<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1997
REGISTRATION NO. 333-18713
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
AMENDMENT NO. 1
TO
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)
<TABLE>
<S> <C> <C>
ONTARIO 4813 N/A
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification 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. [ ]
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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<PAGE> 2
LOGO
January 22, 1997
TO OUR SHAREHOLDERS
Enclosed with this letter is an Information Circular/Prospectus relating to
a Meeting of the shareholders of the Company called for February 27, 1997 at the
King Edward Hotel, Toronto, Ontario, to consider, and if thought fit, approve
the change of the corporate domicile of the Company from Canada to the United
States.
As described in detail in the enclosed material, management of the Company
and the Board of Directors have unanimously concluded that the emigration is in
the best interests of the Company and recommend that the shareholders approve
the emigration. The principal reasons for the proposed emigration include: lower
costs of capital resulting from improved access to capital markets and
government-supported financing sources in the United States; the avoidance in
the future of the Company's current status as a "passive foreign investment
company" under the United States Internal Revenue Code, with its certain adverse
effects on United States shareholders; the Company's increasingly limited
contact with Canada resulting from all of its businesses operating in the former
Soviet Union and over 90% of its shares being held outside Canada; and
constraints imposed by the Business Corporations Act (Ontario), which requires a
majority of the Company's Board of Directors and Committee Members to be
Canadian residents.
We look forward to your attendance at the meeting. If you are unable to
attend personally, please complete and file a proxy in accordance with the
instructions contained in the enclosed material.
Also included with this letter are important United States federal income
tax materials, including a qualified election fund (QEF) election form. These
materials require prompt attention by shareholders subject to the United States
federal income tax laws.
Sincerely,
PLD TELEKOM INC.
LOGO
James R.S. Hatt
Chairman and Chief Executive Officer
<PAGE> 3
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 the Kensington
Room, the King Edward Hotel, 37 King Street East, Toronto, Ontario on Thursday,
February 27, 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 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 22nd day of January, 1997
By Order of the Board
LOGO James R.S. Hatt
Chairman and Chief Executive Officer
<PAGE> 4
PLD TELEKOM INC.
166 PEARL STREET
TORONTO, ONTARIO M5H 1L3
---------------------
INFORMATION CIRCULAR
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 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 Thursday, February 27, 1997 (the
"Meeting") at the Kensington Room, the King Edward Hotel, 37 King Street East,
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 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 "PLD Delaware Common Stock"), PLD Delaware Series II Preferred Stock,
without par value (the "PLD Delaware Series II Preferred Stock"), and PLD
Delaware
<PAGE> 5
Series III Preferred Stock, without par value (the "PLD Delaware 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 February 25, 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 February 25, 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 22, 1997 and is
being mailed to shareholders on or about January 24, 1997.
2
<PAGE> 6
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 (the
"OSC"), 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, PLD Delaware Series II Preferred Stock
and PLD Delaware 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.
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,
3
<PAGE> 7
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 RECEIVED BY FEBRUARY 17, 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 RESIDENTS 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
<TABLE>
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AVAILABLE INFORMATION................................................................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE FOR UNITED STATES PURPOSES............ 3
SUMMARY............................................................................... 7
RISK FACTORS.......................................................................... 17
THE MEETING........................................................................... 21
General............................................................................. 21
Purpose of the Meeting.............................................................. 21
Voting Rights....................................................................... 21
Solicitation and Revocation of Proxies.............................................. 22
THE CONTINUANCE....................................................................... 22
General............................................................................. 22
Continuation by the Company as PLD Delaware in Accordance with the Special
Resolution....................................................................... 23
Effects of the Continuance.......................................................... 23
Background to and Principal Reasons for the Continuance............................. 24
Selection of State of Delaware...................................................... 26
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS.................................... 26
The Company......................................................................... 27
Shareholders Resident in Canada..................................................... 27
Shareholders Not Resident in Canada................................................. 28
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............................... 29
Tax-Free Reorganization............................................................. 29
Consequences to the Company......................................................... 30
Consequences to Participating U.S. Shareholders..................................... 30
Dissenting Shareholders............................................................. 31
Dividends Paid to Non-U.S. Shareholders............................................. 31
Consequences to Warrant Holders..................................................... 31
Consequences to Debt Holders........................................................ 31
Backup Withholding.................................................................. 32
COMPARISON OF SHAREHOLDERS' RIGHTS.................................................... 32
Vote Required for Extraordinary Transactions........................................ 32
Amendment to Governing Documents.................................................... 33
Dissenters' Rights.................................................................. 33
Oppression Remedy................................................................... 34
Derivative Action................................................................... 34
Shareholder Consent in Lieu of Meeting.............................................. 35
Director Qualifications............................................................. 35
Fiduciary Duties of Directors....................................................... 35
Indemnification of Officers and Directors........................................... 36
Director Liability.................................................................. 36
Anti-takeover Provisions and Interested Stockholder Transactions.................... 37
DISSENTING SHAREHOLDERS' RIGHTS....................................................... 38
MANAGEMENT OF THE COMPANY............................................................. 40
Compensation of Directors and Officers.............................................. 41
DESCRIPTION OF CAPITAL STOCK.......................................................... 41
PLD Delaware Common Stock........................................................... 41
PLD Delaware Preferred Stock........................................................ 42
NATURE OF THE TRADING MARKET.......................................................... 42
</TABLE>
5
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<TABLE>
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LEGAL MATTERS......................................................................... 43
EXPERTS............................................................................... 43
OTHER MATTERS WHICH MAY COME BEFORE THE MEETING....................................... 43
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF PLD TELEKOM INC......................... F-1
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>
6
<PAGE> 10
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, 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, 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," "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 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
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
7
<PAGE> 11
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."
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 an application for continuance will be filed with the Director under the
OBCA, and 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 and which include, among other
things, the proxy disclosure and solicitation requirements under Section 14 of
the Exchange Act and the short swing profit rules under Section 16 of the
Exchange Act. 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 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 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.
8
<PAGE> 12
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, 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 may be 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 21, 1997, more than 90% 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.
9
<PAGE> 13
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 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 "The Continuance -- Effects of
the Continuance," "Description of Capital Stock" and "Comparison of
Shareholders' Rights."
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. 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.
10
<PAGE> 14
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.
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.
PLD Delaware does not anticipate paying dividends in the foreseeable
future. However, 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.
11
<PAGE> 15
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 (if any), subject to
any applicable foreign tax credits available for income taxed in other
jurisdictions, 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.
The Company and one of its subsidiaries, Technocom may be PFICs for United
States federal income tax purposes. The Company is recommending 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
12
<PAGE> 16
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
Thursday, February 27, 1997 at the Kensington Room, the King Edward Hotel, 37
King Street East, 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 this
Circular/Prospectus and "The Continuance."
Record Date. January 22, 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 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 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.
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.
13
<PAGE> 17
OTHER CONSENTS REQUIRED
Under the OBCA, the authorizations of the Corporations Tax Branch of the
Ministry of Revenue of the Province of Ontario (the "Ontario Ministry of
Revenue") and the OSC are required in respect of the Continuance. The Company
has received such authorization from the OSC, subject to shareholder approval of
the Continuance. The Company has also made application for such authorization to
the Ontario Ministry of Revenue and believes that such consent 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 21, 1997 were $8.00
and Cdn. $10.50, respectively. See "Nature of Trading Market."
14
<PAGE> 18
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, FISCAL YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991(1)
------- ------- -------- -------- -------- ------- -------
(UNAUDITED)
(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>
15
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------------------------
1996 1995 1994 1993 1992 1991(1)
------------- -------- -------- ------- ------- -------
(UNAUDITED)
(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)
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 ended 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.
16
<PAGE> 20
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. 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.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
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. However,
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.
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 (if any), subject to
any applicable foreign tax credits available for income taxed in other
jurisdictions, 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, under certain
other 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.
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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.
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.
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):
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
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<PAGE> 22
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 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
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<PAGE> 23
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.
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<PAGE> 24
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 Thursday, February 27, 1997 at the Kensington Room, the
King Edward Hotel, 37 King Street East, 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 along with a Certificate of
Domestication, which are attached as Schedules "D" and "C" 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 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 22, 1997 as the
Record Date for the determination of shareholders of the Company entitled to
notice and to vote at the Meeting. At January 22, 1997, the Company had
outstanding 31,708,534 Common Shares, each of which carries one vote. Only
holders of such Common Shares of record as of January 22, 1997 or transferees of
such shares who produce, prior to February 17, 1997, proper evidence of
ownership of such shares will be entitled to vote at the Meeting. At January 21,
1997, CEDE & Co. (The Depository Trust Company) was the registered holder of
Common Shares representing 53.7% 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 31.7% of all voting
rights outstanding as of January 21, 1997. 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
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<PAGE> 25
under the OBCA. The Board of Directors has not considered any alternative action
if the Continuance is not approved.
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 February 25, 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 February 25, 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
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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.
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 Ontario Ministry of Revenue and the OSC prior to continuation. The
Company has obtained authorization from the OSC, subject to shareholder approval
of the Continuance. The Company also has made application for such authorization
to the Ontario Ministry of Revenue and believes that such consent will be
granted.
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 the Company has continued in Delaware, the OBCA
will cease to apply to the Company.
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 Series II Convertible Preferred Shares and Series
III Convertible Preferred Shares, of the Company will continue to hold one share
of PLD Delaware
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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.
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 and which include, among other
things, the proxy disclosure and solicitation requirements under Section 14 of
the Exchange Act and the short swing profit rules under Section 16 of the
Exchange Act. 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.
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<PAGE> 28
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.
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 January 21, 1997,
more than 90% 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 1994, 1995 and 1996 was
13,312,376 shares, 19,090,619 shares and 20,944,972 shares respectively. The
comparable figures for The Toronto Stock Exchange were 558,126 shares, 1,759,330
shares and 712,179 shares respectively.
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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
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
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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.
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 conclusion 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. 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. In reaching
its conclusions, the Company has also 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.
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
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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 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. 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 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 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 such shares 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 the
Company and more than 50% of the fair market value of the shares of PLD Delaware
Common Stock 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.
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. Such shareholder should
consult his or her own tax advisors in this regard.
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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 held by each of the Company's
shareholders immediately following the effective date of the Continuance 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, 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
Continuance, PLD Delaware will possess the same assets and liabilities, except
for 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 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.
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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 (if any), subject to any applicable foreign tax credits available for
income taxed in other jurisdictions, 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 is recommending 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.
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.
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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, 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.
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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
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
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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.
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.
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<PAGE> 37
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).
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
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<PAGE> 38
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.
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.
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<PAGE> 39
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
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.
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<PAGE> 40
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.
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.
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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, 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.
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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 -- Shareholders Resident in
Canada -- Dissenting Shareholders" and "-- Shareholders Not Resident in
Canada -- Dissenting Shareholders" and "Certain United States Federal Income Tax
Considerations -- Dissenting Shareholders."
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<PAGE> 43
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, President and Chief Executive 10,000
Officer
David L. Heavenridge............. 49 Director 2,622,330(1)
Timothy P. Lowry................. 41 Director --
Peter Owen-Edmunds............... 38 Representative Director, Russia --
Robert Smith..................... 58 Director 1,000
David M. Stovel.................. 47 Director --
Richard Wainright-Lee............ 49 Director --
Clayton A. Waite................. 36 Director and Vice President -- Administration 300
Douglas T. Waite................. 70 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 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.
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.
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<PAGE> 44
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, 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 Director of Group Development and Regional Businesses of Cable &
Wireless. He has held various senior positions at Cable & Wireless since August
1991.
Clayton A. Waite has served as Vice President -- Administration 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, David L. Heavenridge and David M. Stovel.
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 will be
100,000,000 shares of common stock, without par value, and 100,000,000 shares of
preferred stock without par value. As of January 22, 1997, there were 31,708,534
Common Shares, 405,217 Series II Convertible Preferred Shares and 41,667 Series
III Convertible Preferred 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.
41
<PAGE> 45
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
PLD Delaware 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 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
PLD Delaware 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 21, 1997 were $8.00 and
Cdn.$10.50, 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
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
------ ------
<S> <C> <C>
1996
2nd Quarter........................................................ $9.000 $4.500
3rd Quarter........................................................ $8.500 $6.125
4th Quarter........................................................ $8.125 $5.500
</TABLE>
42
<PAGE> 46
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 fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
CLOSING PRICES
HIGH LOW
----------- ----------
<S> <C> <C>
1996
2nd Quarter............................................... Cdn.$12.000 Cdn.$6.200
3rd Quarter............................................... Cdn.$11.500 Cdn.$8.400
4th Quarter............................................... Cdn.$10.800 Cdn.$7.250
</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.
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/Prospectus 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.
LOGO James R.S. Hatt
Chairman and Chief Executive Officer
January 22, 1997
43
<PAGE> 47
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-23
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-24
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-25
Notes to Interim Consolidated Financial Statements (unaudited)........................ F-26
</TABLE>
F-1
<PAGE> 48
'(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> 49
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.
LOGO
Chartered Accountants
Toronto, Canada
April 15, 1996, except as to note 19(b)
which is as of June 12, 1996
F-3
<PAGE> 50
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.
<TABLE>
<S> <C> <C>
LOGO LOGO
On behalf of the Board:
---------------------------------------- ----------------------------------------
Robert Smith Clayton A. Waite
Director Director
</TABLE>
F-4
<PAGE> 51
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> 52
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> 53
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> 54
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.
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
had 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)).
F-8
<PAGE> 55
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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.
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
F-9
<PAGE> 56
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-10
<PAGE> 57
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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)).
(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.
F-11
<PAGE> 58
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition of Technocom has been accounted for by the purchase method
effective December 31, 1994 as follows:
<TABLE>
<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.
The Company was 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.
F-12
<PAGE> 59
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition has been accounted for by the purchase method effective
April 30, 1995 as follows:
<TABLE>
<S> <C>
Net assets acquired:
Property and equipment.................................................... $ 35
Working capital........................................................... (45)
Goodwill.................................................................. 2,154
------
Total consideration............................................... $2,144
======
</TABLE>
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
======= ====== =======
</TABLE>
<TABLE>
<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-13
<PAGE> 60
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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
======= =======
</TABLE>
<TABLE>
<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>
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>
F-14
<PAGE> 61
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
------- -------
$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.
(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.
F-15
<PAGE> 62
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-16
<PAGE> 63
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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>
AMOUNT
NUMBER OF --------------------
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-17
<PAGE> 64
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Shares reserved: Changes in options and warrants outstanding to
purchase common shares of the Company are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE 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>
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>
F-18
<PAGE> 65
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
<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.
F-19
<PAGE> 66
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
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).
F-20
<PAGE> 67
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 for accounting
purposes. 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.
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.
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-21
<PAGE> 68
(KPMG LOGO)
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-22
<PAGE> 69
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-23
<PAGE> 70
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 13,247 8,137
------- ------- ------- -------
Gross profit.............................................. 11,430 4,292 27,426 12,696
Operating expenses:
General and administrative.............................. 6,313 3,391 15,557 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 24,734 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-24
<PAGE> 71
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-25
<PAGE> 72
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.
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
F-26
<PAGE> 73
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 for accounting
purposes. 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.
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.
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-27
<PAGE> 74
SCHEDULE "A"
SPECIAL RESOLUTION WITH RESPECT TO CONTINUANCE
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 as a Delaware corporation
under the DGCL and simultaneously discontinue its 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, 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> 75
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).
(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.
Sch. B-1
<PAGE> 76
(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.
(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
Sch. B-2
<PAGE> 77
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> 78
(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> 79
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> 80
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> 81
EXHIBIT A
1. 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.
2. 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 payable on such return of capital if
all amounts so payable were paid in full; provided, however, that in the event
of
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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.
3. 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.
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.
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<PAGE> 83
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.
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<PAGE> 84
(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 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
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<PAGE> 85
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 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
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<PAGE> 86
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.
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.
4. 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
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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
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.
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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 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
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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.
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 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.
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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 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 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 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 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"
BY- LAWS
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
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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.
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 10th 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
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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 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 (10th) 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
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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 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
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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 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
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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) 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.
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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.
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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 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
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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.
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
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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.
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.
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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;
(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.
Sch. E-12
<PAGE> 103
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.
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.
Sch. E-13
<PAGE> 104
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.
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.
Sch. E-14
<PAGE> 105
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 entitled 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,
(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
II-1
<PAGE> 106
(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.
II-2
<PAGE> 107
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
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.
99* -- Form of Proxy.
</TABLE>
- ------------------------
* Filed herewith.
** Filed Previously.
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 bona fide 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 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
II-3
<PAGE> 108
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.
II-4
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in London, England on January 22, 1997.
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 Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ RONALD R. CRIPPS Director January 22, 1997
- ---------------------------------------------
Ronald R. Cripps
/s/ SIMON EDWARDS Chief Financial Officer January 22, 1997
- --------------------------------------------- (Principal Financial
Simon Edwards Officer)
/s/ JAMES R. S. HATT Director, President and January 22, 1997
- --------------------------------------------- Chief Executive Officer
James R. S. Hatt (Principal Executive
Officer)
/s/ DAVID L. HEAVENRIDGE Director January 22, 1997
- ---------------------------------------------
David L. Heavenridge
/s/ TIMOTHY P. LOWRY Director January 22, 1997
- ---------------------------------------------
Timothy P. Lowry
/s/ ROBERT SMITH Director January 22, 1997
- ---------------------------------------------
Robert Smith
/s/ DAVID M. STOVEL Director January 22, 1997
- ---------------------------------------------
David M. Stovel
Director
- ---------------------------------------------
Richard Wainright-Lee
/s/ CLAYTON A. WAITE Director January 22, 1997
- ---------------------------------------------
Clayton A. Waite
/s/ DOUGLAS T. WAITE Director January 22, 1997
- ---------------------------------------------
Douglas T. Waite
</TABLE>
II-5
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------
<S> <C> <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.
99 * -- Form of Proxy.
</TABLE>
- ---------------
* Filed herewith.
** Filed previously.
<PAGE> 1
Exhibit 5
---------
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
January 23, 1997
PLD Telekom, Inc.
166 Pearl Street
Toronto, Ontario
M5H 1L3
CANADA
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to PLD Telekom Inc., an Ontario corporation
(the "Company"), in connection with the continuation of the Company as a
corporation ("PLD Delaware") under the Delaware General Corporation Law (the
"DGCL"), the simultaneous discontinuation of the Company as a corporation under
the Business Corporations Act (Ontario) (the "OBCA") (the "Continuance") and the
deemed issuance in connection therewith for purposes of the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"Act"), of up to 34,248,534 shares of the common stock, without par value (the
"Common Stock"), of PLD Delaware, 405,217 shares of Series II Convertible
Preferred Stock, without par value (the "Series II Preferred Stock"), of PLD
Delaware and 41,667 shares of Series III Convertible Preferred Stock, without
par value (the "Series III Preferred Stock" and, together with the Common Stock
and the Series II Preferred Stock, the "Shares") of PLD Delaware, all as
described in the Registration Statement on Form S-4 (File No. 333-18713), filed
with the Securities and Exchange Commission on December 24, 1996, as amended
(the "Registration Statement").
The consummation of the Continuance, and the issuance of the Shares with respect
thereto, is contingent upon, among other things, (i) the requisite approval of
the Special Resolution (as defined in the Registration Statement) and the
Certificate of Incorporation of PLD Delaware (the "Certificate of
Incorporation") by the shareholders of the Company in accordance with the OBCA,
(ii) the filing of an application with the Director under the OBCA for
authorization to continue (the "OBCA Authorization"), (iii) the filing of the
OBCA Authorization, the Certificate of Incorporation and a Certificate of
Domestication (the Certificate of Domestication, together with the Certificate
of Incorporation, the "Delaware Filings") with the Secretary of State of the
State of Delaware and (iv) the filing of a notice of the filing of the Delaware
Filings with the Director under the OBCA. This opinion is based upon our review
of the Registration Statement and our
<PAGE> 2
PLD Telekom Inc.
January 23, 1997
Page 2
assumption that the Continuance, as described in the Registration Statement,
will take place in accordance with the description included therein.
In rendering the opinion set forth below, we have reviewed (i) the Registration
Statement, (ii) the Delaware Filings and (iii) such records, documents, statutes
and decisions as we have deemed relevant. In our examination, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals and the conformity with the original of all documents
submitted to us as copies thereof. Our opinion set forth below is limited to the
DGCL.
Based upon the foregoing, we are of the opinion that, when and to the extent (i)
the Registration Statement has become effective under the Act, (ii) the
shareholders of the Company have approved the Special Resolution and the
Certificate of Incorporation in accordance with the OBCA, (iii) the Delaware
Filings have been made with the Secretary of State of the State of Delaware and
(iv) the OBCA Authorization and the notice of the Delaware Filings have been
filed with the Director under the OBCA, the Shares will be validly issued, fully
paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement. In giving such opinion, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
Act or the rules or regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE> 1
Exhibit 8.1
-----------
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
January 23, 1997
PLD Telekom Inc.
166 Pearl Street
Toronto, Ontario
M5H 1L3
CANADA
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax aspects of
the continuation as described in the Registration Statement on Form S-4 (File
No. 333-18713), filed with the Securities and Exchange Commission on December
23, 1996, as amended (the "Registration Statement"). This opinion is based upon
our review of the Registration Statement and our assumptions that: (1) the
Continuance will take place in accordance with the description included in the
Registration Statement and (2) the representations referred to in the section of
the Information Circular/Prospectus (the "Circular/Prospectus") included in
Registration Statement entitled "Certain United States Federal Income Tax
Consequences" are true and complete in all material respects.
Based on the foregoing and on the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
interpretations thereof, all as in effect on the date of this letter, it is our
opinion that the statements of law and conclusions of law included in the
Circular/Prospectus under the heading "Certain United States Federal Income Tax
Considerations" are, in all material respects, true, correct and complete. No
opinion is expressed regarding any statements, assumptions or opinions regarding
factual matters contained in the Registration Statement.
<PAGE> 2
PLD Telekom Inc.
January 23, 1997
Page 2
Should any of the facts, assumptions or understandings referred to above prove
incorrect, please let us know so that we may consider the effect, if any, on our
opinion. No assurances can be given that any of the foregoing authorities will
not be modified, revoked, supplemented, revised, reversed or overruled or that
any such modification, revocation, supplementation, revision, reversal or
overruling will not adversely affect the opinion set forth above.
We understand that this opinion is to be used in connection with the
registration of shares of the Company's Common Stock, without par value, Series
II Convertible Preferred Stock, without par value, and Series III Convertible
Preferred Stock, without par value, pursuant to the Securities Act of 1933, as
amended. We consent to the filing of this opinion in connection with and as a
part of the Registration Statement. We also hereby consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving such consents, however, we do not thereby admit that we are acting within
the category of persons whose consent is required under Section 7 of the Act and
the rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE> 1
Exhibit 8.2
-----------
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario M5L 1A9
January 23, 1997
PLD Telekom Inc.
166 Pearl Street
Toronto, Ontario
M5H 1L3
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
aspects of the continuation of PLD Telekom Inc., an Ontario corporation (the
"Company") as a corporation ("PLD Delaware") under the Delaware General
Corporation Law and the simultaneous discontinuation of the Company as a
corporation under the Business Corporations Act (Ontario), all as described in
the Registration Statement on Form S-4 (File No. 333-18713), filed with the
Securities and Exchange Commission on December 24, 1996, as amended (the
"Registration Statement"). This opinion is based upon our review of the
Registration Statement and our assumption that the Continuance, as described in
the Registration Statement, will take place in accordance with the description
included therein.
Opinion
Based on the foregoing and in our opinion the statements of
law and conclusions of law included in the Registration Statement under the
heading "Certain Canadian Federal Income Tax Considerations" (i) based on the
legislation, certain proposed amendments thereto and our understanding of
administrative and assessing practices of Revenue Canada, Customs, Excise and
Taxation, all as set out under such heading, and (ii) subject to the limitations
and qualifications and based on the assumptions, all as set out under such
heading, are at the date hereof an accurate summary, in all material respects,
of the principal Canadian federal income tax considerations of the Continuance
generally applicable to the Company and the shareholders of the Company referred
to under such heading. No opinion is expressed regarding any statements,
assumptions or opinions regarding factual matters contained in the Registration
Statement.
<PAGE> 2
PLD Telekom Inc.
January 23, 1997
Page 2
Should any of the facts, assumptions or understandings
referred to above prove incorrect, please let us know so that we may consider
the effect, if any, on our opinion. No assurances can be given that any of the
foregoing authorities will not be modified, revoked, supplemented, revised,
reversed or overruled or that any such modification, renovation,
supplementation, revision, reversal or overruling will not adversely affect the
opinion set forth above.
We understand that this opinion is to be used in connection
with the registration of shares of the Company's Common Stock, without par
value, Series II Convertible Preferred Stock without par value, and Series III
Convertible Preferred Stock, without par value, pursuant to the Securities Act
of 1933, as amended. We consent to the filing of this opinion in connection with
and as a part of the Registration Statement on Form S-4 and amendments thereto.
We also hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In giving such consents, however, we do
not thereby admit that we are acting within the category of persons whose
consent is required under Section 7 of the Act and the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Blake, Cassels & Graydon
<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
Calgary Canada
January 20, 1997
<PAGE> 1
EXHIBIT 99
PLD TELEKOM INC.
PROXY
SOLICITED BY MANAGEMENT FOR THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 27, 1997
The undersigned appoints Mr. James R.S. Hatt, or failing him, Mr. Clayton A.
Waite, (or instead of either of the foregoing
______________________________________ ) as proxy, with power of substitution,
to attend and vote for the undersigned at the special meeting of shareholders to
be held at Toronto on February 27, 1997 and any adjournment thereof:
(a) FOR [ ] or AGAINST [ ] a 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 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) on such amendments or variations to the foregoing matters and on such other
business as may properly come before the meeting.
This proxy revokes any proxy previously given.
DATED ________________________________ , 1997
- --------------------------------------------------------------------------------
(Signature of Shareholder)
NOTES:
(1) The shares represented by this proxy instrument will be voted or withheld
from voting in accordance with instructions contained therein. In the
absence of such instructions, such shares will be voted FOR all resolutions
as stated in the Management Information Circular accompanying this proxy.
(2) This proxy confers authority for the above-named person to vote in his
discretion with respect to amendments or variations to the matters
identified in the notice of the meeting accompanying this proxy instrument
or other matters which may properly come before the meeting.
(3) Each shareholder has the right to appoint a person to represent him at the
meeting other than the persons specified above. Such right may be exercised
by inserting in the blank space provided the name of the person to be
appointed who need not be a shareholder of the Company.
(4) Please sign exactly as your name appears on the proxy and date the proxy. If
the shareholder is a corporation, its corporate seal should be affixed
hereto.
(5) If not dated, this proxy is deemed to bear the date on which it was sent to
the shareholder.
