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As filed with the Securities and Exchange Commission on December 23, 1996
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
(Exact name of registrant as specified in its charter)
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Ontario 4813 N/A
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification No.)
</TABLE>
166 Pearl Street
Toronto, Ontario, Canada M5H 1L3
(416) 593-4989
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
CT CORPORATION SYSTEM
1633 Broadway
New York, NY 10019
(212) 664-7666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to:
E. Clive Anderson, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after (a) the effectiveness of this Registration Statement
and (b) the effective date of the continuance of PLD Telekom Inc., an Ontario
corporation (the "Company") as a domestic corporation under the Delaware
General Corporation Law (the "DGCL") (the Company, as continued under the
DGCL, "PLD Delaware" or the "Registrant").
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------------------
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Common Stock, without par value . . . . 34,248,534 (1) $5.813 (2) $199,086,728 (2) $60,330
- --------------------------------------------------------------------------------------------------------------------
Series II Convertible Preferred Stock,
without par value . . . . . . . . . . . 405,217 $.732 (3) $296,457 (3) $90
- --------------------------------------------------------------------------------------------------------------------
Series III Convertible Preferred Stock,
without par value . . . . . . . . . . . 41,667 $.732(3) $30,484 (3) $10
====================================================================================================================
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(1) Consists of (i) 31,696,034 shares of PLD Delaware Common Stock issuable
upon the conversion, pursuant to the continuance of the Company under the
DGCL, of currently outstanding Common Shares of the Company and (ii) up to
2,552,500 shares of PLD Delaware Common Stock issuable upon the exercise of
Company options and warrants, converted as of the date of the continuance
of the Company under the DGCL to PLD Delaware options and warrants, that
are outstanding and unexercised on the date of such continuance.
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(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c), based on the average of the
high and low prices of Common Shares, no par value, of the Company on
December 19, 1996 on the Nasdaq National Market.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2), based on a book value of Cdn. $1.00 per share
and a $/Cdn.$ exchange rate of $.7316/Cdn.$1 on December 18, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
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PLD TELEKOM INC.
166 PEARL STREET
TORONTO, ONTARIO
M5H 1L3
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of the
shareholders of PLD Telekom Inc. (the "Company") will be held at ______
Toronto, Ontario on ____________, 1997 at 10:00 a.m. Toronto time, for the
purpose of:
(a) Considering, and if thought fit, approving a special
resolution (the "Special Resolution") authorizing the Company
to (i) continue the Company as a Delaware corporation ("PLD
Delaware") under the Delaware General Corporation Law (the
"DGCL") and simultaneously discontinue the Company's existence
in Ontario under the Business Corporations Act (Ontario) (the
"OBCA") (the "Continuance"); (ii) approve the Certificate of
Incorporation of PLD Delaware (the "Certificate of
Incorporation"), which will be filed with the Secretary of
State of the State of Delaware along with a Certificate of
Domestication (together with the Certificate of Incorporation,
the "Delaware Filings") as part of the Continuance; (iii)
authorize the Company to apply to the Director under the OBCA
for authorization to continue (the "OBCA Authorization"), file
the OBCA Authorization and the Delaware Filings with the
Secretary of State of the State of Delaware and a notice of
the Delaware Filings with the Director under the OBCA in order
to obtain a Certificate of Discontinuance under the OBCA and
(iv) authorize the directors of the Company, in their
discretion, to abandon the Continuance and any filings related
thereto without further approval of the shareholders; and
(b) The transaction of such further and other business as may
properly come before the meeting or any adjournment thereof.
The text of the Special Resolution concerning the Continuance is attached as
Schedule "A" to the Information Circular/Prospectus accompanying this Notice.
The Special Resolution will be approved if passed by at least 66-2/3% of the
votes cast at the Meeting. A dissenting shareholder is entitled to be paid the
fair value of his or her shares in accordance with section 185 of the OBCA.
Shareholder approval of the Continuance further authorizes the directors of the
Company, in their discretion, to abandon the Continuance without further
approval of the shareholders. Holders of Preferred Shares Series II and III of
the Company are not entitled to vote at the Meeting or to dissent with respect
to the Special Resolution.
Shareholders who are unable to attend the meeting in person are requested to
date, complete, sign and return the enclosed form of proxy to the Secretary of
the Company, c/o Montreal Trust Company, in the return envelope provided.
DATED at Toronto, Ontario this ___ day of January, 1997
By Order of the Board
James R.S. Hatt
Chairman and Chief Executive Officer
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SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
PLD TELEKOM INC.
166 PEARL STREET
TORONTO, ONTARIO M5H 1L3
-----------------
INFORMATION CIRCULAR
For
Special Meeting of Shareholders
To be Held ___________, 1997
-----------------
PROSPECTUS
COMMON STOCK
SERIES II CONVERTIBLE PREFERRED STOCK
SERIES III CONVERTIBLE PREFERRED STOCK
OF
PLD TELEKOM INC.
This Information Circular/Prospectus (the "Circular/Prospectus") is being
furnished as a management proxy circular in connection with the solicitation by
the Board of Directors and management of PLD Telekom Inc., an Ontario
corporation (the "Company"), of proxies for use at the special meeting of
shareholders of the Company to be held on ______________, 1997 (the "Meeting")
at _______, Toronto, Ontario, or any adjournment or adjournments thereof.
Proxies will be solicited primarily by mail and may also be solicited by the
directors and/or officers of the Company at nominal cost. The cost of such
solicitation will be borne by the Company.
At the Meeting, the Company's common shareholders will be asked to vote
upon a proposal to (i) continue the Company as a Delaware corporation ("PLD
Delaware") under the Delaware General Corporation Law (the "DGCL") and
simultaneously discontinue the Company's existence in Ontario under the
Business Corporations Act (Ontario) (the "OBCA") (the "Continuance"); (ii)
approve the Certificate of Incorporation of PLD Delaware (the "Certificate of
Incorporation"), which is attached as Schedule "D" hereto and will be filed
with the Secretary of State of the State of Delaware along with a Certificate
of Domestication (together with the Certificate of Incorporation, the "Delaware
Filings"), which is attached as Schedule "C" hereto and incorporated herein by
reference, as part of the Continuance; (iii) authorize the Company to apply to
the Director under the OBCA for authorization to continue (the "OBCA
Authorization"), file the OBCA Authorization and the Delaware Filings with the
Secretary of State of the State of Delaware and a notice of the Delaware
Filings with the Director under the OBCA in order to obtain a Certificate of
Discontinuance under the OBCA and (iv) authorize the directors of the Company,
in their discretion, to abandon the Continuance and any filings related thereto
without further approval of the shareholders. In order to take effect, the
proposal must be passed by at least 66-2/3% of the votes cast at the Meeting.
The text of the Special Resolution concerning the Continuance is attached as
Schedule "A" hereto. The persons named in the enclosed form of proxy intend to
vote for the Special Resolution. The Continuance, if approved, will effect a
change in the legal domicile of the Company as of the effective date of the
Continuance, but will not change the business or operations of the Company.
The directors and officers of the Company immediately following the Continuance
will be identical to the current directors and officers of the Company. By
operation of law, when the Continuance becomes effective, all of the assets,
property, rights, liabilities and obligations of the Company immediately prior
to the Continuance will continue to be the assets, property, rights,
liabilities and obligations of PLD Delaware, and PLD Delaware will retain the
original incorporation date of the Company in Ontario as PLD Delaware's date of
incorporation for purposes of the DGCL.
This Circular/Prospectus also constitutes the Prospectus of PLD Delaware
under the United States Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of PLD Delaware Common Stock without par
value (the
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"PLD Delaware Common Stock"), PLD Delaware Series II Preferred Stock, without
par value (the "Series II Preferred Stock") and PLD Delaware Series III
Preferred Stock, without par value (the "Series III Preferred Stock"), to be
held by the Company's shareholders following the effective date of the
Continuance.
A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) TO ATTEND AND ACT FOR HIM ON HIS BEHALF AT THE MEETING OTHER THAN
THE PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY ATTACHED HERETO, WHO ARE
DIRECTORS OF THE COMPANY. Such right may be exercised by striking out the
names of the persons designated in the enclosed form of proxy and by inserting
in the blank space provided for that purpose the name of the desired person or
by completing another proper form of proxy and, in either case, delivering the
completed and executed proxy to the Company on or before ______________, 1997.
A shareholder who has given a proxy may revoke it at any time prior to its use
either (i) by signing a proxy bearing a later date and delivering it to the
Secretary of the Company on or before ___________, 1997 or (ii) by signing a
written notice of revocation and delivering it to the Chairman of the Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND
ADOPTED THE CONTINUANCE, THE DELAWARE FILINGS AND OBCA AUTHORIZATION AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE CONTINUANCE,
THE CERTIFICATE OF INCORPORATION, THE OBCA AUTHORIZATION AND THE AUTHORIZATION
OF THE DIRECTORS OF THE COMPANY, IN THEIR DISCRETION, TO ABANDON THE
CONTINUANCE AND ANY FILINGS RELATED THERETO WITHOUT FURTHER APPROVAL OF THE
SHAREHOLDERS.
THE VOTE APPROVING THE SPECIAL RESOLUTION AND THE SECURITIES SUBJECT HEREOF
INVOLVE CERTAIN IMPORTANT FACTORS TO BE CONSIDERED. SEE "RISK FACTORS."
---------------
THE COMPANY HAS FILED A REGISTRATION STATEMENT WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION IN WASHINGTON, D.C. COVERING SHARES OF
STOCK OF PLD DELAWARE TO BE HELD BY SHAREHOLDERS OF THE COMPANY FOLLOWING THE
EFFECTIVE DATE OF THE CONTINUANCE DESCRIBED IN THIS CIRCULAR/PROSPECTUS. THIS
CIRCULAR/PROSPECTUS WAS FILED AS PART OF SUCH REGISTRATION STATEMENT.
---------------
THE SECURITIES SUBJECT HEREOF HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY
AUTHORITY IN CANADA NOR HAS THE COMMISSION OR SUCH CANADIAN REGULATORY
AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CIRCULAR/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Circular/Prospectus is January __, 1997 and is
being mailed to shareholders on or about January __, 1997.
2
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the United States
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC: New
York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048 and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the SEC's prescribed rates. In addition, material
filed by the Company can be inspected at the offices of the Ontario Securities
Commission, 20 Queen Street West, 18th Floor, Toronto, Ontario M5H 358. The
Company's Common Shares are quoted on the Nasdaq National Market and the
Toronto Stock Exchange. Reports, proxy statements and other information
concerning the Company can also be inspected at The Toronto Stock Exchange,
Exchange Tower, 2 First Canadian Place, P.O. Box 450, 4th Floor, Toronto,
Ontario M5X 152. Upon completion of the Continuance, PLD Delaware will
continue to be subject to such informational requirements.
The Company has filed with the SEC a registration statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act, of which this Circular/Prospectus forms a part, with respect to
the shares of PLD Delaware Common Stock, Series II Preferred Stock and Series
III Preferred Stock to be held by shareholders of the Company following the
effective date of the Continuance in connection with the Continuance and
pursuant to this Circular/Prospectus. This Circular/Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of
the SEC. A copy of the Registration Statement may be inspected without charge
at the principal offices of the SEC in Washington D.C. or electronically by
means of the SEC's home page on the Internet (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
FOR UNITED STATES PURPOSES
The following documents are incorporated herein by reference solely for the
purposes of the United States securities laws:
(1) The Company's annual report on Form 20-F for the fiscal year
ended December 31, 1995 (the "1995 Form 20-F");
(2) The Company's interim report on Form 6-K filed with the SEC
May 28, 1996;
(3) The Company's interim report on Form 6-K filed with the SEC
June 13, 1996;
(4) The Company's interim report on Form 6-K filed with the SEC
August 30, 1996;
(5) The Company's interim report on Form 6-K filed with the SEC
December 2, 1996; and
(6) The description of the Company's Common Shares contained in
the Company's registration statement on Form 20-F filed with the SEC under the
Company's former name, NWE Capital Corp., on July 23, 1992.
In addition, all reports and other documents subsequently filed by the
Company prior to the date of the Meeting pursuant to Sections 13 and 15(d) of
the Exchange Act after the date of this Circular/Prospectus and prior to the
date of the Meeting shall be deemed to be incorporated by reference herein and
shall be deemed to be a part hereof from the date of the filing of each such
report or document.
3
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THIS CIRCULAR/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE REGARDING THE
COMPANY WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
ARE AVAILABLE UPON REQUEST FROM CLAYTON A. WAITE, VICE PRESIDENT,
ADMINISTRATION, PLD TELEKOM INC., 166 PEARL STREET, TORONTO, ONTARIO M5H 1L3.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY JANUARY __, 1997.
Any statement incorporated herein shall be deemed to be modified or
superseded for purposes of this Circular/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Circular/Prospectus. Subject to the foregoing, all information appearing in
this Circular/Prospectus is qualified in its entirety by the information
appearing in the documents incorporated herein by reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS CIRCULAR/PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
CIRCULAR/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
CIRCULAR/PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THE CONTINUANCE AND THE ACQUISITION
OF SECURITIES OF PLD DELAWARE AND THE DISPOSITION OF SECURITIES OF THE COMPANY
WHICH IS DEEMED TO HAVE OCCURRED THEREBY FOR PURPOSES OF THE UNITED STATES
SECURITIES LAWS MAY HAVE TAX CONSEQUENCES BOTH IN THE UNITED STATES AND IN
CANADA WHICH ARE MORE FULLY DESCRIBED HEREIN.
------------------
THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES
LAWS OF THE UNITED STATES IN EITHER UNITED STATES OR CANADIAN COURTS MAY BE
AFFECTED ADVERSELY PRIOR TO THE EFFECTIVE DATE OF THE CONTINUANCE BY THE FACT
THAT (i) THE COMPANY IS CURRENTLY INCORPORATED UNDER THE LAWS OF THE PROVINCE
OF ONTARIO AND SHALL CONTINUE TO BE SO DOMICILED UNTIL THE EFFECTIVE DATE OF
THE CONTINUANCE, (ii) SOME OR ALL OF THE COMPANY'S OFFICERS AND DIRECTORS MAY
BE RESIDENT OF CANADA BOTH PRIOR TO AND AFTER THE EFFECTIVE DATE OF THE
CONTINUANCE AND (iii) ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF THE COMPANY
AND SAID PERSONS MAY BE LOCATED OUTSIDE THE UNITED STATES BOTH PRIOR TO AND
AFTER THE EFFECTIVE DATE OF THE CONTINUANCE. IT MAY NOT BE POSSIBLE FOR
INVESTORS TO EFFECT SERVICE OF PROCESS WITHIN THE UNITED STATES UPON SUCH
PERSONS OR TO ENFORCE AGAINST THEM OUTSIDE THE UNITED STATES JUDGMENTS OF
COURTS OF THE UNITED STATES PREDICATED UPON THE CIVIL LIABILITY PROVISIONS OF
THE FEDERAL OR STATE SECURITIES LAWS OF THE UNITED STATES. IN THE OPINION OF
CANADIAN COUNSEL TO THE COMPANY, BLAKE, CASSELS & GRAYDON, A JUDGMENT OF A
COURT OF THE UNITED STATES PREDICATED SOLELY UPON SUCH SECURITIES LAWS WOULD BE
RECOGNIZED BY A CANADIAN COURT IF THE UNITED STATES COURT IN WHICH THE JUDGMENT
WAS OBTAINED HAD JURISDICTION OVER THE DEFENDANT(S), AS DETERMINED BY RULES OF
PRIVATE INTERNATIONAL LAW. THERE IS SUBSTANTIAL DOUBT WHETHER AN ORIGINAL
ACTION COULD BE BROUGHT SUCCESSFULLY IN CANADA AGAINST ANY OF SUCH PERSONS
PREDICATED SOLELY UPON SUCH SECURITIES LAWS.
4
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE FOR UNITED STATES PURPOSES . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
THE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Purpose of the Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Solicitation and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
THE CONTINUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Continuation by the Company as PLD Delaware in Accordance with the Special Resolution . . . . . . . . . . . . . . . . 22
Effects of the Continuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Background to and Principal Reasons for the Continuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Selection of State of Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Shareholders Resident in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Shareholders Not Resident in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Tax-Free Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consequences to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consequences to Participating U.S. Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Dividends Paid to Non-U.S. Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consequences to Warrant Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consequences to Debt Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Backup Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
COMPARISON OF SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Vote Required for Extraordinary Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Amendment to Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Oppression Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Derivative Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Shareholder Consent in Lieu of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Director Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Fiduciary Duties of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Indemnification of Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Director Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Anti-takeover Provisions and Interested Stockholder Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
DISSENTING SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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<TABLE>
<S> <C>
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Compensation of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
PLD Delaware Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
PLD Delaware Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
NATURE OF THE TRADING MARKET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
OTHER MATTERS WHICH MAY COME BEFORE THE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF PLD TELEKOM INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SCHEDULES
Schedule "A" -- Special Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sch. A-1
Schedule "B" -- Section 185 of the OBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sch. B-1
Schedule "C" -- Certificate of Domestication of PLD Telekom Inc. (Delaware) . . . . . . . . . . . . . . . . . . Sch. C-1
Schedule "D" -- Certificate of Incorporation of PLD Telekom Inc. (Delaware) . . . . . . . . . . . . . . . . . . Sch. D-1
Schedule "E" -- By-Laws of PLD Telekom Inc. (Delaware) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sch. E-1
</TABLE>
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SUMMARY
The following is a brief summary of certain information contained in this
Circular/ Prospectus. This summary is qualified in its entirety by the more
detailed information appearing elsewhere in the Circular/Prospectus and, with
respect to financial information, by the financial statements appearing in the
1995 Form 20-F and other documents filed with the SEC and incorporated herein
by reference. SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS
CIRCULAR/PROSPECTUS, INCLUDING THE EXHIBITS HERETO AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, IN ITS ENTIRETY.
THE COMPANY AND PLD DELAWARE
The Company, through its operating subsidiaries, is a major provider of
local, long distance and international telecommunications services in the
Russian Federation and Kazakstan. The Company's four principal operating
subsidiaries 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) Baltic
Communications Limited ("BCL"), which provides dedicated international
telecommunications over fiber optic cable from St. Petersburg; (iii) Technocom
Limited ("Technocom") which, through Teleport-TP, currently provides dedicated
international telecommunications services to Russian and foreign businesses and
is in the process of commencing the operation of a satellite-based pan-Russian
long distance network; and (iv) BECET International ("BECET"), which currently
provides the only national cellular service in Kazakstan. Since 1994, Cable
and Wireless plc, a company incorporated in England and listed on the London
and New York Stock Exchanges ("Cable & Wireless"), has invested approximately
$85 million for an approximately 32% stake in the Company's Common Shares. See
"The Meeting -- Voting Rights." The Company's Common Shares are traded on the
Nasdaq National Market under the symbol "PLDIF" and the Toronto Stock Exchange
under the symbol "PLD." Effective August 1, 1996, the Company changed its name
from Petersburg Long Distance Inc. to PLD Telekom Inc.
The Company's objective is to be a leading participant in the targeted
development of telecommunications infrastructure in the emerging markets of the
Russian Federation and other countries of the former Soviet Union. The Company
expects to achieve this goal through: (i) expanding and further integrating its
existing business and network infrastructure into the public telecommunications
networks; (ii) providing high quality national long distance services in the
Russian Federation to complement the international long distance services it
currently provides to its business customers; (iii) providing additional
value-added services such as fax, data, paging, card validation and Internet
service as a means of developing new traffic streams; and (iv) further
developing relationships with local and national strategic partners in the
Russian Federation and other countries of the former Soviet Union.
The Company does not intend to change its business or operations as a
result of the Continuance as PLD Delaware. See "The Continuance -- Effects of
the Continuance."
THE CONTINUANCE
GENERAL. The Continuance, if approved, will effect a change in the legal
domicile of the Company as of the effective date thereof, but will not change
the business or operations of the Company. See "The Continuance," "Business
of the Company," "Certain Canadian Federal Income Tax Considerations" and
"Certain United States Federal Income Tax Considerations." On the effective
date of the Continuance, holders of Common Shares of the Company ("Common
Shares") will continue to hold one share of PLD Delaware Common Stock for each
Common Share held and holders of Series II Convertible Preferred Shares and
Series III Convertible Preferred Shares of the Company will continue to hold
one share of Series II Preferred Stock or Series III Preferred Stock, as the
case may be, for each Series II Convertible Preferred Share or Series III
Convertible Preferred Share held. The existing share certificates representing
shares of the Company's stock will not be canceled. Holders of options to
purchase the Company's Common Shares on the effective date of the Continuance
will continue to hold options to purchase an identical number of shares of PLD
Delaware Common Stock on substantially the same terms. Similarly, holders of
warrants to purchase the Company's Common Shares will continue to hold warrants
to purchase an identical number of shares of PLD Delaware Common Stock on
substantially the same terms. See "The Continuance -- Effects of the
Continuance" and "Description of Capital Stock."
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<PAGE> 11
The principal attributes of the classes and series of capital stock of PLD
Delaware will be identical to those of the corresponding shares of the Company,
other than differences in shareholders' rights under the OBCA and the DGCL.
The change of jurisdiction from the Province of Ontario to the State of
Delaware, and certain provisions of the PLD Delaware Certificate of
Incorporation, will result in various changes in the existing rights of the
Company's shareholders. See "The Continuance -- Effects of the Continuance,"
"Comparison of Shareholders' Rights" and "Description of Capital Stock."
EFFECTIVE DATE OF THE CONTINUANCE. Assuming that the Special Resolution is
approved by the Company's shareholders at the Meeting, it is currently expected
that the Delaware Filings will be filed with the Secretary of State of the
State of Delaware and a notice of the Delaware Filings will be filed with the
Director under the OBCA as soon as practicable thereafter in order to give
effect to the Continuance. See "The Continuance -- General."
DIRECTORS AND OFFICERS. The directors and officers of PLD Delaware
immediately following the Continuance will be identical to the current
directors and officers of the Company. As of the effective date of the
Continuance, the election, duties, resignation and removal of PLD directors and
officers shall be governed by the DGCL, the Certificate of Incorporation and
the By-Laws of PLD Delaware. See "The Continuance -- Effects of the
Continuance" and "Management of the Company."
STOCK EXCHANGE LISTINGS. The Common Shares are listed and traded on the
Nasdaq National Market under the symbol "PLDIF" and the Toronto Stock Exchange
under the symbol "PLD." The Company anticipates that it will maintain both
listings as PLD Delaware following the Continuance, although the trading
symbols may change as of the effective date of the Continuance.
SECURITIES REGULATION. Following the Continuance, PLD Delaware will be
subject to the reporting obligations of domestic U.S. issuers under the U.S.
securities laws, which are more comprehensive than the disclosure obligations
applicable to the Company as a non-U.S. issuer. The Company also anticipates
that it will continue to be a "reporting issuer" in each Province of Canada
immediately following the Continuance.
MATERIAL ADVERSE CONSEQUENCES OF THE CONTINUANCE. The Company does not
believe that the proposed Continuance will result in any material adverse
consequences to the Company or its Canadian or United States shareholders.
However, if certain proposed United States Treasury Regulations become
effective prior to the effective date of the Continuance, United States
Shareholders would be required to recognize gain (but not loss) in connection
with the Continuance. See "Certain United States Federal Income Tax
Consequences." In addition, the management of the Company, in consultation
with certain of its advisors, has reviewed the Company's assets, liabilities
and paid-up capital and has concluded that no Canadian federal taxes should be
due and payable by the Company under the Income Tax Act (Canada) (the "Act") as
a result of the Continuance. In reaching its conclusions, the Company made
certain assumptions regarding the Canadian federal tax treatment of certain
amounts, the treatment of which is subject to some doubt. No opinion has been
obtained in respect of this matter, and other facts underlying the Company's
assumptions and conclusions may also change prior to the effective date of the
Continuance. The Company has not applied to the Canadian federal tax
authorities for a ruling as to the amount of federal taxes payable by the
Company under the Act as a result of the Continuance and does not intend to
apply for such a ruling. Moreover, it is extremely unlikely that the Canadian
federal tax authorities would issue any such ruling given the factual nature of
the determinations involved. There can be no assurance that the Canadian
federal tax authorities will accept the valuations or the positions that the
Company has adopted with respect to the Canadian federal tax treatment of such
amounts. Accordingly, there can be no assurance that the Canadian federal tax
authorities will conclude after the effective date of the Continuance that no
Canadian federal taxes are due under the Act as a result of the Continuance or
that the amount of Canadian federal taxes claimed or found to be due will not
be significant.
BACKGROUND TO AND PRINCIPAL REASONS FOR THE CONTINUANCE
The Board of Directors believes that it is desirable for the Company to
continue its corporate existence under the laws of the State of Delaware for
the following reasons (See "The Continuance -- Background to and Principal
Reasons for the Continuance"):
COST OF CAPITAL. The Company's principal sources of capital are located
outside Canada, principally in the U.S. The need to pay, or to structure the
Company's financing arrangements or operations to avoid or minimize the impact
of,
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<PAGE> 12
Canadian withholding taxes imposes additional costs and administrative burdens
on the Company which would not be applicable if it were a U.S. corporation.
IMPROVED MARKET ACCESS. In addition, the Continuance is viewed by the
Board of Directors as facilitating access to the capital markets in the U.S.,
currently the Company's principal source of debt and equity financing, and to
investors currently not permitted or not interested in investing in the Company
because its securities are treated as foreign securities.
ACCESS TO U.S. GOVERNMENT FINANCING. The Board further believes that
continuation as a U.S. corporation will assist the Company in accessing various
financing programs administered by agencies of the United States Government,
such the Overseas Private Investment Corporation, currently foreclosed to the
Company as a non-U.S. company.
IMPACT OF UNITED STATES INCOME TAX CODE ON COMPANY'S FINANCING ACTIVITIES.
Pursuant to the U.S. Internal Revenue Code of 1986, as amended (the "Code"),
the Company is currently classified as a "passive foreign investment company
("PFIC") and may be expected to continue to be so classified as long as it is
engaging in the financing activities needed to grow its businesses. This has
certain adverse impacts upon its U.S. shareholders who may be required at worst
to pay increased taxes in the U.S., either currently or on any future
disposition (or deemed disposition) of the Company's shares, and at best to
submit to filing and other administrative burdens to minimize such additional
taxes. PFIC status, and the problems for U.S. shareholders associated with it
can, however, be entirely avoided if the Company was to become a U.S.
corporation.
INCREASINGLY LIMITED CONTACT WITH CANADA. While the Company's operations
at one time were located in, or closely associated with Canada, as the
Company's business has focused increasingly upon the telecommunications
business in the former Soviet Union, its connections with Canada have become
increasingly tenuous. In addition to the fact that the principal trading
market for the Company's shares is now the U.S., currently the Company has no
business operations in Canada, all but two of its employees are located outside
of Canada, and, as of January __, 1997, more than __% of its outstanding Common
Shares were held by shareholders of record who are Canadian non-residents.
DIRECTOR RESIDENCY REQUIREMENTS. The OBCA requires that a majority of the
directors, and a majority of any committee of the directors, be Canadian
residents. This requirement has substantially inhibited the Company's ability
to diversify the composition of its board of directors.
SELECTION OF STATE OF DELAWARE
For many years Delaware has followed a policy of encouraging incorporation
in that state and, in furtherance of that policy, has adopted comprehensive,
modern and flexible corporate laws which are periodically updated and revised
to meet changing business needs. As a result, many major corporations
initially have chosen Delaware for their domicile or subsequently have
reincorporated, continued or domesticated in Delaware. As a consequence of
these circumstances, the Delaware courts have developed considerable expertise
in dealing with corporate issues, and a substantial body of case law has
developed construing the DGCL and establishing public policies with respect to
Delaware corporations. It is anticipated that Delaware corporate law will
continue to be interpreted and explained in a number of significant court
decisions which may provide greater predictability with respect to the
corporate legal affairs of Delaware corporations.
COMPARISON OF THE COMPANY'S SHARES AND PLD DELAWARE CAPITAL STOCK
The principal attributes of the Company's Common Shares and the PLD
Delaware Common Stock will be identical, other than differences in
shareholders' rights under the OBCA and DGCL. The principal attributes of the
shares of Series II Preferred Stock and Series III Preferred Stock will be
identical to the Company's Series II Convertible Preferred Shares and Series
III Convertible Preferred Shares, respectively, other than differences in
shareholders' rights under the OBCA and DGCL. See "The Continuance -- Effects
of the Continuance," "Description of Capital Stock" and "Comparison of
Shareholders' Rights."
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<PAGE> 13
DIFFERENCES IN SHAREHOLDER RIGHTS UNDER THE OBCA AND THE DGCL
While the rights and privileges of stockholders of a Delaware corporation
are, in many instances, comparable to those of shareholders of an Ontario
corporation, there are certain material differences between the OBCA and the
DGCL in several areas, including:
- Votes required for extraordinary transactions
- Amendment to governing documents
- Dissenters' Rights
- Oppression remedies
- Shareholder derivative actions
- Shareholder consent in lieu of a meeting
- Director qualifications
- Fiduciary duties of directors
- Indemnification of directors
- Liability of directors
- Anti-takeover provisions
- Interested shareholder transactions
See "Comparison of Shareholders' Rights."
CERTAIN CANADIAN AND UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE INFORMATION CONTAINED IN THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
THE MORE DETAILED DISCUSSIONS UNDER "CERTAIN CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS" AND "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS."
ALL CANADIAN AND UNITED STATES SHAREHOLDERS SHOULD READ THESE SECTIONS
CAREFULLY AND ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
THE CONTINUANCE MAY ALSO HAVE TAX CONSEQUENCES TO SHAREHOLDERS WHO ARE
NEITHER CANADIAN NOR UNITED STATES SHAREHOLDERS. SUCH SHAREHOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISORS.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. Upon the Continuance, the
Company will be deemed to have disposed of all of its property for proceeds of
disposition equal to the fair market value thereof immediately prior to the
Continuance. The Company will be subject to tax on any income and net taxable
capital gains arising thereby. The Company will also be subject to an
additional tax on the amount by which the fair market value of the Company's
assets, net of liabilities, exceeds the paid-up capital of the Company's issued
and outstanding shares at the rate of 5%. Provided the management of the
Company does not reside in Canada at any time thereafter, the Company will not
be resident in Canada for purposes of the Act after the Continuance. The
management of the Company, in consultation with certain of its advisors, has
reviewed the Company's assets, liabilities and paid-up capital and has
concluded that no Canadian federal taxes should be due and payable by the
Company under the Act as a result of the Continuance. No opinion has been
obtained in respect of this matter, and facts underlying the Company's
assumptions and conclusions may also change prior to the effective date of the
Continuance. The Company has not applied to the Canadian federal tax
authorities for a ruling as to the amount of federal taxes payable by the
Company under the Act as a result of the Continuance and does not intend to
apply for such a ruling prior to the Continuance. It is extremely unlikely
that the Canadian federal tax authorities would issue any such ruling given
the factual nature of the determinations involved. In reaching its
conclusions, the Company has made certain favorable assumptions regarding the
Canadian federal tax treatment of certain amounts, the treatment of which is
subject to some doubt. There can be no assurance that the Canadian federal tax
authorities will accept the valuations or the positions that the Company has
adopted with respect to the Canadian federal tax treatment of such amounts.
Accordingly, there can be no assurance that the Canadian federal tax
authorities will conclude after the effective date of the Continuance that no
Canadian federal taxes are due under the Act as a result of the Continuance or
that the amount of Canadian federal taxes claimed or found to be due will not
be significant.
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<PAGE> 14
Shareholders will not be considered to have disposed of their Common Shares
or to have realized a taxable capital gain or loss by reason only of the
Continuance. The Continuance will also have no effect on the adjusted cost
base to shareholders of their Common Shares.
Following the Continuance, the dividends received by a shareholder resident
in Canada on shares of PLD Delaware Common Stock will be included in computing
income and will generally not be deductible in computing taxable income of a
shareholder that is a corporation, and, in the case of a shareholder who is an
individual, such dividends will not receive the gross-up and dividend tax
credit treatment generally applicable to dividends on shares of taxable
Canadian corporations.
Following the Continuance, the shares of Common Stock of PLD Delaware will
be a qualified investment for trusts governed by registered retirement savings
plans, deferred profit sharing plans and registered retirement income funds
("Deferred Income Plans"), provided such shares of Common Stock remain listed
on The Toronto Stock Exchange, the Nasdaq National Market or another prescribed
stock exchange. However, such shares will be foreign property after the
effective date of the Continuance, and accordingly, the holding of such shares
by Deferred Income Plans or by certain other tax-exempt entities including
registered investments and registered pension plans may subject such holders to
penalty taxes under the Act.
After the effective date of the Continuance, dividends received by a
shareholder that is a non-resident of Canada on shares of PLD Delaware Common
Stock will not be subject to Canadian withholding tax.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS. For United States
federal income tax purposes, the Continuance should qualify as a reorganization
in which neither gain nor loss is recognized to the Company or its
shareholders, except in certain limited circumstances. A United States
corporation, citizen or resident for United States income tax purposes (a "U.S.
Shareholder") who does not recognize gain or loss in the Continuance will
obtain a tax basis in the shares of PLD Delaware held following the effective
date of the Continuance equal to the U.S. Shareholder's adjusted tax basis in
the shares of the Company held immediately prior to the effective date of the
Continuance, and the U.S. Shareholder's holding period in the shares of PLD
Delaware received in the Continuance will include the holding period of the
shares of the Company.
Holders of the Company's 14% Senior Discount Notes due 2004 (the "Senior
Notes") and the Company's 9% Convertible Subordinated Notes due 2006 (the
"Convertible Notes"), both of which will become obligations of PLD Delaware as
of the effective date of the Continuance, who are United States corporations,
citizens or residents for United States income tax purposes will not recognize
gain or loss in connection with the Continuance.
There is a possibility that holders of the Company's warrants will
recognize gain or loss with respect to their warrants in the Continuance, if
the IRS were to take certain interpretive positions.
Dissenting shareholders who receive cash in exchange for their shares may
recognize gain or loss measured by the difference between the amount of cash
received and the adjusted basis in the shares surrendered if, as a result of
the distribution, a dissenting shareholder no longer owns, directly or
constructively, any shares of the Company.
The Company has not requested and does not intend to request the Internal
Revenue Service (the "IRS") for a ruling that the Continuance will qualify as a
tax-free reorganization.
Following the Continuance, the Company will be subject to United States
federal income taxation on its worldwide net taxable income, whereas, prior to
the Continuance, the Company has been taxable only on United States source
income and on income considered to be effectively connected with a trade or
business of the Company conducted within the United States. In addition, it
appears that the Senior Notes may be considered "high-yield discount
obligations" within the meaning of Section 163(e)(5) of the Code. As a
result, any original issue discount ("OID") associated with the Senior Notes
will not be deductible by PLD Delaware until actually paid and no deduction may
be allowed to PLD Delaware for a portion of the OID. PLD Delaware shareholders
are not directly affected by these rules, except that a corporate shareholder
may be entitled to a dividends-received deduction equal to the portion of the
OID which is not deductible, assuming PLD Delaware has sufficient earnings and
profits.
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<PAGE> 15
The Company and one of its subsidiaries, Technocom Limited ("Technocom")
may be PFICs for United States federal income tax purposes. The Company has
previously recommended to shareholders who are U.S. Shareholders that they each
make a qualified election fund ("QEF") election with respect to the Company and
Technocom in order to eliminate the potentially significant additional United
States federal income tax liability to which they might otherwise be subject on
any sale of the Company's shares (and deemed sale of Technocom stock). The QEF
election is also a condition to tax-free treatment with respect to the
Continuance. Thus, assuming they have made the QEF elections with respect to
the Company and Technocom, U.S. Shareholders will not recognize gain or loss in
connection with the Continuance to the extent that they participate in the
Continuance, except in certain circumstances. In order to qualify for such
nonrecognition treatment, a U.S. Shareholder who realizes gain on the
Continuance must comply with detailed notice requirements presently set forth
in Temp. Reg. Section 7.367(b)-1(c). EACH U.S. SHAREHOLDER IS URGED TO CONSULT
WITH THE SHAREHOLDER'S OWN TAX ADVISOR IN CONNECTION WITH THE REPORTING
REQUIREMENTS OF THE TREASURY REGULATIONS.
Under Proposed Treasury Regulation Section 1.367(b)-3(c), which is not yet
in effect, U.S. Shareholders would be required to recognize gain (but not loss)
in connection with the Continuance. This Proposed Regulation would be
effective 30 days after it is issued in final form. While the Company does not
believe that this Proposed Regulation will become effective prior to the
Continuance, if it were to become effective prior to the Continuance, U.S.
Shareholders would recognize gain (but not loss) in the Continuance.
Under Temporary and Proposed Treasury Regulations, the IRS may take the
position that a shareholder which is a domestic corporation must recognize gain
(but not loss) in the Continuance unless the shareholder includes in gross
income the "all earnings and profits amount" as defined by Prop. Reg. Section
1.367(b)-2(d), i.e., earnings and profits of the Company (subject to certain
adjustments) which are deemed attributable to the shareholder's stock. See
Temp. Treas. Reg. Section 7.367(b)-7(c)(2). The Company does not presently
expect that there will be an "all earnings and profits amount" with respect to
its shares.
PLD Delaware does not anticipate paying dividends in the foreseeable
future. Any dividends that are paid to non-U.S. Shareholders after the
Continuance will be subject to United States withholding tax at the basic rate
of 30%, subject to reduction by the terms of any applicable tax treaty,
including treaties with Canada and the United Kingdom, and potential further
reduction to the extent that the source of PLD Delaware's income complies with
certain "foreign business requirements" of the Code. Where the dividend is
effectively connected with a United States trade or business, however, it will
be subject to the regular United States federal income tax.
A holder of PLD Delaware stock may, under certain circumstances, be subject
to "backup withholding" at the rate of 31% with respect to dividends if any
paid on, or the proceeds of a sale, exchange or redemption of, such stock,
unless such holder (i) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates this fact, or (ii) provides a
correct taxpayer identification number, certifies that he is not subject to
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. Any amount withheld under these rules will be
creditable against the holder's United States federal income tax liability.
THE MEETING
DATE, TIME, PLACE AND PURPOSE OF THE MEETING. The Meeting will be held on
__________, 1997 at _____________________________, Toronto, Ontario at 10:00
a.m. (Toronto time). At the Meeting, shareholders will be asked to approve the
Special Resolution necessary to implement the Continuance. See the Notice of
the Meeting accompanying the Circular/Prospectus and "The Continuance."
RECORD DATE. January ___, 1997. See "The Meeting -- Voting Rights."
SHAREHOLDER APPROVALS REQUIRED AT THE MEETING FOR THE SPECIAL RESOLUTION.
The Special Resolution is required to be passed by at least 66-2/3% of the
votes cast by holders of Common Shares present in person or represented by
proxy and entitled to vote at the Meeting. See "The Meeting --Voting Rights"
and "The Continuance -- Procedures under the OBCA." In the event that the
shareholders do not approve the Continuance, the Company will continue to be an
Ontario corporation
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<PAGE> 16
under the OBCA. The Board of Directors has not considered any alternative
action if the Continuance is not approved. Holders of Series II Convertible
Preferred Shares Series III Convertible Preferred Shares of the Company are not
entitled to vote at the Meeting or to dissent with respect to the Special
Resolution.
BOARD MAY ABANDON CONTINUANCE
Shareholder approval of the Continuance will include authorization to the
Board of Directors, in its discretion, to abandon the Continuance without
further approval of the shareholders. Accordingly, the Continuance may be
abandoned by the Board of Directors of the Company in its sole discretion at
any time prior to the filing of the Delaware Filings. This could occur if the
Board of Directors determines that the Continuance is no longer in the best
interest of the Company or its shareholders for reasons which could include:
(i) a material change in the business or financial condition of the Company;
(ii) a change in the anticipated tax consequences of the Continuance to the
Company or its shareholders; (iii) the existence of any injunction or pending
litigation relating to the Continuance or (iv) rights of dissent being
exercised by shareholders of the Company to a degree which, in the opinion of
the Board of Directors, would represent an unacceptable cash cost in light of
the Company's current or anticipated cash requirements or would have adverse
tax consequences to the Company or its shareholders.
In the event the Board of Directors abandons the proposed Continuance
subsequent to shareholder approval, the Board of Directors will not reinstate
the Continuance at a later date, unless the Company resolicits shareholder
approval.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND
ADOPTED THE CONTINUANCE, THE DELAWARE FILINGS AND OBCA AUTHORIZATION AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE CONTINUANCE,
THE CERTIFICATE OF INCORPORATION, THE OBCA AUTHORIZATION AND THE AUTHORIZATION
OF THE DIRECTORS OF THE COMPANY, IN THEIR DISCRETION, TO ABANDON THE
CONTINUANCE AND ANY FILINGS RELATED THERETO WITHOUT FURTHER APPROVAL OF THE
SHAREHOLDERS.
OTHER CONSENTS REQUIRED
Under the OBCA, the consents of the Corporations Tax Branch of the Ministry
of Revenue of the Province of Ontario and the Ontario Securities Commission are
required in respect of the Continuance. The Company has made application for
such consents and believes that such consents will be granted.
RIGHT TO DISSENT
Pursuant to Section 182 of the OBCA, common shareholders of the Company are
provided with a right to dissent from the Special Resolution relating to the
Continuance under and in compliance with Section 185 of the OBCA, reprinted in
its entirety as Schedule "B" to this Circular/Prospectus. See "Dissenting
Shareholders' Rights."
RECENT MARKET PRICES FOR COMMON SHARES
The closing sales prices of the Company's Common Shares on the Nasdaq
National Market and The Toronto Stock Exchange on January __, 1997 were
$____________ and Cdn. $____________, respectively. See "Nature of Trading
Market."
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial and operating data was derived
from, and should be read in conjunction with, the audited Consolidated
Financial Statements of the Company and the related notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, incorporated herein by reference to the 1995 Form 20-F, and the
unaudited interim consolidated financial statements of the Company
incorporated herein by reference to the Company's Form 6-K filed on December 2,
1996 (the "September 30, 1996 Financial Statements"). The Company's audited
Consolidated Financial Statements contained in the 1995 Form 20-F and the
September 30, 1996 Financial Statements have been prepared in accordance with
Canadian GAAP, which differ in certain respects from U.S. GAAP. See Note 19 to
the Company's audited Consolidated Financial Statements included in the 1995
Form 20-F, incorporated herein by reference. After the Continuance, the
financial statements of PLD Delaware will be prepared in accordance with U.S.
GAAP. The audited Consolidated Financial Statements of the Company for the
fiscal year ended December 31, 1995 and the September 30, 1996 Financial
Statements, prepared in accordance with U.S. GAAP, are restated as an
attachment to this Circular/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
(UNAUDITED) FISCAL YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991(1)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
CANADIAN GAAP:
Operating revenues: . . . . . . . $40,673 $20,833 $29,120 $8,526 $-- $-- $--
Operating expenses . . . . . . . 38,617 25,851 38,902 18,649 2,076 2,661 --
------ ------ ----- ----- --
Operating income (loss) . . . . . 2,056 (5,018) (9,782) (10,123) (2,076) (2,661) --
Loss from continuing operations
before minority interest . . . (6,318) (6,194) (15,566) (10,892) (2,042) (1,550) --
Minority interest . . . . . . . . (1,649) (939) (551) -- -- -- --
------- ----- ----- -- -- -- --
Loss from continuing operations . (7,967) (7,133) (16,117) (10,892) (2,042) (1,550) --
Discontinued operations . . . . . -- -- -- -- (5,138) (2,395) (30)
-- -- -- -- ------- ------- ----
Loss for the year/period . . . . $(7,967) $(7,133) $(16,117) $(10,892) $(7,180) $(3,945) $(30)
======== ======== ========= ========= ======== ======== =====
Loss per common share(2) . . . . $(0.25) $(0.23) $(0.51) $(0.89) $(0.94) $(0.76) $(0.01)
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares
outstanding (in thousands) . 31,540 31,250 31,315 12,663 8,155 5,338 2,943
UNITED STATES GAAP:
Loss for the year/period . . . . $(7,189) $(6,082) $(15,481) $(9,491) $(10,402) $(4,926) $(30)
Loss per common share(2) . . . . $(0.23) $(0.20) $(0.49) $(0.78) $(1.33) $(0.94) $(0.01)
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED) DECEMBER 31,
----------- -------------------------------------------------------
1995 1994 1993 1992 1991(1)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
CANADIAN GAAP:
Cash and term deposits(3) $43,477 $15,676 $56,710 $948 $6,695 $242
Working capital (deficit) 36,441 (6,325) 38,994 (4,173) (414) (4,913)
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
SEPTEMBER 30,
(UNAUDITED) DECEMBER 31,
----------- -------------------------------------------------------
1996 1995 1994 1993 1992 1991(1)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
CANADIAN GAAP:
Escrow Funds . . . . . . . . . . 46,665 -- -- -- -- --
Property and equipment, net. . . 64,946 45,357 21,718 6,306 4,715 329
Telecommunications licenses. . . 47,894 49,583 54,099 18,337 19,789 --
Investments and other assets . . 39,203 31,459 21,727 6,426 6,808 7,506
Investment in Teleport-TP. . . . 26,651 23,564 15,699 -- -- --
Total assets . . . . . . . . 292,094 180,258 174,562 32,903 38,998 10,194
Shareholders' equity (deficiency) 158,514 137,998 152,148 22,599 26,427 (2,951)
UNITED STATES GAAP:
Total assets . . . . . . . . $290,564 $178,092 $171,760 $28,700 $38,017 $10,194
Shareholders' equity (deficiency) 143,226 135,832 144,460 11,448 18,793 (2,951)
</TABLE>
- ----------
(1) Nine month period ending December 31. In 1991, the Company
changed its reporting period from March 31 to December 31.
(2) In 1993, 1992 and 1991, loss per common share includes a loss
from discontinued operations of $(0.63), $(0.45) and $(0.01),
respectively, under both Canadian and U.S. GAAP.
(3) The September 30, 1996 and December 31, 1995 balances include
cash of $9.0 million and $6.1 million, respectively, held on
deposit as collateral to secure bank indebtedness of the same
amount.
15
<PAGE> 19
RISK FACTORS
Holders of the Company's Common Shares should carefully consider the
information set forth below, together with the other information contained in
this Circular/Prospectus, in light of their own circumstances.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. Upon the Continuance, the
Company will be deemed to have disposed of all of its property for proceeds of
disposition equal to the fair market value thereof, and will be subject to tax
on any income and net taxable capital gains arising thereby. The Company will
also be subject to an additional tax on the amount by which the fair market
value of the Company's assets, net of liabilities, exceeds the paid-up capital
of the Company's issued and outstanding shares at the rate of 5%. The
management of the Company, in consultation with certain of its advisors, has
reviewed the Company's assets, liabilities and paid-up capital and has
concluded that no Canadian federal taxes should be due and payable by the
Company under the Act as a result of the Continuance. In reaching its
conclusions, the Company has made certain favorable assumptions regarding the
Canadian federal tax treatment of certain amounts, the treatment of which is
subject to some doubt. No opinion has been obtained in respect of this matter,
and facts underlying the Company's assumptions and conclusions may also change
prior to the effective date of the Continuance. The Company has not applied to
the Canadian federal tax authorities for a ruling as to the amount of federal
taxes payable by the Company under the Act as a result of the Continuance and
does not intend to apply for such a ruling. It is extremely unlikely that the
Canadian federal tax authorities would issue any such ruling given the factual
nature of the determinations involved. There can be no assurance that the
Canadian federal tax authorities will accept the valuations or the positions
that the Company has adopted with respect to the Canadian federal tax treatment
of such amounts. Accordingly, there can be no assurance that the Canadian
federal tax authorities will conclude after the effective date of the
Continuance that no Canadian federal taxes are due under the Act as a result of
the Continuance or that the amount of Canadian federal taxes claimed or found
to be due will not be significant.
Although the matter is not free from doubt, the amount paid to a
dissenting shareholder who is resident in Canada should be treated as proceeds
of disposition of his or her Common Shares of the Company. Accordingly, the
dissenting shareholder would recognize a capital gain (or a capital loss) to
the extent that the amount received, net of any reasonable costs of
disposition, exceeds (or is less than) the adjusted cost base of the Common
Shares to the holder. If a holder is a corporation, any capital loss arising
on the disposition of a Common Share of the Company may in certain
circumstances be reduced by the amount of any dividends, which have been
received on the Common Share. Analogous rules apply to a partnership or trust
of which a corporation is a member or beneficiary.
Following the Continuance, the dividends received by a shareholder on
PLD Delaware Common Stock will be included in computing income and will
generally not be deductible in computing taxable income of a shareholder that
is a corporation, and, in the case of a shareholder who is an individual, such
dividends will not receive the gross-up and dividend tax credit treatment
generally applicable to dividends on shares of taxable Canadian corporations.
Also, following the Continuance, the Common Stock of PLD Delaware will
be a qualified investment for Deferred Income Plans, provided such Common Stock
remains listed on The Toronto Stock Exchange, the Nasdaq National Market or
another prescribed stock exchange. However, such stock will be foreign
property after the effective date of the Continuance, and accordingly, the
holding of such stock by Deferred Income Plans or by certain other tax-exempt
entities including registered investments and registered pension plans may
subject such holders to penalty taxes under the Act.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS. While the management
of the Company, in consultation with certain of its advisors, believes that the
Continuance should qualify as a reorganization in which neither gain nor loss
is recognized to the Company or its shareholders for United States tax
purposes, except in certain limited circumstances, the Company has not
requested and does not intend to request the IRS for a ruling that the
Continuance will qualify as a tax-free reorganization. There is a possibility
that holders of the Company's Warrants will recognize gain or loss with respect
to their Warrants in the Continuance, if the IRS were to take certain
interpretive positions.
16
<PAGE> 20
Dissenting shareholders who receive cash in exchange for their shares
may recognize gain or loss measured by the difference between the amount of
cash received and the adjusted basis in the shares surrendered if, as a result
of the distribution, a dissenting shareholder no longer owns, directly or
constructively, any shares of the Company.
Following the Continuance, the Company will be subject to United
States federal income taxation on its worldwide net taxable income, whereas,
prior to the Continuance, the Company has been taxable only on United States
source income and on income considered to be effectively connected with a trade
or business of the Company conducted within the United States. U.S.
Shareholders who participate in the Continuance and fail to make the QEF
elections with respect to the Company and Technocom may recognize gain or loss
in connection with the Continuance. In order to qualify for such
nonrecognition treatment, a U.S. Shareholder who realizes gain on the
Continuance must comply with detailed notice requirements presently set forth
in Temp. Reg. Section 7.367(b)-1(c).
Under Proposed Treasury Regulation Section 1.367(b)-3(c), which is not
yet in effect, U.S. Shareholders would be required to recognize gain (but not
loss) in connection with the Continuance. This Proposed Regulation would be
effective 30 days after it is issued in final form. While the Company does not
believe that this Proposed Regulation will become effective prior to the
Continuance, if it were to become effective prior to the Continuance, U.S.
Shareholders would recognize gain (but not loss) in the Continuance. In
addition, the IRS may take the position that a shareholder which is a domestic
corporation must recognize gain (but not loss) in the Continuance unless the
shareholder includes in gross income the "all earnings and profits amount" as
defined by Prop. Reg. Section 1.367(b)-2(d), i.e., earnings and profits of the
Company (subject to certain adjustments) which are deemed attributable to the
shareholder's stock. See Temp. Treas. Reg. Section 7.367(b)-7(c)(2). The
Company does not presently expect that there will be an "all earnings and
profits amount" with respect to its shares.
PLD Delaware does not anticipate paying dividends in the foreseeable
future. However, any dividends that are paid to non-U.S. Shareholders after
the Continuance will be subject to United States withholding tax at the basic
rate of 30%, subject to reduction by the terms of any applicable tax treaty,
including treaties with Canada and the United Kingdom, and potential further
reduction to the extent that the source of PLD Delaware's income complies with
certain "foreign business requirements" of the Code. Where the dividend is
effectively connected with a United States trade or business, however, it will
be subject to the regular United States federal income tax.
A shareholder of PLD Delaware may, under certain circumstances, be
subject to "backup withholding" at the rate of 31% with respect to dividends,
if any, paid on, or the proceeds of a sale, exchange or redemption of, such
stock, unless such holder (i) is a corporation or comes within certain other
exempt categories, and, when required, demonstrates this fact, or (ii) provides
a correct taxpayer identification number, certifies that he is not subject to
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. Any amount withheld under these rules will be
creditable against the holder's United States federal income tax liability.
ALL CANADIAN AND UNITED STATES SHAREHOLDERS SHOULD READ CAREFULLY THE
MORE DETAILED DISCUSSIONS UNDER "CERTAIN CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS" AND "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS"
AND ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
EFFECTS OF THE CONTINUANCE ON SHAREHOLDERS' RIGHTS. Upon the
effective date of the Continuance, all shareholders of the Company will become
shareholders of PLD Delaware. The Company is a corporation organized under and
governed by Ontario law, the Articles of the Company and the By-Laws of the
Company. PLD Delaware will be a corporation organized under and governed by
Delaware law, the Certificate of Incorporation and the By-Laws of PLD Delaware.
The principle attributes of PLD Delaware Common Stock and the Company's Common
Shares on the one hand, and PLD Delaware Series II and III Preferred Stock and
the Company's Series II Convertible Preferred Shares and Series III Convertible
Preferred Shares on the other hand, will be identical other than differences in
shareholders' rights under the OBCA and DGCL. While the rights and privileges
of stockholders of a Delaware corporation under the DGCL are, in many
instances, comparable to those of shareholders of an Ontario corporation under
the OBCA, there are certain material differences, which are summarized below
(see "Comparison of Shareholders' Rights" for a more complete description of
these differences):
17
<PAGE> 21
VOTES REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under the OBCA, certain extraordinary corporate actions, such
as certain amalgamations, continuances, sales, leases or exchanges of
all the assets of a corporation other than in the ordinary course of
business, and other extraordinary corporate actions such as
liquidations, dissolutions and (if ordered by a court) arrangements,
are required to be approved by special resolution. A special
resolution is a resolution passed by not less than two-thirds of the
votes cast by the shareholders entitled to vote on the resolution. In
certain cases, a special resolution to approve an extraordinary
corporate action is also required to be approved separately by the
holders of a class or series of shares.
The DGCL requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon to authorize any merger,
consolidation, dissolution or sale of substantially all of the assets
of a corporation, except that, unless required by its certificate of
incorporation, no authorizing stockholder vote is required of a
corporation surviving a merger in certain circumstances. The
Certificate of Incorporation does not require such a vote.
AMENDMENT TO GOVERNING DOCUMENTS
Under the OBCA, any amendment to the articles generally
requires the approval by special resolution, which is a resolution
passed by a majority of not less than two-thirds of the votes cast by
shareholders entitled to vote on the resolution. Under the OBCA,
unless the articles or by-laws otherwise provide, the directors may,
by resolution, make, amend or repeal any by-law that regulates the
business or affairs of a corporation. Where the directors make, amend
or repeal a by-law, they are required under the OBCA to submit the
by-law, amendment or repeal to the shareholders at the next meeting of
shareholders, and the shareholders may confirm, reject or amend the
by-law, amendment or repeal by an ordinary resolution, which is a
resolution passed by a majority of the votes cast by shareholders
present and entitled to vote on the resolution.
The DGCL requires a vote of the corporation's board of
directors followed by the affirmative vote of a majority of the
outstanding stock of each class entitled to vote for any amendment to
the corporation's certificate of incorporation, unless a greater level
of approval is required by the certificate of incorporation. The
Certificate of Incorporation will not require a greater level of
approval for an amendment thereto. If an amendment alters the powers,
preferences or special rights of a particular class or series of stock
so as to affect them adversely, that class or series shall be given
the power to vote as a class notwithstanding the absence of any
specifically enumerated power in the certificate of incorporation.
The DGCL also states that the power to adopt, amend or repeal the
by-laws of a corporation resides in the stockholders entitled to vote,
provided that the corporation in its certificate of incorporation may
confer such power on the board of directors in addition to the
stockholders. The Certificate of Incorporation expressly authorizes
the board of directors to adopt, amend or repeal PLD Delaware's
By-Laws.
DISSENTERS' RIGHTS AND OPPRESSION REMEDIES
The OBCA provides that shareholders of an OBCA corporation
entitled to vote on certain matters are entitled to exercise dissent
rights and to be paid the fair value of their shares in connection
therewith. The OBCA does not distinguish for this purpose between
listed and unlisted shares. Under the OBCA, a shareholder may, in
addition to exercising dissent rights and in certain circumstances,
seek an oppression remedy upon application to the Director under the
OBCA for any act or omission of a corporation which is oppressive or
unfairly prejudicial to or that unfairly disregards a shareholder's
interest.
Under the DGCL, holders of shares of any class or series have
the right, in certain circumstances, to dissent from a merger or
consolidation by demanding payment in cash for their shares equal to
the fair value (excluding any appreciation or depreciation as a
consequence, or in expectation, of the transaction) of such shares, as
determined by agreement with the corporation or by an independent
appraiser appointed by a court in an action timely brought by the
corporation or the dissenters. The DGCL grants dissenters' appraisal
rights only
18
<PAGE> 22
in the case of mergers or consolidations and not in the case of a sale
or transfer of assets or a purchase of assets for stock regardless of
the number of shares being issued. Further, no appraisal rights are
available for shares of any class or series listed on a national
securities exchange or designated as a national market system security
on the Nasdaq National Market or held of record by more than 2,000
stockholders, except in certain circumstances. In addition,
dissenter's rights are not available for any shares of the surviving
corporation if the merger did not require the vote of the stockholders
of the surviving corporation. The DGCL does not provide for an
oppression remedy similar to that of the OBCA. However, the DGCL
provides a variety of legal and equitable remedies to a corporation's
stockholders for improper acts or omissions of a corporation, its
officers and directors.
SHAREHOLDER CONSENT IN LIEU OF A MEETING
Under the OBCA, shareholder action without a meeting may only
be taken by written resolution signed by all shareholders who would be
entitled to vote thereon at a meeting.
Under the DGCL, unless otherwise provided in the certificate
of incorporation, any action required to be taken or which may be
taken at an annual or special meeting of stockholders may be taken
without a meeting if a consent in writing is signed by the holders of
outstanding stock having not less than the minimum number of votes
that would be necessary to authorize such action at a meeting at which
all shares entitled to vote were present and voted. The Certificate
of Incorporation will not provide otherwise.
DIRECTOR QUALIFICATIONS
A majority of the directors of an OBCA corporation generally
must be resident Canadians but where a corporation has only one or two
directors, that director or one of the two directors, as the case may
be, must be a resident Canadian. The OBCA also requires that at least
one-third of the directors of a corporation whose securities are
publicly traded must not be officers or employees of the Company or
any of its affiliates.
The DGCL does not have comparable requirements.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both the OBCA and DGCL permit indemnification of directors and
officers. Unlike the OBCA, however, the DGCL allows for the advance
payment of an indemnitee's expenses prior to the final disposition of
an action, provided that the indemnitee undertakes to repay any such
amount advanced if it is later determined that the indemnitee is not
entitled to indemnification with regard to the action for which such
expenses were advanced.
LIABILITY OF DIRECTORS
The DGCL provides that a corporation's certificate of
incorporation may include a provision which limits or eliminates the
liability of directors to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided
such liability does not arise from certain proscribed conduct,
including acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, breach of the
duty of loyalty, the payment of unlawful dividends or expenditure of
funds for unlawful stock purchases or redemptions or transactions from
which such director derived an improper personal benefit. The
Certificate of Incorporation of PLD Delaware provides such limitation
of liability.
The OBCA does not permit any such limitation of a director's
liability.
19
<PAGE> 23
THE MEETING
GENERAL
This Circular/Prospectus is being furnished as a management proxy
circular in connection with the solicitation by the Board of Directors and
management of the Company of proxies for use at the special meeting of
shareholders of the Company to be held on ______________, 1997 at
______________, Toronto, Ontario at 10:00 a.m. (Toronto time), or any
adjournment or adjournments thereof. Proxies will be solicited primarily by
mail and may also be solicited by the directors and/or officers of the Company
at nominal cost. The cost of such solicitation will be borne by the Company.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND
ADOPTED THE CONTINUANCE, THE DELAWARE FILINGS AND OBCA AUTHORIZATION AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE CONTINUANCE,
THE CERTIFICATE OF INCORPORATION, THE OBCA AUTHORIZATION AND THE AUTHORIZATION
OF THE DIRECTORS OF THE COMPANY, IN THEIR DISCRETION, TO ABANDON THE
CONTINUANCE AND ANY FILINGS RELATED THERETO WITHOUT FURTHER APPROVAL OF THE
SHAREHOLDERS.
PURPOSE OF THE MEETING
At the Meeting, the Company's common shareholders will be asked to
vote upon a proposal to (i) continue the Company as PLD Delaware under the DGCL
and simultaneously discontinue the Company's existence in Ontario under the
OBCA; (ii) approve the Certificate of Incorporation, which will be filed with
the Secretary of State of the State of Delaware as part of the Delaware
Filings, each of which is attached as Schedules "C" and "D" hereto
respectively; (iii) authorize the Company to apply to the Director under the
OBCA for the OBCA Authorization), file the OBCA Authorization and the Delaware
Filings with the Secretary of State of the State of Delaware and a notice of
the Delaware Filings with the Director under the OBCA in order to obtain a
Certificate of Discontinuance under the OBCA and (iv) authorize the directors
of the Company, in their discretion, to abandon the Continuance and any filings
related thereto without further approval of the shareholders. In order to take
effect, the proposal must be passed by at least 66-2/3% of the votes cast at
the Meeting. The text of the Special Resolution concerning the Continuance is
attached as Schedule "A" hereto. The persons named in the enclosed form of
proxy intend to vote for the Special Resolution.
VOTING RIGHTS
The Board of Directors of the Company has set January ___, 1997 as the
Record Date for the determination of shareholders of the Company entitled to
notice and to vote at the Meeting. At January __, 1997, the Company had
outstanding ______ Common Shares, each of which carries one vote. Only
holders of such Common Shares of record as of January __, 1997 or transferees
of such shares who produce, prior to January __, 1997, proper evidence of
ownership of such shares will be entitled to vote at the Meeting. At January
__, 1997 CEDE & Co. (The Depository Trust Company) is the registered holder of
_____ Common Shares which represent ____% of the outstanding Common Shares of
the Company. The directors and officers of the Company are not aware of the
beneficial ownership of such Common Shares, other than as set forth herein.
So far as the directors and officers of the Company are aware, the
only person or Company beneficially owning, directly or indirectly, or
exercising control or direction over shares carrying more than 10% of the
voting rights attached to all outstanding shares of the Company is Navona
Communications Corporation Ltd., a corporation organized under the laws of
Bermuda ("Navona"), which beneficially owns 10,055,739 common shares, being __%
of all voting rights outstanding. To the knowledge of the Company, Navona is a
wholly-owned indirect subsidiary of Cable & Wireless.
The Special Resolution is required to be passed by at least 66-2/3% of
the votes cast by common shareholders present in person or represented by proxy
and entitled to vote at the Meeting. In the event that the shareholders do
not approve the Continuance, the Company will continue to be an Ontario
corporation under the OBCA. The Board of Directors has not considered any
alternative action if the Continuance is not approved.
20
<PAGE> 24
Each shareholder may vote personally or by proxy; and a person acting
by proxy need not be a shareholder of the Company.
Holders of Series II Convertible Preferred Shares and Series III
Convertible Preferred Shares of the Company are not entitled to vote at the
Meeting or to dissent with respect to the Special Resolution.
SOLICITATION AND REVOCATION OF PROXIES
Proxies will be solicited primarily by mail and may also be solicited
by the directors and/or officers of the Company at nominal cost. The cost of
such solicitation will be borne by the Company.
A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) TO ATTEND AND ACT FOR HIM ON HIS BEHALF AT THE MEETING OTHER THAN
THE PERSONS DESIGNATED IN THE ENCLOSED FORM OF PROXY, WHO ARE DIRECTORS OF THE
COMPANY. Such right may be exercised by striking out the names of the persons
designated in the enclosed form of proxy and by inserting in the blank space
provided for that purpose the name of the desired person or by completing
another proper form of proxy and, in either case, delivering the completed and
executed proxy to the Company on or before ______________, 1997. A shareholder
who has given a proxy may revoke it at any time prior to its use either (i) by
signing a proxy bearing a later date and delivering it to the Secretary of the
Company on or before ___________, 1997 or (ii) by signing a written notice of
revocation and delivering it to the Chairman of the Meeting.
PROPERLY EXECUTED PROXIES CONTAINING NO INSTRUCTIONS REGARDING ANY
PARTICULAR MATTER SPECIFIED THEREON WILL BE VOTED FOR THE APPROVAL OF SUCH
MATTER.
THE CONTINUANCE
GENERAL
Through the Continuance, the Company intends to change its domicile
from Ontario to Delaware by means of domestication in the State of Delaware, a
process available to non-United States corporations under Section 388 of the
DGCL. Simultaneously with the domestication, the Company will apply for
discontinuance under Section 181 of the OBCA.
PROCEDURES UNDER THE DGCL. Unlike in the case of a change of domicile
via an interstate migratory merger (as is common practice for domiciliary
changes by corporations between states within the United States), the
Continuance does not involve the merger of two separate corporations. In an
interstate migratory merger within the United States, a shell corporation is
typically created in the state of intended domicile prior to the merger; and,
at the effective time of such merger, the migrating corporation is merged into
the shell corporation, with only the shell corporation surviving. In the case
of a continuance and domestication, on the other hand, no corporate entity will
exist under the DGCL prior to the effective date of the Continuance.
Consequently, there is no "surviving corporation" and "target corporation" as
is typical in merger practice. Rather, the corporate entity domiciled in the
non-United States jurisdiction consents to the jurisdiction of Delaware by
filing a certificate of incorporation that complies with the provisions of the
DGCL applicable to domestic Delaware corporations and an additional document, a
certificate of domestication, which states (i) the date on which and
jurisdiction where the corporation originally came into being, (ii) the name of
the corporation prior to the filing of the certificate of domestication, (iii)
the name of the corporation as set forth in its new certificate of
incorporation under the DGCL and (iv) the jurisdiction that constituted the
seat, siege social, or principal place of business or central administration of
the corporation, or any other equivalent thereto under applicable law,
immediately prior to the filing of the certificate of incorporation. Upon
filing the new certificate of incorporation and the certificate of
domestication, a corporation becomes subject to the jurisdiction of Delaware
and the DGCL, but retains the original incorporation date from its previous
domicile as the incorporation date for purposes of the DGCL. In addition,
Section 388 of the DGCL provides explicitly that the domestication shall not be
deemed to affect any obligations or liabilities of the corporation incurred
prior to its domestication. The process is analogous to an individual changing
nationality.
21
<PAGE> 25
PROCEDURES UNDER THE OBCA. Simultaneously with the domestication in
Delaware, the migrating corporation must terminate its existence under the laws
of its then current jurisdiction. Under Section 181 of the OBCA, a corporation
may apply to the appropriate official or public body of another jurisdiction
requesting that the corporation be continued as if it had been incorporated
under the laws of that jurisdiction. Such an application for continuance
becomes authorized upon (i) approval by a special resolution requiring
approval of 66-2/3% of shareholders and (ii) endorsement by the Director under
the OBCA of an application filed with the Director. The Director may endorse
the authorization if the Director is satisfied that the laws of the
jurisdiction where continuance is sought provide in effect that following
continuance (a) the property of the corporation continues to be the property of
the body corporate; (b) the body corporate continues to be liable for the
obligations of the corporation, (c) an existing cause of action, claim or
liability to prosecution is unaffected; (d) a civil, criminal or administrative
action or proceeding pending by or against the corporation may be continued to
be prosecuted by or against the body corporate; and (e) a conviction against
the corporation may be enforced against the body corporate or a ruling, order
or judgment in favor of or against the corporation may be enforced by or
against the body corporate. The Director's authorization expires ninety days
after issuance unless, within the ninety day period, the corporation is
continued under the laws of the continuing jurisdiction. The OBCA also
requires the corporation to obtain authorizations from the Corporations Tax
Branch of the Ministry of Revenue of the Province of Ontario and the Ontario
Securities Commission prior to continuation.
CONTINUATION BY THE COMPANY AS PLD DELAWARE IN ACCORDANCE WITH THE SPECIAL
RESOLUTION
If the Special Resolution is passed, the Company will immediately
thereafter apply to the Director under the OBCA for authorization to continue.
The Company will file this authorization with the Secretary of State of the
State of Delaware, along with the Delaware Filings. Once the Delaware Filings
have been filed in Delaware and notice of the Delaware Filings has been
received by the Director under the OBCA, it is anticipated that the Director
will issue a Certificate of Discontinuance dated retroactively to the date of
effectiveness of the Delaware Filings
EFFECTS OF THE CONTINUANCE
APPLICABLE LAW. As of the effective date of the Continuance, the
legal domicile of the Company will be Delaware and the Company, as PLD
Delaware, will no longer be subject to the corporate governance provisions of
the OBCA. All matters of corporate governance of PLD Delaware will be
determined under the DGCL. PLD Delaware will retain the original incorporation
date of the Company in Ontario as PLD Delaware's date of incorporation for
purposes of the DGCL.
ASSETS, LIABILITIES, OBLIGATIONS, ETC. By operation of law under the
DGCL, as of the effective date of the Continuance, all of the assets, property,
rights, liabilities and obligations of the Company immediately prior to the
Continuance will continue to be the assets, property, rights, liabilities and
obligations of PLD Delaware. As required to receive authorization of the
Continuance by the Director under the OBCA, on the effective date of the
Continuance, the property of the Company will continue to be the property of
PLD Delaware; PLD Delaware will continue to be liable for the obligations of
the Company; an existing cause of action, claim or liability to prosecution
against the Company will be unaffected; a civil, criminal or administrative
action or proceeding pending by or against the Company may be continued to be
prosecuted by or against PLD Delaware; a conviction against the Company may be
enforced against PLD Delaware or a ruling, order or judgment in favor of or
against the Company may be enforced by or against PLD Delaware.
CAPITAL STOCK. On the effective date of the Continuance, holders of
Common Shares of the Company will continue to hold one share of PLD Delaware
Common Stock for each Common Share of the Company held immediately prior to the
effective date and holders of Preferred Shares, Series II and Preferred Shares,
Series III of the Company will continue to hold one share of PLD Delaware
Series II Preferred Stock or PLD Delaware Series III Preferred Stock, as the
case may be, for each Series II Convertible Preferred Share or Series III
Convertible Preferred Share of the Company held. The existing share
certificates representing shares of the Company's stock will not be canceled.
Holders of options to purchase the Company's Common Shares on the effective
date of the Continuance will continue to hold options to purchase an identical
number of shares of PLD Delaware Common Stock on substantially the same terms.
Similarly, holders of warrants to purchase the Company's Common Shares will
continue to hold warrants to purchase an identical number of shares of PLD
Delaware Common Stock on substantially the same terms.
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The principal attributes of the Company's Common Shares and the PLD
Delaware Common Stock will be identical, other than differences in
shareholders' rights under the OBCA and DGCL. The principal attributes of the
shares of PLD Delaware Series II Preferred Stock and PLD Delaware Series III
Preferred Stock will be identical to the Company's Series II Convertible
Preferred Shares and Series III Convertible Preferred Shares, respectively,
other than differences in shareholders' rights under the OBCA and DGCL. See
"Comparison of Shareholders' Rights" and "Description of Capital Stock."
BUSINESS AND OPERATIONS. The Continuance, if approved, will effect a
change in the legal domicile of the Company as of the effective date thereof,
but the Company will not change its business or operations after the effective
date of the Continuance as PLD Delaware.
DIRECTORS AND OFFICERS. The directors and officers of PLD Delaware
immediately following the Continuance will be identical to the current
directors and officers of the Company. See "Management of the Company." As of
the effective date of the Continuance, the election, duties, resignation and
removal of PLD directors and officers shall be governed by the DGCL, the
Certificate of Incorporation and the By-Laws of PLD Delaware.
STOCK EXCHANGE LISTINGS. The Company's Common Shares are currently
listed and traded on the Nasdaq National Market under the symbol "PLDIF" and
The Toronto Stock Exchange under the symbol "PLD." The Company anticipates
that it will maintain both listings as PLD Delaware following the Continuance.
SECURITIES REGULATION. Following the Continuance, PLD Delaware will be
subject to the reporting obligations of domestic U.S. issuers under the U.S.
securities laws, which are more comprehensive than the disclosure obligations
applicable to the Company as a non-U.S. issuer. The Company also anticipates
that it will continue to be a "reporting issuer" in each Province of Canada
immediately following the Continuance.
BACKGROUND TO AND PRINCIPAL REASONS FOR THE CONTINUANCE
The Board of Directors believes that it is desirable for the Company
to continue its corporate existence under the laws of the State of Delaware for
the following reasons:
COST OF CAPITAL. The Company's principal sources of capital are
located outside Canada, principally in the U.S. As a result of withholding
taxes imposed in Canada on payments to investors located outside Canada, or the
necessity to arrange the terms of any financing to minimize or avoid the impact
of such withholding taxes, the cost to the Company of raising capital from
sources outside Canada is greater than it would be if the Company was
incorporated in the U.S. In addition, the need to comply on an ongoing basis
with conditions under which financing was undertaken in order to minimize or
avoid Canadian withholding taxes has imposed, and could continue to impose,
significant constraints on the manner in which the Company proposes to do
business, or the kinds of transactions in which the Company could engage. For
example, one such condition in the indenture governing the Company's
Convertible Notes prevents the Company from engaging in a cash merger for a
period of five years after the effective date thereof.
IMPROVED MARKET ACCESS. In addition, the Continuance is viewed by the
Board of Directors as facilitating access to the capital markets in the U.S.,
currently the Company's principal source of debt and equity financing. The
Board believes that, not only will the greater identification of the Company
with the U.S. improve the receptivity of the Company's securities among
investors in the U.S. but, more specifically, this will permit the Company to
access certain regulated investors currently not permitted to invest in the
Company's securities because they are treated as foreign securities, as well as
other investors who overlook or reject the Company's securities for such
reason.
ACCESS TO U.S. GOVERNMENT FINANCING. The Board further believes that
continuation as a U.S. corporation will assist the Company in accessing various
financing programs administered by agencies of the United States Government,
such the Overseas Private Investment Corporation, currently foreclosed to the
Company as a foreign company.
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IMPACT OF UNITED STATES INCOME TAX CODE ON COMPANY'S FINANCING
ACTIVITIES. The Code classifies non-U.S. corporations such as the Company
which have passive income or passive assets in excess of certain thresholds as
a PFIC. The result of this classification for shareholders in the U.S. is that
they will be required to allocate any gain realized on a future disposition (or
deemed disposition) of the Company's shares (or, in certain circumstances, the
disposition of shares of any subsidiary which is also classified as a PFIC)
ratably over the shareholder's entire holding period for the shares. In
addition, any such gain allocated to years in which the Company (or such
subsidiary) was a PFIC will be taxed at the highest rate applicable to such
taxpayer in such years (currently, 39.6% for individuals), rather than the
capital gain tax rate (currently, 28% for individuals). In addition, an
interest charge will be imposed on such shareholders and added to the total
amount due. Therefore the potential effect of PFIC status for the Company for
U.S. Shareholders is to dramatically increase the effective tax rate on any
future disposition (or deemed disposition) of the Company's shares.
These potentially adverse tax consequences can be avoided if the U.S.
Shareholder elects to have included in its income its proportionate share of
the Company's earnings and profits for the applicable tax year. In years where
the Company does not have earnings and profits this election can be made
without adverse tax consequences to the individual shareholder. Nevertheless
each individual shareholder affected has to take pains to comply with the
filing and other administrative details associated with making an effective
election.
The issue of PFIC status for the Company usually arises following the
completion of a financing exercise, when the Company will hold passive assets
(cash) which may well be in excess of the applicable thresholds, until that
cash can be invested in the Company's businesses. If the Company is unable to
deploy the cash quickly, this may result in PFIC status. This in fact occurred
this year, as the result of the successful completion of a major private
placement in June 1996. Because the Company does not anticipate having
earnings and profits in 1996, it has advised all U.S. Shareholders to make the
election described above, because this will enable such shareholders to avoid
the adverse effects of its PFIC status without tax cost to them. Currently, it
is unable to predict with any certainty whether it will continue to be a PFIC
in 1997 or whether or not it will have earnings and profits in that year.
One way to avoid PFIC status would be to have the Company expend the
proceeds of any financing as rapidly as possible. However, the Board of
Directors does not believe that this would be in the best interests of the
Company. PFIC status and the problems for U.S. Shareholders associated with
this can, however, be entirely avoided if the Company was a U.S. corporation.
Continuance of the Company in the U.S. will therefore eliminate the PFIC issue
for the future.
INCREASINGLY LIMITED CONTACT WITH CANADA. While the Company's
operations at one time were located in, or closely associated with Canada, as
the Company' s business has focussed increasingly upon the telecommunications
business in the former Soviet Union, its connections with Canada have become
increasingly tenuous. Currently, the Company has no business operations in
Canada, all but two of its employees are located outside of Canada, and, as of
____, more than __% of its outstanding Common Shares were held by shareholders
of record who are Canadian non-residents. Until 1993 the Company's Common
Shares were only traded on The Toronto Stock Exchange. At the start of that
year they were admitted to trading on the Nasdaq National Market, and since
that time trading on the Nasdaq National Market has been significantly greater
than the volume of trading on The Toronto Stock Exchange. For example, the
total volume of shares traded on the Nasdaq National Market in 1993, 1994 and
1995 was 11,596,297 shares, 13,312,376 shares and 19,090,619 shares,
respectively. The comparable figures for The Toronto Stock Exchange were
2,441,596 shares, 558,126 shares and 1,759,330 shares, respectively.
DIRECTOR RESIDENCY REQUIREMENTS. The OBCA requires that a majority of
the directors, and a majority of any committee of the directors, be Canadian
residents. While to date, the Company has been fortunate in being able to
attract qualified Canadian residents to serve on its board, this requirement
has substantially inhibited the Company's ability to attract to its board
persons who are involved in the countries in which the Company actually does
business or which are the principal sources of its capital, as well as its
opportunities to diversify the composition of its board. The DGCL does not
impose any such requirement, and thus the Continuance will provide greater
flexibility to the Company in the future with respect to the composition of its
board of directors.
MOVEMENT OF EXECUTIVE OFFICES. In addition, the Company is currently
considering the movement of its executive offices, currently spread among a
number of locations, to the United States. In addition to bringing management
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closer to the Company's principal financing sources, trading market and major
investors, this concentration of management is expected to improve operational
efficiency. While the Company may determine to undertake this regardless of
whether the Continuance is approved, the likelihood that this will occur will
be substantially enhanced if the Continuance occurs.
SELECTION OF STATE OF DELAWARE
The selection of the State of Delaware as the jurisdiction into which
the Company should continue its corporate existence was based upon the
following:
For many years Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws which are periodically
updated and revised to meet changing business needs. As a result of this
deliberate policy to provide a hospitable climate for corporate development,
many major corporations have chosen Delaware initially for their domicile, or
have subsequently reincorporated in, continued into or domesticated in
Delaware. In addition, the Delaware courts have developed considerable
expertise in dealing with corporate issues, and a substantial body of case law
has developed construing the DGCL and establishing specific legal principles
and policies with respect to Delaware corporations. Not only has this served
to provide greater legal predictability with respect to the corporate legal
affairs of Delaware corporations, but it has also given Delaware an important
role in respect of the corporate laws of the United States generally, inasmuch
as many of its principles and policies have been adopted by, and become
important precedents for the laws of other states. It is anticipated that
Delaware corporate law will continue to assume its leadership position in
respect of the development of corporate law in the United States, and that the
Delaware legislature will continue to endeavor to ensure that the DGCL itself
remains as up to date, and as flexible as possible.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Blake, Cassels & Graydon, Canadian counsel to the
Company, the following is a summary of the principal Canadian federal income
tax considerations generally applicable to the Company and to shareholders of
the Company in connection with the Continuance. The summary applies to the
Company and to shareholders that, for purposes of the Act, hold common shares
of the Company as capital property, deal at arm's length with the Company and,
under proposed amendments to the Act contained in Bill C-69, which received
first reading in the House of Commons on December 2, 1996, are not affiliated
with the Company. This summary does not consider the potential application of
the "mark-to-market" rules in the Act to shareholders that are "financial
institutions" for such purposes. This summary also does not apply to a
shareholder in respect of whom the Company is at any time a "foreign affiliate"
for purposes of the Act.
This summary is based on the current provisions of the Act, the
regulations thereunder (the "Regulations"), specific proposals (the
"Proposals") to amend the Act and the Regulations publicly announced by the
Department of Finance prior to the date hereof and counsel's understanding of
the current published administrative and assessing practices of Revenue Canada,
Customs, Excise and Taxation ("Revenue Canada"). Otherwise, this summary does
not take into account or anticipate any changes in law, or the administration
thereof, whether by legislative, governmental or administrative action, nor
does it take into account provincial, territorial or foreign income tax
legislation or considerations. No assurance can be given that the Proposals
will be enacted in their present form or at all.
This summary is based on the assumptions that: (i) the common shares
of the Company will remain listed on The Toronto Stock Exchange or the Nasdaq
National Market at all times while any common shares are issued and
outstanding, (ii) after the effective date of the Continuance, the management
of the Company will not reside in Canada at any time, and (iii) the shares of
the Company may not reasonably be considered to derive their value, directly or
indirectly, primarily from portfolio investments in shares, debt or any other
properties.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE,
NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. ACCORDINGLY, SUCH PERSONS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THEIR OWN PARTICULAR CIRCUMSTANCES.
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THE COMPANY
Upon the Continuance, the Company will be deemed to have disposed of
all of its property for proceeds of disposition equal to the fair market value
thereof immediately prior to the Continuance. The Company will be subject to
tax on any income and net taxable capital gains arising thereby. The Company
will also be subject to an additional tax at the rate of 5% on the amount by
which the fair market value of the Company's assets, net of liabilities,
exceeds the paid-up capital of the Company's issued and outstanding shares,
except that if one of the main reasons for the Company changing domicile to the
United States was to reduce the amount of such additional tax or Canadian
withholding tax, the rate of such tax would be 25%. Provided the management of
the Company does not reside in Canada at any time thereafter, the Company will
not be resident in Canada after the Continuance. The management of the
Company, in consultation with certain of its advisors, has reviewed the
Company's assets, liabilities and paid-up capital and has advised counsel that
no Canadian federal taxes should be due and payable by the Company under the
Act as a result of the Continuance. This conslusion is based in part on
analyses of the fair market value of the Company's property and certain other
factual matters, and counsel can express no opinion on such matters of factual
determination. In reaching its conclusions, the Company made certain favorable
assumptions regarding the Canadian federal tax treatment of certain amounts,
the treatment of which is subject to some doubt. No opinion has been sought in
this matter, and facts underlying the Company's assumptions and conclusions may
also change prior to the effective date of the Continuance. The Company has
not applied to the Canadian federal tax authorities for a ruling as to the
amount of federal taxes payable by the Company under the Act as a result of the
Continuance and does not intend to apply for such a ruling. Moreover, it is
extremely unlikely that the Canadian federal tax authorities would issue any
such ruling given the factual nature of the determinations involved. There can
be no assurance that the Canadian federal tax authorities will accept the
valuations or the positions that the Company has adopted with respect to the
Canadian federal tax treatment of such amounts. Accordingly, there can be no
assurance that the Canadian federal tax authorities will conclude after the
effective date of the Continuance that no Canadian federal taxes are due under
the Act as a result of the Continuance or that the amount of Canadian federal
taxes claimed or found to be due will not be significant.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of the summary applies to shareholders who are
resident in Canada for purposes of the Act.
Shareholders of the Company will not be considered to have disposed of
their common shares or to have realized a taxable capital gain or loss by
reason only of the Continuance. The Continuance will also have no effect on
the adjusted cost base to shareholders of their common shares.
Following the Continuance, dividends received by a shareholder on
shares of PLD Delaware Common Stock will be included in computing income and
will generally not be deductible in computing taxable income of a shareholder
that is a corporation, and, in the case of a shareholder who is an individual,
such dividends will not receive the gross-up and dividend tax credit treatment
generally applicable to dividends on shares of taxable Canadian corporations.
Also, following the Continuance, shares of PLD Delaware Common Stock
will be a qualified investment for trusts governed by Deferred Income Plans,
provided such shares of Common Stock remain listed on The Toronto Stock
Exchange, the Nasdaq National Market or another prescribed stock exchange.
However, such shares of stock will be foreign property after the effective date
of the Continuance, and accordingly, the holding of such shares of stock by
Deferred Income Plans or by certain other tax-exempt entities including
registered investments and registered pension plans may subject such holders to
penalty taxes under the Act. Such holders are urged to contact their own tax
advisors to determine the potential applicability of such penalty taxes to
them.
DISSENTING SHAREHOLDERS. Although the matter is not free from doubt,
the amount paid to a dissenting shareholder should be treated as proceeds of
disposition of his or her common shares of the Company. Accordingly, the
dissenting shareholder would recognize a capital gain (or a capital loss) to
the extent that the amount received, net of any reasonable costs of
disposition, exceeds (or is less than) the adjusted cost base of the common
shares to the holder. If a holder is a corporation, any capital loss arising
on the disposition of a common share of the Company may in certain
circumstances be reduced by the amount of any dividends which have been
received on the common share. Analogous
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rules apply to a partnership or trust of which a corporation is a member or
beneficiary. The Proposed Amendments will extend these rules to apply where a
trust or partnership is a member of a partnership or a beneficiary of a trust
that owns shares. A shareholder will be required to include three-quarters of
any capital gain (a "taxable capital gain") in computing his or her income for
purposes of the Act and will be entitled to deduct three-quarters of any
capital loss only against taxable capital gains in accordance with the detailed
provisions of the Act in that regard.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of the summary applies to shareholders who, for
purposes of the Act, are not resident or deemed to be resident in Canada at any
time when they held or hold Common Shares of the Company and do not use or
hold and are not deemed to use or hold their Common Shares in or in the course
of carrying on a business in Canada and, in the case of shareholders who carry
on an insurance business in Canada and elsewhere, establish that the Common
Shares are not effectively connected with their Canadian insurance business.
Shareholders will not be considered to have disposed of their Common
Shares or to have realized a taxable capital gain or loss by reason only of the
Continuance. The Continuance will also have no effect on the adjusted cost
base to shareholders of their Common Shares. After the effective date of the
Continuance, dividends received by a shareholder on shares of PLD Delaware
Common Stock will not be subject to Canadian withholding tax.
Provided that a Common Share is not "taxable Canadian property" to a
shareholder at the time of disposition of such Common Share, such shareholder
will not be subject to Canadian tax on any capital gain arising by reason of
the disposition of such Common Share. After the effective date of the
Continuance, shares of PLD Delaware Common Stock will not generally be taxable
Canadian property to a shareholder at the time of disposition of PLD Delaware
such Common Stock unless at any time during the five-year period that ends at
the time of disposition the shareholder (together with persons not dealing at
arm's length with the shareholder) owned 25% or more of the shares of any class
or series of PLD Delaware stock and more than 50% of the fair market value of
the Common Share was derived directly or indirectly from one or any combination
of real property situated in Canada, Canadian resource properties and timber
resource properties. For purposes of this test, a shareholder and any person
not dealing at arm's length with a shareholder will be considered to own any
share that the shareholder or person has a right to acquire.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material United States federal income
tax consequences of the Continuance. This discussion may not identify United
States tax consequences applicable to each shareholder in view of the
shareholder's particular tax situation, and does not address state, local or
foreign tax consequences. ACCORDINGLY, EACH SHAREHOLDER IS URGED TO CONSULT
THE SHAREHOLDER'S OWN TAX ADVISOR TO EVALUATE THE TAX CONSEQUENCES OF THE
CONTINUANCE.
TAX-FREE REORGANIZATION
In the opinion of Morgan, Lewis & Bockius LLP, United States counsel
to the Company, for United States federal income tax purposes, the Continuance
should qualify as a reorganization in which neither gain nor loss is recognized
to the Company or its shareholders, except as otherwise described below.
Counsel's opinion is based upon certain representations furnished by
the Company. In connection with Counsel's opinion, the Company has represented
that (i) the principal purposes of the Continuance are to reduce administrative
burdens associated with being organized in Canada, to improve access to capital
markets to lower the costs of financing, among other reasons; (ii) the fair
market value of the PLD Delaware stock received by each of the Company's
shareholders will be approximately equal to the fair market value of the
Company's shares held immediately prior to the effective date of the
Continuance; (iii) to the best of the knowledge of management of the Company,
there is no specific plan on the part of any shareholder of the Company to
sell, exchange or otherwise dispose of any of the shares of PLD Delaware stock
held as a result of the Continuance; (iv) immediately following consummation
of the Continuance,
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the shareholders of the Company will own all of the outstanding PLD Delaware
stock and will own such stock solely by reason of their ownership of the
Company's shares immediately prior to the Continuance; (v) immediately
following consummation of the transaction, PLD Delaware will possess the same
assets and liabilities, except for assets distributed to shareholders who
receive cash or other property, assets used to pay dissenters to the
Continuance, and assets used to pay expenses incurred in connection with the
Continuance, as those possessed by the Company immediately prior to the
Continuance; (vi) assets distributed to shareholders who receive cash or other
property, assets used to pay expenses, assets used to pay dissenters to the
Continuance, and all redemptions and distributions (except for regular, normal
dividends) made by the Company immediately preceding the Continuance will, in
the aggregate, constitute less than one percent of the net assets of the
Company; (vii) dissenting shareholders will own less than one percent of the
Company's shares; (viii) the Company has no intention of PLD Delaware
reacquiring any of its stock immediately following the Continuance; (ix) the
liabilities of the Company assumed by PLD Delaware plus the liabilities, if
any, to which the assets transferred as a result of the Continuance are subject
were incurred by the Company in the ordinary course of its business and are
associated with the assets transferred; (x) following the Continuance, PLD
Delaware will continue the historic business of the Company or use a
significant portion of the Company's historic business assets in a business;
(xi) the shareholders will pay their respective expenses, if any, incurred in
connection with the Continuance; (xii) the Company is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code; (xiii) the Company will comply with the
reporting requirements of Temp. Reg. Section 7.367(b)-1(c); and (xiv) the
Company is not, and has not been within the five-year period ending on the
effective date of the Continuance, a "controlled foreign corporation" within
the meaning of Section 957 of the Code.
The Company has not requested and does not intend to request the IRS
for a ruling that the Continuance will qualify as a tax-free reorganization.
Unlike a ruling, counsel's opinion does not bind the IRS or the courts. If the
Continuance were determined not to qualify as a tax-free reorganization, the
shareholders of the Company who are United States persons would recognize
taxable gain or loss with respect to their shares. The remainder of this
discussion assumes that the Continuance will be treated as a tax-free
reorganization for United States federal income tax purposes.
CONSEQUENCES TO THE COMPANY
The Company will recognize no gain or loss in the Continuance, except
as otherwise noted in this paragraph. Following the Continuance, the Company
will be subject to United States federal income taxation on its worldwide net
taxable income, whereas, prior to the Continuance, the Company has been taxable
only on United States source income and on income considered to be effectively
connected with a trade or business of the Company conducted within the United
States. In addition, it appears that the Senior Notes, which will become
obligations of PLD Delaware as of the effective date of the Continuance, may be
considered "high-yield discount obligations" within the meaning of Section
163(e)(5) of the Code. As a result, any OID associated with the Senior Notes
will not be deductible by PLD Delaware until actually paid and no deduction may
be allowed to PLD Delaware for a portion of the OID. PLD Delaware shareholders
are not directly affected by these rules, except that a corporate shareholder
may be entitled to a dividends-received deduction equal to the portion of the
OID which is not deductible, assuming PLD Delaware has sufficient earnings and
profits.
CONSEQUENCES TO PARTICIPATING U.S. SHAREHOLDERS
The Company and one of its subsidiaries, Technocom, may be PFICs for
United States federal income tax purposes. The Company has previously
recommended to U.S. Shareholders that they each make a QEF election with
respect to the Company and Technocom in order to eliminate the potentially
significant additional United States federal income tax liability to which they
might otherwise be subject on any sale of the Company's shares (and deemed sale
of Technocom stock). The QEF election is also a condition to tax-free
treatment with respect to the Continuance. Thus, assuming they have made the
QEF elections with respect to the Company and Technocom, U.S. Shareholders will
not recognize gain or loss in connection with the Continuance to the extent
that they participate in the Continuance, except as otherwise noted below. In
order to qualify for such nonrecognition treatment, a U.S. Shareholder who
realizes gain on the Continuance must comply with detailed notice requirements
presently set forth in Temp. Reg. Section 7.367(b)-1(c). EACH U.S.
SHAREHOLDER IS URGED TO CONSULT WITH THE SHAREHOLDER'S OWN TAX ADVISOR IN
CONNECTION WITH THE REPORTING REQUIREMENTS OF THE TREASURY REGULATIONS.
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Such notice must be filed by the due date (as extended) for filing a
federal income tax return for the year of the Continuance, and must be filed
with the IRS district director with whom a return would be filed for the year.
The notice must contain (i) a statement that the exchange is one to which
Section 367(b) of the Code applies; (ii) a complete description of the
Continuance; (iii) a description of the stock received in the Continuance;
(iv) a statement which describes any amount required under Treasury Regulations
to be included in gross income or added to the earnings and profits or deficit
of a participating foreign corporation for the year of the Continuance (an
amount which is expected to be zero); (v) a statement which describes any
amount of earnings and profits attributed by reason of the Continuance under
Treasury Regulations to stock owned by any United States person (again, an
amount which is expected to be zero); (vi) any information required to be
furnished with a federal income tax return under Treas. Reg. Section 1.368-3
(i.e., a statement of the cost or other basis of the stock transferred, and a
statement in full of the amount of stock and any other property received) if
such information is not otherwise provided; and (vii) information required to
be furnished on Form 5471 under Section 6046 of the Code by persons subject to
reporting under this provision (generally, 5% U.S. Shareholders and
shareholders who are officers and directors) if this information is not
otherwise provided. Shortly after the consummation of the Continuance, the
Company intends to provide each U.S. Shareholder with a statement containing
all information necessary to comply with the Temp. Reg. Section 7.367(b)-1(c)
notice requirements.
A U.S. Shareholder who does not recognize gain or loss in the
Continuance will obtain a tax basis in the shares of PLD Delaware received in
the Continuance equal to the U.S. Shareholder's adjusted tax basis in the
shares of the Company converted in the Continuance, and the U.S. Shareholder's
holding period in the shares of PLD Delaware received in the Continuance will
include the holding period of the shares of the Company.
Under Proposed Treasury Regulation Section 1.367(b)-3(c), which is not
yet in effect, U.S. Shareholders would be required to recognize gain (but not
loss) in connection with the Continuance. This Proposed Regulation would be
effective 30 days after it is issued in final form. While the Company does not
believe that this Proposed Regulation will become effective prior to the
Continuance, if it were to become effective prior to the Continuance, the U.S.
Shareholders would recognize gain (but not loss) in the Continuance.
Under Temporary and Proposed Treasury Regulations, the IRS may take
the position that a shareholder which is a domestic corporation must recognize
gain (but not loss) in the Continuance unless the shareholder includes in gross
income the "all earnings and profits amount" as defined by Prop. Reg. Section
1.367(b)-2(d), i.e., earnings and profits of the Company (subject to certain
adjustments) which are deemed attributable to the shareholder's stock. See
Temp. Treas. Reg. Section 7.367(b)-7(c)(2). The Company does not presently
expect that there will be an "all earnings and profits amount" with respect to
its shares.
DISSENTING SHAREHOLDERS
Dissenting shareholders who receive cash in exchange for their shares
will be treated as receiving such cash as a distribution in redemption of their
shares. If, as a result of the distribution, a dissenting shareholder no
longer owns, directly or constructively, any shares of the Company, the
redemption will be treated as a distribution in exchange for the shares
redeemed. Accordingly, such dissenting shareholders will recognize gain or
loss measured by the difference between the amount of cash received and the
adjusted basis in the shares surrendered. Such gain or loss will be capital
gain or loss if the shares were held as capital assets and will be long-term
capital gain or loss if the shareholder has held its shares for more than one
year. Under limited circumstances, dissenting non-U.S. Shareholders will be
subject to United States federal income taxation at graduated rates upon gain
recognized with respect to their shares, if such gain is treated as effectively
connected with the conduct of the recipient's trade or business within the
United States.
DIVIDENDS PAID TO NON-U.S. SHAREHOLDERS
PLD Delaware does not anticipate paying dividends in the foreseeable
future. Any dividends that are paid to non-U.S. Shareholders after the
Continuance will be subject to United States withholding tax at the basic rate
of 30%, subject to reduction by the terms of any applicable tax treaty. Under
the United States-Canada Income Tax Convention, the withholding rate on
dividends paid to Canadian persons generally is 15%. Under the United
States-United Kingdom Income Tax Treaty, the withholding rate on dividends paid
to United Kingdom persons generally is also 15%. In addition,
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such withholding tax may be further reduced to the extent that PLD Delaware's
income satisfies certain foreign source requirements of the Internal Revenue
Code. It is impossible to predict whether, or to what extent, PLD Delaware's
income will comply with these requirements. Where the dividend is effectively
connected with a United States trade or business, however, it will be subject
to the regular United States federal income tax.
CONSEQUENCES TO WARRANT HOLDERS
There is a possibility that holders of the Company's warrants will
recognize gain or loss with respect to their warrants in the Continuance, if
the IRS were to take the position that the Company's warrants should be treated
as constructively exchanged for new warrants in the Continuance. Any such gain
or loss would be capital gain or loss (assuming the Warrant holder holds the
Warrants as capital assets), and would be long-term or short-term capital gain
or loss depending on whether the warrants have been held for more or less than
a year before the Continuance.
CONSEQUENCES TO DEBT HOLDERS
Holders of Senior Notes and Convertible Notes, which will become
obligations of PLD Delaware as of the effective date of the Continuance, who
are United States corporations, citizens or residents for United States income
tax purposes will not recognize gain or loss in connection with the
Continuance.
BACKUP WITHHOLDING
A shareholder of PLD Delaware may, under certain circumstances, be
subject to "backup withholding" at the rate of 31% with respect to dividends if
any paid on, or the proceeds of a sale, exchange or redemption of, such stock,
unless such holder (i) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates this fact, or (ii) provides a
correct taxpayer identification number, certifies that he is not subject to
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. Any amount withheld under these rules will be
creditable against the holder's United States federal income tax liability.
COMPARISON OF SHAREHOLDERS' RIGHTS
Upon the effective date of the Continuance, all shareholders of the
Company will become shareholders of PLD Delaware. The Company is a corporation
organized under and governed by Ontario law, the Articles of the Company and
the By-Laws of the Company. PLD Delaware will be a corporation organized under
and governed by Delaware law, the Certificate of Incorporation and the By-Laws
of PLD Delaware. The principle attributes of PLD Delaware Common Stock and the
Company's Common Shares on the one hand, and PLD Delaware Series II and Series
III Convertible Preferred Stock and the Company's Series II and Series III
Convertible Preferred Shares on the other hand, will be identical other than
differences in shareholders' rights under the OBCA and DGCL. While the rights
and privileges of stockholders of a Delaware corporation under the DGCL are, in
many instances, comparable to those of shareholders of an Ontario corporation
under the OBCA, there are certain differences. The following is a summary of
the material differences between the rights of holders of shares of the Company
after the effective date of the Continuance and the rights of holders of shares
of the Company at the date hereof. These differences arise from differences
between United States and Canadian securities laws, between the DGCL and the
OBCA, and between the Company's Articles as presently constituted and the
Certificate of Incorporation and By-Laws, attached hereto as Schedules E and F
respectively.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OBCA, THE DGCL,
THE ARTICLES OF THE COMPANY, THE BY-LAWS OF THE COMPANY, THE CERTIFICATE OF
INCORPORATION AND THE BY-LAWS OF PLD DELAWARE
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VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under the OBCA, certain extraordinary corporate actions, such as
certain amalgamations, continuances, sales, leases or exchanges of all the
assets of a corporation other than in the ordinary course of business, and
other extraordinary corporate actions such as liquidations, dissolutions and
(if ordered by a court) arrangements, are required to be approved by special
resolution. A special resolution is a resolution passed by not less than
two-thirds of the votes cast by the shareholders entitled to vote on the
resolution. In certain cases, a special resolution to approve an extraordinary
corporate action is also required to be approved separately by the holders of a
class or series of shares.
The DGCL requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon to authorize any merger,
consolidation, dissolution or sale of substantially all of the assets of a
corporation, except that, unless required by its certificate of incorporation,
no authorizing stockholder vote is required of a corporation surviving a merger
if (i) such corporation's certificate of incorporation is not amended in any
respect by the merger, (ii) each share of stock of such corporation outstanding
immediately prior to the effective date of the merger will be an identical
outstanding or treasury share of the surviving corporation after the effective
date of the merger, and (iii) either no shares of common stock, including
securities convertible into common stock will be issued in the merger or the
number of shares of common stock to be issued in the merger does not exceed 20%
of such corporation's outstanding common stock immediately prior to the
effective date of the merger. The Certificate of Incorporation does not
require such a vote. Stockholder approval is also not required under the DGCL
for mergers or consolidations in which a parent corporation merges or
consolidates with a subsidiary of which it owns at least 90% of the outstanding
shares of each class of stock. Finally, unless required by its certificate of
incorporation, stockholder approval is not required under the DGCL for a
corporation to merge with or into a direct or indirect wholly-owned subsidiary
of a holding company (as defined in the DGCL) in certain circumstances. The
Certificate of Incorporation does not require such a vote.
The Company currently does not have a shareholders' rights plan.
Shareholders' rights plans, in a variety of forms, are common to many
corporations incorporated in the United States and serve to afford a
corporation's board of directors the opportunity to withstand an unsolicited
takeover attempt while providing the board of directors sufficient time to
evaluate the offer and its adequacy and to consider alternative measures or
transactions that may be appropriate in responding to the offer. The DGCL
permits shareholders' rights plans in general and permits the adoption of
shareholders' rights plans by a board of directors without shareholder
approval.
AMENDMENT TO GOVERNING DOCUMENTS
Under the OBCA, any amendment to the articles generally requires the
approval by special resolution, which is a resolution passed by a majority of
not less than two-thirds of the votes cast by shareholders entitled to vote on
the resolution. Under the OBCA, unless the articles or by-laws otherwise
provide, the directors may, by resolution, make, amend or repeal any by-law
that regulates the business or affairs of a corporation. Where the directors
make, amend or repeal a by-law, they are required under the OBCA to submit the
by-law, amendment or repeal to the shareholders at the next meeting of
shareholders, and the shareholders may confirm, reject or amend the by-law,
amendment or repeal by an ordinary resolution, which is a resolution passed by
a majority of the votes cast by shareholders present and entitled to vote on
the resolution.
The DGCL requires a vote of the corporation's board of directors
followed by the affirmative vote of a majority of the outstanding stock of each
class entitled to vote for any amendment to the corporation's certificate of
incorporation, unless a greater level of approval is required by the
certificate of incorporation. The Certificate of Incorporation will not
require a greater level of approval for an amendment thereto. If an amendment
alters the powers, preferences or special rights of a particular class or
series of stock so as to affect them adversely, that class or series shall be
given the power to vote as a class notwithstanding the absence of any
specifically enumerated power in the certificate of incorporation. The DGCL
also states that the power to adopt, amend or repeal the by-laws of a
corporation resides in the stockholders entitled to vote, provided that the
corporation in its certificate of incorporation may confer such power on the
board of directors in addition to the stockholders. The Certificate of
Incorporation expressly authorizes the board of directors to adopt, amend or
repeal PLD Delaware's By-Laws.
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DISSENTERS' RIGHTS
The OBCA provides that shareholders of an OBCA corporation entitled to
vote on certain matters are entitled to exercise dissent rights and to be paid
the fair value of their shares in connection therewith. The OBCA does not
distinguish for this purpose between listed and unlisted shares. Such matters
include (i) any amalgamation with another corporation (other than with certain
affiliated corporations); (ii) an amendment to the corporation's articles to
add, change or remove any provisions restricting the issue, transfer or
ownership of shares; (iii) an amendment to the corporation's articles to add,
change or remove any restriction upon the business or businesses that the
corporation may carry on or upon the powers that the corporation may exercise;
(iv) a continuance under the laws of another jurisdiction; (v) a sale, lease or
exchange of all or substantially all the property of the corporation other than
in the ordinary course of business; (vi) a court order permitting a shareholder
to dissent in connection with an application to the court for an order
approving an arrangement proposed by the corporation or (vii) certain
amendments to the articles of a corporation which require a separate class or
series vote, provided that a shareholder is not entitled to dissent if an
amendment to the articles is effected by a court order approving a
reorganization or by a court order made in connection with an action for an
oppression remedy. Under the OBCA, a shareholder may, in addition to
exercising dissent rights, seek an oppression remedy for any act or omission of
a corporation which is oppressive or unfairly prejudicial to or that unfairly
disregards a shareholder's interest.
Under the DGCL, holders of shares of any class or series have the
right, in certain circumstances, to dissent from a merger or consolidation by
demanding payment in cash for their shares equal to the fair value (excluding
any appreciation or depreciation as a consequence, or in expectation, of the
transaction) of such shares, as determined by agreement with the corporation or
by an independent appraiser appointed by a court in an action timely brought by
the corporation or the dissenters. The DGCL grants dissenters' appraisal
rights only in the case of mergers or consolidations and not in the case of a
sale or transfer of assets or a purchase of assets for stock regardless of the
number of shares being issued. Further, no appraisal rights are available for
shares of any class or series listed on a national securities exchange or
designated as a national market system security on the Nasdaq National Market
or held of record by more than 2,000 stockholders unless the agreement of
merger or consolidation converts such shares into anything other than (i) stock
of the surviving corporation, (ii) stock of another corporation which is either
listed on a national securities exchange or designated as a national market
system security on the Nasdaq National Market or held of record by more than
2,000 stockholders, (iii) cash in lieu of fractional shares or (iv) any
combination of (i), (ii) or (iii) above. In addition, dissenter's rights are
not available for any shares of the surviving corporation if the merger did not
require the vote of the stockholders of the surviving corporation.
OPPRESSION REMEDY
The OBCA provides an oppression remedy that enables the court to make
any order, both interim and final, to rectify the matters complained of, if the
Director appointed under Section 278 of the OBCA or the Ontario Securities
Commission is satisfied upon application by a complainant (as defined below)
that: (i) any act or omission of the corporation or an affiliate effects or
threatens to effect a result; (ii) the business or affairs of the corporation
or an affiliate are, have been or are threatened to be carried on or conducted
in a manner or (iii) the powers of the directors of the corporation or an
affiliate are, have been or are threatened to be exercised in a manner; that is
oppressive or unfairly prejudicial to, or that unfairly disregards the interest
of, any security holder, creditor, director or officer of the corporation. A
complainant includes: (a) a present or former registered holder or beneficial
owner of securities of a corporation or any of its affiliates; (b) a present or
former officer or director of the corporation or any of its affiliates and (c)
any other person who in the discretion of the court is a proper person to make
such application.
Because of the breadth of the conduct which can be complained of and
the scope of the court's remedial powers, the oppression remedy is very
flexible and is frequently relied upon to safeguard the interest of
shareholders and other complainants with a substantial interest in the
corporation. Under the OBCA, it is not necessary to prove that the directors
of a corporation acted in bad faith in order to seek an oppression remedy.
Furthermore, the court may order the corporation to pay the interim expenses of
a complainant seeking an oppression remedy, but the complainant may be held
accountable for such interim costs on final disposition of the complaint (as in
the case of a derivative action).
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The DGCL does not provide for a similar remedy. However, the DGCL
provides a variety of legal and equitable remedies to a corporation's
stockholders for improper acts or omissions of a corporation, its officers and
directors. Under the DGCL, only stockholders can bring an action alleging a
breach of fiduciary duty by the directors of a corporation. In order to be
successful, the stockholder must overcome the "business judgment rule," which
simply stated means that absent a showing of intentional misconduct, gross
negligence or a conflict of interest, disinterest directors' decisions are
presumed by the courts to have been made in good faith and in the best
interests of the corporation.
DERIVATIVE ACTION
Under the OBCA, a complainant may apply to the court for leave to
bring an action in the name of and on behalf of a corporation or any
subsidiary, or to intervene in an existing action to which any such body
corporate is a party, for the purpose of prosecuting, defending or
discontinuing the action on behalf of the body corporate. Under the OBCA, no
action may be brought and no intervention in an action may be made unless the
complainant has given 14 days' notice to the directors of the corporation or
its subsidiary of the complainant's intention to apply to the court and the
court is satisfied that (i) the directors of the corporation or its subsidiary
will not bring, diligently prosecute or defend or discontinue the action; (ii)
the complainant is acting in good faith and (iii) it appears to be in the
interest of the corporation or its subsidiary that the action be brought,
prosecuted, defended or discontinued. Where a complainant makes an application
without having given the required notice, the OBCA permits the court to make an
interim order pending the complainant giving the required notice, provided that
the complainant can establish that at the time of seeking the interim order it
was not expedient to give the required notice.
Under the OBCA, the court in a derivative action may make any order it
thinks fit including, without limitation, (i) an order authorizing the
complainant or any other person to control the conduct of the action; (ii) an
order giving directions for the conduct of the action; (iii) an order directing
that any amount adjudged payable by a defendant in the action shall be paid, in
whole or in part, directly to former and present security holders of the
corporation or its subsidiary instead of to the corporation or its subsidiary
and (iv) an order requiring the corporation or its subsidiary to pay reasonable
legal fees and any other costs reasonably incurred by the complainant in
connection with the action. Additionally, under the OBCA, a court may order a
Company or its subsidiary to pay the complainant's interim costs, including
reasonable legal fees and disbursements. Although the complainant may be held
accountable for the interim costs on final disposition of the complaint, it is
not required to give security for costs in a derivative action.
A derivative action may be brought in Delaware by a stockholder on
behalf of, and for the benefit of, the corporation. The DGCL provides that a
stockholder must aver in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he or she first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile.
SHAREHOLDER CONSENT IN LIEU OF MEETING
Under the OBCA, shareholder action without a meeting may only be taken
by written resolution signed by all shareholders who would be entitled to vote
thereon at a meeting.
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required to be taken or which may be taken at an
annual or special meeting of stockholders may be taken without a meeting if a
consent in writing is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize such
action at a meeting at which all shares entitled to vote were present and
voted. The Certificate of Incorporation will not provide otherwise. The
corporation is required to give prompt notice of the taking of the corporate
action to stockholders who have not consented in writing.
DIRECTOR QUALIFICATIONS
A majority of the directors of an OBCA corporation generally must be
resident Canadians but where a corporation has only one or two directors, that
director or one of the two directors, as the case may be, must be a resident
Canadian.
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The OBCA also requires that at least one-third of the directors of a
corporation whose securities are publicly traded must not be officers or
employees of the Company or any of its affiliates.
The DGCL does not have comparable requirements.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under the OBCA and
the DGCL have fiduciary obligations to the corporation and its shareholders.
Pursuant to these fiduciary obligations, the directors must act in accordance
with the so-called duties of "due care" and "loyalty."
Pursuant to section 134 of the OBCA, the duty of loyalty requires
directors of an Ontario corporation to act honestly and in good faith with a
view to the best interests of the corporation, and the duty of care requires
that the directors exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances.
Under the DGCL, the duty of care requires that the directors act in
an informed and deliberative manner and to inform themselves, prior to making a
business decision, of all material information reasonably available to them.
The duty of loyalty may be summarized as the duty to act in good faith, not out
of self-interest, and in a manner which the directors reasonably believe to be
in the best interest of the stockholders pursuant to the "business judgment
rule."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the OBCA and pursuant to the Company's By-Laws, the Company may
indemnify a director or officer, a former director or officer or a person who
acts or acted at the Company's request as a director or officer of a body
corporate of which the Company is or was a shareholder or creditor, and his or
her heirs and legal representatives (an "Indemnifiable Person"), against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgement, reasonably incurred by him or her in respect of any civil,
criminal or administrative action or proceeding to which he or she is made a
party by reason of being or having been a director or officer of the Company or
such body corporate if: (i) he or she acted honestly and in good faith with a
view to the best interest of the Company and (ii) in the case of a criminal or
administrative action or proceeding that is enforced by a monetary penalty, he
or she had reasonable grounds for believing that his or her conduct was lawful.
An Indemnifiable Person is entitled to such indemnity from the Company if he or
she was substantially successful on the merits in his or her defense of the
action or proceeding and fulfilled the conditions set out in (i) and (ii),
above. A corporation may, with the approval of a court, also indemnify an
Indemnifiable Person in respect of an action by or on behalf of the corporation
or such body corporate to procure a judgment in its favor, to which such person
is made a party by reason of being or having been a director or an officer of
the corporation or body corporate, if he or she fulfils the conditions set out
in (i) and (ii), above.
The DGCL permits a corporation to indemnify any of its directors or
officers who was or is a party, or is threatened to be made a party to any
third party proceeding by reason of the fact that such person is or was a
director or officer of the corporation, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reason to believe that
such person's conduct was unlawful. In a derivative action, i.e., one by or in
the right of the corporation, the corporation is permitted to indemnify
directors and officers against expenses (including attorneys' fees) actually
and reasonably incurred by them in connection with the defense or settlement of
an action or suit if they acted in good faith and in a manner that they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant directors or officers are fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
The DGCL allows for the advance payment of an indemnitee's expenses
prior to the final disposition of an action, provided that the indemnitee
undertakes to repay any such amount advanced if it is later determined that the
indemnitee
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is not entitled to indemnification with regard to the action for which such
expenses were advanced. The OBCA does not expressly provide for such advance
payment.
DIRECTOR LIABILITY
The DGCL provides that a corporation's certificate of incorporation
may include a provision which limits or eliminates the liability of directors
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided such liability does not arise from
certain proscribed conduct, including acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, breach of
the duty of loyalty, the payment of unlawful dividends or expenditure of funds
for unlawful stock purchases or redemptions or transactions from which such
director derived an improper personal benefit.
The Certificate of Incorporation of PLD Delaware provides that no
director of PLD Delaware 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 DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The OBCA does not permit any such limitation of a director's
liability.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
The DGCL prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior three-year period. A "business combination" includes a merger or
consolidation, a sale or other disposition of assets having an aggregate market
value of 10% or more of the consolidated assets of the corporation or the
aggregate market value of the outstanding stock of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where: (i)
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the corporation's
board of directors prior to the date the interested stockholder acquired such
15% interest; (ii) upon the consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation
excluding, for the purpose of determining the number of shares outstanding,
shares held by persons who are directors and also officers and by employee
stock plans in which participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered; (iii)
the business combination is approved by a majority of the board of directors
and the affirmative vote of two-thirds of the outstanding votes entitled to be
cast by disinterested stockholders at an annual or special meeting, and not by
written consent; (iv) the corporation does not have a class of voting stock
that is listed on a national securities exchange, authorized for quotation on
an inter-dealer quotation system of a registered national securities
association, or held of record by more than 2,000 stockholders unless any of
the foregoing results from action taken, directly or indirectly, by an
interested stockholder or from a transaction in which a person becomes an
interested stockholder or (v) the corporation has opted out of this provision.
PLD Delaware will not opt out of this provision.
The OBCA does not contain a comparable provision with respect to
"business combinations." However, policies of certain Canadian securities
regulatory authorities, including Policy 9.1 of the Ontario Securities
Commission ("Policy 9.1"), contain requirements in connection with related
party transactions. A related party transaction means, generally, any
transaction by which an issuer, directly or indirectly, acquires or transfers
an asset or acquires or issues treasury securities or assumes or transfers a
liability from or to, as the case may be, a related party by any means in any
one transaction or any combination of transactions. "Related party" is defined
in Policy 9.1 and includes directors, senior officers and holders of at least
10% of the voting securities of the issuer.
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Policy 9.1 requires more detailed disclosures in the proxy material
sent to security holders in connection with a related party transaction and,
subject to certain exemptions, the preparation of a formal valuation of the
subject matter of the related party transaction and any non-cash consideration
offered therefor and the inclusion of a summary of the valuation in the proxy
material. Policy 9.1 also requires, subject to certain exemptions, that the
minority shareholders of the issuer approve the transaction, by either a simple
majority or two-thirds of the votes cast, depending upon the circumstances.
DISSENTING SHAREHOLDERS' RIGHTS
Pursuant to Section 182 of the OBCA, shareholders of the Company are
provided with a right to dissent from the Special Resolution relating to the
Continuance under and in compliance with section 185 of the OBCA, reprinted in
its entirety as Schedule B to this Circular. THE FOLLOWING SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY THE PROVISIONS OF SECTION 185 OF THE OBCA.
Any shareholder of the Company who dissents from the Special
Resolution in compliance with section 185 of the OBCA (a "Dissenting
Shareholder") will be entitled, in the event the Continuance becomes effective,
to be paid by the Company the fair value of the shares held by such Dissenting
Shareholder determined as at the close of business on the day before the
Special Resolution is adopted.
A shareholder who wishes to dissent must send to the Company, no later
than the termination of the Special Meeting (or any adjournment thereof),
written objection to the Special Resolution (a "Dissent Notice"). The filing
of a Dissent Notice does not deprive a shareholder of the right to vote;
however, the OBCA provides, in effect, that a shareholder who has submitted a
Dissent Notice and who votes in favor of the Special Resolution will no longer
be considered a Dissenting Shareholder with respect to the class of shares
voted in favor of the Special Resolution. The OBCA does not provide, and the
Company will not assume, that a vote against the Special Resolution or an
abstention constitutes a Dissent Notice but a shareholder need not vote his or
her shares against the Special Resolution in order to dissent. Similarly, the
revocation of a proxy conferring authority on the proxy holder to vote in favor
of the Special Resolution does not constitute a Dissent Notice; however, any
proxy granted by a shareholder who intends to dissent, other than a proxy that
instructs the proxy holder to vote against the Special Resolution, should be
validly revoked (see "Appointment and Revocation of Proxies") in order to
prevent the proxy holder from voting such shares in favor of the Special
Resolution and thereby disentitling the shareholder from his or her right to
dissent. Under the OBCA, there is no right of partial dissent and,
accordingly, a Dissenting Shareholder may only dissent with respect to all
shares held by him or her on behalf of any one beneficial owner and which are
registered in the name of the Dissenting Shareholder.
The Company is required, within 10 days after the shareholders adopt
the Special Resolution, to notify each shareholder who has filed a Dissent
Notice that the Special Resolution has been adopted, but such notice is not
required to be sent to any shareholder who voted for the Special Resolution or
who has withdrawn his or her Dissent Notice.
A Dissenting Shareholder who has not withdrawn his or her Dissent
Notice must then, within 20 days after receipt of notice that the Special
Resolution has been adopted or, if he or she does not receive such notice,
within 20 days after he or she learns that the Special Resolution has been
adopted, send to the Company a written notice (a "Payment Demand") containing
his or her name and address, the number of shares in respect of which he or she
dissents, and a demand for payment of the fair value of such shares. Within 30
days after sending a Payment Demand, the Dissenting Shareholder must send to
the Company's transfer agent the certificates representing the shares in
respect of which he or she dissents. A Dissenting Shareholder who fails to
send to the Company, within the appropriate time frame, a Dissent Notice, a
Payment Demand and certificates representing the shares in respect of which he
or she dissents forfeits his or her right to make a claim under section 185 of
the OBCA. The Company's transfer agent will endorse on share certificates
received from a Dissenting Shareholder a notice that the holder is a Dissenting
Shareholder and will forthwith return the share certificates to the Dissenting
Shareholder.
On sending a Payment Demand to the Company, a Dissenting Shareholder
ceases to have any rights as a shareholder, other than the right to be paid the
fair value of his or her shares as determined under section 185 of the OBCA,
36
<PAGE> 40
except where (i) the Dissenting Shareholder withdraws his or her Payment Demand
before the Company makes an offer to him or her pursuant to the OBCA; (ii) the
Company fails to make an offer as hereinafter described and the Dissenting
Shareholder withdraws his or her Payment Demand or (iii) the Continuance does
not proceed; in which case his or her rights as a shareholder are reinstated as
of the date he or she sent the Payment Demand.
The Company is required, not later than seven days after the later of
the effective time of the Continuance or the date on which the Company received
the Payment Demand of a Dissenting Shareholder, to send to each Dissenting
Shareholder who has sent a Payment Demand a written offer to pay ("Offer to
Pay") for his or her shares in an amount considered by the board of directors
of the Company to be the fair value thereof, accompanied by a statement showing
the manner in which the fair value was determined. Every Offer to Pay must be
on the same terms. The Company must pay for the shares of a Dissenting
Shareholder within 10 days after an offer made as aforesaid has been accepted
by a Dissenting Shareholder, but any such offer lapses if the Company does not
receive an acceptance thereof within 30 days after the Offer to Pay has been
made.
If the Company fails to make an Offer to Pay for a Dissenting
Shareholder's Shares, or if a Dissenting Shareholder fails to accept an offer
which has been made, the Company may, within 50 days after the effective time
of Continuance or within such further period as a court may allow, apply to a
court to fix a fair value for the shares of Dissenting Shareholders. If the
Company fails to apply to a court, a Dissenting Shareholder may apply to a
court for the same purpose within a further period of 20 days or within such
further period as a court may allow. A Dissenting Shareholder is not required
to give security for costs in such an application.
Upon an application to a court, all Dissenting Shareholders whose
shares have not been purchased by the Company will be joined as parties and
bound by the decision of the court, and the Company will be required to notify
each affected Dissenting Shareholder of the date, place and consequences of the
application and of his or her right to appear and be heard in person or by
counsel. Upon any such application to a court, the court may determine whether
any person is a Dissenting Shareholder who should be joined as a party, and the
court will then fix a fair value for the shares of all Dissenting Shareholders
who have not accepted an Offer to Pay. The final order of a court will be
rendered against the Company in favor of each such Dissenting Shareholder and
for the amount of the fair value of his or her shares as fixed by the court.
The court may, in its discretion, allow a reasonable rate of interest on the
amount payable to each such Dissenting Shareholder from the effective time of
Continuance until the date of payment.
THE ABOVE IS ONLY A SUMMARY OF THE DISSENTING SHAREHOLDER PROVISIONS
OF THE OBCA, WHICH ARE TECHNICAL AND COMPLEX. IT IS SUGGESTED THAT ANY
SHAREHOLDER WISHING TO AVAIL HIMSELF OR HERSELF OF HIS OR HER RIGHTS UNDER
THOSE PROVISIONS SEEK HIS OR HER OWN LEGAL ADVICE AS FAILURE TO COMPLY STRICTLY
WITH THE PROVISIONS OF THE OBCA MAY PREJUDICE HIS OR HER RIGHT OF DISSENT. For
a general summary of certain income tax implications to a Dissenting
Shareholder, see "Certain Canadian Federal Income Tax Considerations --
Dissenting Shareholders" and "Certain United States Federal Income Tax
Considerations -- Dissenting Shareholders."
37
<PAGE> 41
MANAGEMENT OF THE COMPANY
<TABLE>
<CAPTION>
COMMON SHARES OWNED AT
NAME AGE POSITION SEPTEMBER 30, 1996
---- --- -------- ------------------
<S> <C> <C> <C>
Alan Brooks 54 Chief Operating Officer 1,500
Alan F. Brown 42 Secretary --
Conor Carroll 30 Vice President, Business Development 2,500
Ronald R. Cripps, C.A. 62 Director 10,571
Simon Edwards 34 Chief Financial Officer 2,000
James R.S. Hatt 36 Chairman and Chief Executive Officer 10,000
David L. Heavenridge 49 Director 2,622,330 (1)
Timothy P. Lowry 40 Director --
Peter Owen-Edmunds 37 Representative Director, Russia --
Robert Smith 58 Director 1,000
David M. Stovel 47 Director --
Richard Wainright-Lee 48 Director --
Clayton A. Waite 35 Director and Vice President 300
Douglas T. Waite 69 Director 6,000
</TABLE>
(1) Shares owned of record by Dominion Capital, Inc. ("Dominion"), of
which Mr. Heavenridge is President and Chief Executive Officer.
Dominion also holds warrants to purchase 200,000 Common Shares at an
exercise price of $7.50, which expire on December 31, 1996, warrants
to purchase 100,000 Common Shares at an exercise price of Cdn.$14.50,
which expire on December 3, 1998 and warrants to purchase 50,000
Common Shares at an exercise price of Cdn.$11.31, which expire on June
22, 1999.
Set forth below is selected biographical information for the executive
officers and directors of the Company.
Alan Brooks has served as Chief Operating Officer of the Company since
March 1995. Previously, Mr. Brooks served in a number of senior management
positions with Cable & Wireless for over 30 years, most recently in Sweden,
Japan, Papua New Guinea and the Middle East.
Alan F. Brown has served as Secretary of the Company since May 1989.
Mr. Brown is a partner with the law firm of Blake, Cassels & Graydon in
Toronto, Ontario, which is the Company's Canadian counsel.
Conor Carroll has served as Vice President for Business Development of
the Company since January 1995. From 1991 to 1994, Mr. Carroll was Business
Development Manager for Cable & Wireless Europe.
Ronald R. Cripps has served as a Director of the Company since
February 1986. From 1991 through 1995, Mr. Cripps was a partner with the firm
of Ernst & Young LLP. Mr. Cripps is currently a corporate finance consultant.
38
<PAGE> 42
Simon Edwards has served as Chief Financial Officer of the Company
since October 1995. Mr. Edwards was previously Director of Finance for Cable &
Wireless Europe from October 1994 to September 1995. From July 1992 to October
1994, Mr. Edwards held a number of corporate finance positions within Cable &
Wireless. From July 1988 to June 1992, Mr. Edwards was a management consultant
with Arthur Andersen.
James R.S. Hatt has served as a Director of the Company since June
1994, as Chief Executive Officer since January 1995 and as Chairman since June
1995. From 1987 to 1995, he served as Director of Business Development,
Europe, for Cable & Wireless.
David L. Heavenridge has served as a Director of the Company since
October 1996. Mr. Heavenridge has been the President and Chief Executive
Officer of Dominion since April 1994.
Timothy P. Lowry has served as a Director of the Company since
November 1995. Since June 1995, Mr. Lowry has been Director, Central and
Eastern Europe, for Cable & Wireless. From June 1991 to May 1995, he was
Project Director, South Africa, for Cable & Wireless.
Peter Owen-Edmunds has served as Representative Director, Russia since
November 1996. From January 1996 to November 1996, Mr. Owen-Edmunds served as
Deputy Director General of PeterStar. Mr. Owen-Edmunds joined PeterStar in
April 1992 and became PeterStar's Sales and Marketing Director in December
1992. Prior to joining PeterStar, Mr. Owen-Edmunds served for 14 years as an
officer in the British Army.
Robert Smith has served as a Director of the Company since September
1993. He has been President of Newmark Capital Limited ("Newmark"), a private
investment and consulting company since 1992. From 1990 to 1992, he was Chief
Executive Officer of the First Hungarian Investment Advisory RT. He also
serves as Chairman of BECET and sits on the boards of other companies including
Rogers Cantel Mobile Communications Inc.
David M. Stovel has served as a Director of the Company since February
1993. Mr. Stovel has been President of Brawley Cathers Limited, an investment
bank headquartered in Toronto, Canada since 1987.
Richard Wainright-Lee has served as a Director of the Company since
April 1995. He is the Deputy Director, Finance and Chief Executive, Regional
Businesses of Cable & Wireless. He has held various executive positions at
Cable & Wireless since August 1991.
Clayton A. Waite has served as Vice President since October 1995 and
as a Director since November 1992. He served as Chief Financial Officer of the
Company from August 1993 to September 1995 and as Senior Vice President from
April 1992 to September 1995. From 1990 to 1992, Mr. Waite was a director and
officer of Southern International. From 1988 to 1989, he served as President
and Chief Executive Officer of VenTech Healthcare Canada Inc. Mr. Waite is the
son of Douglas T. Waite.
Douglas T. Waite has served as a Director of the Company since
September 1986. Mr. Waite has been a management consultant since 1990.
Previously, he served as Senior Vice-President of Montreal Trust Company. Mr.
Waite is the father of Clayton A. Waite.
In accordance with the OBCA, the Company has an audit committee, which
is composed of Douglas T. Waite, Richard Wainright-Lee, Robert Smith and David
M. Stovel. The Company also has a compensation committee composed of Robert
Smith, Douglas T. Waite and David M. Stovel.
39
<PAGE> 43
COMPENSATION OF DIRECTORS AND OFFICERS
Information regarding compensation of directors and officers,
employment agreements, stock options, warrants and indebtedness of directors
and officers to the Company and its subsidiaries is incorporated herein by
reference to Items 10 and 11 of the 1995 Form 20-F.
DESCRIPTION OF CAPITAL STOCK
The authorized capital of the Company consists of an unlimited number
of Common Shares without nominal or par value and an unlimited number of
nonvoting preferred shares, issuable in series ("Preferred Shares"). The
authorized capital of PLD Delaware under the Certificate of Incorporation is
100,000,000 shares of PLD Common Stock and 100,000,000 shares of Preferred
Stock. As of January __, 1997, there were __________ Common Shares, 405,217
Series II Convertible Preferred Shares and 41,667 Series III
ConvertiblePreferred Shares of the Company outstanding. The principal
attributes of the classes and series of capital stock of PLD Delaware will be
identical to those of the corresponding shares of the Company, other than
differences in shareholders' rights under the OBCA and the DGCL.
PLD DELAWARE COMMON STOCK
The holders of PLD Delaware Common Stock will be entitled to vote at
all meetings of shareholders, except meetings at which only holders of a
specified class of shares are entitled to vote, to receive any dividend
declared thereon, and, subject to the rights, privileges, restrictions and
conditions attaching to any other class of shares of the Company, to receive
the remaining property of the Company upon dissolution.
PLD DELAWARE PREFERRED STOCK
The Preferred Stock of PLD Delaware as a class (the "PLD Delaware
Preferred Stock") will be issuable in series by resolution of the Board of
Directors. The PLD Delaware Preferred Stock of each series will rank on a
parity with the PLD Delaware Preferred Stock of every other series with respect
to priority in payment of dividends and in the distribution of assets and
return of capital. The PLD Delaware Preferred Stock as a class will be
entitled to a preference over the PLD Delaware Common Stock and over any other
shares ranking junior to the PLD Delaware Preferred Stock with respect to
priority in payment of dividends and in the distribution of assets and return
of capital of the Company. Subject to the provisions of the DGCL and to the
provisions of any particular series, PLD Delaware Preferred Stock of any series
may be purchased for cancellation or redeemed by PLD Delaware, in whole or in
part, and may have attached thereto a right of conversion into PLD Delaware
Common Stock or other securities of PLD Delaware. The holders of the PLD
Delaware Preferred Stock, except as otherwise specifically provided by law or
by the provisions attaching to any series, will not be entitled to receive
notice, to attend or to vote at any meeting of the shareholders of PLD Delaware
The following is a description of the outstanding series of Preferred
Shares of the Company and a comparison to corresponding PLD Delaware Preferred
Stock.
Series II Convertible Preferred Shares. The Series II Convertible
Preferred Shares consist of 405,217 shares issued at a price of Cdn.$1.00 per
share. The shares do not pay dividends. The holders thereof have no voting
rights except as otherwise specifically provided by law. The Series II
Convertible Preferred Shares are subject to redemption at the option of the
Company at a price of Cdn.$1.00 per share. The Company may at any time and
from time to time purchase for cancellation the whole or any part of the
outstanding Series II Convertible Preferred Shares by invitation for tenders at
a price per share not exceeding Cdn.$1.00 per share. The Series II Convertible
Preferred Shares are not convertible into Common Shares. The principal
attributes of the Series II Preferred Stock will be identical to those of the
Series II Convertible Preferred Shares (including the redemption price of Cdn.
$1.00), other than differences in shareholders' rights under the OBCA and the
DGCL.
Series III Convertible Preferred Shares. The Series III Convertible
Preferred Shares consist of 41,667 shares issued at a price of Cdn.$1.00 per
share. The shares do not pay dividends. The holders thereof have no voting
rights
40
<PAGE> 44
except as otherwise specifically provided by law. The Series III Convertible
Preferred Shares are subject to redemption at the option of the Company at a
price of Cdn.$1.00 per share. The Company may at any time, and from time to
time, purchase for cancellation the whole or any part of the outstanding Series
III Convertible Preferred Shares by invitation for tenders at a price per share
not exceeding Cdn.$1.00 per share. The Series III Convertible Preferred Shares
are not convertible into Common Shares. The principal attributes of the Series
III Preferred Stock will be identical to those of the Series III Convertible
Preferred Shares (including the redemption price of Cdn.$1.00), other than
differences in shareholders' rights under the OBCA and the DGCL.
NATURE OF THE TRADING MARKET
The closing sales prices of the Company's Common Shares on the Nasdaq
National Market and Toronto Stock Exchange on January __, 1997 were
$____________ and Cdn. $____________, respectively. The following table sets
forth the high and low closing prices for the Company's Common Shares, as
reported on the Nasdaq national market, for the second, third and forth
quarters of the Company's current fiscal year ended December 31, 1996. The
prices below represent prices between dealers, without adjustment for retail
mark-ups, mark-downs or commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
CLOSING PRICES
--------------
HIGH LOW
---- ---
1996
<S> <C> <C>
2nd Quarter $8.375 $8.125
3rd Quarter $7.563 $7.25
4th Quarter $_____ $_____
</TABLE>
The following table sets forth the high and low closing prices of the Company's
common shares (in Canadian dollars), as reported by The Toronto Stock Exchange,
for the second and third quarters of the Company's current fiscal year ended
December 31, 1996. The prices below represent prices between dealers, without
adjustment for retail mark-ups, mark-downs or commissions, and may not reflect
actual transactions.
<TABLE>
<CAPTION>
CLOSING PRICES
--------------
HIGH LOW
---- ---
1996
<S> <C> <C>
2nd Quarter Cdn.$11.50 Cdn.$11.10
3rd Quarter Cdn.$9.70 Cdn.$9.25
4th Quarter Cdn.$_____ Cdn.$_____
</TABLE>
LEGAL MATTERS
Certain matters of Canadian law in connection with the Continuance
will be passed upon by Blake, Cassels & Graydon, Toronto, Ontario. Alan F.
Brown of Blake, Cassels & Graydon is Secretary of the Company and an affiliate
thereof. Certain legal matters in connection with the shares of PLD Delaware
Capital Stock to be issued in connection with the Continuance will be passed
upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania
on behalf of the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995, included in the Company's Annual Report on Form 20-F filed with the
SEC on May 17, 1996, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG, independent
chartered accountants, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of the Company, prepared in
accordance with U.S. generally accepted accounting principles, as of December
31, 1995 and 1994 and for each of the years in the three-year period ended
December 31, 1995, have been included herein and in the registration statement
in reliance upon the report of KPMG, independent chartered accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
41
<PAGE> 45
and incorporated herein by reference. Such consolidated financial statements
of the Company are incorporated herein by reference in reliance upon the
authority of such firm as experts in accounting and auditing.
OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
Management knows of no matters to come before the Meeting other than
as set forth in the Notice of the Meeting. However, if other matters which are
not now known to Management should properly come before the Meeting, the
accompanying proxy will be voted on such matters in accordance with the best
judgement of the persons voting the proxy.
The undersigned, Chairman and Chief Executive Officer of PLD Telekom Inc., an
Ontario corporation, hereby certifies that the contents of this Circular and
the sending of it to each shareholder and director, to the auditors of the
Company and to the appropriate regulatory authorities were approved by the
Board of Directors of the Company.
James R.S. Hatt
Chairman and Chief Executive Officer
January __, 1997
42
<PAGE> 46
INDEX TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS OF PLD TELEKOM INC.,
PREPARED IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
Page
----
<S> <C>
Auditors Report to the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as at December 31, 1995 and December 31, 1994 (audited) . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations for the years ended December 31, 1995, 1994
and 1993 (audited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Deficit for the years ended December 31, 1995, 1994 and
1993 (audited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Changes in Financial Position for the years ended December 31,
1995, 1994 and 1993 (audited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Interim Consolidated Balance Sheet as at September 30, 1996, with comparative figures
as at December 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Interim Consolidated Statement of Operations for the three months ended September 30,
1996 and 1995 (unaudited) and the nine months ended September 30, 1996 and
1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Interim Consolidated Statement of Changes in Financial Position for the three months
ended September 30, 1996 and 1995 (unaudited) and the nine months ended
September 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Notes to Interim Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
</TABLE>
F-1
<PAGE> 47
[KPMG LOGO]
Consolidated Financial Statements of
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
December 31, 1995
(Prepared in accordance with United States
Generally Accepted Accounting Principles, see note 1)
F-2
<PAGE> 48
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of PLD Telekom Inc. (formerly
Petersburg Long Distance Inc.) as at December 31, 1995 and 1994 and the
consolidated statements of operations, deficit and changes in financial position
for each of the years in the three year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1995
and 1994 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1995
in accordance with United States generally accepted accounting principles, as
described in note 1.
Chartered Accountants
Toronto, Canada
April 15, 1996, except as to note 19(b)
which is as of June 12, 1996
F-3
<PAGE> 49
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Balance Sheets
As at December 31
(Thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
<TABLE>
<CAPTION>
==============================================================================================================
1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and term deposits (note 9) $ 15,676 $ 56,710
Trade receivables, net of allowance 3,171 1,490
Other receivables and prepaids 4,347 2,438
Inventory 1,289 681
Due from related parties (note 17(d)) 2,499 -
Current portion of lease receivable (note 6) 3,313 -
- --------------------------------------------------------------------------------------------------------------
30,295 61,319
Property and equipment (note 5) 45,357 21,718
Telecommunications licenses - PeterStar (note 4) 21,677 24,086
Telecommunications licenses - BECET (note 4) 27,906 30,013
Investment in Teleport (note 6) 23,564 15,699
Other investments (note 7) 19,079 16,672
Other assets (note 8) 10,214 2,253
- --------------------------------------------------------------------------------------------------------------
$ 178,092 $ 171,760
==============================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 9) $ 22,379 $ -
Accounts payable 8,516 13,402
Accrued liabilities 1,924 2,622
Loans payable to shareholder (note 10) 1,843 1,102
Deferred revenue 1,958 -
Advances from company related to a former director - 815
Due to equipment supplier (note 11) - 4,384
- --------------------------------------------------------------------------------------------------------------
36,620 22,325
Minority interest 5,640 89
Redeemable preferred shares (note 12) - 4,886
Shareholders' equity:
Share capital (note 12):
Preferred shares 31 31
Common shares 179,887 173,034
- --------------------------------------------------------------------------------------------------------------
179,918 173,065
Deficit (44,086) (28,605)
- --------------------------------------------------------------------------------------------------------------
135,832 144,460
Future operations (note 2)
Commitments and contingencies (note 18)
- --------------------------------------------------------------------------------------------------------------
$ 178,092 $ 171,760
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Director Director
- ---------------- --------------------
F-4
<PAGE> 50
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Statements of Operations
Years ended December 31
(Thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
<TABLE>
<CAPTION>
==============================================================================================================
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Telecommunications $ 27,686 $ 8,526 $ 2,308
Finance lease income (note 6) 1,434 - -
- --------------------------------------------------------------------------------------------------------------
29,120 8,526 2,308
Operating expenses:
Direct costs 10,382 3,172 1,299
General and administrative 18,168 9,042 4,034
Depreciation 3,837 1,232 624
Amortization of telecommunications licenses 4,516 3,802 1,649
Amortization of goodwill 143 - -
Other taxes 1,220 - -
- --------------------------------------------------------------------------------------------------------------
38,266 17,248 7,606
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) (9,146) (8,722) (5,298)
Share of loss of Teleport, including amortization
of licenses of $1,528 (note 6) (1,555) - -
Interest income 2,066 235 34
Interest expense (957) (1,004) -
Foreign exchange loss (443) - -
Loss on disposal of investments and property
and equipment (915) - -
Provision for amounts due from a shareholder
of PeterStar (note 17(e)) (2,490) - -
- --------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income
taxes and minority interest (13,440) (9,491) (5,264)
Income taxes (note 13) (1,490) - -
- --------------------------------------------------------------------------------------------------------------
Loss from continuing operations before
minority interest (14,930) (9,491) (5,264)
Minority interest (551) - -
- --------------------------------------------------------------------------------------------------------------
Loss from continuing operations (15,481) (9,491) (5,264)
Discontinued operations (note 14) - - (5,138)
- --------------------------------------------------------------------------------------------------------------
Loss for the year $ (15,481) $ (9,491) $ (10,402)
==============================================================================================================
Loss per common share (note 15)
Loss from continuing operations $ (0.49) $ (0.78) $ (0.70)
Discontinued operations - - (0.63)
- --------------------------------------------------------------------------------------------------------------
Loss for the year $ (0.49) $ (0.78) $ (1.33)
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 51
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Statements of Deficit
Years ended December 31
(Thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
<TABLE>
<CAPTION>
==============================================================================================================
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ (28,605) $ (18,736) $ (7,854)
Loss for the year (15,481) (9,491) (10,402)
Dividends declared - - (185)
Accrual of excess of redemption price over
dividends paid on Series VIII and IX
preferred shares (note 12) - (378) (295)
- --------------------------------------------------------------------------------------------------------------
Balance, end of year $ (44,086) $ (28,605) $ (18,736)
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 52
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Statements of Changes in Financial Position
Years ended December 31
(Thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
<TABLE>
<CAPTION>
==============================================================================================================
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Loss from continuing operations $ (15,481) $ (9,491) $ (5,264)
Non-cash items:
Depreciation and amortization 8,496 5,034 2,273
Share of loss of Teleport, including
license amortization of $1,528 1,555 - -
Loss on disposals 915 - -
Minority interest 551 - -
Other 628 - -
Deferred revenue 1,958 - -
Changes in non-cash working capital (note 16) (5,346) 1,142 144
- --------------------------------------------------------------------------------------------------------------
Cash from continuing operations (6,724) (3,315) (2,847)
Cash from discontinued operations - (331) (1,119)
- --------------------------------------------------------------------------------------------------------------
(6,724) (3,646) (3,966)
Financing:
Change in bank indebtedness 22,379 - (2,374)
Issue of common shares 67 110,799 3,477
Changes in non-cash working capital (note 16) (2,869) 2,869 -
Loans from shareholders 405 (143) 1,245
Related company advances (815) - -
Due to equipment supplier (4,384) 87 (174)
Dividends paid - - (185)
- --------------------------------------------------------------------------------------------------------------
14,783 113,612 1,989
Investments:
Property and equipment (27,763) (16,536) (2,215)
Changes in non-cash working capital (note 16) (3,775) 3,775 -
Investment in C.P.Y. Yellow Pages (244) - -
Teleport finance lease (7,733) - -
Other investments (3,000) - -
Other assets (6,578) (895) (1,358)
Investment in PeterStar - (8,166) -
Investment in BECET - (1,398) (197)
Investment in Technocom, net of cash acquired - (14,905) -
Investment in SPMMTS - (16,079) -
- --------------------------------------------------------------------------------------------------------------
(49,093) (54,204) (3,770)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and term deposits (41,034) 55,762 (5,747)
Cash and term deposits, beginning of year 56,710 948 6,695
- --------------------------------------------------------------------------------------------------------------
Cash and term deposits, end of year $ 15,676 $ 56,710 $ 948
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 53
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements
Year ended December 31, 1995
(Tabular amounts in thousands of United States dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
1. BASIS OF PRESENTATION:
These financial statements are prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP) for purposes
of a registration statement to be filed by the Company in connection with
the Company's proposed continuance from the province of Ontario, Canada to
the state of Delaware, United States. Audited consolidated financial
statements for the years ended December 31, 1995, 1994 and 1993 have been
prepared in accordance with Canadian GAAP, with a reconciliation to U.S.
GAAP, and distributed to shareholders. However, if the continuance becomes
effective, the Company will become a U.S. domestic registrant and will be
required to prepare its financial statements in accordance with U.S. GAAP
as presented herein.
2. INCORPORATION, PRINCIPAL ACTIVITIES AND FUTURE OPERATIONS:
PLD Telekom Inc. (formerly Petersburg Long Distance Inc.) is incorporated
under the laws of Ontario, Canada. The Company, through its investments, is
a provider of local, long distance and international telecommunications
services in the former Soviet Union. The Company's key interests at
December 31, 1995 include a 59% equity interest in PeterStar Company
Limited ("PeterStar") which provides telecommunications services in St.
Petersburg, Russia (note 4(a)); a 50% equity interest in BECET
International ("BECET") which provides cellular services in Kazakstan (note
4(b)); and a 51% equity interest in Technocom Limited ("Technocom"), which,
through its 42% equity interest in Teleport-TP ("Teleport"), operates an
international teleport in Moscow and fiber optic networks in Moscow and its
environs (note 4(c)). Cable and Wireless plc ("Cable & Wireless"), a United
Kingdom telecommunications company, is the Company's principal shareholder
at December 31, 1995.
The Company is in the early stages of operations in the telecommunications
industry. The Company's businesses are developing rapidly in an emerging
economy which, by its nature, has an uncertain economic, political and
regulatory environment. The general risks of operating businesses in the
former Soviet Union include the possibility for rapid change in government
policies, economic conditions, the tax regime and foreign currency
regulations.
Ultimate recoverability of the Company's investments in PeterStar, BECET
and Technocom is dependent on the Company achieving consistent
profitability in its operations, which is dependent to a certain extent on
the stabilization of the economies of the former Soviet Union, the ability
to maintain the necessary telecommunications licenses and the ability to
obtain adequate financing to meet capital commitments.
F-8
<PAGE> 54
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 2
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
2. INCORPORATION, PRINCIPAL ACTIVITIES AND FUTURE OPERATIONS (CONTINUED):
At December 31, 1995 the Company had a working capital deficiency of $6.3
million and its revolving credit facility (note 9) expired July 31, 1996.
The Company also had a commitment to contribute $20 million to Technocom
which had not yet been met (note 4(c)). The capital commitments of
Technocom as set out in note 18(b) would be covered by such contribution.
In addition, the Company may be required to make additional contributions
to PeterStar, BECET and Technocom to enable them to complete their proposed
development programs. The Company was exploring a range of financing
alternatives. Historically, sources of financing have included private
placements of common and preferred shares, asset and investment sales,
shareholder loans, bank lines of credit supported by shareholder guarantees
and supplier financing. Had the Company not been successful in obtaining
adequate financing on acceptable terms, it would have been necessary to
re-evaluate the size and timing of the Company's capital expenditure plans.
In June 1996 the Company was successful in completing a private placement
(see note 19(b)).
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern which assumes that the Company
will continue operations in the foreseeable future and will be able to
realize its assets and discharge its liabilities in the normal course of
operations. If the going concern assumption was not appropriate for these
financial statements, then adjustments would be necessary in the carrying
value of assets and liabilities and the reported revenues and expenses.
3. SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
year. Actual results could differ from those estimates.
The Company's significant accounting policies are as follows:
(a) Basis of consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries, including PeterStar, BECET and Technocom,
which the Company effectively controls. All significant intercompany
transactions and balances have been eliminated on consolidation.
F-9
<PAGE> 55
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 3
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Reporting currency and foreign currency translation:
During the fourth quarter of 1994 the Company changed its reporting
currency to the U.S. dollar. This change was made due to the
significant increase in the Company's business operations in Russia and
Kazakstan, which use the U.S. dollar as the unit of measure. In
addition, the Company completed a major public offering of common
shares in the United States in December 1994. As a result of this
transaction, the Company's Canadian activities also adopted the U.S.
dollar as the unit of measure and are now classified as an integrated
operation for purposes of applying translation procedures.
The comparative figures for the year ended December 31, 1993 have been
restated in U.S. dollars as if the new reporting currency had been in
effect since December 31, 1991.
The Company uses the temporal method for translation of its accounts
into U.S. dollars under which monetary items are translated at the rate
of exchange in effect at the balance sheet date and non-monetary items
are translated at rates of exchange in effect when the assets are
acquired or obligations incurred. Revenues and expenses are translated
at rates in effect at the time of the transactions. Foreign exchange
gains and losses are included in earnings.
(c) Property and equipment:
Property and equipment are stated at cost less accumulated
depreciation. Costs directly related to the installation of
telecommunications equipment are included in the cost of the equipment.
Interest directly related to financing the acquisition of equipment is
also included in cost. Depreciation is provided using the straight-line
method and the following annual rates over the estimated useful lives
of the assets:
<TABLE>
<CAPTION>
=======================================================================
Asset Rate
-----------------------------------------------------------------------
<S> <C>
Telecommunications equipment 10%
Buildings 3.5%
Leasehold improvements 10%
Office furniture and equipment 20 - 33%
=======================================================================
</TABLE>
(d) Telecommunications licenses:
PeterStar has a ten year non-exclusive license to operate an
international, national and local telecommunications system in St.
Petersburg which expires in December 2004. BECET has a 15 year license
to operate a cellular and mobile telephone system in Kazakstan which
expires in February, 2009. Teleport has two operating licenses which
expire in 2004. Telecommunications licenses are amortized on a straight
line basis over the terms of the licenses.
F-10
<PAGE> 56
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 4
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Telecommunications licenses (continued):
Annually, or more frequently as circumstances require, management
reviews the carrying value of telecommunications licenses. If it is
determined that the net recoverable amount is significantly less than
the carrying value and the impairment in value is likely to be
permanent, a write down is made with a charge to earnings. The net
recoverable amount of each of PeterStar's, BECET's and Teleport's
licenses is calculated based upon the estimated undiscounted future net
cash flow expected to be generated by PeterStar, BECET and Teleport,
respectively.
(e) Investment in SPMMTS
The Company's investment in SPMMTS is accounted for on the cost basis.
The Company regularly evaluates the value of the investment to
determine if it is less than carrying value. Any declines in value
below the carrying amount of the investment, which are other than
temporary, are recognized in earnings.
(f) Investment in Teleport:
The Company acquired an approximate 42% interest in Teleport through
its acquisition of Technocom (note 4(c)). The investment in Teleport is
accounted for using the equity method.
(g) Goodwill:
Goodwill represents the excess of the purchase price over the fair
values of the net assets acquired of C.P.Y. Yellow Pages, and is being
amortized on a straight-line basis over 10 years. The value of goodwill
is regularly evaluated by reviewing the returns of C.P.Y. Yellow Pages,
taking into account the risk associated with the investment. Any
permanent impairment in the value of the goodwill is written-off
against earnings.
(h) Cash and term deposits:
The Company's term deposits are considered to be cash equivalents and
are recorded at cost, which approximates current market value.
F-11
<PAGE> 57
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 5
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
4. ACQUISITIONS:
(a) PeterStar:
<TABLE>
<CAPTION>
===========================================================================
1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Telecommunications license,
at cost $ 27,955 $ 27,955
Accumulated amortization (6,278) (3,869)
---------------------------------------------------------------------------
$ 21,677 $ 24,086
===========================================================================
</TABLE>
On October 6, 1992 the Company acquired 50% of the ordinary registered
shares of PeterStar at a cost of $19,789,000 which was allocated
entirely to telecommunications licenses. Consideration for the
acquisition was $4,644,000 cash, 2,415,384 common shares of the Company
at an ascribed value of $14,587,000 and an acquisition fee of $558,000.
On March 25, 1994, the Company acquired an additional 9% interest in
PeterStar, increasing the Company's total equity interest to 59%.
Consideration for the acquisition was $8 million cash of which $5
million was paid on closing and $3 million was deferred. Since the net
assets of PeterStar were insignificant at the date of this transaction,
the entire consideration, including acquisition costs of $166,000, has
been allocated to telecommunications licenses. The first $5 million was
financed from the proceeds of an $8 million private placement involving
the issuance of 880,088 common shares of the Company to Navona
Communications Corporation Ltd. ("Navona"), at an ascribed value of
$9.09 per share. Subsequent to this acquisition, Cable & Wireless
acquired all of the outstanding shares of Navona. The remaining $3
million of the consideration was paid in September 1994 and was
financed by the issuance of a note to Cable & Wireless, which was
repaid in December 1994.
PeterStar is a joint stock company registered under the laws of the
Russian Federation to provide international and domestic
telecommunications services to St. Petersburg. In December 1994,
PeterStar was granted a new license to provide these services for a
further ten years. The license sets the number of lines which PeterStar
may have at 100,000 and requires that 50,000 be in place by August
1997. However, management believes that the maximum and minimum line
numbers are not strict requirements, but are instead designed to
provide guidance as to the number of lines to be included on the
system. Management anticipates having at least 50,000 lines in place by
August 1997.
F-12
<PAGE> 58
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 6
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
4. ACQUISITIONS (CONTINUED):
(b) BECET:
<TABLE>
<CAPTION>
=====================================================================
1995 1994
---------------------------------------------------------------------
<S> <C> <C>
Telecommunications license,
at cost $ 31,595 $ 31,595
Accumulated amortization (3,689) (1,582)
---------------------------------------------------------------------
$ 27,906 $ 30,013
=====================================================================
</TABLE>
On March 18, 1994, the Company acquired from Navona all the outstanding
shares of Wireless Technology Corporations Limited ("WTC") for
consideration of $30 million which was satisfied by the issuance of
2,500,000 common shares of the Company. WTC is incorporated in the
territory of the British Virgin Islands and is a 50% participant in
BECET International, a joint stock company in Kazakstan. BECET has been
granted a license to operate a cellular and mobile telephone system in
Kazakstan for a period of 15 years. The license requires BECET to
provide cellular service to the greater Almaty area by the third
quarter of 1994 (which condition has been met) and to ten to twelve
additional regional centres by the end of 1996, which condition is
expected to be met.
The acquisition was accounted for by the purchase method. As of the
date of acquisition, BECET had not commenced operations and did not
have any tangible assets or liabilities. Therefore, the entire purchase
price, including acquisition costs of $1,595,000, was allocated to
telecommunications licenses. BECET commenced commercial operations in
September 1994.
The Company was committed to contribute $20 million to BECET in the
form of cash, equipment and property by January 1995, which commitment
was satisfied. In addition, the Company was committed to provide
financing of up to $3 million to fund a number of special
telecommunications projects undertaken by the Ministry of
Communications in Kazakstan. In 1995 the Company provided such
financing in the form of a convertible note (see note 7(b)).
F-13
<PAGE> 59
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 7
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
4. ACQUISITIONS (CONTINUED):
(c) Technocom:
On December 28, 1994, the Company acquired 51% of the ordinary share
capital of Technocom, a company incorporated in the Republic of
Ireland, for consideration of $15 million cash plus acquisition costs
of $159,000. Technocom's principal asset is a 42% equity interest in
Teleport, a Russian joint stock company which holds two operating
licenses. The first license expires in November 2004 and authorizes
Teleport to provide long distance and international telecommunications
services to private networks within Moscow and, to a limited extent,
elsewhere in the Russian Federation. Teleport is required by the terms
of the license to have at least 12,635 subscribers in place by November
1997 (which is 70% of the maximum number of subscribers permitted under
the license). Management expects to meet this requirement by the end of
1996. The second license expires in November 2004 and authorizes
Teleport to provide international leased telecommunications services
and circuits for the transmission of television signals within Moscow.
Subsequent to December 31, 1995, Teleport was also issued a data
license providing for interconnection to the public network.
The acquisition of Technocom has been accounted for by the purchase
method effective December 31, 1994 as follows:
<TABLE>
<CAPTION>
======================================================================
<S> <C>
Net assets acquired:
Cash $ 253
Other current assets 1,140
Current liabilities (1,617)
----------------------------------------------------------------------
(224)
Investment in and advances to
Teleport, including
allocation of purchase
price discrepancy of $15,078 15,699
Plant and equipment 109
Due to shareholders (336)
Minority interest (89)
----------------------------------------------------------------------
Total consideration $ 15,159
======================================================================
</TABLE>
The consolidated balance sheet of the Company includes the accounts of
Technocom from December 31, 1994. The results of operations of
Technocom are included in the consolidated statement of operations of
the Company commencing January 1, 1995.
The carrying value of the investment in Teleport at December 31, 1994
exceeded the Company's share of the underlying net book value of
Teleport by $15,078,000. This excess purchase consideration, which
arose on the purchase of Technocom, is attributed to the
telecommunications licenses held by Teleport and is being amortized
over the terms of those licenses, commencing January 1, 1995.
F-14
<PAGE> 60
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 8
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
4. ACQUISITIONS (CONTINUED):
(c) Technocom (continued):
The Company is committed to subscribe for preferred shares of Technocom
in the amount of $40 million of which $20 million was subscribed for on
December 28, 1994. The remaining $20 million was to have been
contributed by January 1996. However, it was contributed in June 1996
out of the proceeds of the new financing described in note 19(b). The
total of the preferred shares subscribed entitle the Company to the
first $20 million of Technocom's dividend distributions. After receipt
of such preference dividends, all the preferred shares will be
converted into a single ordinary share of Technocom. The carrying value
of the Company's investment in Teleport and minority interest have each
been increased by $10 million ($5 million in 1995 and $5 million in
1996) to reflect the minority interest's ultimate share in preferred
equity contributed.
In addition, the Company has the option to acquire the remaining
ordinary shares of Technocom from the other shareholders and those
shareholders have the option to require the Company to acquire their
interest. The price of the shares is to be agreed by the parties or, in
the absence of such an agreement, determined by one of five leading
investment banks. The first option period commences the date the
audited results of Technocom for the year ended December 31, 1998 are
released and ends 90 days later.
(d) C.P.Y. Yellow Pages:
On April 26, 1995 the Company acquired all the outstanding shares of
C.P.Y. Yellow Pages Limited, a company incorporated in the Republic of
Cyprus, for consideration of 368,820 common shares of the Company at an
ascribed value of $1,900,000, plus acquisition costs of $244,000.
Yellow Pages publishes a Yellow Pages directory and owns a
comprehensive database of Russian and foreign businesses in St.
Petersburg.
The acquisition has been accounted for by the purchase method effective
April 30, 1995 as follows:
<TABLE>
<CAPTION>
=======================================================================
<S> <C>
Net assets acquired:
Property and equipment $ 35
Working capital (45)
Goodwill 2,154
-----------------------------------------------------------------------
Total consideration $ 2,144
=======================================================================
</TABLE>
F-15
<PAGE> 61
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 9
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
5. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
=========================================================================================================
Accumulated Net book
1995 Cost depreciation value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications equipment:
Installed $ 29,283 $ 3,462 $ 25,821
Uninstalled 7,720 - 7,720
Buildings 459 88 371
Office furniture and equipment 3,667 986 2,681
Leasehold improvements 2,680 369 2,311
Advances to equipment suppliers 6,453 - 6,453
---------------------------------------------------------------------------------------------------------
$ 50,262 $ 4,905 $ 45,357
=========================================================================================================
<CAPTION>
=========================================================================================================
Accumulated Net book
1994 Cost depreciation value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications equipment $ 19,711 $ 1,668 $ 18,043
Buildings 1,607 216 1,391
Office furniture and equipment 2,336 52 2,284
---------------------------------------------------------------------------------------------------------
$ 23,654 $ 1,936 $ 21,718
=========================================================================================================
</TABLE>
During the year ended December 31, 1995, the Company capitalized
interest costs of $363,000 (1994 - $287,000) directly related to the
installation of telecommunications equipment.
Advances to equipment suppliers at December 31, 1995 includes an amount
of $3,527,000 which bears interest at 6.5% per annum.
6. INVESTMENT IN TELEPORT:
<TABLE>
<CAPTION>
==========================================================================
1995 1994
--------------------------------------------------------------------------
<S> <C> <C>
Investment in Teleport $ 20,363 $ 15,363
Advances and loans to Teleport 336 336
Finance lease receivable,
long term portion 4,420 -
--------------------------------------------------------------------------
25,119 15,699
Share of Teleport loss (1,555) -
--------------------------------------------------------------------------
$ 23,564 $ 15,699
==========================================================================
</TABLE>
F-16
<PAGE> 62
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 10
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
6. INVESTMENT IN TELEPORT (CONTINUED):
Condensed financial information of Teleport is as follows:
<TABLE>
<CAPTION>
=========================================================================
1995 1994
-------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 2,668 $ 858
Current liabilities (6,957) (3,953)
Equipment under capital lease,
net of accumulated
depreciation of $1,733 8,431 -
Other property, plant
and equipment 345 9,253
Restricted cash - 1,138
Other assets 665 253
Capital lease obligations,
long term portion (4,420) -
Long-term debt - (7,003)
-------------------------------------------------------------------------
Shareholders' equity $ 732 $ 546
=========================================================================
<CAPTION>
=========================================================================
1995
-------------------------------------------------------------------------
<S> <C>
Revenue $ 7,273
Operating expenses:
Cost of sales (2,083)
General and administrative (1,606)
Interest on capital lease (1,434)
Other interest and
financing charges (546)
Depreciation of assets
under capital lease (570)
Other depreciation and
amortization (762)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income before income taxes 272
Income taxes (335)
-------------------------------------------------------------------------
Loss for the year $ (63)
=========================================================================
Technocom's 42% interest
therein $ (27)
Amortization of excess
purchase price (1,528)
-------------------------------------------------------------------------
Share of Teleport loss $ (1,555)
=========================================================================
</TABLE>
F-17
<PAGE> 63
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 11
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
6. INVESTMENT IN TELEPORT (CONTINUED):
During the year, Technocom purchased telecommunications equipment from
Teleport and simultaneously leased the assets back to Teleport under a
capital lease. Future minimum lease payments, by year and in aggregate, are
as follows:
<TABLE>
===========================================================================
<S> <C>
1996 $ 3,684
1997 3,085
1998 560
1999 182
2000 182
Thereafter 911
--------------------------------------------------------------------------
Total minimum lease payments 8,604
Amounts representing interest (871)
--------------------------------------------------------------------------
Present value of minimum lease payments 7,733
Less current portion (3,313)
--------------------------------------------------------------------------
$ 4,420
==========================================================================
</TABLE>
7. OTHER INVESTMENTS:
<TABLE>
<CAPTION>
===========================================================================
1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Investment in SPMMTS,
at cost $ 16,079 $ 16,079
Investment in Monogram
Finance Group Limited 3,000 -
Real estate investment
(note 14) - 593
---------------------------------------------------------------------------
Total $ 19,079 $ 16,672
===========================================================================
</TABLE>
(a) Investment in SPMMTS
In July 1994, the Company acquired a 10.4% equity interest (13.9%
voting interest) in St. Petersburg Intercity International Telephone
("SPMMTS"), a recently privatized Russian company which operates the
long distance and international gateway in St. Petersburg, Russia, for
consideration of $16 million, plus costs of acquisition. The
acquisition of the SPMMTS shares was financed by the issuance to Navona
of 1,650,832 common shares of the Company at an ascribed value of $9.09
each (for a total subscription of $15,006,062) and a note in the
principal amount of $993,938 convertible into 109,344 common shares of
the Company. The note was converted into common shares in October 1994.
Shares in SPMMTS trade in a very limited over-the-counter market in
Russia. Quoted market values are not available. However, actual trades
occurred during the year ended December 31, 1995 at prices ranging from
$4 to $6 per share. There are approximately 6.6 million shares
outstanding.
F-18
<PAGE> 64
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 12
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
7. OTHER INVESTMENTS (CONTINUED):
(b) Investment in Monogram Finance Group Limited
During the year the Company advanced $3 million to Monogram Finance
Group Limited ("Monogram") in exchange for a convertible promissory
note due on February 20, 2000. The note is convertible into common
shares of Monogram at any time prior to February 20, 2000 at the then
current fair market price of the shares.
Monogram is incorporated in the British Virgin Islands and intends to
enter into a joint venture with the Government of Kazakstan and another
third party for the development of existing and proposed
telecommunications projects in Kazakstan.
8. OTHER ASSETS:
Other assets is comprised of the following:
<TABLE>
<CAPTION>
===========================================================================
1995 1994
---------------------------------------------------------------------------
<S> <C> <C>
Goodwill, net of accumulated
amortization of $143 (note 4(d)) $ 2,011 $ -
Deferred charges 1,000 -
Telecommunications access rights 2,403 -
Due from shareholder of PeterStar - 869
Other 4,800 1,384
---------------------------------------------------------------------------
$ 10,214 $ 2,253
===========================================================================
</TABLE>
9. BANK INDEBTEDNESS:
Bank indebtedness at December 31, 1995 includes $14,500,000 owing to a
Canadian chartered bank under the terms of a revolving credit facility in
the maximum amount of $22,500,000. Advances under the facility bear
interest at LIBOR plus 1/2% or U.S. base rate on U.S. dollar loans and are
due on July 31, 1996. The facility is guaranteed by Cable & Wireless. The
weighted average interest rate on the loans was 6.54% at December 31, 1995.
Bank indebtedness at December 31, 1995 also includes overdraft balances of
$1,764,000 and demand bank loans of Technocom in the amount of $6,115,000
bearing interest at 6.125%. The demand bank loans are secured by term
deposits of $6,115,000 held at the same bank.
Cash interest paid in the years ended December 31, 1995, 1994 and 1993
was $380,000, $916,000 and $68,000, respectively.
10. LOANS PAYABLE TO SHAREHOLDER:
During 1994 and 1995, Cable & Wireless provided services to and met certain
liabilities of the Company. At December 31, 1995 the aggregate amount owed
to Cable & Wireless under these arrangements was $1,843,000 (1994 -
$1,102,000). These amounts do not bear interest and are repayable over a
twelve month period commencing June 1, 1996.
F-19
<PAGE> 65
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 13
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
11. DUE TO EQUIPMENT SUPPLIER:
PeterStar had entered into an agreement with a supplier of
telecommunications equipment pursuant to which PeterStar was committed to
purchase equipment with an aggregate value of up to $40 million over a ten
year period. As at December 31, 1994, PeterStar had only taken delivery of
equipment valued at $4,615,000 under this agreement. The amount due to the
supplier at December 31, 1994 was non-interest bearing and secured by the
equipment.
During 1995 the Company terminated the agreement with the supplier and
settled all amounts owing.
12. SHARE CAPITAL:
(a) Authorized:
The authorized share capital of the Company consists of an unlimited
number of common shares without nominal or par value and an unlimited
number of preferred shares issuable in series.
(b) Issued redeemable preferred shares:
<TABLE>
<CAPTION>
=====================================================================================================
1995 1994 1993
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series VIII (1995 - nil, 1994 and 1993 -
5,000,000 shares) $ - $ 4,645 $ 4,645
Series IX (1995 and 1994 - nil; 1993 -
2,000,000 shares) - - 1,909
-----------------------------------------------------------------------------------------------------
- 4,645 6,554
Accrual of excess of redemption price over
dividends paid on Series VIII and Series IX
preferred shares - 241 394
-----------------------------------------------------------------------------------------------------
$ - $ 4,886 $ 6,948
=====================================================================================================
</TABLE>
The Series VIII convertible redeemable preferred shares were issued at
a price of $1 per share and were convertible to common shares of the
Company at the rate of 0.222 common shares for each preferred share.
The Series VIII preferred shares were entitled to fixed, annual,
cumulative, preferential cash dividends of $0.04 and $0.06 per share on
June 30, 1993 and 1994, respectively. During February 1995 the Series
VIII preferred shares were converted to 1,110,000 common shares.
The Series IX convertible redeemable preferred shares were issued at a
price of $1 per share. The terms of the Series IX preferred shares were
identical to those of the Series VIII preferred shares with the
exception that the Series IX preferred shares were convertible into
common shares at a rate of 0.20 common shares for each Series IX
preferred share. During 1994 the Series IX preferred shares were
converted to 400,000 common shares.
F-20
<PAGE> 66
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 14
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
12. SHARE CAPITAL (CONTINUED):
(b) Issued redeemable preferred shares (continued):
The excess of the redemption price over dividends paid on the Series
VIII and Series IX preferred shares was accrued as a charge to the
Company's deficit and deducted from earnings in the determination of
earnings (loss) per common share.
(c) Issued preferred shares:
<TABLE>
<CAPTION>
=======================================================================
Number of Amount
shares 1995 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series II 405,217 $ - $ - $ -
Series III 41,667 31 31 31
-----------------------------------------------------------------------
$ 31 $ 31 $ 31
========================================================================
</TABLE>
The Series II and III preferred shares, issued at a price of Cdn. $1
per share, are redeemable at the option of the Company at Cdn. $1 per
share. The shares do not pay dividends and holders thereof do not have
voting rights.
(d) Issued common shares:
<TABLE>
<CAPTION>
=====================================================================================================
Number of
shares Amount
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1992 7,866,771 $ 26,618
Shares issued:
In payment of liability to former director 22,683 108
On exercise of stock options 242,500 990
For cash pursuant to private placement 430,000 2,379
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1993 8,561,954 30,095
Shares issued:
For cash pursuant to public offering, net of
share issue costs of $12,220,000 15,750,000 86,217
Acquisition of BECET (note 4(b)) 2,500,000 30,000
For cash pursuant to private placements with
Navona (notes 4(a) and 7(a)) 2,530,916 23,006
On conversion of Series IX preferred shares 400,000 2,140
On conversion of convertible note (note 7(a)) 109,344 994
On exercise of warrants 40,000 260
On exercise of stock options 120,000 322
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1994 30,012,214 173,034
Shares issued:
On conversion of Series VIII preferred shares 1,110,000 4,886
On acquisition of C.P.Y. Yellow Pages (note 4(d)) 368,820 1,900
On exercise of warrants and options 16,000 67
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1995 31,507,034 $ 179,887
=====================================================================================================
</TABLE>
F-21
<PAGE> 67
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 15
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
12. SHARE CAPITAL (CONTINUED):
(e) Shares reserved:
Changes in options and warrants outstanding to purchase common shares
of the Company are as follows:
<TABLE>
<CAPTION>
=====================================================================================================
Number of Exercise
shares prices
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1992 819,500 Cdn.$3.50 - US$7.50
Granted 585,000 Cdn.$9.00 - $15.75
Exercised (242,500) Cdn.$3.50 - $9.00
Cancelled (25,000) Cdn.$3.50
-----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 1,137,000 Cdn.$3.50 -$15.75
Granted 557,500 Cdn.$11.00 - $14.00
Exercised (160,000) Cdn.$3.50 - US$7.50
Cancelled - -
-----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 1,534,500 Cdn.$3.50 - $15.75
Granted 610,000 Cdn.$8.00 - $8.63
Exercised (16,000) Cdn.$5.50 - $6.38
Cancelled (387,000) Cdn.$6.00 - $15.75
-----------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 1,741,500 Cdn.$3.50 - $15.75
=====================================================================================================
</TABLE>
Options outstanding at December 31, 1995 expire from time to time to
November 2000.
13. INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS 109) "Accounting for Income Taxes" effective January 1, 1993 on a
prospective basis. SFAS 109 requires the Company to account for income
taxes using the asset and liability method. There was no cumulative effect
or effect on current results as a consequence of adopting SFAS 109.
The geographic components of loss from continuing operations before income
taxes and minority interest is as follows:
<TABLE>
<CAPTION>
==========================================================================
1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C>
Canada $ (16,747) $ (7,911) $ (2,076)
Russia and Kazakstan 3,307 (1,580) (3,188)
--------------------------------------------------------------------------
$ (13,440) $ (9,491) $ (5,264)
==========================================================================
</TABLE>
F-22
<PAGE> 68
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 16
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
13. INCOME TAXES (CONTINUED):
The tax provision relates entirely to the Company's Russian and Kazakstan
businesses. The provision for income taxes differs from the Canadian
federal and provincial statutory tax rate as follows:
<TABLE>
<CAPTION>
================================================================================================
1995 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes at statutory rate $ (6,190) $ (4,790) $ (900)
Add (deduct) the tax effect of:
Non-deductible amortization of licenses
and goodwill 2,720 1,673 -
Non-deductible Russian and Kazak
taxes and other expenses 1,010 - -
Differences in Russian and Kazak statutory
tax rates (350) - -
Unrecognized operating losses 4,300 3,117 900
------------------------------------------------------------------------------------------------
Provision for income tax $ 1,490 $ - $ -
================================================================================================
Cash income taxes paid $ 809 $ - $ -
================================================================================================
</TABLE>
At December 31, 1995, the Company had deferred tax assets aggregating
approximately $20,920,000 (1994 - $18,200,000) which are offset entirely by
a valuation allowance. The tax effects of temporary differences that give
rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
==========================================================================
1995 1994
--------------------------------------------------------------------------
<S> <C> <C>
Share issue costs $ 4,320 $ 5,400
Operating loss carryforwards 6,600 2,800
Capital loss carryforwards 10,000 10,000
--------------------------------------------------------------------------
20,920 18,200
Less valuation allowance (20,920) (18,200)
--------------------------------------------------------------------------
Net deferred tax asset $ - $ -
==========================================================================
</TABLE>
At December 31, 1995, the Company has Canadian non-capital loss
carryforwards of approximately Cdn.$15 million available under certain
conditions to reduce future Canadian taxable income, the benefit of which
has not been recognized in these accounts. The loss carryforwards expire
from 1996 to 2002 and are subject to final determination by taxation
authorities.
F-23
<PAGE> 69
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 17
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
14. DISCONTINUED OPERATIONS:
Effective December 31, 1993, the Company adopted a formal plan to
discontinue the land development business of North West Estates plc ("North
West Estates"), a wholly-owned subsidiary of the Company operating in the
United Kingdom. Effective December 31, 1994, the Company sold all its
shares of North West Estates in exchange for a 50% equity interest (18%
voting interest) in Strikeland Limited, a United Kingdom land development
business which subsequently changed its name to North West Estates
(Holdings) Limited ("Holdings"). All liabilities of North West Estates
relating to its former operations, as of the date of sale, were retained by
the Company, except for those liabilities relating to land purchases and
options on land. The Company's investment in Holdings is accounted for on
the cost basis with a cost equivalent to the adjusted carrying value of
deferred land acquisition costs as at December 31, 1994.
The results of the discontinued land development business for the year
ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
===========================================================================
<S> <C>
Expenses:
General and administrative $ 88
Interest to a company related to a director 115
Write-off of deferred land acquisition costs 199
--------------------------------------------------------------------------
402
--------------------------------------------------------------------------
Loss from discontinued operations (402)
Write-down of deferred land acquisition costs to
estimated net realizable value (4,736)
--------------------------------------------------------------------------
$ (5,138)
==========================================================================
</TABLE>
Subsequent to December 31, 1995 the Company sold its interest in Holdings
for nominal consideration. As part of this transaction, the Company has
either settled or obtained relief from all liabilities, actual and
contingent, that were assumed as part of the disposal of North West
Estates. Accordingly, the Company's investment in Holdings (see note 7) was
written down to net realizable value at December 31, 1995. No additional
provisions were required in respect of the settlement of former North West
Estates liabilities.
15. LOSS PER COMMON SHARE:
The weighted average number of common shares outstanding for the years
ended December 31, 1993, 1994 and 1995 are 8,155,533, 12,663,030, and
31,314,662 respectively. Fully diluted loss per common share is not
presented because all outstanding options and convertible securities are
anti-dilutive.
F-24
<PAGE> 70
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 18
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
16. CHANGES IN NON-CASH WORKING CAPITAL:
<TABLE>
<CAPTION>
==========================================================================
1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C>
Increase in trade receivables $ (1,681) $ (699) $ (639)
Increase in other receivables (1,909) (1,218) (80)
Increase in inventory (608) (681) -
Increase in due from
related parties (2,499) - -
Increase (decrease) in
accounts payable
and accrued liabilities (5,293) 10,384 863
--------------------------------------------------------------------------
$ (11,990) $ 7,786 $ 144
==========================================================================
</TABLE>
17. RELATED PARTY TRANSACTIONS:
(a) A shareholder of PeterStar has provided PeterStar with office space in
St. Petersburg for no consideration.
(b) General and administrative expenses for the year ended December 31,
1993 include fees of $400,000 charged by a company related to a former
officer and director of the Company for management, consulting and
office services.
(c) Direct costs for the year ended December 31, 1995 include $1,788,000
(1994 - $112,000) paid to the other shareholder of BECET in relation to
carriage of traffic over the public telephone network. General and
administrative costs for the year ended December 31, 1995 include
consulting fees of $107,000 paid to the other shareholder of BECET.
(d) Amounts due from related parties at December 31, 1995 includes
$1,693,000 due from Teleport on the finance lease (see note 6), and
$651,000 due from the other shareholder of BECET.
(e) The Company has guaranteed telephone billing system lease payments of a
shareholder of PeterStar totalling $2,490,000. Lease payments of
$124,000 are due quarterly until July 1998. To December 31, 1995 the
Company has paid $1,126,000 (December 31, 1994-$628,000) on account of
this lease. At December 31, 1995 full provision has been made for all
amounts paid to date under the guarantee and for all future amounts.
(f) See also notes 6, 7, 8, 9 and 10.
F-25
<PAGE> 71
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 19
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
18. COMMITMENTS AND CONTINGENCIES:
(a) Under applicable Russian currency control regulations, PeterStar is
required to have certain licenses from the Central Bank of Russia to
enable it to make payments of and accept receipts of hard currency.
While PeterStar has applied for all the necessary licenses, some have
been received and others are outstanding. Failure to receive the
remaining licenses could result in fines and penalties.
(b) At December 31, 1995 Technocom has commitments of approximately $13.5
million related to the acquisition of telecommunications equipment. The
associated supply contracts provide for supplier financing of
approximately $4.6 million for terms of 3 - 5 years.
(c) See also note 4(c).
19. SUBSEQUENT EVENTS:
(a) In January 1996 the Company entered into an agreement to purchase all
of the outstanding common shares of Baltic Communications Limited
("BCL") from Cable & Wireless and its Russian partners for cash
consideration of $3 million. The Company also agreed to provide funding
to BCL in an amount of up to $1.5 million to enable it to meet certain
outstanding trade liabilities. BCL is a Russian joint stock company
which provides international direct dial, international pay phone and
private line services to a corporate customer base in St. Petersburg,
Russia.
(b) On June 12, 1996 the Company completed a $149.5 million private
placement consisting of (i) 123,000 Units consisting of $123 million
14% Senior Discount Notes ("Senior Notes") due 2004 and ten year
Warrants to purchase a total of 4,182,000 common shares at $6.60 per
share, and (ii) $26.5 million 9% Convertible Subordinated Notes
("Convertible Notes") due 2006, convertible into common shares of the
Company at a price of $6.90 per share.
The Senior Notes were issued at a discount for gross proceeds of $87.7
million of which $13.6 million was allocated to the Warrants. Interest
on the Senior Notes is added to the principal balance until December 1,
1998 on which date the principal balance will have accreted to $123
million. Thereafter, interest is payable semi-annually commencing June
1, 1999. Interest on the Convertible Notes is payable semi-annually
commencing December 1, 1996. The Senior Notes are secured by the
Company's investments in PeterStar, BECET and BCL. The Convertible
Notes are secured by the Company's investment in Technocom.
A portion of the net proceeds of $103.8 million (after agent's
commission and expenses of $10.4 million) have been used to meet the
Company's outstanding $20 million commitment to Technocom as described
in note 4(c). In addition, the Company's revolving credit facility
described in note 9 was repaid. The remaining proceeds will be used
principally for capital investments in the existing operating units and
to fund the development of additional products and services to be
delivered over the Company's networks.
F-26
<PAGE> 72
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements, page 20
Year ended December 31, 1995
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
================================================================================
20. QUARTERLY FINANCIAL DATA:
During 1995 the Company released a debtor from its obligations under a
short term loan in the principal amount of $3 million. Accrued and unpaid
interest on the loan, recorded in the second and third quarter of 1995 in
the amounts of $960,000 and $900,000, respectively, has been reversed.
Accordingly, the loss for the six months ended June 30, 1995 has been
increased by $960,000 to $3,036,000 ($0.10 per share) and the loss for the
nine months ended September 30, 1995 has been increased by $1,860,000 to
$6,082,000 ($0.20 per share).
21. NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board has issued new standards on
impairment of long-lived assets and stock compensation, effective
commencing January 1, 1996. The Company does not expect the provisions of
these standards to affect its results of operations or financial position.
F-27
<PAGE> 73
KPMG
Interim Consolidated Financial Statements of
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Nine months ended September 30, 1996
(Prepared in accordance with United States
Generally Accepted Accounting Principles, see note 1)
(Unaudited)
F-28
<PAGE> 74
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Interim Consolidated Balance Sheet
As at September 30, 1996, with comparative figures as at December 31, 1995
(Thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)(Unaudited)
<TABLE>
<CAPTION>
================================================================================
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and term deposits $ 43,477 $ 15,676
Trade receivables, net of allowance 7,327 3,171
Other receivables and prepaids 4,370 4,347
Inventory 938 1,289
Due from related parties 7,756 2,499
Current portion of lease receivable 2,867 3,313
- --------------------------------------------------------------------------------
66,735 30,295
Escrow funds 46,665 -
Property and equipment 64,946 45,357
Telecommunications licenses - PeterStar 21,568 21,677
Telecommunications licenses - BECET 26,326 27,906
Investment in Teleport 26,651 23,564
Other investments 19,179 19,079
Other assets 18,494 10,214
- --------------------------------------------------------------------------------
$ 290,564 $ 178,092
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 9,017 $ 22,379
Accounts payable and accrued liabilities 19,443 10,440
Loans payable to shareholder - 1,843
Deferred revenue 1,834 1,958
- --------------------------------------------------------------------------------
30,294 36,620
Long-term debt:
14% Senior discount notes 78,255 -
9% Convertible subordinated notes 26,500 -
- --------------------------------------------------------------------------------
104,755 -
Minority interest 12,289 5,640
Shareholders' equity:
Share capital:
Preferred shares 31 31
Common shares 180,878 179,887
Warrants 13,592 -
- --------------------------------------------------------------------------------
194,501 179,918
Deficit (51,275) (44,086)
- --------------------------------------------------------------------------------
143,226 135,832
- --------------------------------------------------------------------------------
$ 290,564 $ 178,092
================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-29
<PAGE> 75
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Interim Consolidated Statement of Operations
(Thousands of United States dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
(Unaudited)
<TABLE>
<CAPTION>
===========================================================================
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Telecommunications $16,874 $ 6,489 $ 40,260 $ 19,717
Finance lease income 137 741 413 1,116
- ---------------------------------------------------------------------------
17,011 7,230 40,673 20,833
Direct costs 5,581 2,938 12,788 8,137
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Gross profit 11,430 4,292 27,885 12,696
Operating expenses:
General and
administrative 6,313 3,391 16,016 9,335
Depreciation 1,378 902 3,789 2,771
Amortization of
telecommunications
licenses 1,180 1,193 3,488 3,554
Amortization of goodwill 54 53 162 88
Other taxes 723 305 1,738 915
- ---------------------------------------------------------------------------
9,648 5,844 25,193 16,663
- ---------------------------------------------------------------------------
Operating income (loss) 1,782 (1,552) 2,692 (3,967)
Share of loss of Teleport (541) (221) (1,423) (1,015)
Interest and other income 1,263 518 3,193 1,737
Interest on bank indebtedness (154) (170) (896) (283)
Interest on long-term debt (3,707) - (4,944) -
Foreign exchange loss (192) (47) (612) (47)
Amortization of deferred
financing costs (327) - (432) -
- ---------------------------------------------------------------------------
Loss before income taxes and
minority interest (1,876) (1,472) (2,422) (3,575)
Income taxes (1,764) (985) (3,118) (1,568)
- ---------------------------------------------------------------------------
Loss before minority interest (3,640) (2,457) (5,540) (5,143)
Minority interest (1,118) (589) (1,649) (939)
- ---------------------------------------------------------------------------
Loss for the period $(4,758) $ (3,046) $ (7,189) $ (6,082)
===========================================================================
Loss per common share $ (0.15) $ (0.10) $ (0.23) $ (0.20)
===========================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-30
<PAGE> 76
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Interim Consolidated Statement of Changes in Financial Position
(Thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
(Unaudited)
<TABLE>
<CAPTION>
===========================================================================
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Loss for the period $(4,758) $ (3,046) $ (7,189) $ (6,082)
Non-cash items:
Depreciation and
amortization 2,939 2,148 7,871 6,413
Share of loss of Teleport 541 221 1,423 1,015
Minority interest 1,118 589 1,649 939
Non-cash interest
on long-term debt 3,113 - 4,150 -
Deferred revenue 594 - (124) -
Changes in non-cash
working capital (5,784) (5,915) (1,409) (8,150)
- ---------------------------------------------------------------------------
Cash from operations (2,237) (6,003) 6,371 (5,865)
Financing:
Change in bank
indebtedness (592) 5,804 (13,362) 11,864
Issue of senior discount and
convertible notes - - 114,197 -
Issue of common shares 991 1,704 991 1,726
Deferred financing costs (2,062) - (9,041) -
Loans from shareholder (2,045) 534 (1,843) 417
Related company advances - - - (815)
Due to equipment supplier - (4,462) - (4,384)
- ---------------------------------------------------------------------------
(3,708) 3,580 90,942 8,808
Investments:
Property and equipment (6,595) (440) (23,378) (23,746)
Escrow funds (545) - (46,665) -
Other investments (100) 583 (100) (6,000)
Other assets (116) 2,763 (305) (5,179)
Investment in Teleport (2,000) - (2,000) -
Advances to Teleport (178) - 158 -
Teleport finance lease 1,467 - 2,778 (7,322)
- ---------------------------------------------------------------------------
(8,067) 2,906 (69,512) (42,247)
- ---------------------------------------------------------------------------
Increase (decrease)
in cash and
term deposits (14,012) 483 27,801 (39,304)
Cash and term deposits,
beginning of period 57,489 16,923 15,676 56,710
- ---------------------------------------------------------------------------
Cash and term deposits,
end of period $ 43,477 $ 17,406 $ 43,477 $ 17,406
===========================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-31
<PAGE> 77
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Interim Consolidated Financial Statements
Nine months ended September 30, 1996
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
(Unaudited)
================================================================================
1. BASIS OF PRESENTATION:
These unaudited interim consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States (U.S. GAAP) for purposes of a registration statement to be filed by
the Company in connection with the Company's proposed continuance from the
province of Ontario, Canada to the state of Delaware, United States.
Unaudited interim consolidated financial statements for the nine months ended
September 30, 1996 have been prepared in accordance with Canadian GAAP and
distributed to shareholders. However, if the continuance becomes effective,
the Company will become a U.S. domestic registrant and will be required to
prepare its financial statements in accordance with U.S. GAAP as presented
herein.
These interim financial statements should be read in conjunction with the
audited consolidated financial statements of the Company for the year ended
December 31, 1995, prepared in accordance with U.S. GAAP for purposes of the
registration statement, which include information as to significant
accounting policies.
The interim consolidated financial statements include the accounts of the
Company and its subsidiaries, including PeterStar (60% owned), BECET (50%)
and Technocom (51%), which the Company effectively controls and, with effect
from April 1, 1996, Baltic Communications Limited (100% owned).
100% of the loss in a subsidiary in which the parent company bears the
majority of the financial risk (which applies to the Company's subsidiaries)
is required to be included in the parent company's consolidated financial
statements, regardless of whether the subsidiary is wholly-owned. Further,
when such a subsidiary becomes profitable, the parent company is permitted to
recognize 100% of the profits until such time as the losses previously
recorded have been recovered. Thereafter, a charge is made in the
consolidated financial statements to reflect the interest of the minorities
(eg. 50% in the case of BECET) in the profits of the subsidiary.
In the case of PeterStar, during the third quarter of 1996 the Company
completed the recovery of PeterStar's accumulated losses and began to record
a minority interest charge of 40%. In the case of BECET, 100% of its profits
were recognized by the Company in 1995 because they were marginally below the
losses recorded in 1994. Since the accumulated losses have now been
recovered, 50% of profits have been charged to the minority interest
throughout 1996. The Company has recognized the existence of the 49% minority
interest in Technocom in its reported results since acquisition on December
28, 1994.
The interim consolidated financial statements have been prepared on the same
basis as the annual financial statements and include all adjustments which,
in the opinion of management, are necessary for a fair presentation of the
financial position and the results of operations for the interim periods.
Such adjustments consist of items of a normal recurring nature.
Results of operations for interim periods are not necessarily indicative of
results for the full year.
F-32
<PAGE> 78
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Interim Consolidated Financial Statements, page 2
Nine months ended September 30, 1996
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
(Unaudited)
================================================================================
2. AMORTIZATION OF TELECOMMUNICATIONS LICENSES:
Upon the acquisition by the Company of its interests in PeterStar, BECET and
Technocom (incorporating Teleport), the differential between the purchase
price and the fair value of the net assets acquired was allocated to the
telecommunications licenses held by these entities. These licenses, which
expire in the years 2004, 2009 and 2004 respectively, are being amortized on
a straight line basis over the appropriate terms.
Under the original terms of the Technocom acquisition, the Company committed
to subscribe for preferred shares in the amount of $40 million, of which $20
million was subscribed at the end of 1994 and $20 million in mid-June 1996.
Upon each subscription, the carrying value of the Company's investment in
Teleport and minority interest have each been increased by $5 million to
reflect the minority interest's ultimate share in equity contributed to date.
3. FINANCING:
On June 12, 1996 the Company completed a $149.5 million private placement
consisting of (i) 123,000 Units consisting of $123 million 14% Senior
Discount Notes ("Senior Notes") due 2004 and ten year Warrants to purchase a
total of 4,182,000 common shares at $6.60 per share, and (ii) $26.5 million
9% Convertible Subordinated Notes ("Convertible Notes") due 2006, convertible
into common shares of the Company at a price of $6.90 per share.
The Senior Notes were issued at a discount for gross proceeds of $87.7
million of which $13.6 million was allocated to the Warrants. Interest on the
Senior Notes is added to the principal balance until December 1, 1998 on
which date the principal balance will have accreted to $123 million.
Thereafter, interest is payable semi-annually commencing December 1, 1999.
Interest on the Convertible Notes is payable semi-annually commencing
December 1, 1996. The Senior Notes are secured by the Company's investments
in PeterStar, BECET and Baltic Communications Limited. The Convertible Notes
are secured by the Company's investment in Technocom.
A portion of the net proceeds of $103.8 million (after agent's commission and
expenses) has been used to meet the Company's outstanding $20 million
commitment to Technocom and to repay a revolving credit facility. The
remaining proceeds, of which $46.7 million was held in escrow at September
30, 1996, will be used principally for capital investments in the existing
operating units and to fund the development of additional products and
services to be delivered over the Company's networks.
F-33
<PAGE> 79
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Interim Consolidated Financial Statements, page 3
Nine months ended September 30, 1996
(Tabular amounts in thousands of United States Dollars)
(Prepared in accordance with United States Generally Accepted Accounting
Principles, see note 1)
(Unaudited)
================================================================================
4. 1995 COMPARATIVES:
As disclosed in Note 20 to the 1995 consolidated financial statements, the
Company released a debtor from its obligations under a short term loan in the
principal amount of $3 million. Accrued and unpaid interest on the loan,
recorded in the second and third quarter of 1995 in the amount of $960,000
and $900,000, respectively, has been reversed. Accordingly, the loss for the
three months ended September 30, 1995 has been increased by $960,000 to
$3,046,000 ($0.10 per share) and the loss for the nine months ended September
30, 1995 has been increased by $1,860,000 to $6,082,000 ($0.20 per share).
5. FUTURE OPERATIONS AND CONTINGENCIES:
(a) Under applicable Russian currency control regulations, PeterStar is
required to have certain licenses from the Central Bank of Russia to
enable it to make payments of and accept receipts of hard currency.
While PeterStar has applied for all the necessary licenses, some have
been received and others are outstanding. Failure to receive the
remaining licenses could result in fines and penalties.
(b) The Company is in the early stages of operations in the
telecommunications industry. The Company's businesses are developing
rapidly in an emerging economy which, by its nature, has an uncertain
economic, political and regulatory environment. The general risks of
operating businesses in the former Soviet Union include the possibility
for rapid change in government policies, economic conditions, the tax
regime and foreign currency regulations.
Ultimate recoverability of the Company's investments requires the
operations to be consistently profitable, which is dependent to a
certain extent on the stabilization of the economies and political
framework of the former Soviet Union and the ability of the Company's
subsidiaries to maintain the necessary telecommunications licenses.
F-34
<PAGE> 80
SCHEDULE "A"
WHEREAS the Company is governed by the Business Corporations Act
(Ontario) (the "OBCA") and wishes to continue under the Delaware General
Corporation Law (the "DGCL");
RESOLVED as a special resolution that:
1. The Company is authorized to continue the Company as a Delaware
corporation under the DGCL and simultaneously discontinue the Company's
existence in Ontario under the OBCA (the "Continuance");
2. The Company is authorized to make application to the Director under
the OBCA for authorization to permit the Continuance;
3. The Certificate of Incorporation of the Company attached hereto as
Exhibit 1 (the "Certificate of Incorporation") is approved and the Company is
authorized to file the Certificate of Incorporation with the Secretary of State
of the State of Delaware;
4. Subject to the filing of the Certificate of Incorporation with the
Secretary of State of Delaware and the receipt by the Company of a Certificate
of Discontinuance under the OBCA, the Articles of the Company shall be amended
and restated in their entirety by substituting for the provisions of its
Articles, as presently constituted, the provisions set out in the Certificate
of Incorporation;
5. Any director or officer of the Company is hereby authorized to do all
things and execute all other instruments and documents necessary or desirable
to carry out the foregoing and consummate the Continuance; and
6. The directors of the Company in their sole discretion may abandon the
Continuance and any filings related thereto without further approval of the
shareholders.
Sch. A-1
<PAGE> 81
SCHEDULE "B"
SECTION 185 OF THE OBCA
185. (1) RIGHTS OF DISSENTING SHAREHOLDERS.--Subject to
subsection (3) and to sections 186 and 248, if a corporation resolves to,
(a) amend its articles under section 168 to add, remove or change
restrictions on the issue, transfer or ownership of shares of
a class or series of the shares of the corporation;
(b) amend its articles under section 168 to add, remove or change
any restriction upon the business or businesses that the
corporation may carry on or upon the powers that the
corporation may exercise;
(c) amalgamate with another corporation under sections 175 and
176;
(d) be continued under the laws of another jurisdiction under
section 181; or
(e) sell, lease or exchange all or substantially all its property
under subsection 184(3),
a holder of shares of any class or series entitled to vote on the resolution
may dissent.
(2) IDEM.--If a corporation resolves to amend its
articles in a manner referred to in subsection 170(1), a holder of shares of
any class or series entitled to vote on the amendment under section 168 or 170
may dissent, except in respect of an amendment referred to in,
(a) clause 170(1)(a), (b) or (e) where the articles provide that
the holders of shares of such class or series are not entitled
to dissent; or
(b) subsection 170(5) or (6).
(3) EXCEPTION.--A shareholder of a corporation
incorporated before the 29th day of July, 1983 is not entitled to dissent under
this section in respect of an amendment of the articles of the corporation to
the extent that the amendment,
(a) amends the express terms of any provision of the articles of
the corporation to confirm to the terms of the provision as
deemed to be amended by section 277; or
(b) deletes from the articles of the corporation all of the
objects of the corporation set out in its articles, provided
that the deletion is made by the 29th day of July, 1986.
(4) SHAREHOLDER'S RIGHT TO BE PAID FAIR VALUE.--In
addition to any other right the shareholder may have, but subject to subsection
(30), a shareholder who complies with this section is entitled, when the action
approved by the resolution from which the shareholder dissents becomes
effective, to be paid by the corporation the fair value of the shares held by
the shareholder in respect of which the shareholder dissents, determined as of
the close of business on the day before the resolution was adopted.
(5) NO PARTIAL DISSENT.--A dissenting shareholder may
only claim under this section with respect to all the shares of a class held by
the dissenting shareholder on behalf of any one beneficial owner and registered
in the name of the dissenting shareholder.
(6) Objection.--A dissenting shareholder shall send to
the corporation, at or before any meeting of shareholders at which a resolution
referred to in subsection (1) or (2) is to be voted on, a written objection to
the resolution, unless the corporation did not give notice to the shareholder
of the purpose of the meeting or of the shareholder's right to dissent.
(7) Idem.--The execution or exercise of a proxy does not
constitute a written objection for purposes of subsection (6).
Sch. B-1
<PAGE> 82
(8) NOTICE OF ADOPTION OF RESOLUTION.--The corporation
shall, within ten days after the shareholders adopt the resolution, send to
each shareholder who has filed the objection referred to in subsection (6)
notice that the resolution has been adopted, but such notice is not required to
be sent to any shareholder who voted for the resolution or who has withdrawn
the objection.
(9) IDEM.--A notice sent under subsection (8) shall set
out the rights of the dissenting shareholder and the procedures to be followed
to exercise those rights.
(10) DEMAND FOR PAYMENT OF FAIR VALUE.--A dissenting
shareholder entitled to receive notice under subsection (8) shall, within
twenty days after receiving such notice, or, if the shareholder does not
receive such notice, within twenty days after learning that the resolution has
been adopted, send to the corporation a written notice containing,
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which the
shareholder dissents; and
(c) a demand for payment of the fair value of such shares.
(11) CERTIFICATES TO BE SENT IN.--Not later than the
thirtieth day after the sending of a notice under subsection (10), a dissenting
shareholder shall send the certificates representing the shares in respect of
which the shareholder dissents to the corporation or its transfer agent.
(12) IDEM.--A dissenting shareholder who fails to comply
with subsections (6), (10) and (11) has no right to make a claim under this
section.
(13) ENDORSEMENT ON CERTIFICATE.--A corporation or its
transfer agent shall endorse on any share certificate received under subsection
(11) a notice that the holder is a dissenting shareholder under this section
and shall return forthwith the share certificates to the dissenting
shareholder.
(14) RIGHTS OF DISSENTING SHAREHOLDER.--On sending a
notice under subsection (10), a dissenting shareholder ceases to have any
rights as a shareholder other than the right to be paid the fair value of the
shares as determined under this section except where,
(a) the dissenting shareholder withdraws notice before the
corporation makes an offer under subsection (15);
(b) the corporation fails to make an offer in accordance with
subsection (15) and the dissenting shareholder withdraws
notice; or
(c) the directors revoke a resolution to amend the articles under
subsection 168(3), terminate an amalgamation agreement under
subsection 176(5) or an application for continuance under
subsection 181(5), or abandon a sale, lease or exchange under
subsection 184(8),
in which case the dissenting shareholder's rights are reinstated as of the
date the dissenting shareholder sent the notice referred to in subsection (10),
and the dissenting shareholder is entitled, upon presentation and surrender to
the corporation or its transfer agent of any certificate representing the
shares that has been endorsed in accordance with subsection (13), to be issued
a new certificate representing the same number of shares as the certificate so
presented, without payment of any fee.
(15) OFFER TO PAY.--A corporation shall, not later than
seven days after the later of the day on which the action approved by the
resolution is effective or the day the corporation received the notice referred
to in subsection (10), send to each dissenting shareholder who has sent such
notice,
(a) a written offer to pay for the dissenting shareholder's shares
in an amount considered by the directors of the corporation to
be the fair value thereof, accompanied by a statement showing
how the fair value was determined; or
(b) if subsection (30) applies, a notification that it is unable
lawfully to pay dissenting shareholders for their shares.
Sch. B-2
<PAGE> 83
(16) Idem.--Every offer made under subsection (15) for
shares of the same class or series shall be on the same terms.
(17) Idem.--Subject to subsection (30), a corporation
shall pay for the shares of a dissenting shareholder within ten days after an
offer made under subsection (15) has been accepted, but any such offer lapses
if the corporation does not receive an acceptance thereof within thirty days
after the offer has been made.
(18) APPLICATION TO COURT TO FIX FAIR VALUE.--Where a
corporation fails to make an offer under subsection (15) or if a dissenting
shareholder fails to accept an offer, the corporation may, within fifty days
after the action approved by the resolution is effective or within such further
period as the court may allow, apply to the court to fix a fair value for the
shares of any dissenting shareholder.
(19) IDEM.--If a corporation fails to apply to the court
under subsection (18), a dissenting shareholder may apply to the court for the
same purpose within a further period of twenty days or within such further
period as the court may allow.
(20) IDEM.--A dissenting shareholder is not required to
give security for costs in an application made under subsection (18) or (19).
(21) COSTS.--If a corporation fails to comply with
subsection (15), then the costs of a shareholder application under subsection
(19) are to be borne by the corporation unless the court otherwise orders.
(22) NOTICE TO SHAREHOLDERS.--Before making application to
the court under subsection (18) or not later than seven days after receiving
notice of an application to the court under subsection (19), as the case may
be, a corporation shall give notice to each dissenting shareholder who, at the
date upon which the notice is given,
(a) has sent to the corporation the notice referred to in
subsection (10); and
(b) has not accepted an offer made by the corporation under
subsection (15), if such an offer was made,
of the date, place and consequences of the application and of the dissenting
shareholder's right to appear and be heard in person or by counsel, and a
similar notice shall be given to each dissenting shareholder who, after the
date of such first mentioned notice and before termination of the proceedings
commenced by the application, satisfies the conditions set out in clauses (a)
and (b) within three days after the dissenting shareholder satisfies such
conditions.
(23) PARTIES JOINED.--All dissenting shareholders who
satisfy the conditions set out in clauses (22)(a) and (b) shall be deemed to be
joined as parties to an application under subsection (18) or (19) on the later
of the date upon which the application is brought and the date upon which they
satisfy the conditions, and shall be bound by the decision rendered by the
court in the proceedings commenced by the application.
(24) IDEM.--Upon an application to the court under
subsection (18) or (19), the court may determine whether any other person is a
dissenting shareholder who should be joined as a party, and the court shall fix
a fair value for the shares of all dissenting shareholders.
(25) APPRAISERS.--The court may in its discretion appoint
one or more appraisers to assist the court to fix a fair value for the shares
of the dissenting shareholders.
(26) FINAL ORDER.--The final order of the court in the
proceedings commenced by an application under subsection (18) or (19) shall be
rendered against the corporation and in favor of each dissenting shareholder
who, whether before or after the date of the order, complies with the
conditions set out in clauses (22)(a) and (b).
(27) INTEREST.--The court may in its discretion allow a
reasonable rate of interest on the amount payable to each dissenting
shareholder from the date the action approved by the resolution is effective
until the date of payment.
(28) WHERE CORPORATION UNABLE TO PAY.--Where subsection
(30) applies, the corporation shall, within ten days after the pronouncement of
an order under subsection (26), notify each dissenting shareholder that is
unable lawfully to pay dissenting shareholders for their shares.
Sch. B-3
<PAGE> 84
(29) IDEM.--Where subsection (30) applies, a dissenting
shareholder, by written notice sent to the corporation within thirty days after
receiving a notice under subsection (28), may,
(a) withdraw a notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder's full
rights are reinstated; or
(b) retain a status as a claimant against the corporation, to be
paid as soon as the corporation is lawfully able to do so or,
in a liquidation, to be ranked subordinate to the rights of
creditors of the corporation but in priority to its
shareholders.
(30) IDEM.--A corporation shall not make a payment to a
dissenting shareholder under this section if there are reasonable grounds for
believing that,
(a) the corporation is or, after the payment, would be unable to
pay its liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby
be less than the aggregate of its liabilities.
(31) COURT ORDER.--Upon application by a corporation that
proposes to take any of the actions referred to in subsection (1) or (2), the
court may, if satisfied that the proposed action is not in all the
circumstances one that should give rise to the rights arising under subsection
(4), by order declare that those rights will not arise upon the taking of the
proposed action, and the order may be subject to compliance of any such
application and a copy of any order made by the court upon such application
shall be served upon the Commission.
(32) COMMISSION MAY APPEAR.--The Commission may appoint
counsel to assist the court upon the hearing of an application under subsection
(31).
Sch. B-4
<PAGE> 85
SCHEDULE "C"
CERTIFICATE OF DOMESTICATION
OF
PLD TELEKOM INC.
The undersigned, Simon Edwards, Chief Financial Officer, of PLD
Telekom Inc., in accordance with the provisions of Section 388 of Title 8 of
the Delaware Code does hereby certify:
FIRST: The Corporation was first formed on May 23, 1978 in Toronto,
Ontario, Canada.
SECOND: The name of the Corporation immediately prior to the filing
of this Certificate of Domestication was PLD Telekom Inc.
THIRD: The name of the Corporation as set forth in this certificate
of incorporation is: PLD Telekom Inc.
FOURTH: The jurisdiction that constituted the seat, siege social,
principal place of business or central administration of the Corporation
immediately prior to the filing of this Certificate of Domestication was
Ontario, Canada.
IN WITNESS WHEREOF, I, being the Chief Financial Officer and duly
authorized to sign this Certificate of Domestication on behalf of the
Corporation have made, signed and sealed this Certificate of Domestication on
this _______ day of ____________, 1997.
------------------------------
Simon Edwards
Chief Financial Officer
Sch. C-1
<PAGE> 86
SCHEDULE "D"
CERTIFICATE OF INCORPORATION
OF
PLD TELEKOM 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 Telekom Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is the
Corporation Trust Company.
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 100,000,000 shares of Common Stock, no par
value, and 100,000,000 shares of Preferred Stock, no par value. The voting
powers designations, preferences, rights and qualifications, limitations and
restrictions of the Common Stock and the Preferred Stock shall be as set forth
on Exhibit A, attached hereto and made a part hereof.
FIFTH: The name and mailing address of the incorporator is E. Clive
Anderson, Morgan, Lewis & Bockius LLP, 2000 One Logan Square, Philadelphia,
Pennsylvania 19103.
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 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 __________ day
of ________, 1997.
----------------------------
Incorporator
Sch. D-1
<PAGE> 87
EXHIBIT A
2. The holders of the Common Stock are entitled:
1. to vote at all meetings of shareholders, except meetings at
which only holders of a specified class of shares are entitled
to vote;
2. to receive any dividend declared thereon by the Corporation;
and
3. subject to the rights, privileges, restrictions and conditions
attaching to any other class of shares of the Corporation, to
receive the remaining property of the Corporation upon
dissolution.
3. The rights, privileges, restrictions and conditions attaching to the
Preferred Stock as a class are as follows:
1. Preferred Stock Issuable in Series
The Directors of the Corporation may at any time and from time
to time issue the Preferred Stock in one (1) or more series,
each to consist of such number of shares as may, before
issuance thereof, be fixed by resolution of the Board of
Directors of the Corporation. The number of shares in any
series may from time to time be increased by the Directors
upon compliance with the same conditions as are applicable to
the issue of shares in a new series. The Board of Directors
of the Corporation may (subject as hereinafter provided) by
resolution duly passed before the issue of any Preferred Stock
of any series from time to time determine the designation,
rights, privileges, restrictions and conditions to be attached
to the Preferred Stock of each Series, including but without
in any way limiting or restricting the generality of the
foregoing, the rate or amount of preferential dividends,
whether cumulative, non-cumulative or partially cumulative,
the date or dates and place or places of payment thereof, the
consideration and the terms and conditions of any purchase for
cancellation or redemption thereof, conversion rights (if
any), the terms and conditions of any share purchase plan or
sinking funds and the restrictions (if any) respecting payment
of dividends on, or the repayment of capital in respect of,
any shares ranking junior to the Preferred Stock, the whole
subject to the preferences, rights, privileges, restrictions
and conditions attaching to the Preferred Stock as a class and
also subject to the filing of Articles of Amendment in the
prescribed form to designate a series of Preferred Stock.
2. Parity of Preferred Stock
The Preferred Stock of each series shall rank on a parity with
the Preferred Stock of every other series with respect to
priority in payment of dividends and in the distribution of
assets and return of capital in the event of the liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the
assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, or on the occurrence of any
other event as a result of which the holders of all series of
Preferred Stock are then entitled to a return of capital.
3. Preference as to Dividends and Distributions
The Preferred Stock shall be entitled to a preference over the
Common Stock of the Corporation and over any other shares
ranking junior to the Preferred Stock with respect to priority
in the payment of dividends and in the distribution of assets
and return of capital in the event of the liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the
assets of the Corporation among its shareholders for the
purpose of winding-up its affairs, or on the occurrence of any
other event as a result of which the holders of all series of
Preferred Stock are then entitled to a return of capital, but
such preference shall not exceed the amount paid up on the
Preferred Stock plus the amount of dividends in arrears or
accrued and unpaid on such shares. The Preferred Stock of
each series may also be given such other preferences not
inconsistent with the provisions herein set forth over the
Common Stock of the Corporation and any other shares ranking
junior to the Preferred Stock as may be determined in the case
of each series authorized to be issued. When any cumulative
dividends in respect of a series of Preferred Stock or amounts
payable on a winding-up, or on the occurrence of any other
event as a result of which the holders of the Preferred Stock
of all series are then entitled to a return of capital, are
not paid in full, the Preferred Stock of all series shall
participate ratably in respect of such accumulated dividends,
in accordance with the amounts that would be payable on such
shares if all such accumulated dividends were paid in full and
on any return of capital in accordance with the amounts that
would be
A-1
<PAGE> 88
payable on such return of capital if all amounts so payable
were paid in full; provided, however, that in the event of
there being insufficient assets to satisfy in full all such
claims aforesaid, the claims of the holders shall first be
paid and satisfied and any assets remaining thereafter shall
be applied towards the payment and satisfaction of claims in
respect of dividends. After payment to the holders of the
Preferred Stock of the amount payable to them aforesaid, they
shall not be entitled to share in any further distribution of
property or assets of the Corporation.
4. Voting Rights
The holders of the Preferred Stock shall be entitled to
receive copies of the annual financial statements of the
Corporation and the auditors' report thereon to be submitted
to the annual meeting of shareholders, but, except as
otherwise specifically provided by law and except as may
otherwise be specifically provided in the provisions attaching
to any series of the Preferred Stock, the holders of Preferred
Stock shall not be entitled as such to receive notice of or to
attend any meeting of the shareholders of the Corporation, or
to vote at any such meeting. In any instance where the
holders of Preferred Stock are entitled to vote, each holder
of Preferred Stock shall be entitled to one (1) vote in
respect of each Preferred share held.
5. Purchase for Cancellation, Redemption and Conversion
Subject to the provisions of the Delaware General Corporations
Law and to the provisions relating to any particular series,
Preferred Stock of any series may be purchased for
cancellation or made subject to redemption by the Corporation
in whole or in part, and may have attached thereto a right of
conversion into Common Stock or other securities of the
Corporation, at such time and at such prices and upon such
other terms and conditions as may be specified in the special
rights and restrictions attaching to the Preferred Stock of
such series as set forth in the resolution of the Board of
Directors of the Corporation relating to such series.
6. No Pre-Emptive Rights
The holders of Preferred Stock of any series shall not, as
such, be entitled as of right to subscribe for or purchase or
receive any part of any issue of shares or of bonds,
debentures or other securities of the Corporation now or
hereafter authorized otherwise than in accordance with the
conversion, exchange or other rights, if any, which may from
time to time attach to that series.
7. Amendments to Preferred Stock
The class provisions attaching to the Preferred Stock may be
amended with the approval of all of the holders thereof given
in writing or by the affirmative vote of at least two-thirds
of the votes cast at a meeting of the holders of such shares
duly called for that purpose and a quorum for such meeting is
not less than two holders of the outstanding Preferred Stock
being present in person or represented by proxy.
4. Provisions Attaching to the Series II Convertible Preferred Stock
The first series of Preferred Stock of the Corporation shall consist
of 405,217 shares having a redemption value of Cdn. $1.00, shall be designated
as Series II Convertible Preferred Stock and, in addition to the rights,
conditions, restrictions and limitations attached to the Preferred Stock as a
class, shall have attached thereto rights, conditions, restrictions and
limitations substantially as hereinafter set forth, that is to say:
1. Voting Rights
1.01 The Series II Convertible Preferred Stock shall have
no voting rights as specified in the class provisions attached to the Preferred
Stock.
2. Issue Price
2.01 The redemption value, the issue price and the amount
paid up with respect to the Series II Convertible Preferred Stock shall be Cdn.
$1.00 per share.
A-2
<PAGE> 89
3. Redemption
3.01 On and after October 15, 1991, at its option, the
Corporation may redeem the Series II Convertible Preferred Stock, whereupon all
holders of shares of Series II Convertible Preferred Stock shall surrender for
redemption all of their outstanding Series II Convertible Preferred Stock on
payment by the Corporation of Cdn. $1.00 for each share to be redeemed.
3.02 On the redemption of Series II Convertible Preferred
Stock under this Section 3, the Corporation shall give, in the manner provided
in Section 5, at least 30 days prior notice to each person who, at the date of
giving such notice, is the holder of shares of Series II Convertible Preferred
Stock of the right of the Corporation to redeem such shares. Such notice shall
set out the redemption price and confirm the date on which the redemption is to
take place and such notice shall state the then applicable Current Conversion
Price (as defined in subsection 3.01). Such notice shall also advise the
holder that the right of the holder to convert the shares so to be redeemed
will cease and terminate at the close of business on the business day
immediately prior to the date on which redemption is to take place. On the date
specified for redemption, the Corporation shall pay or cause to be paid to the
holders of Series II Convertible Preferred Stock, the redemption price on
presentation and surrender at the offices of the Corporation in Calgary,
Alberta or at any other place or places within Canada designated by such
notice, of the certificate or certificates for such Series II Convertible
Preferred Stock. Such payment shall be made by check payable at par at any
branch in Canada of the Corporation's bankers. From and after the date
specified for redemption, the holders of the Series II Convertible Preferred
Stock, shall not, with the exception of the conversion rights provided in
Section 4, be entitled to exercise any of the rights of shareholders in respect
thereof, unless payment of the redemption price is not duly made by the
Corporation. At any time after notice of redemption is given, the Corporation
shall have the right to deposit the redemption price of the Series II
Convertible Preferred Stock called for redemption with any chartered bank or
banks or with any trust company or companies in Canada named for such purpose
in the notice of redemption to the credit of a special account or accounts in
trust for the respective holders of such shares to be paid to them respectively
upon surrender to such bank or banks or trust company or trust companies of the
certificate or certificates representing the same. Upon such deposit or
deposits being made, such shares shall be and be deemed to be redeemed and the
rights of the holders of such shares shall be limited to the conversion right
described in Section 3 and to receiving the proportion of the amounts so
deposited applicable to their respective shares without interest. Any interest
allowed on such deposit or deposits shall accrue to the Corporation.
3.03 Subject to the provisions of Section 5 and in
addition to its right to redeem Series II Convertible Preferred Stock as
provided in this Section 3, the Corporation may at any time or times purchase
for cancellation the whole or any part of the outstanding shares of Series II
Convertible Preferred Stock by invitation for tenders addressed to all holders
of record of the outstanding Series II Convertible Preferred Stock, at a price
per share not exceeding Cdn. $1.00 plus, in each case, the cost of purchase.
If, in response to any request for tenders more Series II Convertible Preferred
Stock are tendered at a price or prices acceptable to the Corporation then the
Corporation is prepared to purchase, the Corporation shall accept, to the
extent required, the tenders submitted at the lowest price and then, if and to
the extent required, the tenders submitted at the next progressively higher
price, and if more shares are tendered at any such price than the Corporation
is prepared to purchase, the shares tendered at that price shall be purchased
as nearly as possible pro rata, disregarding fractions, according to the number
of shares of Series II Convertible Preferred Stock so tendered by each holder
thereof.
3.04 Shares of Series II Convertible Preferred Stock which
are purchased, redeemed or deemed to be redeemed in accordance with this
Section 3, shall be and be deemed to be canceled and shall not be reissued.
4. Conversion Privilege
4.01 For the purpose of this Section 4:
(a) "Common Stock" shall mean common shares in
the capital of the Corporation as it existed
at that time under the Business Corporations
Act (Ontario), as such shares were
constituted on July 10, 1987, and any other
shares resulting from reclassification or
change of such common shares or amalgamation,
consolidation, merger or sale, all as
referred to in subsection 4.07.
(b) "Current Conversion Basis" means at any
particular time the result obtained
(expressed to the nearest thousandth of a
share of Common Stock by dividing Cdn. $1.00
by the Current Market Price;
(c) "Current Market Price" shall mean as at any
date when the Current Market Price is to be
determined, the weighted average price at
which the Common Stock of the Corporation has
been traded on the Alberta Stock Exchange
during the 20 consecutive
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trading day not preceding such date. In the
event such Common Stock is not listed on the
Alberta Stock Exchange but is listed on
another stock exchange or stock exchanges in
Canada, the foregoing references to the
Alberta Stock Exchange shall be deemed to be
references to such other stock exchange, or,
if more than one, to such one as shall be
designated by the Board of Directors of the
Corporation. In the event shares of Common
Stock of the Corporation are not so traded on
any stock exchange in Canada, the Current
Market Price thereof shall be determined by
the Board of Directors, which determination
shall be conclusive; and
(d) "First City Loan" means the loan made by
VenTech Healthcare International Inc. To
Nu-Med Industries Ltd. in the amount of Cdn.
$600,000.
4.02 A holder of any Series II Convertible Preferred Stock
has the right, at his option, at any time after the First City Loan and all
interest accrued thereon has been repaid in full, or in the case of shares
called for redemption up to the close of business on the business day prior to
the date fixed for redemption, whichever is earlier, to convert, subject to the
terms and provisions hereof, such Series II Convertible Preferred Stock into
fully paid and non-assessable Common Stock on the basis of the Current
Conversion Basis. Should payment of the redemption price of Series II
Convertible Preferred Stock which have been called for redemption not be paid
upon surrender of the certificate for such Series II Convertible Preferred
Stock the right of conversion shall revive and continue from the time of the
failure to pay as if such Series II Convertible Preferred Stock had not been
called for redemption.
4.03 The conversion of Series II Convertible Preferred
Stock may be effected by the surrender of the certificate or certificates
representing the same at any time during usual business hours at any office of
the transfer agent of the Corporation at which the Common Stock is
transferrable, accompanied by: (1) payment or evidence of payment of the tax
(if any) payable as provided in subsection 4.11 and (2) a written instrument of
surrender in form satisfactory to the Corporation duly executed by the
registered holder, or his attorney duly authorized in writing, in which
instrument such holder may also elect to convert part only of:
(a) the Series II Convertible Preferred Stock
represented by such certificate or
certificates not theretofore called for
redemption, in which event such holder shall
be entitled to receive, at the expense of the
Corporation, a new certificate representing
the Series II Convertible Preferred Stock
represented by such certificate or
certificates which have not been converted;
and
(b) the Series II Convertible Preferred Stock,
represented by such certificate or
certificates, theretofore called for
redemption, in which event on the date
specified for redemption of such Series II
Preferred Stock such holder shall be entitled
to payment of the redemption price of the
Series II Convertible Preferred Stock
represented by such certificate or
certificates which have been called for
redemption and which have not been converted.
As promptly as practicable after the surrender of any Series
II Convertible Preferred Stock for conversion, the Corporation shall cause to
be delivered to or upon the written order of the holder of the Series II
Convertible Preferred Stock so surrendered, a certificate or certificates
issued in the name of, or in such name or names as may be directed by, such
holder representing the number of shares of Common Stock to which such holder
is entitled together with a payment by check or a scrip certificate, as the
case may be, in respect of any fraction of a Common Share issuable on such
conversion as provided in subsection 4.10. Such conversion shall be deemed to
have been made at the close of business on the date such Series II Convertible
Preferred Share shall have been surrendered for conversion, so that the rights
of the holder of such Series II Convertible Preferred Stock as the holder
thereof shall cease at such time and the person or persons entitled to receive
Common Stock upon such conversion shall be treated for all purposes as having
become the holder or holders of record of such Common Stock at such time and
such conversion shall be on the Current Conversion Basis as at such time. The
date of surrender of any Series II Convertible Preferred Stock for conversion
shall be deemed to be the date when the certificate representing such Series II
Convertible Preferred Stock is received by the transfer agent of the
Corporation.
4.04 The registered holder of any share of Series II
Convertible Preferred Share on the record date for any dividend payable on such
share shall be entitled to such dividend notwithstanding that such share is
converted after such record date and before the payment date of such dividend
and the registered holder of any share of Common Share resulting from any
conversion shall be entitled to rank equally with the registered holders of all
other Common Stock of record on any date after the date of conversion. Subject
as aforesaid and subject to the provision hereof, upon the conversion of any
share of Series II Convertible Stock, the Corporation shall make no payment or
adjustment on account of any
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dividends on the Series II Convertible Preferred Stock so converted nor on
account of any dividends on the Common Share issuable upon such conversion.
4.05 Upon the surrender of any shares of Series II
Convertible Preferred Stock for conversion, the number of shares of full
Common Stock issuable upon conversion thereof shall be equal to the aggregate
number of such shares of Series II Convertible Preferred Stock to be converted
multiplied by the Current Conversion Basis. Fractional shares will not be
issued on any conversion but in lieu thereof the Corporation shall, at its
option, either make cash payments or issue scrip certificates entitling the
holder thereof and of other similar scrip certificates aggregating one full
share of Common Share, upon the surrender of such scrip certificates, to a full
share of Common Share. Such scrip certificates shall not confer on the holders
thereof any rights as a shareholder. In any case where fractional shares are
involved and the Corporation decides to make cash payments in lieu of issuing
script certificates the payment shall be by check of an amount equal to the
then value of such fractional interest computed on the basis of the Current
Market Price for the Common Stock.
4.06 The issuance of certificates for Common Stock upon
the conversion of Series II Convertible Preferred Stock shall be made without
charge to the holders of the Series II Convertible Preferred Stock so converted
for any fee or tax imposed on the Corporation in respect of the issuance of
such certificates or the Common Stock represented thereby; provided that the
Corporation shall not be required to pay any tax which may be imposed upon the
person or persons to whom such Common Stock are issued in respect of the
issuance of such Common Stock or the certificate therefor or which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name or names other than that of the holder of the Series
II Convertible Preferred Stock converted, and the Corporation shall not be
required to issue or deliver such certificate unless the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount
of such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
4.07 In case of any reclassification of change (other than
a change resulting only from consolidation or subdivision) of the Common Stock,
or in case of any amalgamation, consolidation or merger of the Corporation with
or into any other corporation, or in the case of any sale of the properties and
assets of the Corporation as, or substantially as, an entirety to any other
corporation, each share of Series II Convertible Preferred Share shall, after
such reclassification, change, amalgamation, consolidation, merger or sale, be
convertible into the number of shares or other securities or property of the
Corporation or such continuing, successor or purchasing corporation, as the
case may be, to which a holder of the number of shares of Common Stock as
would have been issued if such Series II Convertible Preferred Stock had been
converted immediately prior to such reclassification, change, amalgamation,
consolidation, merger and sale would have been entitled upon such
reclassification, change, amalgamation, consolidation, merger or sale. The
Board of Directors may accept the certificate of any firm of independent
accountants (who may be the auditors of the Corporation) as to the foregoing
calculation, and the Board of Directors may determine such entitlement on the
basis of such certificate. Any such determination shall be conclusive and
binding on the Corporation and the holders of the Series II Convertible
Preferred Stock. No such reclassification, change, amalgamation,
consolidation, merger or sale shall be carried into effect unless, in the
opinion of legal counsel to the Corporation, all necessary steps shall have
been taken to ensure that the holders of the Series II Convertible Preferred
Stock shall thereafter be entitled to receive such number of shares or other
securities or property of the Corporation or such continuing, successor or
purchasing corporation, as the case may be, subject to adjustment thereafter in
accordance with provisions similar, as nearly as may be, to those contained in
this Section 4.
4.08 The Corporation shall give to the holders of the
Series II Convertible Preferred Stock at least 21 days prior notice as provided
in Section 5, of the record date for the payment of any cash dividend, stock
dividend or other distribution on its Common Stock and prompt public notice of
the issue to any of its shareholders of rights to subscribe for Common Stock or
other securities and shall give at least 30 days prior notice as provided in
Section 5 before making repayment of capital on its Common Stock. Any such
public notice shall be sufficiently given if given in accordance with the
regulations of the Alberta Stock Exchange from time to time in force with
respect to required disclosures to the public by companies listed on such
exchange. The accidental failure or omission to give the notice required by
this subsection 4.08 or any defect therein shall not affect the legality or
validity of any such payment, distribution or issue.
4.09 If in the opinion of the Board of Directors the
provisions of this Section 4 are not strictly applicable, or if strictly
applicable would not fairly protect the rights of the holders of the Series II
Convertible Preferred Stock in accordance with the intent and purpose hereof,
the Board of Directors shall make any adjustment in such provisions as the
Board of Directors deems appropriate.
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5. Notice
5.01 Any notice, except as provided in subsection 4.08
with respect to public notice, required to be given under the provisions
attaching to the Series II Convertible Preferred Stock to the holders thereof
shall be given by posting the same in a postage paid envelope addressed to each
holder at the last address of such holder as it appears on the books of the
Corporation or, in the event of the address of any such holder not so
appearing, then to the address of such holder last known to the Corporation;
provided that accidental failure or omission to give any notice as aforesaid to
one or more of such holders shall not invalidate any action or proceeding
founded thereon.
5. Provisions Attaching to the Series III Convertible Preferred Stock
The second series of Preferred Stock of the Corporation shall consist
of 125,000 shares having a redemption value, of Cdn. $1.00, shall be
designated as Series III Convertible Preferred Stock and, in addition to the
rights, conditions, restrictions and limitations attached to the Preferred
Stock as a class, shall have attached thereto rights, conditions, restrictions
and limitations substantially as hereinafter set forth, that is to say:
1. Voting Rights
1.01 The Series III Convertible Preferred Stock shall have
no voting rights as specified in the class provisions attached to the Preferred
Stock.
2. Issue Price
2.01 The redemption value, the issue price and the amount
paid up with respect to the Series III Convertible Preferred Stock shall be
Cdn. $1.00 per share.
3. Redemption
3.01 (a) On and after March 31, 1987, at its option,
the Corporation may redeem thirty-three and
one-third percent (33 1/3%) of the issued and
outstanding Series III Convertible Preferred
Stock, whereupon all holders of shares of
Series III Convertible Preferred Stock shall
surrender for redemption thirty-three and
one-third percent (33 1/3%) of their
outstanding shares of Series III Convertible
Preferred Stock on payment by the Corporation
of Cdn. $1.00 for each such share to be
redeemed.
(b) On and after March 31, 1988, at its option
the Corporation may redeem sixty-six and
two-thirds percent (66 2/3%) of the number of
shares of Series III Convertible Preferred
Stock originally issued and outstanding,
whereupon all holders of Series III
Convertible Preferred Stock shall surrender
for redemption up to sixty-six and two-thirds
percent (66 2/3%) of the number of shares of
Series III Convertible Preferred Stock
originally outstanding on payment by the
Corporation of Cdn. $1.00 for each such share
to be redeemed.
(c) On and after March 31, 1989, at its option
the Corporation may redeem all of the Series
III Convertible Preferred Stock issued and
outstanding, whereupon all holders of Series
III Convertible Preferred Stock shall
surrender for redemption all of their
outstanding shares of Series III Convertible
Preferred Stock on payment by the Corporation
of Cdn. $1.00 for each such share to be
redeemed.
3.02 On the redemption of Series III Convertible Preferred
Stock under this Section 3, the Corporation shall give, in the manner provided
in Section 5, at least 30 days prior notice to each person who, at the date of
giving such notice, is the holder of Series III Convertible Preferred Stock of
the right of the Corporation to redeem such shares. Such notice shall set out
the redemption price and confirm the date on which redemption is to take place
and such notice shall state the then applicable Current Conversion Price (as
defined in subsection 4.01). Such notice shall also advise the holder that the
right of the holder to convert the shares so to be redeemed will cease and
terminate at the close of business on the business day immediately prior to the
date on which redemption is to take place. On the date specified for
redemption, the Corporation shall pay or cause to be paid to the holders of
Series III Convertible Preferred Stock, the redemption price on presentation
and surrender at the offices of the Corporation in Calgary, Alberta or at any
other place or places within Canada designated by such notice, of the
certificate or certificates for such Series III Convertible Preferred Stock.
Such payment shall be made by check payable at par at any branch in Canada of
the Corporation's bankers. From and after the date specified for redemption,
the holders of the Series III Convertible Preferred Stock shall not, with the
exception of the
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conversion right provided in Section 4, be entitled to exercise any of the
rights of shareholders in respect thereof, unless payment of the redemption
price is not duly made by the Corporation. At any time after notice of
redemption is given, the Corporation shall have the right to deposit the
redemption price of the Series III Convertible Preferred Stock called for
redemption with any chartered bank or banks or with any trust company or
companies in Canada named for such purpose in the notice of redemption to the
credit of a special account or accounts in trust for the respective holders of
such shares, to be paid to them respectively upon surrender to such bank or
banks or trust company or trust companies of the certificate or certificates
representing the same. Upon such deposit or deposits being made, such shares
shall be and be deemed to be redeemed and the rights of the holders of such
shares shall be limited to the conversion right described in Section 4 and to
receiving the proportion of the amounts so deposited applicable to their
respective shares without interest. Any interest allowed on such deposit or
deposits shall accrue to the Corporation.
3.03 Subject to the provisions of Section 5 and in
addition to its rights to redeem Series III Convertible Preferred Stock as
provided in this Section 3, the Corporation may at any time or times purchase
for cancellation the whole or any part of the outstanding shares of Series III
Convertible Preferred Stock by invitation for tenders addressed to all holders
of record of the outstanding Series Convertible Preferred Stock, at a price per
share not exceeding Cdn. $1.00 plus, in each case, the cost of purchase. If,
in response to any request for tenders more Series III Convertible Preferred
Stock are tendered at a price or prices acceptable to the Corporation than the
Corporation is prepared to purchase, the Corporation shall accept, to the
extent required, the tenders submitted at the lowest price and then, if and to
the extent required, the tenders submitted at the next progressively higher
price, and if more shares are tendered at any such price than the Corporation
is prepared to purchase, the shares tendered at that price shall be purchased
as nearly as possible pro rata, disregarding fractions, according to the number
of shares of Series III Convertible Preferred Stock so tendered by each holder
thereof.
3.04 Series III Convertible Preferred Stock which are
purchased, redeemed or deemed to be redeemed in accordance with this Section 3
shall be and be deemed to be canceled and shall not be reissued.
4. Conversion Privilege
4.01 For the purpose of this Section 4:
(a) "Common Stock" shall mean common shares in
the capital of the Corporation as it existed
at that time under the Business Corporations
Act (Ontario) as such shares were constituted
on July 10, 1987, and any other shares
resulting from reclassification or change of
such Common Stock of amalgamation,
consolidation, merger or sale, all as
referred to in subsection 4.07;
(b) "Current Conversion Price" means at any
particular time the result obtained
(expressed to the nearest thousandth of a
share of Common Stock) by dividing Cdn. $1.00
by the Current Market Price; and
(c) "Current Market Price shall mean as at any
date when the Current Market Price is to be
determined, the weighted average price at
which the Common Stock of the Corporation has
been traded on the Alberta stock Exchange
during the 20 consecutive trading days ending
on a date not earlier than the fifth trading
day preceding such date. In the event such
Common Stock is not listed on the Alberta
Stock Exchange but is listed on another stock
exchange or stock exchanges in Canada the
foregoing references to the Alberta Stock
Exchange shall be deemed to be references to
such other stock exchange, or, of more than
one, to such one as shall be designated by
the Board of Directors of the Corporation.
In the event Common Stock of the Corporation
is not so traded on any stock exchange in
Canada, the Current Market Price thereof
shall be determined by the Board of
Directors, which determination shall be
conclusive.
4.02 A holder of any Series III Convertible Preferred
Stock has the right, at his option, at any time up to the close of business on
each of November 1, 1987, November 1, 1988 and November 1, 1989, to convert
thirty-three and one-third percent (33 1/3%) of the number of shares of Series
III Convertible Preferred Stock originally issued and outstanding to such
holder, or in the case of shares called for redemption up to the close of
business on the business day prior to the date fixed for redemption, which ever
is earlier, subject to the terms and provisions hereof, such Series III
Convertible
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Preferred Stock into fully paid and non-assessable Common Stock on the basis of
the current Conversion Basis. Should payment of the redemption price of Series
III Convertible Preferred Stock which have been called for redemption not be
paid upon surrender of the certificate for such Series III Convertible
Preferred Stock the right of conversion shall revive and continue from the time
of the failure to pay as if such Series III Convertible Preferred Stock had not
been called for redemption.
4.03 The conversion of Series III Convertible Preferred
Stock may be effected by the surrender of the certificate or certificates
representing the same at any time during usual business hours at any office of
the transfer agent of the Corporation at which the Common Stock is
transferable, accompanied by: (1) payment or evidence of payment of the tax (if
any) payable as provided in subsection 4.11 and (2) or written instrument of
surrender in form satisfactory to the Corporation duly executed by the
registered holder, or his attorney duly authorized in writing, in which
instrument such holder may also elect to convert part only of:
(a) the Series III Convertible Preferred Stock
represented by such certificate or
certificates not theretofore called for
redemption, in which event such holder shall
be entitled to receive, at the expense of the
Corporation, a new certificate representing
the Series II Convertible Preferred Stock
represented by such certificate or
certificates which have not been converted;
and
(b) The Series III Convertible Preferred Stock,
represented by such certificate or
certificates, theretofore called for
redemption, in which event on the date
specified for the redemption of such Series
III Convertible Preferred Stock such holder
shall be entitled to payment of the
redemption price of the Series III
Convertible Preferred Stock represented by
such certificate or certificates which have
been called for redemption and which have not
been converted.
As promptly as practicable after the surrender of any Series
III Convertible Preferred Stock for conversion, the Corporation shall cause to
be delivered to or upon the written order of the holder of the Series III
Convertible Preferred Stock so surrendered, a certificate or certificates
issued in the name of, or in such name or names as may be directed by, such
holder representing the number of shares of Common Stock to which such holder
is entitled together with payment by check or a scrip certificate, as the case
may be, in respect of any fraction of a Common Share issuable on such
conversion as provided in subsection 4.10. Such conversion shall be deemed to
have been made at the close of business on the date such Series III Convertible
Preferred Stock shall have been surrendered for conversion, so that the rights
of the holder of such Series III Convertible Preferred Stock as the holder
thereof shall cease at such time and the person or persons entitled to receive
Common Stock upon such conversion shall be treated for all purposes as having
become the holder or holders of record of such Common Stock at such time and
such conversion shall be on the Current Conversion Basis as at such time. The
date of surrender of any Series II Convertible Preferred Stock for conversion
shall be deemed to be the date when the certificate representing such Series
III Convertible Preferred Stock is received by the transfer agent of the
Corporation.
4.04 The registered holder of any share of Series III
Convertible Preferred Share on the record date for any dividend payable on such
share shall be entitled to such dividend notwithstanding that such share is
converted after such record date and before the payment date of such dividend
and the registered holder of any share of Common Share resulting from any
conversion shall be entitled to rank equally with the registered holders of all
other share of Common Stock in respect of all dividends declared payable to
holders of all other Common Stock of record on any date after the date of
conversion. Subject as aforesaid and subject to the provisions hereof, upon
the conversion of any shares of Series III Convertible Preferred Stock the
corporation shall make no payment or adjustment on account of any dividends on
the Series III Convertible Preferred Stock so converted nor on account of any
dividends on the Common Stock issuable upon such conversion.
4.05 Upon the surrender of any shares of Series III
Convertible Preferred Stock for conversion, the number of shares of full Common
Stock issuable upon conversion thereof shall be equal to the aggregate number
of shares of such Series III Convertible Preferred Stock to be converted
multiplied by the Current Conversion Basis. Fractional shares will not be
issued on any conversion but in lieu thereof the Corporation shall, at its
option, either make cash payments or issue scrip certificates entitling the
holder thereof and of other similar scrip certificates aggregating one full
share of Common Share, upon the surrender of such scrip certificates, to a full
share of Common Share. Such script certificates shall not confer on the
holders thereof any rights as a shareholder. In any case where fractional
shares are involved and the Corporation decides to make cash payments in lieu
of issuing scrip certificates the payment shall be by check of any amount equal
to the then value of such fractional interest computed on the basis of the
Current Market Price for the Common Stock.
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4.06 The issuance of certificates for Common Stock upon
the conversion of Series III Convertible Preferred Stock shall be made without
charge to the holders of the Series III Convertible Preferred Stock so
converted for any fee or tax imposed on the Corporation in respect of the
issuance of such certificates or the Common Stock represented thereby; provided
that the Corporation shall not be required to pay any tax which may be imposed
upon the person or persons to whom such Common Stock are issued in respect of
the issuance of such Common Stock or the certificate therefor or which may be
payable in Shares or the certificate therefor or which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate in a name or names other than that of the holder of the Series III
Convertible Preferred Stock converted, and the Corporation shall not be
required to issue o deliver such certificate unless the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount
of such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
4.07 In case of any reclassification or change (other than
a change resulting only from consolidation or subdivision) of the Common Stock,
or in case of any amalgamation, consolidation ro merger of the Corporation with
or into any other corporation, or in the case of any sale of the properties and
assets of the Corporation as, or substantially as, an entirety to any other
corporation, each share of Series III Convertible Preferred Share shall, after
such reclassification, change, amalgamation, consolidation, merger or sale, be
convertible into the number of shares or other securities or property of the
Corporation or such continuing, successor or purchasing corporation, as the
case may be, to which a holder of the number of shares of Common Stock as would
have been issued if such Series III Convertible Preferred Stock had been
converted immediately prior to such reclassification, change, amalgamation,
consolidation, merger or sale would have been entitled upon such
reclassification, change, amalgamation, consolidation, merger or sale. The
Board of Directors may accept the certificate of any firm of independent
accountants (who my be the auditors of the Corporation) as to the foregoing
calculation, and the Board of Directors may determine such entitlement on the
basis of such certificate. Any such determination shall be conclusive and
binding on the Corporation and the holders of the Series III Convertible
Preferred Stock. No such reclassification, change, amalgamation,
consolidation, merger or sale shall be carried into effect unless, in the
opinion of legal counsel to the Corporation, all necessary steps shall have
been taken to ensure that the holders of the Series III Convertible Preferred
Stock or other securities or property of the Corporation or such continuing,
successor or purchasing corporation, as the case may be, subject to adjustment
thereafter in accordance with provisions similar, as nearly as may be, to those
contained in this Section 4.
4.08 The Corporation shall give to the holders of the
Series III Convertible Preferred Stock at least 21 days prior notice as
provided in Section 5, of the record date for the payment of any cash dividend,
stock dividend, or other distribution on its Common Stock and prompt public
notice of the issue to any of its shareholders of rights to subscribe for
Common Stock or other securities and shall give at least 30 days prior notice
as provided in Section 5, before making any repayment of capital on its Common
Stock. Any such public notice shall be sufficiently given if given in
accordance with the regulations of the Alberta Stock Exchange from time to time
in force with respect to required disclosures to the public by companies listed
on such exchange. The accidental failure or omission to give the notice
required by this subsection 4.08 or any defect therein shall not affect the
legality or validity of any such payment, distribution or issue.
4.09 If in the opinion of the board of Directors the
provisions of this Section 4 are not strictly applicable, or if strictly
applicable would not fairly protect the rights of the holders of the Series III
convertible Preferred Stock in accordance with the intent and purposes hereof,
the Board of Directors shall make any adjustment in such provisions as the
Board of Directors deems appropriate.
5. Notices
5.01 Any notice, except as provided in subsection 4.08
with respect to public notice, required to be given under the provisions
attaching to the Series III Convertible Preferred Stock to the holders thereof
shall be given by posting the same in a postage paid envelope addressed to each
holder at the last address of such holder as it appears on the books of the
Corporation or, in the event of the address of any such holder not so
appearing, then to the address of such holder last known to the Corporation;
provided that accidental failure or omission to give any notice as aforesaid to
one or more of such holders shall not invalidate any action or proceeding
founded thereon.
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SCHEDULE "E"
B Y- L A W S
OF
PLD TELEKOM INC.
(A DELAWARE CORPORATION)
ARTICLE I
Offices, Fiscal Year and Record
SECTION 1.01. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by resolution of the Board of Directors,
and a certificate certifying the change is filed in the manner provided by
statute.
SECTION 1.02. Other Offices. The Corporation may also have offices
at such other places within or without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
requires.
SECTION 1.03. Fiscal Year. Until changed by the Board of Directors,
the fiscal year of the Corporation shall end on the 31st of December in each
year.
SECTION 1.04. Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places
as may from time to time be designated by the Board of Directors. The
stockholders and directors of the Corporation shall have examination rights as
specified in Section 7.06 of these By-Laws.
ARTICLE II
Stockholders
SECTION 2.01. Place of Meeting. The Board of Directors or the
Chairman of the Board, as the case may be, may designate the place of meeting
for any annual meeting or for any special meeting of the stockholders called by
the Board of Directors, the President or the Chairman of the Board. If no
designation is so made, the place of meeting shall be the principal office of
the Corporation.
SECTION 2.02. Annual Meeting. The Board of Directors shall fix and
designate the date and time of the annual meeting of the stockholders. At said
meeting, the stockholders then entitled to vote shall elect directors and shall
transact such other business as may properly be brought before the meeting.
SECTION 2.03. Special Meetings. Subject to the rights of the
holders of any series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation ("Preferred Stock") with
respect to such series of Preferred Stock, special meetings of the stockholders
may be called only by the Chairman of the Board, the President or by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of directors then in office.
SECTION 2.04. Notice of Meeting. Written or printed notice, stating
the place, day and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be delivered by the Corporation not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation. Such further notice shall be given as may be required by law.
Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting. Meetings may be held without notice if all stockholders entitled
to vote are present, or if notice is waived by those not present in accordance
with Section 7.01 of these By-Laws. Any previously scheduled meeting of the
stockholders may be postponed, and (unless the Certificate of Incorporation
otherwise provides) any special meeting of the stockholders may be canceled, by
resolution of a majority of the total number of directors then in office upon
public notice given prior to the date previously scheduled for such meeting of
stockholders.
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SECTION 2.05. Quorum, Manner of Acting and Adjournment.
(a) Quorum. The holders of a majority of the shares entitled to
vote, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders except as otherwise provided by the Delaware
General Corporation Law ("DGCL"), by the Certificate of Incorporation or by
these By-Laws. If a quorum is not present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At any such adjourned meeting at which a quorum is
present or represented, the Corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) 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 meeting.
(b) Manner of Acting. Directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy at the
meeting and entitled to vote on the election of directors. In all matters
other than the election of directors, the affirmative vote of the majority of
shares present in person or represented by proxy at the meeting and entitled to
vote thereon shall be the act of the stockholders, unless the question is one
upon which, by express provision of the applicable statute, the Certificate of
Incorporation or these By-Laws, a different vote is required in which case such
express provision shall govern and control the decision of the question. The
stockholders present in person or by proxy at a duly organized meeting can
continue to do business until adjournment, notwithstanding withdrawal of enough
stockholders to leave less than a quorum.
SECTION 2.06. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to
the Board of Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this Section, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section.
(2) For nominations or other business to be
properly brought before an annual meeting by a stockholder pursuant to clause
(iii) of paragraph (a)(1) of this Section, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation and such
other business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is more than thirty (30) days before or more than sixty (60)
days after such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the ninetieth (90th)
day prior to such annual meeting and not later than the close of business on
the later of the sixtieth (60th) day prior to such annual meeting or the l0th
day following the day on which public announcement of the date of such meeting
is first made by the Corporation. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice shall
set forth (i) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; (iii) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (A) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (B) the class or series and number of shares of the
Corporation which are owned of record and beneficially by such stockholder and
such beneficial owner; and (iv) a description of all arrangements or
understandings among the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder.
(3) Notwithstanding anything in the second
sentence of paragraph (a)(2) of this Section to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the increased
Board of Directors at least seventy (70) days prior to the first anniversary of
the preceding year's annual
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meeting, a stockholder's notice required by this Section shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth (l0th) day following the day on which such public
announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business
shall be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant
to the Corporation's notice of meeting (1) by or at the direction of the Board
of Directors or (2) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section. In the
event the Corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (a)(2) of this Section shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the ninetieth (90th) day
prior to such special meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such special meeting or the tenth
(10th) day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(c) General.
(1) Only such persons who are nominated in accordance
with the procedures set forth in this Section shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section. Except as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section and, if any
proposed nomination or business is not in compliance with this Section, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in
a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing
provisions of this Section, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section. Nothing in this Section
shall be deemed to affect any rights (i) of stockholders to request inclusion
of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act or (ii) of the holders of any series of Preferred Stock to
elect directors under specified circumstances.
SECTION 2.07. Organization. At every meeting of the stockholders,
the Chairman of the Board, if there be one, or in the case of a vacancy in the
office or absence of the Chairman of the Board, one of the following persons
present in the order stated: the Vice Chairman, if one has been appointed, the
President, the Vice Presidents in their order of rank or seniority, a Chairman
designated by the Board of Directors or a Chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary, or, in the absence of the Secretary, an Assistant Secretary, or in
the absence of the Secretary and the Assistant Secretaries, a person appointed
by the Chairman, shall act as Secretary.
SECTION 2.08. Voting.
(a) General Rule. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote, in person or by
proxy, for each share of capital stock having voting power held by such
stockholder.
(b) Voting and Other Action by Proxy.
(1) A stockholder may execute a writing authorizing
another person or persons to act for the stockholder as proxy. Such
execution may be accomplished by the stockholder or the authorized
officer, director, employee or agent of the stockholder signing such
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writing or causing his signature to be affixed to such writing by any
reasonable means including, but not limited to, by facsimile
signature. A stockholder may authorize another person or persons to
act for the stockholder as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the
proxy to receive such transmission if such telegram, cablegram or
other means of electronic transmission sets forth or is submitted
with information from which it can be determined that the telegram,
cablegram or other electronic transmission was authorized by the
stockholder.
(2) No proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period.
(3) A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only so long as, it is coupled
with an interest sufficient in law to support an irrevocable power.
A proxy may be made irrevocable regardless of whether the interest
with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
SECTION 2.09. Procedure for Election of Directors; Required Vote.
Election of directors at all meetings of the stockholders at which directors
are to be elected shall be by ballot, and, subject to the rights of the holders
of any series of Preferred Stock to elect directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation or these
By-Laws, in all matters other than the election of directors, the affirmative
vote of a majority of the shares present in person or represented by proxy at
the meeting and entitled to vote on the matter shall be the act of the
stockholders.
SECTION 2.10. Inspectors of Elections
(a) Appointment. The Board of Directors by resolution shall appoint
one or more inspectors, which inspector or inspectors may include individuals
who serve the Corporation in other capacities, including, without limitation,
as officers, employees, agents or representatives, to act at the meetings of
stockholders and make a written report thereof. One or more persons may be
designated as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate has been appointed to act or is able to act at a
meeting of stockholders, the Chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall have the duties prescribed by law.
(b) Polls. The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
SECTION 2.11. Consent of Stockholders in Lieu of Meeting. Any
action required to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents 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 and shall be delivered to the Corporation by delivery to
its registered office in Delaware, its principal place of business, or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the earliest dated consent delivered
in the manner required in this section to the Corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
SECTION 2.12. Voting Lists. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting. The list shall be arranged in alphabetical order, showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting
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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. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
ARTICLE III
Board of Directors
SECTION 3.01. Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. In addition to
the powers and authorities by these By-Laws expressly conferred upon it, the
Board of Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 3.02. Number and Term of Office. The Board of Directors
shall consist of such number of directors, not less than one nor more than
fifteen, as may be determined from time to time by resolution of the Board of
Directors. Each director shall hold office until the expiration of the term
for which he was selected and until a successor shall have been elected and
qualified or until his earlier death, resignation or removal. Directors need
not be residents of Delaware or stockholders of the Corporation.
SECTION 3.03. Vacancies. Vacancies, and newly created directorships
resulting from any increase in the authorized number of directors, may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until their successors are elected and qualified or until their earlier
death, resignation or removal. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. Whenever
the holders of any class or classes of stock or series thereof are entitled to
elect one or more directors by the provisions of the Certificate of
Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten (10) percent of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office.
SECTION 3.04. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if there be one, or, in the case of a
vacancy in the office or absence of the Chairman of the Board, one of the
following officers present in the order stated: the Vice Chairman of the
Board, if there be one, the President, the Vice Presidents in their order of
rank and seniority, or a chairman chosen by a majority of the directors
present, shall preside, and the Secretary, or, in the absence of the Secretary,
an Assistant Secretary, or in the absence of the Secretary and the Assistant
Secretaries, any person appointed by the Chairman of the meeting, shall act as
Secretary.
SECTION 3.05. Place of Meeting. Meetings of the Board of Directors
shall be held at such place within or without the State of Delaware as the
Board of Directors may from time to time determine, or as may be designated in
the notice of the meeting.
SECTION 3.06. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Section immediately
after, and at the same place as, the annual meeting of stockholders, or at such
other place or time as the Board of Directors may determine by resolution and
without other notice than such resolution. The Board of Directors may, by
resolution, provide the time and place for the holding of additional regular
meetings without other notice than such resolution.
SECTION 3.07. Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors then in office. The person
or persons authorized to call special meetings of the Board of Directors may
fix the place and time of the meetings.
SECTION 3.08. Notice. Notice of any special meeting of directors
shall be given to each director at his business or residence in writing by
first-class or overnight mail or courier service, telegram or facsimile
transmission, orally by telephone or by hand delivery. If mailed by first
class mail, such notice shall be deemed adequately delivered when deposited in
the United States mails so addressed, with postage thereon prepaid, at least
five (5) days before such meeting. If by telegram, overnight mail or courier
service, such notice shall be deemed adequately delivered when the telegram is
delivered to the telegraph company or the notice is delivered to the overnight
mail or courier service company at least twenty-four (24)
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hours before such meeting. If by facsimile transmission, such notice shall be
deemed adequately delivered when the notice is transmitted at least twelve (12)
hours prior to the time set for the meeting. If by telephone or by hand
delivery, the notice shall be given at least twelve (12) hours prior to the
time set for the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice of such meeting, except for amendments to these
By-Laws, as provided under Section 7.09. A meeting may be held at any time
without notice if all the directors are present or if those not present waive
notice of the meeting in accordance with Section 7.01 of these By-Laws.
SECTION 3.09. Conference Telephone Meetings. Members of the Board
of Directors, or any committee thereof, may participate in a meeting of the
Board of Directors or such committee 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 in a meeting shall
constitute presence in person at such meeting.
SECTION 3.10. Quorum, Manner of Acting and Adjournment.
(a) General Rule. At all meetings of the Board two-fifths (2/5s) of
the total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors, except as
may be otherwise specifically provided by the DGCL or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present. If the Corporation has fewer than three directors, all the directors
shall be present to constitute a quorum.
(b) Unanimous Written Consent. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors may be taken without a meeting, if all
members of the Board consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board.
SECTION 3.11. Executive and Other Committees.
(a) Establishment. The Board of Directors may, by resolution
adopted by a majority of the whole board, establish an Executive Committee and
one or more other committees, each committee to consist of one or more
directors. 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 and the alternate or alternates, if any, designated for such member,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another director to act at the meeting in the place of any
such absent or disqualified member.
(b) Powers. The Executive Committee, if established, and any such
other committee to the extent provided in the resolution establishing such
committee shall have and may exercise all the power and authority of the board
of directors in the management of the business and 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 (except that a committee
may, to the extent authorized in the resolution or resolutions providing for
the issuance of shares of stock adopted by the board of directors as provided
in Section 151(a) of the DGCL, fix the designation and any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of shares of any series), adopting an agreement of merger or
consolidation under Section 251 or 252 of the DGCL, 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
the By-Laws of the Corporation. The Executive Committee shall have the power
or authority to declare a dividend, to authorize the issuance of stock and to
adopt a certificate of ownership and merger pursuant to Section 253 of the
DGCL. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee so formed shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
(c) Committee Procedures. The term "Board of Directors" or "Board,"
when used in any provision of these By-Laws relating to the organization or
procedures of or the manner of taking action by the Board of Directors, shall
be construed to include and refer to the Executive Committee or other committee
of the Board.
SECTION 3.12. Compensation of Directors. Unless otherwise
restricted by the Certificate of Incorporation, the board of directors shall
have the authority to fix the compensation of directors.
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ARTICLE IV
Officers
SECTION 4.01. Number, Qualifications and Designation. The officers
of the Corporation shall be chosen by the Board of Directors and shall be a
President, one or more Vice Presidents, a Secretary, a Treasurer, and such
other officers as may be elected in accordance with the provisions of Section
4.02 of this Article. Any number of offices may be held by the same person.
Except as otherwise set forth herein, officers may, but need not, be directors
or stockholders of the Corporation. The Board of Directors may elect from
among the members of the Board a Chairman of the Board and a Vice Chairman of
the Board who may be officers of the Corporation if so designated by the Board.
The Chairman of the Board or the President, as designated from time to time by
the Board of Directors, shall be the chief executive officer of the
Corporation. All officers elected by the Board of Directors shall each have
such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall
also have such powers and duties as from time to time may be conferred by the
Board of Directors or by any committee thereof.
SECTION 4.02. Election and Term of Office. The officers of the
Corporation, except those elected by delegated authority pursuant to Section
4.03 of these By-Laws, shall be elected annually by the board of directors, and
each such officer shall hold office for a term of one year and until a
successor is elected and qualified, or until his or her earlier resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation.
SECTION 4.03. Subordinate Officers, Committees and Agents. The
Board of Directors may from time to time elect such other officers and appoint
such committees, employees or other agents as it deems necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as are provided in these By-Laws, or as the Board of Directors may
from time to time determine. The Board of Directors may delegate to any
officer or committee the power to elect subordinate officers and to retain or
appoint employees or other agents, or committees thereof, and to prescribe the
authority and duties of such subordinate officers, committees, employees or
other agents.
SECTION 4.04. Removal. Any officer elected, or agent appointed, by
the Board of Directors may be removed by the affirmative vote of a majority of
the total number of directors then in office whenever, in their judgment, the
best interests of the Corporation would be served thereby. Any officer or
agent appointed by another officer by delegated authority pursuant to Section
4.03 may be removed by him whenever, in his judgment, the best interests of the
Corporation would be served thereby. No elected officer shall have any
contractual rights against the Corporation for compensation by virtue of such
election beyond the date of the election of his successor, his death, his
resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or under an employee deferred
compensation plan.
SECTION 4.05. Vacancies. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by
another officer by delegated authority pursuant to Section 4.03 because of
death, resignation, or removal may be filled by such other officer.
SECTION 4.06. The Chairman and Vice Chairman of the Board. The
Chairman of the Board, if there be one, or in the absence of the Chairman, the
Vice Chairman of the Board, if there be one, shall preside at all meetings of
the stockholders and of the Board of Directors, and shall perform such other
duties as may from time to time be assigned to them by the Board of Directors.
To be eligible to serve, the Chairman of the Board and the Vice Chairman must
be directors of the Corporation.
SECTION 4.07. The President. The President shall have general
supervision over the business and operations of the Corporation, subject,
however, to the control of the board of directors. The President shall, in
general, perform all duties incident to the office of President, and such other
duties as from time to time may be assigned by the Board of Directors and, if
the Chairman of the Board is the Chief Executive Officer, the Chairman of the
Board.
SECTION 4.08. The Vice Presidents. The Vice Presidents shall
perform the duties of the president in the absence of the President and such
other duties as may from time to time be assigned to them by the Board of
Directors or by the President.
SECTION 4.09. The Secretary. The Secretary, or an Assistant
Secretary, shall attend all meetings of the stockholders and of the Board of
Directors and shall record the proceedings of the stockholders and of the
directors and of committees of the board in a book or books to be kept for that
purpose; shall see that notices are given and records and reports properly kept
and filed by the Corporation as required by law; shall be the custodian of the
seal of the Corporation and see that it is affixed to all documents to be
executed on behalf of the Corporation under its seal; and, in general, shall
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perform all duties incident to the office of Secretary, and such other duties
as may from time to time be assigned by the Board of Directors or the
President.
SECTION 4.10. The Treasurer. The Treasurer, or an Assistant
Treasurer, shall have or provide for the custody of the funds or other property
of the Corporation; shall collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
Corporation; shall deposit all funds in his or her custody as Treasurer in such
banks or other places of deposit as the Board of Directors may from time to
time designate; whenever so required by the Board of Directors, shall render an
account showing his or her transactions as treasurer and the financial
condition of the Corporation; and, in general, shall discharge such other
duties as may from time to time be assigned by the Board of Directors or the
President.
SECTION 4.11. Officers' Bonds. No officer of the Corporation need
provide a bond to guarantee the faithful discharge of the officer's duties
unless the Board of Directors shall by resolution so require a bond in which
event such officer shall give the Corporation a bond (which shall be renewed if
and as required) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of office.
SECTION 4.12. Salaries. The salaries of the officers and agents of
the Corporation elected by the Board of Directors shall be fixed from time to
time by the Board of Directors.
ARTICLE V
Certificates of Stock, Transfer, Etc.
SECTION 5.01. Form and Issuance.
(a) Issuance. The shares of the Corporation shall be represented by
certificates unless the Board of Directors shall by resolution provide that
some or all of any class or series of stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate
until the certificate is surrendered to the Corporation. Notwithstanding the
adoption of any resolution providing for uncertificated shares, every holder of
stock represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation by, the Chairman or Vice Chairman of the Board of
Directors, or the President or Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary, representing
the number of shares registered in certificate form.
(b) Form and Records. Stock certificates of the Corporation shall
be in such form as approved by the Board of Directors. The stock record books
and the blank stock certificate books shall be kept by the Secretary or by any
agency designated by the Board of Directors for that purpose. The stock
certificates of the Corporation shall be numbered and registered in the stock
ledger and transfer books of the Corporation as they are issued.
(c) Signatures. Any of or all the signatures upon the stock
certificates of the Corporation may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any share certificate shall have ceased to be such officer,
transfer agent or registrar, before the certificate is issued, it may be issued
with the same effect as if the signatory were such officer, transfer agent or
registrar at the date of its issue.
SECTION 5.02. Transfer. Transfers of shares shall be made on the
share register or transfer books of the Corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made which
would be inconsistent with the provisions of Article 8, Title 6 of the Delaware
Uniform Commercial Code-Investment Securities.
SECTION 5.03. Lost, Stolen, Destroyed or Mutilated Certificates.
The Board of Directors may direct a new certificate of stock or uncertificated
shares to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or the legal representative of the
owner, to give the Corporation a bond sufficient to indemnify against any claim
that may be made against the Corporation on account of the alleged loss, theft
or destruction of such certificate or the issuance of such new certificate or
uncertificated shares.
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SECTION 5.04. Record Holder of Shares. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
SECTION 5.05. Determination of Stockholders of Record.
(a) Meetings of Stockholders. 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, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting. If no record date is fixed by the board of
directors, 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. 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 unless the board of directors fixes a new record date for the
adjourned meeting.
(b) Consent of Stockholders. In order that the Corporation may
determine the stockholders entitled to consent to corporate action in writing
without a meeting, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors, and which date shall not be more
than ten (10) days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is required by the DGCL, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by the DGCL, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action.
(c) Dividends. In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights of the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
ARTICLE VI
Indemnification of Directors, Officers and
Other Authorized Representatives
SECTION 6.01. Indemnification of Authorized Representatives in Third
Party Proceedings. The Corporation shall indemnify any person who was or is an
authorized representative of the Corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the
Corporation, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the authorized representative did not act in good faith and in
a manner which such person reasonably believed to be in or not opposed to, the
best interests of the Corporation, and, with respect to any criminal third
party proceeding, had reasonable cause to believe that such conduct was
unlawful.
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SECTION 6.02. Indemnification of Authorized Representatives in
Corporate Proceedings. The Corporation shall indemnify any person who was or
is an authorized representative of the Corporation and who was or is a party or
is threatened to be made a party to any corporate proceeding, by reason of the
fact that such person was or is an authorized representative of the
Corporation, against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such corporate proceeding if
such person acted in good faith and in a manner reasonably believed to be in,
or not opposed to, the best interests of the Corporation and except that 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 Court of Chancery or the court in which
such corporate proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such authorized representative is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 6.03. Mandatory Indemnification of Authorized
Representatives. To the extent that an authorized representative or other
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any third party or corporate proceeding or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith.
SECTION 6.04. Determination of Entitlement to Indemnification. Any
indemnification under Section 6.01, 6.02 or 6.03 of these By-Laws (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the authorized
representative or other employee or agent is proper in the circumstances
because such person has either met the applicable standard of conduct set forth
in Section 6.01 or 6.02 or has been successful on the merits or otherwise as
set forth in Section 6.03 and that the amount requested has been actually and
reasonably incurred. 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 third party or
corporate 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.
SECTION 6.05. Advancing Expenses. Expenses actually and
reasonably incurred in defending a third party or corporate proceeding shall be
paid on behalf of an authorized representative by the Corporation in advance of
the final disposition of such third party or corporate proceeding upon receipt
of an undertaking by or on behalf of the authorized representative to repay
such amount if it shall ultimately be determined that the authorized
representative is not entitled to be indemnified by the Corporation as
authorized in this Article. The financial ability of any authorized
representative to make a repayment contemplated by this section shall not be a
prerequisite to the making of an advance. 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.
SECTION 6.06. Definitions. For purposes of these By-Laws:
(1) "authorized representative" shall mean any and all
directors and officers of the Corporation and any person designated
as an authorized representative by the Board of Directors of the
Corporation (which may, but need not, include any person serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise);
(2) "Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority
to indemnify its directors, officers, employees or agents, so that
any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the
provisions of Article VI with respect to the resulting or surviving
corporation as such person would have with respect to such
constituent corporation if its separate existence had continued;
(3) "corporate proceeding" shall mean any threatened, pending
or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor or investigative proceeding by the
Corporation;
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(4) "criminal third party proceeding" shall include any
action or investigation which could or does lead to a criminal third
party proceeding;
(5) "expenses" shall include attorneys' fees and
disbursements;
(6) "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan;
(7) "not opposed to the best interests of the Corporation"
shall include actions taken in good faith and in a manner the
authorized representative reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the Corporation" shall
include any service as a director, officer or employee of the
Corporation which imposes duties on, or involves services by, such
director, officer or employee with respect to an employee benefit
plan, its participants, or beneficiaries;
(11) "third party proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by
or in the right of the Corporation;
(12) "his" shall include the pronoun "hers"; and
(13) "Board" shall mean the Board of Directors of the
Corporation and "Director" shall mean a member of the Board of
Directors.
SECTION 6.07. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against the person and incurred by the person in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power or the obligation to indemnify such person against such
liability under the provisions of this Article.
SECTION 6.08. Scope of Article. The indemnification of
authorized representatives and advancement of expenses, as authorized by the
preceding provisions of this Article, shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office. The indemnification and
advancement of expenses provided by or granted pursuant to Article VI shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be an authorized representative and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 6.09. Reliance on Provisions. Each person who shall
act as an authorized representative of the Corporation shall be deemed to be
doing so in reliance upon rights of indemnification provided by Article VI.
ARTICLE VII
General Provisions
SECTION 7.01. Waiver of Notice. Whenever any notice is
required to be given to any stockholder or director of the Corporation under
the provisions of the DGCL or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders or the Board of Directors or
committee thereof need be specified in any waiver of notice of such meeting.
SECTION 7.02. Dividends. Subject to the restrictions
contained in the DGCL and any restrictions contained in the Certificate of
Incorporation, the board of directors may declare and pay dividends upon the
shares of capital stock of the Corporation.
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SECTION 7.03. Contracts. Except as otherwise required by
law, the Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman of the
Board, if an executive officer, the President or any Vice President may execute
bonds, contracts, deeds, leases, and other instruments to be made or executed
for or on behalf of the Corporation. Subject to any restrictions imposed by
the Board of Directors, the Chairman of the Board, if an executive officer, the
President or any Vice President of the Corporation may delegate contractual
powers to others under his jurisdiction, it being understood, however, that any
such delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 7.04. Corporate Seal. The Corporation shall have a
corporate seal, which shall have inscribed thereon the name of the Corporation,
the year of its organization and the words "Corporate Seal, Delaware." The
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or in any other manner reproduced.
SECTION 7.05. Deposits. All funds of the Corporation shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies, or other depositories as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by
such one or more officers or employees as the Board of Directors shall from
time to time determine.
SECTION 7.06. Corporate Records.
(a) Examination by Stockholders. Every stockholder shall,
upon written demand under oath stating the purpose thereof, have a right to
examine, in person or by agent or attorney, during the usual hours for
business, for any proper purpose, the stock ledger, list of stockholders, books
or records of account, and records of the proceedings of the stockholders and
directors of the Corporation, and to make copies or extracts therefrom. A
proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in Delaware or at its principal place of business. Where the
stockholder seeks to inspect the books and records of the , other than its
stock ledger or list of stockholders, the stockholder shall first establish (1)
that the stockholder has complied with the provisions of this Section
respecting the form and manner of making demand for inspection of such
documents; and (2) that the inspection sought is for a proper purpose. Where
the stockholder seeks to inspect the stock ledger or list of stockholders of
the Corporation and has complied with the provisions of this Section respecting
the form and manner of making demand for inspection of such documents, the
burden of proof shall be upon the Corporation to establish that the inspection
sought is for an improper purpose.
(b) Examination by Directors. Any director shall have the
right to examine the Corporation's stock ledger, a list of its stockholders and
its other books and records for a purpose reasonably related to the person's
position as a director.
SECTION 7.07. Resignations. Any director or any officer,
whether elected or appointed, may resign at any time by giving written notice
of such resignation to the Chairman of the Board, the President, or the
Secretary, and such resignation shall be deemed to be effective as of the close
of business on the date said notice is received by the Chairman of the Board,
the President, or the Secretary, or at such later time as is specified therein.
No formal action shall be required of the Board of Directors or the
stockholders to make any such resignation effective.
SECTION 7.08. Removal. Any director or the entire Board of
Directors may be removed, with or without cause, by the holders of shares
entitled to cast a majority of the votes which all stockholders are entitled to
cast at an election of directors.
SECTION 7.09. Proxies. Unless otherwise provided by
resolution adopted by the Board of Directors, the Chairman of the Board, the
President or any Vice President may from time to time appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to
cast as the holder of stock or other securities in any other corporation, any
of whose stock or other securities may be held by the Corporation, at meetings
of the holders of the stock or other securities of such other corporation, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and
may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal or otherwise, all such written proxies
or other instruments as he may deem necessary or proper in the premises.
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SECTION 7.10. Amendment of By-Laws. These By-Laws may be
altered, amended, or repealed at any meeting of the Board of Directors or of
the stockholders, provided notice of the proposed change was given in the
notice of the meeting and, in the case of a meeting of the Board of Directors,
in a notice given not less than two (2) days prior to the meeting; provided,
however, that, in the case of amendments by the Board of Directors,
notwithstanding any other provisions of these By-Laws or any provision of law
which might otherwise permit a lesser vote or no vote, the affirmative vote of
a majority of the directors then in office shall be required to alter, amend or
repeal any provision of these By-Laws; and further provided, that in the case
of amendments by stockholders, notwithstanding any other provisions of these
By-Laws or any provision of law which might otherwise permit a lesser vote or
no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law, the Certificate of Incorporation or these By-Laws, the affirmative vote of
the holders of at least 66-2/3 percent of the voting power of all the then
outstanding shares having the right to vote thereon, voting together as a
single class, shall be required to alter, amend or repeal any provision of
these By-Laws.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
THE COMPANY
The Company's By-Laws provide that, subject to the OBCA, the
Company shall indemnify a director or officer of the Company, a former director
or officer of the Company or a person who acts or acted at the Company's
request as a director or officer of a body corporate of which the Company is or
was a shareholder or creditor, and his heirs and legal representatives, against
all costs, charges and expenses, including an amount paid to settle an action
or satisfy a judgment, reasonably incurred by him in respect of any civil,
criminal or administrative action or proceeding to which he is made a party by
reason of his office if he acted honestly and in good faith with a view to the
best interests of the Company, and, in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, he had reasonable
grounds for believing that his conduct was lawful. The Company shall also
indemnify any such person in such other circumstances as the Act or law permits
or requires.
Section 136 of the OBCA provides:
136. (1) Indemnification of directors. -- A corporation
may indemnify a director or officer of the corporation,
a former director or officer of the corporation or a
person who acts or acted at the corporation's request
as a director or officer of a body corporate of which
the corporation is or was a shareholder or creditor,
and his or her heirs and legal representatives, against
all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment,
reasonably incurred by him or her in respect of any
civil, criminal or administrative action or proceeding
to which he or she is made a party by reason of being
or having been a director or officer of such
corporation or body corporate, if,
(a) he or she acted honestly and in good faith
with a view to the best interests of the
corporation; and
(b) in the case of a criminal or
administrative action or proceeding that is
enforced by a monetary penalty, he or she had
reasonable grounds for believing that his or
her conduct was lawful.
(2) Idem. -- A corporation may, with the approval of
the court, indemnify a person referred to in subsection
(1) in respect of an action by or on behalf of the
corporation or body corporate to procure a judgment in
its favor, to which the person is made a party by
reason of being or having been a director or an officer
of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by the
person in connection with such action if he or she
fulfills the conditions set out in clauses (1)(a) and
(b).
(3) Idem. -- Despite anything in this section, a
person referred to in subsection (1) is ntitled to
indemnity from the corporation in respect of all costs,
charges and expenses reasonably incurred by him in
connection with the defence of any civil, criminal or
administrative action or proceeding to which he or she
is made a party by reason of being or having been a
director or officer of the corporation or body
corporate, if the person seeking indemnity,
(a) was substantially successful on the merits
in his or her defence of the action or
proceeding; and
(b) fulfills the conditions set out in clauses (1)(a)
and (b).
(4) Liability insurance. -- A corporation may purchase and
maintain insurance for the benefit of any person referred to in
subsection (1) against any liability incurred by the person,
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<PAGE> 110
(a) in his or her capacity as a director or officer of
the corporation, except where the liability relates to
the person's failure to act honestly and in good faith
with a view to the best interests of the corporation;
or
(b) in his or her capacity as a director or officer of
another body corporate where the person acts or acted
in that capacity at the corporation's request, except
where the liability relates to the person's failure to
act honestly and in good faith with a view to the best
interests of the body corporate.
(5) Application to court. -- A corporation or a person
referred to in subsection (1) may apply to the court for an
order approving an indemnity under this section and the court
may so order and make any further order it thinks fit..
(6) Idem. -- Upon an application under subsection (5), the
court may order notice to be given to any interested person
and such person is entitled to appear and be heard in person
or by counsel.
Cable & Wireless currently extends to the Company the coverage of the
directors and officers liability which it maintains in the amount of pound
sterling 50,000,000 (approximately $75,000,000) to the officers and directors
of the Company for any loss incurred in connection with the performance of
their duties and to the Company and its subsidiaries for any loss for which
they have indemnified their respective directors or officers as permitted by
law.
PLD DELAWARE
Section 145 of the DGCL permits a corporation to indemnify any of its
directors or officers who was or is a party, or is threatened to be made a
party to any third party proceeding by reason of the fact that such person is
or was a director or officer of the corporation, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reason to believe that such person's conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, the corporation is
permitted to indemnify directors and officers against expenses (including
attorneys' fees) actually and reasonably incurred by them in connection with
the defense or settlement of an action or suit if they acted in good faith and
in a manner that they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors or officers are fairly
and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
The Certificate of Incorporation of PLD Delaware provides that no director of
PLD Delaware 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 DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The By-Laws of PLD Delaware also provide that PLD Delaware may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against the person and incurred by the person in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify such person
against such liability under the provisions of this Article.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company or PLD Delaware pursuant to the foregoing provisions,
the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended and is therefore unenforceable.
2
<PAGE> 111
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
2* Form of Certificate of Domestication (included as Schedule "C" to the
Circular/Prospectus).
3.1* Form of Certificate of Incorporation of PLD Delaware (included as Schedule "D"
to the Circular/Prospectus).
3.2* Form of By-Laws of PLD Delaware (included as Schedule "E" to the
Circular/Prospectus).
5** Opinion of Morgan, Lewis & Bockius LLP regarding validity of securities
being registered.
8.1** Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.
8.2** Opinion of Blake, Cassels & Graydon regarding tax matters.
23.1* Consent of KPMG, chartered accountants.
23.2** Consent of Morgan, Lewis & Bockius LLP (included in the opinion filed as
Exhibit 5 to this Registration).
23.3** Consent of Blake, Cassels & Graydon (included in the opinion filed as
Exhibit 8.2 to this Registration Statement).
27* Financial Data Schedule.
</TABLE>
------------------
* Filed herewith.
** To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange
Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bonafide
offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of
3
<PAGE> 112
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(c) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this registration statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the
applicable form.
(d) That every prospectus (i) that is filed pursuant to paragraph
(c) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(e) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13
of this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(f) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
4
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in London, England on
December 19, 1996.
PLD TELEKOM INC.
By: /s/ James R. S. Hatt
----------------------------------------
James R. S. Hatt
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald R. Cripps Director December 19, 1996
- ---------------------------
Ronald R. Cripps
/s/ Simon Edwards Chief Financial Officer December 19, 1996
- --------------------------- (Principal Financial Officer)
Simon Edwards
/s/ James R. S. Hatt Director, President and December 19, 1996
- --------------------------- Chief Executive Officer
James R. S. Hatt (Principal Executive Officer)
/s/ David L. Heavenridge Director December 19, 1996
- ---------------------------
David L. Heavenridge
/s/ Timothy P. Lowry Director December 19, 1996
- ---------------------------
Timothy P. Lowry
/s/ Robert Smith Director December 19, 1996
- ---------------------------
Robert Smith
/s/ David M. Stovel Director and Vice Chairman December 19, 1996
- ---------------------------
David M. Stovel
/s/ Richard Wainright-Lee Director December 19, 1996
- ---------------------------
Richard Wainright-Lee
/s/ Clayton A. Waite Director December 19, 1996
- ---------------------------
Clayton A. Waite
/s/ Douglas T. Waite Director December 19, 1996
- ---------------------------
Douglas T. Waite
</TABLE>
5
<PAGE> 114
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
2* Form of Certificate of Domestication (included as Schedule "C"
to the Circular/Prospectus).
3.1* Form of Certificate of Incorporation of PLD Delaware (included as
Schedule "D" to the Circular/Prospectus).
3.2* Form of By-Laws of PLD Delaware (included as Schedule "E" to the
Circular/Prospecuts).
5** Opinion of Morgan, Lewis & Bockius LLP regarding validity of securities
being registered.
8.1** Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.
8.2** Opinion of Blake, Cassels & Graydon regarding tax matters.
23.1* Consent of KPMG, chartered accountants.
23.2** Consent of Morgan, Lewis & Bockius LLP (included in the opinion filed as
Exhibit 5 to this Registration).
23.3** Consent of Blake, Cassels & Graydon (included in the opinion filed as
Exhibit 8.2 to this Registration Statement).
27* Financial Data Schedule.
</TABLE>
------------------
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
Exhibit 23.1
CONSENT OF KPMG
The Board of Directors
PLD Telekom Inc.
We consent to the use of our audit report dated April 15, 1996 on the
consolidated balance sheets of PLD Telekom Inc. (formerly Petersburg Long
Distance Inc.) and subsidiaries as at December 31, 1995 and 1994 and the
consolidated statements of operations, deficit and changes in financial
position for each of the years in the three-year period ended December 31, 1995
which are included in the Company's annual report on Form 20-F for the fiscal
year ended December 31, 1995 which is incorporated by reference in the
prospectus that forms part of this registration statement. Also consent to the
use of our audit report dated April 15, 1996, except as to note 19(b) which is
as of June 12, 1996, on the consolidated balance sheets of PLD Telekom Inc.
(formerly Petersburg Long Distance Inc.) and subsidiaries as at December 31,
1995 and 1994 and the consolidated statements of operations, deficit and
changes in financial position for each of the years in the three-year period
ended December 31, 1995, prepared in accordance with United States generally
accepted accounting principles, which are included in the prospectus that forms
part of this registration statement. We also consent to the reference to our
firm under the heading "Experts" in the prospectus that forms part of this
registration statement.
/s/ KPMG
Chartered Accountants
Calary Canada
December 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 43,477
<SECURITIES> 0
<RECEIVABLES> 7,327
<ALLOWANCES> 0
<INVENTORY> 938
<CURRENT-ASSETS> 66,735
<PP&E> 73,395
<DEPRECIATION> 8,449
<TOTAL-ASSETS> 292,094
<CURRENT-LIABILITIES> 30,294
<BONDS> 90,997
0
31
<COMMON> 180,878
<OTHER-SE> (22,395)
<TOTAL-LIABILITY-AND-EQUITY> 292,094
<SALES> 0
<TOTAL-REVENUES> 40,673
<CGS> 0
<TOTAL-COSTS> 12,788
<OTHER-EXPENSES> 25,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,982
<INCOME-PRETAX> (3,200)
<INCOME-TAX> 3,118
<INCOME-CONTINUING> (7,967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,967)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 15,676
<SECURITIES> 0
<RECEIVABLES> 3,171
<ALLOWANCES> 0
<INVENTORY> 1,289
<CURRENT-ASSETS> 30,295
<PP&E> 50,262
<DEPRECIATION> 4,905
<TOTAL-ASSETS> 180,258
<CURRENT-LIABILITIES> 36,620
<BONDS> 0
0
31
<COMMON> 179,887
<OTHER-SE> (41,920)
<TOTAL-LIABILITY-AND-EQUITY> 180,258
<SALES> 0
<TOTAL-REVENUES> 29,120
<CGS> 0
<TOTAL-COSTS> 10,382
<OTHER-EXPENSES> 28,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 957
<INCOME-PRETAX> (14,076)
<INCOME-TAX> 1,490
<INCOME-CONTINUING> (16,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,117)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
