incorporated under the laws of Cyprus. The Company is a
wholly-owned subsidiary of PLD Telekom Inc. ("PLD" or the "Parent"). Through its
majority-owned and controlled subsidiaries, the Company is a provider of local,
long distance and international telecommunications services in the former Soviet
Union.
The Company's telecommunications businesses are at various stages of
development and are growing in emerging economies which, by their nature, have
uncertain economic, political and regulatory environments. The general risks of
operating businesses in the former Soviet Union include the possibility for
rapid change in government policies, economic conditions, the tax regime and
foreign currency regulations.
Ultimate recoverability of the Company's investments is dependent upon
their ability to maintain profitability, which is dependent to a certain extent
on the stabilisation of the economies of the former Soviet Union, the ability to
maintain the necessary telecommunications licenses and the ability to obtain
adequate financing to meet capital commitments.
The Company is in a net current liability position and will require the
continued support of PLD in order to meet its obligations as they fall due.
(b) Russian Business Environment
In recent years, Russia has undergone fundamental political and economic
change. As a result, operations carried out in Russia involve significant risks
which are not typically associated with many other environments.
The immediate and ongoing effects of severe economic instability in Russia
include or may include slower economic growth or decline, a reduction in the
availability of credit and the ability to service debt, volatile interest rates,
changes and increases in taxes, higher inflation or hyperinflation, further
devaluation of the rouble, restrictions on convertibility and movements of
funds, bankruptcies including bank failures, and other severe economic and
political consequences. These conditions and future policy changes could have a
material adverse effect on the operations of the Company and the realisation and
settlement of its assets and liabilities.
The accompanying financial statements reflect management's current
assessment of the impact of the economic situation on the financial position of
the Company. Actual results could differ from management's current assessments
and such differences could be material. In addition, the effect of future
developments on the Company's financial position and the ability of others to
continue to transact with the Company cannot presently be determined. The
financial statements therefore may not include all adjustments that might
ultimately result from these adverse conditions.
(c) Uncertain Operating Environment in Russia
The recoverability of the Company's assets, as well as the future operation
of the Company, may be significantly affected by the current and future economic
environment in Russia. The accompanying financial statements do not include any
adjustments with regard thereto.
(d) Convertibility of the Rouble
The Russian rouble is not a convertible currency outside the Russian
Federation and, accordingly, any conversion of Russian rouble amounts to US
dollars should not be construed as a representation that Russian rouble amounts
have been, could be, or will be in the future, convertible into US dollars at
the exchange rate used, or at any other exchange rate.
F-7
<PAGE> 63
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The ability of the Russian government to maintain the stability of the
rouble will depend on many political and economic factors, including its ability
to control inflation and the availability of sufficient reserves to support the
rouble. Uncertainty also exists with respect to the Central Bank's policy
direction. The possibility of further restrictions on convertibility and
currency movements cannot be ruled out.
As a result of the significant devaluation of the rouble during the latter
part of 1998 the Company's subsidiary PeterStar has suffered foreign exchange
losses of approximately $2.9 million. The corresponding loss in 1997 was
approximately $0.7 million and in 1996 was approximately $0.7 million. The major
portion of the loss in 1998 relates to a period in August/September 1998, when
it was difficult to convert roubles into other currencies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are summarised as follows:
(a) Basis of Presentation
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
(U.S. GAAP) and present the financial position and results of operations of the
Company and subsidiaries (the "Company") on a stand-alone basis. The Company
incurs and pays its own expenses. Management assistance is provided by the
Parent under the terms of negotiated management agreements and specific costs
incurred by the Parent on behalf of the Company are charged thereto. All
intercompany transactions and charges are disclosed in note 15, "Related Party
Transactions".
Income tax expense is based upon a calculation of current tax expense and
deferred tax expense in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", on a stand-alone basis. Refer
to note 13, "Income Taxes".
Intercompany interest charges incurred are the result of, and are made
pursuant to, intercompany loan and/or lease agreements and are not a result of
allocations of interest by the Parent or its subsidiaries.
Telecommunications license amortization expense is based upon the cost of
the licenses. Amortization expense is calculated on a straight-line basis over
the terms of the licenses including the portion of the Parent's investment in
the Company which has been allocated to telecommunications licenses and pushed
down into the Company's consolidated financial statements.
There are no common costs allocated to the Company by the Parent. Direct
costs incurred by the Parent on behalf of the Company are reimbursed by the
Company. Services provided by the Parent are furnished under the terms of the
negotiated management agreements. Refer to note 15, "Related Party
Transactions". Management of the Company believes that the accompanying
consolidated financial statements include all the costs incurred by the Company
in its operations.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned and controlled subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1998
and 1997, the Company's cash equivalents consist of term deposits of $1.4
million and $4.6 million respectively.
F-8
<PAGE> 64
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) Revenue Recognition
The Company records telecommunication revenues as earned, at the time
services are provided with the exception of terminal sales. Terminal sales are
recognised when the equipment is delivered and the supporting contract is
signed.
(e) Inventory
Inventory is stated at the lower of average cost or net realisable value
and is comprised of telephony products held for resale to customers.
(f) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Telecommunications equipment.................... 10 years
Buildings....................................... 10 years
Office furniture and equipment.................. 3-5 years
Leasehold improvements.......................... 15 years
</TABLE>
Interest costs incurred during the period of installation of
telecommunications equipment are capitalised. The interest cost capitalised in
1998 amounted to $1,289,628 (1997: $927,791, 1996: $0).
(g) Telecommunications Licenses
Telecommunications licenses are amortized on a straight-line basis over the
terms of the licenses.
(h) Goodwill
Goodwill represents the excess of the purchase price over the fair values
of the net assets acquired of C.P.Y. Yellow Pages Limited, and is being
amortized on a straight-line basis over ten years.
(i) Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, trade and other receivables, amounts due from or to
related parties, bank indebtedness and accounts payable approximate fair value
due to their short maturities. The fair value of long-term debt is based on
discounted cash flow analysis.
(j) Reporting Currency and Foreign Currency Translation
The statutory accounts of the Company's consolidated subsidiaries are
maintained in accordance with local accounting regulations and are stated in
local currencies.
Local statements are adjusted to U.S. GAAP and then translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52
(SFAS 52), "Foreign Currency Translation."
Under SFAS 52, the financial statements of foreign entities in highly
inflationary economies are measured in all cases using the U.S. dollar as the
functional currency. U.S. dollar transactions are shown at their historical
value. Monetary assets and liabilities denominated in local currencies are
translated into U.S. dollars at the prevailing period-end exchange rate. All
other assets and liabilities are translated at historical exchange rates.
Results of operations have been translated using the exchange rates effective at
the date of the transaction. Translation differences resulting from the use of
these different rates are included in the accompanying consolidated statements
of operations.
F-9
<PAGE> 65
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(k) Income Taxes
Tax on the profit or loss for the year comprises current tax and the change
in deferred tax. Current tax comprises tax payable calculated on the basis of
the expected taxable income for the year, using the tax rates enacted at the
balance sheet date, and any adjustment of tax payable for previous years.
Deferred tax is provided using the balance sheet liability method on all
temporary differences between the carrying amounts for financial reporting
purposes and the amounts used for taxation purposes, except differences relating
to the initial recognition of assets or liabilities which affect neither
accounting nor taxable profit (taxable loss).
The tax value of losses expected to be available for utilisation against
future taxable income is set off against the deferred tax liability within the
same legal tax unit and jurisdiction. Net deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be
realised.
Deferred tax is calculated on the basis of the tax rates that are expected
to apply to the period when the asset is realised or the liability is settled.
The effect on deferred tax of any changes in tax rates is charged to the
statement of operations, except to the extent that it relates to items
previously charged or credited directly to equity.
(l) 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 and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", on January 1, 1996. SFAS
121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that 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
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognised is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(n) Comprehensive Income
SFAS 130 "Reporting Comprehensive Income" was issued in June 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognised under accounting
standards as components of comprehensive income be reported in an annual
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS 130 as at January 1, 1998. For
the years ended December 31, 1998, 1997, and 1996 comprehensive income was equal
to net income reported in the statement of operations. As SFAS 130 only requires
additional disclosures in the Company's financial statements, its adoption did
not have any impact on the Company's financial position or results of
operations.
F-10
<PAGE> 66
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(o) Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
(3) BUSINESSES AND ACQUISITIONS
The Company's key interests at December 31, 1998 include a 60% equity
interest in PeterStar Company Limited ("PeterStar") and a 50% indirect equity
interest in ALTEL (before April 1998 named BECET International).
(a) PeterStar
PeterStar is a joint stock company registered in 1992 under the laws of the
Russian Federation to provide international and domestic telecommunications
services to St. Petersburg, Russia. In November 1994, PeterStar was granted a
license to provide these services for a further ten years. The license was
reissued in June 1996 and sets the number of lines which PeterStar may have and
requires that at least 74,200 lines be introduced by June 1999. At December 31,
1998, PeterStar had 168,166 lines in place.
Other licenses, all of which expire in 2001, are for telematic services,
video conferencing, data services and the operation of a dedicated
national/international overlay network. These licenses are generally renewed on
application. Grounds for termination of licenses are broad and subjective and
there is little precedent upon which to determine the practical likelihood of
termination.
In October 1992, PLD acquired a 50% interest in PeterStar for consideration
of $20.0 million. All of the consideration was allocated to telecommunications
licenses. This interest was subsequently transferred to the Company in exchange
for a promissory note in the amount of $20.0 million. During 1996 the promissory
note was exchanged for 928,591 shares of the Company.
In March 1994, PLD acquired 90% of the outstanding shares of PMT Ltd., a
Russian company whose sole asset was a 10% interest in PeterStar, for
consideration of $8.2 million. PLD acquired the remaining 10% of PMT Ltd. in
April 1996 for consideration of $1.8 million. All of the consideration was
allocated to telecommunications licenses. In April 1996, PLD transferred its 10%
interest in PeterStar to the Company in exchange for a $10.0 million
non-interest bearing promissory note payable on demand and convertible to common
shares at the option of either PLD or the Company. This acquisition has been
accounted for using the continuity of interests method. Accordingly, PLD's
historical cost of the PeterStar telecommunications licenses transferred to the
Company is recorded in these financial statements and comparative figures have
been restated to reflect the historical net book value of the PeterStar licenses
and the related amortization expense.
(b) ALTEL
ALTEL provides cellular services pursuant to a 15 year license to operate a
cellular and mobile telephone system in Kazakstan until February 2009. The
Company's 50% interest in ALTEL is held by its wholly-owned subsidiary, Wireless
Technology Corporations Limited ("WTC"), a company incorporated in the territory
of the British Virgin Islands.
In March 1994, PLD acquired all the outstanding shares of WTC for
consideration of $30.0 million. The acquisition was accounted for by the
purchase method. As of the date of acquisition, ALTEL had not commenced
operations and did not have any tangible assets or liabilities. Therefore, the
entire purchase price, including acquisition costs of $0.8 million was allocated
to telecommunications licenses. ALTEL commenced commercial operations in
September 1994. During 1994 and 1995, PLD contributed additional equity of $20.0
million to WTC which in turn contributed $20.0 million of working capital and
equipment to ALTEL in exchange for its 50% equity interest.
F-11
<PAGE> 67
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On January 5, 1996, PLD transferred its shares in WTC to the Company for
consideration of 2,316,583 shares of the Company. This acquisition has been
accounted for using the continuity of interests method. Accordingly, PLD's
historical cost of the ALTEL license is recorded in these financial statements
and comparative figures have been restated to reflect the historical net book
value of the licenses and the related expense.
(4) OTHER RECEIVABLES
During 1997, a $13.6 million receivable by PLD from PeterStar was assigned
to the Company. This amount was subsequently repaid by PeterStar with proceeds
from a share issue. $4.0 million was advanced to a minority shareholder of
PeterStar so that it could participate in the share issue. $4.0 million of the
assigned amount is outstanding at December 31, 1998, all of which is classified
as long-term (1997: $4.0 million, of which $3.0 million was classified as
long-term and $1.0 million was classified as short-term). At the end of 1998, as
a result of the economic conditions in Russia, the Company recorded a $2.0
million valuation allowance against the $4.0 million receivable.
(5) GOODWILL
Effective April 26, 1995, PLD acquired all the outstanding shares of C.P.Y.
Yellow Pages Limited ("Yellow Pages"), a company incorporated in the Republic of
Cyprus, for consideration of $2.1 million. Yellow Pages publishes a Yellow Pages
directory and owns a database of Russian and foreign businesses in St.
Petersburg. The acquisition was accounted for by the purchase method and
substantially all of the consideration was allocated to goodwill.
On March 1, 1996, PLD transferred the shares of Yellow Pages to the Company
in exchange for a non-interest bearing promissory note in the amount of $2.1
million. The note is payable in ten years and may be converted to common shares
at the option of either PLD or the Company. This transaction has been accounted
for as a transfer of assets between entities under common control and, as such,
the assets are reflected at PLD's historical cost.
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consist of the
following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Telecommunications equipment:
Installed................................................. $ 84,388 68,492
Uninstalled............................................... 31,289 11,473
Buildings................................................... 2,760 2,333
Office furniture and equipment.............................. 5,714 4,156
Leasehold improvements...................................... 5,929 5,277
Advances to equipment suppliers............................. 3,124 3,917
-------- -------
Total property and equipment...................... 133,204 95,648
Less accumulated depreciation............................... (26,662) (16,646)
-------- -------
Property and equipment, net............................... $106,542 79,002
======== =======
</TABLE>
Property and equipment includes telecommunications equipment with a cost of
$30.0 million (1997: $16.5 million) which has been pledged under the terms of
long-term instalment agreements and $0 (1997: $6.6 million) which has been
acquired under capital lease (notes 9 and 10).
F-12
<PAGE> 68
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) CASH AND CASH EQUIVALENTS
The Company's cash and cash equivalents at December 31, 1998 and 1997
consist of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Cash on deposit:
In Russia and Kazakstan................................... $2,816 $6,621
Outside Russia and Kazakstan.............................. -- 1,228
------ ------
$2,816 7,849
====== ======
</TABLE>
(8) BANK INDEBTEDNESS
At December 31, 1998, the Company had no bank indebtedness. In December
1997, PeterStar entered into a $2.0 million, one-year loan facility with BNP
Dresdner Bank for the purchase of telecommunications equipment. Interest was
charged on borrowed amounts at three-month LIBOR plus 2.5% per annum. The
amounts drawn on the loan facility at December 31, 1997 were $0.9 million. The
bank indebtedness was guaranteed by PLD.
(9) LONG-TERM INDEBTEDNESS
Amounts payable under the terms of the long-term instalment purchase
agreements are as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Less than one year.......................................... $ 4,381 3,060
One to two years............................................ 4,129 3,214
Two to three years.......................................... 2,424 2,595
Three to four years......................................... 1,158 1,927
Four to five years.......................................... 530 1,791
------- ------
Total minimum payments............................ 12,622 12,587
Amounts representing interest............................... (1,978) (2,432)
------- ------
10,644 10,155
Current portion............................................. 3,479 2,180
------- ------
Non-current portion......................................... $ 7,165 7,975
======= ======
</TABLE>
Amounts payable are in respect of purchases of telecommunications equipment
under long-term instalment purchase agreements. They represent future amounts
payable discounted at a rate of 8% per annum. They are secured by pledges of the
related assets until final payment is made in 2002.
F-13
<PAGE> 69
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) ADVANCES FROM OTHER GROUP COMPANIES
Amounts due to other group companies as of December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
PLD Telekom Inc............................................. $28,222 $33,701
PLD Capital Asset (U.S.) Inc................................ 10,214 --
PLD Asset Leasing Limited................................... -- 7,384
PLD Management Services Ltd................................. 221 1,253
------- -------
Total............................................. 38,657 42,338
Current portion............................................. 33,988 35,711
------- -------
Non current portion......................................... $ 4,669 $ 6,627
======= =======
</TABLE>
The amounts due to PLD at December 31, 1998 and 1997, represent advances
($25.7 million) to PeterStar and NWE, and fees due to PLD for management
services ($2.3 million) provided to PeterStar and ALTEL. Such amounts have no
scheduled repayment terms and are classified as current.
In September 1996, PeterStar entered into a capital lease for switching
equipment. The lessor of the equipment was PLD Asset Leasing Limited (PLDAL), a
Cypriot company and a wholly owned subsidiary of PLD. During the first six
months of 1998, PeterStar entered into three additional leases, with PLD as the
lessor. On June 25, 1998, the interests in all of these leases were transferred
to PLD Capital Asset (U.S.) Inc. (PLDCA), a United States company, which is also
wholly owned by PLD. The three additional leases entered into during 1998
resulted in approximately $2.1 million of equipment acquired under capital
leases and a capital lease liability of an equal amount. At the date of
transfer, the net liability under capital leases amounted to approximately $1.8
million. On the date of transfer, the capital leases were restructured as
installment purchase agreements with substantially the same payment terms.
Additionally, during 1998, PeterStar entered into an additional installment
purchase agreement with PLDCA for approximately $1.1 million of equipment. All
installment purchase agreements carry interest rates ranging from 8% to 10%.
Future payments due under these installment purchase agreements, including
interest, are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 6,220
2000........................................................ 2,623
2001........................................................ 2,338
2002........................................................ 350
-------
Total payments.................................... 11,531
Less: amount representing interest.......................... 2,436
-------
Principal amounts due....................................... 9,095
Add: accrued interest at December 31, 1998.................. 1,119
-------
Total due to PLDCA................................ $10,214
=======
</TABLE>
$12.1 million in advances from PLD Telekom Inc. arose on the acquisition of
a 10% interest in PeterStar and on the acquisition of Yellow Pages (notes 3(a)
and 5).
(11) SETTLEMENT WITH MINORITY SHAREHOLDERS
During 1997, the Company and the minority shareholders of PeterStar reached
a settlement regarding management fees and other costs previously charged by the
Company, and expensed by PeterStar. As a result of
F-14
<PAGE> 70
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the settlement, a charge to PeterStar of $5.4 million was disallowed. This
amount was reflected by the Company as an increase in expenses.
(12) COMMON STOCK
At December 31, 1998 and 1997 the authorised capital stock of the Company
consists of 3,246,174 common shares with par value of CY (pound) 1 per share.
3,246,174 shares are issued and outstanding as of December 31, 1998 and 1997.
Distributable reserves are restricted to the retained earnings of the
Company's subsidiaries which are determined according to Russian, Cypriot and
British Virgin Islands legislation. At December 31, 1998, that amount is the
rouble equivalent of $6.7 million (1997 -- $14.8 million). No dividends have
been approved for payment.
(13) INCOME TAXES
PeterStar and ALTEL are subject to income tax at statutory rates of 33% and
30%, respectively. The provision for income taxes, which relates substantially
to current income taxes in PeterStar and ALTEL, differs from the U.S. federal
and state statutory tax rates as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Provision for income taxes at statutory rates............ $10,391 10,828 3,134
Add/(deduct) the tax effect of:
Exchange differences................................... (7,661) -- --
Difference in rate..................................... (979) 58 692
Foreign withholding taxes.............................. 450 -- --
Other.................................................. (96) -- --
Non-deductible amortization of licenses and goodwill... 1,835 633 626
Other non-deductible expenses.......................... 4,075 1,045 1,348
Concessions on capital expenditures.................... (726) (3,775) (2,292)
Change in valuation allowance related to deferred tax
assets.............................................. 2,708 (1,896) (152)
------- ------ ------
Provision for income tax....................... $ 9,997 6,893 3,356
======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1997 are as follows (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Deferred tax assets:
Expenses not yet deducted for Russian and Kazakh tax
purposes............................................... $ 3,571 863
Less: valuation allowance................................... (3,571) (863)
------- ------
$ -- --
======= ======
</TABLE>
As a result of the rapid change in the regulatory environment and
uncertainty surrounding the Russian and Kazakh tax regimes, the Company has
provided a valuation allowance against deferred tax assets.
F-15
<PAGE> 71
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) CHANGES IN WORKING CAPITAL
Changes in working capital in each of the years in the three year period
ended December 31, 1998 consist of the following (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Decrease/(Increase) in trade receivables.................... $ 1,465 (6,832) (2,465)
Decrease/(Increase) in VAT receivable....................... 2,154 (1,528) 281
(Increase)/Decrease in other receivables and prepaids....... (1,758) (1,088) 1,592
Increase in inventory....................................... (1,510) (868) (409)
Change in amounts due from or to related parties............ (288) 213 --
(Decrease)/Increase in amounts payable and accrued
liabilities............................................... (395) 56 670
------- -------- -------
Changes in working capital.................................. $ (332) (10,047) (331)
======= ======== =======
</TABLE>
(15) RELATED PARTY TRANSACTIONS
(a) Petersburg Telephone Network ("PTN"), an indirect minority
shareholder of PeterStar has provided PeterStar during the years
1998, 1997 and 1996 with office space in St. Petersburg for no
consideration.
(b) Lease payments for the office in Almaty and other premises of $0.3
million, $0.1 million and $0.1 million for each of the years ended
December 31, 1998, 1997 and 1996 were paid by ALTEL to Kazakhtelecom
("KT"), the other shareholder of ALTEL. There was no balance
outstanding in relation to these leases as of December 31, 1998 and
1997.
(c) PeterStar entered into a barter agreement with PTN under which the
two parties have exchanged services valued at $2.7 million, $3.4
million and $3.0 million during 1998, 1997 and 1996, respectively.
The amounts are recorded in the consolidated statements of operations
as telecommunications revenues and direct costs. During 1998 the
Company paid $1.2 million to PTN for certain of these services.
(d) Direct costs for the years ended December 31, 1998, 1997 and 1996
include $4.4 million, $4.2 million and $3.3 million, respectively,
paid to KT in relation to the carriage of traffic over the public
telephone network. Balances outstanding of $0.5 million, $0.8 million
and $0.2 million as of December 31, 1998, 1997 and 1996,
respectively, in relation to these charges, are included in due to
related parties.
(e) PeterStar entered into a capital lease with a wholly-owned subsidiary
of PLD in 1996 (see note 10).
(f) During 1998, PeterStar entered into a series of agreements with PTN
under which PeterStar exchanged telecommunications equipment for
telecommunications and other facility infrastructures. The total
value of equipment exchanged during 1998 is $2.6 million. The
infrastructure received under this exchange has been valued at the
same amount. As a result of this arrangement PeterStar will be the
sole provider of telecommunications services to one of the districts
of St. Petersburg.
(g) During 1998, PeterStar paid a total of $1.2 million on behalf of PTN.
This amount has been capitalised as a prepayment in relation to the
purchase of an exchange building.
(h) PLD charged management fees of $2.1 million related to PeterStar and
$1.6 million related to ALTEL during the year ended December 31, 1998
(1997 -- $2.0 million and $1.2 million, respectively; 1996 -- $1.2
million and $0.9 million, respectively). These amounts are recorded
in the consolidated statements of operations as management fee
expense. Balances outstanding of $0.1 million and $0.1 million as of
December 31, 1998 and 1997 respectively are included in advances from
other group companies.
F-16
<PAGE> 72
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(i) PeterStar was charged management fees of $5.6 million, $1.7 million
and $42,000 during 1998, 1997 and 1996, respectively, by OAO
Telecominvest, a minority shareholder. These are included as general
and administrative expenses in the consolidated statements of
operations. As at December 31, 1998, PeterStar has prepaid a further
$0.4 million in relation to management fees.
(j) Consulting fees of $0.4 million, $0.1 million and $0.1 million for
the years ended December 31, 1998, 1997 and 1996 respectively, were
paid by ALTEL to KT. These amounts are included in general and
administrative expenses. There was no balance outstanding as of
December 31, 1998 and 1997 in relation to these charges.
(k) Additional charges, related to management services of $0.1 million,
$0.2 million and $26,000 for the years ended December 31, 1998, 1997
and 1996 respectively, were charged to ALTEL by PLD and another PLD
subsidiary. These amounts are recorded in the consolidated statements
of operations as general and administrative expenses.
(l) PeterStar was charged $0 in service fees by PLD relating to recharged
expenses and capital equipment in 1998 (1997: $3.6 million, 1996:
$2.1 million). These amounts have been recorded in general and
administrative expenses in the consolidated statements of operations
or property and equipment in the consolidated balance sheets as
appropriate.
(m) During 1996 PeterStar entered into a five year instalment purchase
agreement with PTN, an indirect minority shareholder, for
telecommunications equipment. Total contract value was $13.7 million
(note 9).
(n) During 1998, PeterStar entered into three year (1997: three to five
year) instalment purchase agreements with wholly-owned subsidiaries
of PLD for telecommunications equipment. The total contract value was
$1.9 million (1997: $2.3 million) (note 10).
(o) During 1997, the Company forgave certain amounts due to it from
PeterStar, resulting in a loss to the Company of $5.4 million (note
11).
(16) COMMITMENTS AND CONTINGENCIES
(a) Purchase Commitments
At December 31, 1998 PeterStar has commitments of approximately $3.4
million under long-term instalment purchase agreements. All commitments relate
to acquisition of the undelivered portion of telecommunications equipment from
suppliers as outlined in note 9. The related contracts provide for financing of
the amounts over approximately five years.
(b) Russian and Kazak Taxation
The PeterStar and ALTEL subsidiaries have accrued profits and other taxes
based on interpretations of the law which may ultimately be disputed by the
local taxation authorities.
Russia currently has a number of laws related to various taxes imposed by
both federal and regional governmental authorities. Applicable taxes include
value added tax, corporation tax ("profit tax"), a number of turnover based
taxes, and payroll (social) taxes, together with others.
Laws related to these taxes have not been in force for significant periods,
in contrast to more developed market economies. Therefore, regulations are often
unclear, open to wide interpretation, and in some instances are conflicting.
Accordingly few precedents with regard to issues have been established. Often,
differing opinions regarding legal interpretation exist both among and within
government ministries and organisations (like the State Tax Service and its
various inspectorates), thus creating uncertainties and areas of conflict.
F-17
<PAGE> 73
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Tax declarations, together with other legal compliance areas (as examples,
customs and currency control matters) are subject to review and investigation by
a number of authorities, which are enabled by law to impose extremely severe
fines, penalties and interest charges. These facts create tax risks in Russia
substantially more significant than typically found in countries with more
developed tax systems.
PeterStar has had extensive tax inspections during the periods, which have
resulted in minimal penalties. These inspections have covered most of the taxes
applicable to PeterStar.
Management believes that it has adequately provided for tax liabilities in
the accompanying financial statements. However, the risk remains that the
relevant authorities could take differing positions with regard to
interpretative issues and the effect could be significant.
(c) Management Services
On January 1, 1995, WTC entered into a two year agreement with PLD, under
which PLD would provide certain consulting, informational services, management
support services and personnel expertise. Payments under this agreement were
$25,000 per month plus 3% of monthly gross revenues. This agreement was renewed
for a further year on January 1, 1997 and was terminated as of December 31,
1997. On January 1, 1998, ALTEL entered into an agreement directly with PLD
covering the same range of services, with payments of $25,000 per month plus
3.4% of monthly gross revenues. This agreement was for a one year term,
automatically renewable for successive one year periods unless terminated by
either party.
(d) Guarantees
In June 1996, PLD issued senior discount notes and convertible subordinated
notes with an aggregate principal amount of $149.5 million. The Company is a
guarantor of the debt under the terms of the related indentures.
As noted in its annual report on Form 10-K, PLD does not presently have
sufficient funds on hand to meet its current debt obligations. While management
of PLD believe that, as long as progress towards settlement of such obligations
is being made, the holders of such debt will agree to payment deferrals beyond
the present due date of April 30, 1999, there can be no assurance that the
holders will grant such deferrals or that they will not demand payment in full
of the obligations. PLD's failure to make payment in full could result in a
cross-default under and acceleration of the senior discount notes and
convertible subordinated notes for which the Company serves as a guarantor.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
(e) Motorola, USA
Motorola, USA is the major supplier of ALTEL's network equipment. Under the
supply contract, ALTEL files preliminary purchase orders for the delivery of
equipment with a prepayment of 5% of the cost of the purchase order. Once a
purchase order is presented, ALTEL may be exposed to potential liabilities to
Motorola, USA in the amount of $1.2 million as at December 31, 1998.
(f) The Year 2000 Issue (unaudited)
The Year 2000 problem (or "Millennium Bug") arises as a result of
information systems and/or equipment with embedded chips that incorrectly read
the date 2000 and incorrectly perform calculations related to it. Any
information technology that relies on a time or date function may not operate
correctly, producing an inaccurate date when dealing with dates beyond 1999.
F-18
<PAGE> 74
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company may experience the effects of the Year 2000 problem before, on,
or after January 1, 2000 and the effects on operations and financial reporting,
if not addressed, may range from minor errors to significant systems failures
which could affect the Company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
The Company is incurring significant costs in its efforts to mitigate any
possible effects of the Year 2000 problem.
F-19
<PAGE> 1
EXHIBIT 4.4
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated as of June 15,1998, among (i) PLD
TELEKOM INC. (formerly known as Petersburg Long Distance Inc.), a Delaware
corporation (formerly an Ontario company, that became a Delaware corporation
pursuant to Section 388 of the General Corporation Law of the State of Delaware
pursuant to a Certificate of Domestication filed in Delaware on February 28,
1997) (the "Company"), as issuer, (ii) NWE CAPITAL (CYPRUS) LIMITED, a Cypriot
corporation ("NWE Cyprus"), PLD ASSET LEASING LIMITED, a Cypriot corporation
("PLD Leasing"), PLD CAPITAL LIMITED, a Cypriot corporation ("PLD Capital"), PLD
CAPITAL ASSET (U.S.) INC., a Delaware corporation ("PLD Capital Asset"),
WIRELESS TECHNOLOGY CORPORATIONS LIMITED, a British Virgin Islands corporation
("WTC"), and BALTIC COMMUNICATIONS LIMITED, a Russian joint stock company of the
closed type ("BCL"), as Guarantors, (iii) CLAYTON WAITE, shareholder of NWE
Cyprus as nominee of the Company, and APROPOS INVESTMENTS LTD., shareholder of
PLD Leasing and PLD Capital as nominee of the Company, and (iv) THE BANK OF NEW
YORK, a New York banking corporation ("BONY"), as Senior Note Trustee under the
Senior Note Indenture and Convertible Note Trustee under the Convertible Note
Indenture (as each term is defined below).
RECITALS
WHEREAS, the Company, NWE Cyprus, PLD Leasing, PLD Capital, WTC, BCL
and BONY, as trustee thereunder (the "Senior Note Trustee"), have entered into
the Indenture (as supplemented and amended, the "Senior Note Indenture"), dated
as of May 31, 1996, pursuant to which the Company issued $123,000,000 in
principal amount at Stated Maturity of its 14% Senior Discount Notes due 2004
(the "Senior Notes"; capitalized terms used herein without definition have the
respective meanings defined in the Senior Note Indenture as in effect on the
date hereof);
WHEREAS, the Company, NWE Cyprus, PLD Leasing, PLD Capital, WTC, BCL
and BONY, as trustee thereunder (the "Convertible Note Trustee"), have entered
into the Indenture (as supplemented and amended, the "Convertible Note
Indenture"; together with the Senior Note Indenture, collectively the
"Indentures"), dated as of May 31, 1996, pursuant to which the Company issued
$26,500,000 in principal amount at Stated Maturity of its 9% Convertible
Subordinated Notes due 2006 (the "Convertible Notes");
WHEREAS, the Company has formed PLD Capital Asset for the limited
purpose of operating as a Leasing Company;
WHEREAS, Section 10.5 of each Indenture requires that the Company shall
cause each Subsidiary which, after the date of the Indentures, is required by
Section 4.10(a) of each
<PAGE> 2
Indenture to become a Guarantor to execute and deliver to the Trustee a
supplemental indenture in form and substance reasonably satisfactory to the
trustee which subjects such Restricted Subsidiary to the provisions of each of
the Indentures as a Guarantor;
WHEREAS, PLD Capital Asset desires to enter into this Second
Supplemental Indenture and to become bound by the terms of each of the
Indentures as a Guarantor;
WHEREAS, concurrently herewith, PLD Capital Asset and BONY, in its
capacities as Senior Note Trustee and Convertible Note Trustee and as collateral
agent thereunder (the "PLD Capital Asset Collateral Agent"), have entered into
the Leasing Company Security and Pledge Agreement (PLD Capital Asset) dated as
of the date hereof;
WHEREAS, concurrently herewith, PLD Capital Asset and BONY, in its
capacities as Senior Note Trustee and Convertible Note Trustee and as escrow
agent thereunder (the "PLD Capital Asset Escrow Agent"), have entered into the
Leasing Company Escrow Account Agreement (PLD Capital Asset) dated as of the
date hereof;
WHEREAS, all acts and things prescribed by the Indentures, by law and
by the Certificate of Incorporation and the Bylaws of the Company, of the
Guarantors and of BONY necessary to make this Second Supplemental Indenture a
valid instrument legally binding on the Company, the Guarantors and BONY in the
capacities in which it is a party hereto, in accordance with its terms, have
been duly done and performed;
WHEREAS, all conditions precedent to amend or supplement the
Indentures have been met;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Effect of this Second Supplemental Indenture. This Second
Supplemental Indenture is supplemental to the Indentures and does and shall be
deemed to form a part of, and shall be construed in connection with and as part
of, the respective Indentures for any and all purposes. Except as specifically
modified herein, the Indentures, the Senior Notes and the Convertible Notes are
in all respects ratified and confirmed and shall remain in full force and effect
in accordance with their terms.
SECTION 2. Agreement to Become a guarantor Under the Indentures. PLD
Capital Asset shall become party to each of the Indentures as a Guarantor
thereunder and agrees to be bound by all the terms binding on a Guarantor
thereunder.
SECTION 3. APPLICABLE LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-2-
<PAGE> 3
SECTION 4. Counterparts. The parties may sign any number of
counterparts or copies of this Second Supplemental Indenture. Each signed
counterpart or copy shall be an original, but all of such executed counterparts
or copies together shall represent the same agreement.
SECTION 5. Severability. In case one or more of the provisions in this
Second Supplemental Indenture shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, illegality and enforceability of
any such provision in every other respect and of the remaining provisions shall
not in any way be affected or impaired thereby, it being intended that all of
the provisions hereof shall be enforceable to the full extent provided by law.
SECTION 6. Headings. The headings, the language preceding the text of
the amendments and the sections in this Second Supplemental Indenture have been
inserted for convenience of reference only, are not considered a part hereof and
in no way modify or restrict any of the terms or provisions hereof.
[Signature pages to follow.]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereby have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
PLD TELEKOM INC. (formerly known as
Petersburg Long Distance Inc.)
By: /s/ Clayton A. Waite
-------------------------------------
Name: Clayton A. Waite
Title: Vice President
By: /s/ Clive Anderson
-------------------------------------
Name: Clive Anderson
Title: Senior Vice President
NWE CAPITAL (CYPRUS) WAITED
By: /s/ Clayton A. Waite
-------------------------------------
Name: Clayton A. Waite
Title: Authorized Representative
PLD ASSET LEASING LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
Name: Clayton A. Waite
Title: Director
PLD CAPITAL LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
Name: Clayton A. Waite
Title: Director
-4-
<PAGE> 5
PLD CAPITAL ASSET (U.S.) INC.
By: /s/ E. Clive Anderson
----------------------------------
Name: E. Clive Anderson
Title: Vice President
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
By: /s/ E. Clive Anderson
----------------------------------
Name: E. Clive Anderson
Title: Authorized Representative
BALTIC COMMUNICATIONS LIMITED
By: /s/ E. Clive Anderson
----------------------------------
Name: E. Clive Anderson
Title: Authorized Representative
/s/ Clayton A. Waite
-------------------------------------
CLAYTON WAITE
APROPOS INVESTMENTS LTD.
By: /s/ Clayton A. Waite
----------------------------------
Name: Clayton A. Waite
Title: Authorized Representative
-5-
<PAGE> 6
THE BANK OF NEW YORK, as Senior Note
Trustee and Convertible Note Trustee.
By: /s/ Thomas E. Tabor
---------------------------------
Name: Thomas E. Tabor
Title: Assistant Vice President
-6-
<PAGE> 1
EXHIBIT 4.5
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated as of January 12, 1999, among (i)
PLD TELEKOM INC., a Delaware corporation (the "Company"), as issuer, (ii) NWE
CAPITAL (CYPRUS) LIMITED, a Cypriot company ("NWE Cyprus"), PLD ASSET LEASING
LIMITED, a Cypriot company ("PLD Leasing"), PLD CAPITAL LIMITED, a Cypriot
company ("PLD Capital"), PLD CAPITAL ASSET (U.S.) INC., a Delaware corporation
("PLDCA"), WIRELESS TECHNOLOGY CORPORATIONS LIMITED, a British Virgin Islands
company ("WTC"), and BALTIC COMMUNICATIONS LIMITED, a Russian joint stock
company of the closed type ("BCL"), as Guarantors, (iii) CLAYTON A. WAITE,
shareholder of NWE Cyprus as nominee for the Company, and APROPOS INVESTMENTS
LTD., a Cypriot company, shareholder of PLD Leasing and PLD Capital as nominee
for the Company, and (iv) THE BANK OF NEW YORK, a New York banking corporation
("SONY"), as trustee under the Indentures (as defined below).
RECITALS
WHEREAS, the Company, NWE Cyprus, PLD Leasing, PLD Capital, WTC, BCL
and BONY, as trustee thereunder (the "Senior Note Trustee"), entered into an
indenture dated as of May 31, 1996 (as amended up to the date hereof, the
"Senior Note Indenture"), pursuant to which the Company issued $123,000,000 in
principal amount at Stated Maturity of its 14% Senior Discount Notes due 2004
(the "Senior Notes", capitalized terms used herein without definition, having
the respective meanings given to them in the Senior Note Indenture);
WHEREAS, the Company, NWE Cyprus, PLD Leasing, PLD Capital, WTC, BCL
and BONY, as trustee thereunder (the "Convertible Note Trustee"), entered into
an indenture dated as of May 31, 1996 (as amended up to the date hereof, the
"Convertible Note Indenture", and, together with the Senior Note Indenture, the
"Indentures", pursuant to which the Company issued $26,500,000 in principal
amount at Stated Maturity of its 9% Convertible Subordinated Notes due 2006 (the
"Convertible Notes");
WHEREAS, the Company and the Guarantors and each of the other parties
to the Indentures desire to amend the terms of Section 10.2 of each of the
Indentures, relating to the limitation of liability of each individual
Guarantor, in the manner hereinafter provided;
1
<PAGE> 2
WHEREAS, such amendments may be made without notice to or consent of
any Holder of Notes pursuant to Section 9.1 (b) and Section 9.1 (f) of each of
the Indentures;
WHEREAS, all acts and things prescribed by the Indentures, by law and
by the Certificate of Incorporation and the Bylaws of the Company, of the
Guarantors and of BONY necessary to make this Third Supplemental Indenture a
valid instrument legally binding on the Company, the Guarantors and BONY in the
capacities in which each is a party hereto, in accordance with its terms, have
been duly done and performed; and
WHEREAS, all conditions precedent to amend or supplement the Indentures
have been met;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Effect of this Third Supplemental Indenture. This Third
Supplemental Indenture is supplemental to the Indentures and does and shall be
deemed to form a part of, and shall be construed in connection with and as a
part of, the respective Indentures for any and all purposes. In the event of any
conflict or inconsistency between the terms of this Third Supplemental Indenture
and either of the Indentures, the terms of this Third Supplemental Indenture
shall govern. The Senior Notes, the Convertible Notes and the Indentures, as
amended by this Third Supplemental Indenture, are in all respects ratified and
confirmed and shall remain in full force and effect in accordance with their
terms, as amended hereby.
SECTION 2. Amendment of Section 10.2 of the Senior Note Indenture. The
second sentence of Section 10.2 of the Senior Note Indenture shall be amended so
as to read hereafter as follows:
"To effectuate the foregoing intention, each such Guarantor hereby
irrevocably agrees that the obligation of such Guarantor under its
Guarantee under this Article X shall be limited to the maximum amount
as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant
under such laws, (including, if applicable, its obligations under the
Convertible Notes) and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other
Guarantor under this Article X, result in the obligations of such
Guarantor in respect of such maximum amount not constituting a
fraudulent conveyance or fraudulent transfer or not otherwise being
void, voidable or unenforceable under any bankruptcy, reorganization,
receivership, insolvency, liquidation or other similar legislation or
legal principles under any applicable foreign law."
2
<PAGE> 3
SECTION 3. Amendment of Section 10.2 of Convertible Note Indenture. The
second sentence of Section 10.2 of the Convertible Note indenture shall be
amended so as to read hereafter as follows:
"To effectuate the foregoing intention, each such Guarantor hereby
irrevocably agrees that the obligation of such Guarantor under its
Guarantee under this Article X shall be limited to the maximum amount
as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant
under such laws, (including, if applicable, its obligations under the
Senior Notes) and after giving effect to any collections from, rights
to receive contribution from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor
under this Article X, result in the obligations of such Guarantor in
respect of such maximum amount not constituting a fraudulent conveyance
or fraudulent transfer or not otherwise being void, voidable or
unenforceable under any bankruptcy, reorganization, receivership,
insolvency, liquidation or other similar legislation or legal
principles under any applicable foreign law."
SECTION 4. APPLICABLE LAW. THIS THIRD SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Counterparts. The parties may sign any number of
counterparts or copies of this Third Supplemental Indenture. Each signed
counterpart or copy shall be an original, but all of such executed counterparts
or copies together shall represent the same agreement.
SECTION 6. Severability. In case one or more of the provisions of this
Third Supplemental Indenture shall be held invalid, illegal or unenforceable in
any respect for any reason, the validity, illegality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the fullest extent provided by law.
SECTION 7. Headings. The headings in this Third Supplemental Indenture
have been inserted for convenience of reference only, are not considered a part
3
<PAGE> 4
hereof and in no way modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed as of the date first written above.
PLD TELEKOM INC.
By: /s/ Clive Anderson
------------------------------------
NWE CAPITAL (CYPRUS) LIMITED
By: /s/ Clayton A. Waite
------------------------------------
PLD ASSET LEASING LIMITED
By: /s/ Clayton A. Waite
------------------------------------
PLD CAPITAL LIMITED
By: /s/ Clayton A. Waite
------------------------------------
PLD CAPITAL ASSET (U.S.) INC.
By: /s/ Clive Anderson
------------------------------------
WIRELESS TECHNOLOGY
CORPORATIONS LIMITED
By: /s/ Clive Anderson
------------------------------------
4
<PAGE> 5
BALTIC COMMUNICATIONS LIMITED
By: Signature Illegible
-------------------------------
/s/ Clayton A. Waite
-------------------------------
CLAYTON A. WAITE
APROPOS INVESTMENTS LTD.
By: /s/ Clayton A. Waite
-------------------------------
THE BANK OF NEW YORK, as Senior Note Trustee and Convertible Note Trustee, and
as collateral agent or escrow agent under the other Amended Documents
By: /s/ Ming J. Shiang
-------------------------------
MING J. SHIANG
Vice President
5
<PAGE> 1
EXHIBIT 4.6
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
CUSIP NO. 69340T-AA-8
14% SENIOR DISCOUNT NOTE DUE 2004
No. E-1
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO PLD TELEKOM INC. OR THE REGISTRAR FOR
REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS
BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
INTERESTS IN THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.6 OF THE
INDENTURE, DATED AS OF MAY 31, 1996, AS AMENDED, BETWEEN PLD TELEKOM
INC. (FORMERLY PETERSBURG LONG DISTANCE INC.), CERTAIN CORPORATIONS
ACTING AS GUARANTORS AND NAMED THEREIN, AND THE TRUSTEE NAMED THEREIN,
PURSUANT TO WHICH THIS NOTE WAS ISSUED.
<PAGE> 2
PLD Telekom Inc. (formerly Petersburg Long Distance Inc.), a
Delaware corporation (the "Company"), for value received, hereby promises to pay
to CEDE & CO., or its registered assigns, the principal sum indicated on
Schedule A hereof, on June 1, 2004.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth in this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purposes.
IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed under its corporate seal.
Dated: October 21, 1998
PLD TELEKOM INC.
By: /s/ James R.S. Hatt
Name: James R.S. Hatt
Title: President and
Chief Executive Officer
(Corporate Seal)
By: /s/ Simon Edwards
Name: Simon Edwards
Title: Senior Vice President and
Chief Financial Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THE BANK OF NEW YORK, as Trustee,
certifies that this is one of the
Notes referred to in the Indenture.
By: /s/ Thomas Tabor
Authorized Signatory
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
GLOBAL NOTE
REPRESENTING 14% SENIOR DISCOUNT NOTES DUE 2004
2
<PAGE> 3
1. Indenture.
This Note is one of a duly authorized issue of debt securities
of PLD Telekom Inc. (formerly Petersburg Long Distance Inc.), a Delaware
corporation (such corporation, and its successors and assigns under the
Indenture hereinafter referred to, being herein called the "Company"),
designated as its "14% Senior Discount Notes due 2004" (herein called the
"Notes") limited in aggregate principal amount at Stated Maturity to
$123,000,000 plus any additional amounts that may accrete from June 1, 1998
through November 30, 1998 (the "Total Principal Amount"), issued under an
indenture dated as of May 31, 1996 (as amended or supplemented from time to
time, the "Indenture") among the Company, the corporations acting as guarantors
and named therein (the "Guarantors"), and The Bank of New York, as trustee (the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Guarantors, the Trustee and each Holder of Notes and of the terms upon which
the Notes are, and are to be, authenticated and delivered. The summary of the
terms of this Note contained herein does not purport to be complete and is
qualified by reference to the Indenture. All terms used in this Note which are
not defined herein shall have the meanings assigned to them in the Indenture.
The Indenture imposes certain limitations on the ability of
the Company and its Restricted Subsidiaries to, among other things, make certain
Investments and other Restricted Payments, pay dividends and other
distributions, incur Indebtedness, enter into or permit certain transactions
with Affiliates, create Liens, enter into or permit certain Sale and Leaseback
Transactions, make Asset Sales and engage in businesses other than the
Telecommunications Business. The Indenture also imposes limitations on the
ability of the Company to consolidate or merge with or into any other Person or
permit any other Person to merge with or into the Company, or sell, convey,
assign, transfer, lease or otherwise dispose of all or substantially all of the
Property of the Company to any other Person. In addition, the Indenture imposes
limitations on the ability of Restricted Subsidiaries to issue guarantees and
Preferred Shares and to create consensual restrictions upon their ability to pay
dividends and make certain other payments to the Company.
2. Principal and Interest.
The Company promises to pay the Total Principal Amount to the
Holder hereof on June 1, 2004.
This Note is issued at a discounted principal value of
$87,697,300. This Note will accrete interest at a rate computed as if this Note
had been issued bearing interest at the rate of 14% per annum on May 31, 1996
(being a rate of 14.9445% per annum for the period from the Issue Date through
November 30, 1996), compounded semi-annually, to an aggregate principal amount
of $123,000,000 by December 1, 1998 (subject to the provisions of the next
paragraph). Thereafter interest on this Note will accrue at the rate of 14% per
annum (subject to the provisions of the next paragraph) and will be payable in
cash semi-annually on June 1 and December 1 of each year, commencing June 1,
1999, until the principal amount hereof is paid or made available for payment.
The effect of the foregoing is that this Note will bear interest at the rate of
14.9445% per annum from the Issue Date through November 30, 1996 and 14% per
annum thereafter (subject to the provisions of the next paragraph). The payment
of interest on this Note in respect of the period from the Issue Date to
December 1, 1998, however, will effectively be deferred until Maturity and such
deferred interest will be compounded semi-annually and added to the outstanding
principal amount of this Note. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
<PAGE> 4
Since the Company did not receive on or before May 31, 1998,
$20,000,000 in Cash Proceeds from a sale or sales of Qualified Stock of the
Company occurring subsequent to the Issue Date (other than Qualified Stock
issued upon the exercise of Warrants or upon conversion of the Convertible
Notes), this Note will bear interest at the rate of 14.5% per annum commencing
on June 1, 1998 until any Interest Payment Date prior to which the Company shall
have received such $20,000,000 in Cash Proceeds from such a sale of Qualified
Stock. Commencing on such Interest Payment Date, this Note will again bear
interest at the rate of 14% per annum. For purposes of this interest rate
adjustment provision, the Company will be deemed to have received such
$20,000,000 in Cash Proceeds if a Change of Control has occurred. The interest
so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, subject to certain exceptions provided in the Indenture, be paid to
the Person in whose name this Note (or the Note in exchange or substitution for
which this Note was issued) is registered at the close of business on the Record
Date for interest payable on such Interest Payment Date. The Record Date for any
Interest Payment Date is the close of business on May 15 or November 15, as the
case may be, whether or not a Business Day, immediately preceding the Interest
Payment Date on which such interest is payable. Any such interest not so
punctually paid or duly provided for ("Defaulted Interest") shall forthwith
cease to be payable to the Holder on such Record Date and shall be paid as
provided in Section 2.11 of the Indenture.
Each payment of interest in respect of an Interest Payment
Date will include interest (including Additional Amounts (as hereinafter
defined), if any, and Special Interest (as defined in the Indenture, if any)
accrued through the day before such Interest Payment Date. If an Interest
Payment Date falls on a day that is not a Business Day, the interest payment to
be made on such Interest Payment Date will be made on the next succeeding
Business Day with the same force and effect as if made on such Interest Payment
Date, and no additional interest will accrue as a result of such delayed
payment.
If this Note was issued in substitution for an Initial Note
pursuant to a Registered Exchange Offer on or prior to the Record Date for the
first Interest Payment Date following such substitution, accrued and unpaid
interest, if any, on the equivalent principal amount of the Initial Note in
substitution for which this Note was issued, up to but not including the date of
issuance of this Note, shall be paid on the first Interest Payment Date for this
Note to the Holder of this Note on the first Record Date with respect to this
Note. If this Note was issued in substitution for an Initial Note pursuant to a
Registered Exchange Offer subsequent to the Record Date for the first Interest
Payment Date following such substitution but on or prior to such Interest
Payment Date, then any accrued and unpaid interest with respect to the
equivalent principal amount of the Initial Note in substitution for which this
Note was issued and any accrued and unpaid interest on this Note, including
Additional Amounts, if any, and Special Interest, if any, through the day before
such Interest Payment Date shall be paid on such Interest Payment Date to the
Holder of such Initial Note on such Record Date. Any accretion of value with
respect to the principal amount at Stated Maturity of the Initial Note for which
this Note was issued up to but including the date of issuance of this Note shall
be included as Accreted Value with respect to this Note.
To the extent lawful, the Company shall pay interest on (i) if
prior to December 1, 1998, any overdue Accreted Value of (and premium, if any,
on) this Note, or if on or after December 1, 1998, any overdue principal of (and
premium, if any, on) this Note, at the interest rate borne on this Note, plus 1%
per annum, and (ii) Defaulted Interest (without regard to any applicable grace
period), including Additional Amounts, if any, and Special Interest, if any, at
the same rate. The Company's obligation pursuant to the previous sentence shall
apply whether such overdue amount is due at its Stated Maturity, as a result of
the Company's obligations pursuant to Section 3.6, Section 4.7 or Section 4.8 of
the Indenture, or otherwise.
<PAGE> 5
3. Additional Amounts.
Except to the extent required by law, any and all payments of,
or in respect of, this Note shall be made free and clear of and without
deduction for or on account of any and all present or future taxes, levies,
imposts, deductions, charges or withholdings and all liabilities with respect
thereto imposed by Canada, the Russian Federation, Cyprus or any other
jurisdiction with which the Company or any Guarantor has some connection
(including any jurisdiction (other than the United States of America) from or
through which payments under the Notes are made) or any political subdivision of
or any taxing authority in any such jurisdiction ("Canadian Taxes," "Russian
Taxes," "Cypriot Taxes" or "Other Taxes," respectively). If the Company or any
Guarantor shall be required by law to withhold or deduct any Canadian Taxes,
Russian Taxes, Cypriot Taxes or Other Taxes from or in respect of any sum
payable under this Note or pursuant to a Guarantee, the sum payable by the
Company or such Guarantor, as the case may be, thereunder shall be increased by
the amount ("Additional Amounts") necessary so that after making all required
withholdings and deductions, the Holder of this Note shall receive an amount
equal to the sum that it would have received had no such withholdings and
deductions been made; provided that any such sum shall not be paid in respect of
any Canadian Taxes, Russian Taxes, Cypriot Taxes or Other Taxes to the Holder of
this Note (an "Excluded Holder") (i) resulting from the beneficial owner of this
Note carrying on business or being deemed to carry on business in or through a
permanent establishment or fixed base in the relevant taxing jurisdiction or any
political subdivision thereof or having any other connection with the relevant
taxing jurisdiction or any political subdivision thereof or any taxing authority
therein other than the mere holding or owning of this Note, being a beneficiary
of the Guarantees, the receipt of any income or payments in respect of this Note
or the Guarantees or the enforcement of this Note or the Guarantees, (ii)
resulting from the Company or any Guarantor not dealing at arm's length (within
the meaning of the Income Tax Act (Canada)) with the Holder of this Note at the
time of such payment or at the time the amount of such payment is deemed to have
been paid or credited or (iii) that would not have been imposed but for the
presentation (where presentation is required) of this Note for payment more than
180 days after the date such payment became due and payable or was duly provided
for, whichever occurs later. The Company or the Guarantors, as applicable, will
also (i) make such withholding or deduction and (ii) remit the full amount
deducted or withheld to the relevant authority in accordance with applicable
law, and, in any such case, the Company will furnish to each Holder on whose
behalf an amount was so remitted, within 30 calendar days after the date the
payment of any Canadian Taxes, Russian Taxes, Cypriot Taxes or Other Taxes is
due pursuant to applicable law, certified copies of tax receipts evidencing such
payment by the Company or the Guarantors, as applicable. The Company will, upon
written request of each Holder (other than an Excluded Holder), reimburse each
such Holder for the amount of (i) any Canadian Taxes, Russian Taxes, Cypriot
Taxes or Other Taxes so levied or imposed and paid by such Holder as a result of
payments made under or with respect to any Notes, and (ii) any Canadian Taxes,
Russian Taxes, Cypriot Taxes or Other Taxes so levied or imposed with respect to
any reimbursement under the foregoing clause (i) so that the net amount received
by such Holder (net of payments made under or with respect to such Notes or the
Guarantees) after such reimbursement will not be less than the net amount the
Holder hereof would have received if Canadian Taxes, Russian Taxes, Cypriot
Taxes or Other Taxes on such reimbursement had not been imposed.
In addition, the Company or the Guarantors will pay any stamp,
issue, registration, documentary or other similar taxes and duties, including
interest and penalties, in respect of the creation, issue and offering of the
Notes payable in Canada, the United States, the Russian Federation or Cyprus or
any political subdivision thereof or taxing authority of or in the foregoing.
The Company and the Guarantors will also pay and indemnify the Holders from and
against all court fees and taxes or other taxes and duties, including interest
and penalties, paid by any of them in any jurisdiction in connection with any
action permitted to be taken by the Trustee or the Holders to create the Liens
on the Collateral and the Convertible Note Collateral and to enforce the
obligations of the Company or the Guarantors under the Notes, the Indenture, the
Guarantees, the Collateral Documents or the Convertible Note Collateral
Documents.
<PAGE> 6
4. Method of Payment.
The Company, through the Paying Agent, shall pay interest on
this Note to the registered Holder of this Note, as provided above. The Holder
must surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States of America
that at the time of payment is legal tender for payment of all debts public and
private. Principal and interest will be payable at the office of the Paying
Agent but, at the option of the Company, interest may be paid by check mailed to
the registered Holders at their registered addresses.
5. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar
under the Indenture. The Company may, upon written notice to the Trustee,
appoint and change any Paying Agent or Registrar. The Company or any of its
subsidiaries may act as Paying Agent or Registrar.
6. Optional Redemption.
Except as set forth in the following paragraph, the Notes may
not be redeemed prior to June 13, 2001. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 calendar days' nor more than 60 calendar days' notice, at the prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest thereon (if any), Additional Amounts (if any) and Special
Interest (if any) to the applicable Redemption Date, if redeemed during the
period from June 13, 2001 through May 31, 2002 at a percentage of 108.000% and
thereafter during the twelve-month period beginning June 1 of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 104.000%
2003 and thereafter 100.000%
</TABLE>
The Notes may be redeemed, at the option of the Company, in whole but
not in part, upon not less than 30 or more than 60 days' notice to the Holders
in accordance with the terms of the Indenture, at a redemption price equal to
the Accreted Value thereof, plus accrued and unpaid interest, if any, (including
Additional Amounts, if any, and Special Interest, if any) to the applicable
Redemption Date (subject to the right of Holders of record on the relevant
Record Date to receive interest (including Additional Amounts, if any, and
Special Interest, if any) due on the Interest Payment Date that is on or prior
to the Redemption Date) if, as a result of any change in or amendment to the
laws or the regulations or rulings promulgated thereunder of Canada, Cyprus, the
Russian Federation or any other jurisdiction with which the Company or any
Guarantor has any connection (other than as a result of a merger or
consolidation of the Company with or into a newly formed corporation solely for
the purpose of moving the Company's domicile out of Canada) or any political
subdivision thereof or any authority thereof or having power to tax therein, or
any change in the application or official interpretation of such laws or
regulations, or any change in administrative policy or assessing practice of the
applicable taxing authority, which change or amendment becomes effective on or
after May 24, 1996, the Company or the Guarantors (if the Guarantees are called)
are or would be required on the next succeeding Interest Payment Date to pay
Additional Amounts with respect to the Notes or the Guarantees and the payment
of such Additional Amounts cannot be avoided by the use of any reasonable
measures available to the Company or the Guarantors, as the case may be. The
Company will also pay to the Holders on the Redemption Date any Additional
Amounts payable in respect of the period ending on the Redemption Date. Prior to
the publication of any notice of redemption pursuant to this provision, which in
no event will be given earlier than 90 days prior to the earliest date on which
the Company or the Guarantors,
<PAGE> 7
as the case may be, would be required to pay such Additional Amounts were a
payment in respect of the Notes then due, the Company shall deliver to the
Trustee (i) an Officers' Certificate stating that the obligation to pay such
Additional Amounts cannot be avoided by the Company or the Guarantors, as the
case may be, taking reasonable measures and (ii) an Opinion of Counsel,
independent of the Company and the Guarantors and approved by the Trustee, to
the effect that the Company or the Guarantors have or will become obligated to
pay such Additional Amounts as a result of such change or amendment. Such
notice, once delivered by the Company to the Trustee, will be irrevocable. The
Trustee shall accept such Officers' Certificate and Opinion of Counsel as
sufficient evidence of the satisfaction of the condition precedent set forth in
clauses (i) and (ii) above, in which event it shall be conclusive and binding on
the Holders.
7. Notice of Redemption.
At least 30 calendar days but not more than 60 calendar days
before a Redemption Date, the Company will send a notice of redemption, first
class mail, postage prepaid, to Holders of Notes to be redeemed at the addresses
of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time,
the Notes to be redeemed will be chosen by the Trustee in accordance with the
Indenture. If any Note is redeemed subsequent to a Record Date with respect to
any Interest Payment Date specified above and on or prior to such Interest
Payment Date, then any accrued interest (including Additional Amounts, if any,
and Special Interest, if any) will be paid on such Interest Payment Date to the
Holder of the Note at the close of business on such Record Date. If money in an
amount sufficient to pay the Redemption Price of all Notes (or portions thereof)
to be redeemed on the Redemption Date is deposited with the Paying Agent on or
before the applicable Redemption Date and certain other conditions are
satisfied, interest (including Additional Amounts, if any, and Special Interest,
if any) on the Notes to be redeemed on the applicable Redemption Date will cease
to accrue.
The Notes are not subject to any sinking fund.
8. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to purchase such Holder's
Notes, in whole or in part in a principal amount that is an integral multiple of
$1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal
to 101% of the Accreted Value thereof on any Change of Control Payment Date,
plus accrued and unpaid interest, if any, Additional Amounts, if any, and
Special Interest, if any, to the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the
Company shall send, or cause to be sent, by first class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder of Notes. The Holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Require Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest, Additional Amounts, if any, and Special Interest, if any, from
and after the Change of Control Payment Date.
9. Repurchase at the Option of Holders upon Asset Sale.
Subject to the limitations set forth in the next following
paragraph, if at any time the Company or any Restricted Subsidiary engages in
any Asset Sale, as a result of which the aggregate amount
<PAGE> 8
of Excess Proceeds exceeds $5,000,000, the Company shall, within 30 calendar
days of the date the amount of Excess Proceeds exceeds $5,000,000, use the
then-existing Excess Proceeds to make an offer to purchase from all Holders, on
a pro rata basis, Notes in an aggregate principal amount equal to the maximum
principal amount that may be purchased out of the then-existing Excess Proceeds,
at a purchase price in cash equal to 100% of the Accreted Value thereof on any
Asset Sale Payment Date plus accrued and unpaid interest thereon, if any,
Additional Amounts, if any, and Special Interest, if any, to the Asset Sale
Payment Date, provided that Excess Proceeds attributed to an Asset Sale of
Convertible Note Collateral (as defined on the Indenture) must be used first to
make an "Asset Sale Offer" pursuant to the Convertible Note Indenture (as
defined in the Indenture). Upon completion of an Asset Sale Offer (including
payment of the Asset Sale Purchase Price for accepted Notes), any surplus Excess
Proceeds that were the subject of such offer shall cease to be Excess Proceeds,
and the Company may then use such amounts for general corporate purposes,
including the making of an "Asset Sale Offer" pursuant to the Convertible Note
Indenture.
Notwithstanding the paragraph above, the Company will not be
obligated to repurchase Notes in connection with an Asset Sale Offer
representing in aggregate more than 25% of the original aggregate principal
amount of the Notes (which original aggregate principal amount shall for these
purposes be the aggregate amount originally allocated to the Notes, net of any
amounts allocated to the Warrants, without any adjustment whatsoever) prior to
the date following the Five Year Date, and the original aggregate principal
amount of Notes repurchased in connection with any Asset Sale Offer having a
purchase date prior to the date following the Five Year Date shall represent no
more than 25% of the original aggregate principal amount of the Notes less the
original aggregate principal amount of Notes purchased pursuant to Asset Sale
Offers relating to all prior Asset Sales. To the extent that the amount of
Excess Proceeds exceeds the amount of Notes purchased because of the limitation
imposed by the immediately preceding sentence (the amount of such excess being
the "Aggregate Unused Proceeds"), such Aggregate Unused Proceeds shall
constitute Excess Proceeds for purposes of the first Asset Sale Offer that is
made after the Five Year Date and, in the event the amount of the Aggregate
Unused Proceeds exceeds $5,000,000, promptly after the Five Year Date, the
Company shall commence an Asset Sale Offer on a pro rata basis for an aggregate
principal amount of Notes equal to the Aggregate Unused Proceeds (and any other
Excess Proceeds that arise between the Five Year Date and such Asset Sale Offer)
at a purchase price equal to 100% of the Accreted Value of the Notes, plus
accrued interest, if any, Additional Amounts, if any, and Special Interest, if
any, to the date of purchase.
Within 30 calendar days of the date the amount of Excess
Proceeds exceeds $5,000,000, the Company shall send, or cause to be sent, by
first class mail, postage prepaid, a notice regarding the Asset Sale Offer to
each Holder of Notes. The Holder of this Note may elect to have this Note or a
portion hereof in an authorized denomination purchased by completing the form
entitled "Option of Holder to Require Purchase" appearing below and tendering
this Note pursuant to the Asset Sale Offer. Unless the Company defaults in the
payment of the Offer Purchase Price with respect thereto, all Notes or portions
thereof selected for payment pursuant to the Asset Sale Offer will cease to
accrue interest, Additional Amounts, if any, and Special Interest, if any, from
and after the Asset Sale Payment Date.
10. The Global Note.
So long as this Global Note is registered in the name of the
Depositary or its nominee, members of, or participants in, the Depositary
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depositary or the Trustee as its
custodian, and the Depositary may be treated by the Company, the Guarantors, the
Trustee and any agent of the Company, the Guarantors or the Trustee as the
absolute owner of this Global Note for all purposes. Notwithstanding the
foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization
<PAGE> 9
furnished by the Depositary or (ii) impair, as between the Depositary and its
Agent Members, the operation of customary practices governing the exercise of
the rights of a Holder of Notes.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder of Notes is entitled to take under the Indenture or the Notes.
Whenever, as a result of an optional redemption of Notes by
the Company, a Change of Control Offer, an Asset Sale Offer or an exchange for
Certificated Notes, this Global Note is redeemed, repurchased or exchanged in
part, this Global Note shall be surrendered by the Holder thereof to the Trustee
who shall cause an adjustment to be made to Schedule A hereof so that the
principal amount of this Global Note will be equal to the portion not redeemed,
repurchased or exchanged and shall thereafter return this Global Note to such
Holder; provided that this Global Note shall be in a principal amount at Stated
Maturity of $1,000 or an integral multiple of $1,000.
11. Transfer and Exchange.
The Holder of this Global Note shall, by its acceptance of
this Global Note, agree that transfers of beneficial interests in this Global
Note may be effected only through a book entry system maintained by such Holder
(or its agent), and that ownership of a beneficial interest in the Notes
represented thereby shall be required to be reflected in book entry form.
Transfers of this Global Note shall be limited to transfers in
whole, and not in part, to the Depositary, its successors and their respective
nominees. Interests of beneficial owners in this Global Note may be transferred
in accordance with the rules and procedures of the Depositary (or its
successors).
This Global Note will be exchanged by the Company for one or
more Certificated Notes if (a) the Depositary (i) has notified the Company that
it is unwilling or unable to continue as, or ceases to be, a "Clearing Agency"
registered under Section 17A of the Exchange Act and (ii) a successor to the
Depositary registered as a "Clearing Agency" under Section 17A of the Exchange
Act is not appointed by the Company within 90 calendar days or (b) the
Depositary is at any time unwilling or unable to continue as Depositary and a
successor to the Depositary is not able to be appointed by the Company within 90
calendar days. If an Event of Default occurs and is continuing, the Company
shall, at the request of the Holder hereof, exchange all or part of this Global
Note for one or more Certificated Notes; provided that the principal amount at
Stated Maturity of each of such Certificated Notes and this Global Note, after
such exchange, shall be $1,000 or an integral multiple thereof. Whenever this
Global Note is exchanged as a whole for one or more Certificated Notes, it shall
be surrendered by the Holder to the Trustee for cancellation. Whenever this
Global Note is exchanged in part for one or more Certificated Notes, it shall be
surrendered by the Holder to the Trustee and the Trustee shall make the
appropriate notations thereon pursuant to Section 2.5(c) of the Indenture. All
Certificated Notes issued in exchange for this Global Note or any portion hereof
shall be registered in such names as the Depositary shall instruct the Trustee.
Any Certificated Notes issued in exchange for this Global Note shall include the
Unit Legend except as set forth in Section 2.6(j) of the Indenture. Interests in
this Global Note may not be exchanged for Certificated Notes other than as
provided in this paragraph.
Following the suspension or termination of a Shelf Registration
Statement, the Holder of this Note (or holders of interests therein) and
prospective purchasers designated by such Holder (or such holders of interests
therein) shall have the right to obtain from the Company upon request by such
Holder (or such holders of interests) or prospective purchasers, during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, or exempt from reporting pursuant to 12g3-2(b) under the
<PAGE> 10
Exchange Act, the information required by paragraph (d)(4)(i) of Rule 144 in
connection with any transfer or proposed transfer of such Note or interest.
12. Denominations.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 of principal amount at Stated Maturity and integral
multiples thereof.
13. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment unless such abandoned property
law designates another Person.
14. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may
terminate some or all of its and the Guarantors' obligations under the Notes,
the Guarantees, the Indenture, the Collateral Documents and the Convertible Note
Collateral Documents if the Company irrevocably deposits with the Trustee money
or U.S. Government Obligations for the payment of principal and interest on the
Notes to redemption or maturity, as the case may be.
15. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture, the Notes, the Collateral Documents and the Convertible Note
Collateral Documents may be amended with the written consent of the Holders of
at least a majority in principal amount at Stated Maturity of the outstanding
Notes and (ii) any past Default and its consequences may be waived with the
written consent of the Holders of at least a majority in principal amount at
Stated Maturity of the outstanding Notes. Without the consent of any Holder of
Notes, the Company, the Guarantors and the Trustee may amend the Indenture, the
Notes, the Collateral Documents and the Convertible Note Collateral Document (i)
to evidence the succession of another Person to the Company or the Guarantors,
as applicable, and the assumption by such successor of the covenants of the
Company or the Guarantors under the Notes, the Indenture, the Collateral
Documents or the Convertible Note Collateral Documents; (ii) to add additional
covenants or to surrender rights and powers conferred on the Company or the
Guarantors by the Indenture, the Collateral Documents and the Convertible Note
Collateral Documents; (iii) to add any additional Events of Default; (iv) to
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (v) to evidence and provide for the acceptance of appointment under the
Indenture of a successor Trustee; (vi) to add additional security for the Notes
and/or the Guarantees; (vii) to cure any ambiguity in the Indenture, the
Collateral Documents or the Convertible Note Collateral Documents, to correct or
supplement any provision in the Indenture, the Collateral Documents or the
Convertible Note Collateral Documents which may be inconsistent with any other
provision therein or to add any other provisions with respect to matters or
questions arising under the Indenture, the Collateral Documents or the
Convertible Note Collateral Documents, provided that such actions shall not
adversely affect the interests of the Holders in any material respect; or (viii)
to comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
<PAGE> 11
16. Defaults and Remedies.
Events of Default under the Indenture include in summary form:
default in payment of interest, including Additional Amounts, if any, or Special
Interest, if any, on the Notes for 30 days; default in payment of principal on
the Notes; failure to comply with certain of the covenants in the Indenture,
including the Change of Control covenant, the Asset Sale covenant or the
Restrictive Payments covenant; failure by the Company to comply with certain of
its other agreements in the Indenture or the Notes or any Collateral Document or
any Convertible Note Collateral Document or a breach of a representation or
warranty in any Collateral Document or any Convertible Note Collateral Document
and the continuance of such default or breach for 45 days after notice;
expropriation of assets of the Company or any of its Restricted Subsidiaries
having a book value, less the book value of the expropriation proceeds,
constituting more than 15% of the book value, on a consolidated basis, of the
Company's assets minus current assets; defaults in the payment of certain other
Indebtedness, or defaults, other than such payment defaults, which result in the
acceleration prior to express maturity of certain other Indebtedness or which
consist of the failure to pay at maturity; certain final judgments which remain
undischarged, unwaived, unappealed, unbonded, unstayed or unsatisfied; certain
events of bankruptcy or insolvency; failure of a Guarantee, a Collateral
Document or any Convertible Note Collateral Document to be in effect, the denial
of obligations under a Guarantee, a Collateral Document, a Convertible Note
Collateral Document or the Notes by the Company or the Guarantors party thereto
or the failure of the Notes and the Guarantees to be secured by the theretofore
perfected security interests in the Collateral or the Convertible Note
Collateral (except as permitted by the Indenture, the Collateral Documents or
the Convertible Note Collateral Documents), which in each circumstance continues
for 30 days after notice. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount at Stated Maturity of
the Notes, subject to certain limitations, may declare all the Notes to be
immediately due and payable. Certain events of bankruptcy or insolvency are
Events of Default and shall result in the Notes being immediately due and
payable upon the occurrence of such Events of Default without any further act of
the Trustee or any Holder.
Holders of Notes may not enforce the Indenture, the
Guarantees, the Notes, the Collateral Documents or the Convertible Note
Collateral Documents except as provided in the Indenture. The Trustee may refuse
to enforce the Indenture, the Notes, the Guarantees, the Collateral Documents or
the Convertible Note Collateral Documents unless it receives reasonable
indemnity or security. Subject to certain limitations, Holders of a Majority in
principal amount at Stated Maturity of the Notes may direct the Trustee in its
exercise of any trust or power under the Indenture, the Collateral Documents and
the Convertible Note Collateral Documents. The Holders of a majority in
principal amount at Stated Maturity of the outstanding Notes, by written notice
to the Company and the Trustee, may rescind any declaration of acceleration and
its consequences if the rescission would not conflict with any judgment or
decree, and if all Events of Default have been cured or waived except nonpayment
of principal and interest (including Additional Amounts, if any, and Special
Interest, if any) that has become due solely because of the acceleration.
17. Collateral Documents.
As provided in the Indenture, the Collateral Documents and the
Convertible Note Collateral Documents and subject to certain limitations set
forth therein, the obligations of the Company and the Guarantors under the
Indenture, the Collateral Documents and the Convertible Note Collateral
Documents are secured by the Collateral and the Convertible Note Collateral as
provided in the Collateral Documents and the Convertible Note Collateral
Documents. Each Holder, by accepting a Note, agrees to be bound to all terms and
provisions of the Collateral Documents and the Convertible Note Collateral
Documents, as the same may be amended from time to time. The Liens created under
the Collateral Documents shall be released upon the terms and subject to the
conditions set forth in the Indenture, the Collateral Documents and the
Convertible Note Collateral Documents.
<PAGE> 12
18. Individual Rights of Trustee.
Subject to certain limitations imposed by the Trust Indenture
Act, the Trustee or any Paying Agent or Registrar, in its individual or any
other capacity, may become the owner or pledgee of Notes and may otherwise deal
with the Company, the Guarantors, its Restricted Subsidiaries or its Affiliates
with the same rights it would have if it were not Trustee, Paying Agent or
Registrar, as the case may be, under the Indenture.
19. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of
the Company or any Guarantor, as such, shall have any liability for any
obligations of the Company or the Guarantors under the Notes, the Guarantees or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of his or her status as a
director, officer, employee, incorporator or stockholder of the Company or any
Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
20. Governing Law.
THE INDENTURE, THE GUARANTEES AND THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
21. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
23. Subordination.
The indebtedness evidenced by this Note is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Note is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
<PAGE> 13
The Company will furnish to any Holder of Notes upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Note. Requests may be made to:
PLD Telekom Inc.
680 Fifth Avenue
24th Floor
New York, New York 10019
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the
Guarantors (as defined in the Indenture referred to in this Note and each
hereinafter referred to as a "Guarantor," which term includes any successor or
additional Guarantor under the Indenture) have, jointly and severally,
irrevocably and unconditionally guaranteed (a) the due and punctual payment of
the principal (and premium, if any) of and interest (including Additional
Amounts, if any, and Special Interest, if any) on the Notes, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, purchase or otherwise, (b) the due and punctual payment of
interest on the overdue principal of and interest (including Additional Amounts,
if any, and Special Interest, if any) on the Notes, if any, to the extent
lawful, (c) the due and punctual performance of all other obligations of the
Company and the Guarantors to the Holders under the Indenture, the Notes, the
Collateral Documents and the Convertible Note Collateral Documents and (d) in
case of any extension of time of payment or renewal of any Notes or any of such
other obligations, the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, purchase or otherwise. Capitalized terms used herein shall
have the same meanings assigned to them in the Indenture unless otherwise
indicated.
Payment on each Note is guaranteed jointly and severally, by
the Guarantors pursuant to Article X of the Indenture and reference is made to
such Indenture for the precise terms of the Guarantees.
The obligations of each Guarantor are limited to the lesser of
(a) an amount equal to such Guarantor's Adjusted Net Assets as of the date of
the Guarantee and (b) the maximum amount as will, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such Guarantor
(including, if applicable, its obligations under the Convertible Notes), and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent conveyance or fraudulent transfer under
federal or state law or not otherwise being void, voidable or unenforceable
under any similar other bankruptcy, receivership, insolvency, liquidation or
other similar legislation or legal principles under applicable foreign law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Guarantor.
Certain of the Guarantors may be released from their
Guarantees upon the terms and subject to the conditions provided in the
Indenture.
<PAGE> 14
The Guarantee shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof and in the Indenture.
NWE CAPITAL (CYPRUS) LIMITED
By: /s/ Clayton A. Waite
PLD ASSET LEASING LIMITED
By: /s/ Clayton A. Waite
PLD CAPITAL LIMITED
By: /s/ Clayton A. Waite
PLD CAPITAL ASSET (U.S.) INC.
By: /s/ E. Clive Anderson
BALTIC COMMUNICATIONS LIMITED
By: /s/ E. Clive Anderson
WIRELESS TECHNOLOGY CORPORATIONS
LIMITED
By: /s/ E. Clive Anderson
<PAGE> 15
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at Stated Maturity of this Note shall be
$123,000,000.00. The following decreases/increase in the principal amount at
maturity of this Note have been made:
<TABLE>
<CAPTION>
TOTAL PRINCIPAL
AMOUNT AT NOTATION
DECREASE IN INCREASE IN MATURITY MADE BY
DATE OF PRINCIPAL PRINCIPAL FOLLOWING SUCH OR ON
DECREASE/ AMOUNT AT AMOUNT AT DECREASE/ BEHALF OF
INCREASE MATURITY MATURITY INCREASE TRUSTEE
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 16
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
(Please print name and address of transferee)
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ________________________ Attorney to transfer
this Note on the Security Register, with full power of substitution.
Dated: _______________________
______________________________ ________________________ Signature of Holder
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, in which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
<PAGE> 17
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[ ] In connection with the Change of Control Offer made pursuant to
Section 4.7 of the Indenture, the undersigned hereby elects to have
[ ] the entire principal amount
[ ] $_____________________ ($1,000 in principal amount at Stated
Maturity or an integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs
the Trustee or Paying Agent to pay it or __________________an
amount in cash equal to 101% of the Accreted Value of this
Note, plus accrued and unpaid interest thereon, if any, and
Additional Amounts, if any, and Special Interest, if any, to
the Change of Control Payment Date.
[ ] In connection with the Asset Sale Offer made pursuant to Section 4.8
of the Indenture, the undersigned hereby elects to have
[ ] the entire principal amount
[ ] $_____________________ ($1,000 in principal amount at Stated
Maturity or an integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or ______________________an
amount in cash equal to 100% of the Accreted Value of this
Note, plus accrued and unpaid interest thereon, if any, and
Additional Amounts, if any, and Special Interest, if any, to
the Asset Sale Payment Date.
Dated: _______________________
______________________________ ________________________ Signature of Holder
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, in which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
<PAGE> 1
EXHIBIT 4.7
PETERSBURG LONG DISTANCE INC.
No. CG 1 CUSIP No. 71623PAC6
9% CONVERTIBLE SUBORDINATED NOTE DUE 2006
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) AND (B) IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED
STATES AND THE PROVINCES OF CANADA.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION, TO PETERSBURG LONG DISTANCE INC. OR THE
REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY NOTE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN
PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.6 OF THE INDENTURE, DATED AS OF MAY 31, 1996, AMONG PETERSBURG LONG
DISTANCE INC., CERTAIN CORPORATIONS ACTING AS GUARANTORS AND NAMED THEREIN AND
THE TRUSTEE NAMED THEREIN, PURSUANT TO WHICH THIS NOTE WAS ISSUED.
<PAGE> 2
FOR THE PURPOSES OF THE INTEREST ACT (CANADA) AND DISCLOSURE THEREUNDER,
WHENEVER INTEREST, ADDITIONAL AMOUNTS, SPECIAL INTEREST, OR DEFAULTED INTEREST
OR INTEREST ON DEFAULTED INTEREST RELATING TO THE NOTES, IS TO BE CALCULATED ON
THE BASIS OF A YEAR OF 360 DAYS OR ANY OTHER PERIOD OF TIME THAT IS LESS THAN A
CALENDAR YEAR, THE YEARLY RATE OF INTEREST TO WHICH THE RATE DETERMINED PURSUANT
TO SUCH CALCULATION IS EQUIVALENT IS THE RATE SO DETERMINED MULTIPLIED BY THE
ACTUAL NUMBER OF DAYS IN THE CALENDAR YEAR IN WHICH THE SAME IS TO BE
ASCERTAINED AND DIVIDED BY EITHER 360 OR SUCH OTHER PERIOD OF TIME, AS THE CASE
MAY BE. THE RATE ACCRUING ON THE NOTES FOR PAYMENT PURPOSES SHALL BE DETERMINED
AS SET FORTH ON THE REVERSE HEREOF.
Petersburg Long Distance Inc., an Ontario corporation, for
value received, hereby promises to pay to CEDE & Co., or its registered assigns,
the principal sum indicated on Schedule A hereof, on June 1, 2006.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purposes.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
Dated: June 12, 1996
PETERSBURG LONG DISTANCE INC.
By: /s/ James Hatt
-------------------------------------
Name: James Hatt
Title: Chief Executive Officer
By: /s/ Simon Edwards
-------------------------------------
Name: Simon Edwards
Title: Chief Financial Officer
2
<PAGE> 3
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By: /s/ Steven Torgeson
----------------------------------
Authorized Signatory
June 12, 1996
3
<PAGE> 4
PETERSBURG LONG DISTANCE INC.
9% CONVERTIBLE SUBORDINATED NOTE DUE 2006
1. Indenture.
This Note is one of a duly authorized issue of debt securities
of Petersburg Long Distance Inc., an Ontario corporation (such corporation, and
its successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), designated as its "9% Convertible Subordinated
Notes due 2006" (herein called the "Notes") limited in aggregate principal
amount at Stated Maturity to $26,500,000, issued under an indenture dated as of
May 31, 1996 (as amended or supplemented from time to time, the "Indenture")
among the Company, the corporations acting as guarantors and named therein (the
"Guarantors") and The Bank of New York, as trustee (the "Trustee," which term
includes any successor Trustee under the Indenture), to which Indenture
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Guarantors, the
Trustee and each Holder of Notes and of the terms upon which the Notes are, and
are to be, authenticated and delivered. The summary of the terms of this Note
contained herein does not purport to be complete and is qualified by reference
to the Indenture. All terms used in this Note which are not defined herein shall
have the meanings assigned to them in the Indenture.
The Indenture imposes certain limitations on the ability of
the Company and its Restricted Subsidiaries to make Asset Sales. The Indenture
also imposes limitations on the ability of the Company to consolidate or merge
with or into any other Person or permit any other Person to merge with or into
the Company, or sell, convey, assign, transfer, lease or otherwise dispose of
all or substantially all of the Property of the Company to any other Person. The
Indenture does not contain any restrictions on the incurrence of indebtedness,
the creation of liens or the payment of dividends or the making of
distributions, investments or certain other restricted payments or any financial
covenants.
2. Principal and Interest.
The Company promises to pay the principal amount set forth on
Schedule A of this Note to the Holder hereof on June 1, 2006.
This Note will commence to accrue interest from the Issue Date
at a rate computed as if this Note had been issued bearing interest at the rate
of 9% per annum on May 31, 1996 (being the rate of 9.5858% per annum for the
period from the Issue Date through November 30, 1996), and this Note will bear
interest at the rate of 9% per annum from December 1, 1996. The Company shall
pay such interest from the Issue Date or from the most recent Interest Payment
Date thereafter to which interest has been paid or
4
<PAGE> 5
duly provided for semi-annually on June 1 and December 1 of each year,
commencing on December 1, 1996, in cash, to the Holder hereof until the
principal amount hereof is paid or made available for payment. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, subject to certain exceptions provided in the Indenture, be paid to the
Person in whose name this Note (or the Note in exchange or substitution for
which this Note was issued) is registered at the close of business on the Record
Date for interest payable on such Interest Date. The Record Date for any
Interest Payment Date is the close of business on May 15 or November 15, as the
case may be, whether or not a Business Day, immediately preceding the Interest
Payment Date on which such interest is payable. Any such interest not so
punctually paid or duly provided for ("Defaulted Interest") shall forthwith
cease to be payable to the Holder on such Record Date and shall be paid as
provided in Section 2.11 of the Indenture. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
Each payment of interest in respect of an Interest Payment
Date will include interest (including Additional Amounts (as hereinafter
defined), if any, and Special Interest (as hereinafter defined), if any),
accrued through the day before such Interest Payment Date. If an Interest
Payment Date falls on a day that is not a Business Day, the interest payment to
be made on such Interest Payment Date will be made on the next succeeding
Business Day with the same force and effect as if made on such Interest Payment
Date, and no additional interest will accrue as a result of such delayed
payment.
To the extent lawful, the Company shall pay interest on (i)any
overdue principal of (and premium, if any, on) this Note, at the interest rate
borne on this Note, plus 1% per annum, and (ii) Defaulted Interest (without
regard to any applicable grace period), at the same rate. The Company's
obligation pursuant to the previous sentence shall apply whether such overdue
amount is due at its Stated Maturity, as a result of the Company's obligations
pursuant to Section 3.6, Section 4.7, Section 4.8 or Section 4.14 of the
Indenture, or otherwise.
3. Additional Amounts.
Except to the extent required by law, any and all payments of,
or in respect of, this Note shall be made free and clear of and without
deduction for or on account of any and all present or future taxes, levies,
imposts, deductions, charges or withholdings and all liabilities with respect
thereto imposed by Canada, the Russian Federation, Cyprus or any other
jurisdiction with which the Company or any Guarantor has some connection
(including any jurisdiction (other than the United States of America) from or
through which payments under the Notes are made) or any political subdivision of
or any taxing authority in any such jurisdiction ("Canadian Taxes," "Russian
Taxes," "Cypriot Taxes" or "Other Taxes," respectively). If the Company or any
Guarantor shall be required by law to withhold or deduct any Canadian Taxes,
Russian Taxes, Cypriot Taxes or Other Taxes from or in respect of any sum
payable under this Note or pursuant to a Guarantee, the sum payable by the
Company or such Guarantor, as the case may be, thereunder shall be increased by
the amount ("Additional Amounts") necessary so that after making all required
withholdings and deductions, the Holder of this Note shall receive an amount
5
<PAGE> 6
equal to the sum that it would have received had no such withholdings and
deductions been made; provided that any such sum shall not be paid in respect of
any Canadian Taxes, Russian Taxes, Cypriot Taxes or Other Taxes to the Holder of
this Note (an "Excluded Holder") (i) resulting from the beneficial owner of this
Note carrying on business or being deemed to carry on business in or through a
permanent establishment or fixed base in the relevant taxing jurisdiction or any
political subdivision thereof or having any other connection with the relevant
taxing jurisdiction or any political subdivision thereof or any taxing authority
therein other than the mere holding or owning of this Note, being a beneficiary
of the Guarantees, the receipt of any income or payments in respect of this Note
or the Guarantees or the enforcement of this Note or the Guarantees, (ii)
resulting from the Company or any Guarantor not dealing at arm's length (within
the meaning of the Income Tax Act (Canada)), with the Holder of this Note at the
time of such payment or at the time the amount of such payment is deemed to have
been paid or credited or (iii) that would not have been imposed but for the
presentation (where presentation is required) of this Note for payment more than
180 days after the date such payment became due and payable or was duly provided
for, whichever occurs later. The Company or the Guarantors, as applicable, will
also (i) make such withholding or deduction and (ii) remit the full amount
deducted or withheld to the relevant authority in accordance with applicable
law, and, in any such case, the Company will furnish to each Holder on whose
behalf an amount was so remitted, within 30 calendar days after the date the
payment of any Canadian Taxes, Russian Taxes, Cypriot Taxes or Other Taxes is
due pursuant to applicable law, certified copies of tax receipts evidencing such
payment by the Company or the Guarantors, as applicable. The Company will, upon
written request of each Holder (other than an Excluded Holder), reimburse each
such Holder for the amount of (i) any Canadian Taxes, Russian Taxes, Cypriot
Taxes or Other Taxes so levied or imposed and paid by such Holder as a result of
payments made under or with respect to any Notes, and (ii) any Canadian Taxes,
Russian Taxes, Cypriot Taxes or Other Taxes so levied or imposed with respect to
any reimbursement under the foregoing clause (i) so that the net amount received
by such Holder (net of payments made under or with respect to such Notes or the
Guarantees) after such reimbursement will not be less than the net amount the
Holder hereof would have received if Canadian Taxes, Russian Taxes, Cypriot
Taxes or Other Taxes on such reimbursement had not been imposed.
In addition, the Company or the Guarantors will pay any stamp,
issue, registration, documentary or other similar taxes and duties, including
interest and penalties, in respect of the creation, issue and offering of the
Notes payable in Canada, the United States, the Russian Federation or Cyprus or
any political subdivision thereof or taxing authority of or in the foregoing.
The Company and the Guarantors will also pay and indemnify the Holders from and
against all court fees and taxes or other taxes and duties, including interest
and penalties, paid by any of them in any jurisdiction in connection with any
action permitted to be taken by the Trustee or the Holders to create the Liens
on the Collateral and to enforce the obligations of the Company or the
Guarantors under the Notes, the Indenture, the Guarantees, the Collateral
Documents or the Senior Note Collateral Documents.
6
<PAGE> 7
4. Special Interest.
Special interest means such additional interest as is set
forth in subparagraphs (a) and (b) below.
(a) The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of May 31, 1996, between the Company and
the Initial Purchasers (the "Registration Agreement"), which agreement is
attached to the Indenture as Exhibit C thereto. In the event that either (a) the
Convertible Note Shelf Registration Statement (as such term is defined in the
Registration Agreement) is not filed with the Securities and Exchange Commission
(the "Commission") on or prior to the 45th day following the Issue Date, (b) the
Shelf Registration Statement is not declared effective by the Commission on or
prior to the 120th day following the Issue Date or (c) any such Shelf
Registration Statement is filed and declared effective but shall thereafter
cease to be effective or fail to be usable for its intended purposes, without
being succeeded by a post-effective amendment to such Shelf Registration
Statement that cures such failure and that is itself declared effective, for a
period of more than 30 consecutive days, interest shall accrue on this Note (in
addition to any accrual of stated interest on this Note) from and including the
next day following each of (i) such 45-day period in the case of clause (a)
above, (ii) such 120-day period in the case of clause (b) above, (iii) such
30-day period in the case of clause (c) above (each such event referred to in
clauses (i) through (iii), a "Registration Default"). In each case following the
occurrence of a Registration Default, such additional interest (the "Special
Interest") will be payable to the Holder hereof during the first 90-day period
immediately following the occurrence of such Registration Default in cash
semiannually in arrears on each Interest Payment Date, at a rate equal to $0.01
per week per $1,000 principal amount of this Note. The Special Interest payable
to the Holder of this Note shall increase by an additional $0.01 per week per
$1,000 principal amount of this Note for each 90-day period up to a maximum of
$0.50 per week per $1,000 of this Note. Upon (w) the filing of the Shelf
Registration Statement after the 45-day period described in clause (a) above,
(x) the effectiveness of a Shelf Registration Statement after the 120-day period
described in clause (b) above, or (y) the effectiveness of an applicable
Registration Statement after the 30-day period described in clause (c) above,
the Special Interest payable on this Note, with respect to such clause (a), (b)
or (c), as the case may be, from the date of such filing, effectiveness or
consummation, as the case may be, shall cease to accrue and all accrued and
unpaid Special Interest as of the occurrence of (w), (x) or (y) shall be paid to
the Holder hereof on the next Interest Payment Date with respect thereto.
Following the occurrence of (w), (x) and (y) above, the interest terms of this
Note shall revert to the original terms set forth above subject to paragraph (b)
below.
(b) In the event of the failure of the Company to procure, on
or before July 12, 1996, a recognized financial institution with capital of not
less than $10,000,000 organized under the laws of the Republic of Ireland which
the Trustee may lawfully appoint as a Qualified Foreign Collateral Agent (as
defined in Section 7.3 of the Indenture) (the "Procurement") with respect to
Technocom Preferred Stock, any payments thereon and any property substituted
therefor (the "Subject Collateral")
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pursuant to an agreement under which such Qualified Foreign Collateral Agent
will agree not to resign without the contemporaneous appointment of a successor
Qualified Foreign Collateral Agent (the "Prescribed Agreement"), then,
commencing on July 12, 1996, the Company shall pay to each Holder of the Notes
additional Special Interest in an amount equal to 1% per annum on the principal
amount of such Holder's Notes, accruing for each day until the Procurement is
made or Technocom or a successor is reorganized under the laws of Cyprus and a
successor Qualified Foreign Collateral Agent has been appointed in respect of
the Subject Collateral (the "Reorganization") under a Prescribed Agreement. Such
Special Interest shall be payable in cash semi-annually in arrears at the times
and in the manner provided for in the Indenture. Such Special Interest shall
cease to accrue upon the Procurement or the Reorganization taking place and all
accrued and unpaid Special Interest shall be paid to each Holder of the Notes on
the next Interest Payment Date with respect thereto. Any Special Interest
payable pursuant to this paragraph 4(b) shall be in addition to any Special
Interest that may be payable pursuant to paragraph 4(a) above.
Except as expressly provided in this paragraph 4, Special
Interest shall be treated as interest and any date on which Special Interest is
due and payable shall be treated as Interest Payment Date, for all purposes
under this Note and the Indenture.
5. Method of Payment.
The Company, through the Paying Agent, shall pay interest on
this Note to the registered Holder of this Note, as provided above. The Holder
must surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States of America
that at the time of payment is legal tender for payment of all debts public and
private. Principal and interest will be payable at the office of the Paying
Agent but, at the option of the Company, interest may be paid by check mailed to
the registered Holders at their registered addresses.
6. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar
under the Indenture. The Company may, upon written notice to the Trustee,
appoint and change any Paying Agent or Registrar. The Company or any of its
subsidiaries may act as Paying Agent or Registrar.
7. Optional Redemption.
Except as set forth in the following paragraph, the Notes may
not be redeemed prior to June 1, 2000. During the period from June 1, 2000 to
May 31, 2002, the Company may redeem all but not less than all of the Notes if
the Closing Price (as defined in the Indenture) of the Common Stock (as defined
in the Indenture) equals or exceeds 150% of the conversion price of the Notes
for a period of 30 consecutive days, at a redemption price equal to 100% of the
principal thereof, plus accrued and unpaid interest, if any, Additional Amounts,
if any, and Special Interest, if any, to the applicable Redemption Date, and any
other amount due in respect thereof (but not including any
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<PAGE> 9
amount on any Reset Penalty (as defined below)). Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 calendar days' nor more than 60 calendar days' notice, at a
redemption price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest thereon (if any), Additional Amounts (if any) and Special
Interest (if any) to the applicable Redemption Date, and any other amounts due
in respect thereof. No amount shall be paid in respect of any Reset Penalty upon
any redemption, offer to purchase or other acquisition except in respect of a
record date for the Reset Penalty which has passed.
The Notes may be redeemed, at the option of the Company, in
whole but not in part, upon not less than 30 or more than 60 calendar days'
notice to the Holders in accordance with the terms of the Indenture, at a
redemption price equal to the principal amount thereof, plus accrued and unpaid
interest, if any (including Additional Amounts, if any, and Special Interest, if
any), to the applicable Redemption Date (subject to the right of Holders of
record on the relevant Record Date to receive interest (including Additional
Amounts, if any, and Special Interest, if any) due on the Interest Payment Date
that is on or prior to the Redemption Date) and any other amounts due if, as a
result of any change in or amendment to the laws or the regulations or rulings
promulgated thereunder of Canada, Cyprus, the Russian Federation or any other
jurisdiction with which the Company or any Guarantor has any connection (other
than a connection arising as a result of a continuance or a merger or
consolidation of the Company with or into a newly formed corporation solely for
the purpose of moving the Company's domicile out of Canada) or any political
subdivision thereof or any authority thereof or having power to tax therein, or
any change in the application or official interpretation of such laws or
regulations, or any change in administrative policy or assessing practice of the
applicable taxing authority, which change or amendment becomes effective on or
after May 24, 1996, the Company or the Guarantors (if the Guarantees are called)
are or would be required on the next succeeding Interest Payment Date to pay
Additional Amounts with respect to the Notes or the Guarantees and the payment
of such Additional Amounts cannot be avoided by the use of any reasonable
measures available to the Company or the Guarantors, as the case may be. The
Company will also pay to holders on the Redemption Date any Additional Amounts
payable in respect of the period ending on the Redemption Date. Prior to the
publication of any notice of redemption pursuant to this provision, which in no
event will be given earlier than 90 days prior to the earliest date on which the
Company or the Guarantors, as the case may be, would be required to pay such
Additional Amounts were a payment in respect of the Notes then due, the Company
shall deliver to the Trustee (i) an Officers' Certificate stating that the
obligation to pay such Additional Amounts cannot be avoided by the Company or
the Guarantors, as the case may be, taking reasonable measures and (ii) an
Opinion of Counsel, independent of the Company and the Guarantors and approved
by the Trustee, to the effect that the Company or the Guarantors have or will
become obligated to pay such Additional Amounts as a result of such change or
amendment. Such notice, once delivered by the Company to the Trustee, will be
irrevocable. The Trustee shall accept such Officers' Certificate and Opinion of
Counsel as sufficient evidence of the satisfaction of the condition precedent
set forth in clauses (i) and (ii) above, in which event it shall be conclusive
and binding on the Holders.
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<PAGE> 10
8. Notice of Redemption.
At least 30 calendar days but not more than 60 calendar days
before a Redemption Date, the Company will send a notice of redemption, first
class mail, postage prepaid, to Holders of Notes to be redeemed at the addresses
of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time,
the Notes to be redeemed will be chosen by the Trustee in accordance with the
Indenture. If any Note is redeemed subsequent to a Record Date with respect to
any Interest Payment Date specified above and on or prior to such Interest
Payment Date, then any accrued interest (including Additional Amounts, if any,
and Special Interest, if any) will be paid on such Interest Payment Date to the
Holder of the Note on such Record Date. If money in an amount sufficient to pay
the Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest (including
Additional Amounts, if any, and Special Interest, if any) on the Notes to be
redeemed on the applicable Redemption Date will cease to accrue.
The Notes are not subject to any sinking fund.
9. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to purchase such Holder's
Notes, in whole or in part in a principal amount that is an integral multiple of
$1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal
to 101% of the principal amount thereof on any Change of Control Payment Date,
plus accrued and unpaid interest, if any, Additional Amounts, if any, and
Special Interest, if any, thereon to the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder of Notes. The holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Require Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest and Additional Amounts, if any, and Special Interest, if any,
from and after the Change of Control Payment Date.
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<PAGE> 11
10. Repurchase at the Option of Holders upon Asset Sale.
Subject to the limitations set forth in the following
paragraph and the Indenture, if at any time the Company or any Restricted
Subsidiary engages in any Asset Sale, as a result of which the aggregate amount
of Excess Proceeds exceeds $5,000,000, the Company shall, within 30 calendar
days of the date the amount of Excess Proceeds exceeds $5,000,000, use the
then-existing Excess Proceeds to make an offer to purchase from all Holders, on
a pro rata basis, Notes in an aggregate principal amount equal to the maximum
principal amount that may be purchased out of the then-existing Excess Proceeds,
at a purchase price in cash equal to 100% of the principal amount thereof on any
Asset Sale Payment Date, plus accrued and unpaid interest thereon, if any, and
Additional Amounts, if any, and Special Interest, if any, to the Asset Sale
Payment Date, provided that Excess Proceeds attributable to assets not
constituting Collateral (as defined in the Indenture) must be used first to make
an Asset Sale Offer pursuant to the Senior Note Indenture (as defined in the
Indenture) unless the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged, and then to make an Asset Sale
Offer for the Notes, if there remain Excess Proceeds after the Asset Sale Offer
for the Senior Notes has been completed. Upon completion of an Asset Sale Offer
(including payment of the Offer Purchase Price for accepted Notes), any surplus
Excess Proceeds that were the subject of such offer shall cease to be Excess
Proceeds, and the Company may then use such amounts for general corporate
purposes.
Notwithstanding the paragraph above, the Company will not be
obligated to repurchase Notes in connection with an Asset Sale Offer
representing in the aggregate more than 25% of the original aggregate principal
amount of the Notes (which original aggregate principal amount shall for these
purposes be $26,500,000, without any adjustment whatsoever) prior to the date
following the Five Year Date, and the original aggregate principal amount of
Notes repurchased in connection with any Asset Sale Offer having a purchase date
prior to the date following the Five Year Date shall represent no more than 25%
of the original aggregate principal amount of the Notes less the original
aggregate principal amount of Notes purchased pursuant to Asset Sale Offers
relating to all prior Asset Sales. To the extent that the amount of Excess
Proceeds exceeds the amount of Notes purchased because of the limitation imposed
by the immediately preceding sentence (the amount of such excess being the
"Aggregate Unused Proceeds"), such Aggregate Unused Proceeds shall constitute
Excess Proceeds for purposes of the first Asset Sale Offer that is made after
the Five Year Date and, in the event the amount of the Aggregate Unused Proceeds
exceeds $5,000,000, promptly after the Five Year Date, the Company shall
commence an Asset Sale Offer on a pro rata basis for an aggregate principal
amount of Notes equal to the Aggregate Unused Proceeds (and any other Excess
Proceeds that arise between the Five Year Date and such Asset Sale Offer) at a
purchase price equal to 100% of the principal amount of the Notes, plus accrued
interest, if any, Special Interest, if any, and Additional Amounts, if any, to
the date of purchase.
Within 30 calendar days of the date the amount of Excess
Proceeds exceeds $5,000,000, the Company shall send, or cause to be sent, by
first-class mail, postage
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prepaid, a notice regarding the Asset Sale Offer to each Holder of Notes. The
Holder of this Note may elect to have this Note or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Require Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Offer
Purchase Price with respect thereto, all Notes or portions thereof selected for
payment pursuant to the Asset Sale Offer will cease to accrue interest and
Additional Amounts, if any, and Special Interest, if any, from and after the
Asset Sale Payment Date.
11. Repurchase at the Option of Holders upon a Termination of Trading.
In the event of any Termination of Trading (as defined in the
Indenture) occurring after the Issue Date and on or prior to Maturity, each
Holder of Notes will have the right commencing on the date following the Five
Year Date, at the Holder's option, to require the Company to repurchase all or
any part of such Holder's Notes on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Termination of Trading at a
price (the "Repurchase Price") equal to 100% of the principal amount thereof,
together with accrued and unpaid interest, if any, Additional Amounts, if any,
and Special Interest, if any, thereon to the Repurchase Date.
On or before the 15th day after the occurrence of a
Termination of Trading (unless such Termination of Trading occurs prior to the
Five Year Date, then on the 15th day following the Five Year Date), the Company
shall mail to all Holders of Notes a notice of the occurrence of such
Termination of Trading, the Repurchase Price and the procedures which the Holder
must follow to exercise the repurchase right. To exercise such right, the Holder
of this Note must deliver, on or before the close of business on the Repurchase
Date, irrevocable written notice to the Company (or an agent designated by the
Company for such purpose) and to the Trustee of the Holder's exercise of such
right, together with the certificates evidencing the Notes with respect to which
the right is being exercised, duly endorsed for transfer and with the form
entitled "Option of Holder to Require Purchase" appearing below completed. Such
written notice is irrevocable.
12. Mandatory Redemption.
Except as set forth in Sections 9, 10 and 11, the Company is
not required to make any mandatory redemption payments or sinking fund payments
with respect to the Notes.
13. The Global Note.
So long as this Global Note is registered in the name of the
Depositary or its nominee, members of, or participants in, the Depositary
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depositary or the Trustee as its
custodian, and the Depositary may be treated by the Company, the Guarantors, the
Trustee and any agent of the Company, the Guarantors or the Trustee as the
absolute owner of this Global Note for all purposes. Notwithstanding
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<PAGE> 13
the foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or (ii) impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of
Notes.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder of Notes is entitled to take under the Indenture or the Notes.
Whenever, as a result of an optional redemption of Notes by
the Company, a Change of Control Offer, an Asset Sale Offer, an offer to
purchase upon a Termination of Trading or an exchange for Certificated Notes,
this Global Note is redeemed, repurchased or exchanged in part, this Global Note
shall be surrendered by the Holder thereof to the Trustee who shall cause an
adjustment to be made to Schedule A hereof so that the principal amount of this
Global Note will be equal to the portion not redeemed, repurchased or exchanged
and shall thereafter return this Global Note to such Holder; provided that this
Global Note shall be in a principal amount of $1,000 or an integral multiple of
$1,000.
14. Transfer and Exchange.
By its acceptance of any Note represented by a certificate
bearing the Private Placement Legend, each Holder of, and beneficial owner of an
interest in, such Note acknowledges the restrictions on transfer of such Note
set forth on the face hereof, and agrees that it will transfer such a Note only
in accordance with the restrictions set forth on the face hereof and the
restrictions set forth under the heading "Transfer Restrictions" in the Final
Memorandum.
In connection with any transfer of a Note bearing the Private
Placement Legend, each Holder agrees to deliver to the Company such satisfactory
evidence, which may include an opinion of independent counsel licensed to
practice law in the State of New York, as reasonably may be requested by the
Company to confirm that such transfer is being made in accordance with the
limitations set forth in the Private Placement Legend. In the event the Company
determines that any such transfer is not in accordance with the Private
Placement Legend, the Company shall so inform the Registrar which shall not
register such transfer; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such evidence.
Upon the registration of transfer, exchange or replacement of
a Note not bearing the Private Placement Legend, the Trustee shall deliver a
Note that does not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of a Note bearing the Private Placement Legend, the
Trustee shall deliver a Note bearing the Private Placement Legend, unless such
legend may be removed from such Note as
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<PAGE> 14
provided in the next sentence. The Private Placement Legend may be removed from
a Note if there is delivered to the Company such satisfactory evidence, which
may include an opinion of independent counsel licensed to practice law in the
State of New York, as reasonably may be requested by the Company to confirm that
neither such legend nor the restrictions on transfer set forth therein are
required to ensure that transfers of such Note will not violate the registration
and prospectus delivery requirements of the Securities Act and if the transferee
is a resident of Canada, the securities laws of the applicable province of
Canada; provided that the Trustee shall not be required to determine (but may
rely on a determination made by the Company with respect to) the sufficiency of
any such evidence. Upon provision of such evidence, the Trustee shall
authenticate and deliver in exchange for such Note, a Note or Notes
(representing the same aggregate principal amount of the Note being exchanged)
without such legend. If the Private Placement Legend has been removed from a
Note, as provided above, no other Note issued in exchange for all or any part of
such Note shall bear such legend, unless the Company has reasonable cause to
believe that such other Note represents a "restricted security" within the
meaning of Rule 144 and instructs the Trustee to cause a legend to appear
thereon.
The Holder of this Global Note shall, by its acceptance of
this Global Note, agree that transfers of beneficial interests in this Global
Note may be effected only through a book entry system maintained by such Holder
(or its agent), and that ownership of a beneficial interest in the Notes
represented thereby shall be required to be reflected in book entry form.
Transfers of this Global Note shall be limited to transfers in
whole, and not in part, to the Depositary, its successors and their respective
nominees. Interests of beneficial owners in this Global Note may be transferred
in accordance with the rules and procedures of the Depositary (or its
successors).
This Global Note will be exchanged by the Company for one or
more Certificated Notes if (a) the Depositary (i) has notified the Company that
it is unwilling or unable to continue as, or ceases to be, a "Clearing Agency"
registered under Section 17A of the Exchange Act and (ii) a successor to the
Depositary registered as a "Clearing Agency" under Section 17A of the Exchange
Act is not appointed by the Company within 90 calendar days or (b) the
Depositary is at any time unwilling or unable to continue as Depositary and a
successor to the Depositary is not able to be appointed by the Company within 90
calendar days. If an Event of Default occurs and is continuing, the Company
shall, at the request of the Holder hereof, exchange all or part of this Global
Note for one or more Certificated Notes; provided that the principal amount of
each of such Certificated Notes and this Global Note, after such exchange, shall
be $1,000 or an integral multiple thereof. Whenever this Global Note is
exchanged as a whole for one or more Certificated Notes, it shall be surrendered
by the Holder to the Trustee for cancellation. Whenever this Global Note is
exchanged in part for one or more Certificated Notes, it shall be surrendered by
the Holder to the Trustee and the Trustee shall make the appropriate notations
thereon pursuant to Section 2.5(c) of the Indenture. All Certificated Notes
issued in exchange for this Global Note shall include the Private Placement
Legend except as set forth in Section 2.6(a)(iii) of the Indenture. Interests in
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<PAGE> 15
this Global Note may not be exchanged for Certificated Notes other than as
provided in this paragraph.
Prior to the effectiveness of a Shelf Registration Statement
or following the suspension or termination thereof, the Holder of this Note (or
holders of interests therein) and prospective purchasers designated by such
Holder (or such holders of interests therein) shall have the right to obtain
from the Company upon request by such Holder (or such holders of interests) or
prospective purchasers, during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act, or exempt from reporting pursuant to
12g3-2(b) under the Exchange Act, the information required by paragraph
(d)(4)(i) of Rule 144 in connection with any transfer or proposed transfer of
such Note or interest.
15. Denominations.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and integral multiples thereof of principal amount.
16. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment unless such abandoned property
law designates another Person.
17. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may
terminate some or all of its and the Guarantors' obligations under the Notes,
the Guarantees, the Indenture and the Collateral Documents if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Notes to redemption or maturity, as
the case may be.
18. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture, the Notes, the Collateral Documents and the Senior Note
Collateral Documents may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes and (ii) any
past Default and its consequences may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding Notes.
Without the consent of any Holder of Notes, the Company, the Guarantors and the
Trustee may amend the Indenture, the Notes, the Collateral Documents and the
Senior Note Collateral Documents (i) to evidence the succession of another
Person to the Company or the Guarantors, as applicable, and the assumption by
such successor of the covenants of the Company or the Guarantors under the
Indenture,
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Collateral Documents and the Senior Note Collateral Documents; (ii) to add
additional covenants or to surrender rights and powers conferred on the Company
or the Guarantors by the Indenture, the Collateral Documents and the Senior Note
Collateral Documents; (iii) to add any additional Events of Default; (iv) to
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (v) to evidence and provide for the acceptance of appointment under the
Indenture of a successor Trustee; (vi) to add additional security for the Notes
and the Guarantees; (vii) to cure any ambiguity in the Indenture, the Collateral
Documents or the Senior Note Collateral Documents, to correct or supplement any
provision in the Indenture, the Collateral Documents or the Senior Note
Collateral Documents which may be inconsistent with any other provision therein
or to add any other provisions with respect to matters or questions arising
under the Indenture, the Collateral Documents or the Senior Note Collateral
Documents, provided that such actions shall not adversely affect the interests
of the Holders in any material respect; (viii) to make provision with respect to
the conversion rights of the Holders of the Notes in the event of a
consolidation, merger or sale of assets involving the Company, as required by
the Indenture; or (ix) to comply with the requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
19. Defaults and Remedies.
Events of Default under the Indenture include in summary form:
default in payment of interest, including Additional Amounts, if any, or Special
Interest, if any, on the Notes for 30 days; default in payment of principal on
the Notes; the occurrence and continuance of an Event of Default under the
Senior Note Indenture (as defined therein) for a period of 15 days after written
notice has been given to the Company by the Trustee or a Holder of the Notes;
failure to comply with certain of the covenants in the Indenture, including the
Change of Control covenant, the Asset Sale covenant and the Termination of
Trading covenant; failure by the Company to comply with certain of its other
agreements in the Indenture or the Notes or any Collateral Document or any
Senior Note Collateral Document or a breach of a representation or warranty in
any Collateral Document or any Senior Note Collateral Document and the
continuance of such default or breach for 45 days after notice; expropriation of
assets of the Company or any of its Restricted Subsidiaries having a book value,
less the book value of the expropriation proceeds, constituting more than 15% of
the book value, on a consolidated basis, of the Company's assets minus current
assets; defaults in the payment of certain other Indebtedness; or defaults,
other than such payment defaults, which result in the acceleration prior to
express maturity of certain other Indebtedness or which consist of the failure
to pay at maturity; certain final judgments which remain undischarged, unwaived,
if applicable, unbonded, unstayed or unsatisfied; certain events of bankruptcy
or insolvency; failure of a Guarantee, a Collateral Document or a Senior Note
Collateral Document to be in effect, the denial of obligations under a Guaranty,
a Collateral Document or a Senior Note Collateral Document or the Notes by the
Company or the Guarantors party thereto or the failure of the Notes and the
Guarantees to be secured by the theretofore perfected security interests in the
Collateral or the Senior Note Collateral (except as permitted by the Indenture,
the Collateral Documents or the Senior Note
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<PAGE> 17
Collateral Documents), which in each circumstance continues for 30 days after
notice. If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency are Events of Default and shall
result in the Notes being immediately due and payable upon the occurrence of
such Events of Default without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture, the Notes, the
Guarantees, the Collateral Documents or the Senior Note Collateral Documents
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture, the Notes, the Guarantees, the Collateral Documents or the Senior
Note Collateral Documents unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Notes may direct the Trustee in its exercise of any trust or power under the
Indenture, the Collateral Documents and the Senior Note Collateral Documents.
The Holders of a majority in principal amount of the outstanding Notes, by
written notice to the Company and the Trustee, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all Events of Default have been cured or waived
except nonpayment of principal and interest that has become due solely because
of the acceleration.
20. Collateral Documents.
As provided in the Indenture, the Collateral Documents and the
Senior Note Collateral Documents, and subject to certain limitations set forth
therein, the obligations of the Company and the Guarantors under the Notes, the
Indenture and the Collateral Documents are secured by the Collateral as provided
in the Collateral Documents and the Senior Note Collateral as provided in the
Senior Note Collateral Documents. Each Holder, by accepting a Note, agrees to be
bound to all the terms and provisions of the Collateral Documents and the Senior
Note Collateral Documents, as the same may be amended from time to time. The
Liens created under the Collateral Documents and the Senior Note Collateral
Documents shall be released upon the terms and subject to the conditions set
forth in the Indenture, the Collateral Documents and the Senior Note Collateral
Documents.
21. Individual Rights of Trustee.
Subject to certain limitations imposed by the Trust Indenture
Act, the Trustee or any Paying Agent or Registrar, in its individual or any
other capacity, may become the owner or pledgee of Notes and may otherwise deal
with the Company, the Guarantors, its Restricted Subsidiaries or its Affiliates
with the same rights it would have if it were not Trustee, Paying Agent or
Registrar, as the case may be, under the Indenture.
17
<PAGE> 18
22. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of
the Company or the Guarantors, as such, shall have any liability for any
obligations of the Company or the Guarantors under the Notes, the Guarantees or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of his or her status as a
director, officer, employee, incorporator or stockholder of the Company or any
Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
23. Governing Law.
THE INDENTURE, THE GUARANTEES AND THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
24. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
25. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
26. Subordination.
The indebtedness evidenced by this Note is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Note is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
18
<PAGE> 19
27. Conversion Rights.
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Note is entitled, at his, her or its option, at
any time on or after 9:00 a.m. New York City time on July 30, 1996 and before
the close of business on the Business Day next preceding the Redemption Date, or
in case this Note or a portion hereof is called for redemption, then in respect
of this Note or such portion hereof until and including, but (unless the Company
defaults in making the payment due upon redemption) not after, the close of
business on the Business Day next preceding the Redemption Date, to convert this
Note at the principal amount hereof, or of such portion, in to fully paid and
non-assessable shares (calculated as to each conversion to the nearest 1/100th
of a share) of Common Stock of the Company at a conversion price equal to $6.90
per share of such Common Stock (or in each case at the current adjusted
conversion price if an adjustment has been made as provided in the Indenture) by
surrender of this Note, duly endorsed or assigned to the Company or in blank, to
the Company at its office or agency maintained for that purpose pursuant to the
Indenture, accompanied by written notice to the Company in the form provided in
this Note (or such other notice as is acceptable to the Company) that the Holder
hereof elects to convert this Note and, in case such surrender shall be made
during the period from the close of business on any regular Record Date next
preceding any Interest Payment Date or the close of business on a record date
for the payment of a Reset Penalty to the close of business on such Interest
Payment Date or the Reset Penalty Payment Date, as applicable, (unless this Note
or the portion thereof being converted has been called for redemption on a
Redemption Date within such period), also accompanied by payment in New York
Clearing House funds, or other funds acceptable to the Company of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of this Security then being converted and/or any Reset Penalty due.
Subject to the aforesaid requirement for payment and, in the case of a
conversion after the regular Record Date next preceding any Interest Payment
Date and on or before such Interest Payment Date, to the right of the Holder of
this Note (or any Predecessor Security) of record at such regular record date to
receive an installment of interest (with certain exceptions provided in the
Indenture), no payment or adjustment is to be made upon conversion on account of
any interest accrued hereon or on account of any dividends on the Common Stock
issued upon conversion. No fractional shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional share the
Company shall pay a cash adjustment as provided in the Indenture.
On December 1, 1996 (the "Reset Date"), the conversion price will be
adjusted (the "Conversion Reset") to equal (x) the product of (i) the average of
the high and low prices on the Nasdaq National Market, or the consolidated
transaction reporting tape in the event that the Common Stock of the Company is
not then traded on the Nasdaq National Market, and (ii) the amount of Common
Stock of the Company reported as being traded on that day, for each Trading Day
of the 30 calendar days preceding the Reset Date (the "Conversion Reset
Period"), divided by the total number of shares of Common Stock of the Company
traded over the Conversion Reset Period, then multiplied by (y) 115% (the
19
<PAGE> 20
"Conversion Reset Price"), if such Conversion Reset Price shall be lower than
the conversion price before such calculation, provided that the Conversion Reset
Price shall never be adjusted to less than $4.30 per share, but the Company will
be required to pay to holders of Notes a quarterly reset penalty ("Reset
Penalty") attributable to the Company's inability to adjust the Conversion Reset
Price below $4.30 per share. In the event that the conversion price before such
calculation shall be equal to or less than the Conversion Reset Price, then no
adjustment to the conversion price shall be made. The quarterly Reset Penalty
payable to each Holder of Notes shall be an amount equal to $2.50 per Note held
by such Holder (which for the purposes of this Paragraph 27 will be determined
to be Certificated Notes, each in the denomination of $1,000) unless, but for
the proviso in the preceding sentence, the Conversion Reset Price would have
been less than $3.80 per share, in which case such quarterly Reset Penalty shall
be an amount equal to $5.00 per Note held by such Holder. The Reset Penalty
shall be payable on each March 1, June 1, September 1 and December 1 (each such
date being referred to herein as a "Reset Penalty Payment Date"), commencing on
March 1, 1997, the first such Reset Penalty Payment Date occurring after the
Reset Date, and shall be payable to holders of record of Notes on the February
15, May 15, August 15 and November 15 immediately preceding such Reset Penalty
Payment Date and shall not accrue. The Reset Penalty will cease to be payable
upon an conversion of a Note.
The Company will furnish to any Holder of Notes upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Note. Requests may be made to:
Petersburg Long Distance Inc.
166 Pearl Street
Toronto, Ontario
CANADA M5H 1L3
20
<PAGE> 21
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the
Guarantors (as defined in the Indenture referred to in this Note and each
hereinafter referred to as a "Guarantor," which term includes any successor or
additional Guarantor under the Indenture) have, jointly and severally,
irrevocably and unconditionally guaranteed (a) the due and punctual payment of
the principal (and premium, if any) of and interest (including Additional
Amounts, if any and Special Interest, if any) on the Notes, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, offer to purchase upon a Termination of Trading, purchase or
otherwise, (b) the due and punctual payment of interest on the overdue principal
of and interest (including Additional Amounts, if any, and Special Interest, if
any) on the Notes, if any, to the extent lawful, (c) the due and punctual
performance of all other obligations of the Company and the Guarantors to the
Holders under the Indenture, the Notes, the Collateral Documents and the Senior
Note Collateral Documents and (d) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at Stated Maturity, by acceleration, call for redemption,
upon a Change of Control Offer, Asset Sale Offer, offer to purchase upon a
Termination of Trading, purchase or otherwise. Capitalized terms used herein
shall have the meanings assigned to them in the Indenture unless otherwise
indicated.
Payment on each Note is guaranteed, jointly and severally, by
the Guarantors pursuant to Article X of the Indenture on a senior subordinated
basis to the extent provided in the Indenture and reference is made to such
Indenture for the precise terms of the Guarantees and such subordination.
The obligations of each Guarantor are limited to the lesser of
(a) an amount equal to such Guarantor's Adjusted Net Assets as of the date of
the Guarantee and (b) the maximum amount as will, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such Guarantor
(including, if applicable, its obligations under the Senior Notes) and after
giving effect to any collections from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law or not
otherwise being void, voidable or unenforceable under any similar other
bankruptcy, receivership, insolvency, liquidation or other similar legislation
or legal principles under applicable foreign law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the Adjusted Net Assets
of each Guarantor.
Certain of the Guarantors may be released from their
Guarantees upon the terms and subject to the conditions provided in the
Indenture.
21
<PAGE> 22
The Guarantee shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof and in the Indenture.
NWE CAPITAL (CYPRUS) LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
PLD ASSET LEASING LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
PLD CAPITAL LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
BALTIC COMMUNICATIONS LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
22
<PAGE> 23
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
By: /s/ James R.S. Hatt
-------------------------------------
23
<PAGE> 24
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $26,500,000. The
following decreases/increase in the principal amount at maturity of this Note
have been made:
<TABLE>
<CAPTION>
TOTAL PRINCIPAL
AMOUNT AT NOTATION
DECREASE IN INCREASE IN MATURITY MADE BY
DATE OF PRINCIPAL PRINCIPAL FOLLOWING SUCH OR ON
DECREASE/ AMOUNT AT AMOUNT AT DECREASE/ BEHALF OF
INCREASE MATURITY MATURITY INCREASE TRUSTEE
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
</TABLE>
24
<PAGE> 25
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- ---------------------------------
- --------------------------------- --------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ________________________ Attorney to transfer
this Note on the Security Register, with full power of substitution.
Dated:
-------------------------
- ------------------------------- --------------------------------------------
Signature of Holder Signature Guaranteed:
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
25
<PAGE> 26
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
/ / In connection with the Change of Control Offer made pursuant to
Section 4.7 of the Indenture, the undersigned hereby elects to have
/ / the entire principal amount
/ / $___________________($1,000 in principal amount or an
integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or___________________ an
amount in cash equal to 101% of the principal amount indicated
in the preceding sentences, as the case may be, plus accrued
and unpaid interest thereon, if any, and Additional Amounts,
if any, and Special Interest, if any, to the Change of Control
Payment Date.
/ / In connection with the Asset Sale Offer made pursuant to Section 4.8
of the Indenture, the undersigned hereby elects to have
/ / the entire principal amount
/ / $___________________ ($1,000 in principal amount or an
integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or___________________ an
amount in cash equal to 100% of the principal amount indicated
in the preceding sentence, as the case may be, plus accrued
and unpaid interest thereon, if any, and Additional Amounts,
if any, and Special Interest, if any, to the Asset Sale
Payment Date.
/ / In connection with the option of the Holder to require the Company to
repurchase the Holder's Note upon a Termination of Trading pursuant to
Section 4.14 of the Indenture, the undersigned hereby elects to have
/ / the entire principal amount
/ / $___________________ ($1,000 in principal amount or an
integral multiple thereof) of this Note
26
<PAGE> 27
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or___________________ an
amount in cash equal to 100% of the principal amount indicated
in the preceding sentences, as the case may be, plus accrued
and unpaid interest thereon, if any, and Additional Amounts,
if any, and Special Interest, if any, to the Repurchase Date.
Dated:
-------------
- ------------------------------- ---------------------------------------------
Signature of Holder Signature Guaranteed:
27
<PAGE> 28
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
28
<PAGE> 29
FORM OF CONVERSION NOTICE
The undersigned registered owner of this Note hereby
irrevocably exercises the option to convert this Note, or the portion hereof
(which is $1,000 or a multiple thereof) designated below, into shares of Common
Stock in accordance with the terms of the Indenture referred to in this Note,
and directs that the shares issuable and deliverable upon the conversion,
together with any check in payment for a fractional share and any Note
representing any unconverted principal amount hereof, be issued and delivered to
the registered owner hereof unless a different name has been provided below. If
this Notice is being delivered on a date after the close of business on a
regular Record Date or a record date for the payment of a Reset Penalty and
prior to the close of business on the related Interest Payment Date or Reset
Penalty Payment Date, as the case may be, this Notice is accompanied by payment
in New York Clearing House funds, or other funds acceptable to the Company, of
an amount equal to the interest payable on such Interest Payment Date on the
principal of this Note to be converted and/or the Reset Penalty due on such
Note. If shares or any portion of this Note not converted are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
Dated:
-------------- --------------------------------------------
NOTICE This signature must correspond with
the name as written upon the face of the
within- mentioned instrument in every
particular, without alteration or any change
whatsoever.
Fill in for registration of shares of Common
Stock if they are to be delivered, or
Securities if they are to be issued, other
than to and in the name of the registered
owner:
- ----------------------------------
(Name)
- ----------------------------------
(Street Address)
- ----------------------------------
(City, State and zip code)
(Please print name and address)
29
<PAGE> 30
Register: Common Stock
-----
Securities
-----
(Check appropriate line(s)).
Principal amount to be
converted (if less than all):
$ ,000
---------------
-----------------------------
Social Security or other
Taxpayer Identification
Number of owner
30
<PAGE> 1
EXHIBIT 4.8
NWE CYPRUS SENIOR NOTE SECURITY AND PLEDGE AGREEMENT
THIS NWE CYPRUS SENIOR NOTE SECURITY AND PLEDGE AGREEMENT (the
"Security Agreement") is made and entered into as of May 31, 1996 by NWE CAPITAL
(CYPRUS), LIMITED, a Cypriot corporation (the "Company"), in favor of THE BANK
OF NEW YORK, a New York banking corporation, as trustee (in such capacity, the
"Senior Note Trustee") under the Senior Note Indenture (as defined herein) for
the holders of the Senior Notes (as defined herein), THE BANK OF NEW YORK, a New
York banking corporation, as trustee (in such capacity, the "Convertible Note
Trustee") under the Convertible Note Indenture (as defined herein) for the
holders of the Convertible Notes (as hereinafter defined) and THE BANK OF NEW
YORK, as collateral agent (in such capacity, the "Collateral Agent").
WITNESSETH:
WHEREAS, Petersburg Long Distance Inc., an Ontario corporation, as
issuer (the "Issuer"), the Senior Note Trustee, and the Company, PLD Asset
Leasing Limited, a Cypriot corporation ("PLD Asset"), PLD Capital Limited, a
Cypriot corporation ("PLD Capital together with PLD Asset, the "Leasing
Companies"), Baltic Communications Limited, a Russian joint stock company of the
closed type ("BCL"), and Wireless Technology Corporations Limited, a British
Virgin Islands corporation ("WTC"), as Guarantors (the "Senior Note
Guarantors"), have entered into an indenture dated as of May 31, 1996 (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Senior Note Indenture") pursuant to which the Company is issuing
$123,000,000 in aggregate principal amount at Stated Maturity of its 14% Senior
Discount Notes due 2004 (the "Senior Notes"); and
WHEREAS, the Company, as issuer, the Convertible Note Trustee, and NWE
Cyprus, the Leasing Companies, WTC and BCL, as guarantors (the "Convertible Note
Guarantors"), have entered into an indenture dated as of May 31, 1996 (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Convertible Note Indenture") pursuant to which the Company is issuing
$26,500,000 in aggregate principal amount of its 9% Convertible Notes due 2006
(the "Convertible Notes"); and
WHEREAS, to secure its obligations under the Senior Note Indenture and
its Senior Note Guarantee and the other Collateral Documents (as defined in the
Senior Note Indenture) (together with the Issuer's obligations under the Senior
Notes, the Senior Note Indenture, and the Senior Note Collateral Documents and
the other Senior Note Guarantors' obligations under the Senior Note Indenture,
the guarantees contained therein (the "Senior Note Guarantees") and the Senior
Note Collateral Documents, the "Senior Note Obligations"), and to secure its
obligations under the Convertible Note Indenture and the Convertible Notes and
the other Convertible Note Collateral Documents (as defined in the Senior Note
Indenture) (together with the Convertible Note Guarantors' obligations under the
Convertible Note Indenture, the guarantees contained therein (the "Convertible
Note Guarantees") and the Convertible Note Collateral Documents, the
"Convertible Note Obligations"), the Issuer has agreed to cause the Company (i)
to grant to the Collateral Agent for the benefit of the Senior Note Trustee and
the equal and ratable benefit of the holders of the Senior Notes and for the
benefit of the Convertible Note Trustee and for the equal and ratable benefit of
the Holders of the Convertible Notes, Liens and security interests in and to the
Collateral (as defined herein) and (ii) to execute and deliver this Security
Agreement in order
<PAGE> 2
to secure the payment and performance by the Company of the Senior Note
Obligations and the Convertible Note Obligations (collectively, the
"Obligations").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and in order to induce
the Holders of the Senior Notes to purchase the Senior Notes and the Holders of
the Convertible Notes to purchase the Convertible Notes, the Company hereby
agrees with the Collateral Agent, with the Senior Note Trustee for its benefit
and the equal and ratable benefit of the Holders of the Senior Notes and with
the Convertible Note Trustee for its benefit and the equal and ratable benefit
of the Holders of the Convertible Notes as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meaning given to such terms in the Senior Note
Indenture. In addition to any other defined terms used herein, the following
terms shall constitute defined terms for the purposes of this Security
Agreement:
"Default" means a "Default" as defined in Section 1.1 of the Senior
Note Indenture until the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged, in which case
a "Default" means a "Default" as defined in Section 1.1 of the
Convertible Note Indenture if not then satisfied and discharged.
"Event of Default" means an "Event of Default" as defined in Section
1.1 of the Senior Note Indenture until the Senior Notes are no longer
outstanding and the Senior Note Indenture has been satisfied and
discharged, in which case "Event of Default" means an "Event of
Default" as defined in Section 1.1 of the Convertible Note Indenture if
not then satisfied and discharged.
"Permitted Liens" means "Permitted Liens" as defined in Section 1.1 of
the Senior Note Indenture until the Senior Notes are no longer
outstanding and the Senior Note Indenture has been satisfied and
discharged, in which case "Permitted Liens" means "Permitted Liens" as
defined in Section 1.1 of the Convertible Note Indenture.
"Trustees" means, collectively, the Senior Note Trustee and the
Convertible Note Trustee.
SECTION 2. CREATION OF SECURITY INTEREST. The Company hereby grants to
the Collateral Agent for the benefit of the Senior Note Trustee and for the
equal and ratable benefit of the Holders of the Senior Notes and for the benefit
of the Convertible Note Trustee and for the equal and ratable benefit of the
Holders of the Convertible Notes, Liens and a continuing security interest in
and to the collateral described in Section 3 hereof (the "Collateral") in order
to secure the payment and performance of all Obligations.
SECTION 3. COLLATERAL. The Collateral is:
(a) WTC Capital Stock. All Capital Stock of WTC, whether now owned or
hereafter acquired ("WTC Capital Stock"), including those shares of Capital
Stock of WTC listed on Schedule A attached hereto, and the certificates
representing the Capital Stock of WTC, and all products and proceeds of any of
the Capital Stock of WTC, including, without limitation, all dividends, cash,
options, warrants, rights, instruments, subscriptions and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in
2
<PAGE> 3
exchange for any or all of the WTC Capital Stock; and all additional shares of
and all securities convertible into, and warrants, options or other rights to
purchase, stock of, or an equity interest in, WTC from time to time acquired by
the Company in any manner, and the certificates representing such additional
shares (any such additional shares shall constitute part of the WTC Capital
Stock under and as defined in this Security Agreement), and all products and
proceeds of any such additional WTC Capital Stock, including, without
limitation, all dividends, cash, options, warrants, rights, instruments,
subscriptions, and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such additional WTC Capital Stock including all proceeds received or
receivable by the Company from any recapitalization, reclassification, merger,
dissolution, liquidation or other termination of the existence of WTC.
(b) Intercompany Notes. All Intercompany Notes, whether executed on the
Issue Date or thereafter, from any Restricted Subsidiary, evidencing loans or
advances made by the Company, all Liens securing such Intercompany Notes and the
related collateral documents, and the instruments representing such Intercompany
Notes, and, except as otherwise provided elsewhere herein, all products and
proceeds of such Intercompany Notes, including, without limitation, all interest
and principal payments, instruments, and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
such Intercompany Notes; and
(c) After-acquired Collateral and Proceeds. All items described in this
Section 3 (other than those items specifically excluded), whether now owned or
hereafter, at any time acquired by the Company and wherever located, including
(except as otherwise provided herein) all replacements, additions, accessions,
substitutions, repairs, proceeds and products relating thereto or therefrom, and
all documents, ledger sheets, files, books and records of the Company relating
thereto. Proceeds hereunder include (i) whatever is now or hereafter received by
the Company upon the sale, exchange, collection or other disposition of any item
of Collateral; (ii) any property of the type or types described in subsection
(a) now or hereafter acquired by the Company with any proceeds of Collateral
hereunder; and (iii) any payments under any insurance or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral.
SECTION 4. DELIVERY OF COLLATERAL. All certificates or instruments
representing or evidencing the Collateral shall be delivered to and held by or
on behalf of the Collateral Agent pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
the Collateral Agent, and shall be accompanied by any required transfer tax
stamps. Upon the occurrence and continuance of an Event of Default, the
Collateral Agent shall have the right, at any time in its discretion and without
notice to the Company but subject to its compliance with the requirements of
applicable law, to transfer to or to register in the name of the Collateral
Agent or any of its nominees any or all of the Collateral. In addition, upon the
occurrence and during the continuance of an Event of Default, but subject to its
compliance with the requirements of applicable law, the Collateral Agent shall
have the right at any time to exchange certificates or instruments representing
or evidencing Collateral for certificates or instruments of smaller or larger
denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Collateral Agent and the Trustees that, except as
specified in Schedule B attached hereto:
3
<PAGE> 4
(a) Legal Power. The execution, delivery and performance by the Company
of this Security Agreement are within the Company's legal powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with (except for any filings provided for hereunder), any
governmental authority, require no consent of any other Person and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the articles of incorporation or bylaws of the Company or of
any agreement (after giving effect to the use of proceeds of the issuance of the
Senior Notes), judgment, injunction, order, decree or other instrument binding
upon the Company or result in the creation or imposition of any Lien on any
asset of the Company (other than the Liens created by this Security Agreement,
and the Senior Note Collateral Documents.
(b) WTC Capital Stock. The WTC Capital Stock has been duly authorized
and validly issued and is fully paid and non-assessable. The WTC Capital Stock
constitutes and will at all times constitute all of the authorized issued and
outstanding Capital Stock of WTC beneficially owned by the Company.
(c) Title to Collateral. The Company is the legal, record and
beneficial owner of the WTC Capital Stock existing on the Issue Date (the
"Existing Collateral"), free and clear of any Lien or claims of any person
except the Liens created by this Security Agreement and any of the other Senior
Note Collateral Documents.
(d) Enforceability. This Security Agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or general principles of equity and
commercial reasonableness and except that a Canadian court will only render
judgment in Canadian currency.
(e) Perfection; Priority. Upon the delivery to the Collateral Agent of
the Existing Collateral and the filing of the Senior Note Collateral Documents
and the documents listed on Schedule C attached hereto, to the extent such
security interest is created under applicable Federal and New York law, the
security interest in the Collateral created pursuant to this Security Agreement
creates a valid and perfected first priority security interest in the Existing
Collateral, securing the payment of the Obligations to the Collateral Agent for
the benefit of the Senior Note Trustee and the Holders of the Senior Notes and
the Convertible Note Trustee and the Holders of the Convertible Notes, and
enforceable as such against all creditors of the Company and any Persons
purporting to purchase any of the Collateral from the Company, other than as
permitted by the Senior Note Indenture, as of the date hereof (and after giving
effect to the use of proceeds of the issuance of the Senior Notes), there are no
other security interests in or Liens on the Existing Collateral or any portion
thereof, and no financing statement, pledge, notice of Lien, assignment or
collateral assignment, mortgage or deed of trust covering the Collateral or any
portion thereof ("Lien Notice") exists or is on file in any public office,
except with respect to the Liens created by this Security Agreement and Liens to
be released in connection with the use of proceeds of the issuance of the Senior
Notes.
(f) Offices. The Company's chief executive offices are located at the
address shown as the chief executive office in Schedule D attached hereto
("Chief Executive Office"), and the Company has no places of business other than
those set forth in such Schedule D, except as permitted hereafter by Section
6(c) hereof.
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(g) Business Names. The Company has not conducted its businesses under
any corporate, partnership or fictitious name during the five (5) years
preceding the date hereof, other than those names set forth on Schedule E
attached hereto.
(h) No Consents. No consent of any other person and no consent,
authorization, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required either (i) for the
granting of the Liens by the Company on the Collateral pursuant to this Security
Agreement or for the execution, delivery or performance of this Security
Agreement by the Company (except for filings listed on Schedule C attached
hereto, the filings and/or other actions necessary to maintain the perfection of
the Liens on the Existing Collateral and perfect Liens on after-acquired
Collateral or the proceeds of the Collateral) or (ii) for the exercise by the
Collateral Agent of the voting or other rights provided for in this Security
Agreement or the remedies in respect of the Collateral pursuant to this Security
Agreement, except, in each case, as may be required in connection with any such
disposition by laws affecting the offering and sale of the WTC Capital Stock
constituting Collateral.
(i) Litigation. No litigation, investigation or proceeding of or before
any arbitrator or governmental authority is pending or, to the knowledge of the
Company, threatened by or against the Company with respect to this Security
Agreement or any of the transactions contemplated hereby.
SECTION 6. COVENANTS.
(a) Lien Notices. The Company will defend its interest in the
Collateral against all claims and demands of all persons at any time claiming
the same or any interest therein and the Company will not permit any Lien
Notices with respect to the Collateral or any portion thereof to exist or be on
file in any public office for more than 30 days after the Company shall have
notice thereof, except with respect to Permitted Liens. The Company will advise
the Collateral Agent and the Trustees promptly, in reasonable detail, at the
addresses specified in Section 17(a) of this Security Agreement, of any Lien
(other than Permitted Liens) on, or claim asserted against, any of the
Collateral.
(b) Location of Collateral. The Company will keep all of its Collateral
now held or subsequently acquired by it at the locations specified on Schedule F
hereto, or at locations hereafter established in compliance with Section 6(c)
hereof (except for Collateral held by the Collateral Agent, a Trustee or the
Escrow Agent), unless the Company shall have given the Collateral Agent and the
Trustees prior written notice thereof and shall have in advance executed and
caused to be filed and/or delivered to the Collateral Agent and the Trustees any
financing statements or other documents required by the Collateral Agent and the
Trustees in order to perfect, protect and preserve the Liens and security
interest created hereby, all in form and substance satisfactory to the
Collateral Agent and the Trustees.
(c) Location of Offices; Corporation Name; Legal Structure. The Company
will not change the location of its chief executive office or establish any
place of business other than those set forth on Schedule D attached hereto, or
voluntarily or involuntarily change its name, identity or legal structure,
including without limitation any continuances, amalgamation, merger,
consolidation or sale of substantially all of its assets, unless the Company
shall have given the Collateral Agent and the Trustees at least thirty (30) days
prior written notice thereof and shall have in advance executed and caused to be
filed and/or delivered to the Collateral Agent and the Trustees any financing
statements or other Collateral Documents required by the Collateral Agent
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and the Trustees in order to perfect, protect and preserve the Liens and
security interest created hereby, all in form and substance satisfactory to the
Trustees and the Collateral Agent.
(d) Additional Collateral; Further Assurances. The Company agrees that
immediately upon becoming the beneficial owner of any additional shares of WTC
Capital Stock constituting Collateral or Intercompany Notes constituting
Collateral, it will pledge and deliver to the Collateral Agent for the benefit
of the Senior Note Trustee and the equal and ratable benefit of the Holders of
the Senior Notes and for the benefit of the Convertible Note Trustee and for the
equal and ratable benefit of the Holders of the Convertible Notes, the
certificates, instruments and documents representing such WTC Capital Stock (as
well as duly executed instruments of transfer or assignment in blank), and grant
to the Collateral Agent for the benefit of the Senior Note Trustee and the equal
and ratable benefit of the Holders of the Senior Notes and for the benefit of
the Convertible Note Trustee and for the equal and ratable benefit of the
Holders of the Convertible Notes pursuant to appropriate and necessary
Collateral Documents, a continuing first priority security interest in and Liens
on, such WTC Capital Stock and Intercompany Notes, all in form and substance
satisfactory to the Collateral Agent and the Trustees (as well as duly executed
instruments of transfer or assignment in blank), and grant to the Collateral
Agent for the benefit of the Senior Note Trustee and the equal and ratable
benefit of the Holders of the Senior Notes and for the benefit of the
Convertible Note Trustee and for the equal and ratable benefit of the Holders of
the Convertible Notes pursuant to appropriate and necessary Senior Note
Collateral Documents, a continuing first priority security interest in and Liens
on such WTC Capital Stock or such Intercompany Notes, all in form and substance
satisfactory to the Collateral Agent and the Trustees. The Company shall also
promptly (and in any event within five (5) Business Days after receipt thereof),
subject to its compliance with the requirements of applicable law, deliver to
the Collateral Agent any other documents of title, promissory notes,
certificates or instruments representing Collateral which it holds. The Company
further agrees that it will promptly (and in any event within five (5) Business
Days after such acquisition) deliver to the Collateral Agent and the Trustees an
amendment, duly executed by the Company, in substantially the form of Schedule G
hereto an "Additional Collateral Amendment", with respect to the additional
Collateral that is to be pledged pursuant to this Security Agreement. The
Company hereby authorizes the Collateral Agent and the Trustees to attach each
Additional Collateral Amendment to this Security Agreement and agrees that any
stock, notes or other forms of Investments listed on any Additional Collateral
Amendment delivered to the Collateral Agent or the Trustees shall for all
purposes hereunder be considered Collateral. The Company will, promptly, (i)
execute and deliver, cause to be executed and filed, or use its best efforts to
give any notices, in all appropriate jurisdictions (including British Virgin
Islands, Canada, Cyprus, the Russian Federation, Kazakstan and Ireland) or
procure any financing statements, assignments, pledges or other documents, (ii)
mark any chattel paper constituting Collateral, deliver any certificates,
chattel paper or instruments constituting Collateral to the Collateral Agent or
the Trustees, (iii) to execute and deliver or cause to be executed and delivered
all stock powers, proxies, assignments, instruments and other documents, and
(iv) take any other actions that are necessary or, in the reasonable opinion of
Collateral Agent or the Trustees, desirable to perfect or continue the
perfection and the priority of the Collateral Agent's security interest and
Liens in the Collateral, to protect the Collateral against the rights, claims,
or interests of third Persons other than holders of Permitted Liens or to effect
the purposes of this Security Agreement. The Company also hereby authorizes the
Collateral Agent to file any financing or continuation statements with respect
to the Collateral without the signature of the Company to the extent permitted
by applicable law.
(e) Disposition of Collateral. The Company will not sell, transfer,
assign, pledge, collaterally assign, exchange or otherwise dispose of, or grant
any option or warrant with respect to, any of the Collateral except as permitted
by the Senior Note Indenture and the Convertible
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Note Indenture. If the proceeds of any sale of any Collateral are notes,
instruments, documents of title, standby letters of credit or chattel paper,
such proceeds shall be promptly delivered to the Collateral Agent to be held as
Collateral hereunder. If the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of these
provisions, the security interest and Liens of the Collateral Agent shall
continue in such Collateral or part thereof notwithstanding such sale, transfer,
assignment, exchange or other disposition, and the Company will hold the
proceeds thereof in a separate account for the benefit of the Senior Note
Trustee and the Holders of the Senior Notes and the benefit of the Convertible
Note Trustee and the Holders of the Convertible Notes and transfer such proceeds
to the Collateral Agent or the applicable Trustee in kind to be held as
Collateral hereunder.
(f) Restrictive Agreements. The Company agrees that, except for
existing agreements set forth on Schedule H attached hereto, it will not (i)
enter into any agreement or understanding that purports to or may restrict or
inhibit the Collateral Agent's or the Trustees' rights or remedies hereunder,
including, without limitation, the Trustees' right to sell or otherwise dispose
of the Collateral or amend or modify in any manner materially adverse to the
Trustees the existing agreements set forth as Schedule G attached hereto, (ii)
permit WTC or any other relevant issuer to continue, merge, amalgamate or
consolidate, unless all outstanding Capital Stock owned by the Company of the
surviving corporation is, upon such continuance, merger, amalgamation or
consolidation, pledged hereunder to the Collateral Agent or (iii) fail to pay or
discharge any tax, assessment or levy of any nature not later than five days
prior to the date of any proposed sale under any judgment, writ or warrant of
attachment with regard to the Collateral.
(g) Rights of Collateral Agent and Trustees. Upon the occurrence and
during the continuance of an Event of Default, the Collateral Agent and the
Senior Note Trustee (or the Convertible Note Trustee if the Senior Notes are no
longer outstanding and the Senior Note Indenture has been satisfied and
discharged) shall have the right at any time to make any payments and do any
other acts the Collateral Agent or the applicable Trustee may deem necessary to
protect its Liens and security interest in the Collateral, including, without
limitation, the rights to pay, purchase, contest or compromise any Lien which,
in the judgment of the Collateral Agent or such Trustee, appears to be prior to
or superior to the Liens and security interest granted hereunder, and challenge
any action or proceeding purporting to affect its Liens and security interest in
the Collateral. The Company hereby agrees to reimburse the Collateral Agent and
the Trustees for all payments made and expenses incurred under this Security
Agreement including reasonable fees, expenses and disbursements of attorneys and
paralegals acting for the Collateral Agent or the Trustees, including any of the
foregoing payments under or acts taken to perfect or protect the Liens and
security interest in the Collateral, which amounts shall be secured under this
Security Agreement, and agrees that it shall be bound by any payment made or act
taken by the Collateral Agent or the Trustees hereunder. Neither the Collateral
Agent nor the Trustees shall have any obligation to make any of the foregoing
payments or perform any of the foregoing acts.
(h) Records. The Company will keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral.
(i) Access. On reasonable notice to the Company, except at any time
during the continuation of Default or an Event of Default, both the Collateral
Agent and the Trustees shall at all times have full and free access during
normal business hours to all the books, correspondence and records of the
Company relating to the Collateral, and the Collateral Agent and its
representatives, and the Trustees and their respective representatives, may
examine the same, take extracts therefrom and make photocopies thereof, and the
Company agrees to render to the
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Collateral Agent and/or the applicable Trustee, at the Company's cost and
expense, such clerical and other assistance, at all times and in such manner as
may be requested with regard thereto. On reasonable notice to the Company,
except at any time during the continuation of Default or an Event of Default,
the Collateral Agent and its representatives, and the Trustee and their
respective representatives, shall at all times also have the right to enter,
during normal business hours, into and upon any premises where any of the
Collateral is located for the purpose of inspecting the same, observing its use
or otherwise protecting its interests therein.
(j) Taxes. The Company shall pay all taxes, assessments and government
charges and all claims as and to the extent required by Section 4.6 of each of
the Senior Note Indenture and the Convertible Note Indenture; provided that the
Company shall in any event pay such taxes, assessments or levies not later than
five days prior to the date of any proposed sale under any judgment, writ or
warrant of attachment with regard to any Collateral of the Company entered or
filed against the Company as a result of the failure to make such payment.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default shall have occurred and be
continuing, the Company shall be entitled to exercise any and all voting and
other consensual rights pertaining to the WTC Capital Stock or Intercompany
Notes constituting Collateral or any part thereof for any purpose not
inconsistent with the terms of this Security Agreement, the Senior Note
Indenture or any other Senior Note Collateral Document or the Convertible Note
Indenture or any Convertible Note Collateral Document; provided that the Company
shall not exercise or shall refrain from exercising any such right if such
action would be inconsistent with or violate any provisions of this Security
Agreement, the Senior Note Indenture or any other Senior Note Collateral
Document or the Convertible Note Indenture or any Convertible Note Collateral
Document.
(b) So long as no Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions hereof and of the
Senior Note Indenture, or of the Convertible Note Indenture, the Company shall
be entitled to receive, and to utilize free and clear of the Lien of this
Security Agreement, all payments made from time to time in respect of the WTC
Capital Stock or Intercompany Notes, whether dividends, distributions or
otherwise.
(c) The Collateral Agent and/or the Senior Note Trustee (or the
Convertible Note Trustee if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged) shall execute and
deliver (or cause to be executed and delivered) to the Company all such proxies
and other instruments as the Company may reasonably request for the purpose of
enabling the Company to exercise the voting and other rights that it is entitled
to exercise pursuant to Section 7(a) above.
(d) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of the Company to exercise the voting and other
consensual rights that it would otherwise be entitled to exercise pursuant to
Section 7(a) shall cease, and all such rights shall thereupon become vested in
the Collateral Agent on behalf of, or if necessary, directly in, the Senior Note
Trustee (or the Convertible Note Trustee if the Senior Notes are no longer
outstanding and the Senior Note Indenture has been satisfied and discharged),
which shall thereupon have the sole right to exercise such voting and other
consensual rights; and (ii) all interest, principal payments, dividends or other
distributions payable or other payments made in respect of the Collateral shall
constitute Collateral and shall be paid directly to the Collateral Agent and the
Company's right to receive such payments pursuant to Section 7(d) hereof shall
immediately cease and all such payments shall be deposited in the Company Senior
Note Escrow Account or the Convertible
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Note Escrow Account, if the Company Senior Note Escrow Account Agreement has
been terminated.
(e) Upon the occurrence and during the continuance of an Event of
Default, the Company shall execute and deliver (or cause to be executed and
delivered) to the Collateral Agent and/or the Senior Note Trustee (or the
Convertible Note Trustee if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged) all such proxies and
other instruments as the Collateral Agent and/or the applicable Trustee may
reasonably request for the purpose of enabling the Collateral Agent and/or the
applicable Trustee to exercise the voting and other rights that it is entitled
to exercise pursuant to Section 7(d) above.
(f) All dividends and distributions and all other payments that are
received by the Company contrary to the provisions of this Section 7 shall be
received in trust for the Collateral Agent for the benefit of the Senior Note
Trustee and the equal and ratable benefit of the Holders of the Senior Notes and
for the benefit of the Convertible Note Trustee and the equal and ratable
benefit of the Holders of the Convertible Notes, shall be segregated from the
other property or funds of the Company and be forthwith delivered to the
Collateral Agent as Collateral in the same form as so received (with any
necessary endorsements or other instruments of transfer or assignment in blank),
and all such payments shall be deposited in the Company Senior Note Escrow
Account or the Company Convertible Note Escrow Account if the Company Senior
Note Escrow Account Agreement has been terminated.
(g) So long as no Event of Default shall have occurred and be
continuing, neither the Collateral Agent nor the Trustees shall be under any
obligation to collect, attempt to collect, protect or enforce the Collateral,
which the Company agrees and undertakes to do at the Company's expense; provided
that the Collateral Agent and the Trustees shall cooperate with the Company and
take all such action as the Company may reasonably request, to permit the
Company to collect, protect or enforce the Collateral. All reasonable expenses
(including, without limitation, attorneys' fees and legal expenses) actually
incurred or paid by the Collateral Agent and the Trustees in connection with or
incident to any such collection or attempt to collect, protect or enforce the
Collateral shall be borne by the Company or reimbursed by the Company to the
Collateral Agent or the applicable Trustee upon demand.
(h) At the Collateral Agent's or the applicable Trustee's option,
exercisable upon and during the continuance of any Event of Default, either the
Collateral Agent or the Senior Note Trustee (or the Convertible Note Trustee if
the Senior Notes are no longer outstanding and the Senior Note Indenture has
been satisfied and discharged) may notify WTC or other obligors or issuers that
any and all payments and distributions to be made on the WTC Capital Stock or
the Intercompany Notes shall be made directly to the Collateral Agent or the
applicable Trustee, until WTC or other obligors or issuers is notified in
writing by the applicable Trustee to discontinue making such payments to it; and
WTC and such obligors and issuers shall not be required to see to the
application of said proceeds by the Trustees or the Collateral Agent. All such
payments shall be deposited by such Trustee or the Collateral Agent into the
Company Senior Note Escrow Account (or the Company Convertible Note Escrow
Account if the Company Senior Note Escrow Account Agreement has been terminated)
and held as additional Collateral for the Obligations. If at any time the
Collateral agent or a Trustee shall have notified WTC or other obligor or issuer
to make all payments directly to the Company and if at any time thereafter all
Events of Default shall have been cured or waived in accordance with the terms
of the Senior Note Indenture (or the Convertible Note Indenture if the Senior
Notes are no longer outstanding and the Senior Note Indenture has been satisfied
and discharged), the Collateral Agent or such Trustee shall notify
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WTC or the other obligors or issuers to make all such payments directly to the
Company or as the Company may otherwise direct.
SECTION 8. POWER OF ATTORNEY. In addition to all of the powers granted
to the Senior Note Trustee pursuant to Article VI of the Senior Note Indenture
and the Convertible Note Trustee pursuant to Article VI of the Convertible Note
Indentures, the Company hereby appoints and constitutes the Collateral Agent and
the Trustees, whether acting separately or jointly, as the Company's
attorney-in-fact to exercise all of the following powers upon and at any time
after the occurrence and during the continuance of an Event of Default: (i)
collection of proceeds of any Collateral; (ii) conveyance of any item of
Collateral to any purchaser thereof; (iii) giving of any notices or recording of
the security interest and the Liens under Section 6(d) hereof; (iv) making of
any payments or taking any acts under Section 9 hereof and (v) paying or
discharging taxes or Liens levied or placed upon the Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by the Collateral Agent in its sole discretion, and such payments
made by the Collateral Agent to become the Obligations of the Company to the
Collateral Agent, due and payable immediately upon demand. The Collateral
Agent's authority hereunder shall include, without limitation, the authority to
endorse and negotiate any checks or instruments representing proceeds of
Collateral in the name of the Company, to execute and give receipt for any
certificate of ownership or any document constituting Collateral, to transfer
title to any item of Collateral, to sign the Company's name on all financing
statements (to the extent permitted by applicable law) or any documents deemed
necessary or appropriate by the Collateral Agent to preserve, protect or perfect
the Liens in the Collateral and to file the same, to prepare, file and sign the
Company's name on any notice of Lien, and to prepare, file and sign the
Company's name on a proof of claim in bankruptcy or similar document against any
customer of, or person obligated upon any Collateral to, the Company, and to
take any other actions arising from or incident to the powers granted to the
Collateral Agent in this Security Agreement. This power of attorney is coupled
with an interest in the Trustees and in the Collateral Agent as agent on behalf
of the Trustees and is irrevocable by the Company.
SECTION 9. COLLATERAL AGENT OR TRUSTEES MAY PERFORM. If the Company
fails to perform any covenant or agreement contained herein, the Collateral
Agent or either Trustee may, but shall not be obligated to, itself perform, or
cause performance of, such covenant or agreement, and the reasonable expenses of
the Collateral Agent or the Trustees incurred in connection therewith shall be
payable by the Company under Section 16(p) hereof.
SECTION 10. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights and
powers granted to the Collateral Agent or the Trustees hereunder are being
granted in order to preserve and protect the Collateral Agent's Liens and
security interest in and to the Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on the Collateral Agent or the
Trustees in connection therewith. Each of the Collateral Agent and the Trustees
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Collateral Agent or such Trustee
accords similar property in similar situations, it being understood that the
Collateral Agent and the Trustees shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Collateral Agent or either Trustee has or is deemed to have knowledge of
such matters, (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral, or (iii) inquiring into or verifying
that the Company has complied or will comply with its duty to furnish additional
items of Collateral to the Collateral Agent and/or the Trustees pursuant to
Section 6(d) hereof. Absent knowledge to the contrary, the Collateral Agent and
the Trustees may assume that the items of Collateral actually
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delivered to it are all items required to be so delivered and may assume that no
other such items need be so delivered.
SECTION 11. SUBSEQUENT CHANGES AFFECTING COLLATERAL. The Company
represents to the Collateral Agent, the Senior Note Trustee and the Holders of
the Senior Notes and the Convertible Note Trustee and the Holders of the
Convertible Notes, that the Company has made its own arrangements for keeping
informed of changes or potential changes affecting the Collateral (including,
but not limited to, rights to convert, rights to subscribe, payment of
dividends, payments of interest and/or principal, reorganization or other
exchanges, tender offers and voting rights), and the Company agrees that the
Collateral Agent, the Senior Note Trustee and the Holders of the Senior Notes,
and the Convertible Note Trustee and the Holders of the Convertible Notes shall
have no responsibility or liability for informing the Company of any such
changes or potential changes or for taking any action or omitting to take any
action with respect thereof. Except as not prohibited by the Senior Note
Indenture (or the Convertible Note Indenture if the Senior Notes are no longer
outstanding and the Senior Note Indenture has been satisfied and discharged),
the Company covenants that it will not, without the prior written consent of the
applicable Trustee, vote to enable, or take any other action to permit, any
Issuer to issue any Capital Stock or other securities or to sell or otherwise
dispose of, or grant any option with respect to, any of the Collateral or create
or permit to exist any Lien upon or with respect to any of the Collateral,
except for, Permitted Liens and the Liens granted under this Security Agreement
and the other Senior Note Collateral Documents. The Company will defend the
right, title and interest of the Collateral Agent, the Senior Note Trustee and
the Holders of the Senior Notes and the Convertible Note Trustee and the Holders
of the Convertible Notes in and to the Collateral against the claims and demands
of all persons.
SECTION 12. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent may, subject to the provisions of the Senior Note
Indenture (or of the Convertible Note Indenture if the Senior Notes are no
longer outstanding and the Senior Note Indenture has been satisfied and
discharged), this Security Agreement, the Collateral Agent's and the Trustees'
compliance with any requirements of law (including, without limitations, the
applicable Uniform Commercial Code and the Personal Property Security Act
(Ontario)) applicable to the action to be taken, without notice to or demand
upon the Company except as required by the Senior Note Indenture (or the
Convertible Note Indenture if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged), this Agreement or
applicable law, do any one or more of the following:
(i) exercise any or all of the rights and remedies provided for by the
applicable Uniform Commercial Code and the Personal Property Security Act
(Ontario), specifically including, without limitation, the right to recover the
reasonable fees and expenses incurred by the Collateral Agent or the Trustees in
the enforcement of this Security Agreement or in connection with the Company's
redemption of the Collateral, including reasonable fees, expenses and
disbursements of attorneys, paralegals and agents;
(ii) at its option, transfer or register, and the Company shall
register or cause to be registered upon request therefor by the Collateral Agent
or the Trustees, the Collateral or any part thereof on the books of the
Restricted Subsidiaries to which an intercompany loan evidenced by an
Intercompany Note has been made, the Issuers, or the Persons in whom Qualified
Investments are made into the name of the Collateral Agent or the Collateral
Agent's nominee(s);
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(iii) personally, or by agents or attorneys, immediately retake
possession of the Collateral, or any part thereof, from the Company or any other
Person who then has possession of any part thereof with or without notice or
process of law, and for that purpose may enter upon the Company's premises where
any of the Collateral is located and remove the same and use in connection with
such removal any and all services, supplies, aids and other facilities of the
Company;
(iv) sell, assign or otherwise liquidate, or direct the Company to
sell, assign or otherwise liquidate, any or all of the Collateral or any part
thereof, and take possession of the proceeds of any such sale or liquidation;
(v) require the Company to assemble the Collateral or any part thereof
and make it available at one or more places as the Collateral Agent or the
Trustees may designate and to deliver possession of the Collateral or any part
thereof to the Collateral Agent or the Trustees;
(vi) use, in connection with any assembly, use or disposition of the
Collateral, any intellectual property, intangibles or other technical knowledge
or process used or utilized from time to time by the Company;
(vii) sell or cause the same to be sold at any broker's board or at
public or private sale, in one or more sales or lots, at such price or prices as
the Collateral Agent may deem best, for cash or on credit or for future
delivery, without assumption of any credit; and the purchaser of any or all
Collateral so sold shall thereafter hold the same absolutely, free from any
claim, encumbrance or right of any kind whatsoever;
(viii) enforce one or more remedies hereunder, successively or
concurrently, and such action shall not operate to estop or prevent the
Collateral Agent from pursuing any other or further remedy which it may have,
and any repossession or retaking or sale of the Collateral pursuant to the terms
hereof shall not operate to release the Company until full and final payment of
any deficiency has been made in cash;
(ix) in connection with any public or private sale under the applicable
Uniform Commercial Code, the Personal Property Security Act (Ontario) or other
applicable legislation, the Collateral Agent shall give the Company at least
fifteen (15) Business Days' prior written notice of the time and place of any
public sale of its Collateral or of the time after which any private sale or
other intended disposition thereof may be made, which shall be deemed to be
reasonable notice of such sale or other disposition. Such notice may be given to
the Company in accordance with the provisions of Section 16(a) hereof;
(x) proceed by an action or actions at law or in equity to recover the
Obligations or to foreclose this Security Agreement and sell the Collateral, or
any portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction;
(xi) exercise any other rights and remedies provided by applicable law
and the other Senior Note Collateral Documents; and
(xii) if the Collateral Agent recovers possession of all or any part of
the Collateral pursuant to a writ of possession or other judicial process,
whether prejudgment or otherwise, the Collateral Agent may thereafter retain,
sell or otherwise dispose of such Collateral in accordance with this Security
Agreement or the applicable Uniform Commercial Code, the Personal Property
Security Act (Ontario) or other applicable legislation and following such
retention, sale or other
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disposition, the Collateral Agent may voluntarily dismiss without prejudice the
judicial action in which such writ of possession or other judicial process was
issued. The Company hereby consents to the voluntary dismissal by the Collateral
Agent of such judicial action, and the Company further consents to the
exoneration of any bond that the Collateral Agent files in such action.
(b) If the Collateral Agent shall determine, or shall be directed by
the Senior Note Trustee (or the Convertible Note Trustee if the Senior Notes are
no longer outstanding and the Senior Note Indenture has been satisfied and
discharged), to exercise its right to sell any or all of the WTC Capital Stock
or the Intercompany Notes constituting Collateral pursuant to Section 12(a)
above, and if in the opinion of counsel for the Collateral Agent it is
necessary, or if in the opinion of the Collateral Agent or such Trustee it is
advisable, after such consultation with investment bank(s), broker-dealer(s) or
other experts selected by them, as the Collateral Agent or such Trustee deems
advisable or appropriate, to have the WTC Capital Stock or Intercompany Notes
constituting Collateral or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Company will (i) use its best efforts to cause WTC or other issuer or obligor to
execute and deliver, and to cause such Person's directors and officers to
execute and deliver, all at the Company's own expense, all such instruments and
documents, and to do or cause to be done all such other acts and things as may
be necessary or, in the opinion of the Collateral Agent or such Trustee, after
such consultation with investment bank(s), broker-dealer(s) or other experts
selected by them, as the Collateral Agent or such Trustee deems advisable or
appropriate, advisable to register such, WTC Capital Stock or Intercompany Notes
under the provisions of the Securities Act, (ii) use its best efforts to cause
the registration statement relating thereto to become effective and to remain
effective for a period of 180 days from the date of the first public offering of
such WTC Capital Stock or Intercompany Notes, or that portion thereof, to be
sold and (iii) make all amendments thereto and/or to the related prospectus that
are necessary or, in the opinion of the Collateral Agent or such Trustee,
advisable, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission applicable
thereto. The Company agrees to use its best efforts to cause WTC or other issuer
or obligor to comply with the provisions of the securities or "Blue Sky" laws of
any jurisdiction that the Collateral Agent or the Senior Note Trustee or the
Convertible Note Trustee if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged shall designate for the
sale of WTC Capital Stock or Intercompany Notes and to make available to the
security holders of WTC or other obligor or issuer as soon as practicable, an
earnings statement (which need not be audited) that will satisfy the provisions
of Section 11(a) of the Securities Act. The Company will cause WTC or other
obligor or issuer to furnish to the Collateral Agent and the Trustees such
number of copies as the Trustee may reasonably request of each preliminary
prospectus and prospectus, to notify promptly the Collateral Agent and the
Trustees of the happening of any event as a result of which any then effective
prospectus includes an untrue statement of any material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of then existing circumstances and cause the
Collateral Agent and the Trustees to be furnished with such number of copies as
the Collateral Agent and the Trustees may request of such supplement to or
amendment of such prospectus as is necessary to eliminate such untrue statement
or supply such omission. The Company will cause WTC or such other issuer or
obligor, as the case may be, to the extent permitted by law, to indemnify,
defend and hold harmless the Collateral Agent, the Senior Note Trustee and the
Holders of the Senior Notes, and the Convertible Note Trustee and the Holders of
the Convertible Notes from and against all losses, liabilities, expenses or
claims (including reasonable costs of investigation) that the Collateral Agent,
the Senior Note Trustee or the Holders of the Senior Notes or the Convertible
Note Trustee or the Holders of the Convertible Notes may incur under the
Securities Act or
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otherwise, insofar as such losses, liabilities, expenses or claims arise out of
or are based upon any alleged untrue statement of a material fact contained in
such registration statement (or any amendment thereto) or in any preliminary
prospectus or prospectus (or any amendment or supplement thereto), or arise out
of or are based upon any alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except to the extent that any such losses, liabilities, expenses or claims arise
solely out of or are based solely upon any such alleged untrue statement made or
such alleged omission to state a material fact included or excluded on the
written direction of the Collateral Agent or a Trustee. The Company will bear,
or will cause WTC or other issuer or obligor to bear, all costs and expenses of
carrying out its or their obligations hereunder. The provisions of this Section
12(b) shall in now way impose upon either Trustee or the Collateral Agent any
duty to execute any registration statement under the Securities Act with respect
to any WTC Capital Stock or Intercompany Notes.
(c) In view of the fact that federal, state and foreign securities laws
may impose certain restrictions on the method by which a sale of the Collateral
may be effected after an Event of Default, the Company agrees that upon the
occurrence and during the continuance of an Event of Default, the Collateral
Agent may, from time to time, attempt to sell all or any part of the Collateral
by means of a private placement, restricting the prospective purchasers to those
who will represent and agree that they are purchasing for investment only and
not for distribution. In so doing, the Collateral Agent may solicit, or may
cause an investment manager to solicit, offers to buy the Collateral, or any
part of it, for cash, from a limited number of investors who might be interested
in purchasing the Collateral. The Company acknowledges and agrees that any such
private sale may result in prices and terms less favorable than if such sale
were a public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Collateral Agent shall be under no obligation to delay a sale of any
of the Collateral for the period of time necessary to permit the Company to
cause WTC or other issuer or obligor to register such securities for public sale
under the Securities Act, or under applicable state or foreign securities laws,
even if the Company could cause WTC or other issuer or obligor to do so.
(d) The Company further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Collateral pursuant to this Section 12 valid and
binding and in compliance with any and all other applicable requirements of
applicable law. The Company further agrees that a breach of any of the covenants
contained in this Section 12 will cause irreparable injury to the Collateral
Agent, the Senior Note Trustee, the Holders of the Senior Notes, the Convertible
Note Trustee or the Holders of the Convertible Notes, that the Collateral Agent,
the Senior Note Trustee, the Holders of the Senior Notes, the Convertible Note
Trustee or the Holders of the Convertible Notes have no adequate remedy at law
in respect of such breach and, as a consequence, that each and every covenant
contained in this Section 12 shall be specifically enforceable against the
Company, and the Company hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred and is continuing.
(e) Any cash held by the Collateral Agent as Collateral and all cash
proceeds received by the Collateral Agent in respect of any sale of, collection
from, or other realization upon all or any part of the Collateral shall be
applied by the Collateral Agent:
First, to the payment of the costs and expenses of such sale,
including, without limitation, reasonable expenses of the Collateral
Agent and its agents including the fees
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and expenses of its counsel, and all expenses, liabilities and advances
made or incurred by the Collateral Agent in connection therewith or
pursuant to Section 16(p) hereof;
Next, to the Senior Note Trustee, for the payment in full of
all amounts due under Section 7.7 of the Senior Note Indenture;
Next, to the Senior Note Trustee, for distribution to the
Holders of the Senior Notes, for the payment in full of the remaining
Senior Note Obligations;
Next, to the Convertible Note Trustee, for the payment in full
of all amounts due under Section 7.7 of the Convertible Note Indenture;
Next, to the Convertible Note Trustee, for the distribution to
the Holders of the Convertible Notes for payment in full of the
remaining Convertible Note Obligations; and
Finally, after payment in full of all of the Obligations, to
the Company, or its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same as a court of competent
jurisdiction may direct.
f) If any sale or other disposition of Collateral by the Collateral
Agent or any other action of the Collateral Agent or the Trustees hereunder
results in reduction of the Obligations, such action will not release the
Company from its liability for any unpaid Obligations, including costs, charges
and expenses incurred in the liquidation of Collateral, together with interest
thereon, and the same shall be immediately due and payable to the Collateral
Agent, the Senior Note Trustee and the Holders of the Senior Notes as provided
for in the Senior Note Indenture, or, if applicable, the Convertible Note
Trustee and the Holders of the Convertible Notes as provided for in the
Convertible Note Indenture.
(g) The Collateral Agent may enforce its rights hereunder without prior
judicial process or judicial hearing, and to the extent permitted by law the
Company expressly waives any and all legal rights which might otherwise require
the Collateral Agent to enforce its rights by judicial process.
(h) The existence and/or exercise of any or all of the rights and
remedies given to the Collateral Agent and/or the Trustees under this Section 12
shall be subject in all cases to compliance with any mandatory requirements of
applicable law, particularly the laws of jurisdictions other than the Union
States.
SECTION 13. IRREVOCABLE AUTHORIZATION AND INSTRUCTIONS TO WTC OR
APPLICABLE ISSUER. The Company hereby authorizes and instructs WTC or other
applicable issuer or obligor to comply with any instructions received by WTC or
other issuer or obligor from the Collateral Agent or the Senior Note Trustee (or
the Convertible Note Trustee if the Senior Notes are no longer outstanding and
the Senior Note Indenture has been satisfied and discharged) that (i) states
that an Event of Default has occurred and (ii) is otherwise in accordance with
the terms of this Security Agreement, without any other or further instructions
from the Company, and the Company agrees that WTC and the other applicable
issuers and obligors shall be fully protected in so complying.
SECTION 14. SECURITY INTEREST ABSOLUTE. All rights of the Collateral
Agent, the Senior Note Trustee and the Holders of the Senior Notes, and the
Convertible Note Trustee
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and the Holders of the Convertible Notes and the Liens or security interests
hereunder, and all obligations of the Company hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of the Senior Note
Indenture, any Senior Note Collateral Document, any Senior Note Guarantee, the
Convertible Note Indenture, any Convertible Note Collateral Document, any
Convertible Note Guarantee or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Senior Note Indenture or the Senior
Note Collateral Documents or from the Convertible Note Indenture or the
Convertible Note Collateral Documents;
(c) any exchange, surrender, release or non-perfection of any Liens on
any other collateral, or any release or amendment or waiver of or consent to
departure from any Senior Note Guarantee, any Convertible Note Guarantee or
other guarantee, for all or any of the Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Company in respect of the Obligations or of
this Security Agreement.
SECTION 15. WAIVERS.
(a) Except as may be required under the provisions of the Senior Note
Indenture (or of the convertible Note Indenture if the Senior Notes are no
longer outstanding and the Senior Note Indenture has been satisfied and
discharged), and to the fullest extent permitted under applicable law, neither
the Collateral Agent nor the Senior Note Trustee (or the Convertible Note
Trustee if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged) shall be under any duty whatsoever
to make or give any presentment, notice of dishonor, protest, demand for
performance, notice of non-performance, notice of intent to accelerate, notice
of acceleration, or other notice or demand in connection with any Collateral or
the Obligations, or to take any steps reasonably necessary to preserve any
rights against any Obligor or other Person. The Company waives to the fullest
extent permitted under applicable law any right of marshalling in respect of any
and all Collateral, and waives to the fullest extent permitted lender applicable
law any right to require the Collateral Agent or the applicable Trustee to
proceed against any Obligor or other Person, exhaust any Collateral or enforce
any other remedy which the Collateral Agent or the applicable Trustee now has or
may hereafter have against any Obligor or other Person.
(b) The Company waives to the fullest extent permitted under applicable
law (i) any and all notices of acceptance, creation, modification,
rearrangement, renewal or extension for any period of any instrument executed by
any Obligor in connection with the Obligations and (ii) any defense of any
Obligor by reason of disability, lack of authorization, cessation of the
liability of any Obligor or for any other reason. The Company authorizes the
Collateral Agent, to the fullest extent permitted under applicable law without
notice or demand and without any reservation of rights against the Company and
without affecting the Company's liability hereunder or on the Obligations, from
time to time to (w) take and hold other Property, other than the collateral, as
security for the Obligations, and exchange, enforce, waive and release any or
all of the collateral, (x) after the occurrence and during the continuance of an
Event of Default and the acceleration of the Senior Notes, apply the Collateral
in the manner permitted by this Security Agreement or the Senior Note Indenture,
(y) after the occurrence and during the continuance of an Event of Default
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and the acceleration of the Convertible Notes, if the Senior notes are no longer
outstanding and the Senior Note Indenture has been satisfied and discharged,
apply the Collateral in the manner permitted by this Security Agreement or the
Convertible Note Indenture and (z) after the occurrence and during the
continuance of an Event of Default renew, extend for any period, accelerate,
amend or modify, supplement, enforce, compromise, settle, waive or release the
obligations of any obligor on, or any instrument or agreement of such other
Person with respect to any or all of, the Collateral.
SECTION 16. MISCELLANEOUS PROVISIONS.
(a) Notices. All notices, approvals, consents or other communications
required or desired to be given hereunder shall be in the form and manner, and
delivered to each of the Company at its address as set forth in Section 13.2 of
the Senior Note Indenture and Section 15.2 of the Convertible Note Indenture and
the Senior Note Trustee at its address, as set forth in Section 13.2 of the
Senior Note Indenture, and Section 15.2 of the Convertible Note Indenture and to
the Collateral Agent at The Bank of New York, 101 Barclay Street, Floor 21 West,
New York, New York 10296.
(b) Sales of Collateral. No sales of Collateral may be made in
contravention of the terms of the Senior Note Indenture or the Convertible Note
Indenture and the cash proceeds of the sale of any Collateral shall be promptly
and without commingling remitted to the Collateral Agent or the Trustee for
deposit in the Company Senior Note Escrow Account or to the Collateral Agent or
the Convertible Note Trustee for deposit in the Company Convertible Note Escrow
Account if the Company Senior Note Escrow Account Agreement has been terminated.
(c) No Adverse Interpretation of Other Agreements. This Security
Agreement may not be used to interpret another pledge, security or debt
agreement of the Company or any Subsidiary of the Company. No such pledge,
security or debt agreement may be used to interpret this Security Agreement.
(d) Severability. The provisions of this Security Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Security Agreement in any jurisdiction.
(e) Headings. The headings in this Security Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
(f) Counterpart Originals. This Security Agreement may be signed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.
(g) Benefits of Security Agreement. Nothing in this Security Agreement,
express or implied, shall give to any person, other than the parties hereto and
their successors hereunder and the Holders of the Senior Notes and the Senior
Note Guarantors, and the Holders of the Convertible Notes and the Convertible
Note Guarantors any benefit or any legal or equitable right, remedy or claim
under this Security Agreement.
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(h) Amendments, Waivers and Consents. Any amendment or waiver of any
provision of this Security Agreement and any consent to any departure by the
Company from any provision of this Security Agreement shall be effective only if
made or given in compliance with all of the terms and provisions of the Senior
Note Indenture and the Convertible Note Indenture and neither the Collateral
Agent nor the Senior Note Trustee or any Holder of any Senior Note or the
Convertible Note Trustee or any Holder of Convertible Notes shall be deemed, by
any act, delay, indulgence, omission or otherwise, to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. Failure of the Collateral
Agent or the Trustees to exercise, or delay in exercising, any right, power or
privilege hereunder shall not operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Collateral Agent, the Senior Note Trustee or any Holder of any
Senior Note or the Convertible Note Trustee or any Holder of any Convertible
Note of any right or remedy hereunder on any one occasion shall not be construed
as a bar to any right or remedy that the Collateral Agent, such Trustee or any
such Holder would otherwise have on any future occasion. The right and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law.
(i) Interpretation of Security Agreement. All terms not defined herein
or in the Indenture shall have the meaning set forth in the applicable Uniform
Commercial Code of the State of New York, except where the context otherwise
requires. To the extent a term or provision of this Security Agreement conflicts
with the Senior Note Indenture, the Senior Note Indenture shall control with
respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Security Agreement
shall not be relevant in determining the meaning of this Security Agreement even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
(j) Continuing Security Interest; Transfer of Notes. This Security
Agreement shall create a continuing Lien and security interest in the Collateral
and shall (i) unless otherwise provided in the Senior Note Indenture or the
Convertible Note Indenture if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged or this Security
Agreement, remain in full force and effect until payment in full of (A) the
Senior Notes under the terms of the Senior Note Indenture, (B) all Obligations
then due and owing under the Senior Note Indenture, the Senior Note Guarantees
and the Senior Note Collateral Documents, (C) the Convertible Notes under the
terms of the Convertible Note Indenture and (D) all Obligations then due and
owing under the Convertible Note Indenture, the Convertible Note Guarantees and
the Convertible Note Collateral Documents; provided, however, that after receipt
from the Company by the Collateral Agent of a request for a release of any
Collateral permitted under the Senior Note Indenture and the Convertible Note
Indenture upon the sale, transfer, assignment, exchange or other disposition of
such Collateral not prohibited by the Senior Note Indenture and the Convertible
Note Indenture and upon receipt by the Collateral Agent of all proceeds of such
sale, transfer, assignment, exchange or other disposition required to be
remitted to the Collateral Agent or the Senior Note Trustee (or the Convertible
Note Trustee if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged), or the Collateral constituting the
proceeds of such sale, transfer, assignment, exchange or other disposition being
made subject to a Lien and security interest in favor of the Collateral Agent
for the benefit of the Senior Note Trustee and the equal and ratable benefit of
the Holders of the Senior Notes and for the benefit of the Convertible Note
Trustee and the equal and ratable benefit of the Holders of the Convertible
Notes, which Lien has the same priority as had the Lien on the Collateral being
sold, assigned or otherwise disposed of, such Collateral shall be released from
the Liens and security
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interest created hereunder and no longer constitute Collateral. Upon the payment
in full of (A) the Senior Notes under the terms of the Senior Note Indenture and
(B) all Obligations then due and owing under the Senior Note Indenture, the
Senior Note Guarantees and the Senior Note Collateral Documents, (C) the
Convertible Notes under the terms of the Convertible Note Indenture and (D) all
Obligations then due and owing under the Convertible Note Indenture, the
Convertible Note Guarantees and the Convertible Note Collateral Documents, the
Company shall be entitled to the return, upon its request and at its expense, of
such of the Collateral pledged by it as shall not have been sold or otherwise
applied pursuant to the terms hereof. This Security Agreement shall be binding
upon the Company, its successors and assigns, and inure, together with the
rights and remedies of the Trustees hereunder, to the benefit of the Collateral
Agent, the Senior Note Trustee and the Holders of the Senior Notes, and the
Convertible Note Trustee and the Holders of the Convertible Notes and their
respective successors, transferees and assigns.
(k) Reinstatement. This Security Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Collateral Agent, the Senior Note Trustee or any Holder of a
Senior Note or the Convertible Note Trustee or any Holder or a Convertible Note
in respect of the Obligations is rescinded or must otherwise be restored or
returned by the Collateral Agent, the Senior Note Trustee or any Holder of a
Senior Note or the Convertible Note Trustee or any Holder of a Convertible Note
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Company or upon the appointment of any receiver, intervenor, conservator,
trustee or similar official for the Company or upon the appointment of any
receiver, intervenor, conservator, trustee or similar official for the Company
or any substantial part of their assets, or otherwise, all as though such
payments had not been made.
(l) Survival of Provisions. All representations, warranties and
covenants of the Company contained herein shall survive the execution and
delivery of this Security Agreement, and shall terminate only upon the full and
final payment and performance by the Company of the Obligations.
(m) Authority of the Collateral Agent and the Trustees. Both the
Collateral Agent and the Trustees shall have and be entitled to exercise all
powers hereunder that are specifically granted to the Collateral Agent and the
Trustees by the terms hereof, together with such powers as are reasonably
incident thereto. The Collateral Agent and the Trustees may perform any of their
duties hereunder or in connection with the Collateral by or through agents or
employees and shall be entitled to retain counsel and to act in reliance upon
the advice of counsel concerning all such matters. None of the Collateral Agent,
any director, officer, employee, attorney or agent of the Collateral Agent, the
Senior Note Trustee, any director, officer, employee, attorney or agent of the
Senior Note Trustee nor the Holders of the Senior Notes, the Convertible Note
Trustee, any director, officer, employee, attorney or agent of the Convertible
Note Trustee and the Holders of the Convertible Notes shall be liable to the
Company for any action taken or omitted to be taken by it or them hereunder,
except for its or their own negligence or willful misconduct, nor shall the
Collateral Agent or the Trustees be responsible for the validity, effectiveness
or sufficiency hereof or of any document or security furnished pursuant hereto.
The Collateral Agent, and its directors, officers, employees, attorneys or
agents, and the Senior Note Trustee and its directors, officers, employees,
attorneys and agents and the Convertible Note Trustee and its directors,
officers, employees, attorneys and agents shall be entitled to rely on any
communication, instrument or document believed by it or them to be genuine and
correct and to have been signed or sent by the proper person or persons. Neither
the Collateral Agent nor the Trustees shall be required to and shall not, expend
or risk any of its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder.
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The Company acknowledges that the rights and responsibilities of the
Collateral Agent and the Trustees under this Security Agreement with respect to
any action taken by the Collateral Agent and the Trustees or the exercise or
non-exercise by the Collateral Agent and the Trustees of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Security Agreement shall, as among the Collateral Agent, the
Senior Note Trustee, the Holders of the Senior Notes, the Convertible Note
Trustee and the Holders of Convertible Notes, be governed by the Senior Note
Indenture and the Convertible Note Indenture, as applicable, and by such other
agreements with respect thereto as may exist from time to time among them, but,
as among the Collateral Agent, the Trustees and the Company, the Collateral
Agent and the Trustees shall be conclusively presumed to be acting as agent for
the Holders of the Senior Notes or the Holders of the Convertible Notes, as the
case may be, with full and valid authority so to act or refrain from acting, and
the Company shall not be obligated or entitled to make any inquiry respecting
such authority.
In any case in which the Collateral Agent shall be required or
permitted to make any determination as to the extent to which the security
interest or Liens under this Security Agreement secures any obligations, the
Collateral Agent is authorized, without any direction from, or requirement for
consent of or authorization by, the Senior Note Trustee (or the Convertible Note
Trustee if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged), to institute proceedings in a
court of competent jurisdiction for the obtaining of any authoritative
determination of such matter. If the Collateral Agent institutes any such
proceeding, it shall give prompt written notice thereof to the Trustees and
shall afford each of them the opportunity to participate in such proceeding.
(n) Limitation by Law. All rights, remedies and powers provided herein
may be exercised only to the extent that they will not render this Security
Agreement not entitled to be recorded, registered or filed under provisions of
any applicable law.
(o) Release; Termination of Security Agreement.
(i) Subject to the provisions of Section 16(k) hereof, this Security
Agreement shall terminate upon payment in full of (A) the Senior Notes under the
terms of the Senior Note Indenture and (B) all Obligations then due and owing
under the Senior Note Indenture, the Senior Note Guarantees and the Senior Note
Collateral Documents, (C) the Convertible Notes under the terms of the
Convertible Note Indenture and (D) all Obligations then due and owing under the
Convertible Note Indenture, the Convertible Note Guarantees and the Convertible
Note Collateral Documents, except that the provisions of Section 16(p) hereof
shall survive.
(ii) The Company agrees that it will not sell or dispose of any of the
Collateral in violation of the Senior Note Indenture or the Convertible Note
Indenture; provided, however, that if the Company shall sell or otherwise
dispose of any of the Collateral in accordance with the terms of the Senior Note
Indenture and/or the Convertible Note Indenture, the Collateral Agent shall, and
the Trustees shall cause, at the request of the Company, release or cause to be
released the Collateral subject to such sale or disposition free and clear of
the Lien and security interest under this Security Agreement.
(iii) Upon any termination of this Security Agreement or release of
any Collateral as permitted by the Senior Note Indenture (or the Convertible
Note Indenture if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged), the Collateral Agent and the
Trustees will, at the expense of the Company, execute and deliver to the
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Company such documents and take such other actions as the Company shall
reasonably request to evidence the termination of this Security Agreement or the
release of such Collateral, as the case may be. Any such action taken by the
Collateral Agent or the Trustees shall be without warranty by or recourse to the
Collateral Agent or the Trustees, except as to the absence of any prior
assignments by the Collateral Agent or the Trustees of its interests in the
Collateral, and shall be at the expense of the Company. The Collateral Agent and
the Trustees may conclusively rely on any certificate delivered to it by the
Company stating that the execution of such documents and release of the
Collateral is in accordance with and permitted by the terms of this Security
Agreement and the Senior Note Indenture (or the Convertible Note Trustee if the
Senior Notes are no longer outstanding and the Senior Note Indenture has been
satisfied and discharged).
(p) Payment of Fees and Expenses. The Company will upon demand pay to
the Collateral Agent and the Trustees, without duplication, the amount of any
and all fees and expenses, including, without duplication, the fees and
disbursements of its counsel and of any experts and agents, that the Collateral
Agent and the Trustees may incur in connection with (i) administration of this
Security Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the rights of the Collateral Agent
or the Trustees hereunder or (iv) the failure by the Company to perform or
observe any of the provisions hereof. The Company shall be liable for and
reimburse and indemnify both Trustees and the Collateral Agent and hold both
Trustees and the Collateral Agent harmless from and against any and all claims,
losses, liabilities, costs, damages or expenses (including reasonable attorneys'
fees and expenses) (collectively, "Losses") arising from or in connection with
or related to this Agreement or being a Trustee and Collateral Agent hereunder
(including but not limited to Losses incurred by such Trustee and Collateral
Agent in connection with its successful defense, in whole or in part, of any
claim of negligence or willful misconduct on its part, provided, however, that
nothing contained herein shall require Trustees and the Collateral Agent to be
indemnified for Losses caused by their respective negligence or willful
misconduct.
(q) Final Expression. This Security Agreement, together with the Senior
Note Indenture, the Convertible Note Indenture, and any other agreement executed
in connection herewith or therewith, is intended by the parties as a final
expression of this Security Agreement and is intended as a complete and
exclusive statement of the terms and conditions hereof.
(r) Company Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Company shall remain liable under any contracts and
agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Security Agreement had not been executed, (b) the exercise by the
Collateral Agent or the Trustees of any of the rights hereunder shall not
release the Company from any of its duties or obligations under the contracts
and agreements included in the Collateral and (c) the Collateral Agent and the
Trustees shall not have any obligation or liability under any contracts and
agreements included in the Collateral by reason of this Security Agreement, nor
shall the Collateral Agent or the Trustees be obligated to perform any of the
obligations or duties of the Company thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
(s) Indentures. This Security Agreement is subject to the terms,
conditions and provisions of the Senior Note Indenture or the Convertible Note
Indenture if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged. Where there is a conflict between
the provisions of this Security Agreement and the Senior Note Indenture, the
provisions of the Senior Note Indenture shall prevail, and if the Senior Note
21
<PAGE> 22
Indenture has been satisfied and discharged, where there is a conflict between
the provisions of this Security Agreement and the Convertible Note Indenture,
the provisions of the Convertible Note Indenture shall prevail.
(t) Rights of Holders. No Holder of a Senior Note or of a Convertible
Note shall have any independent rights hereunder other than those rights granted
to individual Holders pursuant to Section 6.7 of the Senior Note Indenture or
Section 6.7 of the Convertible Note Indenture, as the case may be; provided that
nothing in this subsection (t) shall limit any rights granted to the Senior Note
Trustee under the Senior Notes, the Senior Note Indenture or the Senior Note
Collateral Documents or the Convertible Note Trustee under the Convertible
Notes, the Convertible Note Indenture or the Convertible Note Collateral
Documents.
(u) No Personal Liability of Directors, Officers, Employees and
Stockholders. No past, present or future director, officer, employee,
incorporator or stockholder of the Company or of any subsidiary of the Company,
as such, shall have any liability for any obligations of the Company under this
Security Agreement or for any claim based on, in respect of, or by reason of,
such obligations or their creation.
(v) GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
WAIVER OF DAMAGES.
(i) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
COMPANY, THE COLLATERAL AGENT, THE SENIOR NOTE TRUSTEE AND THE HOLDERS OF THE
SENIOR NOTES AND THE CONVERTIBLE NOTE TRUSTEE AND THE HOLDERS OF CONVERTIBLE
NOTES IN CONNECTION WITH THIS SECURITY AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF
THE STATE OF NEW YORK.
(ii) THE COMPANY AGREES THAT THE COLLATERAL AGENT SHALL, IN ITS
CAPACITY AS COLLATERAL AGENT OR IN THE NAME AND ON BEHALF OF THE SENIOR NOTE
TRUSTEE AND ANY HOLDERS OF SENIOR NOTES, AND THE SENIOR NOTE TRUSTEE SHALL, IN
ITS CAPACITY AS SENIOR NOTE TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDERS
OF SENIOR NOTES AND THE CONVERTIBLE NOTE TRUSTEE SHALL, IN ITS CAPACITY AS
CONVERTIBLE NOTE TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDERS OF
CONVERTIBLE NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE COMPANY OR ITS PROPERTY IN A COURT IN ANY LOCATION
REASONABLY SELECTED IN GOOD FAITH TO ENABLE THE COLLATERAL AGENT OR THE SENIOR
NOTE TRUSTEE TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT OR THE SENIOR NOTE TRUSTEE.
THE COMPANY AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE COLLATERAL AGENT OR THE TRUSTEES
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE COLLATERAL AGENT OR EITHER TRUSTEE. THE COMPANY WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE COLLATERAL
AGENT OR SUCH
22
<PAGE> 23
TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS.
(iii) THE COMPANY, THE COLLATERAL AGENT AND THE TRUSTEES EACH WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
SECURITY AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN
A BENCH TRIAL WITHOUT A JURY.
(iv) THE COMPANY AGREES THAT NONE OF THE COLLATERAL AGENT, THE SENIOR
NOTE TRUSTEE, ANY HOLDER OF A SENIOR NOTE, THE CONVERTIBLE NOTE AND ANY HOLDER
OF A CONVERTIBLE NOTE SHALL HAVE ANY LIABILITY TO THE COMPANY (WHETHER SOUNDING
IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE COMPANY IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED
AND THE RELATIONSHIP ESTABLISHED BY THIS SECURITY AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE COLLATERAL
AGENT, SUCH TRUSTEE OR SUCH NOTEHOLDER, AS THE CASE MAY BE, THAT SUCH LOSSES
WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE COLLATERAL AGENT, THE
SENIOR NOTE TRUSTEE OR SUCH HOLDER OF A SENIOR NOTE OR THE CONVERTIBLE NOTE
TRUSTEE OR ANY HOLDER OF A CONVERTIBLE NOTE, AS THE CASE MAY BE, CONSTITUTING
NEGLIGENCE OR WILLFUL MISCONDUCT.
(v) THE COMPANY WAIVES ALL RIGHTS OF NOTICE AND HEARING OF ANY KIND
PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT, THE SENIOR NOTE TRUSTEE OR ANY
HOLDER OF A SENIOR NOTE, THE CONVERTIBLE NOTE TRUSTEE OR ANY HOLDER OF A
CONVERTIBLE NOTE OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO
REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. THE COMPANY WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE COLLATERAL AGENT, THE SENIOR
NOTE TRUSTEE OR ANY HOLDER OF A SENIOR NOTE OR THE CONVERTIBLE NOTE TRUSTEE OR
ANY HOLDER OF A CONVERTIBLE NOTE IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON COLLATERAL OR
OTHER SECURITY FOR THE OBLIGATIONS, TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF THE COLLATERAL AGENT, THE SENIOR NOTE TRUSTEE OR ANY HOLDER
OF A SENIOR NOTE OR THE CONVERTIBLE NOTE TRUSTEE OR ANY HOLDER OF A CONVERTIBLE
NOTE, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR
PRELIMINARY OR PERMANENT INJUNCTION THIS SECURITY AGREEMENT OR ANY OTHER
AGREEMENT OR DOCUMENT AMONG THE COMPANY ON THE ONE HAND AND THE COLLATERAL
AGENT, THE SENIOR NOTE TRUSTEE AND/OR THE HOLDERS OF THE SENIOR NOTES ON THE
OTHER HAND.
23
<PAGE> 24
(w) Appointment of Collateral Agent. Pursuant to, and subject to the
provisions of, Section 7.12 of the Senior Note Indenture and of Section 7.12 of
the Convertible Note Indenture, the Trustees hereby appoint the Collateral
Agent, and the Collateral Agent accepts appointment, as Collateral Agent under
the terms of this Security Agreement.
The Collateral Agent may resign at any time by giving written notice
thereof to the Trustees and may be removed at any time with or without cause by
the Trustees acting together. Prior to the effectiveness of any such resignation
or removal, the Trustees acting together shall have the right to appoint a
successor Collateral Agent which shall be a commercial bank organized or
chartered under the laws of the United States of America or any state thereof
having combined capital and surplus of at least $50,000,000. If no successor
Collateral Agent shall have been so appointed by the Trustees acting together,
and shall have accepted such appointment within 30 days after the retiring
Collateral Agent's giving of notice of resignation or the Trustees' removal of
the retiring Collateral Agent, then the retiring Collateral Agent shall, prior
to the effectiveness of its resignation or removal, on behalf of the Senior Note
Trustee, the Holders of the Senior Notes, the Convertible Note Trustee and the
Holders of the Convertible Notes, appoint a successor Collateral Agent, which
shall be a commercial bank organized under the laws of the United States of
America or any State thereof having a combined capital and surplus of at least
$50,000,000. Upon the acceptance of any appointment as Collateral Agent
hereunder by a successor Collateral Agent, such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Collateral Agent, and the retiring Collateral Agent
shall be discharged from its duties and obligations under this Security
Agreement. After any retiring Collateral Agent's resignation or removal
hereunder as Collateral Agent, the provisions of this Security Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Collateral Agent under this Security Agreement. Any corporation into
which the Collateral Agent may be merged, or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which the
Collateral Agent shall be a party, shall be Collateral Agent under this Security
Agreement without the execution or filing of any paper or any further act on the
part of the parties hereto.
[SIGNATURE PAGE FOLLOWS]
24
<PAGE> 25
IN WITNESS WHEREOF, the Company has caused this Security Agreement to
be duly executed and delivered as of the day and year first above written.
NWE CAPITAL (CYPRUS) LIMITED
By: /s/ Clayton A. Waite
--------------------------------------
Name: Clayton A. Waite
------------------------------------
Title: Director
-----------------------------------
The undersigned, as nominee of the Company to hold as of record the
Company's beneficial interest in one share of CY (pound)1 each of NWE Capital
(Cyprus) Limited (the "Nominee Collateral") for the sole purpose of compliance
with the requirement under Cypriot law that a corporation have two shareholders
of record, does hereby join in this Security Agreement solely for the purpose of
pledging the Nominee Collateral as security in order to secure the payment and
performance of all Obligations by the Company.
The undersigned hereby grants to the Collateral Agent for the benefit
of the Senior Note Trustee and for the equal and ratable benefit of the Holders
of the Senior Notes and for the benefit of the Convertible Note Trustee and for
the equal and ratable benefit of the Holders of the Convertible Notes (i) Liens
and a continuing security interest in and to the Nominee Collateral in order to
secure the payment and performance of all Obligations by the Company and (ii)
all rights and remedies, whether arising before or after an Event of Default,
with respect to the Nominee Collateral as otherwise granted in this Security
Agreement with respect to the Collateral; provided, however, that the Collateral
Agent, the Senior Note Trustee and the Convertible Note Trustee agree that,
notwithstanding anything contained in this Security Agreement to the contrary,
the undersigned shall have no personal liability under, arising out of or
related to this Security Agreement beyond the Nominee Collateral pledged
hereunder.
/s/ Clayton A. Waite
-----------------------------
Clayton A. Waite
25
<PAGE> 26
By its acceptance hereof, as of the day and year first above written,
the Collateral Agent, the Senior Note Trustee and the Convertible Note Trustee
agree to be bound by the provisions hereof.
THE BANK OF NEW YORK, as Collateral
Agent, Senior Note Trustee and
Convertible Note Trustee
By: /s/ Steven D. Torgeson
-------------------------------------
Name: Steven D. Torgeson
-----------------------------------
Title: Assistant Treasurer
----------------------------------
26
<PAGE> 27
SCHEDULE A to NWE
Cyprus Senior Note
Security and Pledge
Agreement
PLEDGED STOCK
20,000,002 ordinary shares of US $1 each of Wireless Technology Corporations
Limited
27
<PAGE> 28
SCHEDULE B to NWE
Cyprus Senior Note
Security and Pledge
Agreement
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
None.
28
<PAGE> 29
SCHEDULE C to NWE
Cyprus Senior Note
Security and Pledge
Agreement
FILINGS
1. UCC-1 financing statements filed with the Secretary of State of the State of
New York.
2. UCC-1 financing statements filed with the City Registers Office, New York
County, New York.
3. The share register of WTC must contain each of the following:
a. A statement that the WTC Capital Stock is pledged
b. The name of the pledgees
c. The date on which the statement and name contained in (a) and (b)
above are entered in the share register
29
<PAGE> 30
SCHEDULE D to NWE
Cyprus Senior Note
Security and Pledge
Agreement
CHIEF EXECUTIVE OFFICES
Iris Tower, Office 602
58 Arch. Makarios III Avenue
Nicosia, CYPRUS
30
<PAGE> 31
SCHEDULE E to NWE
Cyprus Senior Note
Security and Pledge
Agreement
BUSINESS NAMES
None.
31
<PAGE> 32
SCHEDULE F to NWE
Cyprus Senior Note
Security and Pledge
Agreement
LOCATION OF COLLATERAL
See Schedule D.
32
<PAGE> 33
SCHEDULE G
Additional
Collateral Amendment
This Additional Collateral Amendment, dated _____________, 19__, is
delivered pursuant to Section 6(a) of the Security Agreement referred to below.
The undersigned hereby pledges to the Collateral Agent for the benefit of the
Senior Note Trustee and the equal and ratable benefit of the Holders of the
Senior Notes, and grants to the Collateral Agent for its benefit and the equal
and ratable benefit of the Holders of the Senior Notes, continuing Liens and
security interest in all of its rights, title and interest in the Collateral
listed below.
The undersigned hereby agrees that this Additional Collateral Amendment
may be attached to the Security and Pledge Agreement, dated as of May 31, 1996,
between the undersigned and The Bank of New York, as Senior Note Trustee, as
Convertible Note Trustee and as Collateral Agent (the "Security Agreement");
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in the Security Agreement; and the Collateral
listed on this Additional Collateral Amendment shall be deemed to be part of the
Collateral, and shall become part of the Collateral and shall secure all
Obligations.
NWE CAPITAL (CYPRUS) LTD.
By:________________________________
Name:______________________________
Title:_____________________________
33
<PAGE> 34
WTC CAPITAL STOCK:
Number of Share Percentage
Name of Shares Certificate of Shares
Guarantor Pledged Number Outstanding
--------- --------- ----------- -----------
INTERCOMPANY NOTES:
Description Name of Restricted Original
Item of Subsidiary Principal
Number Indebtedness (Obligor) Date Amount
------ ------------ ------------------ ---- ---------
34
<PAGE> 35
SCHEDULE H to NWE
Cyprus Senior Note
Security and Pledge
Agreement
RESTRICTIVE AGREEMENTS
1. The BECET charter and joint venture agreement provide that a joint
venture partner may not sell, assign, pledge or otherwise transfer its
shares without the written consent of the other partner prior to
February 4, 1999. After February 4, 1999, such interest may be
transferred provided that the transferee agrees to be bound by the
terms of the joint venture agreement creating BECET.
2. The BECET charter provides that dividends may be established at a
meeting of the General Assembly (as defined therein). To the extent
that WTC owns a 50 percent equity interest in BECET, its ability to
cause BECET to declare dividends may be restricted.
3. The BECET charter provides a right of first refusal for newly issued
shares.
35
<PAGE> 1
EXHIBIT 4.9
- --------------------------------------------------------------------------------
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
BALTIC COMMUNICATIONS LIMITED
and any other Guarantor party hereto from time to time
----------------------------
GUARANTY AGREEMENT
----------------------------
Dated as of November 26, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
GUARANTY AGREEMENT, dated as of November 26, 1997 ("this Guaranty
Agreement"), made and given by WIRELESS TECHNOLOGY CORPORATIONS LIMITED, a
British Virgin Islands corporation, and BALTIC COMMUNICATIONS LIMITED, a Russian
closed joint stock company (collectively, together with each other subsidiary of
the Company (as defined below) which becomes a party hereto pursuant to a
Joinder Agreement as described below, the "Guarantors" and individually a
"Guarantor") in favor of The Travelers Insurance Company and The Travelers
Indemnity Company (collectively, the "Lenders") and of all other holders from
time to time of the Notes referred to below (such holders, together with the
Lenders, being herein sometimes referred to collectively as the "Noteholders"
and individually as a "Noteholder"); for the benefit of PLD TELEKOM INC., a
Delaware corporation (the "Company").
R E C I T A L S :
A. The Company has entered into the Revolving Credit Note and Warrant
Agreement, dated as of the date hereof (the "Revolving Credit Agreement"),
between the Company and the Lenders, providing, among other things, for (i) the
commitment of the Lenders to make Series A Revolving Credit Loans from time to
time to the Company in an aggregate principal amount not exceeding $12,400,000
(the "Series A Revolving Credit Loans") and Series B Revolving Credit Loans from
time to time to the Company in an aggregate principal amount not exceeding
$3,100,000 (the "Series B Revolving Credit Loans" and, together with the Series
A Revolving Credit Loans, the "Revolving Credit Loans") and (ii) the issuance
and delivery by the Company to the Lenders of its 12% Series A Revolving Credit
Notes due December 31, 1998 in the aggregate principal amount of $12,400,000 to
evidence the obligation of the Company to repay Series A Revolving Credit Loans
from time to time outstanding in accordance therewith (such notes, including all
notes issued in substitution or exchange therefor pursuant to the Revolving
Credit Agreement, being referred to herein as the "Series A Notes") and its 12%
Series B Revolving Credit Notes due September 30, 1998 in the aggregate
principal amount of $3,100,000 to evidence the obligation of the Company to
repay Series B Revolving Credit Loans from time to time outstanding in
accordance therewith (such notes, including all notes issued in substitution or
exchange therefor pursuant to the Revolving Credit Agreement, being referred to
herein as the "Series B Notes"). The Series A Notes and the Series B Notes are
collectively referred to herein as the "Notes"; the Notes, the Revolving Credit
Agreement and this Guaranty, and all other related agreements and documents
issued or delivered under or pursuant to the Revolving Credit Agreement or this
Guaranty Agreement, in each case as the same may be amended or otherwise
modified and in effect from time to time, are herein sometimes referred to
collectively as the "Revolving Credit Documents"; and all other capitalized
terms used and not otherwise defined herein shall have the respective meanings
attributed thereto in the Revolving Credit Agreement.
<PAGE> 3
B. The obligation of the Lenders to make the Revolving Credit Loans
under the Revolving Credit Agreement is conditioned, among other things, on each
of the Guarantors guaranteeing all of the Company's Obligations referred to
below.
C. Pursuant to the Revolving Credit Agreement, the Company is obligated
to cause (i) each Person that after the Closing Date shall become a Wholly-Owned
Restricted Subsidiary and (ii) each other Subsidiary, other than the Leasing
Companies or NWE Cyprus, which shall guarantee Indebtedness of the Company or
any other Guarantor to execute and deliver a joinder agreement in the form
attached hereto as Exhibit A (a "Joinder Agreement") and thereby to become a
Guarantor under and within the meaning of this Guaranty Agreement.
D. Each of the Guarantors is a Subsidiary of the Company.
NOW, THEREFORE, for and in consideration of the execution and delivery
by the Lenders of the Revolving Credit Agreement and in order to induce the
Lenders to make the Revolving Credit Loans to the Company from time to time
under the Revolving Credit Agreement, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the Guarantors hereby
agree as follows:
1. Guaranty of Payment. Each Guarantor hereby irrevocably and
unconditionally guarantees, jointly and severally, to the Noteholders, the
prompt payment in full when due (whether on a date fixed for repayment, at
stated maturity, by declaration, acceleration or otherwise) of the Company's
Obligations. For the purposes hereof the "Company's Obligations" means all
indebtedness, obligations and liabilities of the Company under the Revolving
Credit Documents, now existing or hereafter arising, due or to become due,
direct or indirect, absolute or contingent, howsoever evidenced, held or
acquired, as such indebtedness, obligations and liabilities may be modified,
extended, renewed or replaced from time to time, and including without
limitation, the obligation of the Company to pay the principal of and interest
on, and Additional Amounts, if any, and Commitment Fees, if any, owing in
respect of, the Notes, when and as due, whether at maturity, by acceleration,
upon one or more dates set for repayment or otherwise, in accordance with the
terms of the Revolving Credit Documents, and all other obligations from time to
time owing to the Noteholders, or any of them, under the Revolving Credit
Documents (including, without limitation, indemnities and expenses). The
guaranty of each Guarantor as set forth in this section is a guaranty of payment
and not of collection.
2. Limitation of Guarantor's Liability. Each Guarantor and, by its
acceptance of the Note held by it, each Noteholder, hereby confirms that it is
its intention that the guaranty by such Guarantor under this Guaranty Agreement
not constitute a fraudulent transfer or conveyance for purposes of the United
States Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any other bankruptcy, receivership, insolvency,
liquidation or other similar legislation or legal principles under any
applicable foreign law to the extent applicable to such guaranty. To effectuate
the foregoing intention, each such Guarantor and each Noteholder hereby
irrevocably agrees that the obligation of such Guarantor under this Guaranty
Agreement
<PAGE> 4
shall be limited to the lesser of (a) an amount equal to such Guarantor's
Adjusted Net Assets (as hereinafter defined) as of the date this Guaranty
Agreement is executed and delivered and (b) the maximum amount as will, after
giving effect to such maximum amount and all other contingent and fixed
liabilities of such Guarantor that are relevant under such laws, and after
giving effect to any collections from, rights to receive contributions from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such Guarantor under this Guaranty Agreement, result in the
obligations of such Guarantor not constituting a fraudulent conveyance or
fraudulent transfer or not otherwise being void, voidable or unenforceable under
any bankruptcy, reorganization, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law. As
used in this Section 2, "Adjusted Net Assets" of any Guarantor at any date means
the amount by which the fair value of the assets and Property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
this Guaranty Agreement, of such Guarantor at such date.
3. Release of Collateral, Parties Liable, etc. Each of the Guarantors
agrees that the whole or any part of any and all security now or hereafter held
for the Company's Obligations may be exchanged, compromised, released or
surrendered from time to time; that neither the Noteholders nor any of them nor
any trustee or agent which shall at any time hold any such security shall have
any obligation to protect, perfect, secure or insure any Liens now or hereafter
held for the Company's Obligations or the properties subject thereto; that the
time or place of payment of the Company's Obligations may be changed or
extended, in whole or in part, to a time certain or otherwise, and may be
renewed or accelerated, in whole or in part; that the Company may be granted
indulgences generally; that any provisions of the Revolving Credit Documents or
any other documents executed in connection with this transaction may be
modified, amended or waived; that any party liable for the payment of the
Company's Obligations may be granted indulgences or released; and that any
deposit balance for the credit of the Company or any other party liable for the
payment of the Company's Obligations or liable upon any security therefor may be
released, in whole or in part, at, before and/or after the stated, extended or
accelerated maturity of the Company's Obligations, all without notice to or
further assent by the Guarantors, or any of them, who shall remain bound
thereon, notwithstanding any such exchange, compromise, surrender, extension,
renewal, acceleration, modification, indulgence or release.
4. Waiver of Rights. Each of the Guarantors expressly waives: (a)
notice of acceptance of this Guaranty Agreement by the Noteholders; (b)
presentment and demand for payment of any of the Company's Obligations; (c)
protest and notice of dishonor or of default to such Guarantor or to any other
party with respect to the Company's Obligations or with respect to any security
therefor; (d) notices of any Noteholder's or any trustee's or agent's for any
Noteholder obtaining, amending, substituting for, releasing, waiving or
modifying any security interests, liens or other encumbrances now or hereafter
securing the Company's Obligations, of the Noteholders' or any such trustee's or
agent's subordinating, compromising discharging or releasing such security
interests, liens or
<PAGE> 5
other encumbrances; (e) all other notices to which such Guarantor might
otherwise be entitled; (f) demand for payment under this Guaranty Agreement; and
(g) any right to assert against any Noteholder, as a defense, counterclaim,
set-off or cross-claim, any defense (legal or equitable), set-off, counterclaim
or claim which such Guarantor may now or hereafter have against any Noteholder
or the Company, but such waiver shall not prevent such Guarantor from asserting
against any Noteholder in a separate action, any claim, action, cause of action,
or demand that such Guarantor might have, whether or not arising out of this
Guaranty Agreement.
5. Primary Liability of Guarantors; Subrogation; Interest;
Acceleration. (a) Each of the Guarantors agrees that this Guaranty Agreement may
be enforced by the Noteholders upon the failure of the Company to pay or perform
punctually any of the Company's Obligations without the necessity at any time of
resorting to or exhausting any other security or collateral and without the
necessity at any time of having recourse to the Company under the Revolving
Credit Documents or any collateral now or hereafter securing the Company's
Obligations or otherwise, and each of the Guarantors hereby waives the right to
require the Noteholders to proceed against the Company or any other Person
(including a co-guarantor) or to require the Noteholders to pursue any other
remedy or enforce any other right. Each of the Guarantors further agrees that
nothing contained herein shall prevent the Noteholders or any trustee or agent
at the time empowered to act on their behalf from suing the Company with respect
to its obligations under the Revolving Credit Documents or foreclosing any
security interest in or lien on any collateral now or hereafter securing the
Company's Obligations or from exercising any other rights available to the
Noteholders or any such trustee or agent under the Revolving Credit Documents if
neither the Company nor the Guarantors timely performs the obligations of the
Company thereunder, and the exercise of any of the aforesaid rights and the
completion of any foreclosure proceedings shall not constitute a discharge of
any Guarantor's obligations hereunder; it being the purpose and intent of each
of the Guarantors that such Guarantor's obligations hereunder shall be absolute,
irrevocable, independent and unconditional under any and all circumstances.
Neither the obligations of any Guarantor under this Guaranty Agreement nor any
remedy for the enforcement thereof shall be impaired, modified, changed or
released in any manner whatsoever by an impairment, modification, change,
release or limitation of the liability of the Company or any other Guarantor, by
reason of the Company's or any other Guarantor's bankruptcy or insolvency or by
reason of the invalidity or unenforceability of all or any portion of the
Company's Obligations. Each of the Guarantors acknowledges that the term
"Company's Obligations" as used herein includes any payments made by the Company
or any other Guarantor to the Noteholders and subsequently recovered by the
Company or a trustee for the Company pursuant to the Company's bankruptcy or
insolvency and that the guaranty of each of the Guarantors hereunder shall be
reinstated to the extent of such recovery.
(b) In the event any Guarantor shall at any time pay any sums on
account of any of the Company's Obligations, such Guarantor shall, to the extent
of such payment, be subrogated to the rights, privileges and powers of the
Noteholders in respect of such Company's Obligation, provided that each
Guarantor hereby agrees that it shall not seek
<PAGE> 6
to exercise any such rights of subrogation, any right of reimbursement or
indemnity whatsoever or any rights or recourse to any security for any of the
Company's Obligations unless and until all of the Company's Obligations shall
have been indefeasibly paid in full.
(c) As between each Guarantor, on the one hand, and the Noteholders, on
the other hand, the Company's Obligations may be declared to be forthwith due
and payable as provided in Section 12.1 of the Revolving Credit Agreement (and
shall be deemed to have become automatically due and payable in the
circumstances provided in said Section 12.1) for all purposes of this Guaranty
Agreement notwithstanding any stay, injunction or other prohibition preventing
such declaration (or preventing such obligations from becoming automatically due
and payable) as against the Company and, in the event of such declaration (or in
the event of any such obligations being deemed to have become automatically due
and payable), such obligations (whether or not due and payable by the Company)
shall forthwith become due and payable by the Guarantors for purposes of this
Guaranty Agreement and the obligations of the Guarantors hereunder shall be
deemed to have been accelerated with the same effect as if the Notes had been
accelerated in accordance with the terms thereof and of the Revolving Credit
Agreement.
(d) Each Guarantor acknowledges, consents and agrees that any interest
on the Company's Obligations which accrues after the commencement of any
bankruptcy, reorganization or insolvency proceeding against the Company, or, if
interest on any portion of the Company's Obligations ceases to accrue by
operation of law by reason of the commencement of any such proceeding, such
interest as would have accrued on any such portion of the Company's Obligations
if said proceeding had not been commenced, shall be included in the Company's
Obligations, it being the intent hereof that the amount of the Company's
Obligations guaranteed hereunder should be determined without regard to any rule
of law or order which may relieve the Company of any portion of the Company's
Obligations.
6. Attorneys' Fees and Costs of Collection. If at any time or times
hereafter the Noteholders or any trustee or agent acting on their behalf employs
counsel to pursue collection, to intervene, to sue for enforcement of the terms
hereof or of the Revolving Credit Agreement or any other of the Revolving Credit
Documents, or to file a petition, complaint, answer, motion or other pleading in
any suit or proceeding relating to this Guaranty Agreement or the Revolving
Credit Agreement or any other of the Revolving Credit Documents, then in such
event, all of the reasonable attorneys' fees relating thereto shall be an
additional liability of the Guarantors to the Noteholders hereunder, payable on
demand.
` 7. Term of Guaranty; Warranties. This Guaranty Agreement shall continue in
full force and effect until the Company's Obligations are fully and indefeasibly
paid, performed and discharged. This Guaranty Agreement covers the Company's
Obligations whether presently outstanding or arising subsequent to the date
hereof. Each Guarantor warrants and represents to the Noteholders (a) that such
Guarantor is an entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of
<PAGE> 7
organization, (b) that such Guarantor has all powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, (c) that the execution and delivery by such
Guarantor of this Guaranty Agreement and the other Revolving Credit Documents,
if any, to which it is a party and the performance by such Guarantor of its
obligations hereunder and thereunder are within the corporate power of such
Guarantor, have been duly authorized by all necessary organizational action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (except for any such action or filing that has been taken and
is in full force and effect) and do not contravene, or constitute a default
under, any provision of applicable law or regulation or of any of the
constitutional documents of such Guarantor or of any material agreement,
judgment, injunction, order, decree, or other material instrument binding upon
such Guarantor or result in the creation or imposition of any Lien on any asset
of such Guarantor and (d) that this Guaranty Agreement and the other Revolving
Credit Documents, if any, to which such Guarantor is a party constitute valid,
binding and enforceable agreements of such Guarantor and, when executed and
delivered, will constitute valid and binding obligations of such Guarantor
(except insofar as enforceability may be affected by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect).
8. Further Representations and Warranties. Each Guarantor agrees that
the Noteholders will have no obligation to investigate the financial condition
or affairs of the Company for the benefit of such Guarantor nor to advise such
Guarantor of any fact respecting, or any change in, the financial condition or
affairs of the Company which might come to the knowledge of any of the
Noteholders at any time, whether or not any of the Noteholders knows or believes
or has reason to know or believe that any such fact or change is unknown to such
Guarantor or might (or does) materially increase the risk of such Guarantor as
guarantor or might (or would) affect the willingness of such Guarantor to
continue as guarantor with respect to the Company's Obligations.
9. Additional Liability of Guarantors. If any Guarantor is or becomes
liable for any indebtedness owing by the Company to any of the Noteholders by
endorsement or otherwise other than under this Guaranty Agreement, such
liability shall not be in any manner impaired or reduced hereby but shall have
all and the same force and effect it would have had if this Guaranty Agreement
had not existed and such Guarantor's liability hereunder shall not be in any
manner impaired or reduced thereby.
10. Cumulative Rights. All rights of the Noteholders hereunder or
otherwise arising under any documents executed in connection with or as security
for the Company's Obligations are separate and cumulative and may be pursued
separately, successively or concurrently, or not pursued, without affecting or
limiting any other right of any of the Noteholders and without affecting or
impairing the liability of any of the Guarantors.
11. Usury. Notwithstanding any other provisions herein contained, no
provision of this Guaranty Agreement shall require or permit the collection from
any Guarantor of interest in excess of the maximum rate or amount that such
Guarantor may be required or
<PAGE> 8
permitted to pay pursuant to applicable law. In the event any such interest is
collected, it shall be applied in reduction of such Guarantor's obligations
hereunder, and the remainder of such excess collected shall be returned to such
Guarantor once such obligations have been fully satisfied.
12. Successors and Assigns. This Guaranty Agreement shall be binding on
and enforceable against each Guarantor and its successors and assigns; provided
that, other than in connection with any such assignment or transfer resulting
from a merger or consolidation of such Guarantor or a transfer of all or
substantially of such Guarantor's assets permitted under the Revolving Credit
Agreement, as in effect from time to time, none of the Guarantors may assign or
transfer any of its obligations hereunder without the prior written consent of
Noteholders holding Commitment Percentages aggregating more than 50%. This
Guaranty Agreement is intended for and shall inure to the benefit of the
Noteholders and their respective successors and assigns. This Guaranty Agreement
shall be transferable and negotiable with the same force and effect, and to the
same extent, that the Company's Obligations are transferable and negotiable, it
being understood and stipulated that upon assignment or transfer by any of the
Noteholders of any of the Company's Obligations the legal holder or owner of the
Company's Obligations (or a part thereof or interest therein thus transferred or
assigned by any Noteholder) shall (except as otherwise stipulated by any such
Noteholder in its assignment) have and may exercise all of the rights granted to
such Noteholder under this Guaranty Agreement to the extent of that part of or
interest in the Company's Obligations thus assigned or transferred to said
Person. Each Guarantor expressly waives notice of transfer or assignment of the
Company's Obligations, or any part hereof, or of the rights of any Noteholder
thereunder. Failure to give any such notice will not affect the liabilities of
the Guarantors hereunder.
13. Application of Payments. As between the Guarantors and the
Noteholders, each of the Noteholders may apply any payments received by it from
any source against that portion of the Company's Obligations (principal,
interest, court costs, attorneys' fees or other) in such priority and fashion as
it may deem appropriate.
14. Modifications. Any term, covenant, agreement or condition of this
Guaranty may be amended or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively) only by
an instrument in writing duly executed by each Guarantor and Noteholders holding
all of the Notes at the time outstanding. Any amendment or waiver effected in
accordance with this Section shall apply equally to all Noteholders and shall be
binding upon them and upon each future holder of any Note and upon each
Guarantor whether or not any such Note shall have been marked to indicate such
amendment or waiver. No such amendment or waiver shall extend to or affect any
obligation not expressly amended or waived or impair any right consequent
thereon.
15. Notices. (a) Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed or sent by telex, telecopy, graphic scanning or other telegraphic
communications equipment of the sending party, as follows:
<PAGE> 9
(i) if to WTC, at c/o Orbis Services Limited, Tropic Isle Building,
P.O. Box 3443, Road Town, Tortola, British Virgin Islands, and
if to BCL, at Pochtamtskaya Ulitsa 15, Saint Petersburg, Russia 191186,
in either such case with a copy to each of PLD Telekom Inc., at 680
Fifth Avenue, 24th Floor, New York, New York 10019, Attention: Chief Financial
Officer, and Morgan, Lewis & Bockius LLP, at 101 Park Avenue, New York, New York
10178, Attention: H. Franklin Bloomer, Jr., Esq.;
(ii) if to the Lenders, at the respective addresses set forth therefor in
Schedule I to the Revolving Credit Agreement, or at such other address as either
such Lender shall have designated in writing to the Guarantors; and
(iii) if to any other Noteholder, in the manner provided in the Revolving Credit
Agreement.
(b) All notices and other communications given to any party hereto in
accordance with the provisions of this Guaranty Agreement shall be deemed to
have been given on the date of receipt if delivered by hand or overnight courier
service or sent by telex, telecopy, graphic scanning or other telegraphic
communications equipment of the sender, or on the date five (5) Business Days
after dispatch by certified or registered mail if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in this
Section 15 or at such other address or telex, telecopy or other number as shall
be designated by such party in a notice to each other party complying with the
terms of this Section 15.
16. Net Payments. Reference is hereby made to Section 9.21 of the
Revolving Credit Agreement, the terms of which are hereby incorporated by
reference, with each reference to a "Subsidiary Guarantor" contained in such
Section 9.21 being deemed to be a reference to a Guarantor hereunder, and each
reference to a "Guarantee" contained in such Section 9.21 being deemed to be a
reference to this Guaranty Agreement. Each Guarantor agrees that all payments
made by it hereunder in respect of the Company's Obligations are subject to the
terms and provisions of such Section 9.21 of the Revolving Credit Agreement, and
agrees to perform all of the obligations of a "Subsidiary Guarantor" contained
therein applicable to such payments.
17. Severability. In the event that any provision hereof shall be
deemed to be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Guaranty Agreement shall be
construed as not containing such provision, but only as to such jurisdictions
where such law or interpretation is operative, and the invalidity of such
provision shall not affect the validity of any remaining provision hereof, and
any and all other provisions hereof which are otherwise lawful and valid shall
remain in full force and effect.
<PAGE> 10
18. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury
Trial.
THIS GUARANTY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN NEW YORK. EACH GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK,
AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS GUARANTY
AGREEMENT MAY BE LITIGATED IN SUCH COURTS, AND EACH GUARANTOR WAIVES ANY
OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT. EACH GUARANTOR FURTHER IRREVOCABLY CONSENTS THAT
THE SERVICE OF PROCESS MAY BE MADE BY MAIL OR MESSENGER DIRECTED TO IT AT ITS
ADDRESS SET FORTH IN SECTION 14 HEREOF (OR PURSUANT TO THE JOINDER AGREEMENT
EXECUTED BY SUCH GUARANTOR AS CONTEMPLATED BY THE REVOLVING CREDIT AGREEMENT).
NOTHING CONTAINED IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY NOTEHOLDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION
OR PROCEEDING IN THE COURTS OF ANY JURISDICTION AGAINST ANY GUARANTOR OR TO
ENFORCE A JUDGMENT OBTAINED IN THE COURTS OF ANY OTHER JURISDICTION. EACH
GUARANTOR ACKNOWLEDGES THAT THE TIME AND EXPENSE REQUIRED FOR A TRIAL BY JURY
EXCEED THE TIME AND EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS GUARANTY AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
19. Headings. The headings in this instrument are for convenience of
reference only and shall not limit or otherwise affect the meaning of any
provisions hereof.
20. Counterparts. This Guaranty Agreement may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
constituting an original, but all together constituting one and the same
instrument.
[The remainder of this page is intentionally left blank.]
<PAGE> 11
IN WITNESS WHEREOF, the Guarantors party hereto have caused this
Guaranty Agreement to be duly executed by their respective authorized officers
as of the date first above written.
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
By /s/ E. Clive Anderson
--------------------------------------
Title: Attorney-in-Fact
BALTIC COMMUNICATIONS LIMITED
By /s/ E. Clive Anderson
--------------------------------------
Title: Authorized Representative
<PAGE> 12
EXHIBIT A
to
Guaranty Agreement
FORM OF JOINDER AGREEMENT
JOINDER AGREEMENT, dated as of ____________, ____ ("this Agreement"),
made and given by _______________, a ____________ (the "Subsidiary"), which is a
subsidiary of PLD Telekom Inc., a Delaware corporation (the "Company"), in favor
of the Noteholders referred to (and as that term is defined) in that certain
Guaranty Agreement, dated as of November 26, 1997 (as the same may have been
heretofore amended or otherwise modified, the "Guaranty Agreement"), made and
given originally by the subsidiaries of the Company identified therein in favor
of the Lenders (as defined therein) and of the holders from time to time of (i)
the Company's 12% Series A Revolving Credit Notes due December 31, 1998 in the
aggregate principal amount of $12,400,000 evidencing the obligation of the
Company to repay Series A Revolving Credit Loans made to the Company from time
to time in accordance therewith and (ii) the Company's 12% Series B Revolving
Credit Notes due September 30, 1998 in the aggregate principal amount of
$3,100,000 evidencing the obligation of the Company to repay Series B Revolving
Credit Loans made to the Company from time to time in accordance therewith. All
of the defined terms in the Guaranty Agreement are incorporated herein by
reference and all such terms used and not otherwise defined herein have the
respective meanings when used herein as are attributed thereto in the Guaranty
Agreement (or by reference therein to the Revolving Credit Agreement referred to
therein).
The Company is required by Section 9.30 of the Revolving Credit
Agreement to cause the Subsidiary to become a "Guarantor" under and within the
meaning of the Guaranty Agreement. Accordingly, the Subsidiary hereby agrees
with and for the benefit of the Noteholders as follows:
1. The Subsidiary hereby acknowledges, agrees and confirms that, by its
execution of this Agreement, the Subsidiary will be deemed to be a party to the
Guaranty Agreement and a "Guarantor" for all purposes of the Guaranty Agreement,
and shall have all of the obligations of a Guarantor thereunder as if it had
executed the Guaranty Agreement. The Subsidiary hereby ratifies, as of the date
hereof, and agrees to be bound by, all of the terms, provisions and conditions
contained in the Guaranty Agreement, including, without limitation, all of the
undertakings and waivers set forth therein. Without limiting the generality of
the foregoing terms of this paragraph 1, the Subsidiary, subject to the
limitations set forth in Section 1 of the Guaranty Agreement, hereby jointly and
severally, together with the other Guarantors, guarantees to the Noteholders, as
provided in such Section 1 of the Guaranty Agreement, the prompt payment in full
when
<PAGE> 13
due (whether on a date fixed for repayment, at stated maturity, by declaration,
acceleration or otherwise) of the Company's Obligations.
2. The address of the Subsidiary for purposes of all notices and other
communications is ___________________________________.
3. The Subsidiary hereby waives notice of acceptance by the
Noteholders, or any of them, of this Agreement.
4. This Agreement may be executed in any number of counterparts, each
constituting an original, but all together constituting one and the same
instrument.
IN WITNESS WHEREOF, the Subsidiary has caused this Agreement to be duly
executed by its authorized officer, as of the day and year first above written.
[SUBSIDIARY]
By _______________________
Title:
2
<PAGE> 1
EXHIBIT 10.1
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made this 13th day of December, 1993, by and between
Wireless Technology Corporations Limited, a corporation organized under the laws
of the British Virgin Islands ("Investor") and Kompania Besprovodnye Seti Sviazi
(Wireless Telecommunication Networks Company), a limited liability partnership
organized under the laws of the Republic of Kazakhstan ("BeCeT") in order to set
forth the rights and obligations of the parties relating to a joint venture
company which would create, operate, manage and maintain cellular
telecommunications networks (collectively, the "Cellular Networks") covering the
City of Almaty and certain other regional centers within the Republic of
Kazakhstan. The parties hereto acknowledge that, subject to contract, Investor
and the Ministry of Communications of the Republic of Kazakhstan (the "Ministry
of Communications") have discussed and agreed in principle that certain
financing is to be provided by Investor to the Ministry of Communications for
certain identified projects of the Ministry of Communications.
ARTICLE I
ORGANIZATION OF THE JOINT VENTURE COMPANY
Section 1.1 Formation. Promptly after the execution of this
Agreement, the parties shall organize and incorporate a new company under the
laws of Kazakhstan ("JVCo").
Section 1.2 Name. JVCo shall be named "BESET International."
Section 1.3 Office. The principal office of JVCo shall be located at 9
Zhurgeneva Street, 480002, Almaty, Republic of Kazakhstan.
Section 1.4 Business Purpose. The business purpose of JVCo shall be:
(a) the creation, operation, management and maintenance of the
Cellular Networks; and
<PAGE> 2
(b) any other lawful business activities incidental or relating
to the foregoing.
Section 1.5 Timing. Consistent with the terms of the Cellular License
(as defined below), JVCo shall use its reasonable efforts to make the Cellular
Network covering Almaty to begin commercial service not later than six (6)
months following the last of all the necessary steps for the complete legal
registration of JVCo as a legal entity in the Republic of Kazakhstan (or as
soon as reasonably practicable thereafter), and to make the Cellular Networks
covering the other designated regional areas (to the extent that a Cellular
Network in the area would be commercially viable) to begin commercial service by
December 31, 1996 (or as soon as reasonably practicable thereafter).
Section 1.6 Cooperation. Investor and BeCeT shall cooperate fully with
each other and with JVCo in order to expeditiously realize the purposes of this
Agreement and the transactions contemplated hereby. Moreover, the Ministry of
Communications and the agencies, ministries and instrumentalities of the
Republic of Kazakhstan (collectively, the "Kazakhstan Governmental Entities")
shall cooperate fully with JVCo in order to expeditiously realize the purposes
of this Agreement and the transactions contemplated hereby. Without limiting the
generality of the foregoing, each of the parties hereto and the Kazakhstan
Governmental Entities shall use its respective reasonable efforts to obtain (or,
as the case may be, assist JVCo in obtaining) any required concessions, licenses
and other governmental approvals (including registration of JVCo under the
applicable laws of the Republic of Kazakhstan) as may be necessary to
expeditiously effectuate the purposes of this Agreement and the transactions
contemplated hereby. Investor and BeCeT shall, upon the reasonable request of
such other party, take such further action and execute, acknowledge and deliver
such additional documents, instruments and other payments as may be reasonably
necessary to carry out this Agreement.
2
<PAGE> 3
ARTICLE II
CAPITALIZATION
Section 2.1 Capital Stock. (a) The authorized capital stock of JVCo
shall be one thousand (1,000) shares of the Class A Stock and one thousand
(1,000) shares of Class B Stock. Each share shall have an initial value of
US$10,000. The total capital of JVCo shall be US$40,000,000. Each share of Class
A Stock and Class B Stock shall be entitled to one vote per share.
(b) Each outstanding share of Class A Stock and Class B Stock shall be
entitled to share ratably in all dividends and other distributions declared by
the Board of Directors and paid by JVCo.
(c) Upon any liquidation, dissolution or winding up of the affairs of
JVCo, each outstanding share of Class A and Class B Stock shall be entitled to
share ratably in the remaining assets of JVCo, provided, however, that the
holders of shares of Class B Stock shall be entitled to receive twenty million
dollars (US$20,000,000), which amount shall be increased dollar per dollar by
the aggregate amount of any additional contribution made by Investor pursuant
to Section 2.5 hereof, before the holders of shares of Class A Stock shall be
entitled to any proceeds.
Section 2.2 BeCeT Contribution. The initial contribution of BeCeT
shall be (i) to obtain the issuance of a Licensing Agreement providing for the
allocation of a cellular license to be issued to JVCo by the Ministry of
Communications in the form set forth as Exhibit A hereto (the "Cellular
License") and to obtain the issuance of such Cellular License to JVCo; (ii) to
obtain the allocation of frequencies as set forth in the Cellular License;
(iii) to pay for and on behalf of JVCo the fees for the use of frequencies in
the manner and the amounts established by the regulatory acts of the Republic of
Kazakhstan, to the extent such fees are not deducted from the License Fee as set
forth in the Cellular License; (iv) to arrange for the lease of office space for
the headquarters of JVCo (at reasonable market rates) reasonably acceptable to
Investor; (v) to arrange for the lease of transmission towers and other
industrial premises (at reasonable market rates) reasonably
3
<PAGE> 4
acceptable to Investor or identified by Investor which are most suitable for
cellular transmissions and installation of cellular equipment.
Section 2.3 Investor Contributions.
(a) After the Business Commencement Date (as defined in Article
IX hereof) and subject to the continuing satisfactory performance of BeCeT and
the Kazakhstan Governmental Entities under this Agreement, Investor shall be
obligated to make contributions from time to time of cash, equipment and
property so that its total contribution shall have an aggregate value equal to
US$20,000,000. Any contribution by Investor of equipment or property shall be
valued at its fair market value as determined in good faith by the Board of
Directors of JVCo. Investor shall have no obligation to make contributions to
JVCo over the US$20,000,000 amount.
(b) The initial contribution of Investor for Class B Stock shall
be US$10,000, which shall be applied towards the payment of start-up expenses.
(c) The remaining contribution of Investor for Class B stock
shall be made according to an investment program and cash flow schedule to be
established by the Board of Directors.
Section 2.4 Certificates for Initial Contributions. Upon payment by
BeCeT of its initial contribution for its capital stock in accordance with
Section 2.2 hereof, JVCo shall issue to BeCeT a certificate representing one
thousand (1,000) shares of Class A Stock. Upon payment by Investor of its
initial contribution for its capital stock in accordance with Section 2.3 (b)
hereof, JVCo shall issue to Investor a certificate representing one thousand
(1,000) shares of Class B Stock.
Section 2.5 Additional Investment. Should the Board of Directors of
JVCo determine that JVCo requires subsequent contributions of cash capital
(after the amounts provided in Sections 2.2 and 2.3 hereof have been
contributed), then each shareholder shall have the right to purchase its
proportionate share of any subsequent stock issuances. The price for each of
the shares of
4
<PAGE> 5
Class A Stock or Class B Stock issued in any subsequent issuance shall be the
book value per share of the outstanding shares of such Stock as of the most
recent quarterly balance sheet determined by dividing the net assets of JVCo as
determined in accordance with the International Accounting Standards promulgated
by the International Accounting Standards Committee in London, England (the
"International Accounting Standards") and adjusted by the total issued and
outstanding shares of JVCo. If a shareholder does not purchase its proportionate
share of a subsequent stock issuance, then its proportionate share ownership of
JVCo will be reduced as a result of the subsequent stock issuances. Should the
Board of Directors of JVCo determine that the JVCo requires subsequent
contributions of property or equipment, then each shareholder shall be given the
opportunity to contribute the property or equipment to JVCo in exchange for
additional shares of capital stock. Any subsequent contribution of equipment or
property shall be valued at its fair market value as determined in good faith by
the Board of Directors of JVCo. Any subsequent contribution of property or
equipment by a party in exchange for additional shares of capital stock will
reduce the proportionate share ownership of the other party.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 Management. JVCo shall be managed by a Board of Directors
consisting of six (6) members, including one member who shall be designated the
Chairman of the Board of Directors. The Board of Directors shall manage the
business of JVCo and may exercise all powers normally exercised by a Board of
Directors, except for such powers as are required to be exercised by
shareholders, all in accordance with the Ustav and applicable laws. The Chairman
of the Board of Directors shall preside and lead meetings of the Board of
Directors and meetings of shareholders.
Section 3.2 Election. Members of the Board of Directors shall be
elected at the annual meeting of shareholders from candidates nominated by the
parties. The Chairman of the Board of Directors shall be
5
<PAGE> 6
designated by the Investor. In addition to the Chairman of the Board, the
Investor shall be entitled to designate two (2) candidates to the Board of
Directors, and BeCeT shall be entitled to designate three (3) candidates to the
Board of Directors. The parties shall vote their respective shares to elect the
respective designees (including voting in favor of the designees of the other
party).
Section 3.3 Term. The term of office of a member of the Board of
Directors shall be for one (1) year or until his successor is elected and
qualified. Directors shall be eligible to serve successive terms.
Section 3.4 Vacancies of Directors.
(a) If a vacancy in any directorship should occur on the Board of
Directors, for whatever reason, the party who had nominated the former director
shall nominate his replacement.
(b) A party to this Agreement may remove any director nominated
by such party with or without cause, and may replace such director with his or
its designee and the other party shall vote its shares to effect such removal
and replacement.
Section 3.5 Conduct of Business. A majority of the directors shall be
required to conduct business at all meetings of the Board of Directors;
provided, however, that at least one director designated by each of the Investor
and BeCeT, respectively, shall be present at any meeting of the Board of
Directors in order to conduct business. All resolutions of the Board of
Directors shall be adopted by a majority of the directors present at the
meeting, except as otherwise provided in this Section 3.5 or in Section 3.8
below. The Chairman of the Board shall be entitled to a second or casting vote
in the event the Board of Directors is deadlocked on a vote of the Board of
Directors.
Section 3.6 Choice of Equipment. The equipment to be used to
construct, operate and maintain the Cellular Networks shall be selected by a
committee of the Board of Directors comprised of two directors, one of whom
shall be the nominee of BeCeT and one of whom shall be the nominee of Investor.
6
<PAGE> 7
Section 3.7 Declaration of Dividends. (a) The Board of Directors may
from time to time declare dividends to be paid or distributions to be made in
respect of the capital stock of JVCo out of funds or assets legally available
for this purpose.
(b) In the event the Board of Directors determines to pay a cash
dividend, the Board of Directors shall first determine the aggregate amount of
the cash dividend to be paid in respect of JVCo's capital stock. Such
aggregate amount shall then be divided between Class A Stock and Class B Stock
in accordance with Section 2.1(b) hereof and the Ustav.
Section 3.8 Certain Board Action. Any action on the following matters
shall only be taken (in addition to any requirements under applicable law)
pursuant to a resolution duly adopted by a vote of at least four of the six
members of the Board of Directors as authorized by the Ustav:
(a) Amendment of the Ustav;
(b) Dissolution or voluntary bankruptcy of JVCo;
(c) Approval of the Annual Budget;
(d) Acquisitions of assets or businesses for the equivalent of
consideration in excess of US$5,000,000 and any disposition or transfer of the
Cellular License;
(e) Entering into new joint ventures which individually require
investment (including in-kind investment) in excess of US$1,000,000;
(f) Incurrence of indebtedness in excess of US$2,000,000.
7
<PAGE> 8
ARTICLE IV
SHAREHOLDERS
Section 4.1 Conduct of Business at Meeting of Shareholders. A meeting
of shareholders shall require not less than two-thirds of the issued and
outstanding shares entitled to be voted at such meeting to be present at such
meeting and each and every resolution shall be adopted by a majority of the
votes cast at the meeting.
Section 4.2 Notice of Meeting. Notice for meetings of shareholders,
procedures for resolutions at such meetings and any other necessary rules with
respect thereto shall be as prescribed in the Ustav.
Section 4.3 Changes in Rights of Shares. No change shall be made in
the rights of the shares of capital stock held by any shareholder except upon
the amendment of the Ustav of JVCo in conformance with applicable laws.
ARTICLE V
OFFICERS
Section 5.1 Officers. JVCo shall have co-presidents who shall also be
the co-chief executive officers ("Co-CEOs"), a treasurer who shall also be the
chief financial officer ("CFO"), and such other officers as the Board of
Directors may determine. In addition, JVCo shall have a chief Kazakh financial
officer ("CKFO") who shall report directly to the CFO and shall be responsible
for accounting matters under Kazakh law as well as acting as a liaison between
JVCo and the appropriate Kazakh tax authorities. One of the Co-CEOs and the CKFO
shall be appointed by a committee of the Board of Directors consisting of the
directors who are the designees of BeCeT after consulting with the directors who
are the nominees of Investor. The other Co-CEO, the CFO, and any other officers
shall be appointed by a committee of the Board of Directors consisting of
directors who are the designees of Investor after consulting with the
directors who are the nominees of BeCeT. The Co-CEO appointed by a committee of
the
8
<PAGE> 9
Board of Directors consisting of directors who are the designees of Investor
shall have ultimate responsibility and decision-making authority with respect to
the business affairs of JVCo (subject to the authority of the Board of
Directors) and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
ARTICLE VI
TRANSFER OF SHARES
Section 6.1 Restrictions on Transfer. Prior to the fifth anniversary
of the Business Commencement Date, a party shall be entitled to sell, assign,
pledge or otherwise transfer its shares of JVCo capital stock only with the
prior written approval of the other party. Each party hereto hereby consents to
the sale, assignment, pledge, or other transfer of the other party's shares of
JVCo capital stock after the fifth anniversary of the Business Commencement
Date. Any sale, assignment, pledge or transfer of shares of JVCo capital stock
by either party shall be conditioned upon the third party transferee's
agreement in writing to be bound by the terms and conditions of this Agreement.
Section 6.2 Certain Legends. Certificates representing the shares of
Stock of JVCo issued to BeCeT and Investor shall have the following legend
endorsed thereon:
The stock represented by this Certificate is subject to the restrictions
set forth in the Joint Venture Agreement dated December 13, 1993, a copy of
which is on file with the Company. The Joint Venture Agreement sets forth
certain restrictions concerning the shares represented hereby.
ARTICLE VII
ACCOUNTING
Section 7.1 Period. The accounting period of JVCo shall be the
twelve-month period commencing the 1st day of January and ending on the 31st day
of December,
9
<PAGE> 10
except that the first accounting period which shall commence on the date JVCo is
duly registered and is deemed to exist under Kazakh law and shall end on
December 31, 1994. Complete books of account and records shall be kept by JVCo
according to International Accounting Standards as well as according to Kazakh
law. At the end of each accounting period, such books and records shall be
audited at the expense of JVCo by a firm of independent certified public
accountants of good reputation, mutually acceptable to the parties. Access to
the books of account of JVCo shall be made available to each for the parties at
all times during normal business hours, and each party shall have the right to
have such books of account audited by its representatives.
Section 7.2 Annual Financial Information. A balance sheet and a
statement of income and retained earnings shall be submitted by JVCo to each
party on an annual basis, not later than ninety (90) days after the end of the
fiscal year. Such financial statements shall be audited at the expense of JVCo
by a firm of independent certified public accountants of good reputation
mutually acceptable to the parties.
Section 7.3 Quarterly Financial Information. At the close of each
three-month period commencing January 1, April 1, June 1 and October 1 of each
year, JVCo shall submit to the parties a financial statement setting out income,
expenses, accounts receivable and payable and such other data as any party may
reasonably request.
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Term. This Agreement shall continue in effect for so long
as the parties hereto or their permissible transferees hold shares in JVCo,
unless earlier terminated as provided for in this Article VIII or unless
terminated by the mutual written agreement of the parties hereto.
10
<PAGE> 11
Section 8.2 Termination for Breach. (a) If any party commits a
material breach of this Agreement (such party hereinafter referred to as the
"Breaching Party"), the other party may deliver the Breaching Party a written
notice describing such breach and stating that this Agreement will terminate
unless such breach is corrected as and when prescribed in this subparagraph. If
such breach is not corrected within thirty (30) days after such notice is given,
this Agreement shall terminate at the end of such thirty (30) day period.
(b) In the event of a termination of this Agreement pursuant to this
Section 8.2 (the Breaching Party hereinafter referred to as the "Selling
Party"), the non-Selling Party shall have the right to purchase and the Selling
Party shall be obligated to sell, the shareholdings of the Selling Party. The
purchase price per share for shares transferred pursuant to this Section 8.2
shall be the book value per share of JVCo determined by dividing the net assets
of JVCo as determined in accordance with International Accounting Standards and
adjusted by the total issued and outstanding shares of JVCo as set forth in the
most recent quarterly balance sheet of JVCo. In the event that the non-Selling
party fails to purchase all of the shares owned by the Selling Party, the
parties shall liquidate and dissolve JVCo in accordance with Section 8.4.
Section 8.3 Termination for Certain Other Actions.
(a) Investor shall have the right to terminate this Agreement by
giving written notice to BeCeT upon Investor's good faith determination that any
Kazakhstan Governmental Entity or BeCeT has taken, caused to be taken or failed
to take any action, which could, directly or indirectly, materially and
adversely affect JVCo or Investor's interests in JVCo (including, without
limitation, any action which would constitute a material breach of the Cellular
License or Sections 1.6, 10.6 or 10.12 of this Agreement by BeCeT or which would
be deemed to have been a breach of Sections 1.6, 10.6 or 10.12 of this Agreement
by any of the Kazakhstan Governmental Entities, if such Kazakhstan Governmental
Entity were a party to this Agreement).
(b) In the event Investor terminates
11
<PAGE> 12
this Agreement pursuant to Section 8.3(a) hereof, Investor shall have the right
to sell to BeCeT, and BeCeT shall have the obligation to buy from Investor, all
of the shares of capital stock of JVCo then owned by Investor (the "Put Option
Shares"). As consideration for the purchase of the Put Option Shares from
Investor, BeCeT shall pay Investor an amount calculated, at Investor's sole
option, equal to either: (1) all cash amounts and the fair market value of any
property and equipment contributed by Investor to the capital of JVCo in
accordance with Article II hereof, plus interest on the foregoing contributions
at a rate of 9% per annum from the date of each such contribution (calculated in
U.S. Dollars); or (2) the fair market value (in U.S. Dollars) of the Put Option
Shares as determined by an independent investment banker or financial advisor of
international reputation reasonably selected by Investor and paid by JVCo (which
determination shall be final and nonappealable), provided that the determination
of fair market value shall not take into consideration the event(s) that
resulted in a violation of Section 8.3(a) of this Agreement.
(c) If Investor elects to proceed under Section 8.3(b)(l), the
closing of the purchase and sale of the Put Option Shares shall be within thirty
(30) days of the receipt of the notice from Investor of its election. If
Investor elects to proceed under Section 8.3(b)(2), the closing of the purchase
and sale of the Put Option Shares shall be within twenty (20) days of the
determination of the fair market value of the Put Option Shares, which
determination shall be made available to BeCeT as soon as reasonably
practicable. At the closing of the sale of the Put Option Shares, BeCeT shall
pay Investor in lawful currency of the United States of America in immediately
available funds or a certified check drawn by a bank of international reputation
the amount specified in Section 8.3(b) and Investor shall convey to BeCeT all of
its right, title and interest in the Put Option Shares.
Section 8.4 Effect of Termination. The termination of this Agreement
shall not in any way operate to impair or destroy any of the rights or remedies
of any party, or to relieve any party of its obligations to comply with any of
the provisions of this Agreement, which shall have accrued prior to the
12
<PAGE> 13
effective date of termination. In the event that the shares are not transferred
pursuant to the provisions described in Section 8.2, upon termination of this
Agreement, the parties shall vote their respective shares and cause the Board of
Directors to take such actions as are necessary to liquidate and dissolve JVCo
in accordance with applicable laws.
ARTICLE IX
EFFECTIVE DATE
Section 9.1 Business Commencement Date.
(a) The obligation of Investor to make capital contributions
pursuant to Section 2.3(a) hereof shall not commence until and unless the
following conditions shall have been satisfied:
(1) Each party shall have obtained such governmental
approvals, if any, as are necessary under the relevant laws and regulations
for the acquisition of the shares of capital stock of JVCo and the
operation of JVCo in accordance with this Agreement (including, without
limitation, (i) a written approval from the Cabinet of Ministers of the
Republic of Kazakhstan of the issuance of the Cellular License to the JVCo,
and (ii) the registration of JVCo under the applicable laws of the Republic
of Kazakhstan);
(2) The Cellular License shall have been issued by the
Ministry of Communications to JVCo;
(3) The Ministry of Communications shall have eliminated
all unauthorized cellular communication transmissions and networks within
the Republic of Kazakhstan;
(4) A business plan satisfactory to each of the Investor
and BeCeT has been duly adopted by the JVCo Board of Directors.
13
<PAGE> 14
(b) The date when all the foregoing conditions have either been
waived or satisfied shall be the "Business Commencement Date."
ARTICLE X
MISCELLANEOUS
Section 10.1 Pre-Incorporation Expenses. All expenses incurred by
BeCet in connection with the preparation of documents relating to the Cellular
License and the formation of JVCo (e.g., registration fees and legal fees),
shall be paid to BeCet by JVCo. The amount so paid shall be equal to actual
documented third party expenditures, or, as relates to internal expenses, to the
amount determined in good faith by the Board of Directors as constituting
reasonable market rates for such services, but the total amount so paid to BeCeT
shall not exceed US$15,000. All expenses incurred by Investor in connection with
the preparation of documents relating to the Cellular License and the formation
of JVCo (e.g., registration fees and legal fees), shall be capitalised as part
of the Investor's capital contribution JVCo. The amount so capitalized shall be
equal to actual documented third party expenditures, or, as relates to internal
expenses, to the amount determined in good faith by the Board of Directors as
constituting reasonable market rates for such services.
Section 10.2 Arbitration, Applicable Law and Jurisdiction. All
disputes arising in connection with this Agreement shall be finally settled
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce by one or more arbitrators appointed in accordance with said Rules. The
arbitration shall be held in Vienna, Austria. The language of the arbitration
shall be English. Any and all performance hereunder or breach hereof, shall be
interpreted, governed and construed pursuant to the Laws of Austria applicable
to agreements made and to be performed in said jurisdiction, without regard to
principles of conflicts of laws. This agreement shall be governed by and
interpreted under the English language and the English language version of this
agreement shall be the original version of this agreement.
14
<PAGE> 15
Section 10.3 No Waivers. No failure or delay by either party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof.
Section 10.4 Notices. Every notice required or contemplated by this
Agreement shall be given in writing and delivered by hand or sent by overnight
courier, or by telex or facsimile, addressed to the party to whom intended at
the address specified below or at such other address as the intended recipient
previously shall have designated by written notice.
If to Investor: Wireless Technology Corporations
Limited
17 Bond Street, Saint Helier
Jersey, Channel Islands
JE48 UT
copy to: William Browder
Solomon Brothers International Limited
111 Buckingham Palace Road
London, England, SW2W 05B
Facsimile: 44.71.721.2803
copy to: Tom Casey, Esq.
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue
Washington, D.C. 20005
U.S.A.
Telex: 904343 (Skarslaw-WSH)
Facsimile: 1.202.393.5760
If to BeCeT: Jan L. Dribinskyi
Kompania Besprovodnye Ceti Sviazi
480002, City of Almaty
9, Zhurgeneva Street
Republic of Kazakhstan
Telex: 251232 PTB
Facsimile: 7.3272.30.01.43
15
<PAGE> 16
Section 10.5 Assignment; Successors. This Agreement, and the rights
and obligations under this Agreement, shall not be transferred, assigned or
encumbered, in whole or in part, except to the extent permitted by Article VII
or Article IX of this Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 10.6 Confidential Information. All information obtained by (i)
the parties hereto, (ii) JVCo and its directors, officers, employees and agents
or (iii) the Ministry of Communications or any of its agencies, ministries or
instrumentalities, in connection with this Agreement and the transactions
contemplated hereby, other than information which is common knowledge or within
the public domain, shall be considered confidential and shall not be divulged by
any of them except to duly authorized representatives of JVCo or as otherwise
duly authorized by JVCo in writing. These provisions shall remain binding
obligations after the completion, expiration or termination of this Agreement.
Section 10.7 Entire Agreement; Amendments; Severability. This
Agreement sets forth the entire understanding between the parties relating to
the subject matter contained herein, and all prior discussions and writings
between the parties with respect thereto are superseded by this Agreement. No
amendment, modification or addition to this Agreement shall be effective or
binding on any party unless set forth in writing and executed by the respective
party against whom enforcement of the amendment, modification or addition is
sought. The provisions of this Agreement shall be deemed to be severable, and
the invalidity of any provision of this Agreement shall not affect the validity
of the remaining provisions of this Agreement.
Section 10.8 JVCo Ratification. Following formation of JVCo, the
parties shall cause the Board of Directors of JVCo to ratify this Agreement by
duly adopting a resolution in form acceptable to the parties, and pursuant to
which JVCo shall be entitled to the benefits of this Agreement and shall be
subject to the obligations of this Agreement insofar as such benefits and
obligations inure to the benefit of JVCo.
16
<PAGE> 17
Section 10.9 Survival of Obligations. Notwithstanding any termination
of this Agreement for any cause, the parties hereto shall not be released from
any liability which at the time of such termination has already accrued to such
party or which thereafter may accrue to such party in respect of any act or
omission prior to such termination.
Section 10.10 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts shall have been signed
by each of the parties hereto and delivered to the other parties hereto.
Section 10.11 Sovereign Immunity. To the extent that BeCeT may on any
jurisdiction claim for itself, or any of its assets, immunity from suit,
arbitration, execution, attachment or any other legal process and to the extent
that in such jurisdiction there may be attributed to itself or its assets such
immunity (whether or not claimed), BeCeT hereby irrevocably and unconditionally
waives such immunity to the fullest extent permitted by applicable law.
Section 10.12 Non-Competition. Neither Republic of Kazakhstan nor any
agency, ministry or instrumentality of the Republic of Kazakhstan nor any other
entity affiliated with the Republic of Kazakhstan nor BeCeT nor any of its
partners or owners (collectively, the "Non-competing Parties") shall engage or
participate in, or attempt to engage or participate in, either directly or
indirectly, the business of cellular telephone communications within the
Republic of Kazakhstan prior to the fifth anniversary of the Business
Commencement Date. None of the Non-competing Parties shall encourage or assist
in any manner, either directly or indirectly, any person or entity from engaging
or participating in the business of cellular telephone communications within the
Republic of Kazakhstan prior to the fifth anniversary of the Business
Commencement Date.
Section 10.13 Force Majeure. Neither of the parties nor JVCo shall
be liable for any delay or damage due, occasioned or caused as a result of laws,
orders, rules or regulations or by strikes, unusually severe actions of the
elements, fires, explosions, or other
17
<PAGE> 18
unusually restrictive causes beyond the reasonable control and not reasonably
within the contemplation of the parties. Any delay due to any of the above
causes shall not be deemed to be a breach of or failure to perform this
Agreement, but the party hereunder that is rendered unable, wholly or in part,
to carry out its obligations under this Agreement shall promptly give notice and
full particulars of the cause of said delay in writing to the other party
promptly after the occurrence of the cause relied upon and the cause of said
delay so far as possible shall be remedied with all reasonable dispatch.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
INVESTOR
By: /s/ WILLIAM BROWDER
-------------------------------------------
Name: William Browder
Title: Pursuant to Power of Attorney
[SEAL]
By: /s/ YAN DRIBINSKY
-------------------------------------------
Name: Yan Dribinsky
Title: General Manager
ACCEPTED AND AGREED:
The Ministry of Communications
of the Republic of Kazakhstan
By: /s/ IGOR V. ULYANOV
---------------------------
Name: IGOR V. ULYANOV
Title: Minister
Date: December 13, 1993
18
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
This agreement is concluded by and between the Ministry of Communications
of the Republic of Kazakhstan (the "MOC") and Joint Venture BECET International,
a joint stock company under the laws of the Republic of Kazakhstan ("BECET").
ARTICLE 1
Subject of the Agreement
The MOC and BECET have hereby agreed on the interconnection of the
cellular network ("CN") to be created by BECET with the public switched
telephone network ("PSTN") and on mutual settlement for incoming and outgoing
calls and rates of such settlements and on certain additional matters relating
to License n. 61 issued by the MOC to BECET ("License").
ARTICLE 2
Interconnection with PSTN
In accordance with the joint venture agreement dated December 13, 1993,
the interconnection of BECET's CN with the PSTN shall be free of charge, as a
portion of the Kazakhstan party's contribution to the joint venture.
ARTICLE 3
Rates
Section 3.1 BECET shall pay to the PSTN operators for carriage and
termination of intracity calls from the CN the lowest rate charged by the MOC
for such business calls.
Section 3.2 BECET shall pay to the PSTN operators for carriage and
termination of the intercity (intra- and inter-oblast') calls from the CN the
rate charged by the MOC for inter city business calls, less a discount equal to
the greater of (i) 1/2 (one half) of the difference between the lowest rate
charged by the MOC for intercity business calls and the lowest rate charged by
the MOC for intercity calls by individuals or (ii) 20% (twenty percent).
Section 3.3 BECET shall pay to the PSTN operators for carriage and
termination of the international calls from the CN the rate charged by the MOC
for international business calls, less a discount equal to the greater of (i)
1/2 (one half) of the difference between the lowest rate charged by the MOC for
international business calls and the lowest rate charged by the MOC for
international calls by individuals or (ii) 15% (fifteen percent).
<PAGE> 2
Section 3.4 BECET shall withhold from its payments to the PSTN operators
a reasonable percentage (from 5 to 7 %) to be agreed, on a basis consistent with
international practice, for billing and collecting services.
Section 3.5 BECET shall inform the operators of PSTNs connected to
BECET's CN of the rates to be charged by such operators for calls from PSTNs to
the CN. Such operators shall bill, collect and deliver to BECET the payment
received for such calls terminating on the CN less a reasonable portion thereof
to cover the costs of billing and collection of such call charges.
Section 3.6 With respect to Section 5.4.1 of the License, the parties
agree that any changes to the rates in effect in Kazakhstan shall not affect the
formulas set forth in article 3 of this agreement, and that payments to the PSTN
operators shall continue to be made according to the formulas set forth above.
ARTICLE 4
BECET shall establish the rates for all services provided over the CN,
without the prior approval of the MOC.
ARTICLE 5
Section 5.l.l.(e) of the License provides that the Grantee may lease or
resell certain excess capacity, with "approval by the MOC". The parties thereby
understand that the MOC shall have an opportunity to recommend to Grantee
possible or preferable lessees or purchasers of such excess capacity, without
otherwise limiting the Grantee's right to lease or sell excess capacity.
ARTICLE 6
The parties understand that if the Grantee exercises its right of first
refusal in accordance with Section 5.1.3. of the License, the MOC shall issue
such license to Grantee and not to any other person; but that nothing shall
preclude the MOC from deciding to issue more than one license at the same time
for the same activity, in which case the Grantee's right of first refusal shall
apply to only one such license.
<PAGE> 3
ARTICLE 7
The term of this agreement shall be the term of the License, including
possible extentions after the expiration of the initial term of the License.
Disputes hereunder shall be resolved in the manner set forth in the License.
This agreement is concluded on this 4 day of February, 1994 in five
original counterparts, in both English and Russian.
For the Ministry of Communications For BECET International
of the Republic of Kazakhstan
[SEAL]
/s/ YU. D. NILOV /s/ WILLIAM F. BROWDER
- ---------------------------- --------------------------
Yu. D. Nilov William F. Browder
Deputy Minister Attorney in Fact
<PAGE> 1
EXHIBIT 10.3
AGREEMENT
This agreement is concluded by and between the National Joint Stock
Company "Kazakhtelecom" ("Kazakhtelecom"), and Joint Venture BECET
International, a Closed-type Joint Stock Company under the laws of the Republic
of Kazakhstan ("BECET") and shall proceed and supersede the Agreement between
the Ministry of Communications of the Republic of Kazakhstan and BECET
International, dated February 4, 1994.
ARTICLE 1
Subject of the Agreement
Kazakhtelecom and BECET have hereby agreed on the interconnection of
the cellular network ("CN"), to be created by BECET with the public switched
telephone network ("PSTN") and on mutual settlement for incoming and outgoing
calls and rates of such settlements and on certain additional matters relating
to License No. 61 issued by the Ministry of Communications of the Republic of
Kazakhstan to BECET on February 4, 1994 ("License").
ARTICLE 2
Interconnection with PSTN
In accordance with the Joint Venture agreement dated December 13, 1993,
the interconnection of BECET's CN with the PSTN shall be free of charge, as a
portion of the Kazakhstan party's contribution to the Joint Venture.
ARTICLE 3
Rates
Section 3.1. BECET shall pay to the PSTN operators for carriage and
termination of intracity calls from the CN the lowest rate charged by
Kazakhtelecom for such business calls.
Section 3.2. BECET shall pay to the PSTN operators for carriage and
termination of intercity (intra- and inter-oblast') calls from the CN the rate
charged by Kazakhtelecom for intercity business calls, less a discount equal to
the greater of (i) 1/2 (one half) of the difference between the lowest rate
charged by Kazakhtelecom for intercity business calls and the lowest rate
charged by Kazakhtelecom for intercity calls by individuals or (ii) 20% (twenty
percent).
<PAGE> 2
Section 3.3. BECET shall pay to the PSTN operators for carriage and
termination of the international calls from the CN the rate charged by
Kazakhtelecom for international business calls, less a discount equal to the
greater of (i) 1/2 (one-half) of the difference between the lowest rate charged
by Kazakhtelecom for international business calls and the lowest rate charged by
Kazakhtelecom for international calls by individuals of (ii) 15% (fifteen
percent).
Section 3.4. BECET shall withhold from its payments to the PSTN
operators a reasonable percentage (from 5 to 7%) to be agreed, on a basis
consistent with international practice, for billing and collecting services.
Section 3.5. BECET shall inform the operators of PSTN connected to
BECET's CN of the rates to be charged by such operators for calls from PSTNs to
the CN. Such operators shall bill, collect and deliver to BECET the payment
received for such calls terminating on the CN less a reasonable portion thereof
to cover the costs of billing and collection of such call charges.
Section 3.6. With respect to Section 5.4.1. of the License
("Interconnection with the PSTN"), the parties agree that any changes to the
rates in effect in Kazakhstan shall not affect the formulas set forth in article
3 of this agreement, and that payments to the PSTN operators shall continue to
be made according to the formulas set forth above.
ARTICLE 4
BECET shall establish the rates for all services provided over the CN,
without the prior approval of Kazakhtelecom.
ARTICLE 5
Section 5.1.1. (e) of the License ("Scope of the License") provides
that the Grantee may lease or resell certain excess capacity, with approval by
Kazakhtelecom. The parties thereby understand that Kazakhtelecom shall have an
opportunity to recommend to Grantee possible or preferable lessees or purchasers
of such excess capacity, without otherwise limiting the Grantee's right to lease
or sell excess capacity.
ARTICLE 6
The parties understand that if the Grantee exercises its right of first
refusal in accordance with Section 5.1.3. of the License, Kazakhtelecom shall
issue such license to Grantee and not to any other person; but that nothing
shall preclude Kazakhtelecom from deciding to issue more than one license at the
same time for the same activity, in which case the Grantee's right of first
refusal shall apply to only one such license.
2
<PAGE> 3
ARTICLE 7
The term of this agreement shall be the term of the License, including
possible extension after the expiration of the initial term of the License.
Disputes hereunder shall be resolved in the manner set forth in the License.
This agreement is concluded on this 28 day of February, 1996 in five
original counterparts, in both English and Russian.
LEGAL ADDRESSES OF THE PARTIES
1. The National JSC Kazaktelecom: 86 Abylay Khan Av., 480091 Almaty,
Kazakhstan Settlement account #425002 in Kazpochtabank, Almaty, code 953,
Registration Number of the Taxpayer 600700017446.
2. The JSC BECET International: 9 Zhurgenev St., 480002 Almaty,
Settlement account #8467286 in the JS Bank Kazkommertsbank, code 724.
For the National JSC "Kazakhtelecom":
s/s YERZHAN K. SAGYNDYKOV
- - --------------------------------
Yerzhan K. Sagyndykov
President
For the JSC "BECET International"
s/s ROBERT SMITH
- - --------------------------------
Robert Smith
Chairman of the Board
3
<PAGE> 1
EXHIBIT 10.4
THE MINISTRY OF THE COMMUNICATIONS
OF THE REPUBLIC OF KAZAKHSTAN
LICENSE NUMBER 61
FOR PROVISION OF TELECOMMUNICATION
ACTIVITIES ON THE TERRITORY OF
THE REPUBLIC OF KAZAKHSTAN.
1. ISSUED TO:
Closed-type joint stock company BECET International.
2. THE DATA ON THE LICENSE HOLDER:
Mail address:
480002, Almaty
Zhurgeneva Street, Number 9
Telephone number: (73272) 30 00 76
Telefax number: (73272) 30 01 43
3. TYPE OF ACTIVITY:
Creation and operation of a public cellular communication system
providing mobile radio communication services.
4. TERRITORY:
The Republic of Kazakhstan, including the territory, the territorial
waters and continental shelf, over which the Republic exercises jurisdiction
under the international law ("Authorized Geographic Area").
5. SPECIFIC CONDITIONS:
5.1 SCOPE OF THE LICENSE
5.1.1 Scope of the License. The Grantee is authorized by this License
to establish and operate a land-based public mobile telecommunications service
network consisting of transmission and reception equipment operating on the
frequencies specified in Section 5.2 hereof, switching equipment for the
exchange of mobile telecommunications services and other appropriate equipment
(including subscriber mobile, transportable and portable equipment, appropriate
microwave transmission and reception equipment and
<PAGE> 2
metallic, coaxial or fiber optic cable equipment) in accordance with the
standards promulgated for an advanced mobile phone system ("AMPS") in the
Standard ANSI/EIA/TIA-553-89 and associated interim standards TIA/IS-19-B and
TIA/IS-20-A by the Telecommunications Industry Association located in
Washington, D.C. ("AMPS Network"). Grantee is also hereby authorized to
establish and operate networks employing technology conforming to the standards
for digital AMPS, which the Ministry of Communications ("MOC") may from time to
time decide to authorize for use in connection with the provision of the
services described herein (collectively, along with the AMPS Network, referred
to herein as the "Network"). In the case the MOC is not able to provide
intercity circuits in sufficient number or with the required quality, the
Grantee may apply to the MOC for approval and/or licensing to install satellite
earth stations to be used for the purposes of the Network. The MOC will grant
such permission and/or license within 30 days of request by the Grantee.
During the term of this License, the Grantee is authorized, within
the Authorized Geographic Area, to provide, by means of the Network:
(a) Origination, termination and carriage of all mobile and portable
voice and data services capable of being offered by the Network authorized
hereby ("Cellular Service");
(b) Cellular Services to users of other cellular mobile systems
(including users registered primarily to systems licensed by other countries)
("Roaming Services");
(c) Value-added services, including but not limited to conference
calling, voicemail, message waiting, call waiting, call forwarding, selective
call acceptance, call blocking, caller identification, call screening, speed
calling and return-call dialing;
(d) Other services as may be authorized from time to time by the MOC
either upon the application of the Grantee or, pursuant to Section 5.9.5 hereof,
on its own motion; and
(e) Leases or resale of excess capacity on the microwave, cable or
satellite earth station facilities for use in the Network authorized hereunder
on a dedicated basis by third parties, after approval by
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<PAGE> 3
the MOC, including other telecommunications service providers; provided,
however, that any excess capacity on Grantee's aforementioned facilities which
the Grantee proposes to resell or lease will first be offered to the MOC at
prices, terms and conditions that are the same as those on which the PSTN's
facilities are offered to business users, with a discount of 20% (twenty
percent). The MOC will have thirty (30) days to notify the Grantee in writing of
its intention to purchase or lease such excess capacity. If thirty (30) days
pass without receipt by Grantee of such notice from the MOC, he will be free
to resell or lease the excess capacity to a third party.
Grantee may provide services authorized herein for local, intercity
and international calling over its own owned and operated facilities.
5.1.2 Description of Authorized Network. The Network shall be
designed, constructed and operated in compliance with international standards.
In the event that new applicable technical standards are developed by an
appropriate authority which the MOC desires to implement, the Grantee may be
required, after compliance with the procedures specified in Section 5.9.5 of
this License and following the expiration of an appropriate transitional
period, to comply with the new standards.
5.1.3 Exclusivity and Right of First Refusal. The MOC shall not issue
licenses to create and operate any other cellular communications network, within
the Authorized Geographic Area until the fifth anniversary of the date of the
signing of this license. After this time if the MOC determines that it is
necessary to create and operate networks with the standards of GSM or NMT-450 or
any other technology for the provision of any such mobile communications
services, it will offer such license to all of the interested parties including
the Grantee. Grantee shall then have thirty (30) days within which to notify the
MOC in writing of its desire to accept such license before the MOC grants such
license to any other entity. In accordance with Section 5.1.1 hereof, Grantee
need not specifically accept such additional licenses in order to construct,
operate and offer services over additional telecommunications networks based on
such technologies as the MOC shall authorize from time to time. MOC retains all
other rights not granted to Grantee hereunder.
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<PAGE> 4
5.l.4 No Prior License or Unauthorized Operations. The MOC hereby
warrants that it has the exclusive right to issue licenses for the commercial
operation of land-based public mobile telecommunications networks and that it
has not previously authorized or allowed any entity other than BeSeT to create
and operate a cellular communications network within the Authorized Geographic
Area, providing mobile radio communications services and such authorization is
hereby superseded as of the date of the signing of this license.
5.2 AUTHORIZED FREQUENCY
5.2.1 Initial Frequency. The Grantee is authorized to construct
and operate its Network employing on an exclusive basis the following cellular
frequencies: 825-845 MHz and 870-895 MHz. To the extent any portion of these
bands in any region of the Authorized Geographic Area is presently reserved for
use by anyone, the MOC shall, in coordination with the Grantee, promptly
identify alternative frequencies acceptable to Grantee, compatible with the
technical standards applicable to the Network and sufficient in capacity for the
provision by Grantee of the services authorized herein. Grantee is hereby
authorized to construct and operate its Network employing these alternative
frequencies on an exclusive basis. Grantee is also authorized to locate its
facilities on the necessary rights of way, to construct and operate cable
(whether fiber optic, coaxial or metallic cable) and microwave transmission
systems and related facilities connecting its base stations to its switch and
connecting Network switching facilities to a point of interconnection with any
other telecommunications network. Grantee is authorized to operate its microwave
facilities transmitting and receiving without interference on the appropriate
frequencies including, without limitation, in the 2 GHz, 4 GHz, 6 GHz, 8 GHz, 11
GHz, 15 GHz, 18 GHz, 21 GHz and 23 GHz bands if they are used for the
organization of cellular networks operation.
Subject to conditions outlined by normative acts of the Republic of
Kazakhstan, the Grantee may, without further approval of the MOC, use all
cellular frequencies specified above throughout its Authorized Geographic Area,
provided, however, that the Grantee shall cooperate regarding its usage of any
of such frequencies with adjacent nations, where necessary; and provided further
that the Grantee shall cooperate
4
<PAGE> 5
with other users of frequency duly licensed or authorized under the laws of
other sovereign nations and adopt reasonable measures to eliminate any frequency
interference. Issues of frequency interference involving the Grantee and other
authorized service providers or users in the Republic or in other sovereign
nations may be presented to the MOC for resolution by any of the parties
involved.
5.2.2 Additional Frequency. If the MOC authorizes the use of other
technologies for the provision of services by Grantee pursuant to Sections 5.1.1
and 5.1.3 hereof, the MOC will, within three months after the acceptance of such
decisions, authorize the Grantee to use such frequencies as is appropriate (both
in terms of technical compatibility and capacity needs) for the implementation
and use of such technology and provision of such services.
5.2.3 Implementation. The MOC will provide necessary support
(including, without limitation, by way of issuance of certificates,
authorizations, confirmations, allocations and other approvals) of the State
Commission for Radio Frequencies Allocation, the Republic and regional State
Inspectorates for Electric Communications, and such other governmental agencies
or bodies with appropriate jurisdiction (collectively "Governmental Bodies") as
may be necessary for the Grantee to construct, operate and provide services
using the Network.
5.3 GRANTEE OBLIGATIONS
5.3.1 License Fees. In full consideration for all rights granted
hereunder, the Grantee is obliged to pay the MOC not later than March 31 of each
year during any term of the License a sum equal to 6.0% of the Grantee's
previous year's annual (after tax) net profits from Cellular Service provided to
subscribers in Kazakhstan.
For the use of frequencies described in this license, Grantee shall
pay to the Republican State Inspectorate for Electric Communications in the
amounts and the manner established by the regulatory acts of the Republic of
Kazakhstan. This sum will be included in the general amount of payments for the
License Fee.
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<PAGE> 6
5.3.2 Coverage Requirement. The Grantee shall provide Cellular
Service in accordance with the Roll Out Schedule specified below.
ROLL OUT SCHEDULE
- --------------------------------------------------------------------------------
RELIABLE CELLULAR
SERVICE COVERAGE
REQUIRED BY:
- ----------------------------------------------------
1. Greater Almaty area 1994
2. 10-12 Regional centers 1994/1996
(to be specifically identified after
market analysis and approval by the MOC)
- ----------------------------------------------------
5.3.3 Confidentiality of Communications. The Grantee shall not
monitor or disclose the content of any communication transmitted over its
Network, except as may be necessary to monitor such communications as part of
its regular maintenance activities unless provided otherwise by applicable law.
The Grantee shall not use or publish information received from subscribers for
purposes other than those for which the information was obtained without the
relevant subscriber's consent, provided however, that the Grantee may use such
information in connection with the provision of its services to such subscriber.
5.4 INTERCONNECTION
5.4.1 Interconnection with the Public Switched Telephone Network.
The Grantee shall have the right, and is hereby authorized, to connect its
Network to the public switched telephone network ("PSTN"), including any
appropriate satellite uplink, downlink lines and transponder facilities, free of
charge. This interconnection will be provided at a level to ensure to the users
of the Network a priority access to international and intercity connections. The
MOC shall cause the PSTN operator(s), at Grantee's request, to provide all
necessary facilities and service arrangements to achieve these connections free
of charge to Grantee, as expeditiously as practical, and at those facilities in
the PSTN that the Grantee reasonably deems to be appropriate.
The Grantee shall pay to the PSTN operator a usage fee per minute of
air time according to rates established in the agreement with the MOC.
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<PAGE> 7
The Grantee shall withhold from its payments to the PSTN operator a
reasonable percentage (from 5% to 7%) to be agreed, on a basis consistent with
international practice, for billing and collection services.
In the event of amendments to the laws or rates in effect,
corresponding changes in payments to the PSTN operator shall be made.
The Grantee shall be authorized to inform the operator of any
telecommunications network, including the PSTN, connected to the Grantee's
Network, of the rates to be charged by such operator for calls from such other
communications networks, including the PSTN, to the Network. Such operator shall
bill, collect and deliver to Grantee the payments received for such calls
terminating on Grantee's Network, provided, however, that such operator may
deduct a reasonable fee designed to cover the reasonable costs of billing and
collection of such call charges.
5.4.2 Quality of Interconnection. Grantee shall not affect adversely
or otherwise unreasonably interfere with the provision of services by
interconnected networks and equipment.
5.5 EQUIPMENT
5.5.1 Standards. The Grantee is under the obligation to take
reasonable measures to assure that only terminal equipment meeting applicable
international standards will be connected to the Network, and Grantee shall be
obligated to interconnect all such equipment upon request. The Grantee shall not
demand that equipment to be interconnected meet standards which exceed those
defined in the applicable regulations and standards. The Grantee is obliged to
provide the certification test for technical communication facilities to be
interconnected with PSTN.
5.5.2 Equipment and Facilities. Subject to Section 5.9.4 hereof, the
Grantee shall own the Network's base station transmission and reception
equipment and the Network switching equipment. The procedures for importation of
equipment for the purposes of the Network and to be used to provide services
shall be governed by the laws of the Republic of Kazakhstan. Grantee may sell or
lease subscriber mobile, portable and transportable units directly to
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<PAGE> 8
subscribers and to its agents, dealers and resellers at its own prices.
5.6 SERVICE QUALITY
5.6.1 Service Standards. The Grantee shall provide reliable Cellular
Service that meets or exceeds the minimum applicable technical and service
performance standards.
5.6.2 Customer Service. The Grantee shall establish measures to
permit subscribers to receive assistance at reasonable times.
5.6.3 Billing. The Grantee may specify the content of its own bills.
Bills shall be rendered not less than bi-monthly. Subscribers shall not be
billed for calls that are not established with the called party (or a forwarded
party or message service), nor for any time prior to the time the connection
with the called party (or a forwarded party or message service) is established.
The Grantee may terminate services to any subscriber for nonpayment of bills or
for using the Network in any manner that interferes with usage of the Network by
other subscribers or is otherwise inconsistent with the integrity of the
Network.
5.7 EMERGENCY SERVICES
5.7.1 Emergency Call Service. The Grantee shall enable users to make
free calls from any subscriber equipment unit to police, fire and public
ambulance and gas network emergency services.
5.7.2 Emergency Situations.
The Grantee shall provide a priority to the information concerning
the state security, human lives on the water, land, in air or outer space, as
well as exclusively urgent epidemic information, signs and notices for
populations on the threats or events of emergencies.
The Government of the Republic of Kazakhstan has a priority right to
use any telecommunication networks in the case of natural disasters,
quarantines, catastrophes, industrial accidents and other emergency situations
and circumstances.
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<PAGE> 9
The Grantee shall reserve 1-2% of the capacity on its Network for
Government use during a declared national emergency and, to the extent possible,
the Grantee shall use its best efforts to assure and maintain those
telecommunications services that the Government declares are essential in such
emergency circumstances provided that a reasonable compensation shall be paid to
the Grantee.
5.8 GENERAL PROVISIONS
5.8.1 Participation in International Affairs. At the invitation of
the MOC, the Grantee may participate in delegations of the Republic to
international telecommunications standard or policy setting organizations. The
Grantee may make reasonable contributions to the work of such international
cooperation bodies and in the specification work for cellular mobile networks
and services. In any event, Grantee should be kept informed on a timely basis of
developments of such organizations affecting its business.
5.8.2 Nondiscrimination. The Grantee shall not deny reasonable
requests for service, provision of which is contemplated in the Network
services, nor shall it unreasonably discriminate between or among similarly
located subscribers or potential subscribers.
5.8.3 License Amendment. The License may be modified by the MOC to
adjust to exceptional or unforeseen circumstances and in each case only to the
minimum extent necessary and after complying with the requirements of Section
5.9.5 hereof; provided, however, that in no event within the first five (5)
years of the Initial Term shall the frequencies assigned to the Grantee herein
be reduced or reassigned, or the territory authorized to be served by the
Grantee herein be reduced or redefined. The MOC shall adopt appropriate
transitional periods prior to the effective date of any License amendment made
hereunder.
5.8.4 Ownership of Facilities. All facilities constructed or
purchased by the Grantee for the provision of services under this License shall
be and remain the property of the Grantee, regardless of termination,
amendments, non-renewal or revocation of the License. In the event of
nationalization or any other confiscation of Grantee's facilities, a
compensation for the value of the facilities shall be pro-
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<PAGE> 10
vided in accordance with the laws of the Republic of Kazakhstan.
5.8.5 Dispute Resolution. The Grantee should seek to resolve all
disputes arising between it and other telecommunications service providers or
its subscribers in good faith. In the event that conflicts concerning the
compliance of Grantee or other telecommunications service provider with any term
of its license between the Grantee and other providers of telecommunications
services cannot be resolved between the parties, either party may seek MOC
action to enforce the term of the License. Any subscriber bringing a complaint
under this Section must be able to show that he or she was in fact directly and
negatively affected by the interpretation asserted by the Grantee.
Grantee may appeal any decision of the MOC in connection with this
Section for final settlement under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by one or more arbitrators appointed in
accordance with said Rules. The arbitration shall be held in Vienna, Austria.
The language of the arbitration shall be English.
5.8.6 Responsibility to Users. The Grantee will be solely responsible
to its subscribers for providing the services it offers, for which the Republic,
the Government and its various branches and agencies, including, but not limited
to, the MOC remain exempt of all responsibility. Disputes arising between
subscribers and the Grantee shall be resolved in accordance with Section 5.8.5
hereof.
5.8.7 Transferability of the License. Subject to the approval of 75%
of the shareholders or partners of the Grantee, this License and the rights
thereunder may be transferred, assigned or encumbered, in whole or in part, by
Grantee.
5.9 DURATION OF LICENSE, REVOCATION, INFRACTIONS AND PENALTIES
5.9.1 Duration of License. This License shall expire, unless renewed
as provided below, on the fifteenth anniversary of the signing of this license
("Initial Term").
5.9.2 License Renewal. Subject to the terms of revocation provided in
Section 5.9.4 hereof,
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<PAGE> 11
this License may be renewed by the MOC for a term to be determined at that time
("Renewal Terms") upon request of the Grantee submitted to the MOC not later
than one year before the expiration of the Initial Term or the date specified in
any renewal, provided that the Grantee has materially fulfilled the material
terms of the License, applicable legal and regulatory provisions, and accepts
any new conditions applicable to the operation of the Network or to Grantee's
provision of Cellular Service that the MOC may establish after having made a
finding that the public interest requires such new term or condition. The MOC
shall resolve any application for renewal not later than six (6) months
following the submission of such application.
5.9.3 Infractions. Either the MOC or any other governmental authority
may cause an investigation by the MOC to be initiated if, upon information and
belief, or upon a complaint by any third party, in good faith the MOC or the
other governmental authority reasonably believes the Grantee has repeatedly and
willfully violated the provisions of this License or applicable law and
regulations. Prior to imposing sanctions, modifications or revocations, MOC
shall convene a hearing pursuant to Section 5.9.5 hereof regarding the alleged
violations. If the record developed in such hearing establishes that the
conditions imposed pursuant to Section 5.9.4 hereof have been satisfied, the MOC
may revoke the License pursuant to those sections. In cases of lesser severity,
the MOC may issue public censures and/or impose reasonable reporting
requirements, reasonable corrective actions and/or reasonable fines on the
Grantee and require the Grantee to comply with the relevant provisions of the
License or applicable law or regulation.
5.9.4 Revocation. The License may not be revoked by the MOC except
for good cause shown by substantiated evidence developed in the record of a
public hearing to be conducted by the MOC pursuant to Section 5.10.5 hereof for
the following reasons:
(a) The Grantee is delinquent in any material payments owed to
the state of License fees or fines to the MOC in excess of six (6) months; or
(b) The Grantee has repeatedly and/or willfully violated
material provisions of this License or applicable law and regulations and, after
having received notice of such violations from the MOC, has
11
<PAGE> 12
refused to take necessary steps to correct such violations within an established
period.
If the License is revoked for any reason not specifically listed in
this Section 5.9.4, MOC shall compensate Grantee for all expenses reasonably
incurred by Grantee in performance of its obligations under the License upon
presentation by Grantee of documentation therefor.
The Grantee may appeal a decision by the MOC to revoke the License
for final settlement under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators appointed in
accordance with said Rules. The arbitration shall be held in Vienna, Austria.
The language of the arbitration shall be English. The License shall have a
provisional duration of up to six months after any final arbitration order
affirming revocation.
5.9.5 Hearings. Hearings to protect the due process rights of the
Grantee and the interests of the consumers of telecommunications services shall
be conducted by the MOC prior to the imposition of any censure, fine, amendment
or revocation of the License or the consideration of obligatory administrative
measures proposed to be imposed on Grantee pursuant to this License. These
hearings can only be initiated following the issuance of a summons or notice
specifying the proposed order, modification or the charged material violation
and the evidence known by the MOC in support of the allegation that such
violation occurred and is material. Such hearings shall provide the Grantee with
the opportunity to fully participate, including by submitting testimonial,
written or other evidence, to evaluate any charges and the supporting evidence
therefor against it and to cross-examine witnesses against it. The hearing
process will be conducted within the terms determined by the MOC; provided,
however, that hearings should be concluded and a decision reached by the MOC on
any matter within six (6) months. The MOC shall conduct all proceedings
hereunder with due regard for the interests of protecting the privacy of all
involved parties. All conclusions reached by the MOC at the close of hearings
must be supported by the weight of the evidence in the record developed
there-by and are subject to appeal by any party for final settlement under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
by one or more arbitrators
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<PAGE> 13
appointed in accordance with said Rules. The arbitration shall be held in
Vienna, Austria. The language of the arbitration shall be English.
5.10 MISCELLANEOUS
5.10.1 Force Majeure. The Grantee shall not be found to have violated
a provision of this License due to non-performance or defective or late
performance to the extent and for such periods of time as such non-performance
or defective or late performance is due to reasons outside Grantee's control,
provided that Grantee could not reasonably have been expected to have taken the
reason into account or avoided its effects. For purposes of this Section, and
without limiting the general applicability of the foregoing, the following
events shall constitute reasons outside the Grantee's control: war (whether
declared or not), riots, acts of sabotage, natural disasters, explosions, fires,
boycotts, strikes, lockouts, acts of Kazakh or other mandatory authority (except
those provided for herein), the failure of the frequencies described in Section
5.2 hereof to have been assigned and made available to Grantee without
interference within the time periods specified therein; and the failure of the
PSTN operator to provide interconnection within twelve months from Grantee's
initial request therefor. Notwithstanding the foregoing, however, the Grantee
shall continue to take all actions reasonably within its power to comply as
fully as possible with this License.
5.10.2 Notice. Every notice required or contemplated by this License
shall be given in writing and delivered by hand or sent by overnight courier,
or by telex or facsimile, addressed to the party to whom intended at the address
specified below or at such other address as the intended recipient previously
shall have been designated by written notice.
If to the MOC, to:
480091, Almaty
Ablay Khana Prospect, Number 86
Telex: 251126 SAD SU
Facsimile: (73272) 63 7210
If to the Grantee, to:
480002, Almaty
Zhurgeneva Street, Number 9
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Facsimile: (73272) 30 0143
5.10.3 Governing Law. This License shall be governed by, construed
and enforced in accordance with the telecommunications laws of the Republic as
they may exist from time to time, including the Regulations and, with regard to
non-telecommunications matters, by generally accepted customs and practices of
commercial law applicable to international business transactions.
5.10.4 Language. This License was prepared in three languages,
Kazakh, Russian and English. All three language versions are of equal legal
force. Should any differences of interpretation arise as between the Kazakh,
Russian and English versions, then, solely for purposes of resolving such
difference in interpretation, the English language version shall prevail.
Should Grantee appeal for any arguable matters resolution to the
International Arbitration as provided in Articles 5.8.5, 5.9.4, and 5.9.5
hereof, it shall provide the MOC with all materials for hearings in Russian.
6. SERVICES COMMENCEMENT DATE: the Third Quarter
(Not later than) of 1994
7. DATE OF REGISTRATION:
February 4, 1994
Minister of Communications
of the Republic of Kazakhstan
(seal)
/s/ I.V. ULYANOV
- ---------------------------------
(signature)
I.V. Ulyanov
14
<PAGE> 1
Exhibit 10.5
Ministry of Communications
of the Russian Federation
LICENCE
NO. 4904
In accordance with the Law on Communications,
the Ministry of Communications of the Russian Federation allows
the conduct of telecommunications operations to the
CLOSED JOINT-STOCK COMPANY
"PETERSTAR"
Registered address:
24 Bolshaya Morskaya Street, St. Petersburg, 191065
Type of activity:
PROVIDING LOCAL, LONG-DISTANCE AND INTERNATIONAL TELEPHONE
COMMUNICATIONS VIA A DEDICATED NETWORK
The terms and conditions for conducting the said type of activity
and territory of operations are contained in an addendum
which is an inalienable part of the present Licence.
Licence Expiry date 20.09.2001
Commencement of operations
(no later than) 20.09.1997
Date of licence registration
in the Unified Register for
Telecoms Licences 20.09.1996
FIRST DEPUTY FEDERAL MINISTER
OF COMMUNICATIONS A.E. KRUPNOV
<PAGE> 2
MINISTRY OF COMMUNICATIONS OF THE RUSSIAN FEDERATION
TERMS AND CONDITIONS FOR CONDUCTING OPERATIONS
UNDER LICENSE NO. 4904
1. The Closed Joint-Stock Company, "PETERSTAR", (Licence Holder), is
authorised by the present Licence to discharge local, long-distance and
international telephone communications services via a dedicated network
within a territory as stated in Clause 30. The total assembled capacity
of the Licence Holder's network is no less than 30 thousand numbers.
The distribution of the Licence Holder network capacity, region-wise,
is in accordance with Clause 30.
2. The Licence Holder shall, by the end of the third year of
operations, have operational at least 70 percent of the capacity stated
in Clause 1 of the present Licence.
3. The AOZT "PETERSTAR" network is created without interconnection to
the public network of the Russian Federation and to PABXs (official
networks), including the Licence Holder's own networks accessible to
the public network. Discharge of international telephone communications
to the Licence Holder's network subscribers is conducted via dedicated
networks of other operators holding a licence for the discharge of
international telephone services on the territory stated in Clause 30
in accordance with terms and conditions of a co-operation agreement.
The Licence Holder may lease telecommunications circuits and physical
public network lines at tariffs applicable to the given category of
customers.
4. Discharge of telecommunications services using radio-electronic
equipment is allowed subject to a permit from the National
Telecommunications Oversight Agency for the use of working frequencies
and to provision of electromagnetic compatibility with existing
radio-electronic equipment.
5. The use of radio-extensions operating only within the 330 MHz
frequency band is allowed subject to a permit for the use of working
frequencies from the National Telecommunications Oversight Agency.
6. The numbering in the Licence Holder's network shall match the
numbering plan of the public network of the Russian Federation.
<PAGE> 3
7. The Licence Holder shall honour any demands by the Ministry of
Communications of the Russian Federation relating to the procedure of
traffic transit and discharge of services. In cases stipulated by
legislation of the Russian Federation, centralised management of the
Licence Holder's network shall be conducted directly by the Ministry of
Communications of the Russian Federation.
8. The Licence Holder shall discharge the telecommunications services
provided for under the present Licence twenty-four hours a day, every
day without intervals, except for the duration of essential maintenance
work which shall be planned in advance when minimum damage is likely to
be caused to the customers.
9. The Licence Holder shall discharge to the customers
telecommunications services whose quality meets the standards,
technical norms, certificates and conditions of the agreement for the
discharge of telecommunications services.
10. The Licence Holder is answerable to its customers if it fails to
meet its obligations, or if it meets them unduly, in accordance with
procedure stipulated by the current legislation of the Russian
Federation.
11. The Licence Holder's network may be created subject to the
availability of design documents drafted in accordance with the
construction norms and rules (SNiP) and the Departmental Technological
Design Norms (VNTP) applied in the Russian Federation and co-ordinated
in accordance with established procedure.
12. Tariffs for telecommunications services shall be set on a
negotiable basis. In cases stipulated by the legislation of the Russian
Federation, tariffs for some telecommunications services discharged by
telecommunications enterprises may be regulated by the government. A
subscriber shall not be billed for a call if no connection was
established.
13. All costs connected with the design and construction of the Licence
Holder's network, shall be borne by the Licence Holder.
14. In case of natural calamities, quarantine and other force majeure
situations stipulated by the legislation of the Russian Federation, the
authorised state bodies shall enjoy top priority for use as well as
suspension of the operations of the Licence Holder's network and
equipment.
<PAGE> 4
15. The Licence Holder shall give overriding priority to all messages
concerning the safety of human lives at sea, on land, in the air and in
space, the conduct of emergency measures in the sphere of defence,
security and law and order protection in the Russian Federation, and
also to messages of major accidents, disasters, epidemics, epizootics
and natural calamities.
16. Individual categories of civil servants, diplomatic and consulate
representatives of foreign states, representatives of international
organisations and also individual groups of citizens are entitled to
discounts and benefits in terms of priority, procedures and tariffs
when using telecommunications services. The list of benefits as well as
categories of civil servants and members of the public entitled to
discounts and benefits is determined by the legislation of the Russian
Federation and normative acts of its republics and regions, and also by
international agreements and treaties of the Russian Federation.
17. The Licence Holder shall honour the confidentiality of
communications. Information on any messages passed through the Licence
Holder's telecommunications network as well as the messages themselves,
may be disclosed only to senders or addressees or their legal
representatives. Monitoring of telephone conversations and other
messages, receiving information about them, and also other abridgements
of the confidentiality of telecommunications may be permitted solely in
accordance with the current legislation of the Russian Federation.
18. The Licence Holder shall not obstruct the conduct by the National
Telecommunications Oversight Agency of audits into the technical
parameters of the telecommunications network and, if necessary, shall
grant the Agency access to its measuring equipment with a view to its
use in the said work.
19. In developing, constructing and operating its telecommunications
network, the Licence Holder shall, in accordance with the legislation
of the Russian Federation, assist organs conducting operational and
search activities in conducting such activities inside the network, and
take measures aimed at preventing the divulgence of organisational and
tactical measures in the conduct of the said activities. In the event
of the use of the equipment for criminal purposes resulting in damage
to the interests of the individual, society and the state, duly
authorised government bodies, in accordance with the legislation of the
Russian Federation, may suspend the Licence Holder's networks and
equipment. The connection of subscribers may go ahead only after the
requirements
<PAGE> 5
have been met in accordance with the Law of the Russian Federation On
Operational and Search Activities in the Russian Federation.
20. The Licence Holder shall take all necessary measures to prevent any
unauthorised intervention in the management of the network under
construction and unauthorised control over its operation.
21. The discharge of telecommunications services may commence subject
to the availability of a permit for operating the network from the
National Telecommunications Oversight Agency.
22. The Licence Holder shall make available gratis official
telecommunications in accordance with procedure established by the
Ministry of Communications of the Russian Federation.
23. The Licence Holder shall, upon the Licensor's request, make
available information relating to the network's technical state and
development prospects, the conditions for the discharge of services and
current tariffs.
24. The Licence shall be regulated, interpreted and implemented in
accordance with the current legislation of the Russian Federation.
25. The Licence Holder shall conduct its operations in accordance with
the current legislation of the Russian Federation and the normative
acts issued by the Ministry of Communications of the Russian
Federation.
26. The Licensor reserves the right to introduce amendments to the
present Licence due to changes in the current legislation of the
Russian Federation.
27. The Licence Holder shall provide local statistical bodies and the
Ministry of Communications of the Russian Federation with periodic and
annual statistical reports relating to telecommunications in accordance
with procedure established by the State Committee for Statistics. Any
breach in the procedure of the presentation of the statistical reports
shall entail an administrative penalty in accordance with current
legislation.
28. The Licence is non-transferable.
29. The Licence shall be registered within thirty days of its issue
with the territorial directorate of the National Telecommunications
Oversight Agency.
<PAGE> 6
The Licence Holder shall, in the event of any changes to its postal
address, banking details or telephone number, within seven days advise
the Ministry of Communications of the Russian Federation and the
territorial directorate of the National Telecommunications Oversight
Agency.
30. Territory of operations:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Regions Capacity
- --------------------------------------------------------------------------------
<C> <C> <S> <C>
1. Oblasts: Leningradskaya 4000
- - ------------------------------------------------------------------------------
2. Archangelskaya 700
- - ------------------------------------------------------------------------------
3. Vologodskaya 600
- - ------------------------------------------------------------------------------
4. Novgorodskaya 1000
- - ------------------------------------------------------------------------------
5. Pskovskaya 600
- - ------------------------------------------------------------------------------
6. Murmanskaya 900
- - ------------------------------------------------------------------------------
7. Republics: Karelia 900
- - ------------------------------------------------------------------------------
8. Komi 400
- - ------------------------------------------------------------------------------
9. Cities: St. Petersburg 20,000
- - ------------------------------------------------------------------------------
10. Moscow 900
- - ------------------------------------------------------------------------------
TOTAL 30,000
- - -----------------------------------------------------------------------------
</TABLE>
First Deputy Federal
Minister of Communications A. E. Krupnov
Deputy of Licensing
Department V. D. Altoshin
(Signatures and Ministerial Seal applied)
<PAGE> 7
THIS DOCUMENT WAS ORIGINALLY DRAFTED IN RUSSIAN. THE COMPANY REPRESENTS THAT
THIS ENGLISH TRANSLATION REPRESENTS A FAIR AND ACCURATE TRANSLATION OF THE
ORIGINAL.
/S/ CONOR CARROLL
- ---------------------------------------------
CONOR CARROLL
VICE PRESIDENT - BUSINESS DEVELOPMENT
<PAGE> 1
Exhibit 10.6
MINISTRY OF COMMUNICATIONS
OF THE RUSSIAN FEDERATION
L I C E N C E
No. 4274
The Ministry of Communications of the Russian Federation
in accordance with the Law on Communications in the
Russian Federation authorises the
"PETERSTAR"
PRIVATE JOINT-STOCK COMPANY
Legal address:
191065, St. Petersburg, ul. B.Morskaya, d. 24
to carry out activities relating to communications
Type of activity:
Provision of local and intercity telephone
communications services
The conditions for carrying out the said type of activity and
the territory are given in the addendum, which is an integral
part of this licence.
Period of licence to 28.11.2004
Commencement of provision
of services (not later than) 07.06.1996
Date of registration of licence
in Unified Communications
Licence Register 07.06.1996
Deputy Federal Minister
of Communications (signed) N.S. Marder
[Official Stamp]
<PAGE> 2
Conditions for performance of activities
in accordance with Licence No. 4274
1. AOZT "PeterStar" (the Licensee) is authorized by the present licence
to provide public communications system local and intercity telephone
communications services in the territory indicated in clause 36.
The total installed capacity of the Licensee's communication
system is to be not less than 106,000 numbers.
The distribution of the Licensee's communication system
capacity by regions of the licence territory is to be in accordance with clause
36.
2. The Licensee is obligated to ensure that not less than 70% of the
capacity indicated in clause 1 of the present licence has been introduced by the
end of the third year of operation.
3. The Licensee must provide services in the licence territory to any
person who requires these, where there are the appropriate technical
capabilities.
Refusal to provide services may be caused by circumstances in
which:
- the provision of a service may create a threat to the safety
and defence capability of the estate, or to the health and safety of people;
- the provision of a service is impossible in view of any
physical, topographical or other natural hindrances;
- the consumer, without any reason, does not agree to the
conditions for provision of a service, does not make payments on time for the
service provided;
- the consumer uses or intends to use the communications
apparatus for any illegal purposes, or obtains communications services by
illegal means, operates the equipment provided with infringement of technical
operating regulations, or uses uncertificated equipment.
A refusal must be substantiated in each specific case.
4. The Licensee's communications system is to be connected to the
<PAGE> 3
public communications system of the Russian Federation at the level of local
telephone systems in accordance with the technical specifications of the
operators of the public communications system, in accordance with clause 36.
Connection to the public communications system of the Russian
Federation in accordance with the technical specifications of other public
communications system operators who have a licence to provide local telephone
communications services in the said territory is permissible, on condition that
they comply with current norms and regulations on carrying traffic.
The connection of other communications systems to the
Licensee's communications system with the object of providing the subscribers of
these systems with an outlet to the public communications system of the Russian
Federation is permissible only in St. Petersburg and the Leningrad Region.
In St. Petersburg and the Leningrad Region, when the Licensee
is approached by other operators of the public communications system of the
Russian Federation, who have a licence to supply local telephone communications
services in the said territory, he must issue technical specifications for
connection to his system. In this case, current norms and regulations must be
observed, relating to carrying the additional traffic of the system being
connected, and including obligatory clarification of technical specifications
for connection of the Licensee's communications system to the public
communications system of the Russian Federation.
The Licensee must participate in proportional development of
the public communications system of the Russian Federation. The type, amount and
procedure for transfer of a contribution for this purpose shall be determined
and the client shall be informed after they have been established.
The Licensee has the right to lease communication channels and
physical circuits of the public communications system at the tariffs current for
the given category of consumer.
5. Connection of the technical facilities of the Licensee's
communications system to the public communications system of the Russian
Federation, and also their operation, are to be carried out in accordance with
the current normative documents of the Ministry of Communications of the Russian
Federation.
6. It is permissible to use in the subscriber sector radio extendors
operating solely in the 330 MHz frequency band where there is authorisation from
the State Communications Supervisory Service of the Russian Federation for use
of the operating frequencies.
7. When switching equipment of foreign design is used, its type must be
<PAGE> 4
authorised for use in the public communications system in the particular region.
8. Numbering in the Licensee's communications system must correspond to
the numbering plan of the public communications system of the Russian
Federation.
9. The Licensee is obligated to meet the requirements of the Ministry
of Communications of the Russian Federation on the procedure for carrying
traffic and providing services.
In the cases provided for by the legislation of the Russian
Federation, centralised control of the Licensee's communications systems is
exercised directly by the Ministry of Communications of the Russian Federation.
10. Subscribers of the Licensee's system are to be provided with
intercity and international telephone communications services solely via the
public communications system.
It is permissible to provide intercity telephone
communications services via the Licensee's communications system if both the
calling and the called subscribers are subscribers of the Licensee's system.
11. Payphones must be installed in the Licensee's operating area, in a
volume of not less than 2% of the number capacity, and having the right of
outlet to the public telephone communications system.
12. Settlements for traffic are to be made by the Licensee in
accordance with the procedure established by the Ministry of Communications of
the Russian Federation for the public communications system of the Russian
Federation.
13. The Licensee is obligated to provide the communications services
covered by the present licence 24 hours per day every day with the exception of
interruptions for the performance of necessary preventive maintenance and repair
work, which shall be planned for a time when this may cause the least loss to
the user.
14. The Licensee is obligated to provide users with communications
services, the quality of which complies with standards, technical norms,
certificates and conditions of the contract for the provision of communications
services.
15. The Licensee is liable to the users in the event of the
non-fulfilment or inappropriate fulfilment by him of his obligations under the
procedure and in the amounts provided for by the current legislation of the
<PAGE> 5
Russian Federation.
16. Creation of the Licensee's communications system is permitted only
where there is project documentation, prepared in accordance with the
Construction Norms and Regulations and Departmental Technological Design Norms
(SNiP, VNTP) used in the Russian Federation, and agreed under the established
procedure.
17. Tariffs for communications services are set on a contractual basis.
In the cases provided for by the legislation of the Russian
Federation, tariffs may be regulated by the state in respect of individual types
of communications services provided by communications enterprises.
Calls to the emergency services (fire brigade, police,
ambulance, emergency gas service, mine rescue service, etc.) are made free by
all individual persons and legal entities.
Payment for inter-system connections is set on the basis of
contracts, conditions and regulations agreed between the corresponding
communications enterprises. Disputes relating to these matters are to be
considered in a court or arbitration tribunal.
Subscribers are not to be billed for calls if a connection has
not been established.
18. Costs connected with design and construction of the Licensee's data
transmission system, its connection to the public communications system of the
Russian Federation, and settlements with the operators of the public
communications systems of the Russian Federation are paid by the Licensee.
19. During natural disasters, quarantine and other emergency situations
provided for by the legislation of the Russian Federation, authorised state
bodies have the right to priority use, and also to suspend the activities, of
the Licensee's communications system and facilities.
20. The Licensee must give absolute priority to all messages concerning
the safety of human life at sea, on land, in the air and in space, the
performance of emergency measures in the sphere of defence, safety and the
safeguarding of law and order in the Russian Federation, and also to messages
concerning major accidents, catastrophes, epidemics, epizootics and natural
catastrophes.
21. Preferences and privileges in respect of priority, procedure for
use and amount of payment for communications services may be established for
particular categories of officials of state bodies, diplomatic and consular
<PAGE> 6
representatives of foreign states, representatives of international
organisations, and also individual groups of citizens when using electrical
communications.
A schedule of preferences, and also of the categories of
officials and citizens who have the right to preferences and privileges, is
determined by the legislation of the Russian Federation and by the normative
legal acts of members of the Russian Federation, and also by international
treaties and agreements of the Russian Federation.
22. The Licensee is obligated to ensure observance of the secrecy of
communications.
Information on messages transmitted via the Licensee's
communications system, and also these messages themselves, may be issued only to
the senders and addressees or their legal representatives.
Listening to telephone conversations, examination of
electrical communications messages, obtaining information on these, and also
other limitations on the secrecy of communications are permissible only on the
basis of the current legislation of the Russian Federation.
23. The Licensee must not prevent the performance of checks on the
technical parameters of the communications system by the State Communications
Supervisory Service of the Russian Federation and, where necessary, is obligated
to ensure that this Service has access to its measuring apparatus with the
object of using it in this work.
24. In accordance with the legislation of the Russian Federation, when
developing, creating and operating the communications system the Licensee is
obligated to cooperate with bodies carrying out criminal investigation
activities and to give them the opportunity to carry out criminal investigation
measures in the communications system, and to take steps to prevent disclosure
of the organisational and tactical procedures in carrying out the said measures.
In the event that communications facilities are used for
criminal purposes, causing damage to the interests of the person, society and
the state, the authorised state bodies have the right, in accordance with the
legislation of the Russian Federation, to suspend the operations of the
Licensee's communications systems and facilities.
The connection of subscribers must be carried out after
meeting requirements in accordance with the Russian Federation Law 'On criminal
investigation activity in the Russian Federation'.
25. The Licensee is obligated to take steps to prevent unsanctioned
<PAGE> 7
interference in control of the system being set up, and unsanctioned monitoring
of its operation.
26. The use of technical communications facilities is permitted when
there is a certificate of the Ministry of Communications of the Russian
Federation.
27. The provision of communications services may commence only when
there is authorisation for system operation from the State Communications
Supervisory Service of the Russian Federation.
28. The Licensee is obligated to provide official electrical
communications free of charge under the procedure defined by the Ministry of
Communications of the Russian Federation.
29. At the request of the Licensor, the Licensee is to submit
information on the technical condition and development prospects of the
technical facilities being created, conditions for provision of communications
services, and current tariffs.
30. The licence shall be regulated, interpreted and implemented in
accordance with the current legislation of the Russian Federation.
31. The Licensee is obligated to carry out his activities in accordance
with the current legislation of the Russian Federation and normative acts passed
by the Ministry of Communications of the Russian Federation.
32. The Licensor retains the right to introduce amendments and addenda
into the present licence in connection with changes in the current legislation
of the Russian Federation.
33. The Licensee is obligated to submit to local statistical bodies and
the Ministry of Communications of the Russian Federation periodic and annual
state statistical reports on communications in accordance with the procedure
established by the State Statistics Committee of the Russian Federation.
Infringement of the procedure for submission of statistical
reports incurs administrative liability in accordance with current legislation.
34. The licence may not be transferred to another party.
35. The licence must be registered within 30 days of its date of issue
at the territorial office of the State Communications Supervisory Service of the
Russian Federation.
In the event of a change in postal address, banking details and
<PAGE> 8
telephone number, the Licensee is obligated to communicate this within one week
to the Ministry of Communications of the Russian Federation and to the
territorial office of the State Communications Supervisory Service of the
Russian Federation.
36. Effective territory of the licence:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Item Territory Capacity Operator issuing TS
No. for connection
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
1 St. Petersburg 90000 AOOT "PTS"
- --------------------------------------------------------------------------------
2 Moscow (city) 900 AOOT "MGTS"
- --------------------------------------------------------------------------------
3 Leningrad Region 10000 AOOT "Lensvyaz'"
- --------------------------------------------------------------------------------
4 Arkhangel'sk Region 700 AOOT "Artelekom"
Arkhangel'sk Region
- --------------------------------------------------------------------------------
5 Vologda Region 600 AOOT "Elektrosvyaz'"
Volgograd Region
- --------------------------------------------------------------------------------
6 Novgorod Region 1000 AOOT "Novgorodtelekom"
- --------------------------------------------------------------------------------
7 Pskov Region 600 AOOT "Elektrosvyaz'"
Pskov Region
- --------------------------------------------------------------------------------
8 Murmansk Region 900 AOOT "Murmanelektrosvyaz'"
- --------------------------------------------------------------------------------
9 Karelian Republic 900 AOOT "Elektrosvyaz'"
Karelian Republic
- --------------------------------------------------------------------------------
10 Komi Republic 400 AOOT "Svyaz'"
Komi Republic
- --------------------------------------------------------------------------------
</TABLE>
37. Licence No. 1696 dated 28.11.94 is terminated from the moment of
registration of the present licence.
Deputy Federal Minister
of Communications (signed) N.S. Marder
[Official Stamp]
<PAGE> 9
Head of the Department
for Organisation of
Licensing Work (signed) N.M. Popov
THIS DOCUMENT WAS ORIGINALLY DRAFTED IN RUSSIAN. THE COMPANY REPRESENTS THAT
THIS ENGLISH TRANSLATION REPRESENTS A FAIR AND ACCURATE TRANSLATION OF THE
ORIGINAL.
/S/ CONOR CARROLL
- ----------------------------------------------
CONOR CARROLL
VICE PRESIDENT - BUSINESS DEVELOPMENT
<PAGE> 1
EXHIBIT 10.7
CELLULAR SYSTEM
INSTALLATION & OPTIMIZATION SERVICES AGREEMENT
BETWEEN
MOTOROLA, INC.
AND
BECET INTERNATIONAL
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
ASSIGNMENT...................................................................11
AUTHORITY....................................................................13
CHANGES......................................................................11
CONFIDENTIALITY.............................................................. 8
COUNTERPARTS.................................................................15
COVENANT NOT TO EMPLOY.......................................................14
DEFINITIONS.................................................................. 1
ENTIRE AGREEMENT.............................................................14
EXPORT CONTROLS..............................................................12
FORCE MAJEURE................................................................ 8
GOVERNING LAW................................................................11
INDEMNIFICATION; LIMITATION OF LIABILITY..................................... 9
LANGUAGE OF AGREEMENT........................................................12
NOTICE.......................................................................12
OBLIGATIONS OF CUSTOMER...................................................... 4
OBLIGATIONS AND REPRESENTATIONS OF MOTOROLA.................................. 5
ORDER OF PRECEDENCE..........................................................10
PAYMENT AND PRICING.......................................................... 6
RECITALS..................................................................... 1
SCOPE OF AGREEMENT; IMPLEMENTATION........................................... 4
SEVERABILITY.................................................................13
SIGNATURES...................................................................15
SURVIVAL OF PROVISIONS.......................................................13
TERM.........................................................................13
TERMINATION.................................................................. 9
TRADEMARK AND PUBLICITY...................................................... 8
UNITED STATES OF AMERICA ("U.S.") - GOVERNMENT COMPLIANCE....................14
WAIVER.......................................................................13
WARRANTIES................................................................... 7
</TABLE>
1
<PAGE> 2
CELLULAR SYSTEM
INSTALLATION & OPTIMIZATION SERVICES AGREEMENT
BETWEEN
MOTOROLA, INC.
AND
BECET INTERNATIONAL
TABLE OF CONTENTS
-----------------
(CONTINUED)
<TABLE>
<S> <C>
EXHIBIT "A" - SERVICES AND PRICE LIST
EXHIBIT "B1" - APPENDIX "S" - SITE STANDARDS
EXHIBIT "B2" - COVERAGE MAP
EXHIBIT "C" - ACCEPTANCE TEST PLANS
EXHIBIT "D3" - ENGINEERING
EXHIBIT "E3" - CELLULAR SYSTEM MAINTENANCE
EXHIBIT "G" - TRAINING
EXHIBIT "I" - CRITICAL PATH NETWORK
EXHIBIT "J" - ADDED FUNCTIONS
</TABLE>
2
<PAGE> 3
CELLULAR SYSTEM
INSTALLATION & OPTIMIZATION SERVICES AGREEMENT
This Cellular System Installation & Optimization Services
Agreement ("IOS Agreement") is between Motorola, Inc., a
Delaware corporation, by and through its Cellular
Infrastructure Group, with offices at 1501 W. Shure Drive,
Arlington Heights, Illinois 60004 ("Motorola"), which term
shall also mean, where the context requires, Motorola
subsidiaries or subcontractors involved in providing services
or materials for this IOS Agreement) and BECET International,
an Kazakhstan company with offices at 480002, Almaty,
Zhurgeneva Street, #9, Kazakhstan ("Customer").
RECITALS:
1. Customer has obtained or will obtain a license to operate a
cellular radiotelephone system in Kazakhstan (hereinafter
called "Area").
2. Motorola desires to sell and Customer desires to purchase
Installation & Optimization Services for the Cellular System
(as hereinafter defined) as set forth in this IOS Agreement and
in the attached Exhibits, all of which are incorporated herein.
AGREEMENT:
Now, therefore, in consideration of the mutual obligations
herein contained, the parties agree as follows:
1. DEFINITIONS (capitalized terms used within a definition are
defined in this Section in alphabetical order). Defined terms
will be capitalized throughout this I0S Agreement and will be
read in the singular, plural or the tense as the context
requires.
ACCEPTANCE TEST PLAN
The testing described and administered as set forth in Exhibit "C".
ANCILLARY NETWORK EQUIPMENT ("ANE")
The minor non-Motorola-manufactured equipment provided by Motorola
as specifically set forth in Exhibit "A" or provided by Customer, as
appropriate (e.g. antennas, power supplies, coaxial cable,
microwave, channel banks, etc.).
CELLULAR SYSTEM
The cellular radiotelephone system comprised of the ANE, FNE,
SFE, the Software licensed and Services provided by Motorola
pursuant to the Purchase Agreement entered into by and between
Motorola and Customer dated <_______> and set forth in Exhibit
"A".
COMMERCIAL SERVICE
The point at which the Cellular System or any portion thereof
is functional and operative and has one or more Subscribers.
1
<PAGE> 4
CONDITIONAL ACCEPTANCE AND FINAL ACCEPTANCE
"Conditional Acceptance" shall occur at the earlier of that point in
time when (i) Customer places the Initial Cellular System into
Commercial Service or (ii) successful completion of the Acceptance
Test Plan. Successful completion of the Acceptance Test Plan shall
occur and be evidenced by completion of the Acceptance Test Plan
with no Service Affecting or Performance Affecting failures as
defined Exhibit "C" of the IOS Agreement. "Final Acceptance" shall
occur and be evidenced by a notice signed by Customer at that point
in time when all Punchlist items have been resolved.
With respect to Expansion Product, and in the event Customer enters
into an agreement for Installation and Optimization Services prior
to the date of shipment, Conditional and Final Acceptance shall
occur in the same manner as provided above with respect to the
Initial Cellular System. In the event Customer does not enter into
an agreement for Installation and Optimization Services, Final
Acceptance shall occur concurrently with the shipment date of each
such Expansion Product.
CONFIDENTIAL INFORMATION
That information which is marked appropriately as confidential or,
if in oral or verbal form is identified as confidential at the time
of disclosure and confirmed in writing within thirty (30) days of
such disclosure and shall include, without implied limitation,
formulas, processes, designs, photographs, plans, samples,
equipment, equipment performance reports, subscriber lists, pricing
information, studies, findings, inventions, ideas, drawings,
schematics, sketches, specifications, parts lists, technical data,
data bases, Software in any form, Customer requests under Exhibit
"J", flow charts, algorithms, and other business and technical
information. Excluded from Confidential Information is that which
the recipient had in its possession without confidential limitation
prior to disclosure, which is independently developed by either
party without breach of this IOS Agreement, which is known or
becomes known to the general public without breach of this IOS
Agreement or which is received rightfully and without confidential
limitation from a third party.
CRITICAL PATH NETWORK
The schedule set forth in Exhibit "I".
EXPANSION PRODUCT
All ANE, FNE, SFE and Software purchased to add to or expand the
Initial Cellular System.
FIXED NETWORK EQUIPMENT ("FNE")
The Cellular System Equipment supplied by Motorola to Customer
pursuant to the Purchase Agreement referred to below.
Non-Motorola-manufactured equipment which is not integral to the
cell site radio and control suites is excluded from FNE, as is
Subscriber Equipment.
INITIAL CELLULAR SYSTEM
The Cellular System at the point of first Acceptance (Conditional or
Final, as the case may be), as may be further defined in Exhibit
"A".
2
<PAGE> 5
INSTALLATION & OPTIMIZATION SERVICES AGREEMENT ("IOS AGREEMENT")
This Cellular System Installation & Optimization Services Agreement
and the Exhibits thereto.
INTERCONNECTED CARRIER
Any local exchange carrier, inter-exchange carrier or reseller of
local or inter-exchange service that is connected to the Cellular
System.
INTERCONNECTION FACILITIES
The facilities connecting the MSC to the switched network of any
Interconnected Carrier including termination facilities such as
protected termination blocks, end office termination repeaters and
customer service units to permit direct connection to the Cellular
System.
PUNCHLIST
That list prepared during the Acceptance Test Plan and prior to
Conditional Acceptance which sets forth those mutually agreed items,
if any, to be resolved by Motorola before Final Acceptance of the
Initial Cellular System or Final Acceptance of Expansion Product, as
the case may be.
SERVICES
Those Motorola functions included in this IOS Agreement including,
but not limited to, system design, installation, optimization, system
engineering, program management, Basic Subscription Service, Depot
Maintenance, Software Maintenance, On-Site switch and Cell Site
Maintenance, training and such other functions as may be more fully
set forth in Exhibit "A".
SITE
Each of the cell site locations comprising the Cellular System,
including the location that houses the EMX.
SOFTWARE
The object-code computer programs, including Firmware object code,
licensed by Motorola for use solely in conjunction with the FNE and
SFE, which enables the FNE and SFE to perform their functions and
procedures in accordance with the specifications set forth in
Exhibit "B1". Any reference to Software being "sold" or "purchased"
is understood in fact to be a reference in fact to the Software
being licensed.
SUBCONTRACTOR FURNISHED EQUIPMENT ("SFE")
The major non-Motorola-manufactured equipment provided by Motorola
to Customer that is acquired by Motorola under a separate agreement
and for which Motorola takes system responsibility.
SUBSCRIBER
A person who uses the Cellular System entitling Customer to revenue.
3
<PAGE> 6
SUBSCRIBER EQUIPMENT
Any mobile or portable radiotelephone equipment intended for
Cellular System use, whether or not in actual use.
SWITCH
The Motorola-provided switching equipment that routes calls from
Subscriber Equipment to the called party (and vice versa),
coordinates the handoff process and records system traffic.
TIMEFRAME
The interval between the starting date and the completion date for a
particular activity as set forth on the Critical Path Network.
2. SCOPE OF AGREEMENT; IMPLEMENTATION
2.1 Motorola shall furnish to Customer and Customer shall purchase
from Motorola the Installation and Optimization Services,
post-acceptance and other related Services for the Cellular
System as defined herein and within Exhibit "A" and, at
Customer's option, Installation & Optimization Services for
Expansion Product.
2.2 Customer may not cancel any of the services set forth in the
Initial Cellular Systems Exhibit "A" associated with Phases 1
and 2 for Almaty. In the event Customer cancels any of the
additional services set forth in the Initial Cellular Systems
Exhibit "A" within thirty (30) days prior to mobilization of
such services, Customer shall pay a demobilization fee equal
to twenty percent (20%) of the price of such portion of
services so canceled.
2.2 This IOS Agreement and Exhibit "A" may be canceled only upon
the terms and conditions contained herein.
2.3 The Initial Cellular System shall be implemented as set forth
in the Program Manager's Critical Path Network, Exhibit "I".
3. OBLIGATIONS OF CUSTOMER
Customer shall:
3.1 Procure necessary construction permits and station licenses
together with such other authorizations as may be required to
construct and operate the Cellular System, including without
implied limitation, Site building permits, zoning variances
and the like, from appropriate authorities as well as assist
in procuring necessary permits, licenses, visas, etc. as may
be needed for Motorola personnel to travel to and stay in the
Area in order to implement this IOS Agreement.
3.2 Make all legal arrangements that may be required with Site
owners to construct and operate each Site in accordance with
the provisions of this IOS Agreement.
3.3 Bear the costs of its own legal fees, Site acquisition,
Interconnection Facilities, telephone and utility charges and
other services and items being supplied by Customer under this
IOS Agreement.
3.4 Negotiate in good faith the Critical Path Network and adhere
to the schedule for performance of the responsibilities set
forth therein.
3.5 Negotiate in good faith a Punchlist, if needed, for the
Initial Cellular System and Expansion Product prior to
Conditional Acceptance thereof.
4
<PAGE> 7
3.6 Purchase the Software Upgrade Program as set forth in Schedule
B of Exhibit "E3" for each subsequent year following the
initial year's term during the term of this IOS Agreement for
the price set forth in an Exhibit "A" Amendment.
3.7 Assume the responsibilities for interfacing with appropriate
Interconnected Carriers and other providers for the provision
of Interconnection Facilities, electrical power and
Customer-supplied equipment in accordance with the Critical
Path Network. Additionally, Customer shall be responsible for
providing all transmission links necessary for the proper
interconnection of the Cellular System, including by way of
example and not of limitation, microwave links.
3.8 Assume responsibility for diagnosis, analysis or isolation and
remedy of problems in the Interconnection Facilities or at the
Interconnected Carrier side of the interface with the Cellular
System.
3.9 Complete the dial plan questionaire and furnish the signaling
specification to Motorola in accordance with the Critical Path
Network.
3.10 Make the payments according to the schedule set forth in
Section 5 of this IOS Agreement.
3.11 Not unreasonably withhold or delay either Conditional or Final
Acceptance.
3.12 Assume responsibility for the lawful operation of the Cellular
System.
3.13 No later than the date set forth on the Critical Path Network
for the start of Acceptance Testing, appoint for the Cellular
System an authorized contact for Motorola.
3.14 Perform all of its other obligations set out in this IOS
Agreement and the Exhibits attached hereto.
4. OBLIGATIONS AND REPRESENTATIONS OF MOTOROLA
With regard to installing and optimizing the Initial Cellular System
only, Motorola shall:
4.1 Give assistance to facilitate the interface described in
Section 3.8 above as may reasonably be requested by Customer
at Motorola's then current price.
4.2 Conduct an analysis to determine the required material,
effort, and Services necessary for the installation and
optimization of the Cellular System.
4.3 Take primary responsibility for the implementation of the
Initial Cellular System in the role of prime contractor.
Motorola's responsibilities as prime contractor shall include
providing all necessary system integration Services.
4.4 Install and adjust the Initial Cellular System to the
standards set out in Exhibits "B1", "C" and "D3".
4.5 Negotiate in good faith the Critical Path Network and adhere
to the schedule for performance of the responsibilities set
forth therein.
4.6 The Cellular System shall be constructed in conformity with
all applicable laws and all rules and regulations promulgated
pursuant thereto.
5
<PAGE> 8
4.7 Provide a Software Upgrade Program to Customer for one year
from the date of Conditional Acceptance in accordance with the
terms of Schedule B of Exhibit "E3" and thereafter for the
price set forth in Exhibit "A" or an Exhibit "A" Amendment,
whichever is appropriate.
5. PAYMENT AND PRICING
Customer shall pay to Motorola the price for the installation and
optimization of the Cellular System and other related Services, as
set forth in Exhibit "A", in U.S. dollars (except as may be
specifically set forth below) and according to the following terms
and payment schedules:
5.1 GENERAL PAYMENT TERMS
5.1.1 Customer shall be invoiced one hundred percent (100%) for
Services rendered upon their completion.
5.1.2 Payment for all service and materials shall be net thirty
(30) days from invoice date.
5.1.3 Customer shall be responsible for the payment of all
applicable sales, use, retailers occupation, excise,
property, and other assessments in the nature of taxes
however designated, on the Products and Services provided
to Customer pursuant to this Agreement, exclusive
however, of any taxes measured by Motorola's net income
or based on Motorola's franchise. Personal property taxes
assessable on the Products shall be the responsibility of
Customer. To the extent Motorola is required by law to
collect such taxes (state or local), one hundred percent
(100%) thereof shall be added to invoices as separately
stated charges and paid in full by Customer, unless the
Customer is exempt from such taxes and furnishes Motorola
with a certificate of exemption in a form reasonably
acceptable to Motorola. In the event Customer claims
exemption from sales, use or other such taxes under this
Agreement, Customer shall hold Motorola harmless from any
and all subsequent assessments levied by a proper taxing
authority for such taxes, including interest, penalties
and late charges.
5.1.4 For any amount due hereunder which remains unpaid,
Customer shall pay Motorola a service fee at the rate of
one and one-half percent (1-1/2%) of the amount due for
each month or portion thereof that the amount remains
unpaid.
5.1.5 In the event that any of the Sites are not ready, or
necessary utilities (power, telephone, etc.) are not
available at the time set forth in the Critical Path
Network, Motorola reserves the right to charge Customer
the current rate per man per day lost due to such Site
unavailability. If the delay continues for more than
forty-eight (48) hours, Motorola shall, in its sole
discretion, make a determination whether or not to
withdraw its personnel and reschedule the installation
and optimization activities for a later date. If the
personnel are withdrawn, Customer agrees to pay all
reasonable travel charges associated with the withdrawal
and rescheduling of the Services.
5.1.6 The total price for the Installation and Optimization
Services for the Initial Cellular System and other
related Services are set forth in Exhibit "A".
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<PAGE> 9
5.2 TRAINING
Upon completion by Customer's personnel of the training
programs described in Exhibit "G", Customer shall pay one
hundred percent (100%) of the program price for each Customer
trainee as set forth in Exhibit "A".
6. WARRANTIES
6.1 COVERAGE WARRANTY
Upon condition that Motorola has performed a coverage survey
and has generated a coverage map (which will be attached hereto
as Exhibit "B2"), Motorola represents and warrants that the
Cellular System furnished hereunder shall at the time of
Conditional Acceptance provide on-street three-watt mobile
radiotelephone coverage at a 90/90 level of performance in
conformity with said coverage map and engineering
specifications contained in Exhibits "B1" and "B2". "90/90
level of performance" shall mean successful completion of at
least 90% of the calls attempted within 90% of the coverage
area depicted on said coverage map.
6.2 SERVICES WARRANTY
Motorola represents and warrants that all Services provided
hereunder will be performed in a good and workmanlike manner
and in accordance with Motorola's specifications. In the event
that Customer reasonably determines that any work has not been
performed in a good and workmanlike manner or in accordance
with the specifications, Customer shall promptly notify
Motorola. If Motorola determines that the Services were
defective, then Motorola shall take prompt remedial action to
repair or replace the defective Services at Motorola's cost and
expense.
6.3 THE WARRANTIES IN THIS AGREEMENT ARE GIVEN IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE SPECIFICALLY
EXCLUDED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO
EVENT SHALL MOTOROLA BE LIABLE FOR INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES; PROVIDED, HOWEVER, THAT IF
THE LAW OF ANY JURISDICTION APPLICABLE TO THIS AGREEMENT DOES
NOT PERMIT SUCH DAMAGES TO BE COMPLETELY DISCLAIMED, THIS
CLAUSE SHALL BE INTERPRETED AS NECESSARY TO GIVE MOTOROLA THE
FULL BENEFIT OF ANY DISCLAIMER OR LIMITATION OF SAID DAMAGES AS
PERMITTED UNDER SUCH LAW. FURTHERMORE, BECAUSE EACH CELLULAR
RADIOTELEPHONE SYSTEM IS UNIQUE, MOTOROLA DISCLAIMS LIABILITY
FOR RANGE, COVERAGE, SUBSCRIBER CAPACITY, SERVICE LEVEL OR
OPERATION OF THE CELLULAR SYSTEM, AS A WHOLE, EXCEPT AS
SPECIFICALLY SET FORTH IN THE WARRANTIES CONTAINED IN THIS
AGREEMENT.
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<PAGE> 10
7. CONFIDENTIALITY
7.1 From time to time during the performance of this IOS
Agreement, the parties may deem it necessary to provide each
other with Confidential Information. The parties agree:
7.1.1 To maintain the confidentiality of such Confidential
Information and not disclose same to any third party,
except as authorized by the original disclosing party
in writing.
7.1.2 To restrict disclosure of Confidential Information to
employees who have a "need to know". Such Confidential
Information shall be handled with the same degree of
care which the receiving party applies to its own
confidential information but in no event less than
reasonable care.
7.1.3 To take precautions necessary and appropriate to guard
the confidentiality of Confidential Information,
including informing its employees who handle such
Confidential Information that it is confidential and
not to be disclosed to others.
7.1.4 That Confidential Information is and shall at all
times remain the property of the disclosing party. No
use of any Confidential Information is permitted
except as otherwise provided herein and no grant under
any proprietary rights is hereby given or intended,
including any license implied or otherwise.
7.1.5 To use such Confidential Information only as required
in performance of this IOS Agreement.
7.2 Except as may be required by applicable law, Customer shall not
disclose to any third party the contents of this IOS Agreement,
the Exhibits or any amendments hereto or thereto for a period
of two (2) years from the date of execution hereof without the
prior written consent of Motorola.
8. TRADEMARK AND PUBLICITY
Nothing contained in this IOS Agreement shall be construed as
conferring any right to use any name, trademark or other designation
of either party hereto, including any contraction, abbreviation, or
simulation of any of the foregoing, in advertising, publicity or
marketing activities. Any publicity, advertising, etc. with regard
to this IOS Agreement or the Cellular System which mentions the
other party shall be mutually agreed upon prior to use.
9. FORCE MAJEURE
9.1 Neither party shall be liable for delays in delivery or
performance, or for failure to manufacture, deliver or perform
when caused by any of the following which are beyond the
actual control of the delayed party:
9.1.1 Acts of God, acts of the public enemy, acts or failures
to act by the other party, acts of civil or military
authority, governmental priorities, strikes or other
labor disturbances, hurricanes, earthquakes, fires,
floods, epidemics, embargoes, war, riots, delays in
transportation, car shortages, and loss or damage to
goods in transit; or
8
<PAGE> 11
9.1.2 Inability on account of causes beyond the reasonable
control of the delayed party or its suppliers to obtain
necessary products, components, services or facilities.
9.2 In the event of any such delay the date of delivery or of
performance shall be extended for a period equal to the effect
of time lost by reason of the delay.
10. TERMINATION
10.1 Either party may terminate this IOS Agreement without
liability by notice pursuant to Section 18 if the other makes
a general assignment for the benefit of creditors, or if a
petition in bankruptcy or under any insolvency law is filed by
or against the other and such petition is not dismissed within
sixty (60) days after it has been filed or the other commits a
material breach of its obligations hereunder. However, in the
case of any such breach which is capable of being cured,
neither party shall terminate this IOS Agreement unless and
until the other shall have failed to make good such default
within thirty (30) days after it shall have been served with a
notice requiring that such default be made good and stating
its intention to terminate the IOS Agreement if compliance
with the notice is not met.
10.2 The termination of this IOS Agreement shall not affect or
prejudice any provisions of this IOS Agreement which are
expressly or by implication provided to continue in effect
after such termination.
11. INDEMNIFICATION; LIMITATION OF LIABILITY
During the term of this IOS Agreement, the parties shall indemnify
and hold harmless each other together with their officers, agents
and employees from any and all loss, damage, expense, judgment,
lien, suit, cause of action, demand or liability for personal
injury, including death and tangible property damage, which may be
imposed on or incurred by one party arising directly out of the
negligent acts or omissions of the other, its agents,
subcontractors, or employees during the performance of any work
hereunder. The offending party shall, at its sole expense, defend
any suit based upon a claim or cause of action and satisfy any
judgment that may be rendered against the other resulting therefrom,
provided that the offending party shall be given (i) prompt notice
of any such claim or suit; and (ii) full opportunity to defend such
suit. The offended party may, at its election, participate in the
defense and shall cooperate fully in defending any claim or suits.
The offending party shall pay all costs, expenses, and reasonable
attorney's fees incurred by the offended party in connection with
any such claim or suit or in enforcing this indemnity provision,
provided a valid claim is presented.
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, NEITHER PARTY, WHETHER AS A
RESULT OF BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE),
PATENT INFRINGEMENT, COPYRIGHT INFRINGEMENT OR OTHERWISE, SHALL HAVE
ANY LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING,
BUT NOT LIMITED TO, LOSS OF PROFIT OR REVENUES, LOSS OF USE OF THE
PRODUCTS OR ANY ASSOCIATED EQUIPMENT, COST OF CAPITAL, COST OF
SUBSTITUTE PRODUCTS, FACILITIES OR SERVICE, OR DOWNTIME COSTS.
9
<PAGE> 12
12. CHANGES
Certain changes may be made within the scope of this IOS Agreement
without formal amendment thereto by written "Change Orders" signed
by duly authorized representatives of both parties.
Within ten (10) days of the signing of this IOS Agreement, the
parties shall agree, in writing, on the authority of their
respective duly authorized representatives, to sign such Change
Orders on their behalf.
13. ASSIGNMENT
The IOS Agreement shall accrue to the benefit of and be binding upon
the parties hereto and any successor entity into which either party
shall have been merged or consolidated or to which either party
shall have sold or transferred all or substantially all its assets,
but it shall not be otherwise assigned by either party without the
prior written consent of the other party. The parties agree that any
consent to a requested assignment shall not be unreasonably withheld
or delayed.
14. GOVERNING LAW/DISPUTE RESOLUTION
14.1 Motorola and Customer will attempt to settle any claim or
controversy arising out of this IOS Agreement through
consultation and negotiation in good faith and spirit of
mutual cooperation. If those attempts fail, then the dispute
will be mediated by a mutually acceptable mediator to be
chosen by Motorola and Customer within forty-five (45) days
after written notice by either party demanding mediation.
Neither party may unreasonably withhold consent to the
selection of a mediator, and Motorola and Customer will share
the costs of the mediation equally. By mutual agreement,
however, Motorola and Customer may postpone mediation until
each has completed some specified but limited discovery
regarding the dispute. The parties may also agree to replace
mediation with some other form of alternate dispute
resolution, such as neutral fact-finding or a mini-trial.
14.2 Any dispute which cannot be resolved between the parties
through negotiation, mediation or other form of ADR within six
months of the date of the initial demand for ADR by one of the
parties may then be submitted for arbitration in Stockholm,
Sweden for resolution in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of
Commerce (the "ICC Rules"). Nothing in this Section will
prevent either party from resorting to judicial proceedings if
(a) good faith efforts to resolve the dispute under these
procedures have been unsuccessful, or (b) interim relief from
a court is necessary to prevent serious and irreparable injury
to that party or to others.
14.3 The validity, performance, and all matters relating to the
effect of this IOS Agreement and any amendment hereto shall be
governed by the laws of the State of Illinois, USA.
10
<PAGE> 13
15. EXPORT CONTROLS
15.1 If, at the time or times of Motorola's performance hereunder,
a validated export license is required for Motorola, to
lawfully export the products or technical data from the United
States of America, then the issuance of such license to
Motorola, or its subcontractor, shall constitute a condition
precedent to Motorola's obligations hereunder.
15.2 Customer agrees to comply with all applicable export laws and
regulations of the United States. Specifically, but without
limitation, Customer agrees that it will not resell or
re-export Motorola products or technical data in any form
without obtaining appropriate export or re-export licenses
from the respective governmental authority of the United
States Government. Violation of this provision shall
constitute just cause for immediate termination of this IOS
Agreement by Motorola without liability to Customer.
16. ORDER OF PRECEDENCE
In the event of an inconsistency in this IOS Agreement, the
inconsistency shall be resolved by giving precedence in the
following order:
16.1 This IOS Agreement and duly executed amendments to this IOS
Agreement, with the latest amendment taking precedence over
earlier amendments;
16.2 Exhibit "A" and all duly executed amendments to Exhibit "A";
16.3 All other Exhibits and all duly executed amendments to said
Exhibits.
17. LANGUAGE OF AGREEMENT
In the event that this IOS Agreement is translated into any other
language, the English language version hereof shall take precedence
and govern.
18. NOTICE
18.1 Notices required to be given by one party to another shall be
in the English language unless expressly agreed otherwise, and
shall be deemed properly given if reduced to writing and
personally delivered or transmitted by registered or certified
post to the address below, postage prepaid, or by
telefacsimile with confirmation receipt, and shall be
effective upon receipt.
18.1.1 Motorola shall send notices as follows:
BECET International
480002, Almaty
Zhurgeneva Street, #9
Kazakhstan
Attention: General Manager
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<PAGE> 14
18.1.2 Customer shall send notices as follows:
Motorola, Inc.
International Cellular Infrastructure Division
1501 W. Shure Drive
Arlington Heights, IL 60004
Attention: International Program Management
CC: Senior Manager, Commercial Department
18.2 Either party may change the addresses for giving notice from
time to time by written instructions to the other of such
change of address.
19. SURVIVAL OF PROVISIONS
The parties agree that where the context of any provision indicates
an intent that it shall survive the term of this IOS Agreement then
it shall survive.
20. WAIVER
Failure or delay on the part of Motorola or Customer to exercise any
right, power or privilege hereunder shall not operate as a waiver
thereof.
21. SEVERABILITY
In the event any one or more of the provisions of this IOS Agreement
is held to be unenforceable under applicable law, (a) such
unenforceability shall not affect any other provision of this IOS
Agreement; (b) this IOS Agreement shall be construed as if said
unenforceable provision had not been contained therein; and (c) the
parties shall negotiate in good faith to replace the unenforceable
provision by such as has the effect nearest to that of the provision
being replaced.
22. AUTHORITY
Each party hereto represents and warrants that (i) it has obtained
all necessary approvals, consents and authorizations of third
parties and governmental authorities to enter into this IOS
Agreement and to perform and carry out its obligations hereunder;
(ii) the persons executing this agreement on its behalf have express
authority to do so, and, in so doing, to bind the party thereto;
(iii) the execution, delivery, and performance of this IOS Agreement
does not violate any provision of any bylaw, charter, regulation, or
any other governing authority of the party; and (iv) the execution,
delivery and performance of this IOS Agreement has been duly
authorized by all necessary partnership or corporate action and this
IOS Agreement is a valid and binding obligation of such party,
enforceable in accordance with its terms.
23. TERM
The initial term of this Agreement shall be for five (5) years from
the date of execution. This Agreement shall be automatically renewed
for consecutive five year terms unless either party notifies the
other party in writing of its intent to terminate the Agreement at
least sixty (60) days prior to the expiration of the five year term
or any renewal thereof.
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<PAGE> 15
24. COVENANT NOT TO EMPLOY
Customer and Motorola agree that during the period of time beginning
with the execution of this Agreement and ending two (2) years after
Conditional Acceptance of the Initial Cellular System, Customer
shall neither employ nor offer employment to any employee of
Motorola involved in the performance of engineering, installation,
optimization, maintenance and/or warranty service for the Cellular
System. If at any time this provision is found to be overly broad
under the laws of an applicable jurisdiction, then this provision
shall be modified as necessary to conform to such laws rather than
be stricken.
25. UNITED STATES OF AMERICA ("U.S.") - GOVERNMENT COMPLIANCE
In the event that Customer elects to sell Motorola products or
services to the U.S. Government, or to a prime contractor selling to
the U.S. Government, Customer does so solely at its own option and
risk, and agrees not to obligate Motorola as a subcontractor or
otherwise, to the U.S. Government. Customer remains solely and
exclusively responsible for compliance with all statutes and
regulations governing sales to the U.S. Government. Motorola makes
no representations, certifications or warranties whatsoever with
respect to the ability of its goods, services or prices to satisfy
any such statutes or regulations. Failure of Customer to conduct any
sales to the U.S. Government or to U.S. Government prime contractors
in strict accordance with U.S. law shall constitute a material
breach of this IOS Agreement. The violation of any aspect of the
above shall constitute immediate grounds for termination of this IOS
Agreement.
26. ENTIRE AGREEMENT
This IOS Agreement and the Exhibits hereto constitute the entire
understanding between the parties concerning the subject matter
hereof and supersede all prior discussions, agreements and
representations, whether oral or written and whether or not executed
by Motorola and Customer. No modification, amendment or other change
may be made to this IOS Agreement or any part thereof unless reduced
to writing and executed by authorized representatives of both
parties.
The terms and conditions of this IOS Agreement shall prevail
notwithstanding any variance with the terms and conditions of any
order submitted by Customer following execution of this IOS
Agreement. In no event shall the preprinted terms and conditions
found on any Customer purchase order, acknowledgment or other form
be considered an amendment or modification of this IOS Agreement,
even if such documents are signed by representatives of both
parties; such preprinted terms and conditions shall be null and void
and of no force and effect.
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<PAGE> 16
27. COUNTERPARTS
This IOS Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together
shall constitute one and the same instrument.
Executed as of this < 4th > day < May > 1994.
---- ----
MOTOROLA, INC. BECET INTERNATIONAL
CELLULAR INFRASTRUCTURE GROUP
By: /s/ STEVEN B. SCHAEFER By: /s/ ROBERT SMITH
---------------------- ----------------------
Name: STEVEN B. SCHAEFER Name: ROBERT SMITH
---------------------- ----------------------
Title: DIRECTOR Title: DIRECTOR
---------------------- ----------------------
By: /s/ YURI NILOV
----------------------
Name: YURI NILOV
----------------------
Title: DIRECTOR
----------------------
14
<PAGE> 1
EXHIBIT 10.8
CELLULAR SYSTEM EQUIPMENT
PURCHASE AGREEMENT
BETWEEN
MOTOROLA, INC.
AND
BECET INTERNATIONAL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ASSIGNMENT AND EQUIPMENT RESALE ....................................... 14
AUTHORITY ............................................................. 17
CONFIDENTIALITY ....................................................... 11
COUNTERPARTS .......................................................... 18
DEFINITIONS ........................................................... 1
DISCLAIMER OF PATENT LICENSE .......................................... 11
ENTIRE AGREEMENT ...................................................... 17
EXPORT CONTROLS ....................................................... 15
FORCE MAJEURE ......................................................... 13
GOVERNING LAW ......................................................... 15
LANGUAGE OF AGREEMENT ................................................. 16
LIMITATION OF LIABILITY ............................................... 14
NOTICE ................................................................ 16
OBLIGATIONS OF CUSTOMER ............................................... 5
OBLIGATIONS AND REPRESENTATIONS OF MOTOROLA ........................... 6
ORDER OF PRECEDENCE ................................................... 15
PATENT AND COPYRIGHT INDEMNITY ........................................ 11
PAYMENT AND PRICING ................................................... 6
PRODUCT CHANGES OR SUBSTITUTIONS/FOAs ................................. 10
RECITALS .............................................................. 1
SCOPE OF AGREEMENT; IMPLEMENTATION .................................... 4
SEVERABILITY .......................................................... 16
SHIPMENT, DELIVERY, OFF-LOADING AND WAREHOUSING ....................... 12
SIGNATURES ............................................................ 18
SURVIVAL OF PROVISIONS ................................................ 16
TERM .................................................................. 17
TERMINATION ........................................................... 14
TITLE, RISK OF LOSS AND INDEMNITY ..................................... 13
TRADEMARK AND PUBLICITY ............................................... 12
UNITED STATES OF AMERICA ("U.S.") - GOVERNMENT COMPLIANCE ............. 17
WAIVER ................................................................ 16
WARRANTIES ............................................................ 8
</TABLE>
1
<PAGE> 2
CELLULAR SYSTEM EQUIPMENT
PURCHASE AGREEMENT
BETWEEN
MOTOROLA, INC.
AND
BECET INTERNATIONAL
TABLE OF CONTENTS
(CONTINUED)
EXHIBIT "A" - EQUIPMENT AND PRICE LIST
EXHIBIT "B1" - TECHNICAL SPECIFICATIONS
EXHIBIT "F" - SOFTWARE LICENSE
EXHIBIT "H" - DOCUMENTATION
EXHIBIT "I" - CRITICAL PATH NETWORK
EXHIBIT "K" - PRODUCT REFURBISHMENT AND RELICENSING POLICY
2
<PAGE> 3
CELLULAR SYSTEM EQUIPMENT
PURCHASE AGREEMENT
This Cellular System Equipment Purchase Agreement ("Purchase Agreement") is
between Motorola, Inc., a Delaware corporation, by and through its Cellular
Infrastructure Group with offices at 1501 W. Shure Drive, Arlington Heights,
Illinois 60004 ("Motorola", which term shall also mean, where the context
requires, Motorola subsidiaries or subcontractors involved in providing services
or materials for this Purchase Agreement) and BECET International, an Kazakhstan
company with offices at 480002, Almaty, Zhurgeneva Street, #9, Kazakhstan
("Customer").
RECITALS:
1. Motorola has designed the hardware and software products to perform as
defined herein for a cellular radiotelephone system.
2. Customer has obtained or will obtain a license to operate a cellular
radiotelephone system in Kazakhstan (hereinafter called "Area").
3. Motorola desires to sell and Customer desires to purchase the equipment
for a Cellular System (as hereinafter defined) as set forth in this
Purchase Agreement and in the attached Exhibits, all of which are
incorporated herein.
AGREEMENT:
Now, therefore, in consideration of the mutual obligations herein contained, the
parties agree as follows:
1. DEFINITIONS (capitalized terms used within a definition are defined in
this Section in alphabetical order). Defined terms will be capitalized
throughout this Purchase Agreement and will be read in the singular,
plural or the tense as the context requires.
ANCILLARY NETWORK EQUIPMENT ("ANE")
The non-Motorola-manufactured equipment provided by Motorola as
specifically set forth in Exhibit "A" or provided by Customer, as
appropriate (e.g. antennas, power supplies, coaxial cable, microwave,
channel banks, etc.).
CELLULAR SYSTEM
The cellular radiotelephone system comprised of the ANE, FNE, SFE, and
the Software licensed by Motorola pursuant to this Purchase Agreement and
set forth in Exhibit "A".
COMMERCIAL SERVICE
The point at which the Cellular System or any portion thereof is
functional and operative and has one or more Subscribers.
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<PAGE> 4
CONDITIONAL ACCEPTANCE AND FINAL ACCEPTANCE
"Conditional Acceptance" shall occur at the earlier of that point in time
when (i) Customer places the Initial Cellular System into Commercial
Service or (ii) successful completion of the Acceptance Test Plan.
Successful completion of the Acceptance Test Plan shall occur and be
evidenced by completion of the Acceptance Test Plan without Service
Affecting or Performance Affecting failures as defined in Exhibit "C" of
the Cellular System Installation & Optimization Agreement. "Final
Acceptance" shall occur and be evidenced by a notice signed by Customer
at that point in time when all Punchlist items have been resolved.
With respect to Expansion Product, and in the event Customer enters into
an IOS Agreement prior to the date of shipment, Conditional and Final
Acceptance shall occur in the same manner as provided above with respect
to the Initial Cellular System. In the event Customer does not enter into
an IOS Agreement, Final Acceptance shall occur concurrently with the
shipment date of each such Expansion Product.
CONFIDENTIAL INFORMATION
That information which is marked appropriately as confidential or, if in
oral or verbal form is identified as confidential at the time of
disclosure and confirmed in writing within thirty (30) days of such
disclosure and shall include, without implied limitation, formulas,
processes, designs, photographs, plans, samples, equipment, equipment
performance reports, subscriber lists, pricing information, studies,
findings, inventions, ideas, drawings, schematics, sketches,
specifications, parts lists, technical data, data bases, Software in any
form, flow charts, algorithms, and other business and technical
information. Excluded from Confidential Information is that which the
recipient had in its possession without confidential limitation prior to
disclosure, which is independently developed by either party without
breach of this Purchase Agreement, which is known or becomes known to the
general public without breach of this Purchase Agreement or which is
received rightfully and without confidential limitation from a third
party.
CRITICAL PATH NETWORK
The schedule set forth in Exhibit "I".
DOCUMENTATION
The documentation described in Exhibit "H".
EXPANSION PRODUCT
All ANE, FNE, SFE and Software purchased to add to or expand the Initial
Cellular System.
FEATURE
An innovation or performance improvement to Software that is made
available to all users for the current Software release. Features are
licensed to Customer individually and may be subject to an additional
license fee.
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<PAGE> 5
FIRMWARE
Software in object code form that is implanted/imbedded in hardware.
FIXED NETWORK EQUIPMENT ("FNE")
The Motorola-manufactured equipment described in Exhibits "A" and "B1".
Non-Motorola-manufactured equipment which is not integral to the cell
site radio and control suites is excluded from FNE, as is Subscriber
Equipment.
INITIAL CELLULAR SYSTEM
The Cellular System at the point of first Acceptance (Conditional or
Final, as the case may be), as may be further defined in Exhibit "A".
INTERCONNECTED CARRIER
Any local exchange carrier, inter-exchange carrier or reseller of local
or inter-exchange service that is connected to the Cellular System.
INTERCONNECTION FACILITIES
The facilities connecting the Switch to the switched network of any
Interconnected Carrier including termination such as protected
termination blocks, end office termination repeaters and customer service
units to permit direct connection to the Cellular System.
IOS AGREEMENT
The Cellular System Installation & Optimization Services Agreement and
its Exhibits.
MAJOR RELEASE
The issue of Software and any superseding issue thereof which adds new
Features or substantially enhances the existing Software; a Major Release
may also correct defects in earlier releases.
POINT RELEASE
A reissue of the existing Software which revises or improves the Major
Release of Software with which it is associated; a Point Release may also
correct and/or fix defects in the current release of Software.
PUNCHLIST
That list prepared during the Acceptance Test Plan and prior to
Conditional Acceptance which sets forth those mutually agreed items, if
any, to be resolved by Motorola before Final Acceptance of the Initial
Cellular System or Final Acceptance of Expansion Product, as the case may
be.
PURCHASE AGREEMENT
This Cellular System Purchase Agreement and the Exhibits.
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<PAGE> 6
SITE
Each of the cell site locations comprising the Cellular System, including
the location that houses the Switch.
SOFTWARE
The object-code computer programs, including Firmware object code,
licensed by Motorola for use solely in conjunction with the FNE and SFE,
which enables the FNE and SFE to perform their functions and procedures
in accordance with the specifications set forth in Exhibit "B1". Any
reference to Software being "sold" or "purchased" is understood in fact
to be a reference in fact to the Software being licensed.
SOFTWARE PATCHES
Software which corrects or removes a reproducible anomaly or "bug",
whether or not such defect applies to Software furnished to Customer
under this Purchase Agreement. Software Patches do not include Point
Releases or Major Releases, and do not represent an upgrade to or
enhancement of existing Software specifications.
SUBCONTRACTOR FURNISHED EQUIPMENT ("SFE")
The major non-Motorola-manufactured equipment provided by Motorola to
Customer that is acquired by Motorola under a separate agreement and for
which Motorola takes system responsibility.
SUBSCRIBER
A person who uses the Cellular System entitling Customer to revenue.
SUBSCRIBER EQUIPMENT
Any mobile or portable radiotelephone equipment intended for Cellular
System use, whether or not in actual use.
SWITCH
The Motorola-provided switching equipment that routes calls from
Subscriber Equipment to the called party (and vice versa), coordinates
the handoff process and records system traffic.
TIMEFRAME
The interval between the starting date and the completion date for a
particular activity as set forth on the Critical Path Network.
2. SCOPE OF AGREEMENT; IMPLEMENTATION
2.1 Motorola shall furnish to Customer and Customer shall purchase
from Motorola the equipment and materials for the Initial Cellular
Systems as defined herein and within Exhibit "A" and, at
Customer's option, Expansion Product.
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2.2 Customer may not cancel any of the products set forth in the
Initial Cellular Systems Exhibit "A" associated with Phases 1 and
2 for Almaty. In the event Customer cancels any of the additional
ordered products set forth in the Initial Cellular Systems Exhibit
"A" (i) within sixty (60) calendar days prior to the scheduled
shipment date for Ancillary Equipment or switch products, or (ii)
within thirty (30) days prior to the scheduled shipment date for
other Exhibit "A" products, Customer shall pay a restocking fee
equal to twenty percent (20%) of the price of the products so
canceled.
2.3 Motorola and Customer may enter into Exhibit "A" Amendments for
purchases of additional FNE and ANE which shall be provided with
the same Initial System Discount structure as set forth in Exhibit
"A" provided that (i) such equipment is ordered by Customer within
three (3) years from the date of execution of this Purchase
Agreement with a requested delivery date no later than ninety (90)
days following such three year period, and (ii) such equipment is
purchased only for implementation in Kazakhstan. After this three
(3) year period, Expansion Equipment shall be available to
Customer at prices normally provided to similar purchasers of
similar sized volume purchases.
2.4 During the term of this Agreement, Customer agrees to purchase
cellular infrastructure equipment for Kazakhstan exclusively from
Motorola. Provided however, that with respect to particular
purchases from time to time, if Motorola's ability to deliver such
equipment would be subject to delay beyond a reasonable time
period and such delay would cause an undue disruption to
Customer's implementation schedule, then Customer may purchase the
equipment which is the subject of delay from another supplier
which could provide such equipment within such reasonable time
period.
2.5 Customer and Motorola acknowledge and agree that Wireless
Technology Corporations Limited ("WTCL") may, from time to time,
purchase products hereunder pursuant to the terms and conditions
of this Purchase Agreement. With respect to any such purchase,
WTCL shall sign an acknowledgment agreeing to the terms and
conditions of this Purchase Agreement to the extent of such
purchase and shall, for purposes of this Purchase Agreement, be
deemed to be Customer. Any documents presented for payment under a
letter of credit shall reference Customer and, if the applicant
under such letter of credit is a party other than Customer, shall
be accepted as if such documents had referenced the applicant.
2.6 This Purchase Agreement and its Exhibits constitute a single order
for the Initial Cellular Systems which will be delivered as
specified in the Critical Path Network.
2.7 This Purchase Agreement and Exhibit "A" may be canceled only upon
the terms and conditions contained herein.
3. OBLIGATIONS OF CUSTOMER
Customer shall:
3.1 Bear the costs of its own legal fees, telephone and utility
charges and other services and items being supplied by Customer
under this Purchase Agreement.
3.2 Negotiate in good faith the Critical Path Network and adhere to
the schedule for performance of the responsibilities set forth
therein.
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3.3 Negotiate in good faith a Punchlist, if needed, for the Initial
Cellular System and Expansion Product prior to Conditional
Acceptance thereof.
3.4 Complete the dial plan questionnaire and furnish the signaling
specification to Motorola in accordance with the Critical Path
Network.
3.5 Make the payments according to the schedule set forth in Section 5
of this Purchase Agreement.
3.6 Assume responsibility for the lawful operation of the Cellular
System.
3.7 Not unreasonably withhold either Conditional or Final Acceptance.
3.8 Perform all other of its obligations set out in this Purchase
Agreement and the Exhibits attached hereto.
3.9 Provide assistance with customs clearance and local delivery as
further defined in Section 12 of this Purchase Agreement.
4. OBLIGATIONS AND REPRESENTATIONS OF MOTOROLA
Motorola shall:
4.1 Negotiate in good faith the Critical Path Network and adhere to
the schedule for performance of the responsibilities set forth
therein.
4.2 Negotiate in good faith a Punchlist, if needed, for the Initial
Cellular System and Expansion Product prior to Conditional
Acceptance thereof.
4.3 Supply replacement and expansion parts, subsequent Cellular System
equipment upgrades and Software to Customer on reasonable terms.
4.4 Keep Customer advised of modifications required.
4.5 Provide at a reasonable cost a retrofit package for any change in
standards subsequently put into effect by the government,
regulatory agencies, the Electronic Industry Association ("EIA"),
the European Technical Standards Institute (ETSI), etc., as well
as those promulgated by Motorola.
4.6 Ship the equipment as defined in Section 12 of this Purchase
Agreement.
4.7 Allow Customer to witness back end factory testing, subject to the
reasonable safety, security and scheduling requirements of
Motorola.
4.8 Provide Customer with existing test results to demonstrate the
switch loading in accordance with the Exhibit "B1" technical
specification based on previous software release testing. In
addition, allow Customer to witness standard software release
testing to demonstrate the switch loading in accordance with the
Exhibit "B1" technical specification, subject to the reasonable
safety, security, and scheduling requirements of Motorola.
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FURTHER, Motorola represents to Customer that:
4.9 Unless agreed to the contrary, all equipment sold to Customer
hereunder is new and Motorola will provide any documents which may
be reasonably requested by Customer evidencing this fact.
4.10 At the time or times contemplated herein for the transfer of title
to any equipment included in the Cellular System. Motorola shall
convey to Customer all right in and good title to such equipment
by appropriate title documents. However, title to Software shall
not be conveyed to Customer at any time.
5. PAYMENT AND PRICING
Customer shall pay to Motorola the price of the Cellular System, as set
forth in Exhibit "A", in U.S. dollars and according to the following
terms and payment schedules:
5.1 GENERAL PAYMENT TERMS
5.1.1 Unless otherwise agreed between the parties, Motorola shall
notify Customer sixty (60) days prior to any scheduled
shipment date of Cellular System products, and Customer
shall, not fewer than thirty (30) days prior to the
scheduled date of shipment, provide Motorola with a letter
of credit or other assurance of payment satisfactory to
Motorola covering the amount to be paid by Customer for the
notified shipment.
5.1.2 Payment for all products shall be net thirty (30) days from
invoice date.
5.1.3 Customer shall be responsible for the payment of all
applicable sales, use, retailers occupation, excise,
property, and other assessments in the nature of taxes
however designated, on the Products and Services provided
to Customer pursuant to this Agreement, exclusive however,
of any taxes measured by Motorola's net income or based on
Motorola's franchise. Personal property taxes assessable on
the Products shall be the responsibility of Customer. To
the extent Motorola is required by law to collect such
taxes (state or local), one hundred percent (100%) thereof
shall be added to invoices as separately stated charges and
paid in full by Customer, unless the Customer is exempt
from such taxes and furnishes Motorola with a certificate
of exemption in a form reasonably acceptable to Motorola.
In the event Customer claims exemption from sales, use or
other such taxes under this Agreement, Customer shall hold
Motorola harmless from any and all subsequent assessments
levied by a proper taxing authority for such taxes,
including interest, penalties and late charges.
5.1.4 Customer shall pay all applicable customs duties and
similar charges and all actual freight and insurance costs
from point of origin on a CIF basis or "prepay and add"
basis as further defined in Section 12 of this Purchase
Agreement.
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5.1.5 For any amount due hereunder which remains unpaid, Customer
shall pay Motorola a service fee at the rate of one and
one-half percent (1-1/2%) of the amount due for each month
or portion thereof that the amount remains unpaid.
5.1.6 The total price for the Initial Cellular System is set
forth in Exhibit "A".
5.2 PRODUCT PURCHASES (WITH AN IOS AGREEMENT)
5.2.1 For ANE, FNE, SFE, and Software furnished for the Initial
Cellular Systems with an associated IOS Agreement, Customer
shall be invoiced as follows:
5.2.1.1 Upon execution of the Purchase Agreement and upon
execution of each Exhibit "A" Amendment reflecting
the final system design and equipage for the
Initial Cellular Systems, ten percent (10%) of the
total Initial Cellular System products for that
Exhibit "A" or Exhibit "A" Amendment shall be
invoiced.
5.2.1.2 Upon the earlier of the scheduled date, if Motorola
is ready to ship on that date, or actual shipment
date, sixty-five percent (65%) of the total Initial
Cellular System products for that Exhibit "A" or
Exhibit "A" Amendment shall be invoiced. For the
avoidance of doubt, please refer to provision 5.1.1
above.
5.2.1.3 Upon Conditional Acceptance, an additional
twenty percent (20%) of the total Initial Cellular
System products for that Exhibit "A" or Exhibit "A"
Amendment shall be invoiced.
5.2.1.4 Upon Final Acceptance, an additional five percent
(5%) of the total Initial Cellular System products
for that Exhibit "A" or Exhibit "A" Amendment shall
be invoiced.
5.2.2 For ANE, FNE, SFE and Software furnished to expand the
Cellular System purchased with an associated IOS Agreement,
Customer shall be invoiced in accordance with the terms set
forth in Subsection 5.2.1 above.
5.3 PRODUCT PURCHASES (WITHOUT AN IOS AGREEMENT)
In the event Customer does not purchase Installation and
Optimization Services, Customer shall be invoiced upon shipment
for one hundred percent (100%) of the value of each product
purchased upon shipment.
6. WARRANTIES
The following warranties shall be applicable to products supplied under
this Purchase Agreement.
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6.1 FNE AND SFE WARRANTY
6.1.1 For the Initial Cellular System, FNE and SFE shall be warranted to
be free from defects in material and workmanship for a period of
period of fifteen (15) months from the date of shipment. For all
Expansion Product, FNE and SFE is warranted to be free from
defects in material and workmanship for a period of fifteen (15)
months from the date of shipment. Parts will be replaced free of
charge for the full warranty period.
6.1.2 Customer shall be responsible for the initial level of diagnosis
(i.e. for identification and isolation of FNE and SFE problems to
the board level), for hardware, firmware and Software removal and
replacement, and for sending the malfunctioning product, packed in
a manner to prevent damage, to the designated Motorola repair
depot.
6.1.3 Labor at the Motorola-designated repair depot to repair or replace
defective FNE and SFE will be provided without charge for the full
warranty period.
6.1.4 Postage, freight or other such transportation charges for shipping
defective products to an authorized Motorola repair depot shall be
borne by Customer; when such products or their replacements are
being returned to Customer, Motorola shall bear such charges.
6.1.5 In the event a defect occurs during the warranty period shown,
Motorola, at its option, will either (i) repair the product or
(ii) replace the product with new or refurbished product. Any item
replaced will be deemed to be on an exchange basis, and any item
retained by Motorola through replacement will become the property
of Motorola. Items repaired or replaced will be warranted for
(i) ninety (90) days from the date of shipment or (ii) the balance
of the remaining warranty term, whichever period of time is
longer. Such action on the part of Motorola shall be the full
extent of Motorola's liability and Customer's exclusive remedy
hereunder.
6.1.6 THIS WARRANTY DOES NOT COVER:
Defects, damage or malfunctions resulting from:
6.1.6.1 Use of the products in other than their normal and
customary manner.
6.1.6.2 Misuse, accident, neglect, improper storage or
environmental or Site conditions not conforming to the
specifications for the product.
6.1.6.3 Unauthorized alterations or repairs, use of unapproved
parts in the products or the combination or interfacing
of the products, in each case in a manner not approved
by Motorola.
6.1.6.4 An event of Force Majeure.
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6.1.6.5 Installation, optimization, movement or use of products
by anyone not authorized by Motorola and/or not in
accordance with Motorola standards and guidelines.
6.1.6.6 Failure of antennas, lines, or any part of the
Interconnection Facilities.
6.1.6.7 Failure of Customer to maintain the Cellular System
pursuant to Motorola maintenance agreements, or other
maintenance, substantially in accordance with the
Documentation and under the supervision of one or more
individuals who shall have completed appropriate
Motorola training.
6.1.6.8 Damage which occurs during shipment of the product from
Customer to Motorola.
6.1.7 This express warranty is extended by Motorola, Inc. to Customer
only and is valid only for the products in Kazakhstan.
6.2 NON-MOTOROLA-MANUFACTURED PRODUCTS
Non-Motorola-manufactured Products that are not FNE shall be warranted by
Motorola in accordance with Section 6.1 above. However, if such products
are warranted by the manufacturer or supplier thereof for a longer period
of time, then to the extent permitted, Motorola assigns to Customer the
warranties given to Motorola by such manufacturer or supplier.
6.3 THE WARRANTIES IN THIS AGREEMENT ARE GIVEN IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE SPECIFICALLY EXCLUDED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL MOTOROLA BE LIABLE FOR
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES; PROVIDED,
HOWEVER, THAT IF THE LAW OF ANY JURISDICTION APPLICABLE TO THIS AGREEMENT
DOES NOT PERMIT SUCH DAMAGES TO BE COMPLETELY DISCLAIMED, THIS CLAUSE
SHALL BE INTERPRETED AS NECESSARY TO GIVE MOTOROLA THE FULL BENEFIT OF
ANY DISCLAIMER OR LIMITATION OF SAID DAMAGES AS PERMITTED UNDER SUCH LAW.
FURTHERMORE, BECAUSE EACH CELLULAR RADIOTELEPHONE SYSTEM IS UNIQUE,
MOTOROLA DISCLAIMS LIABILITY FOR RANGE, COVERAGE, SUBSCRIBER CAPACITY,
SERVICE LEVEL OR OPERATION OF THE CELLULAR SYSTEM, AS A WHOLE, EXCEPT AS
SPECIFICALLY SET FORTH IN THE WARRANTIES CONTAINED IN THIS AGREEMENT.
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7. PRODUCT CHANGES OR SUBSTITUTIONS/FOAs
7.1 At any time during its performance of this Purchase Agreement,
Motorola may implement changes in the products set forth in
Exhibit "A", modify the drawings and specifications relating
thereto, or substitute therefor different Products; provided,
however, that any such changes, modifications or substitutions,
under normal and proper use:
(i) shall not materially or adversely affect physical or
functional interchangeability or performance (except where
there is written agreement between the parties that
specific characteristics will be so affected);
(ii) shall not detract from the safety of the Product; and
(iii) shall be type-accepted by the appropriate authority, if
required.
7.2 From time to time, Customer and Motorola may desire to conduct
First Office Application ("FOA") testing of Motorola Products on
Customer's Cellular System prior to those Products being made
generally available to all Motorola customers. During FOA testing,
Customer understands that the Products being tested are
developmental and may contain previously undetected defects.
Motorola will use all reasonable efforts to avoid disrupting the
normal operation of Customer's Cellular System during FOA testing.
If necessary, at Customer's request, or at Motorola's option, the
FOA testing will be terminated and the Customer's Cellular System
will be returned to the previous Software release and/or equipment
configuration.
8. DISCLAIMER OF PATENT LICENSE
Nothing contained in this Purchase Agreement shall be deemed to grant,
either directly or by implication, any license under any patents or
patent applications of Motorola, except that Customer shall have the
normal non-exclusive, royalty-free license to use that which is implied,
or otherwise arises by operation of law, in the sale of a product.
9. PATENT AND COPYRIGHT INDEMNITY
Motorola shall defend Customer against a claim that Motorola-provided
products or latest unmodified release of Software supplied hereunder
infringe a patent or copyright granted or registered in Kazakhstan,
provided that (i) Customer promptly notifies Motorola in writing of the
claim, (ii) Motorola has sole control of the defense and all related
settlement negotiations, and (iii) Customer gives Motorola information
and assistance for the defense all at Motorola's expense. Subject to the
conditions and limitations of liability stated in this Purchase
Agreement, Motorola shall indemnify and hold Customer harmless from all
payments which by final judgments in such suits may be assessed against
Customer on account of such infringement and shall pay resulting
settlements, costs and damages finally awarded against Customer by a
court of law.
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Customer agrees that if Motorola-provided products or Software become, or
in Motorola's opinion are likely to become, the subject of such a claim,
Customer will permit Motorola, at its option and expense, either to
procure the right for Customer to continue using such products or
Software or to replace or modify same so that they become non-infringing,
and, if neither of the foregoing alternatives is available on terms
which are reasonable in Motorola's judgment, Customer can return
Motorola-provided products and/or Software for full credit on the entire
unusable portion thereof.
Motorola has no liability for any claim of patent or copyright
infringement based upon adherence to specifications, designs or
instructions furnished by Customer, nor for any claim based upon the
combination, operation or use of any Motorola-provided products or
Software supplied hereunder with products, software or data not supplied
by Motorola, nor for any claim based upon alteration of the products or
modification of any software supplied by entities other than Motorola.
10. CONFIDENTIALITY
10.1 From time to time during the performance of this Purchase
Agreement, the parties may deem it necessary to provide each other
with Confidential Information. The parties agree:
10.1.1 To maintain the confidentiality of such Confidential
Information and not disclose same to any third party,
except as authorized by the original disclosing party in
writing.
10.1.2 To restrict disclosure of Confidential Information to
employees who have a "need to know". Such Confidential
Information shall be handled with the same degree of care
which the receiving party applies to its own confidential
information but in no event less than reasonable care.
10.1.3 To take precautions necessary and appropriate to guard the
confidentiality of Confidential Information, including
informing its employees who handle such Confidential
Information that it is confidential and not to be disclosed
to others.
10.1.4 That Confidential Information is and shall at all times
remain the property of the disclosing party. No use of any
Confidential Information is permitted except as otherwise
provided herein and no grant under any proprietary rights
is hereby given or intended, including any license implied
or otherwise.
10.1.5 To use such Confidential Information only as required in
performance of this Purchase Agreement.
10.2 Except as may be required by applicable law, Customer shall not
disclose to any third party the contents of this Purchase
Agreement, the Exhibits or any amendments hereto or thereto for a
period of two (2) years from the date of execution hereof without
the prior written consent of Motorola.
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11. TRADEMARK AND PUBLICITY
Nothing contained in this Purchase Agreement shall be construed as
conferring any right to use any name, trademark or other designation of
either party hereto, including any contraction, abbreviation, or
simulation of any of the foregoing, in advertising, publicity or
marketing activities. Any publicity, advertising, etc. with regard to
this Purchase Agreement or the Cellular System which mentions the other
party shall be mutually agreed upon prior to use.
12. SHIPMENT, DELIVERY, OFF-LOADING AND WAREHOUSING
12.1 Motorola may ship products at any time during the Timeframe for
that activity and may invoice Customer upon shipment as provided
in Section 5. No shipment of products during said Timeframe shall
be considered early for purposes of invoicing.
12.2 Unless otherwise mutually agreed upon in writing, Motorola shall
use all reasonable efforts to ship products directly to the Site
where it will be permanently installed. At Motorola's reasonable
request, Customer shall assist Motorola with customs clearance and
assist Motorola with procurement of local delivery services in
Kazakhstan.
12.3 Customer may, from time to time, request Motorola to quote the
additional price to ship Exhibit "A" products on a CIF, Almaty
(INCOTERMS 1990) basis. In such case, Motorola will provide
Customer with an estimated quote for such delivery to Almaty and
shall invoice Customer the actual freight and insurance costs. For
local delivery in Kazakhstan to the Site, Motorola shall invoice
and Customer shall pay such actual additional local freight and
insurance costs on a "prepay and add" basis.
12.4 In the event Customer does not request Motorola to quote on a CIF
basis, Customer shall pay all actual freight and insurance costs
from point of origin to the installation site on a "prepay and
add" basis.
12.5 For the avoidance of doubt, the individual unit prices listed in
the Exhibit "A" are FCA, Factory (INCOTERMS 1990).
12.6 In the event that the Site is not available to receive the
products when shipped, Motorola, at its option, may ship said
products to a warehouse in or near the area, and Customer shall
bear the costs of warehousing, reloading, transporting,
off-loading and moving the products onto the Site when such Site
becomes available.
13. TITLE, RISK OF LOSS AND INDEMNITY
13.1 Title to and risk of loss for all products supplied hereunder
shall pass to Customer upon delivery to a carrier or to Customer
at point of shipment. For the avoidance of doubt, please refer to
Section 12 of this Purchase Agreement regarding shipment and
delivery.
13.2 The above notwithstanding, title to Software shall not pass to
Customer at any time.
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13.3 During the term of this Purchase Agreement, the parties shall
indemnify and hold harmless each other together with their
officers, agents and employees from any and all loss, damage,
expense, judgment, lien, suit, cause of action, demand or
liability for personal injury, including death and tangible
property damage, which may be imposed on or incurred by one party
arising directly out of the negligent acts or omissions of the
other, its agents, subcontractors, or employees during the
performance of any work hereunder. The offending party shall, at
its sole expense, defend any suit based upon a claim or cause of
action and satisfy any judgment that may be rendered against the
other resulting therefrom, provided that the offending party shall
be given (i) prompt notice of any such claim or suit; and (ii)
full opportunity to defend such suit. The offended party may, at
its election, participate in the defense and shall cooperate fully
in defending any claim or suits. The offending party shall pay all
costs, expenses, and reasonable attorney's fees incurred by the
offended party in connection with any such claim or suit or in
enforcing this indemnity provision, provided a valid claim is
presented.
14. FORCE MAJEURE
14.1 Neither party shall be liable for delays in delivery or
performance, or for failure to manufacture, deliver or perform
when caused by any of the following which are beyond the actual
control of the delayed party:
14.1.1 Acts of God, acts of the public enemy, acts or failures to
act by the other party, acts of civil or military
authority, governmental priorities, strikes or other labor
disturbances, hurricanes, earthquakes, fires, floods,
epidemics, embargoes, war, riots, delays in transportation,
car shortages, and loss or damage to goods in transit; or
14.1.2 Inability on account of causes beyond the reasonable
control of the delayed party or its suppliers to obtain
necessary products, components, services or facilities.
14.2 In the event of any such delay the date of delivery or of
performance shall be extended for a period equal to the effect of
time lost by reason of the delay.
15. TERMINATION
15.1 Either party may terminate this Agreement without liability by
notice pursuant to Section 22 if the other makes a general
assignment for the benefit of creditors, or if a petition in
bankruptcy or under any insolvency law is filed by or against the
other and such petition is not dismissed within sixty (60) days
after it has been filed or the other commits a material breach of
its obligations hereunder. However, in the case of any such breach
which is capable of being cured, neither party shall terminate
this Agreement unless and until the other shall have failed to
make good such default within thirty (30) days after it shall have
been served with a notice requiring that such default be made good
and stating its intention to terminate the Agreement if compliance
with the notice is not met.
15.2 The termination of this Agreement shall not affect or prejudice
any provisions of this Agreement which are expressly or by
implication provided to continue in effect after such termination.
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16. LIMITATION OF LIABILITY
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, NEITHER PARTY, WHETHER AS A
RESULT OF BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE),
PATENT INFRINGEMENT, COPYRIGHT INFRINGEMENT OR OTHERWISE, SHALL HAVE ANY
LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT
LIMITED TO, LOSS OF PROFIT OR REVENUES, LOSS OF USE OF THE PRODUCTS OR
ANY ASSOCIATED EQUIPMENT, COST OF CAPITAL, COST OF SUBSTITUTE PRODUCTS,
FACILITIES OR SERVICE, OR DOWNTIME COSTS.
17. ASSIGNMENT AND EQUIPMENT RESALE
17.1 Assignment. The Purchase Agreement shall accrue to the benefit of
and be binding upon the parties hereto and any successor entity
into which either party shall have been merged or consolidated or
to which either party shall have sold or transferred all or
substantially all its assets, but it shall not be otherwise
assigned by either party without the prior written consent of the
other party, which consent shall not be unreasonably withheld or
delayed.
17.2 Equipment Resale. Notwithstanding any other provision of this
Purchase Agreement, the Software license granted to Customer in
the form of Exhibit "F", may not be sublicensed, assigned or
otherwise transferred by Customer. In the event Customer
subsequently elects to sell to a third party the equipment
purchased by Customer hereunder, Motorola agrees to relicense the
Software to such third party in accordance with the then current
terms of Motorola's Product Refurbishment and Relicensing Policy
as set forth in Exhibit "K".
18. GOVERNING LAW/DISPUTE RESOLUTION
18.1 Motorola and Customer will attempt to settle any claim or
controversy arising out of this Purchase Agreement through
consultation and negotiation in good faith and spirit of mutual
cooperation. If those attempts fail, then the dispute will be
mediated by a mutually acceptable mediator to be chosen by
Motorola and Customer within forty-five (45) days after written
notice by either party demanding mediation. Neither party may
unreasonably withhold consent to the selection of a mediator, and
Motorola and Customer will share the costs of the mediation
equally. By mutual agreement, however, Motorola and Customer may
postpone mediation until each has completed some specified but
limited discovery regarding the dispute. The parties may also
agree to replace mediation with some other form of alternate
dispute resolution, such as neutral fact-finding or a mini-trial.
18.2 Any dispute which cannot be resolved between the parties through
negotiation, mediation or other form of ADR within six months of
the date of the initial demand for ADR by one of the parties may
then be submitted for arbitration in Stockholm, Sweden for
resolution in accordance with the Rules of Conciliation and
Arbitration of the International Chamber of Commerce (the "ICC
Rules"). Nothing in this Section will prevent either party from
resorting to judicial proceedings if (a) good faith efforts to
resolve the dispute under these procedures have been unsuccessful,
or (b) interim relief from a court is necessary to prevent serious
and irreparable injury to that party or to others.
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18.3 The validity, performance, and all matters relating to the effect
of this Purchase Agreement and any amendment hereto shall be
governed by the laws of the state of Illinois, U.S.A.
19. EXPORT CONTROLS
19.1 If, at the time or times of Motorola's performance hereunder, a
validated export license is required for Motorola to lawfully
export the goods or technical data from the United States of
America, then the issuance of such license to Motorola, or its
subcontractor, shall constitute a condition precedent to
Motorola's obligations hereunder.
19.2 Customer agrees to comply with all applicable export laws and
regulations of the United States. Specifically, but without
limitation, Customer agrees that it will not resell or re-export
Motorola products or technical data in any form without obtaining
appropriate export or re-export licenses from the respective
governmental authority of the United States Government. Violation
of this provision shall constitute just cause for immediate
termination of this Purchase Agreement by Motorola without
liability to Customer.
20. ORDER OF PRECEDENCE
In the event of an inconsistency in this Purchase Agreement, the
inconsistency shall be resolved by giving precedence in the following
order:
20.1 This Purchase Agreement and duly executed amendments to this
Purchase Agreement, with the latest amendment taking precedence
over earlier amendments;
20.2 Exhibit "A" and all duly executed amendments to Exhibit "A";
20.3 All other Exhibits and all duly executed amendments to said
Exhibits.
21. LANGUAGE OF AGREEMENT
In the event that this Purchase Agreement is translated into any other
language, the English language version hereof shall take precedence and
govern.
22. NOTICE
22.1 Notices required to be given by one party to another shall be in
the English language unless expressly agreed otherwise, and shall
be deemed properly given if reduced to writing and personally
delivered or transmitted by registered or certified post to the
address below, postage prepaid, or by telefacsimile with
confirmation receipt, and shall be effective upon receipt.
22.1.1 Motorola shall send notices as follows:
BECET International
480002, Almaty
Zhurgeneva Street, #8
Kazakhstan
Attention: General Manager
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22.1.2 Customer shall send notices as follows:
Motorola, Inc.
International Cellular Infrastructure Division
1501 W. Shure Drive
Arlington Heights, IL 60004
Attention: International Program Management
CC: Senior Manager, Commercial Department
22.2 Either party may change the addresses for giving notice from time
to time by written instructions to the other of such change of
address.
23. SURVIVAL OF PROVISIONS
The parties agree that where the context of any provision indicates an
intent that it shall survive the term of this Purchase Agreement then it
shall survive.
24. WAIVER
Failure or delay on the part of Motorola or Customer to exercise any
right, power or privilege hereunder shall not operate as a waiver
thereof.
25. SEVERABILITY
In the event any one or more of the provisions of this Purchase Agreement
is held to be unenforceable under applicable law, (a) such
unenforceability shall not affect any other provision of this Purchase
Agreement; (b) this Purchase Agreement shall be construed as if said
unenforceable provision had not been contained therein; and (c) the
parties shall negotiate in good faith to replace the unenforceable
provision by such as has the effect nearest to that of the provision
being replaced.
26. AUTHORITY
Each party hereto represents and warrants that (i) it has obtained all
necessary approvals, consents and authorizations of third parties and
governmental authorities to enter into this Purchase Agreement and to
perform and carry out its obligations hereunder; (ii) the persons
executing this agreement on its behalf have express authority to do so,
and, in so doing, to bind the party thereto; (iii) the execution,
delivery, and performance of this Purchase Agreement does not violate any
provision of any bylaw, charter, regulation, or any other governing
authority of the party; and (iv) the execution, delivery and performance
of this Purchase Agreement has been duly authorized by all necessary
partnership or corporate action and this Purchase Agreement is a valid
and binding obligation of such party, enforceable in accordance with its
terms.
27. TERM
The initial term of this Purchase Agreement shall be for five (5) years
from the date of execution. This Purchase Agreement shall be
automatically renewed for consecutive five year terms unless either party
notifies the other party in writing of its intent to terminate the
Purchase Agreement at least sixty (60) days prior to the expiration of
the five year term or any renewal thereof.
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28. UNITED STATES OF AMERICA ("U.S.") - GOVERNMENT COMPLIANCE
In the event that Customer elects to sell Motorola products or services
to the U.S. Government, or to a prime contractor selling to the U.S.
Government, Customer does so solely at its own option and risk, and
agrees not to obligate Motorola as a subcontractor or otherwise, to the
U.S. Government. Customer remains solely and exclusively responsible for
compliance with all statutes and regulations governing sales to the U.S.
Government. Motorola makes no representations, certifications or
warranties whatsoever with respect to the ability of its goods, services
or prices to satisfy any such statutes or regulations. Failure of
Customer to conduct any sales to the U.S. Government or to U.S.
Government prime contractors in strict accordance with U.S. law shall
constitute a material breach of this Purchase Agreement. The violation of
any aspect of the above shall constitute immediate grounds for
termination of this Purchase Agreement.
29. ENTIRE AGREEMENT
This Purchase Agreement and the Exhibits hereto constitute the entire
understanding between the parties concerning the subject matter hereof
and supersede all prior discussions, agreements and representations,
whether oral or written and whether or not executed by Motorola and
Customer. No modification, amendment or other change may be made to this
Purchase Agreement or any part thereof unless reduced to writing and
executed by authorized representatives of both parties.
The terms and conditions of this Purchase Agreement shall prevail
notwithstanding any variance with the terms and conditions of any order
submitted by Customer following execution of this Purchase Agreement. In
no event shall the preprinted terms and conditions found on any Customer
purchase order, acknowledgment or other form be considered an amendment
or modification of this Purchase Agreement, even if such documents are
signed by representatives of both parties; such preprinted terms and
conditions shall be null and void and of no force and effect.
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30. COUNTERPARTS
This Purchase Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
Executed as of this < 4th > day of < May >, 1994.
MOTOROLA, INC. BECET INTERNATIONAL
CELLULAR INFRASTRUCTURE GROUP
By: /s/ STEVEN B. SCHAEFER By: /s/ YURI NILOV
--------------------------- ---------------------------
Name: STEVEN B. SCHAEFER Name: YURI NILOV
------------------------- -------------------------
Title: DIRECTOR Title: DIRECTOR
------------------------ ------------------------
By: /S/ ROBERT SMITH
---------------------------
Name: ROBERT SMITH
-------------------------
Title: DIRECTOR
------------------------
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EXHIBIT 99.1
Independent Auditors' Consent
The Board of Directors
NWE Capital (Cyprus) Ltd.:
We consent to incorporation by reference in the registration statement
(no. 333-5396) on Form S-3 of PLD Telekom Inc. of our report dated March 30,
1999, relating to the consolidated balance sheets of NWE Capital (Cyprus) Ltd.
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the
years in the three year period ended December 31, 1998, which report appears in
the Annual Report on Form 20-F/A (Amendment No. 1) for the year ended December
31, 1998 of NWE Capital (Cyprus) Ltd.
Our report dated March 30, 1999 contains an explanatory paragraph that states
that the Company's parent, PLD Telekom Inc. (PLD) does not presently have
sufficient funds on hand to meet its current debt obligations. PLD's failure to
make payment in full when required could result in a cross-default under and
acceleration of other debt obligations for which the Company is a guarantor.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG
St. Petersburg, Russia
August 27, 1999
