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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[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 333-5396-06
PLD CAPITAL ASSET (U.S.) INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3996647
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
505 PARK AVENUE, 21ST FLOOR 10022
NEW YORK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 527-3800
SECURITIES 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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(TITLE OF CLASS)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any amendment to this annual report on Form
10-K. [X]
As of August 9, 1999, the aggregate market value of the Common Stock held
by non-affiliates of the registrant was $0. Such aggregate market value was
computed by reference to the closing sale price of the Common Stock as reported
on the National Market segment of The Nasdaq Stock Market on such date. For
purposes of making this calculation only, the registrant has defined affiliates
as including all executive officers, directors and beneficial owners of more
than ten percent of the Common Stock of the Company.
As of August 9, 1999, there were 1,000 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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PLD CAPITAL ASSET (U.S.) INC.
FORM 10-K ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 16
Item 6. Selected Financial Data..................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 23
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 23
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 24
Item 11. Executive Compensation...................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 25
Item 13. Certain Relationships and Related Transactions.............. 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Forms
8-K......................................................... 25
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PART I
ITEM 1. BUSINESS
OVERVIEW
PLD Capital Asset (U.S.) Inc. (the "Company") is a wholly owned subsidiary
of PLD Telekom Inc. ("PLD"). The Company was formed to purchase and resell or
lease telecommunications equipment to other subsidiaries of PLD.
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) Baltic
Communications Limited, ("BCL"), which provides dedicated international
telecommunications services in St. Petersburg, Russia; (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 existing 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 BCL 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
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of payment deferrals with respect to amounts due under the Revolving Credit
Notes, the last of which was given in connection with the Merger Agreement and
defers payment until the Merger is consummated or terminated.
In the event that the Merger is consummated: (1) the News Guarantee will be
released; (2) the amount due to the Travelers Parties will be paid as to $8.5
million on the date the Merger is consummated, and as to the remainder in August
2000, together with interest at an annual rate of 10.5%; (3) the amount due to
the Travelers Parties will be guaranteed by PLD Holdings Limited, 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 BCL and
WTC. The security and guarantees will be terminated once PLD has repaid all of
its indebtedness to the Travelers Parties, which is expected to occur in August
2000. The Travelers Parties have agreed not to exercise certain rights which
they have under the Travelers Agreement pending the consummation of the Merger.
While agreements have been reached with substantially all of the holders of
the Senior Notes and the Convertible Notes and with the Travelers Parties on a
restructuring of PLD's indebtedness to such parties, those agreements are
conditioned upon the closing of 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 cross-default under and
acceleration of the Senior Notes and Convertible Notes. In addition, any failure
by PLD to make interest payments on the Senior Notes and Convertible Notes could
result in a default under and acceleration of those Notes.
Any such events could result in a claim being made against the Company
under its guarantee, which would have a material adverse effect on the Company
and raise substantial doubt about the Company's ability to continue as a going
concern.
Please also refer to "Risk Factors -- Risks Involving the
Company -- Guarantee of PLD Debt" for the issues that the Company will face if
the Merger is not consummated.
THE SENIOR AND CONVERTIBLE NOTES
In June 1996, PLD issued the following securities to a limited number of
U.S. institutional investors (the "June 1996 Placement"): (i) $123,000,000
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.
Pursuant to the Indentures governing the Senior Notes and the Convertible
Notes $46 million of the proceeds from the June 1996 Placement were placed in
two escrow accounts. Up to $37 million of this amount could be used to purchase
telecommunications equipment which would then be leased to operating
subsidiaries of PLD. The operating subsidiaries were required to be located in
Russia or Kazakhstan. The purchaser and lessor of the equipment was required to
be a special purpose, "bankruptcy remote", wholly owned subsidiary of PLD which
was incorporated in Cyprus. All funds received under leases to operating
subsidiaries were required to be re-deposited in the escrow account, and could
be re-used thereafter for additional equipment purchases. The special purpose
subsidiary was required to guarantee PLD's obligations under the Senior and
Convertible Notes, and all of its leases were required to be assigned to The
Bank of New York, as trustee under the Indentures, as collateral for its
guarantee.
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
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clarify certain provisions of those Indentures. Included among these amendments
were provisions which would permit the funds in escrow to be used to purchase
equipment which would then be sold on an installment sale basis to PLD's
operating subsidiaries, as an alternative to leasing. In addition, the
amendments permitted the special purpose subsidiaries which would sell or lease
equipment to the operating subsidiaries to be incorporated in the U.S. as well
as in Cyprus. The amendments required that all equipment sold on an installment
sale basis be pledged to secure such installment sale obligations, and that such
pledge and the installment sales contracts be assigned to The Bank of New York,
as trustee under the Indentures, as collateral for the special purpose
subsidiaries' guarantees of PLD's obligations under the Senior and Convertible
Notes.
The amendments were approved by the requisite number of holders of the
Notes and, following this, the Company was formed as an additional special
purpose subsidiary. Thereafter, The Bank of New York, as trustee under the
Indentures, PLD and certain other parties executed a supplemental indenture,
dated March 20, 1998, bringing the amendments to the Indentures and certain
related documents into effect. In addition, PLD issued a total of 123,000
five-year warrants to purchase 1.8 shares of PLD Common Stock at $6.90 per share
to the holders of the Senior Notes, and a total of 22,700 five-year warrants to
purchase 2 shares of PLD Common Stock at a price of $6.90 per share to the
holders of the Convertible Notes. If all of these warrants are exercised, PLD
will issue a total of 266,800 shares of Common Stock.
Unless the context clearly requires otherwise, references to the "Senior
Notes" and the "Convertible Notes" shall refer to such securities as so amended
pursuant to the Consent Solicitation, and references to the "Senior Note
Indenture", the "Convertible Note Indenture" and the "Indentures" shall refer to
such indentures, as so amended pursuant to the Consent Solicitation.
On July 30, 1998, the Securities and Exchange Commission declared effective
registration statements relating to: (i) an exchange offer (the "Exchange
Offer") pursuant to which the outstanding Senior Notes (the "Outstanding Senior
Notes") would be exchanged for identical Senior Notes which had been registered
under the Securities Act of 1933 (the "Exchange Notes"); (ii) the resale by the
holders thereof of the Convertible Notes and the shares of Common Stock issuable
upon the conversion thereof; and (iii) the resale by the holders thereof of the
Placement Warrants and the Placement Warrant Shares. As a result of the
effectiveness of the registration statement relating to the Convertible Notes
and the Common Stock issuable upon conversion thereof, Special Interest (as
defined in the Indentures) ceased to be payable with respect to the Convertible
Notes on July 30, 1998.
The Exchange Offer with respect to the Senior Notes commenced on August 28,
1998 and was completed at the close of business on October 9, 1998, with the
holders of 100% of the Outstanding Senior Notes tendering such Notes for
Exchange Notes. Upon completion of the Exchange Offer, the Exchange Notes were
issued in exchange for such Outstanding Senior Notes, in the form of a global
Exchange Note held through the facilities of the Depository Trust Company. As a
result of the completion of the Exchange Offer, Special Interest ceased to be
payable with respect to the Senior Notes on October 9, 1998.
In connection with the Merger, PLD's Senior and Convertible Notes, which
are currently guaranteed by the Company, will be exchanged for senior
indebtedness of MMG and the Company's guarantees will be terminated. The new MMG
notes will not be guaranteed by the Company or any other subsidiary of PLD.
Please also refer to "Risk Factors -- Risks Involving the
Company -- Guarantee of PLD Debt" for the issues that the Company will face if
the Merger is not consummated.
INCREASED INTEREST RATE ON INDEBTEDNESS
Under the terms of the Senior Notes and the Revolving Credit Notes, the
interest rate payable increased if PLD had not raised $20.0 million in
additional equity by May 31, 1998. PLD did not complete such an equity offering
by such date and accordingly the interest rate on the Senior Notes increased
from 14% to 14.5% per annum, and the interest rate on the Revolving Credit Notes
increased from 12% to 15% per annum, in each case effective June 1, 1998. Such
rates revert to their former levels once the equity offering has been
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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 the 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 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.
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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 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
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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."
PLD CAPITAL ASSET (U.S.) INC.
The Company was incorporated in Delaware in March 1998 to act as a special
purpose, "bankruptcy remote" subsidiary of PLD, as contemplated under the terms
of the Indentures governing PLD's Senior Notes and Convertible Notes, to use
funds in the two escrow accounts established under the Indentures to acquire
telecommunications equipment from the manufacturers thereof and resell or lease
such equipment to the operating subsidiaries of PLD in Russia and Kazakhstan.
All funds received from the operating businesses under such resales or leases
are required to be re-deposited in the escrow accounts, and may thereafter be
re-used for additional equipment purchases. The Company has guaranteed PLD's
obligations under the Senior and Convertible Notes. Any leases and installment
sales contracts entered into by it, and any pledges of equipment given to secure
the purchaser's obligations under installment sales contracts, are required to
be assigned to The Bank of New York, as trustee under the Indentures, as
collateral for its guarantee.
In 1998 the Company assumed all of the rights and obligations of PLD Asset
Leasing Limited ("PLDAL"), which was a similar special purpose subsidiary of PLD
incorporated in Cyprus, under a lease of equipment entered into in 1996 with
PeterStar. Immediately prior to such assumption, PLDAL and PeterStar converted
the lease into an installment sale.
The Company has entered into additional equipment purchases and resales
with PeterStar, and also with Technocom and Teleport-TP, additional operating
subsidiaries of PLD. Equipment has been purchased from a number of major
suppliers, including Ericsson in Sweden, ECI Telecom and Tadiran
Telecommunications in Israel, Siemens in Germany, Nokia in Finland and Lucent
Technologies in the U.S.
Although each transaction differs from the others to some degree, typically
the Company pays the manufacturer for the equipment purchased on the
manufacturer's standard terms, which usually require a 15-20% downpayment on
placement of the order, the bulk of the purchase price being paid prior to or
upon delivery, with the balance being payable upon installation and acceptance
of the equipment.
The Company's arrangements with the operating subsidiaries to which it
re-sells the equipment generally call for the Company to pay for the cost of
delivery to the operating subsidiary (to the extent not included in the
manufacturer's price), and also to pay for the costs of importation, such as
customs duties, import value added taxes, etc. The price at which the equipment
is resold by the Company to the operating subsidiary is the sum of the price
paid to the manufacturer, plus any additional items paid by the Company, plus a
financing charge (the "Resale Price"). Typically, the Resale Price is payable in
semi-annual installments over a three-to five-year period, with the first
installment falling due 3-6 months following installation of the equipment.
In all cases the Company takes a pledge of the equipment as security for
the payment of the Resale Price.
As of December 31, 1998, the Company had entered into purchase contracts
with various manufacturers of telecommunications equipment with a total value of
$15.4 million, of which $4.0 million remained unpaid. In relation to this
equipment, the Company had concluded resale arrangements with PeterStar with a
total value of $13.0 million and had commenced receipt of instalment payments on
such contracts following
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delivery and acceptance of the relevant equipment by PeterStar. As of December
31, 1998, the Company had also finalized further resale contracts with Technocom
and Teleport-TP with a total value of $5.6 million, with receipt of instalment
payments scheduled to commence in 1999 upon final certification and acceptance
of the equipment. Additional resale arrangements with BCL and Teleport-TP in
relation to equipment purchased by the Company from the manufacturers for $2.3
million (of the $15.4 million total), of which $2.1 million remained unpaid, and
which has yet to be delivered, are being finalized. The Company expects that
these resale arrangements will be on terms similar to those for the resale
arrangements already in place with the operating businesses.
The Company generated net income for the year ended December 31, 1998 of
$566,000 on revenues of $813,000.
All of the Company's transactions to date have been with PLD operating
subsidiaries in Russia. Because ALTEL, PLD's only operating subsidiary in
Kazakhstan, has been in a position, and appears to be likely to be in a position
for the foreseeable future, to fund its own equipment purchases, the Company
believes that it is highly unlikely that it will ever enter into a transaction
involving Kazakhstan.
-------------------------
The Company, a Delaware corporation, was incorporated in March 1998.
The Company's executive offices are located at 505 Park Avenue, 21st Floor,
New York, New York, 10022 (telephone number (212) 527-3800).
As of December 31, 1998, the Company had no employees.
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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 operations of the Company and its affiliates, 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" 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. The PLD operating subsidiaries in the Russian Federation with
which the Company does business 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. 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 recent
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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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 may 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 the PLD operating
subsidiaries with which it does business 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 PLD operating subsidiaries post their tariffs in U.S.
Dollars, and receive payment in Roubles at the U.S. dollar exchange rate
prevailing on the date of payment. They face an exchange risk to the extent that
they experience any difficulty in converting the Rouble payment received into
U.S. Dollars. In addition, they face a risk that the Rouble weakens against the
U.S. Dollar during the period between the customer instructing its bank to pay
them and the day the payment is actually received by them. Historically, this
time period has been short and the exchange risks arising from this particular
issue have therefore been minimal.
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<PAGE> 14
All of these factors, and others, may serve to increase the operating
subsidiaries' exposure to foreign exchange losses in the future, the effect of
which cannot currently be predicted. No assurance can be given that the
operating subsidiaries will be able to continue to post their 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 they 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 operating subsidiaries to hedge
their 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 operating subsidiaries. This could impair
their ability to meet their obligations to the Company which in turn 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 company 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 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 PLD operating
subsidiaries. This could impair their ability to meet their obligations to the
Company which in turn could have a material adverse effect on the Company.
In addition, the local and international press have reported significant
organized criminal activity, particularly in large metropolitan centers,
directed at revenue-generating businesses, and an increased integration of
Russian organized crime with major international criminal organizations. A
substantial increase
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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 PLD operating subsidiaries operate. No assurance can be
given that organized or other crime or claims that any of them 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.
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 cross-default under and
acceleration of the Senior Notes and Convertible Notes. In addition, any failure
by PLD to make interest payments on the Senior Notes and Convertible Notes could
result in a default under and acceleration of those Notes.
Any such events could result in a claim being made against the Company
under its guarantee, which would have a material adverse effect on the Company
and raise substantial doubt about the Company's ability to continue as a going
concern.
Limited Operating History. The Company was formed in 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 its costs sufficiently to remain
profitable in the future.
Barriers to Realizing Cash from Operating Subsidiaries. The ability of the
purchasers or lessees of equipment provided by the Company to make payments to
the Company may be constrained by: (i) their own ability to generate sufficient
cash from their operations; (ii) the level of taxation, particularly corporate
profits and withholding taxes, in the jurisdictions in which they operate; (iii)
currency and exchange controls and other administrative requirements in effect
in the jurisdictions in which they operate, see "-- Currency Controls;" and (iv)
the availability of hard currency and the convertibility of local currency in
the jurisdictions in which they operate, see "-- Country Risks -- Restrictions
on Currency Conversion; Historical Volatility in Currency Prices."
Year 2000. While the Company believes that the PLD operating subsidiaries
should not encounter material problems as a result of their equipment not being
Year 2000 compliant, they may encounter disruptions in service as a result of
noncompliance on the part of other traffic carriers, particularly those in
Russia and other C.I.S. countries on which they are dependent for the completion
of calls. The Company believes that the Year 2000 compliance of the Russian and
other C.I.S. parties with which the PLD operating subsidiaries interact appears
to be substantially behind that of Western parties, and that it is unlikely that
those parties will be able to become fully Year 2000 compliant, given the
limited amount of time left for this, and the severe funding constraints faced
by those parties. Accordingly, there is a significant risk that the PLD
operating subsidiaries may experience disruptions in their operations as a
result of their C.I.S. interconnect
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partners not being able to complete calls or pass traffic to them. Additionally,
the billing systems of those interconnect partners may also be disrupted,
resulting in those partners being unable to make timely settlements with the PLD
operating subsidiaries. All of these items have the potential to adversely
impact 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."
Currency Controls -- Risks of Changing Regulatory and Administrative
Environment. While applicable legislation in the Russian Federation currently
permits the making of payments in hard currency, the ability of PLD's operating
subsidiaries to make such payments to the Company 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 the Russian Federation.
-- 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 amounts due under installment
sales contracts, specific licenses from the Central Bank are required for the
making of equipment lease payments to a foreign lessor. 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, and delays of up to one year or more in the issuance of licenses have
not been uncommon. The failure of an operating subsidiary to obtain, or any
significant delay in the issuance of, such licenses could substantially delay
the time at which the Company may receive payments under such leases. To address
this problem, and based on the Company's belief that currency licenses are
presently not required in the Russian Federation for payments under installment
sales contracts, the Company is providing equipment to the operating businesses
on an installment sales basis rather than through leasing and, as a result of
the Consent Solicitation, the Indentures were amended to permit the Company to
do this. However, there is no assurance that the Central Bank or other relevant
Russian entity will not construe the applicable currency legislation as
requiring licenses for installment sales as well as leases. Failure to obtain
currency licenses, where required, can result in the imposition of fines and
penalties, significant delays in delivering equipment to the operating
businesses and resulting difficulties in generating cash flows from the PLD
operating businesses in the Russian Federation.
Additionally, the Company's ability to receive payments in hard currency
will be dependent upon the continued ability of the PLD operating subsidiaries
in Russia to bill their customers in U.S. Dollars or the equivalent amount of
Roubles, as well as their ability to exchange freely local currency receipts
into U.S. Dollars. See "-- Country Risks -- Restrictions on Currency Conversion;
Historical Volatility in Currency Prices." There can be no assurance that,
because of 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 leases or sales of equipment
through the receipt of hard currency payments will continue.
Difficulties in Enforcing Pledges and Agreements. While the leases or
installment sales contracts and related pledges of assets may be valid and
enforceable under the laws of the Russian Federation, the ability of the Company
actually to enforce their provisions upon any default may be open to some
question. Commercial law, and in particular, enforcement of legal rights such as
leaseholds or pledges, is still very undeveloped in Russia, see "-- Country
Risks -- Legal Risks -- Underdeveloped Legal System," and the readiness of local
partners and courts to respect and recognize such rights is uncertain, including
the rights of parties to enforce the terms of leases, installment sales
contracts or pledges.
In the event of a default under a lease, installment sales contract or
pledge, any enforcement action will in all likelihood have to occur in the
jurisdiction where the assets are located. The need to bring such
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<PAGE> 17
enforcement action in such jurisdictions and comply with the laws of those
jurisdictions in relation thereto, coupled with the limited jurisprudence and
experience with such enforcement action in the relevant jurisdiction, may
significantly complicate, delay or limit the scope of such enforcement action.
A lessor or pledgee seeking to remove repossessed leased equipment from
Russia may have to pay taxes or duties as a condition to doing so. The nature of
the equipment itself, which may be incorporated or integrated into another
structure or system, or otherwise permanently affixed, could make repossession
difficult as both a legal and a practical matter.
Additionally, the ability of the Company to enforce in the Russian
Federation a judgment or arbitral award obtained outside this jurisdiction may
be limited. For example, the Russian courts generally only recognize foreign
judgments or arbitral awards pursuant to bilateral or multilateral treaty
arrangements. In addition, the Russian courts have limited experience in the
enforcement of foreign judgments. The possible need to re-litigate in the
Russian Federation a judgment or arbitral award obtained elsewhere may
significantly delay the enforcement of such judgment or award.
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.
Regulatory Uncertainties. The PLD operating subsidiaries operate 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 PLD operating subsidiaries. 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. PROPERTIES
The Company does not own or lease any real property. Its executive offices
are located at the offices of PLD.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
The Company is a wholly owned subsidiary of PLD and the Company's Common
Stock is not, and has not been since inception, publicly traded.
The Company did not declare dividends on its Common Stock in 1998 and does
not intend to declare dividends on its Common Stock in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in March 1998, the following issuance of unregistered
securities of the Company was made:
- in connection with the incorporation and initial capitalization of
the Company, on March 24, 1998, the Company issued an aggregate of 1,000
shares (the "Shares") of the Company's Common Stock to PLD. The Shares were
issued in reliance upon Section 4(2) of the Securities Act of 1933 as a
transaction not involving a public offering.
16
<PAGE> 19
ITEM 6. 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:
Interest/finance lease income............................. $813 $783 $ --
Operating expenses:
General and administrative............................. 15 5 31
Interest expense....................................... -- -- 1
---- ---- ----
Total operating expenses.......................... 15 5 32
Income/(loss) before taxes................................ 798 778 (32)
Income taxes.............................................. 232 36 --
---- ---- ----
Net income/(loss)......................................... $566 $742 $(32)
---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 10 $ 10 $ 10
Non-cash working capital surplus/(deficiency)............. 3,573 (3,782) (5,665)
Total assets.............................................. 14,929 7,395 6,612
Shareholder's equity/(deficiency)......................... 7,917 712 (30)
</TABLE>
- ---------------
* Represents nine months ended December 31, 1996.
ITEM 7. 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 operations of the Company and its affiliates, 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.
BASIS OF PRESENTATION
The Company, which was incorporated on March 24, 1998 under the laws of the
State of Delaware as a wholly-owned subsidiary of PLD, was formed to enter into
installment sale and lease agreements in respect of certain telecommunications
equipment required by PLD's operating subsidiaries in the Russian Federation and
Kazakhstan. On June 30, 1998 the Company assumed the assets, liabilities and
business of PLD Asset
17
<PAGE> 20
Leasing Limited ("PLDAL"), recording such assets and liabilities at the
historical cost of PLDAL and reflecting the results of operations of PLDAL for
the first six months of 1998 in the Company's operating results for 1998 since
the entities were under common control. Further, the comparative figures
presented below for 1997 and the nine months ended December 31, 1996 represent
the results of operations of PLDAL. PLDAL is a Cypriot company wholly-owned by
PLD, which existed to enter into lease agreements with PLD's operating
subsidiaries. PLDAL is presently inactive and PLD is in the process of
liquidating PLDAL.
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 EBITDA of $0.80 million and net income of $0.57 million on
revenues of $0.81 million, compared to EBITDA of $0.78 million and net income of
$0.74 million on revenues of $0.78 million in 1997. In 1998, net cash provided
by operating activities amounted to $0.53 million, with net cash used in
investing activities amounting to $0.53 million. This compares with 1997 when
net cash used in operating activities amounted to $3.21 million and net cash
provided by investing activities amounted to $1.14 million.
Revenues. Revenues in 1998 were marginally higher than those in 1997,
increasing from $0.78 million to $0.81 million.
General and administrative expenses. General and administrative expenses
were negligible in 1998 and 1997.
Income taxes. Income taxes in 1998 amounted to $0.23 million, made up of
$0.15 million of U.S. federal taxes and foreign taxes and $0.08 million of U.S.
state and local taxes. Income taxes in 1997 were $0.04 million and consisted of
Cypriot income taxes payable by PLDAL.
YEAR ENDED DECEMBER 31, 1997 VERSUS NINE MONTHS ENDED DECEMBER 31, 1996
Overview. For the year ended December 31, 1997, the Company reported
EBITDA of $0.78 million and net income of $0.74 million on revenues of $0.78
million, compared with an EBITDA loss and a net loss of $0.03 million on zero
revenues for the nine months ended December 31, 1996. In 1997, cash used in
operating activities amounted to $3.21 million, with net cash provided by
investing activities amounting to $1.14 million. This compares with the nine
months ended December 31, 1996 when cash provided by operations was $1.06
million and cash used in investing activities amounted to $5.6 million.
Revenues. Revenues increased from zero in the nine months ended December
31, 1996 to $0.78 million in the year ended December 31, 1997, because finance
lease income on the Company's only lease started to accrue in 1997.
General and administrative expenses. General and administrative expenses
were negligible in 1997 and 1996.
Income taxes. Income taxes increased from zero in 1996 to $0.04 million in
1997, reflecting PLDAL's transition from a loss-making to a profitable company.
18
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, cash provided by operating activities
totalled $0.53 million and $0.53 million was used in investing activities.
Investing activities in 1998 involved the lodging of funds in the Company's
escrow account which were then invested in U.S. Treasury backed securities with
maturities less than 30 days. In 1997, net cash used in operating activities
amounted to $3.21 million, net cash provided by investing activities amounted to
$1.14 million and $2.07 million was generated from financing activities. In
1996, net cash used in operations totalled $1.06 million, net cash used in
investing activities totalled $5.62 million and cash generated from financing
activities totalled $4.57 million.
As of December 31, 1998, the Company reported a working capital surplus of
$3.58 million, compared to a working capital deficit of $3.77 million as of
December 31, 1997.
Shareholder's equity as of December 31, 1998 was $7.92 million, compared
with $0.71 million a year earlier, reflecting the capitalization of a loan from
PLD during the period.
The Company has financed all of its equipment purchases by drawing the
funds required from the PLD escrow account established pursuant to the
Indentures. Inasmuch as it is not permitted to obtain funds from elsewhere, its
business as a provider of equipment to the PLD operating subsidiaries is
entirely governed by the availability and amount of funds in the PLD escrow
account and the Company's escrow account which was also established pursuant to
the Indentures. The Company does not commit to any equipment purchase unless
there are sufficient funds in the escrow accounts to pay for such purchase
(including costs of delivery to the PLD operating subsidiary which would use the
equipment, and customs duties, VAT and other costs of importation). In the event
that there were insufficient funds in the escrow accounts, the Company would not
make the purchase, and the equipment would have to be financed by PLD or the
applicable operating subsidiary by other means, or the purchase would have to be
postponed.
As of December 31, 1998 there was approximately $14.4 million in the PLD
escrow account and a further $0.5 million in the Company's escrow account. The
escrow accounts are replenished from time to time by payments made by the PLD
operating subsidiaries under leases and installment sales contracts entered into
with the Company, as well as interest earned on the funds in escrow. They may
also be replenished by the proceeds of certain asset sales as well as returns on
certain limited investments which may be made using escrow funds. The escrow
funds are available, if required, to provide funds to PLD to pay interest on the
Senior Notes.
The Company's operating costs are minimal and are funded as required by
advances from PLD. The Company is not permitted under the terms of Indentures to
incur, and has not in fact incurred, any other indebtedness or obligations other
than payments to equipment manufacturers which are funded out of the escrow
account. Accordingly, the Company's operations are essentially self-sufficient.
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.
While agreements have been reached with the holders of substantially all 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 cross-default under and
acceleration of the Senior Notes and Convertible Notes. In addition, any failure
by PLD to make interest payments on the Senior Notes and Convertible Notes could
result in a default under and acceleration of those Notes. Any such events could
result in a claim being made against the Company under its guarantee, which
would have a material adverse effect on the Company and raise substantial doubt
about the Company's ability to continue as a going concern.
19
<PAGE> 22
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 did
not have a material effect on the Company's condensed financial statements for
the three months ended March 31, 1999 and the six months ended June 30, 1999.
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 PLD operating businesses supply telecommunications services. To the
very limited extent that they maintain actual inventory for sale, they do not
manufacture such inventory themselves but resell goods supplied by recognized
manufacturers of such goods.
PLD's 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 the operating subsidiaries use are Year 2000
compliant. PLD 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 PLD's exposure has been the
acceleration of already planned expenditures, rather than new or unanticipated
expenditures. PLD expects that essentially all of its upgrading and replacement
work, and any remaining testing required, will be complete by the end of the
third quarter of 1999.
As of June 30, 1999, PLD has expended approximately $1,900,000 for
remediation efforts and expects that its total remediation costs, including
scheduled upgrades and replacements of approximately $3,100,000, will be
approximately $4,000,000.
20
<PAGE> 23
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 PLD 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,
PLD 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 PLD's
operating businesses. 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, PLD 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.
PLD's operating businesses' principal Year 2000 risks arise from the fact
that they are dependent for the completion of their 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 operating businesses to verify that
each entity which could be involved in providing telecommunications services to
them will be Year 2000 compliant. To a large extent, the operating businesses
are 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 operating businesses believe
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 operating businesses interact appears to be
substantially behind that of Western parties. PLD has been unable to determine
with any degree of certainty the extent to which its interconnect partners in
the C.I.S. are non-compliant because those parties have generally been reluctant
to share this information. Nevertheless the Company believes, based on such
reluctance and anecdotal and other evidence, that many of those partners,
particularly in those in the less developed regions of the Russian Federation or
the C.I.S., are substantially non-compliant.
Furthermore, the likelihood that those parties will be able to become Year
2000 compliant seems problematical, given the limited amount of time left for
this, the severe funding constraints faced by those parties, principally as a
result of poor economic conditions in their home countries, and the possible
lack of governmental pressure on those parties.
Accordingly, there is a significant risk that the operating businesses may
experience disruptions in its operations as a result of their C.I.S.
interconnect partners not being able to complete calls or pass traffic to them.
While the operating businesses are 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.
21
<PAGE> 24
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
operating businesses.
Accordingly, the operating businesses believe that there is a considerable
risk that they will experience disruptions in providing telecommunications
services to and from the countries of the C.I.S. which they serve, and that
those disruptions may be substantial. Given their inability to obtain an
accurate assessment of the extent to which their 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.
PLD 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.
CURRENCY CONTROLS AND EXCHANGE RATES
Exchange Controls. Following the economic crisis in August and September
1998, the Russian Federation introduced more stringent procedural requirements
on Russian residents wishing to pay non-residents in hard currency. The main
reason for this was to attempt to reduce the level of illegal hard currency
outflows from the country. Significant documentary requirements may have to be
satisfied in respect of payments in U.S. Dollars between Russian residents
(which generally includes all Russian companies and citizens resident in Russia)
and non-residents (which generally includes non-Russian companies even if they
have a representative office or other permanent establishment in Russia) for
current currency transactions (generally those where payment is made within 90
days of the provision of goods and services). Payments in U.S. Dollars
classified as movements of capital (which generally includes direct investments,
portfolio investments, acquisition of real estate and payments made pursuant to
loan agreements, or agreements for the lease of goods having terms of over 90
days) are subject to licensing by the Central Bank. The Company believes that
Central Bank licenses are not required for payments under the installment sales
contracts it enters into with the PLD operating subsidiaries. To the extent that
such operating businesses may require Central Bank licenses for other aspects of
their activities, the Company believes that they either hold, or have applied
for and expect eventually to receive, such 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 Licensing Requirements." 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
companies 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 company's Rouble dividend income or
22
<PAGE> 25
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."
TAXATION
The Company is subject to a number of taxes in the U.S., including
corporate income tax at the rate of approximately 34%. Payments made to the
Company by the PLD operating subsidiaries are exempt from Russian tax under the
U.S.-Russian Federation tax treaty. However, 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.
ITEM 7A. 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 agreements which the Company has entered into with PLD's operating
businesses are denominated in U.S. Dollars, as are most of the Company's
agreements with equipment suppliers. Therefore, the Company does not believe
that it is exposed to any material market risk from changes in foreign exchange
rates. Furthermore, the Company does not believe that it is exposed to any
material market risk from changes in interest rates.
To the extent that the PLD operating businesses with which the Company
enters into agreements face currency and other risks, these risks could
adversely affect the ability of the operating businesses to pay the Company in
U.S. Dollars on a timely basis. 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 and Exchange Rates."
The Company does not use any derivative instruments, either as a trading or
non-trading activity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and supplementary data required by
this item are attached to this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
23
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
E. Clive Anderson......... 52 Vice President, Secretary and Director
Simon Edwards............. 36 President and Director
Clayton A. Waite.......... 38 Vice President, Treasurer and Director
</TABLE>
Set forth below is selected biographical information for the executive
officers and directors of the Company.
E. Clive Anderson has served as Vice President, Secretary and a Director of
the Company since its inception in March 1998. He has served as Senior Vice
President, General Counsel and Secretary of PLD since June 1997. Prior to
joining the Company, Mr. Anderson was a partner at Morgan, Lewis & Bockius LLP
from 1977 to 1997, where he represented a number of international clients,
including PLD.
Simon Edwards has served as President and a Director of the Company since
its inception in March 1998. He has served as a Director of PLD since June 1997,
as Chief Financial Officer of PLD since October 1995 and as Senior Vice
President and Treasurer since February 1997. He was previously Director of
Finance for Cable & Wireless Europe from October 1994 to September 1995. From
July 1992 to October 1994, he held a number of corporate finance positions
within Cable & Wireless. From July 1988 to June 1992 he was a management
consultant with Arthur Andersen.
Clayton Waite has served as Vice President, Treasurer and a Director of the
Company since its inception in March 1998. He is currently a consultant who
provides certain financial and accounting services to PLD. Previously, he was
the Vice President -- Administration and Group Financial Controller of PLD from
September 1997 to April 1999. From 1994 to September 1997, he held a number of
other positions with PLD, including Chief Financial Officer until October 1995.
ITEM 11. EXECUTIVE COMPENSATION
The Company does not pay any compensation to its executive officers or
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not pay any compensation to its executive officers, and
does not have a Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company does not pay any compensation to its executive officers, and
does not have a Compensation Committee.
COMPARATIVE STOCK PERFORMANCE GRAPH
The Company is a wholly owned subsidiary of PLD and the Company's Common
Stock is not, and has not been since inception, publicly traded, so no
comparative stock performance graph is included herein.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
None of the Company's equity securities are registered pursuant to Section
12 of the Securities Exchange Act of 1934, and Section 16(a) of such Act is
therefore not applicable to the holders of the Company's equity securities.
24
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, with respect to shares
of Common Stock beneficially owned by owners of more than five percent of the
outstanding Common Stock, by all current directors and nominees, by the
executive officers and by all current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ---------------- --------------------- ----------
<S> <C> <C>
PLD Telekom Inc........................................ 1,000 100%
E. Clive Anderson...................................... 0 --
Simon Edwards.......................................... 0 --
Clayton A. Waite....................................... 0 --
All current directors and executive officers of the
Company as a group (3 persons)....................... 0 --
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GUARANTEE OF INDEBTEDNESS
The Company is a guarantor of the Senior Notes and Convertible Notes. For
further details, please refer to "Business -- The Senior and Convertible Notes."
EQUIPMENT SALE TRANSACTIONS
In 1998 the Company assumed all of the rights and obligations of PLDAL,
which was a similar special purpose subsidiary of PLD incorporated in Cyprus,
under a lease of equipment entered into in 1996 with PeterStar. Immediately
prior to such assumption, PLDAL and PeterStar converted the lease into an
installment sale.
The Company has entered into additional equipment purchases and resales
with PeterStar, and also with Technocom and Teleport-TP, additional operating
subsidiaries of PLD. Equipment has been purchased from a number of major
suppliers, including Ericsson in Sweden, ECI Telecom and Tadiran
Telecommunications in Israel, Siemens in Germany, Nokia in Finland and Lucent
Technologies in the U.S.
As of December 31, 1998, the Company had entered into purchase contracts
with various manufacturers of telecommunications equipment with a total value of
$15.4 million, of which $4.0 million remained unpaid. In relation to this
equipment, the Company had concluded resale arrangements with PeterStar with a
total value of $13.0 million and had commenced receipt of instalment payments on
such contracts following delivery and acceptance of the relevant equipment by
PeterStar. As of December 31, 1998 the Company had finalized further resale
contracts with Technocom and Teleport-TP with a total value of $5.6 million,
with receipt of instalment payments scheduled to commence in 1999 upon final
certification and acceptance of the equipment. Additional resale arrangements
with BCL and Teleport-TP in relation to equipment purchased by the Company from
the manufacturers for $2.3 million (of the $15.4 million total), of which $2.1
million remained unpaid, and which has yet to be delivered, are being finalized.
The Company expects that these resale arrangements will be on terms similar to
those for the resale arrangements already in place with the operating
businesses. See "Business -- PLD Capital Asset (U.S.) Inc."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. Financial Statements listed in the
accompanying Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 are filed as part of this annual report on Form 10-K.
2. Exhibits. (see (c) below).
25
<PAGE> 28
(b) Reports on Form 8-K
None
(c) Exhibits.
The following is a list of exhibits filed as part of this Annual Report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1* Certificate of Incorporation.
3.2* By-Laws.
4.1 Indenture, dated as of May 31, 1996, among the Registrant,
as Issuer, NWE Capital (Cyprus) Limited, PLD Asset Leasing
Limited, PLD Capital Limited, Baltic Communications Limited
and Wireless Technology Corporations Limited as Guarantors,
and The Bank of New York, as Trustee, with respect to
$123,000,000 aggregate principal amount at stated maturity
of 14% Senior Discount Notes due 2004 (the "Senior Note
Indenture") (including exhibits B, C, D and K only).
(Exhibit 4.1)(1)
4.2 Indenture, dated as of May 31, 1996, among the Registrant as
Issuer, NWE Capital (Cyprus) Limited, PLD Asset Leasing
Limited, PLD Capital Limited, Baltic Communications Limited
and Wireless Technology Corporations Limited as Guarantors,
and The Bank of New York, as Trustee, with respect to
$26,500,000 aggregate principal amount of 9% Convertible
Subordinated Notes due 2006 (the "Convertible Note
Indenture") (including exhibit B only). (Exhibit 4.2)(2)
4.3 First Supplemental Indenture, Amendment Agreement, Consent
and Waiver, dated as of March 20, 1998, among the
Registrant, as Issuer, NWE Capital (Cyprus) Limited, PLD
Asset Leasing Limited, PLD Capital Limited, Wireless
Technology Corporations Limited and Baltic Communications
Limited, as Guarantors, Clayton A. Waite and Apropos
Investments Ltd., as nominee shareholders, and The Bank of
New York, as Trustee. (Exhibit 4.3)(1)
4.4* Second Supplemental Indenture, dated as of June 15, 1998,
among 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 Baltic Communications Limited, as Guarantors,
Clayton A. Waite and Apropos Investments Ltd., as nominee
shareholders, and The Bank of New York, as Trustee.
4.5* Third Supplemental Indenture, dated as of January 12, 1999,
among 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 Baltic Communications Limited, as Guarantors,
Clayton A. Waite and Apropos Investments Ltd., as nominee
shareholders, and The Bank of New York, as Trustee.
4.6* Global Exchange Note representing 14% Senior Discounted
Notes due 2004.
4.7* Global Note representing 9% Convertible Subordinated Notes
due 2006.
4.8* Leasing Company Escrow Account Agreement (PLD Capital Asset
(U.S.) Inc.), dated as of June 15, 1998, among The Bank of
New York as Escrow Agent, as Trustee under the Senior Note
Indenture, and as Trustee under the Convertible Note
Indenture and PLD Capital Asset (U.S.) Inc.
4.9* Leasing Company Security and Pledge Agreement (PLD Capital
Asset (U.S.) Inc.), dated as of June 15, 1998, by PLD
Capital Asset (U.S.) Inc. in favor of The Bank of New York,
as Trustee under the Senior Note Indenture, as Trustee under
the Convertible Note Indenture, and as Collateral Agent.
23.1* Consent of KPMG LLP.
23.2* Consent of Moore Stephens.
</TABLE>
- ---------------
* Filed herewith
(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).
26
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in New York, New York
on August 30, 1999.
PLD CAPITAL ASSET (U.S.) INC.
By: /s/ SIMON EDWARDS
------------------------------------
Simon Edwards
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ E. CLIVE ANDERSON Director, Vice President and August 30, 1999
- --------------------------------------------------- Secretary
E. Clive Anderson
/s/ SIMON EDWARDS Director, President and Chief August 30, 1999
- --------------------------------------------------- Executive Officer
Simon Edwards
/s/ CLAYTON A. WAITE Director, Vice President, August 30, 1999
- --------------------------------------------------- Secretary and Principal
Clayton A. Waite Accounting Officer
</TABLE>
27
<PAGE> 30
PLD CAPITAL ASSET (U.S.) INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' report................................ F-2
Balance sheet as of December 31, 1998....................... F-3
Statement of operations for the year ended December 31,
1998...................................................... F-4
Statement of shareholder's equity for the year ended
December 31, 1998......................................... F-5
Statement of cash flows for the year ended December 31,
1998...................................................... F-6
Notes to financial statements............................... F-7
</TABLE>
F-1
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
Shareholder and Board of Directors
PLD Capital Asset (U.S.) Inc.:
We have audited the accompanying balance sheet of PLD Capital Asset (U.S.)
Inc. as of December 31, 1998 and the related statements of operations,
shareholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement preparation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PLD Capital Asset (U.S.)
Inc. as of December 31, 1998 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 9(a) 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.
PLD's failure to make payment in full when required could result in a
cross-default under and acceleration of other debt obligations for which the
Company is a guarantor. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
KPMG LLP
New York, New York
March 30, 1999
F-2
<PAGE> 32
PLD CAPITAL ASSET (U.S.) INC.
BALANCE SHEET
AS OF DECEMBER 31, 1998
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Assets:
Current:
Cash and cash equivalents.............................. $ 10
Other receivables and prepaids......................... 228
Assets held for resale (note 5)........................ 3,949
Due from related parties -- installment sales contracts
(note 3).............................................. 6,408
-------
Total current assets.............................. 10,595
Escrow funds (note 4)..................................... 528
Due from related parties -- installment sales contracts
(note 3)............................................... 3,806
-------
Total assets...................................... $14,929
=======
Liabilities and Shareholder's Equity:
Current liabilities:
Accounts payable and accrued liabilities (note 6)...... 1,977
Due to related parties................................. 5,035
-------
Total current liabilities......................... 7,012
Commitments and contingencies (note 9)
Shareholder's equity:
Capital stock (note 7):
Additional paid-in capital................................ 6,641
Retained earnings......................................... 1,276
-------
Total shareholder's equity........................ 7,917
-------
Total liabilities and shareholder's equity........ $14,929
=======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 33
PLD CAPITAL ASSET (U.S.) INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998
----
<S> <C>
Revenues:
Interest income........................................... $813
Operating expenses:
General and administrative................................ 15
----
Income before taxes......................................... 798
Income taxes (note 8)....................................... 232
----
Net income.................................................. $566
====
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 34
PLD CAPITAL ASSET (U.S.) INC.
STATEMENT OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1998
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
BALANCE, BEGINNING OF YEAR.................................. $ 712
Capitalization of loan from PLD Telekom Inc................. 6,639
Net income.................................................. 566
------
BALANCE, END OF YEAR........................................ $7,917
======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 35
PLD CAPITAL ASSET (U.S.) INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Cash provided by/(used in):
Operations:
Net income............................................. $ 566
Non-cash items:
Increase in deposits................................. (228)
Increase in assets held for resale................... (3,949)
Change in due from or due to related parties......... 2,205
Increase in accounts payable and accrued
liabilities......................................... 1,934
-------
528
Investing:
Escrow................................................. (528)
-------
(528)
-------
Increase /(decrease) in cash and cash equivalents........... --
Cash and cash equivalents, beginning of year................ 10
-------
Cash and cash equivalents, end of year...................... $ 10
=======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 36
PLD CAPITAL ASSET (U.S.) INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) BUSINESS AND OPERATIONS
PLD Capital Asset (U.S.) Inc. ("PLDCA" or "the Company") was incorporated
on March 24, 1998 under the laws of the State of Delaware and is a wholly-owned
subsidiary of PLD Telekom Inc. ("PLD" or the "Parent"). The Company was formed
as a special purpose subsidiary to enter into installment sales agreements in
respect of certain telecommunications equipment required by PLD's operating
subsidiaries located in Russia and Kazakhstan. During 1998, PLDCA assumed the
assets, liabilities and business of PLD Asset Leasing Limited ("PLDAL"). PLDCA
has recorded such assets and liabilities at the historical cost of PLDAL and has
reflected the results of operations of PLDAL from January 1, 1998 until June 30,
1998, the date of transfer, since the entities were under common control. PLDAL
is a Cypriot company wholly owned by the Parent, which existed to enter into
lease agreements with related companies. PLDAL is presently inactive and it is
the intention of the Parent to dissolve PLDAL.
Upon assumption of PLDAL's business, the lease previously entered into with
a related company was restructured to be an installment sale.
Additionally during 1998, PLD transferred installment sales agreements with
a combined carrying value of $1,824,000 it had previously entered into with
related companies to PLDCA. The Company has recorded these assets at the
historical cost of PLD and has recorded an intercompany liability to PLD at the
same amount.
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. Specific costs incurred by the parent on behalf of
the Company are charged thereto. All intercompany transactions and charges are
disclosed in note 10, "Related Party Transactions".
Income tax expense is based upon a calculation of current tax expenses and
deferred tax expenses in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", on a stand-alone basis. Refer
to note 8, "Income Taxes".
Intercompany interest charges incurred are the result of, and are made
pursuant to, intercompany loan and/or installment sales agreements and are not a
result of allocations of interest by the Parent or its subsidiaries.
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
negotiated management agreements. Refer to note 10, "Related Party
Transactions". Management of the Company believes that the accompanying
financial statements include all the costs incurred by the Company in its
operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are summarized 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).
F-7
<PAGE> 37
PLD CAPITAL ASSET (U.S.) INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Funds held in
escrow, totaling $528,000 at December 31, 1998, are shown separately under
non-current assets.
(c) Revenue Recognition
The Company records interest income on installment sales contracts as
earned.
(d) Receivables
Receivables reflect amounts owing pursuant to installment sales contracts
outstanding with PLD's operating subsidiaries and include accrued interest at
varying rates of interest.
(e) Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, escrow funds, accounts receivable and accounts payable approximate
fair value due to their short maturities.
(f) 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 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.
(g) 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 year ended December 31, 1998, 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) INSTALLMENT SALES CONTRACTS
<TABLE>
<S> <C>
Installment sales contract payments due:
1999 $6,189
2000 2,654
2001 2,338
2002 350
-------
11,531
Amounts representing interest............................... 1,317
-------
Present value of installment sales contract payments due.... $10,214
=======
</TABLE>
F-8
<PAGE> 38
PLD CAPITAL ASSET (U.S.) INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(4) ESCROW FUNDS
At December 31, 1998, the Company had $528,000 deposited in an escrow
account maintained with the Bank of New York. Escrow funds are generally
invested in U.S. Treasury backed securities with maturities less than 30 days.
Use of the escrow funds is governed by the detailed provisions contained within
the revised indentures relating to PLD's senior discount notes which were issued
in June 1996.
(5) ASSETS HELD FOR RESALE
Assets held for resale, consisting solely of telecommunications equipment,
is stated at cost and includes assets acquired by the Company which have yet to
be accepted by a PLD subsidiary or which have yet to be used for billable
commercial services. Accordingly, no depreciation is charged on this equipment
as it has yet to be commissioned. At December 31, 1998, a total of $3,949,000 in
equipment had yet to be accepted or put into service by PLD subsidiaries.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A total of $1,948,000 was owed to suppliers by the Company at December 31,
1998 relating to telecommunications equipment yet to be delivered to and/or
accepted by PLD subsidiaries.
(7) COMMON STOCK
At December 31, 1998, the authorized capital stock of the Company consisted
of 1,000 shares of Common Stock with a par value of $0.01 per share, all of
which were issued and outstanding.
(8) INCOME TAXES
PLDCA is included in the consolidated federal and certain state and local
income tax returns of PLD. PLD accounts for its income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
For Income Taxes (SFAS 109). In accordance with SFAS 109, when separate
financial statements are prepared for a member of a group that files a
consolidated return, the consolidated amount of current and deferred tax expense
for the consolidated group must be allocated among the members of the group. The
method of allocation must be consistent with the broad principles of SFAS 109.
For the Company's financial statements, a separate return method was utilized
for income taxes whereby current and deferred taxes were calculated by applying
the provisions of SFAS 109 as if the Company was a separate individual taxpayer.
The components of income taxes for the year ended December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Current
Federal and foreign....................................... $152,000
State and local........................................... 80,000
--------
232,000
Deferred.................................................... --
--------
$232,000
========
</TABLE>
The effect of foreign and state income tax provisions caused the Company's
effective tax rate to differ from the U.S. statutory income tax rate during
1998.
As of December 31, 1998, $217,000 of tax-related balances owed to PLD is
included under "due to related parties."
F-9
<PAGE> 39
PLD CAPITAL ASSET (U.S.) INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(9) COMMITMENTS AND CONTINGENCIES
(a) 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 this debt under the terms of the related indentures.
As noted in its annual report on Form 10-K, PLD does not presently have
sufficient funds on hand to meet its current debt obligations. While management
of PLD believes that, as long as progress towards settlement of such obligations
is being made, the holders of such debt will agree to payment deferrals beyond
the present due date of April 30, 1999, there can be no assurance that the
holders will grant such deferrals or that they will not demand payment in full
of the obligations. PLD's failure to make payment in full could result in a
cross-default under and acceleration of the senior discount notes and
convertible subordinated notes for which the Company serves as a guarantor.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
(b) As of December 31, 1998, the Company had entered into purchase
commitments with unaffiliated companies relating to telecommunications equipment
amounting to $2,051,000.
(10) RELATED PARTY TRANSACTIONS
PLDCA has sold to PeterStar Company Limited ("PeterStar")
telecommunications equipment valued at $9,815,000 pursuant to five installment
sales contracts either signed directly with PeterStar, or assigned from PLD and
PLDAL. The Company recorded interest income of $813,000 in respect of these
contracts in 1998. As of December 31, 1998, PeterStar owes PLDCA a total of
$10,214,000 in respect of these contracts.
As of December 31, 1998, PLDCA owed PLD $4,818,000 in respect of assets
assigned or transferred to PLDCA during the year.
During 1998, a loan from PLD amounting to $6,600,000 was contributed to
capital.
F-10
<PAGE> 40
PLD ASSET LEASING LIMITED
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED DECEMBER 31, 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent auditors' report................................ F-12
Balance sheets.............................................. F-13
Statements of operations and retained earnings/(deficit).... F-14
Statements of cash flows.................................... F-15
Notes to the financial statements........................... F-16
</TABLE>
F-11
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
SHAREHOLDER AND BOARD OF DIRECTORS
PLD ASSET LEASING LIMITED
We have audited the accompanying balance sheets of PLD Asset Leasing
Limited as of December 31, 1997 and 1996, and the related statements of
operations and retained earnings/(deficit) and cash flows for the year ended
December 31, 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of PLD Asset Leasing Limited as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the year ended December 31, 1997 and the nine months ended December
31, 1996 in conformity with accounting principles generally accepted in the
United States.
MOORE STEPHENS
CHARTERED ACCOUNTANTS
Nicosia, Cyprus
May 20, 1998
F-12
<PAGE> 42
PLD ASSET LEASING LIMITED
BALANCE SHEETS
AS AT DECEMBER 31, 1997 AND 1996
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NOTE 1997 1996
---- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT:
Cash................................................... $ 10,482 $ 10,490
Lease payments receivable-interest..................... 5 782,849 --
Lease payments receivable-principal.................... 5 2,117,954 977,151
---------- ----------
2,911,285 987,641
NON CURRENT:
Lease payments receivable-principal.................... 5 4,483,483 5,624,287
---------- ----------
$7,394,768 $6,611,928
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... 6 -- 2,065,420
Taxation payable....................................... 35,739 --
Accrued liabilities.................................... 3 8,281 5,667
Due to PLD Telekom Inc................................. 6,638,607 4,571,121
---------- ----------
6,682,627 6,642,208
SHAREHOLDER'S EQUITY/(DEFICIT)
CAPITAL STOCK:
Share capital -- 1,000 ordinary shares of Cy Pds 1 per
share, issued and fully paid......................... 4 2,140 2,140
---------- ----------
---------- ----------
2,140 2,140
Retained earnings/(deficit)................................. 710,001 (32,420)
---------- ----------
712,141 (30,280)
---------- ----------
$7,394,768 $6,611,928
========== ==========
</TABLE>
The notes on pages F-16 and F-17 form an integral part
of these financial statements
F-13
<PAGE> 43
PLD ASSET LEASING LIMITED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS/(DEFICIT)
YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED DECEMBER 31, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
REVENUES:
Finance lease income...................................... $ 782,849 $ --
OPERATING EXPENSES:
General and administrative................................ 4,681 31,475
Interest expense.......................................... 8 945
--------- ---------
Total operating expenses.................................. 4,689 32,420
--------- ---------
Income/(loss) before income taxes........................... 778,160 (32,420)
Income taxes................................................ 35,739 --
--------- ---------
Net income/(loss)........................................... $ 742,421 $ (32,420)
Retained earnings/(deficit), beginning of period............ (32,420) --
--------- ---------
Retained earnings/(deficit), end of period.................. $ 710,001 $ (32,420)
========= =========
</TABLE>
The notes on pages F-16 and F-17 form an integral part
of these financial statements
F-14
<PAGE> 44
PLD ASSET LEASING LIMITED
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED
DECEMBER 31, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
CASH PROVIDED BY/(USED IN):
OPERATIONS:
Net income/(loss)........................................... $ 742,421 $ (32,420)
Non-cash items:
Changes in non-cash working capital......................... (3,950,719) 1,093,936
----------- ----------
(3,208,298) 1,061,516
INVESTING:
Lease payments receivable................................... 1,140,804 (5,624,287)
----------- ----------
1,140,804 (5,624,287)
FINANCING:
Due to PLD Telekom Inc...................................... 2,067,486 4,571,121
Issue of share capital and premium.......................... -- 2,140
----------- ----------
2,067,486 4,573,261
----------- ----------
(Decrease)/increase in cash and cash equivalents............ (8) 10,490
Cash and cash equivalents, beginning of period.............. 10,490 --
----------- ----------
Cash and cash equivalents, end of period.................... $ 10,482 $ 10,490
=========== ==========
</TABLE>
The notes on pages F-16 and F-17 form an integral part
of these financial statements
F-15
<PAGE> 45
PLD ASSET LEASING LIMITED
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ACTIVITIES
The Company has entered into a lease agreement at the end of 1996 to
provide telecommunications equipment to ZAO PeterStar, a Russian Company.
2. ACCOUNTING POLICIES
2.1. ACCOUNTING CONVENTION
The financial statements have been prepared under the historical cost
convention.
2.2. CURRENCY
The books of the Company are maintained in United States Dollars and the
accompanying financial statements and notes thereto are expressed in this
currency.
2.3. TRANSLATION IN FOREIGN CURRENCIES
Balances in foreign currency are translated at the closing rates prevailing
at the balance sheet date.
Expenses denominated in currencies other than US$ are recorded in the
accounting records and stated in the financial statements at the amounts
actually converted into US$ at the rate ruling on the transaction date.
2.4. FINANCE LEASES
Leases are recognised in the Company's balance sheet as a receivable equal
to the net investment in the lease. Unearned interest income is recognised in
the profit and loss at a constant periodic rate of return. Minimum lease
payments due within one year are shown as current assets.
3. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1997 1996
US $ US $
----- -----
<S> <C> <C>
Professional fees........................................... 8,281 5,667
===== =====
</TABLE>
4. SHARE CAPITAL
The Company's authorized share capital of Cy Pds 1,900,000 is made up of
1,900,000 ordinary shares with a par value of Cy Pds 1 each.
The Company's issued and fully paid share capital amounts to Cy Pds 1,000
made up of 1,000 ordinary shares of Cy Pds 1 each.
The amount of US $2,140 represents the equivalent of Cy Pds 1,000
translated at the exchange rate ruling on the date of issue.
The above notes form an integral part
of these financial statements
F-16
<PAGE> 46
PLD ASSET LEASING LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. FINANCE LEASES
<TABLE>
<CAPTION>
1997 1996
US $ US $
--------- ---------
<S> <C> <C>
Gross investment in the lease......................... 8,800,000 8,800,000
Unearned interest income.............................. 1,415,713 2,198,562
--------- ---------
7,384,287 6,601,438
========= =========
Amounts receivable within one year.................... 2,900,804 997,151
Amounts receivable after more than one year........... 4,483,483 5,604,287
--------- ---------
7,384,287 6,601,438
========= =========
</TABLE>
6. ACCOUNTS PAYABLE
Represent amounts due to equipment suppliers relating to the finance lease
entered into by the Company.
7. TAXATION
The Company is liable to income tax under Section 28(a) of the Cyprus
Income Tax Laws.
The Company has tax payable of US $35,739 (Cy Pds 18,379).
8. SHAREHOLDERS ADVANCES
The advances are interest free and without fixed date of repayment.
9. SECURITIES, PLEDGES AND CHARGES
a) The Company's shares have been pledged as collateral security in
relation to US $123 million of Senior Discount Notes issued by the parent
company.
b) A charge has been established on the Company's receipts from the parent
company, fees receivable from subsidiaries and receipts from other leasing
companies as collateral for the US $123 million "Senior Discount Notes" issued
by the parent company.
c) An assignment of the Company's lease rental receipts, receivable from
ZAO Peterstar amounting to US $8,800,000, has been made.
All the above described charges, pledges and assignments are in favour of The
Bank of New York.
10. POST BALANCE SHEET EVENTS
The Company allotted an additional 349,000 ordinary shares to the existing
shareholder on May 4, 1998, increasing the issued share capital to Cy Pds
350,000 (nominal value).
The above notes form an integral part
of these financial statements
F-17
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PLD CAPITAL ASSET (U.S.) INC.
The undersigned incorporator, for the purpose of incorporating
or organizing a corporation under the General Corporation Law of the State of
Delaware, certifies:
FIRST: The name of the corporation is
PLD Capital Asset (U.S.) Inc.
SECOND: The address of the Corporation's registered office in
the State of Delaware is 30 Old Rudnick Lane, Suite 100, in the City of Dover,
County of Kent. The name of its registered agent at such address is LEXIS
Document Services Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is One Thousand (1,000) shares of
Common Stock, and the par value of each such share is One Cent ($0.01).
<PAGE> 2
FIFTH: The name and mailing address of the incorporator is H.
Franklin Bloomer, Jr., Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York,
New York 10178.
SIXTH: Elections of directors need not be by ballot unless the
By-Laws of the Corporation shall so provide.
SEVENTH: The Board of Directors of the Corporation may make
By-Laws and from time to time may alter, amend or repeal By-Laws.
EIGHTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
NINTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of
<PAGE> 3
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
IN WITNESS WHEREOF, I have signed this Certificate this 24th
day of March, 1998.
/s/ H. Franklin Bloomer
H. Franklin Bloomer, Jr.
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
PLD CAPITAL ASSET (U.S.) INC.
(the "Corporation")
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders
of the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in
the Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the President
and shall be called by the President or the Secretary at the request in writing
of stockholders holding together at least twenty-five percent of the number of
shares of stock outstanding and entitled to vote at such meeting. Any special
meeting of the stockholders shall be held on such date, at such time and at such
place within or without the State of Delaware as the Board of Directors or the
officer calling the meeting may designate. At a special meeting of the
stockholders, no business shall be transacted and no corporate action shall
<PAGE> 2
be taken other than that stated in the notice of the meeting unless all of the
stockholders are present in person or by proxy, in which case any and all
business may be transacted at the meeting even though the meeting is held
without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in
these By-Laws or by law, a written notice of each meeting of the stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of the Corporation entitled to vote at
such meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the
holders of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
-2-
<PAGE> 3
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holder of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The President or, in his absence, a Vice
President shall call all meetings of the stockholders to order, and shall act as
Chairman of such meetings. In the absence of the President and all of the Vice
Presidents, the holders of a majority in number of the shares of stock of the
Corporation present in person or represented by proxy and entitled to vote at
such meeting shall elect a Chairman.
-3-
<PAGE> 4
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
-4-
<PAGE> 5
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a
-5-
<PAGE> 6
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of any such
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors, none of whom need be stockholders of the Corporation. The number of
Directors constituting the Board of Directors shall be fixed from time to time
by resolution passed by a majority of the Board of Directors. The Directors
shall, except as hereinafter otherwise provided for filling vacancies, be
elected at the annual meeting of stockholders, and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately
-6-
<PAGE> 7
as a class under the provisions of the Certificate of Incorporation, such
Director may be removed and the vacancy filled only by the holders of that class
of stock voting separately as a class. Vacancies caused by any such removal and
not filled by the stockholders at the meeting at which such removal shall have
been made, or any vacancy caused by the death or resignation of any Director or
for any other reason, and any newly created directorship resulting from any
increase in the authorized number of Directors, may be filled by the affirmative
vote of a majority of the Directors then in office, although less than a quorum,
and any Director so elected to fill any such vacancy or newly created
directorship shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No
-7-
<PAGE> 8
notice shall be required for any regular meeting of the Board of Directors; but
a copy of every resolution fixing or changing the time or place of regular
meetings shall be mailed to every Director at least five days before the first
meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the President or by any
two of the Directors then in office.
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the meeting
or by causing the same to be transmitted by telegraph, cable or wireless at
least one day before the meeting to each Director. Unless otherwise indicated in
the notice thereof, any and all business other than an amendment of these
By-Laws may be transacted at any special meeting, and an amendment of these
By-Laws may be acted upon if the notice of the meeting shall have stated that
the amendment of these By-Laws is one of the purposes of the meeting. At any
meeting at which every Director shall be present, even though without any
notice, any business may be transacted, including the amendment of these
By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but
in no case less than one-third of the total number of Directors nor less than
two Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at
-8-
<PAGE> 9
any meeting of the Board there is less than a quorum present, a majority of
those present may adjourn the meeting from time to time.
SECTION 7. Organization. The President shall preside at all
meetings of the Board of Directors. In the absence of the President, a Chairman
shall be elected from the Directors present. The Secretary of the Corporation
shall act as Secretary of all meetings of the Directors; but in the absence of
the Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided by resolution passed by a majority of the whole Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of
-9-
<PAGE> 10
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending these By-Laws; and unless such
resolution, these By-laws, or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board Directors, or of any committee thereof, may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
-10-
<PAGE> 11
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary and a Treasurer, and such
additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 6 of this Article III. The President, one
or more Vice Presidents, the Secretary and the Treasurer shall be elected by the
Board of Directors at its first meeting after each annual meeting of the
stockholders. The failure to hold such election shall not of itself terminate
the term of office of any officer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal,
with or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
-11-
<PAGE> 12
Any vacancy caused by the death of any officer, his resignation,
his removal, or otherwise, may be filled by the Board of Directors, and any
officer so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the President. The President shall
be the chief executive officer of the Corporation and, subject to the control of
the Board of Directors, shall have general charge and control of all its
business and affairs and shall have all powers and shall perform all duties
incident to the office of President. He shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these By-Laws or by the Board of Directors.
SECTION 3. Powers and Duties of the Vice Presidents. Each shall
have all powers and shall perform all duties incident to the office of Vice
President and shall have such other powers and perform such other duties as may
from time to time be assigned to him by these By-Laws or by the Board of
Directors or the President.
-12-
<PAGE> 13
SECTION 4. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose; he shall
attend to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and he shall have all powers
and shall perform all duties incident to the office of Secretary and shall also
have such other powers and shall perform such other duties as may from time to
time be assigned to him by these By-Laws or by the Board of Directors or the
President.
SECTION 5. Powers and Duties of the Treasurer. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation which may have come into his
hands; he may endorse on behalf of the Corporation for collection checks, notes
and other obligations and shall deposit the same to the credit of the
Corporation in such bank or banks or depositary or depositaries as the Board of
Directors may designate; he shall sign all receipts and vouchers for payments
made to the Corporation; he shall enter or cause to be entered regularly in the
books of the Corporation kept for the purpose full and accurate accounts of all
moneys received or paid or otherwise disposed of by him and whenever required by
the Board of Directors or the President shall render statements of such
-13-
<PAGE> 14
accounts; he shall, at all reasonable times, exhibit his books and accounts to
any Director of the Corporation upon application at the office of the
Corporation during business hours; and he shall have all powers and shall
perform all duties incident of the office of Treasurer and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned to him by these By-Laws or by the Board of Directors or the President.
SECTION 6. Additional Officers. The Board of Directors may from
time to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned to them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution delegate
to any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 7. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
-14-
<PAGE> 15
SECTION 8. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the President or any Vice President shall have full power
and authority on behalf of the Corporation to attend and to act and to vote, or
in the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
SECTION 9. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
Section 1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a Director or officer of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any
-15-
<PAGE> 16
action alleged to have been taken or omitted in such capacity, and may indemnify
any person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he is or was or has agreed
to become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful; except that in the case of an action or suit by or in the right of
the Corporation to procure a judgment in its favor (1) such indemnification
shall be limited to expenses (including attorneys' fees) actually and reasonably
incurred by such person in the defense or settlement of such action or suit, and
(2) no indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a
-16-
<PAGE> 17
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
1 of this Article IV or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
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<PAGE> 18
Section 4. Advance Payment of Expenses. Unless the Board of
Directors otherwise determines in a specific case, expenses incurred by a
Director or officer in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article IV. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's legal
counsel to represent such Director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
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<PAGE> 19
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. Severability. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Section 7. Subrogation. In the event of payment of indemnification
to a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of
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<PAGE> 20
receiving indemnification from the Corporation, shall execute all documents and
do all things that the Corporation may deem necessary or desirable to perfect
such right of recovery, including the execution of such documents necessary to
enable the Corporation effectively to enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, by-law
or otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the President or a Vice President
and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death,
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<PAGE> 21
resignation or otherwise, before such certificate or certificates shall have
been delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates had not ceased to be such officer or officers
of the Corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue thereof
shall be entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a
person owning a certificate for shares of stock of the Corporation alleges that
it has been lost, stolen or destroyed, he shall file in the office of the
Corporation an affidavit setting forth, to the best of his knowledge and belief,
the time, place and circumstances of the loss, theft or destruction, and, if
required by the Board of Directors, a bond of indemnity or other indemnification
sufficient in the opinion of the Board of Directors to indemnify the Corporation
and its agents against any claim that may be made against it or them on account
of the alleged loss, theft or destruction of any such certificate or the
issuance of a new certificate in replacement therefor. Thereupon the Corporation
may cause to be issued to such person a new certificate in replacement for the
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<PAGE> 22
certificate alleged to have been lost, stolen or destroyed. Upon the stub of
every new certificate so issued shall be noted the fact of such issue and the
number, date and the name of the registered owner of the lost, stolen or
destroyed certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting, prior to, or
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<PAGE> 23
more than ten (10) days after, the date upon which the resolution fixing the
record date is adopted by the Board of Directors, or (iii) more than sixty (60)
days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall
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<PAGE> 24
upon a legal holiday, then the dividend payable on such date shall be paid on
the next day not a legal holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors or the
President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
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<PAGE> 25
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations
and orders for the payment of money made payable to the Corporation may be
endorsed for deposit to the credit of the Corporation with a duly authorized
depository by the Treasurer and/or such other officers or persons as the Board
of Directors from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and
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<PAGE> 26
other personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws
or by law or as otherwise directed by the Board of Directors, the President or
any Vice President shall be authorized to execute and deliver, in the name and
on behalf of the Corporation, all agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and the seal of the Corporation, if appropriate,
shall be affixed thereto by any of such officers or the Secretary or an
Assistant Secretary. The Board of Directors, the President or any Vice President
designated by the Board of Directors may authorize any other officer, employee
or agent to execute and deliver, in the name and on behalf of the Corporation,
agreements, bonds, contracts, deeds, mortgages, and other instruments, either
for the Corporation's own account or in a fiduciary or other capacity, and, if
appropriate, to affix the seal of the Corporation thereto. The grant of such
authority by the Board or any such officer may be general or confined to
specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
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<PAGE> 27
SECTION 5. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the State
of Delaware at such place or places as from time to time may be determined by
the Board of Directors or the President.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof may be altered, amended
or repealed or new By-Laws may be adopted by the holders of a majority of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
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<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.
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<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.]
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<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
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<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
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<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
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<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.
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4. Special Interest.
Special interest means such additional interest as is set
forth in subparagraphs (a) and (b) below.
(a) The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of May 31, 1996, between the Company and
the Initial Purchasers (the "Registration Agreement"), which agreement is
attached to the Indenture as Exhibit C thereto. In the event that either (a) the
Convertible Note Shelf Registration Statement (as such term is defined in the
Registration Agreement) is not filed with the Securities and Exchange Commission
(the "Commission") on or prior to the 45th day following the Issue Date, (b) the
Shelf Registration Statement is not declared effective by the Commission on or
prior to the 120th day following the Issue Date or (c) any such Shelf
Registration Statement is filed and declared effective but shall thereafter
cease to be effective or fail to be usable for its intended purposes, without
being succeeded by a post-effective amendment to such Shelf Registration
Statement that cures such failure and that is itself declared effective, for a
period of more than 30 consecutive days, interest shall accrue on this Note (in
addition to any accrual of stated interest on this Note) from and including the
next day following each of (i) such 45-day period in the case of clause (a)
above, (ii) such 120-day period in the case of clause (b) above, (iii) such
30-day period in the case of clause (c) above (each such event referred to in
clauses (i) through (iii), a "Registration Default"). In each case following the
occurrence of a Registration Default, such additional interest (the "Special
Interest") will be payable to the Holder hereof during the first 90-day period
immediately following the occurrence of such Registration Default in cash
semiannually in arrears on each Interest Payment Date, at a rate equal to $0.01
per week per $1,000 principal amount of this Note. The Special Interest payable
to the Holder of this Note shall increase by an additional $0.01 per week per
$1,000 principal amount of this Note for each 90-day period up to a maximum of
$0.50 per week per $1,000 of this Note. Upon (w) the filing of the Shelf
Registration Statement after the 45-day period described in clause (a) above,
(x) the effectiveness of a Shelf Registration Statement after the 120-day period
described in clause (b) above, or (y) the effectiveness of an applicable
Registration Statement after the 30-day period described in clause (c) above,
the Special Interest payable on this Note, with respect to such clause (a), (b)
or (c), as the case may be, from the date of such filing, effectiveness or
consummation, as the case may be, shall cease to accrue and all accrued and
unpaid Special Interest as of the occurrence of (w), (x) or (y) shall be paid to
the Holder hereof on the next Interest Payment Date with respect thereto.
Following the occurrence of (w), (x) and (y) above, the interest terms of this
Note shall revert to the original terms set forth above subject to paragraph (b)
below.
(b) In the event of the failure of the Company to procure, on
or before July 12, 1996, a recognized financial institution with capital of not
less than $10,000,000 organized under the laws of the Republic of Ireland which
the Trustee may lawfully appoint as a Qualified Foreign Collateral Agent (as
defined in Section 7.3 of the Indenture) (the "Procurement") with respect to
Technocom Preferred Stock, any payments thereon and any property substituted
therefor (the "Subject Collateral")
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<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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<PAGE> 10
8. Notice of Redemption.
At least 30 calendar days but not more than 60 calendar days
before a Redemption Date, the Company will send a notice of redemption, first
class mail, postage prepaid, to Holders of Notes to be redeemed at the addresses
of such Holders as they appear in the Note Register.
If less than all of the Notes are to be redeemed at any time,
the Notes to be redeemed will be chosen by the Trustee in accordance with the
Indenture. If any Note is redeemed subsequent to a Record Date with respect to
any Interest Payment Date specified above and on or prior to such Interest
Payment Date, then any accrued interest (including Additional Amounts, if any,
and Special Interest, if any) will be paid on such Interest Payment Date to the
Holder of the Note on such Record Date. If money in an amount sufficient to pay
the Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest (including
Additional Amounts, if any, and Special Interest, if any) on the Notes to be
redeemed on the applicable Redemption Date will cease to accrue.
The Notes are not subject to any sinking fund.
9. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to purchase such Holder's
Notes, in whole or in part in a principal amount that is an integral multiple of
$1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal
to 101% of the principal amount thereof on any Change of Control Payment Date,
plus accrued and unpaid interest, if any, Additional Amounts, if any, and
Special Interest, if any, thereon to the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder of Notes. The holder
of this Note may elect to have this Note or a portion hereof in an authorized
denomination purchased by completing the form entitled "Option of Holder to
Require Purchase" appearing below and tendering this Note pursuant to the Change
of Control Offer. Unless the Company defaults in the payment of the Change of
Control Purchase Price with respect thereto, all Notes or portions thereof
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest and Additional Amounts, if any, and Special Interest, if any,
from and after the Change of Control Payment Date.
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<PAGE> 11
10. Repurchase at the Option of Holders upon Asset Sale.
Subject to the limitations set forth in the following
paragraph and the Indenture, if at any time the Company or any Restricted
Subsidiary engages in any Asset Sale, as a result of which the aggregate amount
of Excess Proceeds exceeds $5,000,000, the Company shall, within 30 calendar
days of the date the amount of Excess Proceeds exceeds $5,000,000, use the
then-existing Excess Proceeds to make an offer to purchase from all Holders, on
a pro rata basis, Notes in an aggregate principal amount equal to the maximum
principal amount that may be purchased out of the then-existing Excess Proceeds,
at a purchase price in cash equal to 100% of the principal amount thereof on any
Asset Sale Payment Date, plus accrued and unpaid interest thereon, if any, and
Additional Amounts, if any, and Special Interest, if any, to the Asset Sale
Payment Date, provided that Excess Proceeds attributable to assets not
constituting Collateral (as defined in the Indenture) must be used first to make
an Asset Sale Offer pursuant to the Senior Note Indenture (as defined in the
Indenture) unless the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged, and then to make an Asset Sale
Offer for the Notes, if there remain Excess Proceeds after the Asset Sale Offer
for the Senior Notes has been completed. Upon completion of an Asset Sale Offer
(including payment of the Offer Purchase Price for accepted Notes), any surplus
Excess Proceeds that were the subject of such offer shall cease to be Excess
Proceeds, and the Company may then use such amounts for general corporate
purposes.
Notwithstanding the paragraph above, the Company will not be
obligated to repurchase Notes in connection with an Asset Sale Offer
representing in the aggregate more than 25% of the original aggregate principal
amount of the Notes (which original aggregate principal amount shall for these
purposes be $26,500,000, without any adjustment whatsoever) prior to the date
following the Five Year Date, and the original aggregate principal amount of
Notes repurchased in connection with any Asset Sale Offer having a purchase date
prior to the date following the Five Year Date shall represent no more than 25%
of the original aggregate principal amount of the Notes less the original
aggregate principal amount of Notes purchased pursuant to Asset Sale Offers
relating to all prior Asset Sales. To the extent that the amount of Excess
Proceeds exceeds the amount of Notes purchased because of the limitation imposed
by the immediately preceding sentence (the amount of such excess being the
"Aggregate Unused Proceeds"), such Aggregate Unused Proceeds shall constitute
Excess Proceeds for purposes of the first Asset Sale Offer that is made after
the Five Year Date and, in the event the amount of the Aggregate Unused Proceeds
exceeds $5,000,000, promptly after the Five Year Date, the Company shall
commence an Asset Sale Offer on a pro rata basis for an aggregate principal
amount of Notes equal to the Aggregate Unused Proceeds (and any other Excess
Proceeds that arise between the Five Year Date and such Asset Sale Offer) at a
purchase price equal to 100% of the principal amount of the Notes, plus accrued
interest, if any, Special Interest, if any, and Additional Amounts, if any, to
the date of purchase.
Within 30 calendar days of the date the amount of Excess
Proceeds exceeds $5,000,000, the Company shall send, or cause to be sent, by
first-class mail, postage
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<PAGE> 12
prepaid, a notice regarding the Asset Sale Offer to each Holder of Notes. The
Holder of this Note may elect to have this Note or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Require Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Offer
Purchase Price with respect thereto, all Notes or portions thereof selected for
payment pursuant to the Asset Sale Offer will cease to accrue interest and
Additional Amounts, if any, and Special Interest, if any, from and after the
Asset Sale Payment Date.
11. Repurchase at the Option of Holders upon a Termination of Trading.
In the event of any Termination of Trading (as defined in the
Indenture) occurring after the Issue Date and on or prior to Maturity, each
Holder of Notes will have the right commencing on the date following the Five
Year Date, at the Holder's option, to require the Company to repurchase all or
any part of such Holder's Notes on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Termination of Trading at a
price (the "Repurchase Price") equal to 100% of the principal amount thereof,
together with accrued and unpaid interest, if any, Additional Amounts, if any,
and Special Interest, if any, thereon to the Repurchase Date.
On or before the 15th day after the occurrence of a
Termination of Trading (unless such Termination of Trading occurs prior to the
Five Year Date, then on the 15th day following the Five Year Date), the Company
shall mail to all Holders of Notes a notice of the occurrence of such
Termination of Trading, the Repurchase Price and the procedures which the Holder
must follow to exercise the repurchase right. To exercise such right, the Holder
of this Note must deliver, on or before the close of business on the Repurchase
Date, irrevocable written notice to the Company (or an agent designated by the
Company for such purpose) and to the Trustee of the Holder's exercise of such
right, together with the certificates evidencing the Notes with respect to which
the right is being exercised, duly endorsed for transfer and with the form
entitled "Option of Holder to Require Purchase" appearing below completed. Such
written notice is irrevocable.
12. Mandatory Redemption.
Except as set forth in Sections 9, 10 and 11, the Company is
not required to make any mandatory redemption payments or sinking fund payments
with respect to the Notes.
13. The Global Note.
So long as this Global Note is registered in the name of the
Depositary or its nominee, members of, or participants in, the Depositary
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depositary or the Trustee as its
custodian, and the Depositary may be treated by the Company, the Guarantors, the
Trustee and any agent of the Company, the Guarantors or the Trustee as the
absolute owner of this Global Note for all purposes. Notwithstanding
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<PAGE> 13
the foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or (ii) impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of
Notes.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder of Notes is entitled to take under the Indenture or the Notes.
Whenever, as a result of an optional redemption of Notes by
the Company, a Change of Control Offer, an Asset Sale Offer, an offer to
purchase upon a Termination of Trading or an exchange for Certificated Notes,
this Global Note is redeemed, repurchased or exchanged in part, this Global Note
shall be surrendered by the Holder thereof to the Trustee who shall cause an
adjustment to be made to Schedule A hereof so that the principal amount of this
Global Note will be equal to the portion not redeemed, repurchased or exchanged
and shall thereafter return this Global Note to such Holder; provided that this
Global Note shall be in a principal amount of $1,000 or an integral multiple of
$1,000.
14. Transfer and Exchange.
By its acceptance of any Note represented by a certificate
bearing the Private Placement Legend, each Holder of, and beneficial owner of an
interest in, such Note acknowledges the restrictions on transfer of such Note
set forth on the face hereof, and agrees that it will transfer such a Note only
in accordance with the restrictions set forth on the face hereof and the
restrictions set forth under the heading "Transfer Restrictions" in the Final
Memorandum.
In connection with any transfer of a Note bearing the Private
Placement Legend, each Holder agrees to deliver to the Company such satisfactory
evidence, which may include an opinion of independent counsel licensed to
practice law in the State of New York, as reasonably may be requested by the
Company to confirm that such transfer is being made in accordance with the
limitations set forth in the Private Placement Legend. In the event the Company
determines that any such transfer is not in accordance with the Private
Placement Legend, the Company shall so inform the Registrar which shall not
register such transfer; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such evidence.
Upon the registration of transfer, exchange or replacement of
a Note not bearing the Private Placement Legend, the Trustee shall deliver a
Note that does not bear the Private Placement Legend. Upon the transfer,
exchange or replacement of a Note bearing the Private Placement Legend, the
Trustee shall deliver a Note bearing the Private Placement Legend, unless such
legend may be removed from such Note as
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<PAGE> 14
provided in the next sentence. The Private Placement Legend may be removed from
a Note if there is delivered to the Company such satisfactory evidence, which
may include an opinion of independent counsel licensed to practice law in the
State of New York, as reasonably may be requested by the Company to confirm that
neither such legend nor the restrictions on transfer set forth therein are
required to ensure that transfers of such Note will not violate the registration
and prospectus delivery requirements of the Securities Act and if the transferee
is a resident of Canada, the securities laws of the applicable province of
Canada; provided that the Trustee shall not be required to determine (but may
rely on a determination made by the Company with respect to) the sufficiency of
any such evidence. Upon provision of such evidence, the Trustee shall
authenticate and deliver in exchange for such Note, a Note or Notes
(representing the same aggregate principal amount of the Note being exchanged)
without such legend. If the Private Placement Legend has been removed from a
Note, as provided above, no other Note issued in exchange for all or any part of
such Note shall bear such legend, unless the Company has reasonable cause to
believe that such other Note represents a "restricted security" within the
meaning of Rule 144 and instructs the Trustee to cause a legend to appear
thereon.
The Holder of this Global Note shall, by its acceptance of
this Global Note, agree that transfers of beneficial interests in this Global
Note may be effected only through a book entry system maintained by such Holder
(or its agent), and that ownership of a beneficial interest in the Notes
represented thereby shall be required to be reflected in book entry form.
Transfers of this Global Note shall be limited to transfers in
whole, and not in part, to the Depositary, its successors and their respective
nominees. Interests of beneficial owners in this Global Note may be transferred
in accordance with the rules and procedures of the Depositary (or its
successors).
This Global Note will be exchanged by the Company for one or
more Certificated Notes if (a) the Depositary (i) has notified the Company that
it is unwilling or unable to continue as, or ceases to be, a "Clearing Agency"
registered under Section 17A of the Exchange Act and (ii) a successor to the
Depositary registered as a "Clearing Agency" under Section 17A of the Exchange
Act is not appointed by the Company within 90 calendar days or (b) the
Depositary is at any time unwilling or unable to continue as Depositary and a
successor to the Depositary is not able to be appointed by the Company within 90
calendar days. If an Event of Default occurs and is continuing, the Company
shall, at the request of the Holder hereof, exchange all or part of this Global
Note for one or more Certificated Notes; provided that the principal amount of
each of such Certificated Notes and this Global Note, after such exchange, shall
be $1,000 or an integral multiple thereof. Whenever this Global Note is
exchanged as a whole for one or more Certificated Notes, it shall be surrendered
by the Holder to the Trustee for cancellation. Whenever this Global Note is
exchanged in part for one or more Certificated Notes, it shall be surrendered by
the Holder to the Trustee and the Trustee shall make the appropriate notations
thereon pursuant to Section 2.5(c) of the Indenture. All Certificated Notes
issued in exchange for this Global Note shall include the Private Placement
Legend except as set forth in Section 2.6(a)(iii) of the Indenture. Interests in
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<PAGE> 15
this Global Note may not be exchanged for Certificated Notes other than as
provided in this paragraph.
Prior to the effectiveness of a Shelf Registration Statement
or following the suspension or termination thereof, the Holder of this Note (or
holders of interests therein) and prospective purchasers designated by such
Holder (or such holders of interests therein) shall have the right to obtain
from the Company upon request by such Holder (or such holders of interests) or
prospective purchasers, during any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act, or exempt from reporting pursuant to
12g3-2(b) under the Exchange Act, the information required by paragraph
(d)(4)(i) of Rule 144 in connection with any transfer or proposed transfer of
such Note or interest.
15. Denominations.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and integral multiples thereof of principal amount.
16. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment unless such abandoned property
law designates another Person.
17. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may
terminate some or all of its and the Guarantors' obligations under the Notes,
the Guarantees, the Indenture and the Collateral Documents if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Notes to redemption or maturity, as
the case may be.
18. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture, the Notes, the Collateral Documents and the Senior Note
Collateral Documents may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes and (ii) any
past Default and its consequences may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding Notes.
Without the consent of any Holder of Notes, the Company, the Guarantors and the
Trustee may amend the Indenture, the Notes, the Collateral Documents and the
Senior Note Collateral Documents (i) to evidence the succession of another
Person to the Company or the Guarantors, as applicable, and the assumption by
such successor of the covenants of the Company or the Guarantors under the
Indenture,
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Collateral Documents and the Senior Note Collateral Documents; (ii) to add
additional covenants or to surrender rights and powers conferred on the Company
or the Guarantors by the Indenture, the Collateral Documents and the Senior Note
Collateral Documents; (iii) to add any additional Events of Default; (iv) to
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (v) to evidence and provide for the acceptance of appointment under the
Indenture of a successor Trustee; (vi) to add additional security for the Notes
and the Guarantees; (vii) to cure any ambiguity in the Indenture, the Collateral
Documents or the Senior Note Collateral Documents, to correct or supplement any
provision in the Indenture, the Collateral Documents or the Senior Note
Collateral Documents which may be inconsistent with any other provision therein
or to add any other provisions with respect to matters or questions arising
under the Indenture, the Collateral Documents or the Senior Note Collateral
Documents, provided that such actions shall not adversely affect the interests
of the Holders in any material respect; (viii) to make provision with respect to
the conversion rights of the Holders of the Notes in the event of a
consolidation, merger or sale of assets involving the Company, as required by
the Indenture; or (ix) to comply with the requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
19. Defaults and Remedies.
Events of Default under the Indenture include in summary form:
default in payment of interest, including Additional Amounts, if any, or Special
Interest, if any, on the Notes for 30 days; default in payment of principal on
the Notes; the occurrence and continuance of an Event of Default under the
Senior Note Indenture (as defined therein) for a period of 15 days after written
notice has been given to the Company by the Trustee or a Holder of the Notes;
failure to comply with certain of the covenants in the Indenture, including the
Change of Control covenant, the Asset Sale covenant and the Termination of
Trading covenant; failure by the Company to comply with certain of its other
agreements in the Indenture or the Notes or any Collateral Document or any
Senior Note Collateral Document or a breach of a representation or warranty in
any Collateral Document or any Senior Note Collateral Document and the
continuance of such default or breach for 45 days after notice; expropriation of
assets of the Company or any of its Restricted Subsidiaries having a book value,
less the book value of the expropriation proceeds, constituting more than 15% of
the book value, on a consolidated basis, of the Company's assets minus current
assets; defaults in the payment of certain other Indebtedness; or defaults,
other than such payment defaults, which result in the acceleration prior to
express maturity of certain other Indebtedness or which consist of the failure
to pay at maturity; certain final judgments which remain undischarged, unwaived,
if applicable, unbonded, unstayed or unsatisfied; certain events of bankruptcy
or insolvency; failure of a Guarantee, a Collateral Document or a Senior Note
Collateral Document to be in effect, the denial of obligations under a Guaranty,
a Collateral Document or a Senior Note Collateral Document or the Notes by the
Company or the Guarantors party thereto or the failure of the Notes and the
Guarantees to be secured by the theretofore perfected security interests in the
Collateral or the Senior Note Collateral (except as permitted by the Indenture,
the Collateral Documents or the Senior Note
16
<PAGE> 17
Collateral Documents), which in each circumstance continues for 30 days after
notice. If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency are Events of Default and shall
result in the Notes being immediately due and payable upon the occurrence of
such Events of Default without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture, the Notes, the
Guarantees, the Collateral Documents or the Senior Note Collateral Documents
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture, the Notes, the Guarantees, the Collateral Documents or the Senior
Note Collateral Documents unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Notes may direct the Trustee in its exercise of any trust or power under the
Indenture, the Collateral Documents and the Senior Note Collateral Documents.
The Holders of a majority in principal amount of the outstanding Notes, by
written notice to the Company and the Trustee, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all Events of Default have been cured or waived
except nonpayment of principal and interest that has become due solely because
of the acceleration.
20. Collateral Documents.
As provided in the Indenture, the Collateral Documents and the
Senior Note Collateral Documents, and subject to certain limitations set forth
therein, the obligations of the Company and the Guarantors under the Notes, the
Indenture and the Collateral Documents are secured by the Collateral as provided
in the Collateral Documents and the Senior Note Collateral as provided in the
Senior Note Collateral Documents. Each Holder, by accepting a Note, agrees to be
bound to all the terms and provisions of the Collateral Documents and the Senior
Note Collateral Documents, as the same may be amended from time to time. The
Liens created under the Collateral Documents and the Senior Note Collateral
Documents shall be released upon the terms and subject to the conditions set
forth in the Indenture, the Collateral Documents and the Senior Note Collateral
Documents.
21. Individual Rights of Trustee.
Subject to certain limitations imposed by the Trust Indenture
Act, the Trustee or any Paying Agent or Registrar, in its individual or any
other capacity, may become the owner or pledgee of Notes and may otherwise deal
with the Company, the Guarantors, its Restricted Subsidiaries or its Affiliates
with the same rights it would have if it were not Trustee, Paying Agent or
Registrar, as the case may be, under the Indenture.
17
<PAGE> 18
22. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of
the Company or the Guarantors, as such, shall have any liability for any
obligations of the Company or the Guarantors under the Notes, the Guarantees or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of his or her status as a
director, officer, employee, incorporator or stockholder of the Company or any
Guarantor. By accepting a Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such Holder.
23. Governing Law.
THE INDENTURE, THE GUARANTEES AND THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
24. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
25. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Notes or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
26. Subordination.
The indebtedness evidenced by this Note is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Note is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
18
<PAGE> 19
27. Conversion Rights.
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Note is entitled, at his, her or its option, at
any time on or after 9:00 a.m. New York City time on July 30, 1996 and before
the close of business on the Business Day next preceding the Redemption Date, or
in case this Note or a portion hereof is called for redemption, then in respect
of this Note or such portion hereof until and including, but (unless the Company
defaults in making the payment due upon redemption) not after, the close of
business on the Business Day next preceding the Redemption Date, to convert this
Note at the principal amount hereof, or of such portion, in to fully paid and
non-assessable shares (calculated as to each conversion to the nearest 1/100th
of a share) of Common Stock of the Company at a conversion price equal to $6.90
per share of such Common Stock (or in each case at the current adjusted
conversion price if an adjustment has been made as provided in the Indenture) by
surrender of this Note, duly endorsed or assigned to the Company or in blank, to
the Company at its office or agency maintained for that purpose pursuant to the
Indenture, accompanied by written notice to the Company in the form provided in
this Note (or such other notice as is acceptable to the Company) that the Holder
hereof elects to convert this Note and, in case such surrender shall be made
during the period from the close of business on any regular Record Date next
preceding any Interest Payment Date or the close of business on a record date
for the payment of a Reset Penalty to the close of business on such Interest
Payment Date or the Reset Penalty Payment Date, as applicable, (unless this Note
or the portion thereof being converted has been called for redemption on a
Redemption Date within such period), also accompanied by payment in New York
Clearing House funds, or other funds acceptable to the Company of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of this Security then being converted and/or any Reset Penalty due.
Subject to the aforesaid requirement for payment and, in the case of a
conversion after the regular Record Date next preceding any Interest Payment
Date and on or before such Interest Payment Date, to the right of the Holder of
this Note (or any Predecessor Security) of record at such regular record date to
receive an installment of interest (with certain exceptions provided in the
Indenture), no payment or adjustment is to be made upon conversion on account of
any interest accrued hereon or on account of any dividends on the Common Stock
issued upon conversion. No fractional shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional share the
Company shall pay a cash adjustment as provided in the Indenture.
On December 1, 1996 (the "Reset Date"), the conversion price will be
adjusted (the "Conversion Reset") to equal (x) the product of (i) the average of
the high and low prices on the Nasdaq National Market, or the consolidated
transaction reporting tape in the event that the Common Stock of the Company is
not then traded on the Nasdaq National Market, and (ii) the amount of Common
Stock of the Company reported as being traded on that day, for each Trading Day
of the 30 calendar days preceding the Reset Date (the "Conversion Reset
Period"), divided by the total number of shares of Common Stock of the Company
traded over the Conversion Reset Period, then multiplied by (y) 115% (the
19
<PAGE> 20
"Conversion Reset Price"), if such Conversion Reset Price shall be lower than
the conversion price before such calculation, provided that the Conversion Reset
Price shall never be adjusted to less than $4.30 per share, but the Company will
be required to pay to holders of Notes a quarterly reset penalty ("Reset
Penalty") attributable to the Company's inability to adjust the Conversion Reset
Price below $4.30 per share. In the event that the conversion price before such
calculation shall be equal to or less than the Conversion Reset Price, then no
adjustment to the conversion price shall be made. The quarterly Reset Penalty
payable to each Holder of Notes shall be an amount equal to $2.50 per Note held
by such Holder (which for the purposes of this Paragraph 27 will be determined
to be Certificated Notes, each in the denomination of $1,000) unless, but for
the proviso in the preceding sentence, the Conversion Reset Price would have
been less than $3.80 per share, in which case such quarterly Reset Penalty shall
be an amount equal to $5.00 per Note held by such Holder. The Reset Penalty
shall be payable on each March 1, June 1, September 1 and December 1 (each such
date being referred to herein as a "Reset Penalty Payment Date"), commencing on
March 1, 1997, the first such Reset Penalty Payment Date occurring after the
Reset Date, and shall be payable to holders of record of Notes on the February
15, May 15, August 15 and November 15 immediately preceding such Reset Penalty
Payment Date and shall not accrue. The Reset Penalty will cease to be payable
upon an conversion of a Note.
The Company will furnish to any Holder of Notes upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Note. Requests may be made to:
Petersburg Long Distance Inc.
166 Pearl Street
Toronto, Ontario
CANADA M5H 1L3
20
<PAGE> 21
SUBSIDIARY GUARANTEE
Subject to the limitations set forth in the Indenture, the
Guarantors (as defined in the Indenture referred to in this Note and each
hereinafter referred to as a "Guarantor," which term includes any successor or
additional Guarantor under the Indenture) have, jointly and severally,
irrevocably and unconditionally guaranteed (a) the due and punctual payment of
the principal (and premium, if any) of and interest (including Additional
Amounts, if any and Special Interest, if any) on the Notes, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, offer to purchase upon a Termination of Trading, purchase or
otherwise, (b) the due and punctual payment of interest on the overdue principal
of and interest (including Additional Amounts, if any, and Special Interest, if
any) on the Notes, if any, to the extent lawful, (c) the due and punctual
performance of all other obligations of the Company and the Guarantors to the
Holders under the Indenture, the Notes, the Collateral Documents and the Senior
Note Collateral Documents and (d) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, the same will be promptly
paid in full when due or performed in accordance with the terms of the extension
or renewal, whether at Stated Maturity, by acceleration, call for redemption,
upon a Change of Control Offer, Asset Sale Offer, offer to purchase upon a
Termination of Trading, purchase or otherwise. Capitalized terms used herein
shall have the meanings assigned to them in the Indenture unless otherwise
indicated.
Payment on each Note is guaranteed, jointly and severally, by
the Guarantors pursuant to Article X of the Indenture on a senior subordinated
basis to the extent provided in the Indenture and reference is made to such
Indenture for the precise terms of the Guarantees and such subordination.
The obligations of each Guarantor are limited to the lesser of
(a) an amount equal to such Guarantor's Adjusted Net Assets as of the date of
the Guarantee and (b) the maximum amount as will, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such Guarantor
(including, if applicable, its obligations under the Senior Notes) and after
giving effect to any collections from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law or not
otherwise being void, voidable or unenforceable under any similar other
bankruptcy, receivership, insolvency, liquidation or other similar legislation
or legal principles under applicable foreign law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the Adjusted Net Assets
of each Guarantor.
Certain of the Guarantors may be released from their
Guarantees upon the terms and subject to the conditions provided in the
Indenture.
21
<PAGE> 22
The Guarantee shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof and in the Indenture.
NWE CAPITAL (CYPRUS) LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
PLD ASSET LEASING LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
PLD CAPITAL LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
BALTIC COMMUNICATIONS LIMITED
By: /s/ Clayton A. Waite
-------------------------------------
22
<PAGE> 23
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
By: /s/ James R.S. Hatt
-------------------------------------
23
<PAGE> 24
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $26,500,000. The
following decreases/increase in the principal amount at maturity of this Note
have been made:
<TABLE>
<CAPTION>
TOTAL PRINCIPAL
AMOUNT AT NOTATION
DECREASE IN INCREASE IN MATURITY MADE BY
DATE OF PRINCIPAL PRINCIPAL FOLLOWING SUCH OR ON
DECREASE/ AMOUNT AT AMOUNT AT DECREASE/ BEHALF OF
INCREASE MATURITY MATURITY INCREASE TRUSTEE
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
</TABLE>
24
<PAGE> 25
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- ---------------------------------
- --------------------------------- --------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ________________________ Attorney to transfer
this Note on the Security Register, with full power of substitution.
Dated:
-------------------------
- ------------------------------- --------------------------------------------
Signature of Holder Signature Guaranteed:
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
25
<PAGE> 26
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
/ / In connection with the Change of Control Offer made pursuant to
Section 4.7 of the Indenture, the undersigned hereby elects to have
/ / the entire principal amount
/ / $___________________($1,000 in principal amount or an
integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or___________________ an
amount in cash equal to 101% of the principal amount indicated
in the preceding sentences, as the case may be, plus accrued
and unpaid interest thereon, if any, and Additional Amounts,
if any, and Special Interest, if any, to the Change of Control
Payment Date.
/ / In connection with the Asset Sale Offer made pursuant to Section 4.8
of the Indenture, the undersigned hereby elects to have
/ / the entire principal amount
/ / $___________________ ($1,000 in principal amount or an
integral multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or___________________ an
amount in cash equal to 100% of the principal amount indicated
in the preceding sentence, as the case may be, plus accrued
and unpaid interest thereon, if any, and Additional Amounts,
if any, and Special Interest, if any, to the Asset Sale
Payment Date.
/ / In connection with the option of the Holder to require the Company to
repurchase the Holder's Note upon a Termination of Trading pursuant to
Section 4.14 of the Indenture, the undersigned hereby elects to have
/ / the entire principal amount
/ / $___________________ ($1,000 in principal amount or an
integral multiple thereof) of this Note
26
<PAGE> 27
repurchased by the Company. The undersigned hereby directs the
Trustee or Paying Agent to pay it or___________________ an
amount in cash equal to 100% of the principal amount indicated
in the preceding sentences, as the case may be, plus accrued
and unpaid interest thereon, if any, and Additional Amounts,
if any, and Special Interest, if any, to the Repurchase Date.
Dated:
-------------
- ------------------------------- ---------------------------------------------
Signature of Holder Signature Guaranteed:
27
<PAGE> 28
Signatures must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
28
<PAGE> 29
FORM OF CONVERSION NOTICE
The undersigned registered owner of this Note hereby
irrevocably exercises the option to convert this Note, or the portion hereof
(which is $1,000 or a multiple thereof) designated below, into shares of Common
Stock in accordance with the terms of the Indenture referred to in this Note,
and directs that the shares issuable and deliverable upon the conversion,
together with any check in payment for a fractional share and any Note
representing any unconverted principal amount hereof, be issued and delivered to
the registered owner hereof unless a different name has been provided below. If
this Notice is being delivered on a date after the close of business on a
regular Record Date or a record date for the payment of a Reset Penalty and
prior to the close of business on the related Interest Payment Date or Reset
Penalty Payment Date, as the case may be, this Notice is accompanied by payment
in New York Clearing House funds, or other funds acceptable to the Company, of
an amount equal to the interest payable on such Interest Payment Date on the
principal of this Note to be converted and/or the Reset Penalty due on such
Note. If shares or any portion of this Note not converted are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
Dated:
-------------- --------------------------------------------
NOTICE This signature must correspond with
the name as written upon the face of the
within- mentioned instrument in every
particular, without alteration or any change
whatsoever.
Fill in for registration of shares of Common
Stock if they are to be delivered, or
Securities if they are to be issued, other
than to and in the name of the registered
owner:
- ----------------------------------
(Name)
- ----------------------------------
(Street Address)
- ----------------------------------
(City, State and zip code)
(Please print name and address)
29
<PAGE> 30
Register: Common Stock
-----
Securities
-----
(Check appropriate line(s)).
Principal amount to be
converted (if less than all):
$ ,000
---------------
-----------------------------
Social Security or other
Taxpayer Identification
Number of owner
30
<PAGE> 1
EXHIBIT 4.8
LEASING COMPANY ESCROW ACCOUNT AGREEMENT
[PLD Capital Asset (U.S.) Inc.]
This LEASING COMPANY ESCROW ACCOUNT AGREEMENT (the "Agreement"), dated
as of June 15, 1998, among The Bank of New York, a New York banking corporation,
as escrow agent (in such capacity, the "Escrow Agent"), The Bank of New York, a
New York banking corporation, as trustee (in such capacity, the "Senior Note
Trustee") under the Senior Note Indenture (as defined herein), The Bank of New
York, a New York banking corporation, as trustee (in such capacity, the
"Convertible Note Trustee") under the Convertible Note Indenture (as defined
herein), and PLD Capital Asset (U.S.) Inc., a Delaware corporation (the "Leasing
Company").
RECITALS
A. Pursuant to the Indenture, dated as of May 31, 1996 (as amended,
amended and restated, supplemented or otherwise modified from time to time, the
"Senior Note Indenture"), among Petersburg Long Distance Inc., an Ontario
corporation (the "Company"), the corporations acting as guarantors and named
therein (the "Senior Note Guarantors" and each, a "Senior Note Guarantor") and
the Trustee, the Company is issuing $123,000,000 aggregate principal amount at
stated maturity of its 14% Senior Discount Notes due June 1, 2004 (the "Senior
Notes").
B. Pursuant to the Indenture, dated as of May 31, 1996 (as amended,
amended and restated, supplemented or otherwise modified from time to time, the
"Convertible Note Indenture"), among the Company, the corporations acting as
guarantors and named therein (the "Convertible Note Guarantors") and the
Convertible Note Trustee, the Company is issuing $26,500,000 aggregate principal
amount of its 9% Convertible Subordinated Notes due 2006 (the "Convertible
Notes").
C. Pursuant to the Senior Note Indenture and the Convertible Note
Indenture, the Leasing Company has jointly and severally, irrevocably and
unconditionally guaranteed all of the obligations of the Company under the
Senior Notes, the Senior Note Indenture and the Senior Note Collateral Documents
and under the Convertible Notes, the Convertible Note Indenture and the
Convertible Note Collateral Documents and all of the obligations of the Senior
Note Guarantors under the Senior Note Indenture, Senior Note Guarantees and the
other Senior Note Collateral Documents.
D. As security for its obligations, among other things, under the
Senior Notes and the Senior Note Indenture and as security for its obligations,
among other things, under the Convertible Notes and the Convertible Note
Indenture, the Leasing Company is required to enter
<PAGE> 2
into a Leasing Company Security and Pledge Agreement of even date herewith (the
"Leasing Company Security Agreement") with the Senior Note Trustee, the
collateral agent named therein (the "Senior Note Escrow Agent") and the
Convertible Note Trustee, in which the Company is granting Liens on and a
security interest in certain collateral described therein (the "Senior Note
Collateral").
E. Under the terms of the Senior Note Indenture and the Leasing Company
Pledge and Security Agreement, the Leasing Company is required to deposit (i)
all funds which it receives from the Company, whether representing the proceeds
of the Senior Notes or otherwise, (ii) all payments which it receives from
Restricted Subsidiaries or Qualified Joint Ventures allocable or related to or
in connection with Telecommunications Asset Agreements, Investments constituting
lease or rental payments or other payments, or from Persons in which Qualified
Investments are made, whether constituting interest and principal payments,
dividends or distributions or other payments and (iii) all funds which it
receives from other Leasing Companies in a special, segregated and irrevocable
account in the name of and beneficially owned by the Leasing Company which is
pledged to, and to be under the sole dominion and control of, the Senior Note
Trustee, acting for its benefit and the equal and ratable benefit of the Holders
of the Senior Notes and the Convertible Note Trustee, acting for its benefit and
the equal and ratable benefit of the Holders of the Convertible Notes (the
"Leasing Company Escrow Account") pending the reinvestment of such amounts in
accordance with the Senior Note Indenture.
F. The parties have entered into this Agreement in order to set forth
the conditions upon which, and the manner in which, funds will be disbursed from
the Leasing Company Escrow Account and released from the security interest and
Liens described above.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. Terms used herein and not defined herein shall have
the meanings as defined in the Senior Note Indenture. In addition to any other
defined terms used herein, the following terms shall constitute defined terms
for purposes of this Agreement and shall have the meanings set forth below:
"Affiliates" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director or
officer (A) of such specified person, (B) of any subsidiary of such specified
person or (C) of any person described in clause (i) above or (iii) any person in
which such person has, directly or indirectly, a 5% or greater voting or
economic interest or the power to control. For purposes of this definition,
control of a person means the power, directly or indirectly, to direct or cause
the direction of the management or policies of such
2
<PAGE> 3
person whether through the ownership of voting securities or by contract or
otherwise and the terms "controlling" and "controlled" have meanings correlative
to the foregoing.
"Applied" means that disbursed funds have been applied pursuant to
Section 3(a) or pursuant to Section 6(b) (iii).
"Available Funds" means (A) the sum of (i) all amounts deposited in the
Leasing Company Escrow Account from time to time and (ii) interest earned or
dividends paid on the funds in the Escrow Accounts (including holdings of
Eligible Cash Equivalents), less (B) the aggregate disbursements previously made
pursuant to this Agreement.
"Collateral" shall have the meaning given in Section 6(a) hereof.
"Company Senior Note Escrow Account" means the escrow account
established pursuant to Section 2(b) of the Company Senior Note Escrow Account
Agreement.
"Company Senior Note Escrow Account Agreement" means that certain
Company Senior Note Escrow Account Agreement of even date herewith among the
Escrow Agent, the Trustee and the Company.
"Default" means a "Default" as defined in Section 1.1 of the Senior
Note Indenture until the Senior Notes are no longer outstanding and the Senior
Note Indenture has been satisfied and discharged in which case a "Default" means
a "Default" as defined in the Convertible Note Indenture if not then satisfied
and discharged.
"Disbursement Request" means a notice sent by the Leasing Company to
the Escrow Agent requesting a disbursement of funds from the Leasing Company
Escrow Account, in substantially the form of Exhibit A hereto. Each Disbursement
Request shall be signed by the Chairman of the Board, a Vice Chairman of the
Board, the Chief Executive Officer, the Chief Operating Officer, the Chief
Financial Officer or any Vice President of the Company.
"Eligible Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits,
certificates of deposit, or Eurodollar deposits of any commercial bank organized
in the United States having capital and surplus in excess of $500,000,000, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (ii) above, (iv) direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing, or
subject to tender at the option of the holder thereof within ninety days after
the date of acquisition thereof and, at the time of acquisition having a rating
of A or better from Standard & Poor's or A-2 or better from Moody's, (v)
commercial paper issued by the parent corporation of any commercial bank
organized in the United States having capital and surplus in excess of
3
<PAGE> 4
$500,000,000 and commercial paper issued by non-bank issuers rated A-1 by
Standard & Poor's or P-1 by Moody's and in each case maturing within 270 days
after the date of acquisition, (vi) overnight bank deposits and bankers"
acceptances at any commercial bank organized in the United States having capital
and surplus in excess of $500,000,000, (vii) deposits available for withdrawal
on demand with a commercial bank organized in the United States having capital
and surplus in excess of $500,000,000 and (viii) investments in money market
funds substantially all of whose assets comprise securities of the types
described in clauses (i) through (vi).
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500,000,000 its equivalent in
foreign currency, whose debt is rated "A" (or higher) or the equivalent rating
according to Standard & Poor's or Moody's at the time as of which any investment
or rollover therein is made.
"Escrow Account Statement" shall have the meaning given in Section
2(g).
"Escrow Agent" shall have the meaning set forth in the preamble to this
Agreement.
"Initial Escrow Amount" shall mean $46,000,000 of the net proceeds
received by the Company from the sale of the Senior Notes pursuant to the
Purchase Agreement.
"Interest Payment Date" means June 1 and December 1 of each year,
commencing on December 1, 1996, until the Senior Notes and the Convertible Notes
are paid in full.
"Issue Date" means June 12, 1996.
"Leasing Company Escrow Account" shall have the meaning given in
Section 2(b).
"Senior Note Discharge Date" shall mean such time as the Senior Notes
are no longer outstanding and the Senior Note Indenture and the Senior Note
Collateral Documents have been satisfied and discharged.
"Trustees" means, collectively, the Convertible Note Trustee and the
Senior Note Trustee.
2. Leasing Company Escrow Account; Escrow Agent.
(a) Appointment of Escrow Agent. The Leasing Company and the Trustees
hereby appoint the Escrow Agent, and the Escrow Agent hereby accepts
appointment, as escrow agent, under the terms and conditions of this Agreement.
(b) Establishment of Leasing Company Escrow Account. Concurrent with
the execution and delivery hereof, the Escrow Agent shall establish and maintain
in the name of the Leasing Company at The Bank of New York, a special,
segregated and irrevocable escrow account
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designated "Leasing Company Escrow Account pledged by PLD Capital Asset (U.S.)
Inc. to The Bank of New York, as Trustee" (the "Leasing Company Escrow
Account"). All funds accepted by the Escrow Agent pursuant to this Agreement
shall be deposited in the name of and beneficially owned by the Leasing Company
and pledged to, and under the sole dominion and control of, the Senior Note
Trustee, acting for its benefit and the equal and ratable benefit of the Holders
of the Senior Notes and the Convertible Note Trustee, acting for its benefit and
the equal and ratable benefit of the Holders of the Convertible Notes. All such
funds shall be held in the Leasing Company Escrow Account until disbursed in
accordance with the terms hereof. The Leasing Company Escrow Account, the funds
held therein and any Eligible Cash Equivalents held by the Escrow Agent in which
such funds are invested shall be beneficially owned by the Leasing Company and
pledged to and under the sole dominion and control of the Escrow Agent for the
benefit of the Senior Note Trustee acting for its benefit and the equal and
ratable benefit of the Holders of the Senior Notes, and for the benefit of the
Convertible Note Trustee, acting for its benefit and the equal and ratable
benefit of the Holders of the Convertible Notes.
(c) The Company shall provide notice to the Collateral Agent and the
Trustee of the source of any money deposited to the Escrow Account by reference
to the applicable provisions of the Senior Note Indenture, and shall keep an
ongoing record of the amounts so deposited and disbursed in accordance with this
Escrow Agreement. It shall be the Company's responsibility to satisfy the
Collateral Agent as to the accounting for the Escrow Account with a view to
ensuring that the amounts required to be calculated for any disbursement are
ascertainable.
(d) Escrow Agent Compensation. The Leasing Company shall pay to the
Escrow Agent such compensation for services to be performed by it under this
Agreement as the Leasing Company and the Escrow Agent may agree in writing from
time to time. The Escrow Agent shall be paid any compensation owed to it
directly by the Leasing Company and shall not disburse from the Leasing Company
Escrow Account any such amounts.
The Leasing Company shall reimburse the Escrow Agent upon request for
all reasonable expenses, disbursements, and advances incurred or made by the
Escrow Agent in implementing any of the provisions of this Agreement, including
compensation and the reasonable expenses and disbursements of its counsel. The
Escrow Agent shall be paid any such expenses owed to it directly by the Leasing
Company and shall not disburse from the Leasing Company Escrow Account any such
amounts.
The provisions of this Section 2(d) shall survive termination of this
Agreement.
(e) Investment of Funds in the Leasing Company Escrow Account. Pending
investment thereof in accordance with the Senior Note Indenture (and the
Convertible Note Indenture, if the Senior Notes are no longer outstanding and
the Senior Note Indenture and the Senior Note Collateral Documents have been
satisfied and discharged), funds deposited in the Leasing Company Escrow Account
shall be invested and reinvested only upon the following terms and conditions:
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(i) Acceptable Investments. All funds deposited or held in
the Leasing Company Escrow Account at any time shall be invested, at
the direction of the Leasing Company except during the continuance of
a Default or an Event of Default, and at the direction of the Senior
Note Trustee, if any of the Senior Notes are outstanding, or the
Convertible Note Trustee, if the Senior Notes are no longer
outstanding and the Senior Note Indenture and the Senior Note
Collateral Documents have been satisfied and discharged, during the
continuance of a Default or an Event of Default, by the Escrow Agent
in Eligible Cash Equivalents for the Company in accordance with the
Company's or the applicable Trustee's written instructions, as
applicable, from time to time to the Escrow Agent; provided, however,
that any such written instruction shall specify the particular
Investment to be made, shall contain the certification referred to in
Section 2(d)(ii), if required, and shall be executed by any officer
of the Company. All Eligible Cash Equivalents shall be assigned to
and held in the possession of, or, in the case of Eligible Cash
Equivalents maintained in book entry form with the Federal Reserve
Bank, transferred to a book entry account in the name of, the Escrow
Agent, as pledgee, with such guarantees as are customary, except that
Eligible Cash Equivalents maintained in book entry form with the
Federal Reserve Bank shall be transferred to a book entry account in
the name of the Escrow Agent at the Federal Reserve Bank that
includes only Eligible Cash Equivalents held by the Escrow Agent for
its customers and segregated by separate recordation in the books and
records of the Escrow Agent.
(ii) Security Interest in and Lien on Investments. No
investment of funds in the Leasing Company Escrow Account shall be
made unless the Leasing Company has certified to the Escrow Agent and
the Trustees that, upon such investment, each of the Convertible Note
Trustee and the Senior Note Trustee will have a first priority
perfected Lien and security interest for the benefit of the
Convertible Note Trustee and the equal and ratable benefit of the
Holders of the Convertible Notes and for the benefit of the Senior
Note Trustee and the equal and ratable benefit of the Holders of the
Senior Notes in the applicable Investment. A certificate as to a
class of investments need not be issued with respect to individual
investments in securities in that class if the certificate applicable
to the class remains accurate with respect to such individual
investments, which continued accuracy the Escrow Agent may
conclusively assume. Promptly after the Issue Date, and within 3
months after the anniversary of the Issue Date, until the payment in
full of the Senior Notes in accordance with the terms thereof and of
the Senior Note Indenture, and all other Obligations then due and
owing under the Senior Notes, the Senior Note Indenture, this
Agreement and the other Senior Note Collateral Documents, each of the
Trustees and the Escrow Agent shall receive an Opinion of Counsel,
dated each such date as applicable, which opinion shall meet the
requirements of Section 314(b) of the Trust Indenture Act of 1939, as
amended (the "TIA").
(iii) Interest and Dividends. All interest earned and
dividends paid on funds invested in Eligible Cash Equivalents shall
be deposited in the Leasing Company
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Escrow Account as additional Collateral beneficially owned by the
Leasing Company and pledged to the Senior Note Trustee, acting for
its benefit and the equal and ratable benefit of the Holders of the
Senior Notes, and to the Convertible Note Trustee, acting for its
benefit and the equal and ratable benefit of the Holders of the
Convertible Notes and shall be reinvested in accordance with the
terms hereof.
(iv) Limitation on Escrow Agent's Responsibilities. The
Escrow Agent's sole responsibilities under this Section 2 shall be
(A) to retain, or cause its agent in the State of New York to retain,
possession of certificated Eligible Cash Equivalents (except,
however, that the Escrow Agent may surrender possession to the issuer
of any such Eligible Cash Equivalent for the purpose of effecting
assignment, crediting interest, or reinvesting such security or
reducing such security to cash) and to be the registered or
designated owner of Eligible Cash Equivalents which are not
certificated, (B) to follow the Leasing Company's or the applicable
Trustee's written instructions, as applicable, given in accordance
with Section 2(e)(i), (C) to invest and reinvest funds pursuant to
this Section 2(e) and (D) to use reasonable efforts to reduce to cash
such Eligible Cash Equivalents as may be required to fund any
disbursement or payment in accordance with Section 3. In connection
with clause (i) above, the Escrow Agent will maintain, or cause its
agent in the State of New York to maintain, continuous possession in
the State of New York of certificated Eligible Cash Equivalents and
cash included in the Collateral and will cause uncertificated
Eligible Cash Equivalents to be registered in the book-entry system
of, and transferred to an account of the Escrow Agent or a sub-agent
of the Escrow Agent at, the Federal Reserve Bank of New York. Except
as provided in Section 6, the Escrow Agent shall have no other
responsibilities with respect to perfecting or maintaining the
perfection of both Trustees' Liens and security interest in the
Collateral and shall not be required to file any instrument, document
or notice in any public office at any time or times. In connection
with clause (D) above, the Escrow Agent shall not be required to
reduce to cash any Eligible Cash Equivalents to fund any disbursement
or payment in accordance with Section 3 in the absence of written
instructions signed by an officer of the Leasing Company specifying
the particular investment to liquidate unless a Default or Event of
Default has occurred and is continuing, in which case such written
instructions shall be signed by a Trust Officer of the Senior Note
Trustee or, after the Senior Note Discharge Date, of the Convertible
Note Trustee. If no such written instructions are received, the
Escrow Agent shall liquidate those Eligible Cash Equivalents having
the lowest interest rate per annum, regardless of maturity, or if
none such exist, those having the nearest maturity. The Escrow Agent
shall have no duty to determine whether or not to file or record any
document or instrument in connection with this Agreement, but will
follow the instructions of the applicable Trustee.
(f) Substitution of Escrow Agent. The Escrow Agent may resign by giving
not less than 30 days' prior written notice to the Leasing Company and the
Senior Note Trustee or, after the Senior Note Discharge Date, to the Convertible
Note Trustee. Such resignation shall take effect upon the later to occur of (i)
delivery of all funds and Eligible Cash Equivalents maintained
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<PAGE> 8
by the Escrow Agent hereunder and copies of all books, records, plans and other
documents in the Escrow Agent's possession relating to such funds or Eligible
Cash Equivalents or this Agreement to a successor Escrow Agent mutually approved
by the Leasing Company and the Senior Note Trustee or, after the Senior Note
Discharge Date, to the Convertible Note Trustee (which approvals shall not be
unreasonably withheld or delayed) and (ii) the Leasing Company, the Senior Note
Trustee or, after the Senior Note Discharge Date, to the Convertible Note
Trustee and such successor Escrow Agent entering into this Agreement or any
written successor agreement no less favorable to the interests of the Holders of
the Convertible Notes, the Holders of the Senior Notes and the Trustees than
this Agreement; and the Escrow Agent shall thereupon be discharged of all
obligations under this Agreement and shall have no further duties, obligations
or responsibilities in connection herewith, except as set forth in Section 4. If
a successor Escrow Agent has not been appointed or has not accepted such
appointment within 30 days after notice of resignation is given to the Leasing
Company, the Escrow Agent may apply to a court of competent jurisdiction for the
appointment of a successor Escrow Agent.
(g) Escrow Account Statement. At least 30 days prior to each Interest
Payment Date, the Escrow Agent shall deliver to the Leasing Company, the
Trustees and the escrow agent for the Company Senior Note Escrow Account a
statement setting forth with reasonable particularity the balance of funds then
in the Leasing Company Escrow Account and the manner in which such funds are
invested (the "Escrow Account Statement").
3. Disbursements.
(a) Disbursement Request; Disbursements. (i) At least two Business Days
prior to an Interest Payment Date, the Leasing Company and the Senior Note
Trustee, until the Senior Note Discharge Date, and thereafter, the Convertible
Note Trustee, shall submit to the Escrow Agent a completed Disbursement Request
substantially in the form of Exhibit A hereto requesting funds from the Leasing
Company Escrow Account in an amount equal to the interest owed on the Senior
Notes under the Senior Note Indenture until the Senior Note Discharge Date, and
thereafter, the Convertible Notes under the Convertible Note Indenture, for
payment of such interest on such Interest Payment Date, unless the Leasing
Company has disbursed and the Senior Note Trustee or the Convertible Note
Trustee, as the case may be, has received funds from the Leasing Company in such
amount on or before such date for such interest payment. Nevertheless, any funds
or Eligible Cash Equivalents (or the proceeds or reinvestments thereof)
previously designated in an Officer's Certificate delivered pursuant to Section
4 of this Agreement as representing funds or Eligible Cash Equivalents
designated to satisfy the requirements of Section 11.4 of the Senior Note
Indenture and Section 11.8 of the Convertible Note Indenture requiring the
Company and/or the Leasing Companies to retain in the Company Senior Note Escrow
Account and the Leasing Company Escrow Accounts the Senior Note Interest Payment
Escrow Amount at all times after November 30, 1998 shall not be disbursed to the
Leasing Company except as contemplated in such Section 11.4 and Section 11.8.
Provided that any such Disbursement Request is not rejected by it, the Escrow
Agent, at least on (or if the Senior Note Trustee and the Escrow Agent are the
same entity, two Business Days after) receipt of such
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Disbursement Request, shall disburse the funds requested in such Disbursement
Request by wire or book-entry transfer of immediately available funds to the
Senior Note Trustee, and shall promptly notify the Convertible Note Trustee of
such disbursement. The Escrow Agent shall notify the Trustees as soon as
reasonably possible if any such Disbursement Request is rejected and the
reason(s) therefor.
(ii) In addition, the Leasing Company may submit a completed
Disbursement Request for a release of funds to the Leasing Company or the
Company, as applicable, from the Leasing Company Escrow Account, provided that
(i) the applicable conditions set forth in Section 11.4 of the Senior Note
Indenture and Section 11.8 of the Convertible Note Indenture until such time as
the Convertible Notes are no longer outstanding and the Convertible Note
Indenture has been satisfied and discharged have been satisfied for such release
to the Leasing Company or the Company, as applicable, (ii) the Leasing Company
shall have delivered to the Senior Note Trustee or the Convertible note Trustee,
as applicable, the applicable Officer's Certificate required by such Section
11.4 of the Senior note Indenture or Section 11.8 of the Convertible Note
Indenture, as applicable, on or before such disbursement date and (iii) the
Senior Note Trustee or Convertible Note Trustee, as applicable, has executed the
certification contained in the Disbursement Request. Provided that any such
Disbursement Request is not rejected by it, the Escrow Agent at least two (2)
Business Days after the receipt of such Disbursement Request shall disburse the
funds requested in such Disbursement Request by wire or book-entry transfer of
immediately available funds to the Company or the Leasing Company, as
applicable. The Escrow Agent shall notify the Trustees and the Leasing Company
as soon as reasonably possible if any such Disbursement Request is rejected and
the reason(s) therefor.
(iii) If an Event of Default under the Senior Note Indenture or under
the Convertible Note Indenture has occurred and is continuing, the Senior Note
Trustee, in the case of an Event of Default under the Senior Note Indenture, or
the Convertible Note Trustee, in the case of an Event of Default under the
Convertible Note Indenture, shall be entitled unilaterally to initiate
withdrawals by executing a Disbursement Request which will be substantially
similar to the form of Exhibit A which need only to be executed by the Senior
Note Trustee, in the case of an Event of Default under the Senior Note
Indenture, or the Convertible Note Trustee, in the case of an Event of Default
under the Convertible Note Indenture.
(b) Conditions Precedent to Disbursement. Subject to Section 4
and any mandatory provisions of applicable law, the Escrow Agent shall make the
payments to be made pursuant to a completed Disbursement Request if (i) the
Company shall have submitted, in accordance with the provisions of Section 3(a)
herein, such Disbursement Request to the Escrow Agent substantially in the form
of Exhibit A with blanks appropriately filled in containing the signed
certification of the Senior Note Trustee prior to the Senior Note Payment Date
and thereafter of the Convertible Note Trustee included in such form and (ii)
the Escrow Agent shall not have received any notice from the Senior Note Trustee
that as a result of an Event of Default the Indebtedness represented by the
Senior Notes has been accelerated and has become due and
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payable (in which event the Escrow Agent shall apply all Available Funds as
required by Section 6(b)(iii)).
(c) No Distributions. Provided that no Event of Default has
occurred and is continuing, the Leasing Company shall initiate all requests for
withdrawals of funds from the Escrow Account by executing a Disbursement Request
and submitting such request to the Senior Note Trustee, if prior to the Senior
Note Discharge Date and to the Convertible Note Trustee if subsequent to the
Senior Note Discharge Date. However, the Leasing Company shall not be entitled
to make withdrawals or distributions or to direct the Escrow Agent to make
withdrawals or distributions from the Escrow Accounts except upon certification
by the Senior Note Trustee, if prior to the Senior Note Discharge Date and by
the Convertible Note Trustee if subsequent to the Senior Note Discharge Date, on
a Disbursement Request that the applicable conditions of the Senior Note
Indenture or Convertible Note Indenture, as the case may be, have been
satisfied, as provided in Section 3(a). The Senior Note Trustee shall, prior to
the Senior Note Discharge Date, be entitled unilaterally to initiate withdrawals
or any other act.
(d) Deposits Irrevocable. Any deposits made into the Leasing
Company Escrow Account hereunder shall be irrevocable and the amount of such
deposits and any instrument or security held in the Leasing Company Escrow
Account hereunder and all interest thereon shall be held in trust by the Escrow
Agent and applied solely as provided herein.
4. Limitation of the Escrow Agent's Liability; Responsibilities of the
Escrow Agent. The Escrow Agent's responsibility and liability under this
Agreement shall be limited as follows: (i) the Escrow Agent does not represent,
warrant or guaranty to the Holders of the Senior Notes from time to time or the
Holders of the Convertible Notes the performance of the Leasing Company; (ii)
the Escrow Agent shall have no responsibility to the Leasing Company or the
Holders of the Senior Notes, the Holders of the Convertible Notes or the
Trustees from time to time as a consequence of performance or non-performance by
the Escrow Agent hereunder, except for any negligence or willful misconduct of
the Escrow Agent; (iii) the Leasing Company shall remain solely responsible for
all aspects of the Leasing Company's business and conduct; and (iv) the Escrow
Agent is not obligated to supervise, inspect or inform the Leasing Company or
any third party of any matter referred to above.
No implied covenants or obligations shall be inferred from this
Agreement against the Escrow Agent, nor shall the Escrow Agent be bound by the
provisions of any agreement beyond the specific terms hereof. Specifically and
without limiting the foregoing, the Escrow Agent shall in no event have any
liability in connection with its investment, reinvestment or liquidation, in
good faith and in accordance with the terms hereof, of any funds or Eligible
Cash Equivalents held by it hereunder, including without limitation any
liability for any delay not resulting from negligence or willful misconduct in
such investment, reinvestment or liquidation, or for any loss of principal or
income incident to any such delay.
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The Escrow Agent shall be entitled to rely upon any judicial
order or judgment, upon any written opinion of counsel or upon any
certification, instruction, notice, or other writing delivered to it by the
Leasing Company or the Trustees in compliance with the provisions of this
Agreement without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of service
thereof. The Escrow Agent may act in reliance upon any instrument comporting
with the provisions of this Agreement or signature believed by it to be genuine
and may assume that any person purporting to give notice or receipt or advice or
make any statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
The Escrow Agent may act pursuant to the written advice of
counsel chosen by it with respect to any matter relating to this Agreement and
(subject to clause (ii) of the first paragraph of this Section 4) shall not be
liable for any action taken or omitted in accordance with such advice.
The Escrow Agent shall not be called upon to advise any party
as to selling or retaining, or taking or refraining from taking any action with
respect to, any securities or other property deposited hereunder.
In the event of any ambiguity in the provisions of this
Agreement with respect to any funds or property deposited hereunder, the Escrow
Agent shall be entitled to refuse to comply with any and all claims, demands or
instructions with respect to such funds or property, and the Escrow Agent shall
not be or become liable for its failure or refusal to comply with conflicting
claims, demands or instructions. The Escrow Agent shall be entitled to refuse to
act until either any conflicting or adverse claims or demands shall have been
finally determined by a court of competent jurisdiction or settled by agreement
between the conflicting claimants as evidenced in a writing, satisfactory to the
Escrow Agent, or the Escrow Agent shall have received security or an indemnity
satisfactory to the Escrow Agent sufficient to save the Escrow Agent harmless
from and against any and all loss, liability or expense which the Escrow Agent
may incur by reason of its acting. The Escrow Agent may in addition elect in its
sole option to commence an interpleader action or seek other judicial relief or
orders as the Escrow Agent may deem necessary.
No provision of this Agreement shall require the Escrow Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder.
5. Indemnity. The Leasing Company shall indemnify, hold
harmless and defend the Escrow Agent and its directors, officers, agents,
employees and controlling persons, from and against any and all claims, actions,
obligations, liabilities and expenses, including defense costs, investigative
fees and costs, legal fees, and claims for damages, arising from the Escrow
Agent's performance under this Agreement, except to the extent that such
liability, expense or claim is directly attributable to the negligence or
willful misconduct of any of the foregoing persons. The provisions of this
Section shall survive any termination, satisfaction or
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discharge of this Agreement as well as the resignation or removal of the Escrow
Agent. The provisions of this paragraph 5 shall survive the termination of this
Agreement.
6. Grant of Liens and Security Interest; Instructions to Escrow Agent.
(a) The Leasing Company hereby irrevocably grants a first priority
security interest in and Lien on, and pledges, assigns and sets over to the
Senior Note Trustee for the equal and ratable benefit of the Holders of the
Senior Notes, and to the Convertible Note Trustee for the equal and ratable
benefit of the Holders of the Convertible Notes, all of the Leasing Company's
right, title and interest in the Leasing Company Escrow Account, and all
property now or hereafter placed or deposited in, or delivered to the Escrow
Agent for placement or deposit in, the Leasing Company Escrow Account,
including, without limitation, all funds held therein, all Eligible Cash
Equivalents held by (or otherwise maintained in the name of) the Escrow Agent
pursuant to Section 2, and all proceeds thereof as well as all rights of the
Leasing Company under this Agreement (collectively, the "Collateral"), in order
to secure all obligations and indebtedness of the Leasing Company under the
Senior Notes and any other obligation, now or hereafter arising, of every kind
and nature, owed by the Leasing Company or the Senior Note Guarantors under the
Senior Note Indenture, the related guarantees thereunder or the Senior Note
Collateral Documents to the Holders of the Senior Notes or to the Senior Note
Trustee and all obligations and indebtedness of the Leasing Company under the
Convertible Notes and any other obligation, now or hereafter arising, of every
kind and nature, owed by the Leasing Company or the Convertible Note Guarantors
under the Convertible Note Indenture, the related guarantees thereunder or the
Convertible Note Collateral Documents to the Holders of the Convertible Notes or
to the Convertible Note Trustee. The Escrow Agent hereby acknowledges the
Trustees' security interest and Lien as set forth above. The Leasing Company
shall take all actions necessary on its part to insure the continuance of a
first priority security interest in and Lien on the Collateral in favor of the
Trustees in order to secure all such obligations and indebtedness.
(b) The Leasing Company and the Trustees hereby irrevocably instruct
the Escrow Agent to, and the Escrow Agent shall (i) (A) at all times maintain
sole dominion and control over funds and Eligible Cash Equivalents in the
Leasing Company Escrow Account, acting for the benefit of the Trustees to the
extent specifically required herein, (B) maintain, or cause its agent within the
State of New York to maintain, possession of all certificated Eligible Cash
Equivalents purchased hereunder that are physically possessed by the Escrow
Agent in order for the Trustees to enjoy a continuous perfected first priority
security interest therein under the law of the State of New York (the Leasing
Company hereby agreeing that in the event any certificated Eligible Cash
Equivalents are in the possession of the Leasing Company or a third party, the
Leasing Company shall use its best efforts to deliver all such certificates to
the Escrow Agent), (C) take all steps specified by the Leasing Company pursuant
to paragraph (a) above to cause the Trustees to enjoy a continuous perfected
first priority security interest and Liens under the New York Uniform Commercial
Code and any applicable law of the State of New York in all Eligible Cash
Equivalents purchased hereunder that are not certificated and (D) maintain the
Collateral free and clear of all Liens, security interests, safekeeping or other
charges, demands and claims against
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the Escrow Agent of any nature now or hereafter existing in favor of anyone
other than the Trustees; (ii) promptly notify the Trustees if the Escrow Agent
receives written notice that any Person other than the Trustees has or claims to
have a Lien on or security interest in any portion of the Collateral and (iii)
in addition to disbursing amounts held in escrow pursuant to any Disbursement
Requests given to it by the Senior Note Trustee pursuant to Section 3(a)(iv),
upon receipt of written notice from the Trustee of the acceleration of the
maturity of the Senior Notes, and direction from the Senior Note Trustee to
disburse all Available Funds to the Senior Note Trustee, as promptly as
practicable disburse all funds held in the Leasing Company Escrow Account to the
Senior Note Trustee and transfer title to all Eligible Cash Equivalents held by
the Escrow Agent hereunder to the Senior Note Trustee. The Escrow Agent shall
not have any right to receive compensation from either Trustee and is without
any authority to obligate either Trustee or to compromise or pledge its security
interest and Lien hereunder. Accordingly, the Escrow Agent is hereby directed to
cooperate with the Trustees in the exercise of their respective rights in the
Collateral provided for herein.
(c) Any money and Eligible Cash Equivalents collected by the
Senior Note Trustee pursuant to Section 6(b)(iii) shall be applied as provided
in Section 6.9 of the Senior Note Indenture.
(d) Upon demand, the Leasing Company will execute and deliver
to either Trustee such instruments and documents as such Trustee may reasonably
deem necessary or advisable to confirm or perfect the rights of the Trustees
under this Agreement and the Trustees' interest in the Collateral. The Trustees
shall be entitled to take all necessary action to preserve and protect the
security interest created hereby as a Lien and encumbrance upon the Collateral.
(e) The Leasing Company hereby appoints each Trustee as its
attorney-in-fact with full power of substitution, exercisable upon the
occurrence and during the continuance of a Default or Event of Default, to do
any act which the Leasing Company is obligated hereto to do, and each Trustee
may, but shall not be obligated to, exercise such rights as the Leasing Company
might exercise with respect to the Collateral and take any action in the Leasing
Company's name to protect the Trustees' Liens and security interest hereunder.
In addition to the rights provided under Section 6(b)(iii) hereof, upon an Event
of Default as defined in the Senior Note Indenture and for so long as such Event
of Default continues, the Senior Note Trustee may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party under
the New York Uniform Commercial Code or other applicable law, and the Senior
Note Trustee may also upon obtaining possession of the Collateral as set forth
herein, without notice to the Leasing Company except as specified below, sell
the Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the Senior Note Trustee's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Senior Note Trustee may deem commercially reasonable. The
Leasing Company acknowledges and agrees that any such private sale may result in
prices and other terms less favorable to the seller than if such sale were a
public sale. The Leasing Company agrees that, to the extent notice of sale shall
be
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required by law, at least ten (10) days' notice to the Leasing Company of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Trustee shall not be
obligated to make any sale regardless of notice of sale having been given. The
Trustee may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
7. Termination. This Agreement shall terminate automatically ten (10)
days following disbursement of all funds remaining in the Leasing Company Escrow
Account (including Eligible Cash Equivalents) and the payment in full of the
Senior Notes and all other Obligations then due and owing under the Senior Note
Indenture, the related guarantees thereunder, the Senior Note Collateral
Documents, the Convertible Note Indenture, Convertible Note Guarantees and the
Convertible Note Collateral Documents, unless sooner terminated by agreement of
the parties hereto (in accordance with the terms hereof, not in violation of the
Senior Note Indenture or the Convertible Note Indenture; neither the Senior Note
Trustee nor the Convertible Note Trustee may agree to terminate this Agreement
unless the Senior Note Trustee has received the consent of 100% of the Holders
of all of the Senior Notes outstanding or the Convertible Note Trustee has
received the consent of 100% of the Holders of all of the Convertible Notes
outstanding); provided, however, that the obligations of the Leasing Company
under Section 2(d) and Section 5 (and any existing claims thereunder) shall
survive termination of this Agreement or the resignation of the Escrow Agent;
provided, further, however, that until such tenth day, the Leasing Company will
cause this Agreement (or any permitted successor agreement) to remain in effect
and will cause there to be an Escrow Agent (including any permitted successor
thereto) acting hereunder (or under any such permitted successor agreement).
8. Miscellaneous.
(a) Waiver. Any party hereto may specifically waive any breach of this
Agreement by any other party, but no such waiver shall be deemed to have been
given unless such waiver is in writing, signed by the waiving party and
specifically designating the breach waived, nor shall any such waiver constitute
a continuing waiver of similar or other breaches.
(b) Invalidity. If for any reason whatsoever any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
(c) Assignment. This Agreement is personal to the parties hereto, and
the rights and duties of any party hereunder shall not be assignable except with
the prior written consent of the other parties. Notwithstanding the foregoing,
this Agreement shall inure to and be
14
<PAGE> 15
binding upon the parties and their successors and permitted assigns. Nothing
herein shall restrict the Escrow Agent from performing its duties through a
sub-agent.
(d) Benefit. The parties hereto and their successors and permitted
assigns, but no others, shall be bound hereby and entitled to the benefits
hereof; provided, however, that the holders of the Senior Notes and their
permitted assigns shall be entitled to the benefits hereof and to enforce this
Agreement.
(e) Time. Time is of the essence with respect to each provision of this
Agreement.
(f) Entire Agreement; Amendments. This Agreement and the Senior Note
Indenture and the Convertible Note Indenture contain the entire agreement among
the parties with respect to the subject matter hereof and supersede any and all
prior agreements, understandings and commitments, whether oral or written. This
Agreement may be amended only in accordance with Article IX of the Senior Note
Indenture and Article IX of the Convertible Note Indenture and further by a
writing signed by a duly authorized representative of each party hereto.
(g) Notices. All notices and other communications required or permitted
to be given or made under this Agreement shall be in writing and shall be deemed
to have been duly given and received, regardless of when and whether received,
either: (a) on the day of hand delivery; (b) three Business Days following the
day sent, when sent by United States certified mail, postage and certification
fee prepaid, return receipt requested, addressed as set forth below; (c) when
transmitted by telecopy with verbal confirmation of receipt by the telecopy
operator to the telecopy number set forth below; or (d) one business day
following the day timely delivered to a next-day air courier addressed as set
forth below:
To Escrow Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Department
Telecopy: 212-815-5915 or 5917
To each Trustee:
The Bank of New York
101 Barclay Street
15
<PAGE> 16
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Department
Telecopy: 212-815-5915 or 5917
To the Leasing Company:
PLD Capital Asset (U.S.) Inc.
c/o PLD Telekom Inc.
680 Fifth Avenue
New York, New York 10019
Attention: E. Clive Anderson, Esq.
Telecopy: (212) 262-8870
Telephone: (212) 262-6060
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Captions. Captions in this Agreement are for convenience only and
shall not be considered or referred to in resolving questions of interpretation
of this Agreement.
(j) Choice of Law; Waiver of Jury Trial. The existence, validity,
construction, operation and effect of any and all terms and provisions of this
Agreement shall be determined in accordance with and governed by the laws of the
State of New York, without regard to principles of conflicts of law. The parties
to this Agreement hereby agree that jurisdiction over such parties and over the
subject matter of any action or proceeding arising under this Agreement may be
exercised by a competent Court of the State of New York, or by a United States
Court, sitting in New York City. The Leasing Company hereby submits to the
personal jurisdiction of such courts, hereby waives personal service of process
upon it and hereby waives, to the extent permitted by applicable law, the right
to a trial by jury in any action or proceeding with the Escrow Agent. All
actions and proceedings brought by the Leasing Company against the Escrow Agent
relating to or arising from, directly or indirectly, this Agreement shall be
litigated only in courts within the State of New York. The Leasing Company
waives any objection that it may have to the location of the court in which the
Escrow Agent has commenced a proceeding described in this paragraph
16
<PAGE> 17
including, without limitation, any objection to the laying of venue or based on
the grounds of forum non conveniens.
(k) Authority of the Leasing Company; Valid and Binding Agreement. The
Leasing Company hereby represents and warrants that this Agreement has been duly
authorized, executed and delivered on its behalf and constitutes the legal,
valid and binding obligation of the Leasing Company. The execution, delivery and
performance of this Agreement by the Leasing Company does not violate any
applicable law or regulation to which the Leasing Company is subject and does
not require the consent of any governmental or other regulatory body to which
the Leasing Company is subject, except for such consents and approvals as have
been obtained and are in full force and effect.
(l) Authority of the Escrow Agent and the Trustees; Valid and Binding
Agreement. Each of the Escrow Agent and the Trustees hereby represents and
warrants that this Agreement has been duly authorized, executed and delivered on
its behalf and constitutes its legal, valid and binding obligation.
(m) Agent for Service; Submission to Jurisdiction; Waiver of
Immunities. By the execution and delivery of this Agreement, the Leasing Company
(i) acknowledges that it has, by separate written instrument, irrevocably
designated and appointed CT Corporation System, 1633 Broadway, New York, New
York 10019 (or any successor), as its authorized agent upon which process may be
served in any suit or proceeding arising out of or relating to this Agreement
that may be instituted in any federal or state court in the State of New York,
or brought under federal or state securities laws, and acknowledges that CT
Corporation System has accepted such designation, (ii) submits to the
jurisdiction of any such court in any such suit or proceeding, and (iii) agrees
that service of process upon CT Corporation System (or any successor) and
written notice of said service to the Leasing Company (mailed or delivered to
Messrs. Morgan, Lewis & Bockius, 4 Carlton Gardens, Pall Mall, London, United
Kingdom, SW1Y 5AA, Attention: Thomas J. Benz, Esq. shall be deemed in every
respect effective service of process upon the Leasing Company in any such suit
or proceeding. The Leasing Company further agrees to take any and all action,
including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such destination and appointment of
CT Corporation System (or any successor) in full force and effect so long as any
of the Senior Notes shall be outstanding.
To the extent that the Leasing Company has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, it
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement, to the extent permitted by law.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed and delivered this
Leasing Company Escrow Account Agreement as of the day first above written.
ESCROW AGENT: THE BANK OF NEW YORK,
as Escrow Agent
By: /s/ Thomas E. Tabor
-------------------------------
Name: Thomas E. Tabor
Title: Assistant Vice President
SENIOR NOTE TRUSTEE: THE BANK OF NEW YORK,
as Senior Note Trustee
By: /s/ Thomas E. Tabor
-------------------------------
Name: Thomas E. Tabor
Title: Assistant Vice President
CONVERTIBLE NOTE TRUSTEE: THE BANK OF NEW YORK,
as Convertible Note Trustee
By: /s/ Thomas E. Tabor
-------------------------------
Name: Thomas E. Tabor
Title: Assistant Vice President
LEASING COMPANY: PLD CAPITAL ASSET (U.S.) INC.
By: /s/ E. Clive Anderson
-------------------------------
Name: E. Clive Anderson
Title: /s/ Vice President
18
<PAGE> 19
EXHIBIT A
Form of Disbursement Request
[Letterhead of the Leasing Company]
[Date]
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Department
Re: Disbursement Request No.
[indicate whether revised]
Ladies and Gentlemen:
We refer to the Leasing Company Escrow Agreement, dated as of
June 15, 1998 (the "Leasing Company Escrow Agreement") among you (the "Escrow
Agent"), The Bank of New York as Senior Note Trustee, The Bank of New York as
Convertible Note Trustee, and PLD Capital Asset (U.S.) Inc. a Delaware
corporation (the "Leasing Company"). Capitalized terms used herein shall have
the meaning given in the Leasing Company Escrow Agreement.
This letter constitutes a Payment Notice and Disbursement
Request under the Leasing Company Escrow Agreement.
The undersigned hereby notifies you that the Leasing Company
has requested, and has satisfied the conditions contained in Section 11.4 of the
Senior Note Indenture for, the release of $______, from the Leasing Company
Escrow Account of PLD Capital Asset (U.S.) Inc. which was deposited on ________
as a result of [specify source of deposit, e.g., asset sale of specified assets]
for Net Cash Proceeds of $______ which amount will be invested or used as
follows: _________________________________________.
In connection with the requested disbursement, the undersigned
hereby notifies you that:
1. The Senior Notes have [not], as a result of an Event of
Default (as defined in the Senior Note Indenture), been accelerated and
become due and payable.
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<PAGE> 20
2. An Opinion of Counsel as required by the Senior Note
Indenture is delivered herewith.
3. The Collateral Documents have been delivered to the
Trustee.
4. [add wire instructions].
The Escrow Agent is entitled to rely on the foregoing in
disbursing funds relating to this Disbursement Request.
PLD CAPITAL ASSET (U.S.) INC.
By:
-------------------------------
Name:
Title:
The Senior Note Trustee hereby certifies to the Escrow Agent
that it has received the applicable Officers' Certificate described in Section
11.4 of the Senior Note Indenture for the release of the funds to be disbursed
pursuant to the foregoing Disbursement Request.
THE BANK OF NEW YORK, as Senior Note
Trustee
By:
-------------------------------
Name:
Title:
20
<PAGE> 1
EXHIBIT 4.9
LEASING COMPANY SECURITY AND PLEDGE AGREEMENT
[PLD Capital Asset (U.S.) Inc.]
THIS LEASING COMPANY SECURITY AND PLEDGE AGREEMENT (the "Security
Agreement") is made and entered into as of June 15, 1998 by PLD Capital Asset
(U.S.) Inc., a Delaware corporation (the "Leasing Company"), in favor of THE
BANK OF NEW YORK, a New York banking corporation, as trustee (in such capacity,
the "Senior Note Trustee") under the Senior Note Indenture (as defined herein)
for the holders of the Senior Notes (as hereinafter defined), THE BANK OF NEW
YORK, a New York banking corporation, as trustee (in such capacity, the
"Convertible Note Trustee") under the Convertible Note Indenture (as defined
herein) for the holders of the Convertible Notes (as hereinafter defined) and
THE BANK OF NEW YORK as collateral agent (in such capacity, the "Collateral
Agent").
W I T N E S S E T H:
WHEREAS, Petersburg Long Distance Inc., an Ontario corporation (the
"Company"), as issuer, the Senior Note Trustee, and NWE Capital (Cyprus)
Limited, a Cypriot corporation ("NWE Cyprus"), the Leasing Company, PLD Asset
Leasing Limited, a Cypriot corporation ("PLD Asset Leasing"), and, together with
the Leasing Company, (the "Leasing Companies"), 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
(the "Senior Note Guarantors"), have entered into an indenture dated as of May
31, 1996 (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Senior Note Indenture") pursuant to which the Company is
issuing $123,000,000 in aggregate principal amount at Stated Maturity of its 14%
Senior Discount Notes due 2004 (the "Senior Notes");
WHEREAS, the Company, as issuer, the Convertible Note Trustee, and NWE
Cyprus, the Leasing Companies, WTC and BCL, as guarantors (the "Convertible Note
Guarantors") have entered into an indenture dated as of May 31, 1996 (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Convertible Note Indenture") pursuant to which the Company is issuing
$26,500,000 in aggregate principal amount of its 9% Convertible Subordinated
Notes due 2006 (the "Convertible Notes"); and
WHEREAS, to secure its obligations under the Senior Note Indenture, its
Senior Note Guarantee and the other Collateral Documents (as defined in the
Senior Note Indenture) (together with the Company's obligations under the Senior
Note Indenture and the Senior Note Collateral Documents and the Senior Note
Guarantors' obligations under the Senior Note
<PAGE> 2
Indenture, the guarantees contained therein (the "Senior Note Guarantees") and
the Senior Note Collateral Documents, the "Senior Note Obligations") and to
secure its obligations under the Convertible Note Indenture and the Convertible
Notes and the other Convertible Note Collateral Documents (as defined in the
Convertible Note Indenture) (together with the Convertible Note Guarantors
obligations under the Convertible Note Indenture, the guarantees contained
therein (the "Convertible Note Guarantees") and the Convertible Note Collateral
Documents, the "Convertible Note Obligations"), the Leasing Company has agreed
(i) to grant to the Collateral Agent for the benefit of the Senior Note Trustee
and the equal and ratable benefit of the Holders of the Senior Notes and for the
benefit of the Convertible Note Trustee and for the equal and ratable benefit of
the Holders of the Convertible Notes, Liens and security interests in and to the
Collateral (as defined herein) and (ii) to execute and deliver this Security
Agreement in order to secure the payment and performance by the Leasing Company
and the Guarantors of the Senior Note Obligations and the Convertible Note
Obligations (collectively, the "Obligations").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and in order to induce
the Holders of the Senior Notes to purchase the Senior Notes and the Holders of
the Convertible Notes to purchase the Convertible Notes, the Leasing Company
hereby agrees with the Collateral Agent, with the Senior Note Trustee for its
benefit and the equal and ratable benefit of the Holders of the Senior Notes and
for the Convertible Note Trustee for its benefit and the equal and ratable
benefit of the Holders of the Convertible Notes as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meaning given to such terms in the Senior Note
Indenture. In addition to any other defined terms used herein, the following
terms shall constitute defined terms for the purposes of this Security
Agreement:
"Default" means a "Default" as defined in Section 1.1 of the
Senior Note Indenture until the Senior Notes are no longer outstanding
and the Senior Note Indenture has been satisfied and discharged, in
which case a "Default" means a "Default" as defined in Section 1.1 of
the Convertible Note Indenture.
"Permitted Liens" means "Permitted Liens" as defined in
Section 1.1 of the Senior Note Indenture until the Senior Notes are no
longer outstanding and the Senior Note Indenture has been satisfied and
discharged, in which case "Permittee Liens" means "Permitted Liens" as
defined in Section 1.1 of the Convertible Note Indenture.
"Event of Default" means an "Event of Default" as defined in
Section 1.1 of the Senior Note Indenture until the Senior Notes are no
longer outstanding and the Senior Note Indenture and the Senior Note
Collateral Documents have been satisfied,
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<PAGE> 3
discharged and released, in which case "Event of Default" means an
"Event of Default" as defined in Section 1.1 of the Convertible Note
Indenture.
"Trustees" means, collectively, the Senior Note Trustee and
the Convertible Note Trustee.
SECTION 2. CREATION OF SECURITY INTEREST. The Leasing Company hereby
grants to the Collateral Agent for the benefit of the Senior Note Trustee and
for the equal and ratable benefit of the Holders of the Senior Notes and for the
benefit of the Convertible Note Trustee and for the equal and ratable benefit of
the Holders of the Convertible Notes, Liens and a continuing security interest
in and to the collateral described in Section 3 hereof (the "Collateral") in
order to secure the payment and performance of all Obligations.
SECTION 3. COLLATERAL. The Collateral is:
(a) Qualified Investments. All Qualified Investments, whether
now or hereafter acquired by the Leasing Company, including those Qualified
Investments listed on Schedule A attached hereto (or substitutions, replacements
and proceeds thereof) but excluding any Qualified Investments made with the
dividends, distributions, payments and products and proceeds of Technocom
Preferred Stock (as defined in the Company Convertible Note Security Agreement)
and the funds and Eligible Cash Equivalents in the Company Convertible Note
Escrow Account (collectively, the "Excluded Qualified Investments"), and the
certificates, agreements, documents, notes, collateral documents and instruments
representing or relating to such Qualified Investments, all contract rights,
instruments, general intangibles and other obligations or other receivables of
any kind relating to such Qualified Investments, all Liens relating to or
securing such Qualified Investments and the related collateral documents which
grant such Liens and all products and proceeds of the Qualified Investments,
including, without limitation, all dividends, options, warrants, rights,
subscriptions, all interest and principal payments, and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Qualified Investments;
(b) Telecommunications Asset Agreements. All
Telecommunications Asset Agreements of the Leasing Company, whether now existing
or hereinafter acquired and entered into, including those Telecommunications
Asset Agreements listed on Schedule B attached hereto, and all proceeds and
products relating thereto or therefrom, including all payments (including all
time payments and rental payments) and all other payments thereunder, all cash,
property or proceeds from time to time received, receivable or otherwise
distributed or paid in connection therewith, and all documents, documents of
title, certificates of title, letters of credit, letters of credit proceeds,
collateral and liens securing or relating to such Telecommunications Asset
Agreements and all books, records, ledger sheets and files of the Leasing
Company relating to any of the foregoing;
3
<PAGE> 4
(c) Asset Sale Proceeds of Telecommunications Assets. All
proceeds or products of an Asset Sale of Telecommunications Assets subject to a
Telecommunications Asset Agreement, whether now existing or hereafter acquired,
including all Cash Proceeds, Eligible Cash Equivalents, Investments and
Property;
(d) Leasing Company Escrow Account. The Leasing Company Escrow
Account and all funds contained therein and all Investments made by the Escrow
Agent (as defined in the Leasing Company Escrow Account Agreement) therewith
(whether or not constituting Eligible Cash Equivalents) and all proceeds thereto
and including income therefrom;
(e) Intercompany Notes. All Intercompany Notes, whether
executed on the Issue Date or thereafter, from any Restricted Subsidiary,
excluding, however, any Intercompany Notes (or substitutes, replacements and
proceeds thereof, including the funds and Eligible Cash Equivalents in the
Company Convertible Note Escrow Account) evidencing loans or advances made by
the Leasing Company with dividends, distributions, payments and products or
proceeds of Technocom Preferred Stock or otherwise constituting Collateral under
the Company Convertible Note Security Agreement (as defined therein)
(collectively, the "Excluded Intercompany Notes"), all Liens securing such
Intercompany Notes and the related collateral documents, and the instruments
representing such Intercompany Notes, and, except as otherwise provided
elsewhere herein, all products and proceeds of such Intercompany Notes,
including, without limitation, all interest and principal payments, instruments,
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for such Intercompany Notes; and
(f) After-acquired Collateral and Proceeds. All items
described in this Section 3 (other than those items specifically excluded),
whether now owned or hereafter, at any time acquired by the Leasing Company and
wherever located, including (except as otherwise provided herein) all
replacements, additions, accessions, substitutions, repairs, proceeds and
products relating thereto or therefrom, and all documents, ledger sheets, files,
books and records of the Leasing Company relating thereto. Proceeds hereunder
include (i) whatever is now or hereafter received by the Leasing Company upon
the sale, exchange, collection or other disposition of any item of Collateral;
(ii) any property of the type or types described in subsections (a), (b), (c) or
(e) now or hereafter acquired by the Leasing Company with any proceeds of
Collateral hereunder; and (iii) any payments under any insurance or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral.
SECTION 4. DELIVERY OF COLLATERAL. All certificates or instruments
representing or evidencing the Collateral shall be delivered to and held by or
on behalf of the Collateral Agent pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
the Collateral Agent, and shall be accompanied by any required transfer tax
stamps. Upon the occurrence and during the continuance of an Event of Default,
4
<PAGE> 5
the Collateral Agent shall have the right, at any time in its discretion and
without notice to the Leasing Company, but subject to its compliance with the
requirements of applicable law, to transfer to or to register in the name of the
Collateral Agent or any of its nominees any or all of the Collateral. In
addition, upon the occurrence and during the continuance of an Event of Default,
but subject to its compliance with the requirements of applicable law, the
Collateral Agent shall have the right at any time to exchange certificates or
instruments representing or evidencing Qualified Investments constituting
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Leasing Company hereby
represents and warrants to the Collateral Agent and the Trustees that, except as
specified in Schedule C attached hereto:
(a) Legal Power. The execution, delivery and performance by the Leasing
Company of this Security Agreement are within the Leasing Company's legal
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with (except for any filings provided for
hereunder), any governmental authority, require no consent of any other Person
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the articles of incorporation or bylaws, or
comparable organizational documents of, the Leasing Company or of any agreement
(after giving effect to the use of proceeds of the issuance of the Senior
Notes), judgment, injunction, order, decree or other instrument binding upon the
Leasing Company or result in the creation or imposition of any Lien on any asset
of the Leasing Company (other than the Liens created by this Security Agreement,
the Leasing Company Escrow Account Agreement and the other Senior Note
Collateral Documents to which the Leasing Company is a party) and the Liens
created by the Convertible Note Indenture and the Convertible Note Collateral
Documents;
(b) Title to Collateral. The Leasing Company is the legal, record and
beneficial owner of the Collateral existing on the Issue Date (the "Existing
Collateral"), free and clear of any Lien or claims of any person except for the
Liens listed on Schedule D attached hereto and the Liens created by this
Security Agreement, the Leasing Company Escrow Account Agreement and any of the
other Senior Note Collateral Documents.
(c) Enforceability. This Security Agreement has been duly executed and
delivered by the Leasing Company and constitutes a legal, valid and binding
obligation of the Leasing Company, enforceable against the Leasing Company in
accordance with its terms, except as such enforceability may be limited by the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally or general principles
of equity and commercial reasonableness.
(d) Perfection; Priority. Upon the execution and delivery of the
Leasing Company Escrow Account Agreement, which is being done contemporaneously
with the execution and delivery of this Security Agreement, the delivery to the
Collateral Agent of the
5
<PAGE> 6
Collateral and the filing of the Senior Note Collateral Documents relating to
the Existing Collateral and the documents listed on Schedule E attached hereto,
to the extent such security interest is created under applicable federal and New
York laws, the security interest and Liens in the Collateral created pursuant to
this Security Agreement and the Leasing Company Escrow Account Agreement create
a valid and perfected first priority security interest, subject to the Liens
listed on Schedule D attached hereto in the Existing Collateral, securing the
payment of the Obligations for the benefit of the Senior Note Trustee and the
Holders of the Senior Notes and the Convertible Note Trustee and the Holders of
the Convertible Notes, and enforceable as such against all creditors of the
Leasing Company and any Persons purporting to purchase any of the Existing
Collateral from the Leasing Company other than as permitted by the Senior Note
Indenture; as of the date hereof (and after giving effect to the use of proceeds
of the issuance of the Senior Notes), there are no other security interests in
or Liens on the Existing Collateral or any portion thereof, and no financing
statement, pledge, notice of Lien, assignment or collateral assignment, mortgage
or deed of trust covering the Existing Collateral or any portion thereof ("Lien
Notice") exists or is on file in any public office, except with respect to Liens
listed on Schedule E attached hereto, the Liens created by this Security
Agreement and the other Senior Note Collateral Documents and any junior Liens on
Telecommunications Asset Agreements or Qualified Investments constituting
Collateral securing Intercompany Notes evidencing loans or advances made by the
Company to the Leasing Company.
(e) Offices. The Leasing Company's chief executive office is
located at the address shown as the chief executive office in Schedule F
attached hereto ("Chief Executive Office"), and the Leasing Company has no
places of business other than as set forth in such Schedule F, except as
permitted hereafter by Section 6(c) hereof.
(f) Business Names. The Leasing Company has not conducted its
businesses under any corporate, partnership or fictitious name during the five
(5) years preceding the date hereof, other than those names set forth on
Schedule G attached hereto.
(g) No Consents. No consent of any other person and no
consent, authorization, approval, or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required either (i) for
the granting of the Liens by the Leasing Company on the Collateral pursuant to
this Security Agreement or for the execution, delivery or performance of this
Security Agreement by the Leasing Company (except for filings listed on Schedule
D attached hereto, the filings and/or other actions necessary to maintain the
perfection of the Liens on the Collateral and perfect Liens on after-acquired
Collateral or the proceeds of the Collateral) or (ii) for the exercise by the
Collateral Agent of the voting or other rights provided for in this Security
Agreement or the remedies in respect of the Collateral pursuant to this Security
Agreement, except, in each case, as may be required in connection with any such
disposition by laws affecting the offering and sale of the Qualified Investments
constituting Collateral.
6
<PAGE> 7
(h) Litigation. No litigation, investigation or proceeding of
or before any arbitrator or governmental authority is pending or, to the
knowledge of the Leasing Company, threatened by or against the Leasing Company
with respect to this Security Agreement or any of the transactions contemplated
hereby.
(i) Accurate Information. As of the date hereof, all
information set forth herein relating to the Collateral is accurate and complete
in all respects.
SECTION 6. COVENANTS.
(a) Lien Notices. The Leasing Company will defend its interest
in the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein and the Leasing Company will not
permit any Lien Notices with respect to the Collateral or any portion thereof to
exist or be on file in any public office for more than 30 days after the Leasing
Company shall have notice thereof, except with respect to Permitted Liens or
Liens otherwise permitted by Section 4.11 of the Senior Note Indenture. The
Leasing Company will advise the Collateral Agent and the Trustees promptly, in
reasonable detail, at the addresses as specified in Section 17(a) of this
Agreement, of any Lien (other than Permitted Liens) on, or claim asserted
against, any of the Collateral.
(b) Location of Collateral. The Leasing Company will keep all
of its Collateral now held or subsequently acquired by it at the locations
specified on Schedule H hereto, or at locations hereafter established in
compliance with Section 6(c) hereof (except for Collateral held by the
Collateral Agent, a Trustee or the Escrow Agent), unless the Leasing Company
shall have given the Collateral Agent and the Trustees prior written notice
thereof and shall have in advance executed and caused to be filed and/or
delivered to the Collateral Agent and the Trustees any financing statements or
other documents required by the Trustees or the Collateral Agent in order to
perfect, protect and preserve the Liens and security interest created hereby,
all in form and substance satisfactory to the Collateral Agent and the Trustees.
(c) Location of Offices; Corporation Name; Legal Structure.
The Leasing Company will not change the location of its chief executive office
or establish any place of business other than those set forth on Schedule F
attached hereto, or voluntarily or involuntarily change its name, identity or
legal structure, including without limitation any continuance, amalgamation,
merger, consolidation or sale of substantially all of its assets, unless the
Leasing Company shall have given the Collateral Agent and the Trustees at least
30 days prior written notice thereof and shall have in advance executed and
caused to be filed and or delivered to the Collateral Agent and the Trustees any
financing statements or other Senior Note Collateral Documents required by the
Collateral Agent and the Trustees in order to perfect, protect and preserve the
Liens and security interest created hereby, all in form and substance
satisfactory to the Trustees and the Collateral Agent.
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(d) Additional Collateral; Further Assurances. The Leasing
Company agrees that immediately upon becoming the beneficial owner of any
additional Telecommunications Asset Agreement and proceeds of Asset Sales of
Telecommunications Assets subject to a Telecommunications Asset Agreement, any
Qualified Investments constituting Collateral or Intercompany Notes constituting
Collateral, it will pledge and deliver to the Collateral Agent for the benefit
of the Senior Note Trustee and the equal and ratable benefit of the Holders of
the Senior Notes and for the benefit of the Convertible Note Trustee and the
equal and ratable benefit of the Holders of the Convertible Notes, the
certificates, instruments and documents representing such proceeds of Asset
Sales of Telecommunications Assets subject to a Telecommunications Asset
Agreement, such Qualified Investments and such Intercompany Notes (as well as
duly executed instruments of transfer or assignment in blank), and grant to the
Collateral Agent for the benefit of the Senior Note Trustee and the equal and
ratable benefit of the Holders of the Senior Notes and for the benefit of the
Convertible Note Trustee and for the equal and ratable benefit of the Holders of
the Convertible Notes pursuant to appropriate and necessary Senior Note
Collateral Documents, a continuing first priority security interest in and Liens
on such proceeds of Telecommunications Assets, such Qualified Investments or
such Intercompany Notes, all in form and substance satisfactory to the
Collateral Agent and the Trustees. The Leasing Company shall also promptly (and
in any event within five (5) Business Days after receipt thereof), subject to
its compliance with the requirements of applicable law, deliver to the
Collateral Agent any other documents of title, promissory notes, certificates or
instruments representing Collateral which it holds. The Leasing Company further
agrees that it will promptly (and in any event within 5 Business Days after such
acquisition) deliver to the Collateral Agent and the Trustees an amendment, duly
executed by the Leasing Company, in substantially the form of Schedule I hereto
(an "Additional Collateral Amendment"), with respect to the additional
Collateral that is to be pledged pursuant to this Security Agreement. The
Leasing Company hereby authorizes the Collateral Agent and the Trustees to
attach each Additional Collateral Amendment to this Security Agreement and
agrees that any stock, notes or other forms of Investment listed on any
Additional Collateral Amendment delivered to the Collateral Agent or the
Trustees shall for all purposes hereunder be considered Collateral. The Leasing
Company will, promptly upon request by the Trustee, (i) execute and deliver,
cause to be executed and filed, or use its best efforts to give any notices, in
all appropriate jurisdictions (including Canada, Cyprus, the Russian Federation
and Kazakstan) or procure any financing statements, assignments, pledges or
other documents, all in form and substance satisfactory to the Collateral Agent
and the Trustee, (ii) mark any chattel paper constituting Collateral, and
deliver any certificates, chattel paper or instruments constituting Collateral
to the Collateral Agent or the Trustees, (iii) execute and deliver or cause to
be executed and delivered all stock powers, proxies, assignments, instruments
and other documents, all in form and substance satisfactory to the Collateral
Agent and the Trustee, and (iv) take any other actions that are necessary or, in
the reasonable opinion of the Collateral Agent and the Trustees, desirable to
perfect or continue the perfection and the priority of the Collateral Agent's
security interest and Liens in the Collateral, to protect the Collateral against
the rights, claims, or interests of third Persons other than holders of
Permitted Liens or Liens otherwise permitted by Section 4.11 of the
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Senior Note Indenture or to effect the purposes of this Security Agreement. The
Leasing Company also hereby authorizes the Collateral Agent to file any
financing or continuation statements with respect to the Collateral without the
signature of the Leasing Company to the extent permitted by applicable law.
(e) Disposition of Collateral. The Leasing Company will not
sell, transfer, assign, pledge, collaterally assign, exchange or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or any Telecommunications Assets subject to a Telecommunications
Asset Agreement except as permitted by the Senior Note Indenture and the
Convertible Note Indenture. If the proceeds of any sale of any Collateral are
notes, instruments, documents of title, standby letters of credit or chattel
paper, such proceeds shall be promptly delivered to the Collateral Agent to be
held as Collateral hereunder. If the Collateral, or any part thereof, is sold,
transferred, assigned, exchanged, or otherwise disposed of in violation of these
provisions, the security interest and Liens of the Collateral Agent shall
continue in such Collateral or part thereof notwithstanding such sale, transfer,
assignment, exchange or other disposition, and the Leasing Company will hold the
proceeds thereof in an separate account for the benefit of the Senior Note
Trustee and for the equal and ratable benefit of the Holders of the Senior Notes
and the benefit of the Convertible Note Trustee and for the equal and ratable
benefit of the Holders of the Convertible Notes and transfer such proceeds to
the Collateral Agent or the applicable Trustee in kind to be held as Collateral
hereunder.
(f) Restrictive Agreements. The Leasing Company agrees that,
except for existing agreements set forth on Schedule J attached hereto, it will
not (i) enter into any agreement or understanding that purports to or may
restrict or inhibit the Collateral Agent's or the Trustees' rights or remedies
hereunder, including, without limitation, the Collateral Agent's or the
Trustees' right to sell or otherwise dispose of the Collateral or amend or
modify in any manner materially adverse to the Trustees the existing agreements
set forth as Schedule J attached hereto, (ii) permit any issuer to continue,
merge, amalgamate or consolidate, unless all outstanding Capital Stock owned by
the Leasing Company of the surviving corporation is, upon such continuation,
merger, amalgamation or consolidation, pledged hereunder to the Collateral Agent
or (iii) fail to pay or discharge any tax, assessment or levy of any nature not
later than five days prior to the date of any proposed sale under any judgment,
writ or warrant of attachment with regard to the Collateral.
(g) Rights of Collateral Agent and Trustees. Upon the
occurrence and during the continuance of an Event of Default, the Collateral
Agent and the Trustees shall have the right at any time to make any payments and
do any other acts as the Collateral Agent or either Trustee may deem necessary
to protect the Liens and security interest of the Collateral Agent in the
Collateral, including, without limitation, the rights to pay, purchase, contest
or compromise any Lien which, in the judgment of the Collateral Agent or such
Trustee, appears to be prior to or superior to the Liens and security interest
granted hereunder, and challenge any action or proceeding purporting to affect
its Liens and security interest in the Collateral. The Leasing Company hereby
agrees to reimburse the Collateral Agent and the Trustees for all
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payments made and expenses incurred under this Security Agreement including
reasonable fees, expenses and disbursements of attorneys and paralegals acting
for the Trustees, including any of the foregoing payments under or acts taken to
perfect or protect its Liens and security interest in the Collateral, which
amounts shall be secured under this Security Agreement, and agrees that it shall
be bound by any payment made or act taken by the Collateral Agent or the
Trustees hereunder. Neither the Collateral Agent nor the Trustees shall have any
obligation to make any of the foregoing payments or perform any of the foregoing
acts.
(h) Records. The Leasing Company will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral.
(i) Access. On reasonable notice to the Leasing Company,
except at any time during the continuation of Default or an Event of Default,
both the Collateral Agent and the Trustees shall at all times have full and free
access during normal business hours to all the books, correspondence and records
of the Leasing Company relating to the Collateral, and the Collateral Agent and
its representatives, and the Trustees and their respective representatives, may
examine the same, take extracts therefrom and make photocopies thereof, and the
Leasing Company agrees to render to the Collateral Agent and/or the applicable
Trustee, at the Leasing Company's cost and expense, such clerical and other
assistance, at all times and in such manner as may be requested with regard
thereto. On reasonable notice to the Leasing Company, except at any time during
the continuation of a Default or an Event of Default, the Collateral Agent and
its representatives, and the Trustees and their respective representatives,
shall at all times also have the right to enter, during normal business hours,
into and upon any premises where any of the Collateral is located for the
purpose of inspecting the same, observing its use or otherwise protecting its
interests therein.
(j) Taxes. The Leasing Company shall pay all taxes,
assessments and government charges and all claims as and to the extent required
by Section 4.6 of each of the Senior Note Indenture and the Convertible Note
Indenture; provided that the Leasing Company shall in any event pay such taxes,
assessments or levies not later than five days prior to the date of any proposed
sale under any judgment, writ or warrant of attachment with regard to any
Collateral of the Leasing Company entered or filed against the Leasing Company
as a result of the failure to make such payment.
(k) Demand Obligations. The Leasing Company agrees that it
will cause each of the Restricted Subsidiaries that is obligated on any
Intercompany Note constituting Collateral that constitutes a demand obligation,
within the meaning of Section 3-108 of the Uniform Commercial Code of the State
of New York, to execute and deliver to the Collateral Agent and/or the Trustees
a new instrument extending, renewing and replacing such demand obligation not
later than the second anniversary of the date of original issue thereon and on
each succeeding second anniversary thereof.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
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(a) So long as no Event of Default shall have occurred and be
continuing, the Leasing Company shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral, including amending,
modifying, supplementing or replacing any Telecommunications Asset Agreement, or
any part thereof for any purpose not inconsistent with the terms of this
Security Agreement, the Senior Note Indenture or any other Senior Note
Collateral Document or the Convertible Note Indenture or any Convertible Note
Collateral Documents; provided that the Leasing Company shall not exercise or
shall refrain from exercising any such right if such action would be
inconsistent with or violate any provisions of this Security Agreement, the
Senior Note Indenture or any other Senior Note Collateral Document or the
Convertible Note Indenture or any Convertible Note Collateral Documents.
(b) All payments made from time to time on, or with respect to
Collateral, whether interest, principal, dividends, distributions or otherwise,
shall constitute Collateral and shall be delivered to the applicable Trustee for
deposit in the Leasing Company Escrow Account.
(c) All payments made from time to time on, or with respect to
a Telecommunications Asset Agreement, Intercompany Notes, Qualified Investments
(other than Excluded Qualified Investments) constituting Collateral and
Intercompany Notes constituting a Loan or advance made by the Company from the
net proceeds of the Senior Notes and any other Intercompany Notes constituting
loans or advances to the Leasing Companies, whether lease payments and rents,
interest or principal payments, dividends, distributions or otherwise, shall be
delivered to the applicable Trustee for deposit in the Leasing Company Escrow
Account or the Convertible Note Escrow Account if the Company Senior Note Escrow
Account Agreement has been terminated.
(d) So long as no Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions hereof and of the
Senior Indenture or of the Convertible Note Indenture if the Senior Notes are no
longer outstanding and the Senior Note Indenture has been satisfied and
discharged, the Leasing Company shall be entitled to receive, and to utilize
free and clear of the Liens of this Security Agreement, all payments
("Unrestricted Payments") made from time to time with respect to Intercompany
Notes not described in Section 7(b) above ("Unrestricted Collateral"), whether
interest, principal, dividends, distributions or otherwise.
(e) The Collateral Agent and/or the Senior Note Trustee (or
the Convertible Note Trustee if the Senior Notes are no longer outstanding and
the Senior Note Indenture has been satisfied and discharged) shall execute and
deliver (or cause to be executed and delivered) to the Leasing Company all such
proxies and other instruments as the Leasing Company may reasonably request for
the purpose of enabling the Leasing Company to exercise the voting and other
rights that it is entitled to exercise pursuant to Section 7(a) above.
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(f) Upon the occurrence and during the continuance of an Event
of Default, (i) all rights of the Leasing Company to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 7(a) shall cease, and all such rights shall thereupon become vested
in the Collateral Agent on behalf of, or if necessary, directly in, the Senior
Note Trustee (or the Convertible Note Trustee if the Senior Notes are no longer
outstanding and the Senior Note Indenture has been satisfied and discharged),
which shall thereupon have the sole right to exercise such voting and other
consensual rights, and (ii) all Unrestricted Payments shall constitute
Collateral and shall be paid directly to the Collateral Agent and the Leasing
Company's right to receive such payments pursuant to Section 7(c) hereof shall
immediately cease and all such Unrestricted Payments shall be deposited in the
Leasing Company Senior Note Escrow Account or the Leasing Company Convertible
Note Escrow Account, if the Leasing Company Senior Note Escrow Account has been
terminated.
(g) Upon the occurrence and during the continuance of an Event
of Default, the Leasing Company shall execute and deliver (or cause to be
executed and delivered) to the Collateral Agent and/or the Senior Note Trustee
(or the Convertible Note Trustee if the Senior Notes are no longer outstanding
and the Senior Note Indenture has been satisfied and discharged) all such
proxies and other instruments as the Collateral Agent and/or the applicable
Trustee may reasonably request for the purpose of enabling the Collateral Agent
and/or the applicable Trustee to exercise the voting and other rights that it is
entitled to exercise pursuant to Section 7(c) above.
(h) All lease payments and rents, all interest and principal
payments, all dividends and distributions and all other payments that are
received by the Leasing Company contrary to the provisions of this Section 7
shall be received in trust for the Collateral Agent for the benefit of the
Senior Note Trustee and the equal and ratable benefit of the Holders of the
Senior Notes and for the benefit of the Convertible Note Trustee and the equal
and ratable benefit of the Holders of the Convertible Notes, shall be segregated
from the other property or funds of the Leasing Company and be forthwith
delivered to the Collateral Agent as Collateral in the same form as so received
(with any necessary endorsements or other instruments of transfer or assignment
in blank), and all such payments shall be deposited in the Leasing Company
Escrow Account or the Company Convertible Note Escrow Account if the Leasing
Company Escrow Account Agreement has been terminated.
(i) So long as no Event of Default shall have occurred and be
continuing, neither the Collateral Agent nor the Trustees shall be under any
obligation to collect, attempt to collect, protect or enforce the Collateral,
which the Leasing Company agrees and undertakes to do at the Leasing Company's
expense; provided that the Collateral Agent and the Trustees shall cooperate
with the Leasing Company and take all such action as the Leasing Company may
reasonably request to permit the Leasing Company to collect, protect or enforce
the Collateral. All reasonable expenses (including, without limitation,
attorneys' fees and legal expenses) actually incurred or paid by the Collateral
Agent and the Trustees in connection with or incident to any such collection or
attempt to collect, protect or enforce the Collateral shall
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be borne by the Leasing Company or reimbursed by the Leasing Company to the
Collateral Agent or the applicable Trustee upon demand.
(j) At the Collateral Agent's or the applicable Trustee's
option, exercisable upon and during the continuance of any Event of Default,
either the Collateral Agent or the Senior Note Trustee (or the Convertible Note
Trustee if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged) may notify the lessees and other
obligors under the Telecommunications Asset Agreements, the issuers or other
obligors of the Intercompany Notes constituting Collateral (including
Unrestricted Collateral), the Issuers and the obligors of the Qualified
Investments constituting Collateral that any and all payments and distributions
to be made on such Telecommunications Asset Agreements, such Intercompany Notes
and such Qualified Investments, whether consisting of Unrestricted Collateral or
otherwise, shall be made directly to the Collateral Agent or the applicable
Trustee, and the Leasing Company hereby directs the obligors and lessees of such
Telecommunications Asset Agreements, the obligors of such Intercompany Notes,
the Issuers, and the issuers or other obligors of such Qualified Investments to
pay and deliver over to the Collateral Agent or the Senior Note Trustee (or the
Convertible Note Trustee if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged) all payments and
distributions to be made on such Intercompany Notes, and such Qualified
Investments, until such obligors or issuers are notified in writing by the
applicable Trustee or the Collateral Agent to discontinue making such payments
to it; and such obligors and issuers shall not be required to see to the
application of said proceeds by the Trustee or the Collateral Agents. All such
payments shall be deposited by such Trustee or the Collateral Agent into the
Leasing Company Escrow Account (or the Convertible Note Escrow Account if the
Leasing Company Note Escrow Account Agreement has been terminated) and held as
additional Collateral for the Obligations. If at any time the Collateral Agent
or a Trustee shall have notified such lessees, issuers and obligors to make all
payments directly to the Collateral Agent and if any at any time thereafter all
Events of Default shall thereafter have been cured or waived in accordance with
the terms of the Senior Note Indenture (or the Convertible Note Indenture if the
Senior Notes are no longer outstanding and the Senior Note Indenture has been
satisfied and discharged), the Collateral Agent or a Trustee may notify such
lessees, issuers and obligors to make all such payments directly to the Leasing
Company or as the Leasing Company may otherwise direct.
SECTION 8. POWER OF ATTORNEY. In addition to all of the powers granted
to the Senior Note Trustee pursuant to Article VI of the Senior Note Indenture
and the Convertible Note Trustee pursuant to Article VI of the Convertible Note
Indenture, the Leasing Company hereby appoints and constitutes the Collateral
Agent and the Trustees, whether acting separately or jointly, as the Leasing
Company's attorneys-in-fact to exercise all of the following powers upon and at
any time after the occurrence and during the continuance of an Event of Default:
(i) collection of proceeds of any Collateral; (ii) conveyance of any item of
Collateral to any purchaser thereof; (iii) giving of any notices or recording of
the security interest and the Liens under Section 6(d) hereof; (iv) making of
any payments or taking any
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acts under Section 9 hereof and (v) paying or discharging taxes or Liens levied
or placed upon the Collateral, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by the Collateral Agent in its
sole discretion, and such payments made by the Collateral Agent to become the
Obligations of the Leasing Company to the Collateral Agent, due and payable
immediately upon demand. The Collateral Agent's authority hereunder shall
include, without limitation, the authority to endorse and negotiate any checks
or instruments representing proceeds of Collateral in the name of the Leasing
Company, to execute and give receipt for any certificate of ownership or any
document constituting Collateral, to transfer title to any item of Collateral,
to sign the Leasing Company's name on all financing statements (to the extent
permitted by applicable law) or any other Senior Note Collateral Documents or
other documents deemed necessary or appropriate by the Collateral Agent to
preserve, protect or perfect the Liens in the Collateral and to file the same,
to prepare, file and sign the Leasing Company's name on any notice of Lien, and
to prepare, file and sign the Leasing Company's name on a proof of claim in
bankruptcy or similar document against any customer of, or person obligated upon
any Collateral to, the Leasing Company, and to take any other actions arising
from or incident to the powers granted to the Collateral Agent in this Security
Agreement. This power of attorney is coupled with an interest in the Trustees
and in the Collateral Agent as agent on behalf of the Trustees and is
irrevocable by the Leasing Company.
SECTION 9. COLLATERAL AGENT OR TRUSTEES MAY PERFORM. If the Leasing
Company fails to perform any covenant or agreement contained herein, the
Collateral Agent or either Trustee may, but shall not be obligated to, itself
perform, or cause performance of, such covenant or agreement, and the reasonable
expenses of the Collateral Agent or the Trustees incurred in connection
therewith shall be payable by the Leasing Company under Section 17(p) hereof.
SECTION 10. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights and
powers granted to the Collateral Agent or the Trustees hereunder are being
granted in order to preserve and protect the Collateral Agent's Liens and
security interest in and to the Collateral granted hereby and shall not be
interpreted to, and shall not, impose any duties on the Collateral Agent or the
Trustees in connection therewith. Each of the Collateral Agent and the Trustees
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Collateral Agent or such Trustee
accords similar property in similar situations, it being understood that the
Collateral Agent and the Trustees shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Collateral Agent or either Trustee has or is deemed to have knowledge of
such matters, (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral, or (iii) inquiring into or verifying
that the Leasing Company has complied or will comply with its duty to furnish
additional items of Collateral to the Collateral Agent and/or the Trustees
pursuant to Section 6(d) hereof. Absent knowledge to the contrary, the
Collateral Agent and both Trustees may
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assume that the items of Collateral actually delivered to it are all items
required to be so delivered and may assume that no other such items need be so
delivered.
SECTION 11. SUBSEQUENT CHANGES AFFECTING COLLATERAL. The Leasing
Company represents to the Collateral Agent, the Senior Note Trustee and the
Holders of the Senior Notes, and the Convertible Note Trustee and the Holders of
the Convertible Notes that the Leasing Company has made its own arrangements for
keeping informed of changes or potential changes affecting the Collateral
(including, but not limited to, compliance with the covenants and the occurrence
of events of default under Telecommunications Asset Agreements and the status of
the related Telecommunications Assets, rights to convert, rights to subscribe,
payment of dividends, payments of interest and/or principal, reorganization or
other exchanges, tender offers and voting rights), and the Leasing Company
agrees that the Collateral Agent, the Senior Note Trustee and the Holders of the
Senior Notes, and the Convertible Note Trustee and the Holders of the
Convertible Notes shall have no responsibility or liability for informing the
Leasing Company of any such changes or potential changes or for taking any
action or omitting to take any action with respect thereof. The Leasing Company
will defend the right, title and interest of the Collateral Agent, the Senior
Note Trustee and the Holders of the Senior Notes, and the Convertible Note
Trustee and the Holders of the Convertible Notes in and to the Collateral
against the claims and demands of all persons.
SECTION 12. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent may, subject to the provisions of the Senior Note
Indenture (or of the Convertible Note Indenture if the Senior Notes are no
longer outstanding and the Senior Note Indenture has been satisfied and
discharged), this Security Agreement, and the Collateral Agent's and the
Trustees' compliance with any requirements of law (including, without
limitation, the applicable Uniform Commercial Code and the Personal Property
Security Act (Ontario)) applicable to the action to be taken, without notice to
or demand upon the Leasing Company except as required by the Senior Note
Indenture, the Convertible Note Indenture, this Agreement or applicable law, do
any one or more of the following:
(i) exercise any or all of the rights and remedies provided for
by the applicable Uniform Commercial Code and the Personal Property Security Act
(Ontario), specifically including, without limitation, the right to recover the
reasonable fees and expenses incurred by the Collateral Agent or the Trustees in
the enforcement of this Security Agreement or in connection with the Leasing
Company's redemption of the Collateral, including reasonable fees, expenses and
disbursements of attorneys, paralegals and agents;
(ii) at its option, transfer or register, and the Leasing Company
shall register or cause to be registered upon request therefor by the Collateral
Agent or the Trustees, the Collateral or any part thereof on the books of the
Restricted Subsidiary or Qualified Joint Venture which is a lessee or buyer in a
transaction in which the monetary consideration
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therefor is paid immediately or is payable over time under a Telecommunications
Asset Agreement, the Persons in whom Qualified Investments are made or the
Restricted Subsidiaries to which an intercompany loan evidenced by an
Intercompany Note has been made, into the name of the Collateral Agent or the
Collateral Agent's nominee(s);
(iii) personally, or by agents or attorneys, immediately retake
possession of the Collateral or the Telecommunications Assets subject to a
Telecommunications Asset Agreement, or any part thereof, from the Leasing
Company or any other Person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon the
Leasing Company's premises where any of the Collateral is located and remove the
same and use in connection with such removal any and all services, supplies,
aids and other facilities of the Leasing Company;
(iv) sell, assign or otherwise liquidate, or direct the Leasing
Company to sell, assign or otherwise liquidate, any or all of the Collateral or
any part thereof, and take possession of the proceeds of any such sale or
liquidation;
(v) require the Leasing Company to assemble the Collateral or the
Telecommunications Assets subject to a Telecommunications Asset Agreement or any
part thereof and make it available at one or more places as the Collateral Agent
or the Trustees may designate and to deliver possession of the Collateral or any
part thereof to the Collateral Agent or the Trustees;
(vi) use, in connection with any assembly, use or disposition of
the Collateral, any intellectual property, intangibles or other technical
knowledge or process used or utilized from time to time by the Leasing Company;
(vii) sell or cause the same to be sold at any broker's board or
at public or private sale, in one or more sales or lots, at such price or prices
as the Collateral Agent may deem best, for cash or on credit or for future
delivery, without assumption of any credit; and the purchaser of any or all
Collateral so sold shall thereafter hold the same absolutely, free from any
claim, encumbrance or right of any kind whatsoever;
(viii) enforce one or more remedies hereunder, successively or
concurrently, and such action shall not operate to estop or prevent the
Collateral Agent from pursuing any other or further remedy which it may have,
and any repossession or retaking or sale of the Collateral pursuant to the terms
hereof shall not operate to release the Leasing Company until full and final
payment of any deficiency has been made in cash;
(ix) in connection with any public or private sale under the
applicable Uniform Commercial Code, the Personal Property Act (Ontario) or other
applicable legislation, the Collateral Agent shall give the Leasing Company at
least fifteen (15) Business Days' prior written notice of the time and place of
any public sale of its Collateral or of the time after which any private sale or
other intended disposition thereof may be made, which
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shall be deemed to be reasonable notice of such sale or other disposition. Such
notice may be given to the Leasing Company in accordance with the provisions of
Section 17(a) hereof;
(x) proceed by an action or actions at law or in equity to
recover the Obligations or to foreclose this Security Agreement and sell the
Collateral, or any portion thereof, pursuant to a judgment or decree of a court
or courts of competent jurisdiction;
(xi) exercise any other rights and remedies provided by
applicable law and the other Senior Note Collateral Documents; and
(xii) if the Collateral Agent recovers possession of all or any
part of the Collateral pursuant to a writ of possession or other judicial
process, whether prejudgment or otherwise, the Collateral Agent may thereafter
retain, sell or otherwise dispose of such Collateral in accordance with this
Security Agreement or the applicable Uniform Commercial Code, the Personal
Property Act (Ontario) or other applicable legislation, and following such
retention, sale or other disposition, the Collateral Agent may voluntarily
dismiss without prejudice the judicial action in which such writ of possession
or other judicial process was issued. The Leasing Company hereby consents to the
voluntary dismissal by the Collateral Agent of such judicial action, and the
Leasing Company further consents to the exoneration of any bond that the
Collateral Agent files in such action.
(b) If the Collateral Agent shall determine, or shall be directed by
the Senior Note Trustee (or the Convertible Note Trustee if the Senior Notes are
no longer outstanding and the Senior Note Indenture has been satisfied and
discharged), to exercise its right to sell any or all of the Qualified
Investments pursuant to Section 12(a) above, and if in the opinion of counsel
for the Collateral Agent it is necessary, or if in the opinion of the Collateral
Agent or such Trustee it is advisable, after such consultation with investment
bank(s), broker-dealer(s) or other experts selected by them, as the Collateral
Agent or such Trustee deems advisable or appropriate, to have the Qualified
Investments constituting Collateral or that portion thereof to be sold,
registered under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Leasing Company will (i) use its best efforts to cause
the issuer or obligor to execute and deliver, and to cause such Person's
directors and officers to execute and deliver, all at the Leasing Company's own
expense, all such instruments and documents, and to do or cause to be done all
such other acts and things as may be necessary or, in the opinion of the
Collateral Agent or such Trustee, after such consultation with investment
bank(s), broker-dealer(s) or other experts selected by them, as the Collateral
Agent or such Trustee deems advisable or appropriate, advisable to register such
Qualified Investments constituting Collateral under the provisions of the
Securities Act, (ii) use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of 180
days from the date of the first public offering of such Qualified Investments,
or that portion thereof to be sold and (iii) make all amendments thereto and/or
to the related prospectus that are necessary or, in the opinion of the
Collateral Agent or such Trustee, are advisable, all in conformity with the
requirements of the Securities Act and the rules and
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(b) If the Collateral Agent shall determine, or shall be directed by
the Senior Note Trustee (or the Convertible Note Trustee if the Senior Notes are
no longer outstanding and the Senior Note Indenture has been satisfied and
discharged), to exercise its right to sell any or all of the Qualified
Investments pursuant to Section 12(a) above, and if in the opinion of counsel
for the Collateral Agent it is necessary, or if in the opinion of the Collateral
Agent or such Trustee it is advisable, after such consultation with investment
bank(s), broker-dealer(s) or other experts selected by them, as the Collateral
Agent or such Trustee deems advisable or appropriate, to have the Qualified
Investments constituting Collateral or that portion thereof to be sold,
registered under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Leasing Company will (i) use its best efforts to cause
the issuer or obligor to execute and deliver, and to cause such Person's
directors and officers to execute and deliver, all at the Leasing Company's own
expense, all such instruments and documents, and to do or cause to be done all
such other acts and things as may be necessary or, in the opinion of the
Collateral Agent or such Trustee, after such consultation with investment
bank(s), broker-dealer(s) or other experts selected by them, as the Collateral
Agent or such Trustee deems advisable or appropriate, advisable to register such
Qualified Investments constituting Collateral under the provisions of the
Securities Act, (ii) use its best efforts to cause the registration statement
relating thereto to become effective and to remain effective for a period of 180
days from the date of the first public offering of such Qualified Investments,
or that portion thereof to be sold and (iii) make all amendments thereto and/or
to the related prospectus that are necessary or, in the opinion of the
Collateral Agent or such Trustee, are advisable, all in conformity with the
requirements of the Securities Act and the rules and
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regulations of the Securities and Exchange Commission applicable thereto. The
Leasing Company agrees to use its best efforts to cause the applicable issuer or
obligor to comply with the provisions of the securities or "Blue Sky" laws of
any jurisdiction that the Collateral Agent or the Senior Note Trustee (or the
Convertible Note Trustee if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged) shall designate for the
sale of such Qualified Investments and to make available to the security holders
of such issuer or obligor, as the case may be, as soon as practicable, an
earnings statement (which need not be audited) that will satisfy the provisions
of Section 11(a) of the Securities Act. The Leasing Company will cause the
issuer or obligor, as the case may be, to furnish to the Collateral Agent and
the Trustees such number of copies as the Collateral Agent and the Trustees may
reasonably request of each preliminary prospectuses and prospectuses, to notify
promptly the Collateral Agent and the Trustees of the happening of any event as
a result of which any then effective prospectus includes an untrue statement of
any material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of then existing circumstances and cause the Collateral Agent and the Trustees
to be furnished with such number of copies as the Collateral Agent or the
Trustees may request of such supplement to or amendment of such prospectus as is
necessary to eliminate such untrue statement or supply such omission. The
Leasing Company will cause the issuer or obligor, as the case may be, to the
extent permitted by law, to indemnity, defend and hold harmless the Collateral
Agent, the Senior Note Trustee and the Holders of the Senior Notes, and the
Convertible Note Trustee and the Holders of the Convertible Notes from and
against all losses, liabilities, expenses or claims (including reasonable costs
of investigation) that the Collateral Agent, the Senior Note Trustee and the
Holders of the Senior Notes, and the Convertible Note Trustee and the Holders of
the Convertible Notes may incur under the Securities Act or otherwise, insofar
as such losses, liabilities, expenses or claims arise out of or are based upon
any alleged untrue statement of a material fact contained in such registration
statement (or any amendment thereto) or in any preliminary prospectus or
prospectus (or any amendment or supplement thereto), or arise out of or are
based upon any alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, except to
the extent that any such losses, liabilities, expenses or claims arise solely
out of or are based solely upon any such alleged untrue statement made or such
alleged omission to state a material fact included or excluded on the written
direction of the Collateral Agent or such Trustee. The Leasing Company will
bear, or will cause the issuer or obligor, as the case may be, to bear, all
costs and expenses of carrying out its or their obligations hereunder. The
provisions of this Section 12(b) shall in no way impose upon either Trustee or
the Collateral Agent any duty to execute any registration statement under the
Securities Act with respect to any Qualified Investment.
(c) In view of the fact that federal, state and foreign
securities laws may impose certain restrictions on the method by which a sale of
the Collateral may be effected after an Event of Default, the Leasing Company
agrees that upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent may, from time to time, attempt to sell all or any
part of the Collateral by means of a private placement, restricting the
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prospective purchasers to those who will represent and agree that they are
purchasing for investment only and not for distribution. In so doing, the
Collateral Agent may solicit, or may cause an investment manager to solicit,
offers to buy the Collateral, or any part of it, for cash, from a limited number
of investors who might be interested in purchasing the Collateral. The Leasing
Company acknowledges and agrees that any such private sale may result in prices
and terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Collateral
Agent shall be under no obligation to delay a sale of any of the Collateral for
the period of time necessary to permit the Leasing Company to cause the issuer
or obligor to register such securities for public sale under the Securities Act,
or under applicable state or foreign securities laws, even if the Leasing
Company could cause the issuer or obligor, as the case may be, to do so.
(d) The Leasing Company further agrees to use its best efforts
to do or cause to be done all such other acts as may be necessary to make such
sale or sales of all or any portion of the Collateral pursuant to this Section
12 valid and binding and in compliance with any and all other applicable
requirements of applicable law. The Leasing Company further agrees that a breach
of any of the covenants contained in this Section 12 will cause irreparable
injury to the Senior Note Trustee and the Holders of the Senior Notes, and the
Convertible Note Trustee and the Holders of the Convertible Notes and that the
Collateral Agent, the Senior Note Trustee and the Holders of the Senior Notes
and the Convertible Note Trustee and the Holders of the Convertible Notes have
no adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 12 shall be specifically
enforceable against the Leasing Company, and the Leasing Company hereby waives
and agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred and
is continuing.
(e) Any cash held by the Collateral Agent as Collateral and
all cash proceeds received by the Collateral Agent in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
shall be applied by the Collateral Agent:
First, to the payment of the costs and expenses of
such sale, including, without limitation, reasonable expenses
of the Collateral Agent and its agents including the fees and
expenses of its counsel, and all expenses, liabilities and
advances made or incurred by the Collateral Agent in
connection therewith or pursuant to Section 17(p) hereof:
Next, to the Senior Note Trustee for the payment in
full of all amounts due under Section 7.7 of the Senior Note
Indenture;
Next, to the Senior Note Trustee, for distribution to
the Holders of the Senior Notes for the payment in full of the
remaining Senior Note Obligations;
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Next, to the Convertible Note Trustee for the payment
in full of all amounts due under Section 7.7 of the
Convertible Note Indenture.
Next, to the Convertible Note Trustee, for
distribution to the Holders of the Convertible Notes, for the
payment in full of the remaining Convertible Note Obligations;
and
Finally, after payment in full of all of the
Obligations, to the Company, or its successors or assigns, or
to whomsoever may be lawfully entitled to receive the same as
a court of competent jurisdiction may direct.
(f) If any sale or other disposition of Collateral by the
Collateral Agent or any other action of the Collateral Agent or the Trustees
hereunder results in reduction of the Obligations, such action will not release
the Leasing Company from its liability for any unpaid Obligations, including
costs, charges and expenses incurred in the liquidation of Collateral, together
with interest thereon, and the same shall be immediately due and payable to the
Collateral Agent, the Senior Note Trustee and the Holders of the Senior Notes as
provided for in the Senior Note Indenture, or, if applicable, the Convertible
Note Trustee and the Holders of the Convertible Notes as provided for in the
Convertible Note Indenture.
(g) The Collateral Agent may enforce its rights hereunder
without prior judicial process or judicial hearing, and to the extent permitted
by law the Leasing Company expressly waives any and all legal rights which might
otherwise require the Collateral Agent to enforce its right by judicial process.
(h) The existence and/or exercise of any or all of the rights
and remedies given to the Collateral Agent and/or either Trustee under this
Section 12 shall be subject in all cases to compliance with any mandatory
requirements of applicable law, particularly the laws of jurisdictions other
than the United States.
SECTION 13. IRREVOCABLE AUTHORIZATION AND INSTRUCTIONS TO THE
APPLICABLE ISSUER. The Leasing Company hereby authorizes and instructs the
lessees, issuers and obligors to comply with any instructions received by the
Issuers or such other issuer or obligor, as the case may be, from the Collateral
Agent or the Senior Note Trustee (or the Convertible Note Trustee if the Senior
Notes are no longer outstanding and the Senior Note Indenture has been satisfied
and discharged) that (i) states that an Event of Default has occurred and (ii)
is otherwise in accordance with the terms of this Security Agreement, without
any other or further instructions from the Leasing Company, and the Leasing
Company agrees that the lessees, issuers and obligors shall be fully protected
in so complying.
SECTION 14. ESCROW ACCOUNTS. All money received by the Leasing Company
and required to be deposited in the Leasing Company Escrow Account, or the
Convertible Note Escrow Account if the Leasing Company Escrow Account Agreement
has been
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terminated, shall be promptly and without commingling remitted to the Collateral
Agent or the Senior Note Trustee (or the Convertible Note Trustee if the Senior
Notes are no longer outstanding and the Senior Note Indenture has been satisfied
and discharged) for deposit therein. Amounts held in the Leasing Company Escrow
Account shall be applied or disposed of only in a manner not prohibited by the
Senior Note Indenture.
SECTION 15. SECURITY INTEREST ABSOLUTE. All rights of the Collateral
Agent, the Senior Note Trustee and the Holders of the Senior Notes, and the
Convertible Note Trustee and the Holders of the Convertible Notes and the Liens
or security interests hereunder, and all obligations of the Leasing Company
hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Senior Note
Indenture, any Senior Note Collateral Document, any Senior Note Guarantee, the
Convertible Note Indenture, any Convertible Note Collateral Document, any
Convertible Note Guarantee or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Senior Note Indenture or the
Senior Note Collateral Documents or from the Convertible Note Indenture or the
Convertible Note Collateral Documents;
(c) any exchange, surrender, release or non-perfection of any
Liens on any other collateral, or any release or amendment or waiver of or
consent to departure from any Senior Note Guarantee, any Convertible Note
Guarantee or other guarantee, for all or any of the Obligations; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Leasing Company in respect of the
Obligations or of this Security Agreement.
SECTION 16. WAIVERS.
(a) Except as may be required under the provisions of the
Senior Note Indenture (or of the Convertible Note Indenture if the Senior Notes
are no longer outstanding and the Senior Note Indenture has been satisfied and
discharged) and to the fullest extent permitted under applicable law, neither
the Collateral Agent nor the Senior Note Trustee (or the Convertible Note
Trustee if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged) shall be under any duty whatsoever
to make or give any presentment, notice of dishonor, protest, demand for
performance, notice of non-performance, notice of intent to accelerate, notice
of acceleration, or other notice or demand in connection with any Collateral or
the Obligations, or to take any steps reasonably necessary to preserve any
rights against any Obligor or other Person. The Leasing Company waives to the
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fullest extent permitted under applicable law any right of marshalling in
respect of any and all Collateral, and waives to the fullest extent permitted
under applicable law any right to require the Collateral Agent or the applicable
Trustee to proceed against any Obligor or other Person, exhaust any Collateral
or enforce any other remedy which the Collateral Agent or the applicable Trustee
now has or may hereafter have against any Obligor or other Person.
(b) The Leasing Company waives to the fullest extent permitted
under applicable law (i) any and all notices of acceptance, creation,
modification, rearrangement, renewal or extension for any period of any
instrument executed by any obligor in connection with the Obligations and (ii)
any defense of any Obligor by reason of disability, lack of authorization,
cessation of the liability of any Obligor or for any other reason. The Leasing
Company authorizes the Collateral Agent to the fullest extent permitted under
applicable law, without notice or demand and without any reservation of rights
against the Leasing Company and without affecting the Leasing Company's
liability hereunder or on the Obligations, from time to time to (w) take and
hold other Property, other than the Collateral, as security for the Obligations,
and exchange, enforce, waive and release any or all of the Collateral, (x) after
the occurrence and during the continuance of an Event of Default and the
acceleration of the Senior Notes, apply the Collateral in the manner permitted
by this Security Agreement or the Senior Note Indenture, (y) after the
occurrence and during the continuance of an Event of Default and the
acceleration of the Convertible Notes if the Senior Notes are no longer
outstanding and the Senior Note Indenture has been satisfied and discharged,
apply the Collateral in the manner permitted by this Security Agreement or the
Convertible Note Indenture and (z) after the occurrence and during the
continuance of an Event of Default renew, extend for any period, accelerate,
amend or modify, supplement, enforce, compromise, settle, waive or release the
obligations of any obligor on, or any instrument or agreement of such other
Person with respect to any or all of, the Collateral.
SECTION 17. MISCELLANEOUS PROVISIONS.
(a) Notices. All notices, approvals, consents or other
communications required or desired to be given hereunder shall be in the form
and manner, and delivered to the Leasing Company, at its address as set forth in
Section 13.2 of the Senior Note Indenture, to the Senior Note Trustee at its
address as set forth in Section 13.2 of the Senior Note Indenture, to the
Convertible Note Trustee at its address as set forth in Section 13.2 of the
Convertible Note Indenture and to the Collateral Agent at The Bank of New York,
101 Barclay Street, Floor 21 West, New York, New York 10286.
(b) Sales of Collateral. No sales of Collateral may be made in
contravention of the terms of the Senior Note Indenture or the Convertible Note
Indenture and the cash proceeds of the sale of any Collateral shall be promptly
and without commingling remitted to the Collateral Agent or the Senior Note
Trustee for deposit in the Leasing Company Escrow Account, or to the Collateral
Agent or the Convertible Note Trustee for deposit in the
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Convertible Note Escrow Account if the Leasing Company Escrow Account Agreement
has been terminated.
(c) No Adverse Interpretation of Other Agreements. This
Security Agreement may not be used to interpret another pledge, security or debt
agreement of the Leasing Company or any Subsidiary of the Leasing Company. No
such pledge, security or debt agreement may be used to interpret this Security
Agreement.
(d) Severability. The provisions of this Security Agreement
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Security Agreement in any jurisdiction.
(e) Headings. The headings in this Security Agreement have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
(f) Counterpart Originals. This Security Agreement may be
signed in two or more counterparts, each of which shall be deemed an original,
but all of which shall together constitute one and the same agreement.
(g) Benefits of Security Agreement. Nothing in this Security
Agreement, express or implied, shall give to any person, other than the parties
hereto and their successors hereunder and the Holders of the Senior Notes and
the Senior Note Guarantors and the Holders of the Convertible Notes and the
Convertible Note Guarantors, any benefit or any legal or equitable right, remedy
or claim under this Security Agreement.
(h) Amendments, Waivers and Consents. Any amendment or waiver
of any provision of this Security Agreement and any consent to any departure by
the Leasing Company from any provision of this Security Agreement shall be
effective only if made or given in compliance with all of the terms and
provisions of the Senior Note Indenture and the Convertible Note Indenture and
neither the Collateral Agent or the Senior Note Trustee nor any Holder of any
Senior Note or the Convertible Note Trustee or any Holder of any Convertible
Note shall be deemed, by any act, delay, indulgence, omission or otherwise, to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions hereof.
Failure of the Collateral Agent or the Trustees to exercise, or delay in
exercising, any right, power or privilege hereunder shall not operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent, the
Senior Note Trustee or any Holder of any Senior Note or the Convertible Note
Trustee or any Holder
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of any Convertible Note of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy that the Collateral
Agent, either Trustee or any such Holder would otherwise have on any future
occasion. The right and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
(i) Interpretation of Security Agreement. All terms not
defined herein or in the Senior Note Indenture shall have the meaning set forth
in the applicable Uniform Commercial Code of the State of New York, except where
the context otherwise requires. To the extent a term or provision of this
Security Agreement conflicts with the Senior Note Indenture, the Senior Note
Indenture shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Security Agreement shall not be relevant in determining the meaning
of this Security Agreement even though the accepting or acquiescing party had
knowledge of the nature of the performance and opportunity for objection.
(j) Continuing Security Interest; Transfer of Collateral. This
Security Agreement shall create a continuing Lien and security interest in the
Collateral and shall (i) unless otherwise provided in the Senior Note Indenture,
the Convertible Note Indenture or this Security Agreement, remain in full force
and effect until payment in full of (A) the Senior Notes under the terms of the
Senior Note Indenture, (B) all Obligations then due and owing under the Senior
Note Indenture, the Senior Note Guarantees and the Senior Note Collateral
Documents, (C) the Convertible Notes under the terms of the Convertible Note
Indenture and (D) all Obligations then due and owing under the Convertible Note
Indenture, the Convertible Note Guarantees and the Convertible Note Collateral
Documents; provided, however, that after receipt from the Leasing Company by the
Collateral Agent of a request for a release of any Collateral permitted under
the Senior Note Indenture and the Convertible Note Indenture upon the sale,
transfer, assignment, exchange or other disposition of such Collateral not
prohibited by the Senior Note Indenture and the Convertible Note Indenture and
upon receipt by the Collateral Agent of all proceeds of such sale, transfer,
assignment, exchange or other disposition required to be remitted to the
Collateral Agent or the Senior Note Trustee (or the Convertible Note Trustee if
the Senior Notes are no longer outstanding and the Senior Note Indenture has
been satisfied and discharged) or the Collateral constituting the proceeds of
such sale, transfer, assignment, exchange or other disposition is made subject
to a Lien and security interest in favor of the Collateral Agent for the benefit
of the Senior Note Trustee and the equal and ratable benefit of the Holders of
the Senior Notes and for the benefit of the Convertible Note Trustee and the
equal and ratable benefit of the Holders of the Convertible Notes, which Lien
has the same priority as had the Lien on the Collateral being sold, assigned or
otherwise disposed of, such Collateral shall be released from the Lien and
security interest created hereunder and no longer constitute Collateral. Upon
the payment in full of (A) the Senior Notes under the terms of the Senior Note
Indenture, (B) all Obligations then due and owing under the Senior Note
Indenture, the Senior Note Guarantees and the Senior Note Collateral Documents,
(C) the Convertible Notes under the terms of the Convertible Note Indenture and
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(D) all Obligations then due and owing under the Convertible Note Indenture, the
Convertible Note Guarantees and the Convertible Note Collateral Documents, the
Leasing Company shall be entitled to the return, upon its request and at its
expense, of such of the Collateral pledged by it as shall not have been sold or
otherwise applied pursuant to the terms hereof. This Security Agreement shall be
binding upon the Leasing Company, its successors and assigns, and inure,
together with the rights and remedies of the Trustees hereunder, to the benefit
of the Collateral Agent, the Senior Note Trustee and the Holders of the Senior
Notes, and the Convertible Note Trustee and the Holders of the Convertible Notes
and their respective successors, transferees and assigns.
(k) Reinstatement. This Security Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time any amount
received by the Collateral Agent, the Senior Note Trustee or any Holder of a
Senior Note or the Convertible Note Trustee or any Holder of a Convertible Note
in respect of the Obligations is rescinded or must otherwise be restored or
returned by the Collateral Agent, the Senior Note Trustee or any Holder of a
Senior Note upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization or the Leasing Company or upon the appointment of any receiver,
intervenor, conservator, trustee or similar official for the Leasing Company or
upon the appointment of any receiver, intervenor, conservator, trustee or
similar official for the Leasing Company or any substantial part of its assets,
or otherwise, all as though such payments had not been made.
(l) Survival of Provisions. All representations, warranties
and covenants of the Leasing Company contained herein shall survive the
execution and delivery of this Security Agreement, and shall terminate only upon
the full and final payment and performance by the Leasing Company of the
Obligations.
(m) Authority of Collateral Agent and Trustees. Both the
Collateral Agent and the Trustees shall have and be entitled to exercise all
powers hereunder that are specifically granted to the Collateral Agent and the
Trustees by the terms hereof, together with such powers as are reasonably
incident thereto. The Collateral Agent and the Trustees may perform any of their
respective duties hereunder or in connection with the Collateral by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of counsel concerning all such matters. None of the
Collateral Agent, any director, officer, any attorney or agent of the Collateral
Agent, the Senior Note Trustee, any director, officer, employee, attorney or
agent of the Senior Note Trustee, the Holders of the Senior Notes, the
Convertible Note Trustee, any director, officer, employee, attorney or agent of
the Convertible Note Trustee and the Holders of the Convertible Notes shall be
liable to the Leasing Company for any action taken or omitted to be taken by it
or them hereunder, except for its or their own negligence or willful misconduct,
nor shall the Collateral Agent or the Trustees be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security furnished
pursuant hereto. The Collateral Agent and its directors, officers, employees,
attorneys and agents, the Senior Note Trustee and its directors, officers,
employees, attorneys and agents the Convertible Note Trustee, any director,
officer, employee,
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attorney or agent of the Convertible Note Trustee and the Holders of the
Convertible Notes shall be entitled to rely on any communication, instrument or
document believed by it or them to be genuine and correct and to have been
signed or sent by the proper person or persons. Neither the Collateral Agent nor
the Trustees shall be required to, and shall not, expend or risk any of its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder.
The Leasing Company acknowledges that the rights and
responsibilities of the Collateral Agent and the Trustees under this Security
Agreement with respect to any action taken by the Collateral Agent and the
Trustees or the exercise or non-exercise by the Collateral Agent and the
Trustees of any option, right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Security Agreement
shall, as among the Collateral Agent, the Senior Note Trustee, the Holders of
the Senior Notes, the Convertible Note Trustee and the Holders of the
Convertible Notes, be governed by the Senior Note Indenture or the Convertible
Note Indenture, as applicable and by such other agreements with respect thereto
as may exist from time to time among them, but, as among the Collateral Agent,
the Trustees and the Leasing Company, the Collateral Agent and the Trustees
shall be conclusively presumed to be acting as agent for the Holders of the
Senior Notes or Holders of the Convertible Notes, as the case may be, with full
and valid authority so to act or refrain from acting, and the Leasing Company
shall not be obligated or entitled to make any inquiry respecting such
authority.
In any case in which the Collateral Agent shall be required or
permitted to make any determination as to the extent to which the security
interest or Liens under this Security Agreement secures any obligations, the
Collateral Agent is authorized, without any direction from, or requirement for
consent of or authorization by, the Senior Note Trustee (or the Convertible Note
Trustee if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged), to institute proceedings in a
court of competent jurisdiction for the obtaining of any authoritative
determination of such matter. If the Collateral Agent institutes any such
proceeding, it shall give prompt written notice thereof to the Trustees and
shall afford each of them the opportunity to participate in such proceeding.
(n) Limitation by Law. All rights, remedies and powers provided herein
may be exercised only to the extent that they will not render this Security
Agreement not entitled to be recorded, registered or filed under provisions of
any applicable law.
(o) Release; Termination of Security Agreement.
(i) Subject to the provisions of Section 17(k) hereof, this
Security Agreement shall terminate upon payment in full of (A) the Senior Notes
under the terms of the Senior Note Indenture and (B) all Obligations then due
and owing under the Senior Note Indenture, the Senior Note Guarantees, and the
Senior Note Collateral Documents, (C) the Convertible Notes under the terms of
the Convertible Note Indenture and (D) all Obligations
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then due and owing under the Convertible Note Indenture, the Convertible Note
Guarantees and the Convertible Note Collateral Documents, except that the
provisions of Section 17(p) hereof shall survive.
(ii) The Leasing Company agrees that it will not sell or dispose
of any of the Collateral in violation of the Senior Note Indenture or the
Convertible Note Indenture; provided, however, that if the Leasing Company shall
sell or otherwise dispose of any of the Collateral in accordance with the terms
of the Senior Note Indenture and of the Convertible Note Indenture, the
Collateral Agent shall, and the Trustees shall cause, at the request of the
Leasing Company, release or cause to be released the Collateral subject to such
sale or disposition free and clear of the Liens and security interest under this
Security Agreement.
(iii) Upon any termination of this Security Agreement or release
of any Collateral as permitted by the Senior Note Indenture (or the Convertible
Note Indenture if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged) the Collateral Agent and the
Trustees will, at the expense of the Leasing Company, execute and deliver to the
Leasing Company such documents and take such other actions as the Leasing
Company shall reasonably request to evidence the termination of this Security
Agreement or the release of such Collateral, as the case may be. Any such action
taken by the Collateral Agent or the Trustees shall be without warranty by or
recourse to the Collateral Agent or the Trustees, except as to the absence of
any prior assignments by the Collateral Agent or the Trustees of its interests
in the Collateral, and shall be at the expense of the Leasing Company. The
Collateral Agent and the Trustees may conclusively rely on any certificate
delivered to it by the Leasing Company stating that the execution of such
documents and release of the Collateral is in accordance with and permitted by
the terms of this Security Agreement and the Senior Note Indenture (or of the
Convertible Note Indenture if the Senior Notes are no longer outstanding and the
Senior Note Indenture has been satisfied and discharged).
(p) Payment of Fees and Expenses. The Leasing Company will upon demand
pay to the Collateral Agent and the Trustees, without duplication, the amount of
any and all expenses, including, without duplication, the fees and disbursements
of its counsel and of any experts and agents, that the Collateral Agent and the
Trustees may incur in connection with (i) administration of this Security
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent and the
Trustees hereunder or (iv) the failure by the Leasing Company to perform or
observe any of the provisions hereof. The Leasing Company shall be liable for
and shall reimburse and indemnify both Trustees and the Collateral Agent and
hold both Trustees and the Collateral Agent harmless from and against any and
all claims, losses, liabilities, costs, damages or expenses (including
reasonable attorneys' fees and expenses) (collectively, "Losses") arising from
or in connection with or related to this Agreement or being a Trustee or
Collateral Agent hereunder
27
<PAGE> 29
(including but not limited to Losses incurred by such Trustee or Collateral
Agent in connection with its successful defense, in whole or in part, of any
claim of negligence or willful misconduct in its part), provided, however, that
nothing contained herein shall require the Trustees and the Collateral Agent to
be indemnified for their respective negligence or willful misconduct.
(q) Final Expression. This Security Agreement, together with the Senior
Note Indenture, the Convertible Note Indenture and any other agreement executed
in connection herewith or therewith, is intended by the parties as a final
expression of this Security Agreement and is intended as a complete and
exclusive statement of the terms and conditions hereof.
(r) Leasing Company Remain Liable. Anything herein to the contrary
notwithstanding, (a) the Leasing Company shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Security Agreement had not been executed, (b) the exercise by the
Collateral Agent or the Trustees of any of the rights hereunder shall not
release the Leasing Company from any of its duties or obligations under the
contracts and agreements included in the Collateral and (c) the Collateral Agent
and the Trustees shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Security Agreement,
nor shall the Collateral Agent or the Trustees be obligated to perform any of
the obligations or duties of the Leasing Company thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
(s) Indentures. This Security Agreement is subject to the terms,
conditions and provisions of the Senior Note Indenture, or of the Convertible
Note Indenture if the Senior Notes are no longer outstanding and the Senior Note
Indenture has been satisfied and discharged.
(t) Where there is a conflict between the provisions of this Security
Agreement and the Senior Note Indenture or the Convertible Note Indenture, as
the case may be, the provisions of the Senior Note Indenture or the Convertible
Note Indenture shall prevail.
(u) Rights of Holders. No Holder of a Senior Note or of a Convertible
Note shall have any independent rights hereunder other than those rights granted
to individual Holders pursuant to Section 6.7 of the Senior Note Indenture or
Section 6.7 of the Convertible Note Indenture, as the case may be; provided that
nothing in this subsection (t) shall limit any rights granted to the Senior Note
Trustee under the Senior Notes, the Senior Note Indenture or the Senior Note
Collateral Documents or the Convertible Note Trustee under the Convertible
Notes, the Convertible Note Indenture or the Convertible Note Collateral
Documents.
28
<PAGE> 30
(v) No Personal Liability of Directors, Officers, Employees and
Stockholders. No past, present or future director, officer, employee,
incorporator or stockholder of the Leasing Company or of any subsidiary of the
Leasing Company, as such, shall have any liability for any obligations of the
Leasing Company under this Security Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation.
(w) GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
WAIVER OF DAMAGES.
(i) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THE LEASING COMPANY, THE COLLATERAL AGENT, THE SENIOR NOTE TRUSTEE AND
THE HOLDERS OF THE SENIOR NOTES AND THE CONVERTIBLE NOTE TRUSTEE AND THE HOLDERS
OF THE CONVERTIBLE NOTES IN CONNECTION WITH THIS SECURITY AGREEMENT, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE
WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND
DECISIONS OF THE STATE OF NEW YORK.
(ii) THE LEASING COMPANY AGREES THAT THE COLLATERAL AGENT SHALL,
IN ITS CAPACITY AS COLLATERAL AGENT OR IN THE NAME AND ON BEHALF OF THE SENIOR
NOTE TRUSTEE AND ANY HOLDERS OF SENIOR NOTES AND THE CONVERTIBLE NOTE TRUSTEE
AND ANY HOLDERS OF CONVERTIBLE NOTES, AND THE SENIOR NOTE TRUSTEE SHALL, IN ITS
CAPACITY AS SENIOR NOTE TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDERS OF
SENIOR NOTES AND THE CONVERTIBLE NOTE TRUSTEE SHALL, IN ITS CAPACITY AS
CONVERTIBLE NOTE TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDERS OF
CONVERTIBLE NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE LEASING COMPANY OR ITS PROPERTY IN A COURT IN ANY LOCATION
REASONABLY SELECTED IN GOOD FAITH TO ENABLE THE COLLATERAL AGENT OR THE TRUSTEES
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF THE COLLATERAL AGENT OR EITHER TRUSTEE. THE LEASING COMPANY
AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY
PROCEEDING BROUGHT BY THE COLLATERAL AGENT OR EITHER TRUSTEE TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
COLLATERAL AGENT OR SUCH TRUSTEE. THE LEASING COMPANY WAIVES ANY OBJECTION THAT
IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH EITHER TRUSTEE HAS
29
<PAGE> 31
COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS.
(iii) TO, THE EXTENT PERMITTED BY APPLICABLE LAW, THE LEASING
COMPANY, THE COLLATERAL AGENT AND THE TRUSTEES EACH WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS SECURITY
AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH
TRIAL WITHOUT A JURY.
(iv) THE LEASING COMPANY AGREES THAT NONE OF THE COLLATERAL
AGENT, THE SENIOR NOTE TRUSTEE, ANY HOLDER OF A SENIOR NOTE, THE CONVERTIBLE
NOTE TRUSTEE AND ANY HOLDER OF A CONVERTIBLE NOTE SHALL HAVE ANY LIABILITY TO
THE LEASING COMPANY (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES
SUFFERED BY THE LEASING COMPANY IN CONNECTION WITH, ARISING OUT OF, OR IN ANY
WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED
BY THIS SECURITY AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE
JUDGMENT OF A COURT THAT IS BINDING ON THE COLLATERAL AGENT, SUCH TRUSTEE OR
SUCH NOTEHOLDER, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF THE COLLATERAL AGENT, THE SENIOR NOTE TRUSTEE OR SUCH
HOLDER OF A SENIOR NOTE OR THE CONVERTIBLE NOTE TRUSTEE OR ANY HOLDER OF A
CONVERTIBLE NOTE, AS THE CASE MAY BE, CONSTITUTING NEGLIGENCE OR WILLFUL
MISCONDUCT.
(v) THE LEASING COMPANY WAIVES ALL RIGHTS OF NOTICE AND HEARING
OF ANY KIND PRIOR TO THE EXERCISE BY THE SENIOR NOTE TRUSTEE OR ANY HOLDER OF A
SENIOR NOTE OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO
REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. THE LEASING COMPANY
WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE COLLATERAL AGENT, THE
SENIOR NOTE TRUSTEE OR ANY HOLDER OF A SENIOR NOTE OR THE CONVERTIBLE NOTE
TRUSTEE OR ANY HOLDER OF A CONVERTIBLE NOTE IN CONNECTION WITH ANY JUDICIAL
PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON
COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS, TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER ENTERED IN FAVOR OF
30
<PAGE> 32
THE COLLATERAL AGENT, THE SENIOR NOTE TRUSTEE OR ANY HOLDER OF A SENIOR NOTE OR
THE CONVERTIBLE NOTE TRUSTEE OR ANY HOLDER OF A CONVERTIBLE NOTE, OR TO ENFORCE
BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT
INJUNCTION THIS SECURITY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT AMONG THE
LEASING COMPANY ON THE ONE HAND AND THE COLLATERAL AGENT, THE SENIOR NOTE
TRUSTEE AND/OR THE HOLDERS OF THE SENIOR NOTES ON THE OTHER HAND.
(x) Appointment of Collateral Agent. Pursuant to, and subject to the
provisions of, Section 7.12 of the Senior Note Indenture and of Section 7.12 of
the Convertible Note Indenture, the Trustees hereby appoint the Collateral
Agent, and the Collateral Agent accepts appointment, as collateral agent under
the terms of this Security Agreement. The Collateral Agent may resign at any
time by giving written notice thereof to the Trustees and may be removed at any
time with or without cause by the Trustees acting together. Prior to the
effectiveness of any such resignation or removal, the Trustees acting together
shall have the right to appoint a successor Collateral Agent which shall be a
commercial bank organized or chartered under the laws of the United States of
America or any state thereof having combined capital and surplus of at least
$50,000,000. If no successor Collateral Agent shall have been so appointed by
the Trustees acting together, and shall have accepted such appointment within 30
days after the retiring Collateral Agent's giving of notice of resignation or
the Trustee's removal of the retiring Collateral Agent, then the retiring
Collateral Agent shall, prior to the effectiveness of its resignation or
removal, on behalf of the Convertible Note Trustee, the Holders of the
Convertible Notes, the Senior Note Trustee and the Holders of the Senior Notes
appoint a successor Collateral Agent, which shall be a commercial bank organized
under the laws of the United States of America or any state thereof having a
combined capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Collateral Agent hereunder by a successor Collateral Agent, such
successor Collateral Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Collateral Agent, and
the retiring Collateral Agent shall be discharged from its duties and
obligations under this Security Agreement. After any retiring Collateral Agent's
resignation or removal hereunder as Collateral Agent, the provisions of this
Security Agreement shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Collateral Agent under this Security Agreement.
Any corporation into which the Collateral Agency may be merged, or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Collateral Agent shall be a party, shall be
Collateral Agent under this Security Agreement without the execution or filing
of any paper or any further act on the part of the parties hereto.
[SIGNATURE PAGE FOLLOWS]
31
<PAGE> 33
IN WITNESS WHEREOF, the Leasing Company has caused this Security
Agreement to be duly executed and delivered as of the day and year first above
written.
PLD CAPITAL ASSET (U.S.) INC.
By: /s/ E. Clive Anderson
--------------------------
Name: E. Clive Anderson
Title: Vice President
By its acceptance hereof, as of the day and year first above written,
the Collateral Agent, the Senior Note Trustee and the Convertible Note Trustee
agree to be bound by the provisions hereof.
THE BANK OF NEW YORK, as Collateral
Agent, Senior Note Trustee and
Convertible Note Trustee
By: /s/ Thomas E. Tabor
--------------------------
Name: Thomas E. Tabor
Title: Assistant Vice President
<PAGE> 34
SCHEDULE A
to Leasing Company
Security and
Pledge Agreement
QUALIFIED INVESTMENTS
---------------------
None.
<PAGE> 35
SCHEDULE B
to Leasing Company
Security and
Pledge Agreement
TELECOMMUNICATIONS ASSET AGREEMENTS
-----------------------------------
None.
<PAGE> 36
SCHEDULE C
to Leasing Company
Security and
Pledge Agreement
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
--------------------------------------------
None.
<PAGE> 37
SCHEDULE D
to Leasing Company
Security and
Pledge Agreement
LIENS ON EXISTING COLLATERAL
----------------------------
None.
<PAGE> 38
SCHEDULE E
to Leasing Company
Security and
Pledge Agreement
FILINGS
-------
None.
<PAGE> 39
SCHEDULE F
to Leasing Company
Security and
Pledge Agreement
CHIEF EXECUTIVE OFFICE
----------------------
c/o PLD Telekom Inc.
580 Fifth Avenue
New York, NY 10019
<PAGE> 40
SCHEDULE G
to Leasing Company
Security and
Pledge Agreement
BUSINESS NAMES
--------------
None.
<PAGE> 41
SCHEDULE H
to Leasing Company
Security and
Pledge Agreement
LOCATION OF COLLATERAL
----------------------
The Company's chief executive offices (see Schedule F).
<PAGE> 42
SCHEDULE I
to Leasing Company
Security and
Pledge Agreement
FORM OF ADDITIONAL COLLATERAL AMENDMENT
This Additional Collateral Amendment, dated _____________, 19__, is
delivered pursuant to Section 6(a) of the Security Agreement referred to below.
The undersigned hereby pledges to the Collateral Agent for the benefit of the
Senior Note Trustee and the equal and ratable benefit of the Holders of the
Senior Notes and for the benefit of the Convertible Note Trustee and the equal
and ratable benefit of the Holders of the Convertible Notes, and grants to the
Senior Note Trustee for its benefit and the equal and ratable benefit of the
Holders of the Senior Notes and for the benefit of the Convertible Note Trustee
and the equal and ratable benefit of the Holders of the Convertible Notes,
continuing Liens and security interest in all of its rights, title and interest
in the Collateral listed below.
The undersigned hereby agrees that this Additional Collateral Amendment
may be attached to the Leasing Company Security and Pledge Agreement [PLD
Capital Asset (U.S.) Inc.], dated as of June 15, 1998, between the undersigned
and The Bank of New York, as Senior Note Trustee, Convertible Note Trustee and
as Collateral Agent (the "Security Agreement"); capitalized terms used herein
and not otherwise defined herein shall have the meanings given to such terms in
the Security Agreement; and the Collateral listed on this Additional Collateral
Amendment shall be deemed to be part of the Collateral, and shall become part of
the Collateral and shall secure all Obligations.
PLD CAPITAL ASSET (U.S.) INC.
By:__________________________
Name:________________________
Title:_______________________
<PAGE> 43
INTERCOMPANY NOTES:
- -------------------
Description Name of Restricted Original
Item of Subsidiary Principal
Number Indebtedness (Obligor) Date Amount
------ ------------ --------- ---- ------
TELECOMMUNICATIONS ASSET AGREEMENTS:
- ------------------------------------
General
Description of Description of
Telecommunications Leased
Name of Asset Telecommunications
Lessee Lease Assets Date
------ ----- ------ ----
<PAGE> 44
INTERCOMPANY NOTES:
- -------------------
Name of Restricted Original
Item Description of Subsidiary Principal
Number Indebtedness (Obligor) Date Amount
------ ------------ --------- ---- ------
OTHER COLLATERAL:
- -----------------
Description of
Qualified Investment
or other Collateral Evidenced By Obligor Date
------------------- ------------ ------- ----
<PAGE> 1
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
PLD Capital Asset (U.S.) Inc.:
We consent to incorporation by reference in the registration statement (no.
333-5396) on Form S-3 of PLD Capital Asset (U.S.) Inc. of our report dated March
30, 1999, relating to the balance sheet of PLD Capital Asset (U.S.) Inc. as of
December 31, 1998, and the related statements of operations, shareholder's
equity, and cash flows for the year then ended, which report appears in the
Annual Report on Form 10-K for the year ended December 31, 1998 of PLD Capital
Asset (U.S.) Inc.
Our report dated March 30, 1999 contains an explanatory paragraph that states
that the Company's parent, PLD Telekom Inc. (PLD) does not presently have
sufficient funds on hand to meet its current debt obligations. PLD's failure to
make payment in full when required could result in a cross-default under and
acceleration of other debt obligations for which the Company is a guarantor.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
KPMG LLP
New York, New York
August 27, 1999
<PAGE> 1
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
PLD Asset Leasing Limited:
We consent to incorporation by reference in the registration statement (no.
333-5396) on Form S-3 of PLD Capital Asset (U.S.) Inc. of our report dated
August 4, 1999, relating to the balance sheet of PLD Asset Leasing Limited as
of December 31, 1997 and 1996, and the related statements of operations and
retained earnings and cash flows for the year ended December 31, 1997 and the
nine months ended December 31, 1996, which report appears in the Annual Report
on Form 10-K for the year ended December 31, 1998 of PLD Capital Asset (U.S.)
Inc.
Moore Stephens
Chartered Accountants
Nicosia, Cyprus
August 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLD CAPITAL
ASSET (U.S.) INC.'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FORM 10-K AND THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR PLD CAPITAL ASSET (U.S.) INC. AT AND FOR
THE YEAR ENDED DECEMBER 31, 1998 CONTAINED THEREIN.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 228
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,595
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,929
<CURRENT-LIABILITIES> 7,012
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,917
<TOTAL-LIABILITY-AND-EQUITY> 14,929
<SALES> 0
<TOTAL-REVENUES> 813
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 798
<INCOME-TAX> 232
<INCOME-CONTINUING> 566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 566
<EPS-BASIC> 566
<EPS-DILUTED> 566
</TABLE>
