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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 12(g) 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 333-5396-01
BALTIC COMMUNICATIONS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RUSSIA
(JURISDICTION OF
INCORPORATION OR ORGANIZATION)
KONNOGVARDEISKY BLVD. 4
ST. PETERSBURG 190000 RUSSIA
(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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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 as of the close of the period covered by the annual
report: 72,540 Common Shares.
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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BALTIC COMMUNICATIONS 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..................................... 16
Item 3. Legal Proceedings........................................... 16
Item 4. Control of Registrant....................................... 16
Item 5. Nature of Trading Market.................................... 16
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders..................................................... 16
Item 7. Taxation.................................................... 18
Item 8. Selected Financial Data..................................... 19
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 9A. Quantitative and Qualitative Disclosure About Market Risk... 25
Item 10. Directors and Officers of the Registrant.................... 25
Item 11. Compensation of Directors and Officers...................... 26
Item 12. Options to Purchase Securities from Registrant or
Subsidiaries................................................ 26
Item 13. Interest of Management in Certain Transactions.............. 26
PART II
Item 14. Description of Securities to be Registered.................. 26
PART III
Item 15. Defaults Upon Senior Securities............................. 26
Item 16. Changes in Securities, Changes in Security for Registered
Securities and Use of Proceeds.............................. 26
PART IV
Item 17. Financial Statements........................................ 26
Item 19. Financial Statements and Exhibits........................... 26
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BALTIC COMMUNICATIONS 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
Baltic Communications Limited (the "Company") is a wholly owned subsidiary
of PLD Telekom Inc. ("PLD") which provides dedicated international
telecommunications services in St. Petersburg, Russia.
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.
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 Company Limited ("PeterStar"), which provides integrated
local, long distance and international telecommunications services in St.
Petersburg through a fully digital fiber optic network; (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) the Company;
(iv) ALTEL (known until May 1998 as BECET International), which provides
national cellular service in Kazakhstan; 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, China and other selected emerging markets. Its common stock is
listed on the American and Pacific Stock Exchanges, under the symbol MMG.
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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."
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 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 the Company and Wireless Technology
Corporations Limited ("WTC"), an indirect wholly owned subsidiary of PLD,
through which it holds its 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 (the "News Guarantee").
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
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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, 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 the Company
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 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 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, which could also lead
to a claim against the Company under its guarantee of those Notes.
Any such 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.
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) $123,000,000
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) $26,500,000 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.
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.
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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. 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
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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 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
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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 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,
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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 the Company.
The telecommunications market in St. Petersburg also supports three
cellular operators (two analog and one digital) and a number of paging networks.
BALTIC COMMUNICATIONS LIMITED
BUSINESS
The Company, in which PLD acquired a 100% equity interest in April 1996,
provides international direct dial, international payphone and leased line
services for Russian and foreign businesses in St. Petersburg and the Leningrad
Oblast. The Company also offers a number of advanced broadband services, as well
as "carrier's carrier" services to other telecommunications operators. The
Company has its own switching and international transmission facilities in St.
Petersburg, which act as a gateway for corporate customers in both Moscow and
St. Petersburg. The Company's network consists of an international and local
switch and capacity on the international fiber optic cable via Finland to Sweden
and the United Kingdom. The Company's primary international carrier
relationships are with Telia of Sweden, Cable & Wireless Communications of the
United Kingdom and Lattelekom of Latvia. The Company rents local access from
PeterStar and PTN to connect its customers in St. Petersburg.
The Company had a total of approximately 1,200 lines connected as of
December 31, 1998 and generated approximately 10,408,000 million minutes of
traffic for the year ended December 31, 1998. The Company is currently
investigating means to increase the capacity on its network and to provide
additional capacity for "carrier's carrier" services.
PLD endeavors to cross-sell the distinct service offerings provided by
PeterStar and the Company to their respective customer bases. For example,
PeterStar's marketing representatives are now also able to market the Company's
international private line services to PeterStar's and other corporate
customers. In addition, control of both PeterStar and the Company provides PLD
with the opportunity to: (i) potentially realize economies of scale at the
operational level (i.e. a single sales and customer services channel and
coordinated technical resources); and (ii) introduce new services to targeted
markets in a more efficient manner. In addition, PeterStar and the Company are
exploring the possibilities of closer cooperation in connection with the
expansion of their respective core businesses in St. Petersburg and the
implementation of their strategies in Northwest Russia.
The Company generated net income for the year ended December 31, 1998 of
$0.4 million on operating revenues of $9.9 million, as compared to net income of
$0.8 million on operating revenues of $7.6 million for the year ended December
31, 1997. The Company accounted for 6.8% of PLD's operating revenues for the
year ended December 31, 1998, compared to 6.6% for the year ended December 31,
1997.
The Company, a Russian closed joint stock company, was incorporated in
1991.
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TELECOMMUNICATIONS LICENSE
The Company's primary license permits it to provide long distance and
international telephone, facsimile and data transmission services within St.
Petersburg and the surrounding region for a term expiring on December 31, 2003.
Management believes that, so long as it is being actively utilized, the
Company's license will be renewed at the end of its current term. The Company is
not required to route its long distance traffic through the facilities of
SPMMTS, and has its own international facilities providing cable access.
However, the Company's license does not permit it to interconnect with PTN's
public network. The Company is therefore working with PeterStar to explore
providing integrated long distance and international solutions for customers.
The license sets the upper limit of subscribers to the Company's network at
100,000 and requires that 70,000 of these be in place by January 2001. The
Company had a total of approximately 1,200 lines as of December 31, 1998. Based
on its experience in renewing existing, and obtaining new, licenses and its
general knowledge of the licensing environment in Russia, management of the
Company believes that the maximum and minimum line numbers 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 license or its renegotiation on terms
unfavorable to the Company 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 Baltic
Communications Limited -- Reliance on Telecommunications License; Risks of
Revocation or Renegotiation of License."
EMPLOYEES
As of December 31, 1998, the Company had 94 employees, all of whom were
full-time. Of these employees, 93 were Russian nationals and one was an
expatriate manager. None of its employees is subject to a collective bargaining
agreement, although there is a union representative at the Company. The Company
believes that its relations with its employees are good.
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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, 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 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, some or all of which could affect the ability of the Company
to conduct or realize income from its business:
- 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 has been characterized by uncertainty and
instability.
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
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could 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.
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, 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.
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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 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 economy
of the Russian Federation was administered by the central authorities of the
former Soviet Union. Following the collapse of those authorities and the command
economy they managed, the government of the Russian Federation sought to
implement policies designed to introduce a free market economy into its country.
While these policies have met with some success, the economy of the Russian
Federation has 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. Real economic
improvement has been limited to the Moscow and St. Petersburg regions. 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 the Russian Federation, that it will remain receptive to foreign
investment or that the economy of the Russian Federation 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 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 has 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.
Restrictions on Currency Conversion; Historical Volatility in Currency
Prices. The Russian Rouble is not convertible outside of Russia.
In Russia, a market exists for the conversion of Roubles 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 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. See "-- Russian Economic and Political Turmoil."
In general, the Company post its tariffs in U.S. Dollars, and receives
payment in Roubles at the U.S. dollar exchange rate prevailing on the date of
payment. The Company faces an exchange risk to the extent that it experiences
any difficulty in converting the Rouble payment received into U.S. Dollars. In
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addition, it faces a risk that the Rouble weakens against the U.S. Dollar during
the period between the customer instructing its bank to pay the Company and the
day the payment is actually received by the Company. Historically, this time
period has been short and the exchange risks arising from this particular issue
have therefore been minimal.
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 will be able
to continue to post its tariffs in U.S. Dollars and collect payments in Roubles
in amounts determined by reference to the value of the U.S. Dollar, or that it
will continue be able to process such payments without banking delays or to
exchange Roubles 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 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 lacks
fully developed legal systems. Russian law is evolving rapidly and in ways that
may not always coincide with market developments, resulting in ambiguities,
inconsistencies and anomalies, and ultimately in investment risk that would not
exist in more developed legal systems. Furthermore, effective redress in Russian
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 legal system include: (i) the untested
nature of the independence of the judiciary and its immunity from economic,
political or nationalistic influences; (ii) the relative inexperience of judges
and courts in commercial dispute resolution, and generally in interpreting legal
norms; (iii) inconsistencies among laws, presidential decrees and governmental
and ministerial orders and resolutions; (iv) 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 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
for the reciprocal enforcement of foreign court judgments.
Furthermore, the relative infancy of business and legal cultures in the
Russian Federation are reflected in the inadequate commitment of local business
people, government officials, agencies and the judicial system to honor legal
rights and agreements, and generally to uphold the rule of law. Accordingly, the
Company may, from time to time, confront threats of, or actual, arbitrary or
illegal revision or cancellation of its licenses and agreements, and face
uncertainty or delays in obtaining legal redress, any of which could have a
material adverse effect on the Company.
Social Risks. The political and economic changes in the Russian Federation
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 economy) and increased
violence, any of which could have a material adverse effect on the Company.
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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 operates. No assurance can be
given that organized or other crime or claims that the Company has been involved
in official corruption will not in the future have a material adverse effect on
the Company.
Official Data Reliability. The official data published by Russian federal,
regional and local governments and federal 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 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 and of
the amounts owing 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 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, which could also lead
to a claim against the Company under its guarantee of those Notes.
Any such 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.
Limited Operating History. The Company, which was acquired by PLD in April
1996, was formed in 1991 to provide international direct dial and private line
services for foreign companies in St. Petersburg. While the Company generated
profits in the years ended December 31, 1997 and 1998, in view of its limited
operating history there can be no assurance that the Company will be able to
generate sufficient revenues or control their costs enough to remain profitable
in the future.
Reliance on Telecommunications License; Risks of Revocation or
Renegotiation of License. The Company's primary license permits it to provide
long distance and international telephone, facsimile and data transmission
services to private networks in St. Petersburg and the surrounding region for a
term expiring on December 31, 2003. Based on its experience in renewing
existing, and obtaining new, licenses and its general knowledge of the licensing
environment in Russia, management of the Company believes that, so long as it is
being actively utilized, the Company's license will be renewed at the end of its
current term. The license limits the number of subscribers to 100,000 and
requires that 70,000 of these be in place by January 2001. Based on its
experience in renewing existing, and obtaining new, licenses and its general
knowledge of the licensing environment in Russia, management of the Company
believes that the maximum and minimum line numbers 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, the Company had
a total of approximately 1,200 lines. Based on that knowledge and experience,
the Company has no reason to believe that its license would be terminated if it
either exceeded 100,000 lines or failed to have 70,000 lines in place by January
2001,
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but there can be no assurance that the RFCTI would not interpret the license
provisions differently, which in turn could result in the revocation of its
license or its renegotiation on terms unfavorable to the Company 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 the Company will be able to maintain its
license, that the terms will not be interpreted, altered or renegotiated to its
disadvantage or that it will be renewed upon expiration. The loss of, or a
substantial limitation upon the terms of, its license could have a material
adverse effect on the Company.
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, it 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 it is dependent for the completion of its calls. The
Company believes that the Year 2000 compliance of the Russian and other C.I.S.
parties with which the Company interacts 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. Accordingly,
there is a significant risk that the Company may experience disruptions in its
operations as a result of its C.I.S. interconnect partners not being able to
complete calls or pass traffic to the Company. 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. All of these
items have the potential to adversely impact the operations of the Company, and
such adverse impact on 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."
Taxation. Taxes payable by Russian 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 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 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 overall tax obligations. Furthermore, the taxation
system in the Russian Federation is at an early stage of development and is
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 the Russian Federation currently
permits the repatriation of profits and capital and the making of other payments
in hard currency, the ability of the Company to repatriate such profits and
capital and to make such other payments is dependent upon the continuation of
the existing legal regimes for currency control and foreign investment,
administrative policies and practices in the enforcement of such legal regimes
and the availability of foreign exchange in sufficient quantities in those
countries.
The Company's ability to repatriate distributions and other payments in
hard currency will be dependent upon the continued ability of the Company to
bill its customers in the U.S. dollars or the equivalent amount of Roubles, as
well as its ability to exchange freely Rouble receipts into U.S. dollars. There
can be no assurance that, because of changes in Russian 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 through the receipt of hard currency payments will
continue.
-- Currency Licensing Requirements. Under current currency regulations in
the Russian Federation, 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 the Central Bank were required for
repayments of principal
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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 to issue such
licenses can be lengthy. 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.
-- 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 operations. Any such difficulties or delays could
materially 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.
Susceptibility to Political and Other Pressures. Although the Russian
government may be limited in the extent to which it can legally direct the
Company's policies, in practice it 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 business in a
highly competitive environment. A number of companies compete with the Company,
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. 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.
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
15
<PAGE> 18
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.
Regulatory Uncertainties. The Company operates in an uncertain regulatory
environment. The Russian telecommunications system is currently regulated by the
RFCTI, 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.
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."
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal office, which it leases on a commercial basis, is
located in the Admiralteiski district of St. Petersburg, Russia. The Company's
commercial and technical facilities are located at this location.
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
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-
16
<PAGE> 19
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 it holds, or
has applied for and expects 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. See "Risk Factors -- Country Risks -- Russian Economic and
Political Turmoil."
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 but there can
be no assurance that there will be no such impact in the future. See
"Business -- Risk Factors -- Risks Involving the Company -- Currency
Controls -- Currency Licensing Requirements."
17
<PAGE> 20
ITEM 7. TAXATION
The Company is subject to a number of taxes in Russia, including corporate
profits tax at the rate of approximately 33%, withholding taxes on distributions
made by the Company, property taxes, advertising taxes, road taxes, housing
taxes, transport taxes and education taxes. 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 overall tax obligations in
Russia.
The tax system in Russia has changed rapidly in recent years and may
undergo additional changes, which may have a material adverse effect on the
Company.
18
<PAGE> 21
ITEM 8. SELECTED FINANCIAL DATA
The following summary financial and operating data was derived from, and
should be read in conjunction with, the audited Financial Statements of the
Company and the related notes thereto, 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*
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues....................................... $9,854 $7,602 $5,304
Operating expenses:
Direct costs (excludes depreciation).................. 5,111 2,905 2,054
General and administrative............................ 2,599 2,471 1,511
Depreciation.......................................... 576 557 331
Amortization.......................................... 13 7 1
Taxes other than income taxes......................... 447 422 323
------ ------ ------
Total operating expenses............................ 8,746 6,362 4,220
Operating income......................................... 1,108 1,240 1,084
Income before income taxes............................... 395 1,191 1,031
Income taxes............................................. 31 383 194
------ ------ ------
Net income............................................... $ 364 $ 808 $ 837
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------
1998 1997 1996
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 266 $ 242 $ 170
Non-cash working deficiency.............................. (834) (1,274) (1,807)
Property and equipment, net.............................. 4,668 4,802 4,622
Total assets............................................. 6,883 6,723 5,949
Shareholder's equity..................................... 4,192 3,828 3,020
</TABLE>
- ---------------
* represents nine months ended December 31, 1996.
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, the impact of Year 2000 issues on the Company's
operations and interpretations and actions of certain regulatory authorities,
including in Russia, 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.
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.
19
<PAGE> 22
BASIS OF PRESENTATION
The Company was formed to provide international direct dial, international
payphone and leased line services for Russian and foreign businesses in St.
Petersburg and the Leningrad Oblast. The Company was incorporated on September
3, 1991 under the laws of the Russian Federation as a closed joint stock
company.
On April 1, 1996, PLD purchased 100% of the common shares of the Company.
PLD's investment in the Company has been pushed down into the Company's
financial statements and allocated to fixed assets. The Company's balance sheets
as at December 31, 1998 and 1997 reflect the effect of this push down accounting
treatment.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current years' presentation.
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 $0.4 million and operating income of $1.1
million earned on revenues of $9.9 million compared to net income of $0.8
million and operating income of $1.2 million earned on revenues of $7.6 million
in 1997. EBITDA of $1.0 million in 1998 compared to $1.7 million in 1997. In
1998 net cash provided by operating activities amounted to $0.2 million, with
net cash used in investing activities amounting to $0.5 million. This compares
to 1997 when net cash provided by operating activities amounted to $0.1 million,
and net cash used in investing activities amounted to $0.8 million. 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 30.3% from $7.6 million to $9.9 million in
1998 reflecting the continued strong year-on-year growth in minutes of traffic.
At year end, the Company had a total of approximately 1,200 lines connected,
unchanged from the end of 1997. Traffic for the year was in excess of 10.4
million minutes, up from 8.3 million minutes in 1997. Revenues also increased in
1998, in part, due to ongoing cross-marketing efforts with PeterStar through
which the Company's and PeterStar's existing customers can take advantage of a
wider array of telecom products and services.
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
political and economic landscape at present. Further deterioration in the
Russian 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 its business from the negative effects of any
further problems in Russia, there can be no assurance that those measures will
be successful.
Direct costs (excludes depreciation). In 1998, direct costs amounted to
$5.1 million compared to $2.9 million in 1997. As a percentage of revenues,
direct costs increased from 38.2% in 1997 to 51.9% in 1998 due to BCL entering
into two new international capacity contracts in support of PLD global projects
and introducing a new system of discounts to its retail clients. Margins are
generally expected to come under continued pressure in 1999 due to the
continuing impact of the Russian economic crises.
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<PAGE> 23
General and administrative expenses. General and administrative expenses
which include salaries, sales and marketing and overhead expenses increased 4.0%
from $2.5 million in 1997 to $2.6 million in 1998. As a percentage of revenues,
general and administrative expenses were reduced to 26.3% in 1998 vs. 32.9% in
1997, largely due to the realization of economies of scale.
Depreciation and amortization. Total depreciation and amortization
expenses in 1998 of $0.6 million were unchanged from 1997. A total of $0.5
million was invested in capital equipment in 1998 compared with $0.9 million
invested in 1997. Depreciation is expected to remain relatively constant over
the near term as no significant capital projects are anticipated. As a
percentage of revenues, depreciation is expected to decrease gradually as the
Company reaches limits on capacity of its switching facilities.
Taxes other than income taxes. Taxes other than income taxes (which
include road tax, property tax, employee-related taxes, etc.) of $0.4 million in
1998 were unchanged from 1997.
Interest income. Interest income earned in 1998, primarily on cash
balances, was nominal at $3,093 in 1998 down from $35,777 in 1997.
Foreign exchange loss. The foreign exchange loss in 1998 of $0.7 million
compared with a $43,082 loss recorded in 1997 and was the result of unfavorable
movements in the rouble, vis-a-vis the U.S. dollar, as applied to the Company's
rouble denominated net monetary assets. The 1998 loss accelerated in the second
half of the year when extreme market conditions resulting from the Russian
economic crisis caused major disruptions in the Russian banking system. This
prevented the Company from converting rouble cash balances 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 the Company 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 decreased from $0.4 million in 1997 to $30,706
in 1998 as a result of the reduction in the Company's pre-tax earnings in 1998
adjusted for non-deductible expenditures for statutory purposes.
YEAR ENDED DECEMBER 31, 1997 VERSUS NINE MONTHS ENDED DECEMBER 31, 1996
Overview. For the year ended December 31, 1997, the Company reported net
income of $0.8 million and operating income of $1.2 million on revenues of $7.6
million compared to $0.8 million in net income and $1.1 million in operating
income earned on revenues of $5.3 million in the nine months ended December
1996. EBITDA of $1.7 million in 1997 compared to $1.4 million in the nine months
ended December 31, 1996.
Revenues. Revenues increased 43.4% from $5.3 million recorded in the nine
months ended December 31, 1996 to $7.6 million for the full year in 1997. At the
end of 1997, the Company had a total of approximately 1,200 lines connected,
compared to 1,100 lines at the end of 1996. Traffic in 1997 was in excess of 8.3
million minutes, up from 3.7 million recorded in 1996.
Direct costs (excludes depreciation). Direct costs, as a percentage of
revenues decreased marginally from 38.7% recorded in the nine months ended
December 31, 1996 to 38.2% in 1997 due to BCL negotiating lower accounting rates
on a number of its key international routes, thereby bringing down the unit cost
of each international minute.
General and administrative expenses. General and administrative expenses
which include salaries, sales and marketing and overhead expenses increased
66.7% from $1.5 million in the nine months ended December, 1996 to $2.5 million
in full year 1997. As a percentage of revenues, general and administrative
expenses increased to 32.9% in 1997 vs. 28.3% in the nine months ended December
31, 1996, reflecting a full year's effect of the Company's expanded marketing
efforts initiated by PLD in the second half of 1996.
Depreciation and amortization. Depreciation and amortization increased to
$0.6 million in 1997 from $0.3 million in the nine months ended December 31,
1996. The increase reflects the investment of $0.9 million in capital equipment
in 1997 as well as a full year's depreciation on approximately $1.8 million in
capital equipment acquired in April through December of 1996.
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<PAGE> 24
Taxes other than income taxes. Taxes other than income taxes in 1997
remained relatively unchanged from the nine months ended December 31, 1996 at
$0.4 million.
Interest income. Interest income earned in 1997, primarily on cash
balances, was nominal at $35,777 compared to $3,424 in the nine months ended
December 31, 1996.
Foreign exchange loss. A foreign exchange loss in 1997 of $43,082 was up
from the $7,206 loss recorded in the nine months ended December 31, 1996 and was
the result of unfavorable movements in the rouble, vis-a-vis the U.S. dollar, as
applied to the Company's rouble denominated net monetary assets.
Income taxes. Income taxes increased from $0.2 million in the nine months
ended December 31, 1996 to $0.4 million in 1997 reflecting the overall increase
in the pre-tax earnings of the Company between the periods adjusted for
non-deductible expenditures for statutory purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, a total of $0.6 million in cash was
generated from operations (1997 -- $0.9 million; 1996 (nine months) -- $1.3
million), and $0.5 million was used in net investing activities (1997 -- $0.8
million; 1996 (nine months) -- $1.8 million). Investments consisted primarily of
capital expenditures on switching and transmission equipment as well as
leasehold improvements and additional furniture and equipment costs associated
with the Company's move to new premises in late 1997.
As of December 31, 1998, the Company reported a working capital deficiency
of $0.6 million (1997 -- $1.0 million). Excluding advances from PLD and
wholly-owned subsidiaries of PLD, the Company's 1998 year end working capital
position improves to $0.4 million (1997 -- $0.4 million). As at December 31,
1998 total assets of $6.9 million ($6.7 million as of December 31, 1997)
consisted primarily of $2.1 million in current assets (including $0.3 million in
cash and cash equivalents), and net property and equipment of $4.7 million.
Shareholder's equity of $4.2 million as of December 31, 1998, which
consisted of $2.2 million in share capital and $2.0 million in retained
earnings, compared to $3.8 million recorded at the end of 1997.
In the past, the Company's operations have been financed primarily from
internally generated cash and advances from PLD. While the Company has, to a
large extent, become a self-sufficient, cash positive business from an operating
perspective, any significant capital programs involving the development of its
network in the future would likely require capital infusions from PLD. In
addition, to the extent that the Company experiences lower than expected
revenues, higher operating costs, or other problems as a result of continuing
economic difficulties in Russia, the Company may need to seek other sources of
financing to fund its operations.
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 and of the amounts owing 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 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, which could also lead
to a claim against the Company under its guarantee of those Notes. Any such
events would have a material
22
<PAGE> 25
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.
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 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, 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.
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<PAGE> 26
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.
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 interacts 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. The recent decision by the Russian
government not to cooperate in Year 2000 compliance exercises, prompted by the
Kosovo crisis, is likely to make it more difficult for the Company to obtain
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.
24
<PAGE> 27
Accordingly, there is a significant risk that the Company may experience
disruptions in its operations as a result of its C.I.S. interconnect partners
not being able to complete calls or pass traffic to the Company. 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.
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.
The Company's primary market risk is related to the movement in foreign
currency exchange rates in Russia. 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
Ian Armour has been a Director of the Company since 1998. He is a Senior
Vice President and the Chief Operating Officer of PLD.
Peter Owen Edmunds has been a Director of the Company since 1996. He is the
Representative Director -- St. Petersburg of PLD.
Simon Edwards has been a Director of the Company since 1998. He is a
Director, Senior Vice President and the Chief Financial Officer of PLD.
Stephen Gardner has been a Director of the Company since 1998. He is the
Vice President -- Commercial, Russia of PLD.
With the exception of Mr. Gardner (who is a U.S. citizen), 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.
25
<PAGE> 28
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The directors of the Company are not compensated by the Company.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
None.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The Company has a number of business arrangements with PeterStar, a 71%
owned subsidiary of PLD. These include joint marketing arrangements, cross
referrals of customers, use by the Company 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.
The Company 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."
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 financial statements of the Company are attached to this Report
beginning on page F-1.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(i) Balance sheets of the Company as of December 31, 1998 and 1997;
(ii) Statements of operations and retained earnings of the Company for
the years ended December 31, 1998 and 1997 and the nine months
ended December 31, 1996; and
(iii) Statements of cash flows of the Company for the years ended
December 31, 1998 and 1997 and the nine months ended December 31,
1996.
26
<PAGE> 29
(b) Exhibits
<TABLE>
<C> <S>
4.1 Indenture, dated as of May 31, 1996, among PLD Telekom Inc.,
as Issuer, NWE Capital (Cyprus) Limited, PLD Asset Leasing
Limited, PLD Capital Limited, the Company and Wireless
Technology Corporations Limited as Guarantors, and The Bank
of New York, as Trustee, with respect to $123,000,000
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, NWE Capital (Cyprus) Limited, PLD Asset Leasing
Limited, PLD Capital Limited, the Company and Wireless
Technology Corporations Limited as Guarantors, and The Bank
of New York, as Trustee, with respect to $26,500,000
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, NWE Capital (Cyprus) Limited, PLD Asset
Leasing Limited, PLD Capital Limited, the Company and
Wireless Technology Corporations 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, NWE Capital (Cyprus)
Limited, PLD Asset Leasing Limited, PLD Capital Limited, PLD
Capital Asset (U.S.) Inc., Wireless Technology Corporations
Limited and the Registrant, 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 the Registrant, as Issuer, NWE Capital (Cyprus)
Limited, PLD Asset Leasing Limited, PLD Capital Limited, PLD
Capital Asset (U.S.) Inc., Wireless Technology Corporations
Limited and the Registrant, 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 9% Convertible Subordinated Notes
due 2006 of PLD Telekom Inc.
4.8 Guaranty Agreement, dated as of November 26, 1997, made and
given by Wireless Technology Corporations Limited and the
Registrant in favor of The Travelers Insurance Company and
The Travelers Indemnity Company.
10.1 Purchase Agreement between the Registrant and PLD Telekom
Inc. dated January 27, 1996.
10.2 Side letter between the Registrant and PLD Telekom Inc.
dated January 27, 1996.
99.1 Consent of KPMG.
</TABLE>
- ---------------
(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).
27
<PAGE> 30
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.
BALTIC COMMUNICATIONS LIMITED
By: /s/ SIMON EDWARDS
------------------------------------
Simon Edwards
Director
28
<PAGE> 31
BALTIC COMMUNICATIONS LIMITED
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C>
Independent auditors' report................................ F-2
Balance sheets.............................................. F-3
Statements of operations and retained earnings.............. F-4
Statements of cash flows.................................... F-5
Notes to financial statements............................... F-6
</TABLE>
F-1
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Shareholder and Board of Directors of
Baltic Communications Limited:
We have audited the accompanying balance sheets of Baltic Communications
Limited as of December 31, 1998 and 1997, and the related statements of
operations and retained earnings and cash flows for the years ended December 31,
1998 and 1997 and the nine months ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Baltic Communications
Limited as of December 31, 1998 and 1997 and the results of its operations and
its cash flows for the years ended December 31, 1998 and 1997 and the nine
months ended December 31, 1996 in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 9(c) to the
financial statements, the Company's parent, PLD Telekom Inc. (PLD) does not
presently have sufficient funds on hand to meet its current debt obligations.
The Company is a guarantor of such obligations. PLD's failure to make payment in
full when required could result in a claim being made against the Company under
its guaranty and a cross-default under and acceleration of other debt
obligations for which the Company is also a guarantor. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
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 9 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> 33
BALTIC COMMUNICATIONS LIMITED
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 266,076 $ 241,949
Trade receivables, net of allowance (note 3).............. 995,919 1,239,370
Due from related parties (note 7)......................... 531,998 --
Prepayments............................................... 80,800 167,908
Prepaid taxes............................................. 171,759 --
Inventory................................................. 76,025 214,394
---------- ----------
Total current assets.............................. 2,122,577 1,863,621
Property and equipment, net (note 4)........................ 4,668,005 4,801,791
Investments................................................. 8,000 8,000
Intangible assets, net (note 5)............................. 84,052 49,505
---------- ----------
Total assets...................................... $6,882,634 $6,722,917
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... 1,510,134 1,871,857
Accrued liabilities....................................... 87,177 154,288
Deferred revenues......................................... 4,019 3,861
Taxes payable............................................. 100,211 151,499
Deferred income tax liability............................. 30,706 --
Due to related parties (note 6)........................... 932,646 686,609
Customer deposits......................................... 26,234 27,217
---------- ----------
Total current liabilities......................... 2,691,127 2,895,331
---------- ----------
Shareholder's equity:
Common stock (note 8)..................................... 2,183,000 2,183,000
Retained earnings......................................... 2,008,507 1,644,586
---------- ----------
Total shareholder's equity........................ 4,191,507 3,827,586
---------- ----------
Total liabilities and shareholder's equity........ $6,882,634 $6,722,917
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 34
BALTIC COMMUNICATIONS LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED DECEMBER 31,
1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Telecommunications revenues.......................... $9,780,176 $7,562,269 $5,266,803
Other non-telecommunications revenues................ 73,678 39,980 36,704
---------- ---------- ----------
Total revenues....................................... 9,853,854 7,602,249 5,303,507
---------- ---------- ----------
Operating expenses:
Direct costs (excludes depreciation)................. 5,110,896 2,904,632 2,053,763
General and administrative........................... 2,599,278 2,470,769 1,510,934
Depreciation......................................... 575,708 557,494 331,256
Amortization......................................... 12,943 6,783 319
Taxes other than income taxes........................ 447,429 422,094 323,266
---------- ---------- ----------
Total operating expenses..................... 8,746,254 6,361,772 4,219,538
---------- ---------- ----------
Operating income............................. 1,107,600 1,240,477 1,083,969
Other income/(expense):
Interest income...................................... 3,093 35,777 3,424
Foreign exchange loss (note 1)....................... (672,087) (43,082) (7,206)
Loss on disposal of property and equipment........... (43,979) (42,069) (49,059)
---------- ---------- ----------
Income before income taxes................... 394,627 1,191,103 1,031,128
Income taxes (note 10)................................. 30,706 383,255 194,390
---------- ---------- ----------
Net income................................... 363,921 807,848 836,738
---------- ---------- ----------
Retained earnings, beginning of period................. 1,644,586 836,738 --
---------- ---------- ----------
Retained earnings, end of period....................... $2,008,507 $1,644,586 $ 836,738
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 35
BALTIC COMMUNICATIONS LIMITED
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED DECEMBER 31,
1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 363,921 $807,848 $ 836,738
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 575,708 557,494 331,256
Amortization........................................... 12,943 6,783 319
Loss on disposal of property and equipment............. 43,979 42,069 49,059
Changes in operating assets and liabilities:
(Increase)/decrease in trade receivables............... 243,451 (359,164) 355,754
(Increase)/decrease in prepayments..................... 87,108 (13,250) (93,937)
(Increase)/decrease in inventory....................... 138,369 (143,949) 17,947
(Increase)/decrease in prepaid taxes................... (171,759) 16,765 (16,765)
Increase in due from related parties................... (531,998) -- --
Increase/(decrease) in due to related parties.......... 246,037 (361,311) 1,047,920
Increase/(decrease) in deferred revenues............... 158 3,861 (18,255)
Decrease in customer deposits.......................... (983) (1,642) (10,530)
Increase/(decrease) in taxes payable................... (51,288) 151,499 (386,557)
Increase/(decrease) in accrued liabilities............. (67,111) 83,318 70,970
Increase in deferred income tax liability.............. 30,706 -- --
Increase/(decrease) in accounts payable................ (361,723) 90,685 (912,575)
--------- -------- ----------
Net cash provided by operating activities........... 557,518 881,006 1,271,344
--------- -------- ----------
Cash flows from investing activities:
Capital expenditures................................... (538,658) (854,151) (1,845,522)
Proceeds on disposal of fixed assets................... 5,267 44,986 7,000
--------- -------- ----------
Net cash used in investing activities............... (533,391) (809,165) (1,838,522)
--------- -------- ----------
Increase/(decrease) in cash......................... 24,127 71,841 (567,178)
Cash at beginning of period.............................. 241,949 170,108 737,286
--------- -------- ----------
Cash at end of period.................................... $ 266,076 $241,949 $ 170,108
========= ======== ==========
Supplementary disclosures:
Income taxes paid........................................ $ 368,431 $240,047 $ --
========= ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 36
BALTIC COMMUNICATIONS LIMITED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) BACKGROUND
(a) Business, Operations and Future Activities
Baltic Communications Limited (the "Company") was formed to provide
international direct dial, international payphone and leased line services to
business customers in St. Petersburg and the Leningrad Oblast. The Company was
incorporated on September 3, 1991 under the laws of the Russian Federation as a
closed joint stock company.
On April, 1 1996 PLD Telekom Inc. ("PLD" or the "Parent") purchased 100% of
the common shares of the Company for a net purchase price of $2,183,000. Such
purchase price was allocated to the assets and liabilities of the Company as
follows:
<TABLE>
<S> <C>
Cash........................................................ $ 737,000
Other current assets........................................ 1,385,000
Fixed assets................................................ 3,199,000
Current liabilities......................................... (3,138,000)
-----------
$ 2,183,000
===========
</TABLE>
The Company's principal telecommunications license allows it to operate an
international, national and local telecommunications system in St. Petersburg;
this expires in 2003. Other licenses, all of which expire in 2001, are for
telematic services, rent of circuits, data services and the operation of a
dedicated national/international overlay network.
(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.
F-6
<PAGE> 37
BALTIC COMMUNICATIONS LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
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 devaluation of the rouble during the latter part of 1998
the Company has suffered transaction losses of $672,087 (1997: a loss of
$43,082; 1996: a loss of $7,206).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are summarised as follows:
(a) Basis of Presentation
The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP).
The financial statements have been presented on the push-down basis of
accounting.
The accompanying financial statements present the financial position and
results of operations of 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 11, "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 10, "Income Taxes."
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 11, "Related Party
Transactions." Management of the Company believes that the accompanying
financial statements include all the costs incurred by the Company in its
operations.
(b) Reporting Currency and Foreign Currency Translation
The statutory accounts of the Company are maintained in accordance with
local accounting regulations and are stated in local currencies.
Local statements are 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 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.
F-7
<PAGE> 38
BALTIC COMMUNICATIONS LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Translation differences resulting from the use of these different rates are
included in the accompanying statements of operations except where otherwise
noted.
(c) Revenue Recognition
The Company records telecommunications revenues as earned, at the time
services are provided.
(d) Inventory
Inventory is stated at the lower of cost or net realisable value and is
comprised of spare parts for maintenance of the Company's transmission network
and telephony products held for resale to customers.
(e) Property and Equipment
Property and equipment and other assets are stated at cost less accumulated
depreciation and amortisation. Costs directly related to the installation of
telecommunications equipment are included in the cost of the equipment.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
ASSET ESTIMATED USEFUL LIFE
- ----- ---------------------
<S> <C>
Telecommunications equipment.............. 10 years
Office furniture and equipment............ 8 years
Motor vehicles............................ 7.5 years
Computer equipment........................ 8 years
</TABLE>
(f) Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, trade and
other receivables, amounts due to or from related parties, and accounts payable
approximate fair value due to their short maturity.
(g) 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.
(h) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
F-8
<PAGE> 39
BALTIC COMMUNICATIONS LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
(i) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed by the
Company 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 to
undiscounted future net cash flows expected to be generated by the assets. 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.
(j) 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 of 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.
(3) TRADE RECEIVABLES
Trade receivables at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Trade receivables.................................... $1,113,564 1,303,650
Less: allowance for doubtful accounts................ (117,645) (64,280)
---------- ---------
Trade receivables, net of allowance................ $ 995,919 1,239,370
========== =========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Telecommunications equipment....................... 5,654,426 5,249,255
Office furniture and equipment..................... 627,792 758,934
Vehicles and leasehold improvements................ 708,777 577,424
----------- ----------
Total property and equipment..................... 6,990,995 6,585,613
Less: accumulated depreciation..................... (2,322,990) (1,783,822)
----------- ----------
Property and equipment, net...................... $ 4,668,005 4,801,791
=========== ==========
</TABLE>
F-9
<PAGE> 40
BALTIC COMMUNICATIONS LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Computer software....................................... $ 40,264 35,637
Licenses................................................ 45,560 30,057
Other................................................... 27,361 --
-------- -------
Total intangible assets............................... 113,185 65,694
Less: accumulated amortisation.......................... (29,133) (16,189)
-------- -------
Intangible assets, net................................ $ 84,052 49,505
======== =======
</TABLE>
Amortisation of intangible assets is provided over the estimated useful
life of 3-10 years.
(6) DUE TO RELATED PARTIES
The Company's liability to related parties at December 31, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
PLD Telekom Inc......................................... 615,000 455,000
PeterStar............................................... 37,875 --
PLD Management Services Limited......................... 256,254 231,609
Teleport-TP............................................. 23,517 --
-------- -------
$932,646 686,609
======== =======
</TABLE>
(7) DUE FROM RELATED PARTIES
The receivables due from related parties at December 31, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- ----
<S> <C> <C>
PLD Telekom Inc........................................... 182,553 --
PeterStar................................................. 103,797 --
Teleport-TP............................................... 237,985 --
CPY Yellow Pages Limited.................................. 7,663 --
-------- --
$531,998 --
======== ==
</TABLE>
(8) SHAREHOLDER'S EQUITY
(a) Common Stock
At December 31, 1998 and 1997 the Company had authorised share capital of
72,540 shares with a par value of 100 roubles each.
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Issued and outstanding common shares with a par value
of 100 roubles each................................ $ 1,494 1,494
Additional paid-in capital........................... 2,181,506 2,181,506
---------- ---------
Issued, outstanding and fully contributed............ $2,183,000 2,183,000
========== =========
</TABLE>
F-10
<PAGE> 41
BALTIC COMMUNICATIONS LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(b) Distributable Reserves
Distributable reserves are restricted to the retained earnings of the
Company which are determined according to Russian legislation. At December 31,
1998 and 1997 there are no reserves for distribution. No dividends have been
approved for payment.
(9) COMMITMENTS AND CONTINGENCIES
(a) Taxation Contingencies
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.
Tax declarations, together with other legal compliance areas (such as
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.
The Company has had extensive tax inspections during the periods, which
have resulted in minimal penalties. These inspections have covered most of the
taxes applicable to the Company.
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.
(b) 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.
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. These costs totalled approximately
$100,000 in 1998, with approximately $80,000 planned to be spent during 1999.
(c) 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.
F-11
<PAGE> 42
BALTIC COMMUNICATIONS LIMITED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. The Company is a
guarantor of such 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 claim being made against the Company
under its guarantee and a cross-default under and acceleration of the senior
discount notes and convertible subordinated notes for which the Company also
serves as a guarantor. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
(10) INCOME TAXES
At December 31, 1998 Company has deferred income tax liabilities of $30,706
(deferred tax assets of $94,000 as of December 31, 1997). As a result of the
rapid change in the regulatory environment and uncertainty surrounding the
Russian tax regime, the Company had provided a valuation allowance against the
deferred tax assets, calculated as of December 31, 1997.
The tax effects of temporary differences that gave rise to the deferred tax
assets are as follows:
<TABLE>
<CAPTION>
1998 1997
---- -------
<S> <C> <C>
Expenses not yet deducted for Russian tax purposes......... $ -- 94,000
Less: valuation allowance.................................. -- (94,000)
---- -------
Deferred tax asset....................................... $ -- --
==== =======
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Income not recognised yet for Russian tax purposes....... $30,706 --
------- -------
Deferred tax liability................................. $30,706 --
======= =======
</TABLE>
The provision for current income taxes differs from that expected by
applying statutory tax rates as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Provision for income tax at statutory rates........... $ 130,227 $393,064
Tax effect of temporary differences................... 30,706 (94,000)
Tax effect of non-deductible expenditures or losses
deductible for statutory purposes................... (130,227) 84,191
--------- --------
Income tax expense.................................... $ 30,706 $383,255
========= ========
</TABLE>
(11) RELATED PARTY TRANSACTIONS
There have been various transactions with the following related parties:
Teleport-TP, CPY Yellow Pages Limited, PeterStar, PLD Management Services
Limited and PLD Telekom Inc.
These transactions are of a minor routine nature and generally involve the
provision of telecommunications services.
F-12
<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) LIMITED
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: /s/ Clive Anderson
-------------------------------
/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")
7
<PAGE> 8
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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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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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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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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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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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.
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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.
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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
- --------------------------------------------------------------------------------
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
DATED 27 JANUARY 1996
AGREEMENT
relating to
the provision of administrative services to, and
management of,
BALTIC COMMUNICATIONS LIMITED (1)
PETERSBURG LONG DISTANCE, INC. (2)
<PAGE> 2
<TABLE>
<S> <C>
PARTIES 1
INTRODUCTION 1
OPERATIVE PROVISIONS 1
1 Obligations of PLD 1
2 Provision of Services 1
3 Transfer of Management 1
4 BCL 2
5 Liquidation of BCL 2
6 Amendments 3
7 Assignment 3
8 Confidentiality 3
9 Costs 3
10 Counterparts 3
11 Disputes 3
12 Entire Agreement 3
13 Further Assurance 3
14 Notices 4
15 Supervening Illegality 4
16 Waiver 4
17 Service of Process 4
18 Term 5
</TABLE>
<PAGE> 3
DATE
27 January 1996
PARTIES
(1) BALTIC COMMUNICATIONS LIMITED of Ul. Pochtamtskaya, 15, St Petersburg,
Russian Federation (registered no. AO - 379) ("BCL")
(2) PETERSBURG LONG DISTANCE, INC. of 166 Pearl Street, Toronto, Ontario,
Canada M5H 1L3 (registered no. 385568) ("PLD").
INTRODUCTION
(A) PLD has entered into a share purchase and sale agreement of 11
November 1995 with AOZT "Lensvyaz", AOOT "Rostelecom" and AOOT "St
Petersburg Telegraph" (together the "RUSSIAN SHAREHOLDERS") in
relation to the acquisition by PLD of the Russian Shareholders' 23%
interest in BCL.
(B) Pursuant to the authorisation of the shareholders of BCL contained in
the protocol of the shareholders' meeting and in accordance with
Article 103.3 (para 3.) of the Civil Code of the Russian Federation,
BCL has agreed that PLD or its designated nominee, as approved by
BCL's majority shareholder, Cable and Wireless public limited company
("C&W"), shall manage the business of BCL.
(C) Until such management has been approved by the State Committee of the
Russian Federation for Anti-monopoly policy and the Support of New
Economic Structures ("the Anti-monopoly Committee"), PLD shall provide
administrative services only under the supervision of the management
of BCL.
OPERATIVE PROVISIONS
1 OBLIGATIONS OF PLD
1.1 In consideration of the Russian Shareholders entering into and
performing the contract for the sale and purchase of the shares in BCL
as referred to in paragraph (A) of the Introduction, and for such
other consideration as a majority of the directors of BCL and PLD may
agree, PLD hereby agrees, for as long as this Agreement remains in
force, to perform its obligations under this Agreement in a reasonable
and proper manner.
1.2 BCL agrees that the services to be provided by PLD) under this
Agreement may be performed by another person or persons nominated by
PLD, provided that such person(s) are approved by C&W.
2 PROVISION OF SERVICES
PLD agrees that from the date of this Agreement it will provide BCL
and its management with such administrative services as may reasonably
be requested.
3 TRANSFER OF MANAGEMENT
3.1 Subject to the Anti-monopoly Committee granting approval or other
confirmation that the Anti-monopoly Committee has no objection to such
transfer of management, and subject as otherwise provided in this
Agreement, PLD) shall have full power and
<PAGE> 4
authority to carry out any acts which are capable of being carried out
by the management (including the General Director) of BCL in
accordance with applicable legislation and the foundation documents of
BCL, with effect from the time such approval or confirmation has been
obtained.
3.2 Promptly, upon request by C&W and/or the directors of BCL, PLD or its
designated nominee shall supply C&W and/or the directors of BCL with
such information in relation to the management of BCL as may be
required by C&W as a shareholder and/or the directors in the
performance of their duties as a director of BCL.
3.3 Subject to applicable legislation and BCL's foundation documents
(including C&W's rights thereunder) it is hereby expressly acknowledged
that, with effect from the date of signature of this Agreement, Viktor
Koresh shall continue as General Director of BCL and, from the date
the approval or confirmation described in clause 3.1 is obtained, he
shall be required to comply with the instructions of PLD, the latter
acting within the framework of this Agreement, in the exercise of his
rights and the performance of his duties as General Director, in the
day-to day management of the Company, but without prejudice as to his
voting rights at board level.
4 BCL
4.1 PLD hereby expressly acknowledges that, in the exercise of its rights
and the performance of its obligations under this Agreement, it shall
be responsible to the Shareholders' Meeting and the Board of Directors
of BCL in accordance with applicable legislation and the foundation
documents of BCL.
4.2 BCL shall provide full assistance to PLD and full access to all books
and records (including books of account) to PLD or its designated
nominee during the period of this Agreement.
5 LIQUIDATION OF BCL
5.1 Irrespective of the completion of the agreement referred to in
paragraph (A) of the Introduction, following the adoption of any
resolution of the shareholders of BCL to liquidate BCL or if BCL is
otherwise subject to liquidation procedures in accordance with
applicable legislation, PLD shall provide all assistance and take all
steps which may be necessary or desirable to facilitate the orderly
winding up of BCL's affairs having due regard for the commercial
reputation of BCL's shareholders, including but not limited to
facilitating the appointment of a liquidation commission in accordance
with applicable legislation and the foundation documents of BCL.
5.2 PLD shall provide the liquidation commission with such information as
it shall reasonably request with respect to BCL.
6 AMENDMENTS
No amendment, change or addition to this Agreement shall be binding on
any Party unless it is in writing and has been signed by each of the
Parties or their authorised representatives.
7 ASSIGNMENT
This Agreement is personal to the Parties and may not be assigned by
any Party without the prior written consent of the other Party hereto.
-2-
<PAGE> 5
8 CONFIDENTIALITY
Save to the extent necessary in order for PLD or its nominee to
perform its obligations under this Agreement, each of the Parties
undertakes that it will not (save as required by law or by any
securities exchange or any supervisory or regulatory body to whose
rules any Party is subject) make any announcement concerning this
Agreement unless the other Party has given its prior approval (which
approval may not be unreasonably withheld or delayed and may be given
either generally or in a specific case or cases and may be subject to
conditions).
9 COSTS
Each Party shall pay its own legal, accountancy and other costs,
charges and expenses incurred in connection with this Agreement.
10 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which taken together shall be deemed to constitute one and the same
agreement and each of which individually shall be deemed to be an
original, with the same effect as if the signature on each counterpart
were on the same original.
11 DISPUTES
This Agreement shall be governed by and construed in accordance with
English law, including the English rules as to conflicts of law, and
each Party agrees to submit to the non-exclusive jurisdiction of the
English Courts as regards any claims or matters arising under this
Agreement.
12 ENTIRE AGREEMENT
This Agreement and the documents referred to herein constitute the
whole agreement and understanding between the Parties relating to the
subject matter thereof and supersede any previous agreement,
arrangement or understanding between the Parties in relation thereto.
No oral explanation or oral information given by any Party shall alter
the interpretation of this Agreement.
13 FURTHER ASSURANCE
The Parties shall, and shall use all reasonable endeavours to procure
that any necessary third parties shall, do, execute and perform all
such further deeds, documents, assurances, acts and things as any of
the Parties may reasonably require by notice in writing to the others
to carry the provisions of this Agreement into full force and effect.
14 NOTICES
Any notices:
(a) must be in writing and may be given:
(i) to each Party at its registered office for the time
being; or
(ii) to such other address as the addressee may from
time to time have notified for the purpose of this
clause; and
-3-
<PAGE> 6
(b) will be effectively served:
(i) on the day of receipt where any hand-delivered
letter or telefax is received on a week-day on
which the banks are open for business in the City
of London ("Business Day") before or during normal
working hours;
(ii) on the following Business Day, where any
hand-delivered letter or telefax is received either
on a Business Day after normal working hours or on
any other day;
(iii) on the second Business Day following the day of
posting from within the United Kingdom of any letter
sent by post office inland first class recorded
delivery mail postage prepaid; or
(iv) on the fifth Business Day following the day of
posting to an overseas address of any prepaid
registered letter.
15 SUPERVENING ILLEGALITY
Any provision of this Agreement which is held invalid or unenforceable
in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction.
16 WAIVER
No failure to exercise and no delay in exercising on the part of any
of the Parties hereto any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise
of any right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies provided in this Agreement are
cumulative and not exclusive of any rights or remedies otherwise
provided by law.
17 SERVICE OF PROCESS
17.1 PLD hereby appoints S J Berwin & Co (all communications to be marked
for the attention of R P Burrow and N A R Williams) of 222 Grays Inn
Road, London WC1X 8HB (Fax: 44 171 833 2860) as its agents for the
service of any proceedings arising out of or in connection with this
Agreement.
17.2 BCL hereby appoints Baker & McKenzie of 100 New Bridge Street, London
EC4V 6JA (all communications to be marked for the attention of Peter
Strivens and Gary Senior) (Fax: 44-171-919-1999) as its agent for the
service of any proceedings arising out of or in connection with this
Agreement.
18 TERM
This Agreement shall continue in full force and effect until the
earlier of (A) the date that PLOT is registered as the holder of the
entire issued share capital of BCL and (B) the date of appointment of
a liquidation commission in relation to the liquidation of BCL, and it
shall terminate upon the earlier of such dates, except for the
provisions of Clauses 5.2, 8, 9, 11 and 17, which shall remain in
force, and without prejudice to any rights accrued to the date of
termination.
-4-
<PAGE> 7
Executed as an Agreement under Hand:
BALTIC COMMUNICATIONS LIMITED
[SEAL]
by /s/ Victor Koresh
------------------
PETERSBURG LONG DISTANCE, INC.
by /s/ James R.S. Hatt
--------------------
-5-
<PAGE> 1
Exhibit 10.2
PETERSBURG LONG DISTANCE, INC.
166 PEARL STREET
TORONTO ONTARIO
CANADA M5H 1l2
27 JANUARY 1996
Baltic Communications Limited
UL Pochtamtskaya, 15
St Petersburg
The Russian Federation
Attention: Mr. Viktor Koresh, General Director
Dear Sir
Reference is made to the agreement of 27 January 1996 relating to the provision
of administrative services by, and management of, Baltic Communications Limited
("BCL") between BCL and Petersburg Long Distance Inc. ("PLD") ("the
Agreement").
For the consideration specified in Article 1.1 of the Agreement PLD undertakes
to BCL that it shall enable it to pay within 45 days of the date hereof all
amounts specified in a letter dated 10 January 1996 from BCL to Mercury
Communications Limited as due from BCL to Mercury Communications Limited as at
31 December 1995 pursuant to an International Telecommunications Services
Agreement between BCL and Mercury Communications Limited dated 16 November 1992
to the extent that such amounts have been invoiced on the date hereof within
such 45 day period and, in the case of all such amounts not invoiced, within 30
days of invoicing or such earlier date as may be required by the International
Telecommunications Service Agreement.
Please confirm that you agree to the above terms by signing and returning to us
the enclosed copy of this letter.
Yours faithully
/s/ James R.S. Hatt
Director
on behalf of
Petersburg Long Distance, Inc.
Acknowledged and agreed on behalf of BCL
- ------------------------
Victor Koresh
General Director
<PAGE> 1
EXHIBIT 99.1
Independent Auditors' Consent
The Board of Directors
Baltic Communications Limited:
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 balance sheets of Baltic Communications Limited as of December
31, 1998 and 1997, and the related statements of operations, shareholder's
equity, and cash flows for the years ended December 31, 1998 and 1997, and the
nine months ended December 31, 1996, which report appears in the Annual Report
on Form 20-F/A (Amendment No. 1) for the year ended December 31, 1998 of
Baltic Communications Limited.
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. The Company is a
guarantor of such obligations. PLD's failure to make payment in full when
required could result in a claim being made against the Company under its
guaranty and a cross-default under and acceleration of other debt obligations
for which the Company is also a guarantor. These factors raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG
St. Petersburg, Russia
August 27, 1999
