<PAGE> 1
As filed with the Securities and Exchange Commission on April 3, 1998
Registration No. 333-5398
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 1 TO
FORM F-10
ON
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)
Delaware
(Jurisdiction of incorporation or organization)
4813
(Primary Standard Industrial Classification Code Number (if applicable)
13-3950002
(I.R.S. Employer Identification Number (if applicable)
680 Fifth Avenue, 24th Floor, New York, NY 10019 (212) 262-6060
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
E. Clive Anderson, Senior Vice President and General Counsel
680 Fifth Avenue, 24th Floor, New York, NY 10019 (212) 262-6060
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
CO-REGISTRANTS AND SUBSIDIARY GUARANTORS*
<TABLE>
<CAPTION>
EXACT NAME OF
REGISTRANT AS SPECIFIED JURISDICTION OF I.R.S. EMPLOYEE PRIMARY STANDARD
IN ITS CHARTER INCORPORATION IDENTIFICATION NO. INDUSTRIAL CODE NO.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Baltic Communications Limited Russia N/A 4813
NWE Capital (Cyprus) Limited Cyprus N/A 9999
PLD Asset Leasing Limited Cyprus N/A 9999
PLD Capital Limited Cyprus N/A 9999
Wireless Technology
Corporations Limited British Virgin Islands N/A 9999
</TABLE>
* Such entities may be reached through PLD Telecom Inc. at the address
indicated above.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement
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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering
[ ] ----------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
SUBJECT TO COMPLETION DATED APRIL 3, 1998
OFFER TO EXCHANGE 14% SENIOR DISCOUNT NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, FOR
OUTSTANDING 14% SENIOR DISCOUNT NOTES DUE 2004
PLD TELEKOM INC.
(FORMERLY PETERSBURG LONG DISTANCE INC.)
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON JUNE ___, 1998 (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION
DATE")
PLD Telekom Inc. ("PLD" or the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to issue an aggregate of up to $123,000,000 principal amount at
maturity of its 14% Senior Discount Notes due 2004 (the "Exchange Notes"), which
have been registered under the United States Securities Act of 1933, as amended
(the "Securities Act"), in substitution for an identical principal amount at
maturity of its outstanding 14% Senior Discount Notes due 2004, which originally
evidenced the Company's indebtedness (the "Outstanding Notes"; the Outstanding
Notes and the Exchange Notes are collectively referred to herein as the "Senior
Notes"). The terms of the Exchange Notes are identical to the terms of the
Outstanding Notes, except that: (i) the obligations of the Company with respect
to the issuance of further Senior Notes will not apply to the Exchange Notes;
(ii) the Company will not be required to file a shelf registration statement in
the United States covering resales of Exchange Notes; (iii) the Company will not
be obliged to pay Special Interest (as defined herein) on the Exchange Notes;
and (iv) the restrictions on transfer in the United States set forth on the face
of the Outstanding Notes will not appear on the Exchange Notes. See "The
Exchange Offer--Resales of the Exchange Notes." For a complete description of
the Exchange Notes, see "Description of the Exchange Notes and Other Private
Placement Securities--The Notes." The Company will not receive any cash proceeds
from the issuance of the Exchange Notes in substitution for the Outstanding
Notes and will pay all expenses incident to the Exchange Offer.
The Company will accept for replacement any and all Outstanding Notes
that are validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Outstanding Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of the Outstanding Notes being
tendered for replacement. However, the Exchange Offer is subject to the terms
and provisions of the Registration Agreement dated as of May 31, 1996 (the
"Registration Agreement") among Smith Barney Inc. (the "Initial Purchaser") and
the Company relating to the Outstanding Notes. The Outstanding Notes may be
tendered only in multiples of $1,000. See "The Exchange Offer."
The Outstanding Notes were issued in a private placement transaction
(the "Private Placement Offering"), together with warrants (the "Warrants") to
purchase an aggregate of 4,182,000 Common Shares, in Units (the "Units"). The
Warrants and the Senior Notes became separately transferable on December 10,
1996. In addition, as part of the Private Placement Offering, the Company issued
$26,500,000 aggregate principal amount of the Company's 9% Convertible
Subordinated Notes due 2006 (the "Convertible Notes", and together with the
Senior Notes, the "Notes"). The Units and the Convertible Notes were sold by the
Company to the Initial Purchaser on June 12, 1996 (the "Issue Date") pursuant to
a Purchase Agreement dated May 24, 1996 (the "Purchase Agreement") between the
Company and the Initial Purchaser. The Initial Purchaser subsequently resold the
Units and the Convertible Notes in reliance on Rule 144A under the Securities
Act.
Pursuant to a supplemental indenture dated March 20, 1998 (the
"Supplemental Indenture") various amendments to the indentures relating to the
Senior Notes and the Convertible Notes and various related documents were made,
following the receipt of the required number of approvals from holders of such
Notes for such amendments. See "Summary--The Company--The
<PAGE> 3
Private Placement of Notes and Warrants;" "--Recent Developments--The Consent
Solicitation" and "--Registration." Unless the context clearly requires
otherwise, references to the "Notes", the "Senior Notes" , the "Outstanding
Notes" and the "Convertible Notes" shall refer to such securities as amended,
and references to the "Senior Note Indenture", the "Convertible Note Indenture"
and the "Indentures" shall refer to such indentures as amended.
The Senior Notes are unconditionally and irrevocably guaranteed on a
senior basis by certain wholly owned subsidiaries of the Company (the
"Guarantors"). The Guarantors have guaranteed the Company's obligations under
the Convertible Notes on a senior subordinated basis. The guarantees of the
Convertible Notes are senior subordinated obligations of the Guarantors and are
subordinated to the guarantees of the Senior Notes. See "Description of the
Exchange Notes and Other Private Placement Securities -- The Notes --
Guarantees."
The Company's Common Stock is quoted on the Nasdaq National Market of
The Nasdaq Stock Market under the symbol "PLDI." On April 1, 1998, the last
reported closing price of the Common Stock was $7.5625 per share.
---------------
SEE "RISK FACTORS" ON PAGES __ TO __ OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY HOLDERS OF OUTSTANDING NOTES IN EVALUATING THE
EXCHANGE OFFER.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1998
2
<PAGE> 4
FORWARD LOOKING STATEMENTS
Certain sections of this Prospectus contain various forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which represent the Company's expectations or beliefs concerning future events.
The Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements. Although the Company's management believes that the
expectations reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove to be correct.
Important factors that could cause actual results to differ materially from
management's current expectations ("Cautionary Statements") are disclosed in
this Prospectus, including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus and under "Risk Factors."
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements. In addition, in the preparation of its
financial statements, the Company makes certain estimates and assumptions which
are also forward-looking statements. See the notes to the Company's consolidated
financial statements.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other information
with the Securities and Exchange Commission (the "Commission"). These reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 800 West Madison Street, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of that
site is http://www.sec.gov.
This Prospectus constitutes a part of a registration statement on
Amendment No. 1 to Registration Statement on Form F-10 on Form S-4 (File No.
333-5398) (herein, together with all exhibits thereto, referred to as the
"Registration Statement" or as the "Exchange Offer Registration Statement")
filed by the Company and the Guarantors with the Commission under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Exchange
Notes. The Registration Statement was filed originally at a time when the
Company was a Canadian corporation. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company, the Guarantors and
the securities offered hereby. Copies of the Registration Statement and the
exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the prescribed fee or may be examined without charge at
the public reference facilities of the Commission described above. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:
3
<PAGE> 5
(a) Annual Report on Form 10-K, filed with the Commission on
March 31, 1998 for the fiscal year ended December 31, 1997;
(b) Current Report on Form 8-K, filed with the Commission on
April 3, 1998; and
(c) The descriptions of the Common Stock of the Registrant set
forth in the Registrant's Registration Statements pursuant to Section
12 of the Exchange Act, and any amendment or report filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the Expiration Date shall be deemed to be incorporated by reference
into this Prospectus.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which is also incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents (not including exhibits
to the documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates) are available without charge to each person to whom a prospectus
is delivered upon written or oral request. Requests should be directed to: PLD
Telekom Inc., 680 Fifth Avenue, 24th Floor, New York, New York 10019, Attention:
Secretary (telephone number (212) 262- 6060).
4
<PAGE> 6
SUMMARY
THE COMPANY
PLD Telekom Inc. ("PLD" or the "Company"), through its operating
subsidiaries, is a major provider of local, long distance and international
telecommunications services in the Russian Federation and Kazakhstan. The
Company's four principal operating businesses are: (i) PeterStar Company Limited
("PeterStar"), which provides integrated local, long distance and international
telecommunications services in St. Petersburg through a fully digital fiber
optic network; (ii) Technocom Limited ("Technocom"), which, through Teleport-TP,
provides dedicated international telecommunications services to Russian and
foreign businesses in Moscow and operates a satellite-based pan-Russian long
distance network; (iii) Baltic Communications Limited ("BCL"), which provides
dedicated international telecommunications services in St. Petersburg; and (iv)
BECET International ("BECET"), which currently provides the only national
cellular service in Kazakhstan. Since 1994, Cable and Wireless plc ("Cable &
Wireless"), a leading global communications company whose shares are listed on
the London and New York Stock Exchanges, has invested approximately $85 million
for an approximately 30% stake in the Company's Common Stock. Cable & Wireless
has recently announced that it is involved in active discussions with a view
towards disposing of its stake in the Company, but that no definitive agreement
has been reached. See "-- Relationship with Cable and Wireless plc."
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 wireless communications, fax, data 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 has several potential sources of cash flows, including fees
from management services, dividends, repayment of intercompany advances, lease
payments and payments under equipment sales contracts. The Company currently
generates fees from management services provided to certain of its operating
subsidiaries. Although its ability to generate dividend income in the near
future may be limited due to the cash flow requirements of its operating
businesses, the Company expects to receive dividends in the future. One of its
operating subsidiaries, BECET, paid two dividends in 1997. The Company received
payments in respect of intercompany advances during the course of 1997 and
expects this to continue in 1998. In relation to leases and equipment sales
contracts entered into with its operating subsidiaries, the Company anticipates
starting to receive payments during 1998.
The fostering of existing, and the creation of new, partnerships with local
and regional partners is crucial to the long-term success of the Company in this
environment. In its operating businesses, the Company's partners include:
Petersburg Telephone System ("PTS"), the local telephone system operator in St.
Petersburg, and St. Petersburg Intercity & International Telephone ("SPMMTS"),
the gateway for national and international long distance calls to and from St.
Petersburg, which together hold an indirect 14% interest in PeterStar;
Kazakhtelekom, the state-owned national telecommunications operator in
Kazakhstan and the holder of a 50% interest in BECET; and AO Rostelecom
("Rostelecom"), the primary long distance and international carrier in the
Russian Federation and a 44% shareholder in Teleport-TP. The Company will seek
to continue developing ventures with local partners who can provide: (i)
assistance in obtaining telecommunications operating licenses; (ii) access to
network facilities; and (iii) political support.
<PAGE> 7
PETERSTAR COMPANY LIMITED
PeterStar, in which the Company owns a 60% interest, operates a fully
digital, city-wide fiber optic telecommunications network in St. Petersburg
that is interconnected with the network of PTS, the local telephone company, as
well as the Russian national and international long distance systems. PeterStar
provides integrated, high quality, digital telecommunications services with
modern transmission equipment, including local, national and international long
distance and value-added services, to businesses in St. Petersburg. The
PeterStar network provides an alternative to the PTS network, which to date has
been characterized by significant capacity constraints. PeterStar is able to
provide integrated telecommunications services to business customers, including
users of high bandwidth voice, data and video communications services.
PeterStar's network is designed to support a wide range of telecommunications
products and services with a high degree of reliability. Additionally,
PeterStar provides the three cellular operators in St. Petersburg with access
to digital switching and transmission capacity which significantly improves
their ability to consistently receive and deliver their customers' traffic. As
of December 31, 1997, PeterStar had a total of 114,774 lines, of which 85,948
were provided to cellular operators.
PeterStar's strategy is to meet the growing demands of business customers
and other network operators in St. Petersburg through the expansion of its
current numbering capacity of 100,000 lines allocated by the Russian Federal
Committee on Telecommunications and Informatics (the "RFCTI") to a total of
approximately 200,000 lines by 2001. PeterStar has recently added incremental
transmission capacity and upgraded its transmission network from STM-4 to
STM-16, as well as introducing new service features such as ISDN capability,
which allows simultaneous transmission of voice, data, video and still images.
In addition, as part of its strategic relationship with PTS, PeterStar intends
to continue to provide targeted support to PTS in its efforts to upgrade and
modernize its network. The business environment in St. Petersburg continues to
improve, with the ongoing growth of small to mid-sized Russian and foreign
businesses and the development of the banking and financial service industries.
PeterStar has placed increased emphasis on this market segment in order to
capitalize on what it considers to be a significant market opportunity.
PeterStar has recently commenced several projects designed to expand its
direct dial services in St. Petersburg and Northwest Russia. PeterStar has
agreed with PTS to undertake a major infrastructure project involving the
replacement of analog exchanges with digital exchanges for certain parts of the
network on Vassilievski Island, a city district in St. Petersburg. This project
will require the conversion of approximately 30,000 business and residential
lines that are currently operated by PTS, after which such lines become a part
of the PeterStar network. In addition, PeterStar plans to further enhance its
transit network capabilities in order to provide continued support to the
cellular and other network providers in terminating traffic in St. Petersburg
and to the national and international gateway.
TECHNOCOM LIMITED
Technocom, in which the Company owns a 80.4% interest, through its
subsidiaries, is the primary mechanism through which the Company provides high
quality long distance telecommunications infrastructure and services in the
Russian Federation. Technocom's principal asset is its 49.33% equity interest
(56% voting interest) in Teleport-TP, a Moscow-based long distance and
international operator targeting the commercial sector and other
telecommunications operators with its satellite-based telecommunications
services. Technocom also holds a 49% interest at MTR-Sviaz, a venture formed
by Technocom and Mosenergo, the Moscow city power utility, to modernize and
commercialize a portion of Mosenergo's internal telecommunications network.
Teleport-TP provides international voice and data services, as well as
bandwidth, to a number of private networks in the Russian Federation and to
Russian and foreign businesses, including Rostelecom, the primary national and
international long distance carrier in the Russian Federation and a 44%
shareholder in Teleport-TP, Sprint and MTR-Sviaz. As of December 31, 1997,
Teleport-TP provided access to over 1,200 international digital circuits to 27
operators in 24 countries, making it one of the largest international carriers
in the Russian Federation. Teleport-TP has recently opened up direct routes to
Georgia and Turkmenistan in the CIS.
<PAGE> 8
Teleport-TP provides these international telecommunications services
through access to two Intelsat satellites and one Eutelsat satellite.
Teleport-TP's arrangements with Intelsat and Eutelsat provide it with flexible
and reliable satellite capacity, allowing Teleport-TP to provide consistent,
high quality dedicated international telecommunications services to Russian and
foreign businesses. The Company believes these arrangements represent a
competitive advantage over carriers using less reliable Russian-made satellite
systems.
Teleport-TP is expanding its existing operations from the provision of
international telecommunications services to the provision of domestic long
distance telecommunications services in the Russian Federation utilizing Western
satellite capacity and technology. The Company believes that there is a largely
untapped market for satellite-based services between various regions of the
Russian Federation due to the current poor quality, or total absence, of
terrestrial long distance lines in many areas. Installation of the first phase
of the long distance network commenced in the second half of 1996, with 29 sites
installed as of December 31, 1997. Technocom has contracted with the
telecommunications equipment supplier Scientific-Atlanta, Inc. to supply
equipment for a total of 45 sites which, based on current plans, will be
installed by the end of the first half of 1998. Technocom is currently
formulating its plans in connection with the installation of additional earth
stations and has held preliminary discussions with Scientific-Atlanta on this
subject.
MTR-Sviaz, which commenced operations in November 1996 and had
approximately 700 lines connected as of December 31, 1997, provides local,
national and international services to both corporate customers and the Internet
market. MTR-Sviaz uses both leased circuits from a number of providers, access
to the Teleport-TP fiber cable facilities and the Mosenergo internal
communications network to terminate its calls. Teleport-TP uses the MTR-Sviaz
facilities to locate its Internet gateway, from which links to Internet service
providers (ISPs) are provided via leased and dial-up lines on the public
network. MTR-Sviaz also acts as a local provider to the Teleport-TP
international and long distance gateway.
In addition, Teleport-TP is a 25% shareholder in Gorizont-RT, a GSM
cellular operator in the Republic of Sakha, an autonomous region within the
Russian Federation. Teleport-TP is required to supply switches to Gorizont-RT,
which Technocom is supplying to the venture through a lease arrangement. In
addition to realizing lease revenues from the equipment, Teleport-TP will be a
primary carrier for long distance traffic for both the cellular network and the
local telephone company, Sakhatelekom, which is the majority shareholder in
Gorizont-RT.
Other interests of Technocom include: a 50% interest in Rosh Telecom
Limited, a telecommunications equipment distributor, and an effective 100%
interest in Space Communication Services (SCS) Limited ("SCS"), a marketing
company responsible for selling and administering television broadcasting
services.
BALTIC COMMUNICATIONS LIMITED
BCL, in which the Company acquired a 100% equity interest in April 1996,
provides international direct dial, international payphone and leased line
services for Russian and foreign businesses in St. Petersburg and, commencing
during 1997, the Leningrad Oblast. BCL also offers a number of advanced
broadband services, as well as "carrier's carrier" services to other
telecommunications operators. BCL has its own switching and international
transmission facilities in St. Petersburg, which act as a gateway for corporate
customers in both Moscow and St. Petersburg. The BCL network consists of an
international and local switch and capacity on the international fiber optic
cable via Finland to Sweden and the United Kingdom. BCL's primary international
carrier relationships are with Telia of Sweden, Cable & Wireless Communications
of the United Kingdom and Lattelekom of Latvia. BCL rents local access from
PeterStar and PTS to connect its customers in St. Petersburg. BCL had
approximately 1,200 line as of December 31, 1997.
CPY YELLOW PAGES LIMITED
CPY Yellow Pages Limited ("Yellow Pages"), a Cyprus company, in which the
Company holds a 100% interest, is the owner of one of the most comprehensive
databases of Russian and foreign businesses in St. Petersburg and publisher of
what is primarily a business to business directory. Yellow Pages has 18
employees in St. Petersburg who handle all of the graphic design and database
management. Yellow Pages hires part-time workers for the periodic update of the
directory. The directory is printed in Denmark because printing of the requisite
quality is not currently available in Russia. However, it is intended to switch
printing operations to Russia once this has been remedied. The Company is
seeking to utilize the database of Yellow Pages to the benefit of PeterStar and
BCL, particularly in more effective target marketing and in operator services.
<PAGE> 9
BECET INTERNATIONAL
BECET, in which the Company owns a 50% interest, currently operates the
only national cellular network in Kazakhstan. The other 50% of BECET is held by
Kazakhtelekom, the operator of the national telephone network in Kazakhstan. In
April 1997, the Kazakh government announced the sale of a 40% stake in
Kazakhtelekom, the state-owned telecommunications company, to Daewoo. However,
in March 1998, it was reported that Daewoo had sold a portion of its stake
(reportedly to be approximately 10%) to an unnamed third party. The report did
not indicate whether Daewoo proposed to sell or retain the remainder of its
stake in Kazakhtelekom. Kazakhtelekom recently received a revised license
specifically naming it as the exclusive national network operator in Kazakhstan,
and giving it a wide range of powers to carry out this function.
The Company's primary objectives for BECET are to increase revenues and
cash flows through increased subscriber penetration, usage and network
coverage. Cellular service provides a rapid and relatively inexpensive way to
overcome the deficiencies of the wireline telecommunications infrastructure in
Kazakhstan. BECET's cellular telecommunications network in Kazakhstan currently
consists of separate systems in Almaty, South Kazakhstan (Chimkent), Karaganda,
Pavlodar, Akmola, Aktyubinsk, Kustanai, East Kazakhstan (Ust-Kamenogorsk),
Atyrau, Taraz, Petropavlovsk and Kyzl Orda. As of December 31, 1997, BECET's
cellular telecommunications network covered a geographic area of approximately
4,200,000 people, or "POPS", representing 24% of the total population, in 12
cities. BECET commenced cellular service in September 1994 and has since
experienced significant subscriber and revenue growth. As of December 31, 1997,
BECET had 11,102 subscribers, as compared to 6,957 subscribers as of December
31, 1996. During the year ended December 31, 1997, BECET's subscribers generated
average monthly recurring revenues of $220 per subscriber.
The Company believes the development of a market economy in Kazakhstan is
likely to increase demand for modern telecommunications services, including
wireless communications, as demonstrated by the subscriber growth experienced
to date by BECET. While the Kazakh telephone network is expected to be
modernized over time, the Company believes this is likely to be an expensive and
lengthy process. The Company believes that this environment provides BECET with
the opportunity to provide customers in Kazakhstan with a viable, high quality
alternative wireline telephone service during the period it will take to
modernize the basic public network.
MARKET OVERVIEW
In the Soviet era, telecommunications in the Russian Federation and other
republics of the former Soviet Union were designed principally to serve the
defense and security needs of the state. As a result, the public
telecommunications network in the Soviet Union was underdeveloped. With the
break-up of the Soviet Union and the liberalization of the economies of its
former republics, the demand for telecommunications services has increased
significantly. However, the countries of the former Soviet Union do not
currently have the significant capital necessary to develop the
telecommunications infrastructure. As a result, the government of the Russian
Federation has actively encouraged market liberalization, privatization and
foreign investment in the telecommunications sector. This has resulted in
significant development in the areas of fixed wire overlay systems, private
networks and cellular and data services. As modern telecommunications capability
is critical to the successful transition to a market economy, it is expected
that the next stage of development will focus on basic telecommunications
infrastructure.
Moscow. Local public fixed-line telephone service in Moscow is provided by
MGTS, a recently privatized company which operates the telephone network in
Moscow. MGTS currently serves 4,900,000 subscribers, of which 79% are
residential. Approximately 10% of the switches on the MGTS network are digital
and digital service generally is available to only 10% of its subscribers.
Since local calls are free, the bulk of MGTS' revenue comes from line rental.
However, MGTS has announced plans to introduce call metering as part of a major
redevelopment of its network. In August 1997, the Moscow city government
(which holds a 33% voting stake in MGTS) announced the planned consolidation of
its telecommunications holdings, through the formation of Mostelekom. It has
been reported that Mostelekom will act as a holding company for the city's
shares in MGTS and other telecommunications interests, including MGTS's 50%
holding in Comstar.
<PAGE> 10
MGTS routes long distance traffic through a gateway exchange called MMTS.
This traffic is directed to the Rostelecom long distance network for delivery
to the regional telephone operators. International traffic is also passed to
Rostelecom via MMTS. The international network of Rostelecom is supported by a
combination of Russian and Western satellite capacity including that provided
by Teleport-TP. However, there continues to be considerable congestion at the
MMTS and Rostelecom switching centers due to their inability to keep up with
demand.
St. Petersburg. The telecommunications market in St. Petersburg, a city
with a population of approximately 5 million, has been characterized by low
activated penetration rates, substantial bottlenecks on the public network and
outdated switching technology. Approximately 80% of the existing lines are
analog, many of which are served by outdated cross-bar or step by step
switching technology. The Company believes St. Petersburg is an attractive
market for the provision of integrated telecommunications services due to the
current inadequacies of the public network as well as the rapid development of
Russian and foreign businesses in the city. The number of cellular subscribers
in St. Petersburg has grown from approximately 6,400 as of December 31, 1994 to
approximately 107,000 as of December 31, 1997, as St. Petersburg has become one
of the fastest growing cellular markets in the Russian Federation. Even though
PTS has engaged in a significant upgrade of its network and is currently making
efforts to access international capital markets to raise further funds for this
purpose, the Company believes that it will be some time before PTS will be able
to raise the capital necessary to develop fully the network infrastructure
required to accommodate market demand.
Kazakhstan. The Company believes that Kazakhstan is an attractive market
for cellular services because the Kazakh telecommunications market is
significantly underserved by existing wireline operators. At the time of
Kazakhstan's independence in 1991, the Kazakh telephone system consisted of the
same outdated network equipment as the other telephone systems in the former
Soviet republics. Currently, only 13% of Kazakhstan's population of
approximately 17,000,000 has telephone lines. The existing national telephone
network consists of approximately 1,900,000 lines, of which 330,000 are in
Almaty. Due to the outdated condition of much of the telecommunications
infrastructure in Kazakhstan, basic telephone service is characterized by poor
transmission quality. Quality international lines are available only to
subscribers willing to pay premium rates for the services of an overlay
operator. As a result, wireless communications are becoming an increasingly
important aspect of telecommunications in Kazakhstan.
RELATIONSHIP WITH CABLE AND WIRELESS PLC
The Company has had a working relationship with Cable & Wireless, which
currently holds a 30% stake in the Company's Common Stock, since the time Cable
& Wireless first acquired an interest in the Company in 1994. The relationship
has allowed the Company to draw upon Cable & Wireless' commercial and technical
expertise and has provided the Company with access to Cable & Wireless': (i)
expatriate management; (ii) training facilities; and (iii) technical and project
management staff to assist in evaluating and implementing new investment
opportunities. Cable & Wireless currently holds two of the 10 seats on the
Company's Board of Directors and will continue to do so as long as it holds at
least a 25% voting interest in the Company. Cable & Wireless has recently
announced that it is involved in active discussions with a view towards
disposing of its stake in the Company, but that no definitive agreement has been
reached. See "-- Risk Factors -- Risks Involving the Company -- Historical
Dependence on Cable and Wireless plc."
THE PRIVATE PLACEMENT OF NOTES AND WARRANTS
In June 1996, the Company issued the following securities to a limited
number of U.S. institutional investors (the "June 1996 Placement" or the
"Private Placement Offering"): (i) $123,000,000 aggregate principal amount at
maturity of 14% Senior Discount Notes due 2004 (the "Senior Notes"); (ii)
123,000 warrants (the "Placement Warrants") to purchase an aggregate of
4,182,000 shares of Common Stock (the "Placement Warrant Shares"); and (iii)
$26,500,000 aggregate principal amount of 9% Convertible Subordinated Notes due
2006 (the "Convertible Notes" and together with the Senior Notes, the "Notes").
The Senior Notes and the Placement Warrants were initially issued as units (the
"Units") and the Placement Warrants became separable from the Senior Notes on
December 10, 1996.
Pursuant to a consent solicitation dated March 4, 1998, the Company
proposed, and the required number of holders of the Senior and Convertible Notes
approved, certain amendments to the Senior Note and Convertible Note Indentures.
See "-- Recent Developments -- The Consent Solicitation."
<PAGE> 11
Unless the context clearly requires otherwise, references to the "Notes",
the "Senior Notes" and the "Convertible Notes" shall refer to such securities as
so amended, and references to the "Senior Note Indenture", the "Convertible Note
Indenture" and the "Indentures" shall refer to such indentures, as so amended.
CHANGE OF COMPANY NAME AND CONTINUANCE
Effective August 1, 1996, the Company changed its name from Petersburg Long
Distance Inc. to PLD Telekom Inc. Prior to February 28, 1997, the Company was a
corporation organized under the laws of the Province of Ontario. On February 28,
1997, after having obtained the necessary authorizations from its shareholders
and Canadian authorities, the Company simultaneously discontinued its existence
in Ontario and continued as a corporation organized under the laws of the State
of Delaware (the "Continuance"). The Continuance effected a change in the legal
domicile of the Company as of February 28, 1997, but did not change the business
or operations of the Company or the directors or officers of the Company.
Following the Continuance, the Company has established its executive offices in
New York, New York.
RECENT DEVELOPMENTS
ACQUISITION OF ADDITIONAL INTERESTS IN TECHNOCOM
On November 26, 1997 the Company acquired a further 59 ordinary shares of
Technocom, thereby increasing its percentage interest in Technocom from 50.75%
to 80.4%. The Company acquired 30 of these shares from Plicom, one of the two
other shareholders of Technocom, for $18.5 million in cash. The remaining 29
shares were acquired from the other shareholder of Technocom, Elite, for $6.25
million in cash and 1,316,240 shares of Common Stock. Sale of these shares is
prohibited prior to January 1, 2000.
In addition, the Company restructured certain "put and call" arrangements
with the other two shareholders of Technocom. Under these arrangements as
originally structured, the remaining ordinary shares of Technocom held by these
shareholders (29 shares, or approximately 14.6% of the total ordinary shares
outstanding, in the case of Plicom, and 10 shares, or approximately 5% of the
total ordinary shares outstanding, in the case of Elite) were to have been
independently valued in 1999 and the Company had the right to call, and Plicom
and Elite had the right to put, their respective interests at the per share
value established by the valuation.
These arrangements were restructured as follows. In the case of the
interest held by Plicom, while the date on which the put or call could be
exercised did not change, the valuation procedure was eliminated and the "put
and call" price for its interest was set at a fixed $17,500,000. In the case of
Elite, two of its remaining ten ordinary shares were made subject to a new put
and call arrangement which would come into effect in 1998, with the "put and
call" price to be $1 million or, at Elite's option, that number of shares of the
Common Stock which resulted from dividing $1 million by the lower of $5.85 and
the average closing price of such shares over the preceding ten trading days.
The remaining eight ordinary shares continued to be subject to the existing put
and call arrangements in 1999, except that the valuation would be made by the
Company and the amount paid pursuant to the exercise of either the put or the
call could not exceed $9,620,689 or be less than $6,689,655.
The Company financed these acquisitions by using $9 million from the
proceeds of the Senior Notes (and, pursuant to the terms of the Indenture
governing the Senior Notes, pledging 17 of the Technocom shares acquired), and
also by issuing $12.32 million in 12% Series A secured revolving credit notes
(the "Series A Notes") and $3.1 million in 12% Series B revolving credit notes
(the "Series B Notes" and, together with the Series A Notes, the "Revolving
Credit Notes"), to The Travelers Insurance Company and The Travelers Indemnity
Company (collectively, the "Travelers Parties") pursuant to a Revolving Credit
Note and Warrant Agreement dated November 26, 1997 between the Company and the
Travelers Parties (the "Revolving Credit Agreement"). Required amortization of
the Revolving Credit Notes at the rate of $1,000,000 per month commences on July
31, 1998. The Series B Notes come due on September 30, 1998, and the Series A
Notes come due on December 31, 1998. Both the Series A Notes and the Series B
Notes are secured by the Company's inventory and accounts receivable. In
addition, the Series B Notes are secured by 28 of the Technocom shares acquired.
In addition to issuing the Series A and Series B Notes, the Company also issued
to the Travelers Parties a total of 423,000 warrants to purchase Common Stock at
$8.625 at any time up to December 31, 2008 (the "Travelers Warrants"). A value
of $423,000, which has been ascribed to the Travelers Warrants, has been
included in the Company's shareholders' equity.
<PAGE> 12
In addition, the Company will be obligated to issue additional warrants to
the holders of the Series A and B Notes should the Company not effect certain
"targeted reductions in commitment" as follows:
<TABLE>
<CAPTION>
COMMITMENT REDUCTION DATE TARGETED REDUCTION AMOUNT
- ------------------------- -------------------------
<S> <C>
July 31, 1998 $ 500,000
August 31, 1998 $ 500,000
September 30, 1998 $1,000,000
October 31, 1998 $1,500,000
November 30, 1998 $1,500,000
</TABLE>
The holders of the Series A Notes will receive 30,000 additional warrants
to purchase shares of the Company on each date on which such reduction was not
made. In the event that the Company has not made the "targeted reductions"
scheduled for July 31, 1998 and August 31, 1998, the holders of the Series B
Notes will receive 16,000 additional warrants to purchase shares of such common
stock. The exercise price of the above warrants is $8.625 per share, except
that, if the Series B Notes are not repaid in full by September 30, 1998, the
exercise price of all warrants issued to the holders of the Series B Notes
becomes $0.01 per share, and, if the Series A Notes are not repaid in full by
December 31, 1998, the exercise price of all warrants issued to the holders of
the Series A Notes also becomes $0.01. The total number of warrants which could
be issued under these arrangements is 182,000. All of the warrants expire on
December 31, 2008.
In addition, if the Series B Notes are not repaid in full on September 30,
1998, then, commencing September 30, 1998 and on the last day of each succeeding
month until the Series B Notes have been repaid in full, the holders of the
Series B Notes shall receive 32,000 additional warrants to purchase shares of
the Company's stock at a price of $0.01 per share. If the Series A Notes are not
repaid in full on December 31, 1998, then, commencing December 31, 1998 and on
the last day of each succeeding month until the Series A Notes have been repaid
in full, the holders of the Series A Notes shall receive 32,000 additional
warrants to purchase shares of the Company's stock at a price of $0.01 per
share. All such warrants, referred to as "Default Warrants" will have an
expiration date ten years after their respective dates of issue.
THE CONSENT SOLICITATION
In 1997, the Company made the determination to solicit the holders of the
Senior Notes and the Convertible Notes with a view to making certain amendments
to the Indentures governing such Notes, intended to give the Company more
flexibility in conducting its business and also to clarify certain provisions of
those Indentures, in both cases based upon the Company's experience in operating
under the terms of the Indentures since they were first executed in June 1996.
In summary, the amendments were intended to achieve the following:
- Broaden the range of transactions by which the Company can use escrowed
funds in order to make telecommunications assets available to its
operating companies
- Permit the Company or its special purpose subsidiaries to use escrowed
funds to secure letters of credit issued to suppliers of
telecommunications assets
- Clarify that the purchase price of telecommunications assets which is to
be funded out of escrowed funds may include certain "soft costs" related
to the acquisition of such assets
- Eliminate certain provisions in the Indentures having relevance only when
the Company was a Canadian corporation
- Permit the use of U.S. as well as Cyprus special purpose subsidiaries
- Authorize the conversion of a lease entered into by PLD Leasing, a
special purpose subsidiary of the Company, into an installment sale
accompanied by a pledge of the equipment being sold, and the transfer of
PLD Leasing's interest to a new special purpose subsidiary incorporated
in the U.S.
<PAGE> 13
- Revise certain covenants relating to incurrence and guaranteeing of
indebtedness, to:
- provide a more specific definition of the term "revolving credit
facilities"
- specify that the maximum amount of general indebtedness (i.e., other
than certain specific forms of "permitted indebtedness", including
so-called "international vendor indebtedness") that may be incurred at
the subsidiary level, whether in the form of revolving credit
facilities or otherwise, is $15 million
- clarify that the Company may guarantee on an unsecured basis any
general indebtedness and any so-called "international vendor
indebtedness" which its subsidiaries are permitted to incur, without
such guarantee being counted as "indebtedness" of the Company for
purposes of a $25 million limitation on Company level indebtedness
- specify that subsidiaries of the Company may no longer guarantee
indebtedness of the Company, and that any guarantees of any other
indebtedness will count as "indebtedness" for purposes of the $15
million limitation on subsidiary level indebtedness
- specify that, since these changes would mean that the Series A and
Series B Notes issued to the Travelers Parties in November 1997 (see
"-- Acquisition of Additional Interests in Technocom") would be in
violation of the terms of the Indentures, the transaction pursuant to
which such Notes were issued and certain guarantees given in
connection therewith are specifically exempted from the applicable
terms of the Indentures, although the amount of the Notes issued will
be counted against the $25 million limit on Company level
indebtedness.
- Permit the advance by the Company to its subsidiary Technocom of $8
million of the proceeds of the Senior Notes being held in escrow to fund
the purchase of telecommunications assets
Under each of the Indentures, the consents of holders of not less than a
majority in principal amount at stated maturity of each of the Senior Notes and
the Convertible Notes are required to authorize their amendment.
Prior to soliciting the consent of the holders of the Senior and
Convertible Notes to the proposed amendments, the Company had various
discussions with Merrill Lynch as a result of which the Company entered into an
agreement with Merrill Lynch Global Allocation Fund, Inc. and Merrill Lynch
Equity/Convertible Series -- Global Allocation Portfolio (collectively, "ML
Global"), which together were the holders of approximately 62% in principal
amount at stated maturity of the Senior Notes and approximately 72.5% in
principal amount at stated maturity of the Convertible Notes, under which ML
Global agreed to direct the nominees through which they held their Senior and
Convertible Notes to consent to the amendment of the Indentures.
On March 4, 1998, the Company mailed to the holders of record on March 3,
1998 of the Senior Notes and the Convertible Notes a consent solicitation
statement (the "Consent Solicitation"). Pursuant to the Consent Solicitation,
the Company offered to each holder of the Senior Notes who consented to the
amendment of the Senior Note Indenture a five-year warrant to purchase 1.8
shares of Common Stock at a price of $6.90 per share for each $1,000 in unpaid
principal amount at stated maturity of the Senior Notes held by such holder, and
to each holder of the Convertible Notes who consented to the amendment of the
Convertible Note Indenture a five-year warrant to purchase 2 shares of Common
Stock at a price of $6.90 per share for each $1,000 in unpaid principal amount
of the Convertible Notes held by such holder.
As of close of business on March 18, 1998, when the solicitation period
ended, parties holding 100% in principal amount at stated maturity of the Senior
Notes and 85.66% in principal amount at stated maturity of the Convertible Notes
had consented to the amendments. Pursuant to such consents, The Bank of New
York, as trustee under the Indentures, the Company and certain other parties
executed a supplemental indenture, dated March 20, 1998 (the "Supplemental
Indenture"), bringing the amendments to the Indentures and certain related
documents into effect. In addition, the Company issued a total of 123,000
five-year warrants to purchase 1.8 shares of Common Stock at $6.90 per share to
the holders of the Senior Notes, and a total of 22,700 five-year warrants to
purchase 2 shares of Common Stock at a price of $6.90 per share to the holders
of the Convertible Notes. If all of these warrants are exercised, the Company
will issue a total of 266,800 shares of Common Stock.
<PAGE> 14
REGISTRATION
In connection with the Private Placement Offering, the Company entered
into a registration rights agreement (the "Registration Rights Agreement")
pursuant to which the Company agreed, for the benefit of the holders of the
Senior Notes, the Convertible Notes and the Warrants, to file registration
statements with the Commission with respect to: (i) an exchange offer with
respect to the Senior Notes or, alternatively, a shelf registration statement
for the resale of the Senior Notes by the holders thereof, (ii) the resale by
the holders thereof of the Convertible Notes and the shares of Common Stock into
which they may be converted (the "Convertible Note Shares"), and (iii) the
resale by the holders thereof of the Warrants and the shares of Common Stock
issuable upon their exercise (the "Warrant Shares").
In August 1996, while the Company was still an Ontario corporation, the
Company filed various registration statements with the Commission to satisfy its
obligations under the Registration Rights Agreement, which registration
statements were intended to qualify under the Multi-Jurisdictional Disclosure
Scheme. None of those registration statements were declared effective by the
Commission. As a result of the continuance of the Company to Delaware (see
"--The Company--Change of Company Name and Continuance"), these registration
statements must be amended to conform to the requirements applicable to
companies incorporated in the U.S., and accordingly the Company and the
Guarantors are filing amendments to all of the registration statements to effect
this. In the meantime, the Company is in default of its obligations under the
Registration Rights Agreement, as a result of which it is paying Special
Interest to the holders of the Senior Notes and the Convertible Notes. See
"Description of the Exchange Notes and Other Private Placement
Securities--Principal, Maturity and Interest."
This Prospectus relates solely to the Exchange Offer with respect to
the Senior Notes, in which Exchange Notes will be issued in substitution for
Outstanding Notes. Separate registration statements, incorporating separate
prospectuses, have been filed with the Commission, with respect to (i) the
resale, by the holders thereof, of the Convertible Notes and the Convertible
Note Shares, and (ii) the resale, by the holders thereof, of the Warrants and
the Warrant Shares. The description of the terms of the Convertible Notes and
the Warrants is contained herein in order to provide additional information
regarding the other securities issued in the Private Placement Offering and
which are being registered with the Commission.
------------------------
The Company's executive offices are located at 680 Fifth Avenue, 24th
Floor, New York, New York, 10019 (telephone number (212) 262-6060).
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "PLDI" and the Toronto Stock Exchange under the symbol "PLD". It is
also quoted on SEAQ International and traded on the Berlin and Frankfurt Stock
Exchanges. Prior to March 6, 1997, the Company's trading symbol on the Nasdaq
National Market was "PLDIF."
5
<PAGE> 15
CORPORATE STRUCTURE
The following chart shows the corporate structure of the Company and its
material interests (but also including the Guarantors, including NWE Capital
(Cyprus) Ltd. ("NWE Cyprus") and PLD Asset Leasing Limited ("PLD Leasing")),
together with the percentage of equity ownership of the Company and Technocom
in each operating subsidiary and other significant investments and the
Guarantors.
PLD Telekom Inc.
(Delaware)(1)
|
__________________________________|_______________________
| | | | |
| PLD Capital Limited | | PLD Asset Leasing Limited
| (Cyprus) | | (Cyprus)
| 100% | | 100%
| | NWE Capital
| | (Cyprus) Limited ___________________________
| | (Cyprus) | |
| | 100% | |
| | | | |
| BALTIC COMMUNICATIONS | C.P.Y. YELLOW PAGES LTD |
| LIMITED | (CYPRUS) WIRELESS
| (Russia) | 100% TECHNOLOGY
| 100% | CORPORATIONS
| | LIMITED
| | (BRITISH VIRGIN
| | ISLANDS)
| | 100%
| | |
TECHNOCOM PETERSTAR BECET |
LIMITED (3) COMPANY INTERNATIONAL (4)
(Ireland) LIMITED (2) (Kazahstan)
80.4% (Russia) 50%
| 60%
|_____________________________________________________________
| | |
| | |
TELEPORT-TP (5) JV TECHNOPARK LIMITED MTR-SVIAZ (6)
(Russia) (Russia) (Russia)
49.33% 55.51% 49%
- ---------------
(1) The Company holds its interests in a number of its subsidiaries through NWE
Cyprus to take advantage of the double taxation treaty between Cyprus and
the Russian Federation.
(2) The other shareholders of PeterStar are: PLD Holdings Ltd., a company
registered in Bermuda (11%), which is indirectly wholly owned by Cable &
Wireless; and Telecominvest (29%), which is owned 51% by an affiliate of
Commerzbank AG, 25% by PTS and 24% by SPMMTS, and which was formed by PTS
and SPMMTS to act as a holding company for their respective interests in a
number of telecommunications ventures in Northwest Russia.
(3) In November 1997, the Company acquired an additional 29.65% of the ordinary
shares in Technocom, bringing its total interest to the current 80.40% As a
result, the remaining interests in Technocom are beneficially owned by: (i)
Plicom Limited (14.57%), an Irish company beneficially owned by the family
interests of Mr. Mark Klabin ("Plicom"); and (ii) Elite International
Limited (5.03%), an Irish company beneficially owned by a trust advised by
Dr. Boris Antoniuk ("Elite"). The Company understands that Dr. Antoniuk has
the power to exercise the voting rights of the shares in Technocom owned by
Elite. The remainder of the interests held by Plicom and Elite are subject
to put and call arrangements with the Company. See "-- Acquisition of
Additional Interests in Technocom;" "-- Risk Factors -- Risks Involving the
Company -- Effect of Technocom Minority Shareholders' Put Options."
Technocom also holds an effective 100% interest in SCS, a company organized
under the laws of Guernsey, Channel Islands, which acts as Teleport-TP's
marketing arm for the selling and administration of TV broadcasting
services, and a 50% interest in Rosh Telecom Limited, a telecommunications
equipment distributor.
(4) The Company holds its 50% interest in BECET through its wholly owned
subsidiary, Wireless Technology Corporations Limited ("WTC"), a corporation
organized under the laws of the British Virgin Islands, which in turn is
wholly owned by NWE Cyprus. The other 50% interest in BECET is currently
held by Kazakhtelekom, a Kazakh joint stock company, formerly wholly owned
by the government of Kazakhstan, which operates the public telephone network
in that country. In May 1997, the Kazakh government announced the sale of a
40% stake in Kazakhtelekom to Daewoo. However, in March 1998, it was
reported that Daewoo had sold a portion of its stake (reported to be
approximately 10%) to an unnamed third party. The report did not indicate
whether Daewoo proposed to sell or retain the remainder of its stake in
Kazakhtelekom.
(5) In 1996, Technocom's interest in Teleport-TP was increased to its current
49.33% (56% voting interest) through: (i) its acquisition of a 55.51%
interest in JV Technopark Limited ("Technopark"), which owns a 7.5% interest
in Teleport-TP; and (ii) the acquisition by Roscomm Limited, a Guernsey
company ("Roscomm"), which is 66.67% beneficially owned by Technocom and
which already owned a 5% interest in Teleport-TP, of an additional 5%
interest previously held in trust for the VVC, the All-Russian Exhibition
Center, a business park in Moscow. Technocom holds 38.5% of its beneficial
interest directly, 6.67% through its 66.67% beneficial interest in Roscomm
(which owns a 10% interest in Teleport-TP), and 4.16% through its 55.51%
interest in Technopark (which owns a 7.5% interest in Teleport-TP). The
remaining 44% voting interest in Teleport-TP is held by Rostelecom.
Teleport-TP holds a 25% interest in Gorizont-RT, a cellular
telecommunications operator in the Republic of Sakha. The remaining
interests in Gorizont-RT are held by Sakhatelekom (51%) and local business
partners (24%).
(6) Technocom holds a 49% interest in MTR-Sviaz, a wireline telecommunications
operator in Moscow. The remaining 51% interest is held by Mosenergo, the
Moscow city power utility.
6
<PAGE> 16
THE EXCHANGE OFFER
<TABLE>
<S> <C>
SECURITIES OFFERED Up to $123,000,000 principal amount at maturity of the Exchange Notes. The
form and terms of the Exchange Notes will be substantially identical to the
Outstanding Notes, except that the issuance of the Exchange Notes will be
registered under the Securities Act, and thus the Exchange Notes will not
bear legends restricting their transferability.
THE EXCHANGE OFFER Each $1,000 principal amount at maturity of Exchange Notes is being offered
in substitution for $1,000 principal amount at maturity of Outstanding Notes
which were issued and sold by the Company to the Initial Purchaser on June
12, 1996 pursuant to the Purchase Agreement. The issuance of the Exchange
Notes is intended to satisfy obligations of the Company set forth in the
Registration Agreement.
EXPIRATION DATE The Exchange Offer will expire at 5:00 p.m., New York City time, on June
__, 1998 unless extended, in which case the term "Expiration Date" means
the latest date and time to which the Exchange Offer shall have been
extended. The Company will accept for replacement any and all
Outstanding Notes that are properly tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will be delivered promptly
following the Expiration Date.
WITHDRAWAL RIGHTS Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the Expiration Date; otherwise, all tenders will be irrevocable.
PROCEDURES FOR TENDERING
NOTES See "The Exchange Offer--Procedures for Tendering Outstanding Notes."
UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS For United States federal income tax purposes, holders of Outstanding Notes
should not recognize any gain or loss upon the receipt of Exchange Notes in
replacement of Outstanding Notes pursuant to the Exchange Offer. See
"Taxation."
CONDITIONS TO THE EXCHANGE
OFFER The Exchange Offer is subject to certain customary conditions, which may be
waived by the Company. See "The Exchange Offer -- Conditions to the Exchange
Offer." The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Outstanding Notes being tendered for exchange.
</TABLE>
7
<PAGE> 17
<TABLE>
<S> <C>
PROCEDURES FOR TENDERING
OUTSTANDING NOTES Each holder (a "Holder") of Outstanding Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained herein and therein,
and mail or otherwise deliver such Letter of Transmittal, or such facsimile,
together with such Outstanding Notes and any other required documentation,
to The Bank of New York, as exchange agent (in such capacity, the "Exchange
Agent"), at the address set forth herein. By tendering an Outstanding Note
for exchange, each Holder will represent to the Company that, among other
things, the Exchange Note to be issued in substitution for such Outstanding
Note is being obtained in the ordinary course of business of the person
receiving such Exchange Note whether or not such person is the Holder of
such Note; that neither the Holder nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such Exchange Note; and that neither the Holder nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company.
SPECIAL PROCEDURES FOR CERTAIN
BENEFICIAL OWNERS Any beneficial owner of Outstanding Notes whose Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender such Outstanding Notes in the Exchange Offer should
contact such registered Holder promptly and instruct such registered Holder
to tender on such beneficial owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and delivering the Outstanding
Notes, either make appropriate arrangements to register ownership of the
Outstanding Notes in such owner's name, or obtain a properly completed bond
power from the registered Holder. The transfer of registered ownership may
take considerable time and, if initiated after the date of this Prospectus,
may not be able to be completed prior to the Expiration Date.
GUARANTEED DELIVERY
PROCEDURES Holders of Outstanding Notes who wish to tender their Outstanding Notes
and whose Outstanding Notes are not immediately available or who cannot
deliver their Outstanding Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to the Exchange Agent,
prior to the Expiration Date, must tender their Outstanding Notes according
to the guaranteed delivery procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
EXCHANGE AGENT The Bank of New York, which is also the Trustee under the Senior Note
Indenture (as defined herein).
USE OF PROCEEDS There will be no proceeds to the Company from the issuance of the Exchange
Notes in substitution for the Outstanding Notes.
</TABLE>
8
<PAGE> 18
THE EXCHANGE NOTES
The Exchange Offer is extended to holders of the $123,000,000 principal
amount at maturity of the Outstanding Notes outstanding as of the date hereof.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Outstanding Notes, except that the
Exchange Notes will have been registered under the Securities Act and,
therefore, will not contain legends restricting the transfer thereof. The
Exchange Notes evidence the same debt as the Outstanding Notes exchanged for the
Exchange Notes and will be entitled to the benefits of the same Indenture under
which the Outstanding Notes were issued. See "Description of the Exchange Notes
and Other Private Placement Securities." Certain capitalized terms listed below
are defined under the caption "Description of the Exchange Notes and Other
Private Placement Securities--The Notes--Certain Definitions."
Unless the context clearly requires otherwise, references to the
"Notes", the "Senior Notes", the "Outstanding Notes" and the "Convertible Notes"
shall refer to such securities as amended by the Supplemental Indenture, and
references to the "Senior Note Indenture", the "Convertible Note Indenture" and
the "Indentures" shall refer to such indentures as amended by the Supplemental
Indenture. See "Summary--Recent Developments--Consent Solicitation."
<TABLE>
<S> <C>
Maturity Date June 1, 2004.
Yield 14% per annum (computed on a semi-annual bond equivalent basis) and calculated as if
the Senior Notes had been issued on May 31, 1996 (being at a rate of 14.9445% per
annum for the period from the Issue Date through November 30, 1996) (without giving
effect to any allocation of net proceeds of the Private Placement Offering to the
Warrants).
Interest The Senior Notes accrete at the rate of 14% per annum calculated as if the Senior
Notes had been issued on May 31, 1996 (being at a rate of 14.9445% per annum for
the period from the Issue Date through November 30, 1996), compounded
semi-annually, to an aggregate principal amount of $123 million by December 1,
1998. Cash interest will not accrue on the Senior Notes prior to December 1, 1998.
Thereafter, interest on the Senior Notes will accrue at the rate of 14% per annum and
will be payable in cash semi-annually on June 1 and December 1 of each year,
commencing June 1, 1999. The rate at which the Senior Notes will accrete and/or
cash interest will accrue may increase in the event that the Company does not raise
additional equity. Moreover, at all times on or after November 30, 1998, the
Company will be required to have funds or certain cash equivalents in an aggregate
amount not less than an amount necessary to pay on the next succeeding interest
payment date the interest, including Additional Amounts (as defined in "Description
of the Exchange Notes and Other Private Placement Securities--The Notes"), if any,
and Special Interest, if any, on the Senior Notes then outstanding in the Company
Senior Note Escrow Account (as defined in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes") and/or the Leasing Company
Escrow Accounts (as defined in "Description of the Exchange Notes and Other
Private Placement Securities--The Notes"). See "Description of the Exchange Notes
and Other Private Placement Securities--The Notes--Principal, Maturity and
Interest."
9
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
Original Issue Discount For U.S. federal income tax purposes, the Senior Notes will be treated as having
been issued with "original issue discount" equal to the difference between the issue
price of the Senior Notes and the sum of all cash payments (whether denominated
as principal or interest) to be made thereon. Each holder of a Senior Note must
include in gross income for U.S. federal income tax purposes a portion of such
original issue discount for each day during each taxable year in which a Senior Note
is held even though cash interest does not begin to accrue until December 1, 1998,
and no cash interest payments will be received prior to June 1, 1999.
Additional Amounts Subject to certain exceptions, all payments in respect of the Senior Notes or the
Senior Note Guarantees (as defined herein) will be made without withholding or
deduction for or on account of any present or future taxes, duties, levies or other
governmental charges of whatever nature imposed by or on behalf of Canada,
Cyprus, Russia or any other jurisdiction with which the Company or any Guarantor
has some connection or any political subdivision or taxing authority of any such
jurisdiction. See "Description of the Exchange Notes and Other Private Placement
Securities--The Notes--Additional Amounts".
Guarantees The Senior Notes are jointly and severally, irrevocably and unconditionally
guaranteed on a senior secured basis by the Leasing Companies (as defined in
"Description of the Exchange Notes and Other Private Placement Securities--The
Notes") and on a senior unsecured basis by BCL, NWE Cyprus, WTC, any future
Wholly-Owned Subsidiary (as defined in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes") of PLD and any other subsidiary
that guarantees indebtedness of PLD. No non-Wholly-Owned Subsidiary will
initially be a Guarantor.
Optional Redemption The Senior Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on or after June 13, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, and Additional Amounts, if any, and
Special Interest (as defined in "The Exchange Offer--Termination of Certain
Rights"), if any, thereon to the date of redemption. See "Description of the
Exchange Notes and Other Private Placement Securities--The Notes--Optional
Redemption."
Tax Redemption The Senior Notes are redeemable at the Company's option, in whole but not in part,
at a redemption price equal to the Accreted Value thereof, plus accrued and unpaid
interest (including Additional Amounts and Special Interest, if any) to the date of
redemption, in the event that the Company becomes obligated to pay any Additional
Amounts or if any Guarantor is obligated (if its Senior Note Guarantee is called) to
pay any Additional Amounts, in each case as a result of changes in applicable tax
laws or regulations or in the application or official interpretation thereof.
Sinking Fund None.
Ranking The Senior Notes are senior secured obligations of the Company and rank senior in
right of payment to all subordinated indebtedness of the Company, and pari passu
10
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
in right of payment with all existing and future senior unsecured indebtedness of
the Company. The Senior Notes are generally senior in right of payment to the
Convertible Notes, except that the Convertible Notes rank senior to the Senior Notes
in respect of the Convertible Note Collateral. The Senior Note Guarantees are senior
secured obligations of the Leasing Companies and are generally unsecured senior
obligations of the other Guarantors and rank senior in right of payment to all
subordinated indebtedness of each such Guarantor and rank pari passu in right of
payment to all such senior indebtedness including trade debt of such Guarantor. The
Senior Notes are effectively subordinated to all existing and future indebtedness,
including trade debt, of the subsidiaries of the Company other than the Guarantors.
As of December 31, 1997, the Company and the Guarantors had outstanding $50.5 million
of indebtedness, including trade debt but excluding indebtedness owed to
non-Guarantor subsidiaries, ranking pari passu in right of payment with the Senior
Notes or the Senior Note Guarantees, as applicable.
Security The Senior Notes are secured by, among other things, (i) a pledge of the Company
Senior Note Escrow Account (as defined in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes") and the funds and investments
contained therein, (ii) a pledge of the capital stock of the Guarantors, (iii) a
pledge of any intercompany notes representing loans to the Leasing Companies, (iv)
pledges by the Leasing Companies of leases of or installment sales contracts for
Telecommunications Assets (as defined herein) and of Qualified Investments (as
defined in "Description of the Exchange Notes and Other Private Placement
Securities--The Notes") (v) a pledge by the Company of Qualified Investments, and
(vi) pledges by the Leasing Companies of the Leasing Company Escrow Accounts and the
funds and investments contained therein, with respect to all of which items (i)
through (vi) it holds a first lien position, and (vii) a pledge of the Company
Convertible Note Escrow Account (as defined in the "Description of the Exchange
Notes and Other Private Placement Securities--The Notes") and the funds and
investments contained therein, (viii) a pledge of Technocom Preferred Stock, and
(ix) a pledge of any Qualified Investments or intercompany notes representing loans
made with the proceeds of the Convertible Note Collateral, with respect to all of
which items (vii) through (ix) it holds a second lien position.
Change of Control Upon a Change of Control, each holder of the Senior Notes will have the right to
require PLD to repurchase all or any part of such holder's Senior Notes at a price
equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest, if
any, and Additional Amounts, if any, and Special Interest, if any, thereon, to the date
of repurchase. There can be no assurance that PLD will have the financial resources
necessary to repurchase the Senior Notes upon a Change of Control. See
"Description of the Exchange Notes and Other Private Placement Securities--The
Notes--Repurchase at the Option of Holders upon a Change of Control."
Certain Covenants The indenture under which the Senior Notes were issued (the "Senior Note Indenture")
contains certain covenants which, among other things, will restrict the ability of
PLD and certain of its subsidiaries to incur additional indebtedness, pay dividends
or make distributions in respect of PLD's capital stock or make
11
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
investments or certain other restricted payments, create liens, engage in sale and
leaseback transactions, enter into transactions with affiliates or related persons,
sell assets, engage in mergers or acquisitions and engage in business other than the
telecommunications business. In addition, the Senior Note Indenture imposes limits
on the ability of certain of the Company's subsidiaries to issue guarantees and
Preferred Stock and to create restrictions on their ability to pay dividends and
make certain other payments to the Company. These covenants are subject to important
exceptions and qualifications. See "Description of the Exchange Notes and Other
Private Placement Securities--The Notes--Certain Covenants" and "--Asset Sales"
and"--Consolidation, Merger, Conveyance, Lease or Transfer."
Trustee The Bank of New York
Governing Law The Senior Notes, the Senior Note Indenture and the principal Senior Note Collateral
Documents (as defined in "Description of the Exchange Notes and Other Private
Placement Securities--The Notes") are governed by, and will be construed in
accordance with, the laws of the State of New York.
Exchange/Registration Rights The Registration Statement, as amended, has been filed with the Commission and is
intended to satisfy the Company's obligations under the Registration Rights
Agreement, dated as of May 31, 1996 (the "Registration Agreement"), between the
Company and the Initial Purchaser, with respect to the Exchange Offer. See
"Description of the Exchange Notes and Other Private Placement Securities--
Registration Rights."
</TABLE>
For additional information concerning the Senior Notes, see
"Description of the Exchange Notes and Other Private Placement
Securities--The Notes."
12
<PAGE> 22
THE OTHER PRIVATE PLACEMENT SECURITIES
The following section provides a summary of the material terms of the
Warrants and the Convertible Notes , in the case of the Convertible Notes, as
amended by the Supplemental Indenture. However, this Prospectus relates solely
to the Exchange Offer with respect to the Senior Notes, in which Exchange Notes
will be issued in substitution for Outstanding Notes. Separate registration
statements, incorporating separate prospectuses, have been filed with the
Commission, with respect to (i)) the resale, by the holders thereof, of the
Convertible Notes and the Convertible Note Shares, and (ii) the resale, by the
holders thereof, of the Warrants and the Warrant Shares. The description of the
terms of the Convertible Notes and the Warrants is contained herein in order to
provide additional information regarding the other securities issued in the
Private Placement Offering.
Unless the context clearly requires otherwise, references to the
"Notes", the "Senior Notes", the "Outstanding Notes" and the "Convertible Notes"
shall refer to such securities as amended by the Supplemental Indenture, and
references to the "Senior Note Indenture", the "Convertible Note Indenture" and
the "Indentures" shall refer to such indentures as amended by the Supplemental
Indenture.
THE CONVERTIBLE NOTES
<TABLE>
<S> <C>
Use of Proceeds $20 million of the net proceeds from the offering of the Convertible Notes was used
for the purchase of preferred stock of Technocom ("Technocom Preferred Stock") and
the balance thereof was used for general corporate purposes.
Maturity Date June 1, 2006.
Interest The Convertibles Notes bear interest from the Issue Date at a rate computed as if the
Convertible Notes had been issued bearing interest at the rate of 9% per annum on May
31, 1996 (being the rate of 9.5858% per annum from the Issue Date through November
30, 1996), and the Convertible Notes will bear interest at the rate of 9% per annum
from December 1, 1996, payable in cash semi-annually on June 1 and December 1 of each
year, commencing December 1, 1996. See "Description of the Exchange Notes and Other
Private Placement Securities--The Notes--Principal, Maturity and Interest."
Additional Amounts Payments in respect of the Convertible Notes or the Convertible Note Guarantees (as
defined herein) will be made without withholding or deduction for or on account of
any present or future taxes, duties, levies or other governmental charges of whatever
nature imposed by or on behalf of Canada, Cyprus, Russia or any other jurisdiction
with which the Company or any Guarantor has some connection or any political
subdivision or taxing authority of any such jurisdiction. See "Description of the
Exchange Notes and Other Private Placement Securities--The Notes--Additional
Amounts"."
13
</TABLE>
<PAGE> 23
<TABLE>
<S> <C>
Guarantees The Convertible Notes are jointly and severally, irrevocably and unconditionally
guaranteed on a senior subordinated basis by the Leasing Companies, BCL, NWE Cyprus,
WTC, any future Wholly-Owned Subsidiary of PLD and any other subsidiary that
guarantees indebtedness of PLD. No non-Wholly-Owned Subsidiary will initially be a
Guarantor.
Optional Redemption The Convertible Notes are not redeemable, in whole or in part, at the option of the
Company, at any time prior to June 1, 2000 except pursuant to a tax redemption
described below. At any time from June 1, 2000 to May 31, 2002, the Company may
redeem all but not less than all of the Convertible Notes if the closing price of a
share of Common Stock is 150% of the conversion price for the Convertible Notes for
thirty days, at a redemption price equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, Additional Amounts, if any, and Special
Interest, if any. Thereafter, the Company may redeem in whole or in part the
Convertible Notes at a redemption price equal to 100% of the principal amount thereof
plus accrued and unpaid interest, if any, Additional Amounts, if any, and Special
Interest, if any.
Tax Redemption The Convertible Notes are redeemable at the Company's option, in whole but not in
part, at a redemption price equal to 100% of the principal amount thereof plus
accrued and unpaid interest (including Additional Amounts and Special Interest, if
any) to the date of redemption, in the event that the Company becomes obligated to
pay any Additional Amounts (as defined in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes") or if any Guarantor is obligated (if
its Convertible Note Guarantee is called) to pay any Additional Amounts, in each case
as a result of changes in applicable tax laws or regulations or in the application or
official interpretation thereof.
Conversion Rights The Convertible Notes are convertible into shares of Common Stock, at the option of
the holders of Convertible Notes, at any time after the 60th day following the date
of original issuance of the Convertible Notes and prior to redemption or final
maturity of the Convertible Notes, initially at the conversion price of $6.90 per
share, subject to adjustment as described in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes--Conversion Rights of Convertible
Notes." The right to convert Convertible Notes which have been called for redemption
will terminate at the close of business on the business day preceding the redemption
date. See "Description of the Exchange Notes and Other Private Placement
Securities--The Notes--Conversion Rights of Convertible Notes."
Sinking Fund None.
14
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
Ranking The Convertible Notes are senior subordinated obligations of the Company. The
Convertible Notes will generally be subordinated in right of payment to the Senior
Notes, provided that the Convertible Notes are secured by a first priority lien on
Convertible Note Collateral (see below) and the Convertible Notes rank as to such
Convertible Note Collateral pari passu in right of payment to the Senior Notes.
Otherwise, the Convertible Notes rank pari passu in right of payment with all other
existing and future unsecured indebtedness of the Company. The Convertible Note
Guarantees are senior subordinated obligations of the Guarantors. The Convertible
Note Guarantees are subordinated to the Senior Note Guarantees. Otherwise, the
Convertible Note Guarantee of each such Guarantor rank pari passu in right of payment
with all other existing and future unsecured indebtedness of such Guarantor. The
Convertible Notes are effectively subordinated to all existing and future
indebtedness, including trade debt, of the subsidiaries of the Company other than the
Guarantors. As of December 31, 1997, the Company and the Guarantors had outstanding
$119.7 million of indebtedness, including trade debt but excluding indebtedness owed to
non-Guarantor subsidiaries, ranking pari passu in right of payment with the
Convertible Notes or the Convertible Note Guarantees, as applicable.
Security The Convertible Notes are secured by, among other things, (i) a pledge of the Company
Convertible Note Escrow Account (as defined in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes") and the funds and investments
contained therein, (ii) a pledge of all Technocom Preferred Stock owned by the
Company, and (iii) a pledge of all Qualified Investments and intercompany notes
representing loans made with the proceeds of the Convertible Note Collateral, with
respect to all of which items (i) through (iii) it holds a first lien position, and
(iv) the Senior Note Collateral (as defined in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes"), with respect to which it holds a
second lien position.
Change of Control Upon a Change of Control, each holder of the Convertible Notes will have the right to
require PLD to repurchase all or any part of such holder's Convertible Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, Additional Amounts, if any, and Special Interest, if any, thereon,
to the date of repurchase. There can be no assurance that PLD will have the financial
resources necessary to repurchase the Convertible Notes upon a Change of Control. See
"Description of the Exchange Notes and Other Private Placement Securities--The
Notes--Repurchase at the Option of Holders upon a Change of Control."
15
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
Termination of Trading Upon a Termination of Trading (as defined in "Description of the Exchange Notes and
Other Private Placement Securities--The Notes"), each holder of a Convertible Note
will have the right to require PLD to repurchase all or any part of such holder's
Convertible Notes at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, and Additional Amounts, if any, and Special
Interest, if any, thereon to the date of repurchase. There can be no assurance that
PLD will have the financial resources necessary to repurchase the Convertible Notes
upon a Termination of Trading. See "Description of the Exchange Notes and Other
Private Placement Securities--The Notes--Right to Require Repurchase of Convertible
Note Upon a Termination of Trading."
Certain Covenants The indenture under which the Convertible Notes were issued (the "Convertible Note
Indenture" and together with the Senior Note Indenture, the "Indentures") contains
certain limited covenants which, among other things, will restrict the ability of PLD
and certain of its subsidiaries to sell assets or engage in mergers or acquisitions
and engage in business other than the telecommunications business. In addition, the
Convertible Note Indenture imposes limits on the ability of certain of the Company's
subsidiaries to issue guarantees. See "Description of the Exchange Notes and Other
Private Placement Securities--The Notes--Certain Covenants," "--Asset Sales" and
"--Consolidation, Merger, Conveyances, Lease or Transfer."
Trustee The Bank of New York
Governing Law The Convertible Notes, the Convertible Note Indenture and the principal Convertible
Note Collateral Documents (as defined herein) will be governed by, and construed in
accordance with, the laws of the State of New York.
Registration Rights Pursuant to the Registration Agreement, the Company agreed to file a registration
statement with the Commission with respect to the Exchange Offer and/or under certain
circumstances, to file a shelf registration with respect to the resale, by the
holders thereof, of the Convertible Notes and the Convertible Note Shares. See
"Description of the Exchange Notes and Other Private Placement
Securities--Registration Rights." Simultaneously with the initial filing of the
Registration Statement with the Commission in August 1996, the Company also filed a
registration statement with the Commission with respect to the Exchange Offer and
filed an amendment thereto simultaneously with the filing of an amendment to the
Registration Statement.
</TABLE>
For additional information concerning the Convertible Notes, see
"Description of the Exchange Notes and Other Private Placement Securities--The
Notes."
THE UNITS
16
<PAGE> 26
<TABLE>
<S> <C>
Securities 123,000 Units, each consisting of a Senior Note and one Warrant to purchase 34
shares of Common Stock. The Senior Notes and Warrants became separately transferable
on December 12, 1996.
Use of Proceeds The net proceeds from the offering of the Units are required to be used for the
purchase of equipment to be leased or sold to the Company's operating subsidiaries
and certain joint ventures, (subject to certain conditions) the investment in
certain entities engaged in or proposing to engage in the telecommunications
business in Russia or Kazakhstan, to repay certain existing indebtedness of the
Company and for general corporate purposes.
THE WARRANTS
Warrants 123,000 Warrants, which, when exercised, would entitle the holders thereof to
acquire an aggregate of 4,182,000 shares of Common Stock.
Expiration of Warrants June 1, 2006 (the "Expiration Date").
Exercise Each Warrant entitles the holder thereof to purchase 34 Shares of Common Stock for
$6.60 per share (the "Exercise Price"). The Warrants became exercisable on December
12, 1996. See "Description of the Exchange Notes and Other Private Placement
Securities--The Warrants--General."
Registration Rights Pursuant to the Registration Agreement, the Company agreed to file a registration
statement with the Commission with respect to the resale, by the holders thereof, of
the Warrants and the Warrant Shares. See "Description of the Exchange Notes and
Other Private Placement Securities--Registration Rights." Simultaneously with the
initial filing of the Registration Statement with the Commission in August 1996, the
Company also filed a registration statement with the Commission with respect to the
resale by the holders thereof of the Warrants and the Warrant Shares and filed an
amendment thereto simultaneously with the filing of an amendment to the Registration
Statement.
</TABLE>
For additional information concerning the Warrants, see "Description of
the Exchange Notes and Other Private Placement Securities--The Warrants."
17
<PAGE> 27
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated financial data as of and for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993 have been derived from,
and should be read in conjunction with, the audited consolidated financial
statements of the Company. The consolidated financial statements as of December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997 have been incorporated herein by reference. Pursuant to U.S.
GAAP, the financial results of the Company's subsidiaries have been consolidated
into the Company's audited consolidated financial statements, even those in
which the Company does not own a 100% interest, because the Company effectively
controls such subsidiaries.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995 1994 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......................... $114,424 $61,966 $29,120 $8,526 $2,308
Operating expenses......................... 102,406 59,099 38,266 17,248 7,606
-------- -------- -------- ------- --------
Operating income (loss)...................... 12,018 2,867 (9,146) (8,722) (5,298)
-------- -------- -------- ------- --------
Loss from continuing operations before
income taxes and minority interest...... (3,428) (6,271) (13,440) (9,491) (5,264)
Income taxes............................... 7,739 3,669 1,490 -- --
Loss from continuing operations
before minority interest................. (11,167) (9,940) (14,930) (9,491) (5,264)
Minority interest.......................... 9,399 2,521 (551) -- --
-------- -------- -------- ------- --------
Loss from continuing operations............ (20,566) (12,461) (15,481) (9,491) (5,264)
Discontinued operation..................... -- -- -- -- (5,138)
-------- -------- -------- ------- --------
Loss for the year/period................... $(20,566) $(12,461) $(15,481) $(9,941) $(10,402)
========= ========= ========= ======== =========
Loss per common share(1)................... $(0.64) $(0.39) $(0.49) $(0.78) $(1.33)
======== ======== ======== ======= ========
Weighted average number of shares
outstanding............................... 32,061 31,579 31,315 12,663 8,155
Ratio of earnings to fixed charges(3)........ -- -- -- -- --
Deficiency in earnings to cover
fixed charges(3)........................... (20,566) (12,461) (15,481) (9,491) (10,402)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and term deposits(2).................. $ 17,256 $ 40,674 $15,676 $ 56,710 $ 948
Non-cash working capital (deficiency)...... (18,642) (26,440) (22,001) (17,706) (5,121)
Escrow funds............................... 33,868 40,984 -- -- --
Property and equipment, net................ 134,998 93,039 45,357 21,718 6,306
Telecommunications licenses................ 78,837 72,310 49,583 54,099 18,337
Investments and other assets............... 32,801 39,052 29,293 18,925 2,223
Investment in Teleport-TP.................. -- -- 23,564 15,699 --
Total assets............................... 335,586 306,357 178,092 171,760 28,700
Shareholders' equity (deficiency).......... 127,231 137,954 135,832 147,470 11,448
</TABLE>
18
<PAGE> 28
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
---------------------------------------------------------
NETWORK AND SELECTED STATISTICAL DATA: 1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PeterStar:
Fiber kilometers.................................. 550 450 267 210
Number of switches................................ 28 26 18 6
Total lines....................................... 114,774 52,005 21,528 4,100
Fixed lines....................................... 28,826 14,792 6,869 1,714
Cellular lines.................................... 85,948 37,213 14,659 2,386
Total minutes of use (000s)....................... 169,739 128,846 37,824 8,112
Local minutes of use (000s)....................... 140,258 114,236 32,127 5,898
Long distance minutes of use (000s)............... 19,181 9,283 3,326 1,098
International minutes of use (000s)............... 10,300 5,327 2,371 1,116
Number of employees............................... 392 232 226 151
Teleport- TP:
International digital circuits.................... 1,200 1,023 1,008 713
Number of sites installed......................... 29 -- -- --
Number of sites operational....................... 14 -- -- --
Number of employees............................... 103 48
Baltic Communications Limited
Total lines....................................... 1,200 1,037 N/A N/A
Number of payphones installed..................... 98 57 49
Total minutes of use (000s)....................... 8,352 5,000 N/A N/A
Local minutes of use (000s)....................... 3,160 609 N/A N/A
Long distance minutes of use (000s) 2,094 973 N/A N/A
International minutes of use (000s)............... 3,098 3,418 N/A N/A
Number of employees............................... 84 87 N/A N/A
BECET International:
Cities in service................................. 12 11 3 1
New subscribers................................... 4,145 4,581 2,376 506
Number of subscribers (end of period) 11,102 6,957 2,882 506
Average number of subscribers..................... 4,920 1,694 253
Average monthly minutes per subscriber............ 342 294 N/A
Number of employees............................... 428 307 220 101
Total minutes of use (000s)....................... 34,646 20,217 N/A N/A
Local minutes of use (000s)....................... 29,714 17,204 N/A N/A
Long distance minutes of use (000s)............... 2,449 1,247 N/A N/A
International minutes of use (000s)............... 2,483 1,766 N/A N/A
</TABLE>
- ------------
N/A - data for the specified period is not available.
(1) In 1993, loss per common share included a loss from discontinued
operations of $(0.63).
(2) The December 31, 1996 and 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.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income (loss) from continuing operations before
income taxes, minority interest and fixed charges. Fixed charges
consist of interest expense and that portion of rental cost
equivalent to interest (estimated to be one-third of rental cost).
The historical earnings for the years ended December 31, 1997, 1996,
1995, 1994 and 1993 were inadequate to cover fixed charges. Accordingly,
the dollar amount of the deficiency in earnings to cover fixed
charges is disclosed.
19
<PAGE> 29
RISK FACTORS
The Exchange Notes involve a high degree of risk. In addition to the
other information in and incorporated by reference in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Exchange Notes.
COUNTRY RISKS
General. Foreign companies conducting operations through affiliates in
the Russian Federation and Kazakhstan face significant political, economic,
currency, legal and social risks. For example, a report released February 20,
1997 by the United States Embassy in Moscow on the commercial environment in the
Russian Federation listed the following general difficulties affecting trade and
investment in the Russian Federation, most of which are also encountered in
Kazakhstan and some or all of which could affect the ability of the Company or
its operating businesses to conduct or realize income from their businesses:
- ownership disputes
- high taxes, and a frequently changing tax regime
- high operating costs
- lack of systematic and accessible credit information
- corruption and commercial crime
- financial illiquidity of many Russian firms
- changing requirements from regulatory bodies
- lack of market information
- an infant commercial legal framework
- cultural and language differences
- infrastructure problems
- payments, arrears and frozen accounts
- frequent changes in governmental personnel
Political Risks. Since the breakup of the Soviet Union, the political
situation in the Russian Federation and Kazakhstan has been characterized by
uncertainty and instability.
In the Russian Federation, the political situation has been characterized
by tensions between the executive and legislative branches of the government and
efforts by the regions and autonomous republics of the Russian Federation to
gain a greater degree of independence (the most dramatic example of which was
the conflict in Chechnya). Lack of consensus between local and regional
authorities and the federal government often results in the enactment of
conflicting legislation at various levels and may result in political
instability. This lack of consensus may have negative economic effects on the
Company, which could be material to its operations. Communist and nationalist
parties wield strong influence in the lower house of Parliament (the Duma) and
have made gains in regional governorships which could result in a slow down or
reversal of the development of a free market economy.
During the transformation to a market-oriented economy in the Russian
Federation, legislation has been enacted to protect property against
expropriation and nationalization. However, a resurgence in nationalism could
result in pressures for the reduction or even elimination of non-Russian
ownership of Russian businesses, and there can be no assurance that such
recently enacted protections would be enforced in the event of an attempted
expropriation or nationalization. Legislation to restrict foreign ownership in
the telecommunications industry is introduced from time to time and, while not
expected to become law, is symptomatic of these increasingly nationalistic
attitudes. Boris Yeltsin, President of the Russian Federation, recently
announced that he will not run for re-election in 2000. The resulting change in
leadership at that time could result in political instability and substantial
changes in government policies. Any such matters could have a material adverse
effect on the Company.
The political situation in Kazakhstan is characterized by one-man rule
by President Nursultan Nazarbayev who demonstrates considerable political power.
While such concentration of power may at times be perceived as providing a
stabilizing influence, it also increases the risk of nepotism, arbitrary
decision-making and significant policy changes in the event of succession. In
addition, Russia has substantial political and economic influence in Kazakhstan
and may seek to use such influence to further its own goals, which may be
inconsistent with the national interests of Kazakhstan and create political
instability in that country, which could have a material adverse effect on the
Company.
<PAGE> 30
Economic Risks. Until recently, the economies of both the Russia
Federation and Kazakhstan were administered by the central authorities of the
former Soviet Union. Following the collapse of those authorities and the command
economy they managed, the governments of both the Russian Federation and
Kazakhstan sought to implement policies designed to introduce free market
economies into their respective countries. While these policies have met with
some success, the economies of both the Russian Federation and Kazakhstan have
been characterized by high unemployment, high rates of business failure, the
deterioration of certain sectors of the economy, high government debt relative
to gross domestic product and declining real wages. In both the Russian
Federation and Kazakhstan real economic improvement has been limited to specific
regions (the Moscow and St. Petersburg regions in Russia, and Almaty in
Kazakhstan). The Russian Federation is still experiencing a lack of political
consensus as to the scope, content and pace of free market reforms. No assurance
can be given that policies to introduce or support a free market economy will
continue to be implemented in either the Russian Federation or Kazakhstan, that
these countries will remain receptive to foreign investment or that the
economies of the Russia Federation or Kazakhstan will stabilize. The failure of
any of these to occur could have a material adverse effect on the Company. In
addition, the Russian Federation currently receives substantial financial
assistance from several foreign governments and international organizations. To
the extent any of this financial assistance is reduced or eliminated, economic
development in the Russian Federation may be adversely affected, and any
resulting difficulties in the Russian economy could have a material adverse
effect on the Company.
Russian businesses have limited operating history in free market
conditions and have had limited experience compared with Western companies with
the entering into and performance of contractual obligations. Accordingly, as
compared to Western companies, such businesses are often characterized by
management that lacks experience in responding to changing market conditions and
limited capital resources with which to develop their operations. In addition,
the Russian Federation has limited infrastructure to support a market system and
banks and other financial systems are not well developed or well regulated.
Businesses therefore may experience difficulty in obtaining working capital
facilities. Moreover, the Russian banking system has faced and may encounter in
the future liquidity crises as well as other problems arising as a result of
under-capitalization of the banking sector as a whole. A general Russian banking
crisis could have a material adverse effect on the Company's operations and
financial performance and on the ability of its customers to pay amounts due.
Currency Risks. The Russian Rouble and the Kazakh Tenge are not
convertible outside of the Russian Federation and Kazakhstan, respectively.
Within those countries, a market exists for the conversion of Roubles and Tenge
into other currencies, but it is limited in size and is subject to rules
limiting the purposes for which conversion may be effected. The history of
trading in the Russian Rouble and Kazakh Tenge against the U.S. Dollar has been
characterized by significant declines in value and considerable volatility.
Although the Russian Rouble and the Kazakh Tenge experienced relative stability
against the U.S. Dollar during 1996 and 1997, there is a risk of further
declines in value and continued volatility in the future. Historically, the
Company has largely been able to limit its exposure to declines in the value of
the Rouble and the Tenge because its operating businesses invoice their
customers in U.S. Dollars which is permitted under current Russian and Kazakh
regulations. The Company's customers then pay in local currency at the
then-current exchange rate to the U.S. Dollar. The Company's operating
businesses have experienced certain costs in exchanging local currencies for
U.S. Dollars, but to date these have not been material. Nonetheless, no
assurance can be given that the Company's operating businesses will continue to
be able to bill customers in U.S. Dollars or in local currencies in amounts
determined by reference to the value of the U.S. Dollar, or that they will
continue to be able to exchange local currencies for U.S. Dollars without
significant difficulties, delays or costs. In particular, BECET may face greater
exchange risks as a result of new Kazakh regulations regarding invoicing. Any
of these developments, in conjunction with further declines, or volatility, in
the value of the Rouble or the Tenge against the U.S. Dollar, could have a
material adverse effect on the Company. See also "-- Risks Involving the Company
- -- Currency Controls; Restrictions on Repatriation of Payments; Prior
Investments."
Legal Risks. Both the Russia Federation and Kazakhstan lack fully
developed legal systems. Russian and Kazakh law is evolving rapidly and in ways
that may not always coincide with market developments, resulting in ambiguities,
inconsistencies and anomalies, and ultimately in investment risk that would not
exist in more developed legal systems. Furthermore, effective redress in Russian
and Kazakh courts in respect of a breach of law or regulation, or in an
ownership dispute, may be difficult to obtain.
<PAGE> 31
Risks associated with the Russian and Kazakh legal systems include: (i)
the untested nature of the independence of the judiciary and its immunity from
economic, political or nationalistic influences; (ii) the relative inexperience
of judges and courts in commercial dispute resolution, and generally in
interpreting legal norms; (iii) inconsistencies among laws, presidential decrees
and governmental and ministerial orders and resolutions; (iv) often times
conflicting local, regional and national laws, rules and regulations; (v) the
lack of judicial or administrative guidance on interpreting the applicable
rules; and (vi) a high degree of discretion on the part of government
authorities and arbitrary decision-making which increases, among other things,
the risk of property expropriation. The result has been considerable legal
confusion, particularly in areas such as company law, property, commercial and
contract law, securities law, foreign trade and investment law and tax law. No
assurance can be given that the uncertainties associated with the existing and
future laws and regulations of the Russian Federation or Kazakhstan will not
have a material adverse effect on the Company. In addition, there is no
guarantee that a foreign investor would obtain effective redress in any court.
No treaty exists between the United States and the Russian Federation or
Kazakhstan for the reciprocal enforcement of foreign court judgments.
Furthermore, the relative infancy of business and legal cultures in the
Russia Federation and Kazakhstan are reflected in the inadequate commitment of
local business people, government officials, agencies and the judicial system to
honor legal rights and agreements, and generally to uphold the rule of law.
Accordingly, the Company may, from time to time, confront threats of, or actual,
arbitrary or illegal revision or cancellation of its licenses and agreements,
and face uncertainty or delays in obtaining legal redress, any of which could
have a material adverse effect on the Company.
The Civil Code of the Russian Federation and the Law of the Russian
Federation on Joint Stock Companies generally provide that shareholders in a
Russian joint stock company are not liable for the obligations of the joint
stock company, and only bear the risk of loss of their investment. However, if a
company (an "effective parent") is capable of determining decisions by another
company (an "effective subsidiary"), and such capability is provided for in the
charter of the effective subsidiary or in a contract between the companies, and
if the effective parent gives obligatory directions to the effective subsidiary,
such effective parent bears joint and several responsibility for transactions
concluded by such effective subsidiary in carrying out such directions. In
addition, an effective parent is secondarily liable for an effective
subsidiary's debts in the event an effective subsidiary becomes insolvent or
bankrupt resulting from the action or inaction of an effective parent which is
capable of determining decisions of the effective subsidiary whether as a result
of the effective parent's ownership interest, pursuant to the terms of a
contract between the companies or in any other way. In such instances, other
shareholders of the effective subsidiary may claim compensation for the
effective subsidiary's losses from the effective parent which caused the
effective subsidiary to take action(s) or fail to take action(s) knowing that
such action(s) or failure to take action(s) would result in losses. Accordingly,
it is possible that the Company may be deemed to be an effective parent of
certain of its subsidiaries and therefore be liable in certain cases for the
debts of its effective subsidiaries. Such liability could have a material
adverse effect on the Company.
Russian laws regulating ownership, control and corporate governance of
Russian companies may, in some cases, provide limited protection to minority
shareholders. Disclosure and reporting requirements, and anti-fraud and insider
trading legislation have only recently been enacted and most Russian companies
and managers are not accustomed to such restrictions on their activities. The
concept of fiduciary duties on the part of management or directors to their
companies or shareholders is also new and is not well developed.
Social Risks. The political and economic changes in both the Russian
Federation and Kazakhstan since the break up of the former Soviet Union have
resulted in significant social dislocations, as existing governing structures
have collapsed and new ones are only beginning to take shape. The resulting
broad decline in the standard of living has often resulted in substantial
political pressure on the government to slow or even reverse the economic
policies currently being pursued. In addition, such decline in the standard of
living has led in the past, and could lead in the future, to labor and social
unrest. Such labor and social unrest may have political, social and economic
consequences, such as increased support for a renewal of centralized authority,
increased nationalism (with restrictions on foreign investment in the Russian or
Kazakh economy) and increased violence, any of which could have a material
adverse effect on the Company.
<PAGE> 32
In addition, the local and international press have reported
significant organized criminal activity, particularly in large metropolitan
centers, directed at revenue-generating businesses, and an increased integration
of Russian organized crime with major international criminal organizations. A
substantial increase in property crime in large cities has also been reported.
Finally, the local and international press have reported high levels of official
corruption in the locations where the Company's operating businesses operate. No
assurance can be given that organized or other crime or claims that the Company
or any of its operating businesses has been involved in official corruption will
not in the future have a material adverse effect on the Company.
Official Data Reliability. The official data published by Russian
federal, regional and local governments and federal agencies, and by the Kazakh
government and its agencies, are substantially less complete or reliable than
those of Western countries, and there can be no assurance that the official
sources from which certain of the information set forth herein has been drawn
are reliable. Official statistics may also be produced on different bases than
those used in Western countries. Any discussion of matters relating to the
Russian Federation or Kazakhstan herein must therefore be subject to uncertainty
due to concerns about the completeness or reliability of available official and
public information.
RISKS INVOLVING THE COMPANY
History of Losses. The Company has reported net losses during each of
its years of operations and there can be no assurance that the Company will be
able to generate profits in the future.
Capital Requirements. The Company's capital requirements arise in
three main areas. First, it may need to provide for the capital expenditures and
working capital needs of its operating businesses until such time as such
operating businesses become self-sustaining. To date, only BECET has achieved
that position. The Company has significant cash; however, the bulk of this
(representing the proceeds of the Senior Notes) is being held in escrow and can
only be released from escrow upon compliance with certain conditions. Those
conditions include a specific requirement that the funds be used solely to
acquire assets for use in a telecommunications business. This requirement means,
among other things, that these funds cannot be used for the working capital
needs of the operating businesses, or to pay for civil engineering and related
works required in connection with the installation of telecommunications
networks. In addition, the Company has found compliance with the conditions for
release burdensome, in that it is time consuming and expensive.
Second, the Company needs funds to acquire and/or develop new
businesses. Again, the funds in escrow can only be used for this to the extent
that equipment is being purchased; start up costs and working capital have to be
met out of other Company funds.
Lastly, the Company has significant debt service requirements.
Currently, it is indebted under the Series A and Series B Notes to the Travelers
Parties in the amount of $15,420,000, which bears interest at an annual rate of
12%, payable monthly in cash. This interest rate increases to 15% if the Company
has not raised $20,000,000 in additional equity by May 31, 1998. The Series A
and Series B Notes are required to be amortized at the rate of $1,000,000 per
month starting in July 1998. The Series B Notes, whose original principal amount
is $3,100,000, are due in full on September 30, 1998, and the Series A Notes, in
the original principal amount of $12,320,000, are due in full on December 31,
1998. In addition, the Company is obligated under the Senior Notes and the
Convertible Notes issued in June 1996. As of December 31, 1997, the value of the
Senior Notes on the Company's balance sheet was $95.7 million. These Notes
accrete at the rate of 14% per year until December 1, 1998, when interest on the
full accreted value of $123,000,000 is payable semi-annually thereafter in cash.
The first such semi-annual cash payment, amounting to $8,610,000, is due on June
1, 1999. The Senior Notes will accrete at 14.5% per year if the Company has not
raised $20,000,000 in additional equity by May 31, 1998. They come due in full
on June 1, 2004. The Convertible Notes (in the principal amount of $26,500,000)
come due on June 1, 2006, and bear interest, payable semi-annually in cash, at
the rate of 9% per year.
In addition, pursuant to the terms of the Travelers Warrants, under
certain circumstances additional warrants may be issued and/or the exercise
price of the Travelers Warrants may be reduced. In the event that the Company
does not effect any of the specified targeted reductions in commitment for the
Series A Notes, the holders of the Series A Notes will receive 30,000 additional
warrants to purchase shares of the Company's common stock on each date on which
such reduction was not made. In the event that the Company does not effect the
specified targeted reductions in commitment for the Series B Notes scheduled for
<PAGE> 33
July 31, 1998 and August 31, 1998, the holders of the Series B Notes (which
otherwise come due on September 30, 1998) shall receive 16,000 additional
warrants to purchase shares of such common stock. Any additional warrants are
referred to as the "Additional Warrants." The Company could be required to issue
up to 182,000 additional 10-year warrants to purchase shares of Common Stock
under these arrangements.
The exercise price for the Travelers Warrants and Additional Warrants
is $8.625 per share, except that, if the Series B Notes are not repaid in full
by September 30, 1998, the exercise price of all warrants issued to the holders
of the Series B Notes becomes $0.01, and, if the Series A Notes are not repaid
in full by December 31, 1998, the exercise price of all warrants issued to the
holders of the Series A Notes also becomes $0.01. All of the warrants expire on
December 31, 2008. In addition, if the Series B Notes are not repaid in full on
September 30, 1998, then, commencing September 30, 1998 and on the last day of
each succeeding month until the Series B Notes have been repaid in full, the
holders of the Series B Notes shall receive 32,000 additional warrants to
purchase shares of the Company's common stock at a price of $0.01 per share. If
the Series A Notes are not repaid in full on December 31, 1998, then, commencing
December 31, 1998 and on the last day of each succeeding month until the Series
A Notes have been repaid in full, the holders of the Series A Notes shall
receive 70,000 additional warrants to purchase shares of such common stock at a
price of $0.01 per share. These default warrants (the "Default Warrants") have
an expiration date ten years after their respective dates of issue.
The issuance of Additional Warrants and/or the Default Warrants could
result in the issuance of a substantial number of additional shares of Common
Stock upon their exercise. In addition, any adjustment of the exercise price on
the Travelers Warrants, the Additional Warrants and the Default Warrants would
result in the issuance of the shares of Common Stock at a significant discount,
resulting in substantial dilution to the holders of the Company's Common Stock.
The Company may face significant challenges in meeting its obligations
to pay cash interest on the indebtedness referred to above, and in effecting its
repayment upon its maturity. See "-- Holding Company Structure; Difficulties in
Enforcing Guarantees and Security; Effective Subordination of Notes to
Indebtedness of Subsidiaries."
Any or all of these matters may require that the Company raise funds in
a public or private equity or debt offering. If the Company is required to
conduct such an offering, its ability to do so on acceptable terms, if at all,
will be affected by several factors, including financial market conditions and
the value and performance of the Company at the time of such offering or
refinancing, which in turn may be affected by many factors, including economic
and industry cycles. There can be no assurance that such an offering can or will
be completed on satisfactory terms.
Failure to generate sufficient funds for these matters in the future,
whether from operations or additional debt or equity financing, or difficulties
encountered in providing capital to its operating businesses, may require the
Company to delay or abandon some or all of its anticipated expenditures and
expansions, or in an extreme case to sell some or all of the assets, any of
which could have a material adverse effect upon the growth of the Company's
businesses and on the Company.
Effect of Substantial Leverage. As of December 31, 1997, the Company
had approximately $133.5 million of consolidated long-term debt and
shareholders' equity of approximately $127.2 million.
The degree to which the Company in leveraged could have important
consequences including, but not limited to, the following: (1) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate or other purposes may be
limited; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of interest on, and the principal of, its debt;
(iii) the agreements governing the Company's indebtedness contain certain
restrictive financial and operating covenants which could limit the Company's
ability to compete and expand; and (iv) the Company's substantial leverage may
make it more vulnerable to economic downturns, limits its ability to withstand
competitive pressures and reduce its flexibility in responding to changing
business and economic conditions. Certain of the Company's competitors currently
operate on a loss leveraged basis and have significantly greater operating and
financial flexibility than the Company.
Special Considerations Relating to Company Indebtedness. The Company is
indebted for money borrowed pursuant to the Senior Notes, the Convertible Notes
and the Revolving Credit Notes. The Senior Notes are senior obligations of the
Company, guaranteed by NWE Cyprus, BCL, WTC and the Leasing Companies, and
secured on a first priority basis by certain Property and assets constituting
Senior Note Collateral and on a second priority basis by certain property and
<PAGE> 34
assets constituting Convertible Note Collateral. The Convertible Notes are also
guaranteed by NWE Cyprus, BCL, WTC and the Leasing Companies, but are secured on
a first priority basis by the Collateral Note Security, which consists
principally of the Technocom Preferred Stock and the proceeds thereof, and on a
second priority basis by the Senior Note Collateral. See "Description of the
Exchange Notes and Other Private Placement Securities--The Notes--Collateral and
Security". In addition, the Convertible Notes are expressed to be subordinated
in right of payment to the Senior Notes (although they will rank pari passu in
right of payment to the Senior Notes with respect to the Convertible Note
Collateral).
The Revolving Credit Notes are guaranteed by BCL and WTC, and secured
on a first priority basis by all of the Company's inventory and accounts
receivable. In addition, the Series A Notes are secured by 28 Ordinary Shares of
Technocom, representing approximately 14% of the total Ordinary Shares
outstanding. See "Description of Certain Other Indebtedness."
In addition, while cash interest will not be payable on the Senior
Notes until June 1, 1999, cash interest commenced being paid on the Convertible
Notes on December 1, 1996, two-and-one-half years before the Senior Notes,
despite the fact that the Convertible Notes are expressed to be subordinate to
the Senior Notes. In addition, cash interest commenced being paid monthly on the
Revolving Credit Notes on November 30, 1997, while amortization of the Revolving
Credit Notes is required to start in July 1998, and the Revolving Credit Notes
come due, as to $3,100,000, on September 30, 1998, and as to the remaining
$12,320,000, on December 31, 1998, approximately five-and-one-half years before
the Senior Notes come due and approximately seven-and-one-half years before the
Convertible Notes come due.
The covenants relating to the Senior Notes and the Revolving Credit
Notes are substantially similar, although the Revolving Credit Notes contain a
provision not found in the Senior Notes requiring the redemption of the
Revolving Credit Notes out of, among other things, the proceeds of any equity
offering by the Company. The covenants relating to the Convertible Notes are
considerably more limited in scope than the covenants in the Senior Notes and
the Revolving Credit Notes and hence afford the holders of the Convertible Notes
commensurately less protection. All of the Notes and the Revolving Credit Notes
contain cross-default provisions. By reason of their subordination to the Senior
Notes, the response by the holders of the Convertible Notes to any default will
largely be dictated by the response of the holders of the Senior Notes,
including any waiver or de-acceleration on their part. Neither the holders of
the Senior Notes nor the holders of the Convertible Notes will have any ability
to influence the response of the holders of the Revolving Credit Notes to any
default. See "Description of the Exchange Notes and Other Private Placement
Securities--The Notes--Events of Default."
As a result of these various arrangements, the rights and priorities of
the holders of the Notes and the Revolving Credit Notes are complex. In the
event of insolvency, bankruptcy, liquidation, reorganization, dissolution or
winding up of the business of the Company, or upon a default in payment by the
Company under any of the Notes
21
<PAGE> 35
or Revolving Credit Notes, the assets of the Company will be applied, first, to
the realization of the claims of each group of holders of notes which are
secured thereon, to the extent of that security. Any remaining assets (including
the proceeds from the enforcement of any subsidiary guarantees) will be shared
among the holders of the various notes and the other creditors of the Company
pro rata, except that the holders of the Senior Notes and the Convertible Notes
will, by virtue of their guarantees, have priority over the holders of the
Revolving Credit Notes with respect to the assets of NWE Cyprus and the Leasing
Companies, and except further that, by reason of the subordination of the
Convertible Notes, payment of the share of the remaining Company's assets to
which the holders thereof would otherwise be entitled will only be made to such
holders only after all Senior Notes have been paid in full or provision for such
payment shall have been made. As a result of this, the holders of the
Convertible Notes are also effectively subordinated to the holders of the
Revolving Credit Notes other than with respect to the Convertible Note
Collateral. In addition, holders of the Senior and Convertible Notes are
effectively subordinated to the claims of all existing and future third party
liabilities (including trade payables and other non-debt obligations) of the
non-Guarantor subsidiaries of the Company, to the extent of the assets of such
subsidiaries. In the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any non-Guarantor
subsidiary of the Company, creditors of such subsidiary generally will have the
right to be paid in full before any distribution is made to the Company or the
holders of the Senior or Convertible Notes. See "Description of the Exchange
Notes and Other Private Placement Securities--The Notes--Subordination
Provisions."
Holding Company Structure; Difficulties in Enforcing Guarantees and
Security; Effective Subordination of Notes to Indebtedness of Subsidiaries. As a
holding company that conducts virtually all of its business through
subsidiaries, PLD has essentially no source of cash other than distributions and
other payments from its subsidiaries. In order to pay cash interest on the Notes
and the Revolving Credit Notes (in the case of the Senior Notes, after December
1, 1998, when cash interest on the Senior Notes commences to accrue) or the
principal amount of the Notes and the Revolving Credit Notes at maturity, or to
redeem or repurchase the Notes or the Revolving Credit Notes, PLD will be
required to obtain the necessary cash from its subsidiaries. As set forth
hereinafter and in "--Other Barriers to Realizing Cash from Subsidiaries," there
may be a number of legal and other hurdles to be overcome in connection with
obtaining cash from its subsidiaries.
The Company has pledged the capital stock of the Leasing Companies, NWE
Cyprus and BCL to secure the Senior Notes and the Convertible Notes, and the
Leasing Companies have guaranteed the Notes and pledged their interests in the
leases or installment sales contracts entered into, or the debt or equity
investments made by them, as security for such guarantees. In addition, NWE
Cyprus, BCL, WTC and certain other possible future subsidiaries of the Company
have guaranteed the Notes and NWE Cyprus has pledged the capital stock of WTC to
secure its guarantee of the Notes. There can be no assurance that any such
guarantees or pledges can be enforced easily, if at all. Each of the Guarantors
are likely to be incorporated in jurisdictions which are outside the United
States. Persons seeking to enforce those guarantees or pledges (or any judgment
in respect thereof obtained in the United States) will therefore need to do so
outside the United States. In addition, the ability to enforce an "upstream"
guarantee (or guarantee by a subsidiary of a parent's obligations) and any
related pledges is subject to some uncertainty not only in the United States and
Canada but also other applicable jurisdictions such as Cyprus, Russia and
Ireland, and may well be subject to similar uncertainty in jurisdictions where
such guarantee may be sought to be enforced against any Guarantor. Efforts have
been made to minimize the effect of any possible invalidity of the guarantees by
limiting the extent to which they may be enforced against the Guarantor to such
amounts which will not render the guarantees void, voidable or unenforceable,
and, in the case of the Leasing Companies, by limiting the activities of each
such subsidiary to its leasing, selling or investing operations and in the case
of the Leasing Companies and NWE Cyprus limiting the activities of each such
subsidiary to incur indebtedness. However, to the extent that the enforceability
of such guarantees is uncertain, so may be the pledges of assets supporting such
guarantees.
In addition, enforcement of the pledges of capital stock, notes and/or
equipment or assignments of leases or installment sales contracts by the Company
and the Leasing Companies will in all likelihood be required to be undertaken in
jurisdictions outside the U.S. (e.g., Cyprus, Ireland, Russia or Kazakhstan).
The need to bring such enforcement actions in such other jurisdictions, and to
comply with the laws of those jurisdictions in relation thereto, may
significantly complicate, delay or limit enforcement of such pledges or
assignments. See "Description of the
22
<PAGE> 36
Exchange Notes and Other Private Placement Securities--The Notes--Guarantees"
and "--Ability to Realize on Collateral."
Payments under the guarantee given by BCL (and any other Russian
company which becomes a Guarantor under the Indenture) may require a license
from the Russian Central Bank, see "--Currency Controls; Restrictions on
Repatriation of Payments; Prior Investments," and may also (to the extent such
payments are considered to be interest) be subject to Russian withholding tax.
While under current law payments under the guarantees by the Leasing Companies
or NWE Cyprus currently in existence may be made without the need for licenses
or withholding of tax, there can be no assurance that the current Leasing
Companies, NWE Cyprus or any future Guarantors will not encounter such problems
hereafter.
Furthermore, while the leases or installment sales contracts and
related pledges of assets may be valid and enforceable under the laws of the
relevant jurisdiction, the ability of the holders of the Notes actually to
enforce their provisions upon any default under the Notes may be open to some
question. Commercial law, and in particular, enforcement of legal rights such as
leaseholds or pledges, is still very undeveloped in both Russia and Kazakhstan,
see "--Country Risks--Legal Risks," and the readiness of local partners and
courts to respect and recognize such rights is uncertain, including the rights
of the holders to enforce the terms of the leases, installment sales contracts
or pledges. In the event of a default under a lease, installment sales contract
or pledge, any enforcement action will in all likelihood have to occur in the
jurisdiction (Russia or Kazakhstan) where the assets are located. The limited
jurisprudence and experience with such enforcement action in the relevant
jurisdiction may significantly complicate, delay or limit the scope of such
enforcement action. A lessor or pledgee, its successor in interest or a creditor
of a lessor or pledgee seeking to remove repossessed leased equipment from
either Russia or Kazakhstan may have to pay taxes or duties as a condition to
doing so. The nature of the equipment itself, which may be incorporated or
integrated into another structure or system, or otherwise permanently affixed,
could make repossession difficult as both a legal and a practical matter.
Finally, the ability of a foreign claimant to enforce in the Russian
Federation or Kazakhstan a judgment or arbitral award obtained outside those
jurisdictions may be limited. For example, the Russian courts generally only
recognize foreign judgments or arbitral awards pursuant to bilateral or
multilateral treaty arrangements. In addition, the Russian courts have limited
experience in the enforcement of foreign judgments. The possible need to
re-litigate in the Russian Federation or Kazakhstan a judgment or arbitral award
obtained elsewhere may significantly delay the enforcement of such judgment or
award.
To the extent that the holders of the Notes are not able to enforce
their interests in such leases or installment sales contracts against the
operating subsidiaries and joint ventures and/or collect the full amount of
their indebtedness from the proceeds of the leased or pledged assets, the Notes
will not be senior to such subsidiaries' other indebtedness but will only
represent indirect claims against the equity of such subsidiaries owned by the
Company. As of December 31, 1997, the total liabilities and obligations of the
Company's non-Guarantor subsidiaries (excluding intercompany indebtedness) was
$42.1 million. The Senior Note Indenture permits the Company's subsidiaries to
incur substantial additional indebtedness, subject to certain limitations, as
more fully described under "Description of the Exchange Notes and Other Private
Placement Securities--The Notes--Certain Covenants--Limitation on Indebtedness."
The Convertible Note Indenture contains no covenant limiting the increase of
indebtedness by the Company or any of its Restricted Subsidiaries. To the extent
that such other indebtedness may be given precedence over any commitment to make
payment to the Company, the Notes may effectively be subordinated to such
subsidiaries' other obligations.
The readiness of local parties and courts to recognize and respect the
rights of the holders of the Notes to exercise the rights of any Leasing Company
as to any debt or equity investment made in the Russian and Kazakhstan operating
companies is unclear. Furthermore, to the extent that the security for a
guarantee consists of debt investments made by the applicable Leasing Company,
the obligations representing such security will rank pari passu in right of
payment with the recipient's other indebtedness and thus may also be regarded as
effectively
23
<PAGE> 37
subordinated thereto. To the extent such security consists of equity
investments, the security will actually be subordinated to all of the
recipient's other indebtedness.
Other Barriers to Realizing Cash from Subsidiaries. In addition to the
issues noted in "--Holding Company Structure; Difficulties in Enforcing
Guarantees and Security; Effective Subordination of Notes to Indebtedness of
Subsidiaries," the ability of the Company's subsidiaries to make payments to the
Company may be constrained by: (i) their own ability to generate sufficient cash
from their operations; (ii) the level of taxation, particularly corporate
profits and withholding taxes, in the jurisdictions in which they operate, see
"--Taxation"; (iii) exchange controls and repatriation restrictions in effect in
the jurisdictions in which they operate, see "--Currency Controls; Restrictions
on Repatriation of Payments; Prior Investments"; and (iv) the ownership
interests of other investors in the Company's subsidiaries.
In the absence of sufficient cash from its subsidiaries, the Company
may be required to refinance its indebtedness, raise funds in a public or
private equity or debt offering, or sell some or all of its or its subsidiaries'
assets. If the Company is required to conduct an offering of its capital stock
or to refinance any of the Senior Notes, the Convertible Notes, the Series A
Notes or the Series B Notes, its ability to do so on acceptable terms, if at
all, will be affected by several factors, including financial market conditions
and the value and performance of the Company at the time of such offering or
refinancing, which in turn may be affected by many factors, including economic
and industry cycles. There can be no assurance that an offering of the Company's
capital stock or a refinancing of any of such indebtedness can or will be
completed on satisfactory terms, or that they would be sufficient to enable the
Company to make any payments with respect to such indebtedness.
Limited Scope of, and Other Issues Relating to, Escrow Accounts. The
portion of the net proceeds of the Senior Notes initially deposited in the
Company Senior Note Escrow Account, plus the funds thereafter received from
payments on the Telecommunications Asset Leases (as defined in "Description of
the Exchange Notes and Other Private Placement Securities--The Notes"),
Qualified Investments and any pledged stock, together with all income earned on
the investment of such proceeds and funds in Eligible Cash Equivalents (as
defined in the "Description of the Exchange Notes and Other Private Placement
Securities--The Notes"), are being held in the Company Senior Note Escrow
Account or one or more Leasing Company Escrow Accounts. All such Escrow Accounts
have been pledged to, and under the sole dominion and control of the trustee
under the Senior Note Indenture (the "Senior Note Trustee") for its benefit and
the equal and ratable benefit of the holders of the Senior Notes and the trustee
under the Convertible Note Indenture (the "Convertible Note Trustee") for its
benefit and the equal and ratable benefit of the holders of the Convertible
Notes. The funds received from payments on the Technocom Preferred Stock (and
all income earned on the investment of such proceeds) will be held in the
Company Convertible Note Escrow Account, which has been pledged to, and under
the sole dominion and control of the Convertible Note Trustee for its benefit
and the equal and ratable benefit of the Convertible Notes and the Senior Note
Trustee for its benefit and the equal and ratable benefit of the holders of the
Senior Notes. See "Description of the Exchange Notes and Other Private Placement
Securities--The Notes--Collateral and Security." Notwithstanding the Trustees'
security interest in such Escrow Accounts, the ability of the Trustees to deal
freely with the funds in such Escrow Accounts following an Event of Default
under the applicable Indenture may be limited by applicable bankruptcy,
reorganization, receivership, insolvency, liquidation or other similar
legislation or legal principles. In addition, the pledge by any of the Leasing
Companies of any Leasing Company Escrow Account will be subject to any
infirmities in the respective Leasing Company's Guarantee given in respect of
the Notes. See "--Holding Company Structure; Difficulties in Enforcing
Guarantees and Security; Effective Subordination of Notes to Indebtedness of
Subsidiaries," "--Limitations on Ability to Transfer Interests" and "Description
of the Exchange Notes and Other Private Placement Securities--The Notes--Ability
to Realize on Collateral."
Limited Control over Qualified Investments. Most of the proceeds from
the sale of the Senior Notes which were deposited in the Company Senior Note
Escrow Account or Leasing Company Escrow Accounts will be utilized for the
purchase of Telecommunications Assets to be leased to the Company's operating
subsidiaries in Russia and Kazakhstan. $9 million of such proceeds, however,
were specifically permitted to be utilized to make Qualified Investments in the
operating subsidiaries through debt or equity investments in such subsidiaries,
and in fact have been used, together with the proceeds of the Revolving Credit
Notes, to purchase additional interests in Technocom.
24
<PAGE> 38
See "Summary--Recent Developments--Acquisition of Additional Interest in
Technocom." In addition, the Company is permitted to make certain additional
Qualified Investments utilizing certain specified funds derived from payments
under Telecommunications Asset Agreements or from Qualified Investments in the
Company Senior Note Escrow Account and the Leasing Company Escrow Accounts
subject to certain conditions, including that there is in such Escrow Accounts
collectively a sum equal to the amount of interest due in respect of the Notes
during the next succeeding twelve months (exclusive of the proceeds of the
Senior Notes or any Asset Sales). The Company is also permitted to make
Qualified Investments with payments received on the Technocom Preferred Stock
subject to certain conditions, which do not include any requirement that any
minimum amount be in any Escrow Account. See "Description of the Exchange Notes
and Other Private Placement Securities--The Notes--Possession, Use and Release
of Collateral and "--Certain Definitions--Use of Proceeds." The Trustees have
only limited control over how the proceeds of Qualified Investments are utilized
by the recipient, and are not in a position, for example, to require that such
proceeds be used for the purchase of assets, as opposed to being used for
working capital. Accordingly, investment in Qualified Investments must be
regarded as less secure from the point of view of the holders of the Notes than
investment in Telecommunications Assets subject to Telecommunications Asset
Agreements.
Taxation. Taxes payable by Russian and Kazakh companies are substantial
and include value-added taxes ("VAT"), excise taxes, export taxes and income
taxes. The tax risks of investing in the Russian Federation and Kazakhstan can
be substantial. Obtaining the benefits of any relevant tax treaties can be
extremely difficult due to the documentary and other requirements imposed by the
Russian and Kazakh authorities and, in the case of Kazakhstan, the unfamiliarity
of those administering the tax system with the international tax treaty system.
In addition, a recent instruction issued by the Russian State Tax Service
mandates full withholding regardless of tax treaty status and requires the
recipient to seek to obtain a refund for withholding in excess of treaty
amounts. The need to deal with these issues may negate or impair tax planning
initiatives undertaken by the Company to reduce its and its subsidiaries'
overall tax obligations. Furthermore, the taxation systems in the Russian
Federation and Kazakhstan are at an early stage of development and are subject
to varying interpretations, frequent changes and inconsistent and arbitrary
enforcement at the federal, regional and local levels. In certain instances, new
taxes have been given retroactive effect.
Technocom established a representative office in Moscow in October 1995 and
registered this office with the relevant Russian tax authorities. As a result of
this, Technocom became subject to profits and other Russian taxes as of such
date. Inasmuch as Technocom operated to some extent in the Russian Federation
prior to this date, without clarifying its tax status with any Russian taxing
authority, it is also possible that tax officials may take the position that
Technocom may be subject to Russian taxes with respect to the period before
October 1995. See "-- Country Risks -- Legal Risks."
Currency Controls; Restrictions on Repatriation of Payments; Prior
Investments. While applicable legislation in both the Russian Federation and
Kazakhstan currently permits the repatriation of profits and capital and the
making of other payments in hard currency, the ability of the Company to
repatriate such profits and capital and to make such other payments is dependent
upon the continuation of the existing legal regimes for currency control and
foreign investment, administrative policies and practices in the enforcement of
such legal regimes and the availability of foreign exchange in sufficient
quantities in those countries.
In addition, under current currency regulations in the Russian Federation
and Kazakhstan, while there do not appear to be additional administrative
requirements for the payment of dividends or interest on debt, specific licenses
from both the Central Bank and the National Bank of Kazakhstan are required for
the making of equipment lease payments to a foreign lessor and for repayments of
principal on debt with a term of more than 180 days. Failure to obtain such
currency licenses where required can result in the imposition of fines and
penalties. While the requirements for obtaining such licenses largely involve
the production of documentation, not only are the documentary requirements
themselves burdensome, but there can be no assurance that the entity granting
the licenses may not impose additional, substantive requirements for the grant
of a license or deny a request for a license on an arbitrary basis. See
"-- Country Risks -- Legal Risks." Furthermore, the time typically taken by the
Central Bank and the National Bank of Kazakhstan to issue such licenses can be
lengthy. In the case of the Central Bank, delays of up to one year or more in
the issuance of licenses have not been uncommon. The failure of the Company to
obtain, or any significant delay in the issuance of, such licenses could
substantially delay the time at which the Company may receive payments under
such leases. To address this problem, and based on the Company's belief that
<PAGE> 39
currency licenses are presently not required in the Russian Federation for
payments under installment sales contracts, the Company has proposed providing
equipment to its operating businesses on an installment sales basis rather than
through leasing and, as a result of the Consent Solicitation, the Indentures
have been amended to permit the Company to make installment sales as well as
leases of equipment to its operating businesses. However, there is no assurance
that the Central Bank or other relevant Russian entity will not construe the
applicable currency legislation as requiring licenses for installment sales as
well as leases. Failure to obtain currency licenses, where required, can result
in the imposition of fines and penalties, significant delays in delivering
equipment to the Company's operating businesses and resulting difficulties in
generating cash flows from the Company's operating businesses in the Russian
Federation.
Finally, the Company's ability to repatriate distributions and other
payments in hard currency will be dependent upon the continued ability of the
Company's operating subsidiaries to bill their customers in U.S. Dollars or the
equivalent amount of local currency, as well as their ability to freely exchange
local currency receipts into U.S. Dollars. See "-- Country Risks -- Currency
Risks." There can be no assurance that, because of changes in Russian and Kazakh
currency regulations, the Company's ability to fully and/or on a timely basis
realize benefits from its operations in the Russian Federation and Kazakhstan
through the receipt of hard currency payments will continue.
Until 1995, most direct foreign investment in the Russian Federation
appears to have been made without licenses from the Central Bank, due to the
lack of clear guidelines from the Central Bank governing such investments.
However, in 1995 the Central Bank confirmed that licenses were required for such
direct foreign investments and that upon application it would issue licenses
specifically authorizing such direct foreign investments in Russian companies.
In response to private inquiries, the Central Bank also indicated that it would
consider retroactive licensing of previously made direct foreign hard currency
investments upon appropriate application. The Company is actively reviewing with
the managements of its operating subsidiaries its obligations to comply with
these licensing requirements, particularly on a retroactive basis. If the
Central Bank were to determine that the Company did not hold the required
licenses, this could give rise to substantial fines and penalties.
Anti-Monopoly Committee Approval. Under Russian anti-monopoly legislation,
transactions which potentially influence competition in the Russian Federation
are subject to the prior consent of the Russian Anti-Monopoly Committee. The
Anti-Monopoly Committee generally has wide discretion to approve or disapprove
transactions falling within the scope of its authority, though in practice
transactions are rarely challenged. The time typically required by the
Anti-Monopoly Committee to review a proposed transaction varies between three
and four months. Failure to obtain prior consent may constitute grounds for the
Anti-Monopoly Committee to seek a court decision declaring the relevant
transaction null and void. In particular, transactions (including rental or
lease transactions) which involve the transfer of assets amounting to more than
10% of the assets of a transferor to a transferee, are subject to prior consent
of the Anti-Monopoly Committee.
This requirement on its face applies to companies leasing assets to other
companies, including Technocom and PLD Leasing, which would therefore need to
obtain such consent before leasing equipment to the Company's operating
subsidiaries. While the Company has been advised that such requirement should
not apply to such arrangements, there can be no assurance that the Anti-Monopoly
Committee will concur and accordingly that the Anti-Monopoly Committee will not
require such consent. Although the Company does not believe that equipment
leases could have an anti-competitive effect in the Russian Federation, no
assurance can be given that consent from the Anti-Monopoly Committee will be
granted. The refusal of the Anti-Monopoly Committee to give consent to any
equipment leases could have a material adverse effect upon the Company.
Absence of Complete Control; Dependence on Local Partners. The Company's
principal assets are its interests in its operating subsidiaries. The Company
holds a 60% ordinary share interest in PeterStar and a 50% interest in BECET.
The Company also has a 80.4% interest in Technocom, which in turn currently has
a 49.33% direct and indirect beneficial economic interest (56.0% voting
interest) in Teleport-TP and a 49% interest in MTR-Sviaz. While the Company may
have the ability, in the case of PeterStar, BECET and Teleport-TP, to direct the
operations or determine the strategies of such subsidiaries under the terms of
their respective constituent documents, the enforceability of some of the
Company's rights is uncertain. See "-- Country Risks -- Legal Risks." Further,
the other shareholders may, as a practical matter, be able to impede the
Company's ability to exercise effective control. In addition, the Company would
be unlikely to take significant initiatives without the approval, in the case of
<PAGE> 40
PeterStar, of Telecominvest and PTS; in the case of BECET, of Kazakhtelekom;
and, in the case of Teleport-TP, of Rostelecom. Certain of the Company's
operating subsidiaries are dependent on continued access, on favorable terms, to
the facilities of certain of the Company's partners, and this may adversely
affect the Company's ability to rely on its legal rights to influence the
conduct of the business of its operating subsidiaries. Finally, in the case of
PeterStar, any disposition by Cable & Wireless of its 11% interest in PeterStar
could adversely affect the Company's ability to control the PeterStar board. The
likelihood of such disposition has increased significantly as a result of Cable
& Wireless' announcement that it is considering alternatives for disposing of
its interest in the Company. In summary, the absence of complete legal control
by the Company over the operations of PeterStar, BECET and Teleport-TP, coupled
with the dependence of these ventures on continued access to the facilities of
the Company's partners, could have a material adverse effect on the Company.
Finally, PeterStar, Technocom, Teleport-TP and BECET are all restricted
subsidiaries under the Senior Note Indenture and the Convertible Note Indenture,
and the Company is required by the terms of such indentures not to permit its
restricted subsidiaries to violate the various covenants contained in such
Indentures. There can be no assurance that the Company will always be in a
position to comply with this obligation, and its failure to do so could cause a
default under the Senior Note Indenture or the Convertible Note Indenture.
Susceptibility to Political and Other Pressures. Although the governments
of the countries and regions in which the Company operates may be limited in the
extent to which they can legally direct the Company's policies, in practice they
may be able to exercise significant influence. As a consequence, not only may
the Company's activities be restrained if a governmental entity is not
supportive, but the Company may be forced to take action to support policies or
agendas of the government which are not in its commercial or other interests. In
addition, in order to maintain good working relationships with its partners, the
Company may need to take certain actions which may not necessarily be in its
commercial or business interests. See "-- Risks Involving PeterStar Company
Limited and Baltic Communications Limited -- Dependence on PTS Facilities."
Dependence on Key Management. The Company's various operating businesses
are managed by a small number of key management personnel, both expatriate and
local. PeterStar is dependent upon its general director, Vladimir Akulich, and
upon its expatriate managers, James Maude and Stephen Gardner. The Company also
relies heavily on the experience of Maxut Saurenbekov and Rex Power for the
technical guidance and operational and financial management of BECET. The
further expansion of the Technocom business depends upon the continued
involvement of Boris Antoniuk in the management of Technocom's affairs and those
of its subsidiaries. While Dr. Antoniuk is under contract to Technocom and the
Company, no assurance can be given that his services or the services of these
other key individuals will continue to be available to the Company's operating
subsidiaries. In addition, the Company is dependent on its core management team
of James Hatt, John Davies, Simon Edwards, Alan Brooks and Conor Carroll, as
well as Peter Owen Edmunds, who heads the Company's representative office in St.
Petersburg. Neither the Company nor its operating subsidiaries carry "key-man"
insurance with respect to these individuals. The Company could be materially and
adversely affected if any key management personnel should cease to be active for
any reason in the management at the corporate and/or operating subsidiary level.
Historical Dependence on Cable and Wireless plc. The Company is engaged in
developing various telecommunications businesses in challenging environments.
The scope of some of its projects, e.g. the development of a cellular network in
Kazakhstan and the development of a satellite-based long distance network across
the Russian Federation, requires both significant financial and human resources.
The Company has been able to draw, when necessary, on the worldwide expertise
(access to which is paid for on a case by case basis) of Cable & Wireless to
assist the Company's operating businesses in certain areas of their operations.
The Company and Cable & Wireless have entered into a support services agreement
which sets out the terms, on an arm's-length basis, under which the Company and
its subsidiaries have access to Cable & Wireless' resources. Cable & Wireless
has recently announced that it is involved in active discussions with a view
towards disposing of its stake in the Company, but that no definitive agreement
has been reached. If such a disposition occurs, no assurance can be made that
such support will continue to be made available to the Company.
Competition. The Company is developing and operating its businesses in
highly competitive environments. A number of companies compete with the
Company's operating businesses, many of which have access to greater financial
and technical resources than the Company. There can be no assurance that the
Company will be able to overcome successfully the competitive pressures to which
it is subject, both in the markets in which it currently operates and in markets
into which it might expand. Furthermore, in many instances the Company's
<PAGE> 41
partners in its operating businesses are also potential -- and in some cases
actual -- competitors. For example, PTS has recently completed the installation
of a fiber optic network in St. Petersburg which will improve call completion
rates on the PTS network and could provide a serious alternative to PeterStar's
network and permit PTS to compete more effectively for business in St.
Petersburg. In addition, while Rostelecom appears to be generally supportive of
the development of Teleport-TP's long distance network, such network is in
direct competition with the national long distance network operated by
Rostelecom, and there can be no assurance that Rostelecom will continue to
support the development of Teleport-TP's network. Similarly, BECET's cellular
network in Kazakhstan could be seen as being in competition with the national
network operated by Kazakhtelekom. At this time it is unclear what impact the
consolidation of the Russian government's holdings in Sviazinvest and Rostelecom
and the sale of significant stakes in Sviazinvest to Russian and foreign
investors will have on the Russian telecommunications market in general and the
Company in particular, nor what impact the recently announced sale of a 40%
stake in Kazakhtelekom to Daewoo and the efforts by the KMOC to limit BECET's
exclusive license and permit more cellular operators in Kazakhstan will have
upon the Kazakh telecommunications market and the Company in particular. See "--
Auction of Stakes in Sviazinvest" and "-- Risks Involving BECET International."
Finally, the increasing ability of Russian telecommunications companies to
access Western capital markets for their financing needs may reduce their
reliance on the Company for financing and improvement of their networks. Such
reduced reliance may affect the Company's ability to exert influence on its
Russian partners in the operating businesses. See "-- Auction of Stakes in
Sviazinvest."
Potential Conflicts of Interest. Cable & Wireless and each of the
Company's principal partners in PeterStar, BECET and Teleport-TP have interests
that may conflict with those of the Company.
Cable & Wireless, which holds an indirect 11% interest in PeterStar, has
other investments in the Russian Federation and other countries of the
Commonwealth of Independent States. PTS, which holds its interest in PeterStar
through Telecominvest and is the main provider of basic telephony services in
St. Petersburg, already competes to some degree with PeterStar for customers and
may increasingly become a substantial competitor with the eventual upgrading of
its telecommunications network. Kazakhtelekom, the public switched telephone
network operator and the Company's partner in BECET, may be a significant
competitor for BECET's cellular operations when it improves the telephony
services it provides in Kazakhstan by upgrading its fixed wire
telecommunications network, or if it should be awarded one of the new cellular
licenses the Kazakh government is considering issuing. Rostelecom, the Russian
telecommunications company that is Technocom's principal partner in the
Teleport-TP venture, competes with Teleport-TP, both directly and indirectly
through joint ventures with other international companies in the provision of
telephony and related services. Finally, certain directors of the Company's
operating subsidiaries also act as directors or officers of its partners in the
Russian Federation and Kazakhstan. See "-- Dependence on Key Management."
In light of these competing interests, and, in particular, the extent of
the legal and practical control that the Company's partners have over the
affairs of the Company and its operating subsidiaries, any or all of the
companies named above may use their influence, through the directors they
appoint to the boards of the Company and its operating subsidiaries or
otherwise, to benefit themselves or other businesses in which they have an
interest at the expense of the Company and its operating subsidiaries, subject
to such limited fiduciary duties as they may have under applicable law.
Moreover, such persons are not obliged (except for such obligations as they may
have under applicable law) to allocate to the Company and its operating
businesses corporate opportunities of which they become aware through the
directors referred to above or otherwise. No assurance can be given that the
fiduciary duty and corporate opportunity doctrines that exist under United
States law will provide adequate protections to the Company's shareholders
against the pursuit of such conflicting interests. Kazakh law currently provides
no protection in this regard and, while Russian corporate law has recently
introduced the concept of the fiduciary duties of corporate officers and
directors, the law is too new for any prediction to be made as to how much
protection it will, in fact, provide. The pursuit of conflicting interests by
the persons referred to above could have a material adverse effect on the
Company.
<PAGE> 42
Auction of Stakes in Sviazinvest. In 1997, it was reported that,
notwithstanding its previously announced plans to have Sviazinvest compete with
Rostelecom, the Russian government had consolidated its telecommunications
holdings in Sviazinvest and Rostelecom by transferring its shareholding in
Rostelecom (38% of the common stock, and 51% of the voting stock) to
Sviazinvest. The balance of the shares in Rostelecom remain in the hands of
private investors. In April 1997, the government announced that it was seeking
to sell 49% of Sviazinvest in two auctions, one as to a 25% stake open to
Russian and foreign investors and the other as to a 24% stake open only to
Russian investors. In July 1997, the government announced that the 25% stake had
been sold to a consortium which included Oneximbank and Renaissance Capital, for
a purchase price of $1.875 billion. Following this auction, the Russian
government announced its intention to increase the size of the other stake being
sold to 25% minus one share. The schedule for the auction of the second stake
has not been announced, but it is expected to be completed by the end of the
third quarter of 1998. While it is not yet clear how the proceeds of this sale
will be employed, it is understood that the government wishes to have a
substantial part, if not all, of the proceeds allocated to its current budget
deficit. At the same time, Sviazinvest has announced plans to raise $400 million
through a Eurobond offering later in 1998. In light of all of the foregoing, it
is unclear what impact the consolidation of the government's telecommunications
holdings and the auctions of significant stakes in Sviazinvest will have on the
Russian telecommunications market in general and the Company in particular.
Regulatory Uncertainties. The Company's operating businesses operate in
uncertain regulatory environments. The Russian telecommunications system is
currently regulated by the RFCTI, and the Kazakh telecommunications system is
currently regulated by the Kazakh Ministry of Communications (the "KMOC"),
largely through the issuance of licenses. Despite the 1995 enactment of the
Telecommunications Law in Russia, considerable uncertainty still exists as to
the application and interpretation of many of its terms. There is currently no
comprehensive legal framework with respect to the provision of
telecommunications services in Kazakhstan, although a number of laws, decrees
and regulations govern or affect the telecommunications sector. Further, the
recently announced appointment of Kazakhtelekom as the exclusive operator of the
public telephone network in Kazakhstan and/or the recently announced sale of a
40% stake in Kazakhtelekom to Daewoo, may lead to restructuring of the
telecommunications sector in Kazakhstan, the effects of which are difficult to
predict at the present time. See "-- Risks Involving BECET International -- Sale
of Stake in Kazakhtelekom."
While the RFCTI appears to have succeeded to all of the powers and
authorities of the Ministry of Communications of the Russian Federation (the
"Former MOC"), it is not yet clear whether it will in fact continue to operate
in the same manner and wield the same influence as the Former MOC. In
particular, it is unclear whether the RFCTI will be able to control the actions
of local and regional governmental authorities who may endeavor to impose new
conditions upon operators in their respective jurisdictions or areas of
influence. As an example, significant delays in the rollout of Teleport-TP's
long distance network have been caused by administrative difficulties
experienced with local and regional governmental authorities. See "-- Risks
Involving Technocom Limited and Teleport-TP -- Network Expansion."
The absence of adequate regulation in the telecommunications sector has
meant that decisions, including the granting and renewal of licenses, may at
times be made by governmental officials without reference to precedent or
procedure. The introduction of regulation of tariffs, or any other type of
regulation, could have far-reaching, and potentially materially adverse effects
on the Company.
Limitations on Ability to Transfer Interests. The terms of the PeterStar
and BECET shareholder and joint venture agreements, and the terms of the
shareholder and joint venture agreements relating to Teleport-TP and MTR-Sviaz,
impose restrictions on the Company's ability to transfer its interests in such
companies and give the other shareholders in such companies certain pre-emptive
and other similar rights. It is likely that the Company's ability to transfer
its interests in other future investments will be similarly limited. The
restrictions on, and other provisions relating to the sale of these interests,
and the lack of liquidity in the market for interests the Company now holds or
may acquire, may impede their resale by the Company. While it may be possible to
arrange for negotiated sales with one or more buyers, the Company may not be
able to realize value from these interests, or acceptable terms, in a timely
manner or at all.
Effect of Technocom Minority Shareholders' Put Options. The Company has
put and call agreements with Plicom and Elite which, following the November 1997
acquisition by the Company of a portion of each of their interests in Technocom,
beneficially own 14.57% and 5.03%, respectively, of the ordinary shares of
<PAGE> 43
Technocom. Under the put and call option agreement with Plicom, Plicom has the
right, commencing June 30, 1999 and continuing until June 30, 2019, to require
the Company to acquire its remaining holding in Technocom, and the Company has
the right to require Plicom to sell such holding, for a purchase price of $17.5
million. Under its put and call option agreement with Elite, Elite has: (i) the
right, commencing June 30, 1998 and continuing until June 30, 2019, to require
the Company to acquire 2 of its remaining shares in Technocom, and the Company
has the right to require Elite to sell such shares, for a purchase price of $1
million or, at Elite's option, that number of shares of Common Stock which
results from dividing $1 million by the lower of $5.85 and the average closing
price of such shares over the preceding ten trading days; and (ii) the further
right, commencing June 30, 1999 and continuing until June 30, 2019, to require
the Company to acquire its 8 remaining shares in Technocom, and the Company has
the right to require Elite to sell such shares, for a purchase price based on
the Company's valuation of Technocom, provided that such purchase price shall
not be less than $6,689,655 nor more than $9,620,689. The existence of these
agreements could adversely affect the Company's ability to dispose of its shares
of Technocom.
Management of Growth. The Company is at a relatively early stage of
development and has experienced, and may continue to experience, rapid growth
resulting from the continued development of PeterStar, BECET, Technocom and its
other operating businesses. The Company's future growth will require the Company
to manage its expanding operations and to adapt its operational systems to
respond to changes in the business environment. The expansion of the Company's
operations has placed and will continue to place significant demands on the
Company and its management to improve the Company's operational, financial and
management information systems, to develop further the management skills of the
Company's managers and supervisors and to continue to train, motivate and
effectively manage the Company's employees. The failure of the Company to manage
its growth effectively could have a material adverse effect on the Company.
Shares Eligible for Future Sale. As of March 15, 1998, the Company had
outstanding 33,324,290 shares of Common Stock and options, warrants and other
rights (including the Warrants, the Initial Purchaser Warrants, the Travelers
Warrants and the Convertible Notes) to acquire an additional 11,715,914 shares
of Common Stock. Of the outstanding shares of Common Stock, 19,953,481 are
freely transferable without restriction or further registration under the
Securities Act. The remaining 13,370,809 shares of Common Stock outstanding are
held by "affiliates" of the Company (or entities which were "affiliates" of the
Company during the three-month period ending December 31, 1997) and are subject
to certain resale restrictions under the Securities Act; of these, 6,250,264
shares are held by parties who possess certain registration rights for the
resale of such shares. In addition, the Company has agreed to register for
resale by the holders thereof the 3,840,645 shares issuable upon conversion of
the Convertible Notes (the "Convertible Note Shares"), the 4,182,000 Placement
Warrant Shares, the 100,000 shares of Common Stock issuable upon conversion of
the warrants issued to the initial purchaser in the June 1996 Placement (the
"Initial Purchaser Warrant Shares") and the 423,000 shares issuable upon
conversion of the Travelers Warrants (the "Travelers Warrant Shares"). Following
the effectiveness of the registration statements covering the resale of the
Convertible Note Shares, the Placement Warrant Shares, the Initial Purchaser
Warrant Shares and the Traveler Warrant Shares, and the conversion of the
Convertible Notes and the exercise of the Placement Warrants and the Initial
Purchaser Warrants, a total of 28,499,126 shares of Common Stock will be freely
transferable without restriction or further registration under the Securities
Act. The future sale of the outstanding shares of Common Stock, the Convertible
Note Shares, the Placement Warrant Shares, the Initial Purchaser Warrant Shares
and the Note Shares and options and warrants pursuant to Rule 144 or pursuant to
a registration statement, or the future sale of Common Stock for the Company's
own account, could have an adverse effect on the market price of the Common
Stock.
Anti-takeover and Other Effects of Issuance of Preferred Stock; "Change
of Control" Provisions in Notes. The Board of Directors of the Company is
authorized to issue preferred stock, in one or more series, and to fix the
rights and preferences thereof, without further vote or action by the
shareholders. Therefore, preferred stock could, subject to regulatory policies,
be issued quickly with terms calculated to defeat an attempted takeover of the
Company or to make the removal of management more difficult. This could have the
effect of decreasing the market value of the Common Stock. In addition, the
issuance of preferred stock could have a negative impact on the level of profits
available for distribution to common shareholders and on the voting rights of
common shareholders.
In addition, the rights of the holders of the Senior Notes, the
Convertible Notes, the Series A Notes and the Series B Notes to require, subject
to certain conditions, the Company to repurchase such notes upon a "Change of
Control" may deter a third party from acquiring the Company in a transaction
that could constitute a "Change of Control."
25
<PAGE> 44
Certain changes of control of the Company may also trigger termination
provisions in the employment contracts of certain key executives, allowing them
to terminate their employment with the Company and/or realize other benefits
under their employment arrangements.
Absence of Dividends. The Company has never declared or paid cash
dividends on its Common Stock and does not anticipate paying any cash dividends
in the foreseeable future. The Company currently intends to retain future
earnings to finance operations and the expansion of its business. Any future
determination to pay cash dividends will be at the discretion of the Company's
board of directors and will be dependent on the Company's financial condition,
operating results, capital requirements and such other factors as the Company's
board of directors deems relevant.
RISKS INVOLVING PETERSTAR COMPANY LIMITED AND BALTIC COMMUNICATIONS LIMITED
Limited Operating History. PeterStar was formed in May 1992 and started
operating a modern digital telephone exchange network in St. Petersburg in
February 1993. BCL, which was acquired by the Company in April 1996, was also
formed in 1992 to provide international direct dial and private line services
for foreign companies in St. Petersburg. While both PeterStar and BCL generated
profits in the years ended December 31, 1996 and 1997, in view of their limited
operating history there can be no assurance that PeterStar or BCL will be able
to generate sufficient revenues or control their costs enough to remain
profitable in the future.
Telecommunications Licenses. PeterStar's business is dependent on the
maintenance of its principal telecommunications license which permits it to
operate a public telephone system in the Russian Federation for a term expiring
in November 2004. Other licenses that have been issued to PeterStar include a
dedicated network license (expiring September 2001), a data communications
license (expiring May 2001), a telematics license (expiring May 2001) and a
videoconferencing license (expiring June 2001). The main PeterStar license,
governing the provision of public telecommunications services, sets the number
of lines which PeterStar may have in St. Petersburg and the surrounding region
at 106,000, and requires that capacity equal to 74,200 lines be introduced by
June 1999. However, management of PeterStar believes that the maximum and
minimum number of lines are not strict requirements but are instead designed to
provide general guidance as to the number of lines intended to be included on
the system. As of December 31, 1997, PeterStar had 114,774 lines, of which
85,948 were provided to cellular operators. PeterStar does not believe that its
license would be terminated or re-negotiated, that it would be forced to reduce
the number of its subscribers, or that other penalties would be imposed, by
reason of its exceeding its 106,000 line ceiling, but there can be no assurance
that the RFCTI would not take a different position. The dedicated network
license permits PeterStar to provide long distance and international telephone
transmission services to dedicated network operators (such as BCL) in St.
Petersburg and the surrounding region for a term expiring in September 2001.
This license therefore enables PeterStar to offer its clients the potential cost
efficiencies and synergies which come from working with affiliated companies, as
well as allowing PeterStar and BCL to explore ways to work together to provide
integrated solutions to customer needs. The dedicated network license sets the
number of lines which PeterStar may have at no less than 30,000 and requires
that capacity equal to 21,000 lines be introduced by September 1999. Once again,
management of PeterStar believes that these maximum and minimum number of lines
are not strict requirements but are instead designed to provide general guidance
as to the number of lines intended to be included on the system. There can be no
assurance that the RFCTI would not interpret the provisions of the licenses
differently, which in turn could result in the revocation of the licenses or
their renegotiation on terms unfavorable to PeterStar.
BCL's primary license permits it to provide long distance and international
telephone, facsimile and data transmission services to private networks in St.
Petersburg and the surrounding region for a term expiring on December 31, 2003.
Management believes that, so long as it is being actively utilized, BCL's
license will be renewed at the end of its current term. The license limits the
number of subscribers to 100,000 and requires that 70,000 of these be in place
by January 2001. Management of BCL believes that the maximum and minimum line
numbers are not strict requirements but are instead designed to provide general
guidance as to the number of lines intended to be included on the system. As of
December 31, 1997, BCL had approximately 1,200 lines. BCL has no reason to
believe that its license would be terminated if it either exceeded 100,000 lines
or failed to have 70,000 lines in place by January 2001, but there can be no
assurance that the RFCTI would not interpret the license provisions differently,
which in turn could result in the revocation of its license or its renegotiation
on terms unfavorable to BCL.
<PAGE> 45
No assurance can be given that either PeterStar or BCL will be able to
maintain its licenses, that the terms will not be interpreted, altered or
renegotiated to its disadvantage or that they will be renewed upon expiration.
See "-- Country Risks -- Legal Risks." The loss of, or a substantial limitation
upon the terms of, either PeterStar's or BCL's licenses could have a material
adverse effect on the Company.
Dependence on Interconnect Parties. PeterStar is dependent on PTS, SPMMTS
and other operators for the completion of most of its calls. The PeterStar
network is linked to the PTS network, which gives PeterStar access to PTS's
large local subscriber base. PeterStar is required by the terms of its license
to route all long distance and international calls through the public network.
PeterStar has been able to negotiate favorable tariffs for interconnection fees
and carrier charges with both PTS and SPMMTS. PeterStar's current interconnect
agreements with SPMMTS and PTS expire in November and December 1998,
respectively. The agreements provide for automatic extensions at the end of
their term unless otherwise terminated by either party. The interconnection fees
and carrier charges payable under the interconnect agreements are subject to
renegotiation between the parties from time to time. There can be no assurance,
however, that PeterStar will continue to have access to the PTS network or that
PeterStar will continue to receive such favorable tariffs. The loss of access to
such network or increases in such tariffs could have a material adverse effect
upon the Company.
Dependence on PTS Facilities. PeterStar is also dependent on PTS'
buildings, ducts and tunnels in order to house its exchanges and to reach its
customers. To date, PeterStar has not been required to pay rent to PTS to house
its exchanges in PTS buildings, nor has it paid rentals for ducts or tunnels.
Although PTS is required to provide certain of these facilities under the terms
of PeterStar's foundation documents, the presently unforeseen loss of access to
these facilities or the availability of access only on unfavorable terms could
have a material adverse effect upon the Company. PeterStar anticipates that it
will have to pay a local line rental charge to PTS commencing in 1998. The exact
fee, and the timing of the fee, has not yet been determined.
Expansion of Direct Dial Services. PeterStar has recently commenced
several projects designed to expand its direct dial services in St. Petersburg
and Northwest Russia. PeterStar has agreed with PTS to undertake an
infrastructure project centering on the replacement of analog exchanges with
digital exchanges for certain parts of the network on Vassilievski Island, a
city district in St. Petersburg. This project will require the conversion of
approximately 30,000 business and residential lines that are currently operated
by PTS, after which such lines become a part of the PeterStar network. In
addition, PeterStar plans to further enhance its transit network capabilities in
order to provide continued support to the cellular and other network providers
in terminating traffic in St. Petersburg and to the national and international
gateway. PeterStar also expects to increase its operating presence in Northwest
Russia through the targeted development of digital infrastructure to connect
business customers and develop operational relationships with the regional
telephone companies. These projects represent a major expansion of PeterStar's
operations which will require substantial capital and special management efforts
if they are to be carried into effect successfully. See "-- Capital
Requirements."
Pressure to Provide Residential Service. The Vassilievski Island project
also represents part of a continuing effort on the part of PTS to deal with
unanswered demand for improved residential service in St. Petersburg. The local
calling element of residential service is presently provided free of charge
(other than connection fees and line rental charges), and there has been
considerable political resistance to the introduction of time-based charges for
local calls. Even after calling charges have been introduced, it is likely to
remain a low margin business for the foreseeable future. Even though PTS has now
been privatized, the Company does not believe that the pressures on PTS to
improve residential service have lessened. Although the Company believes that
PeterStar has, following long and detailed negotiations with PTS, fulfilled its
commitment to the residential customers, there can be no assurance that PTS will
not continue to try to involve PeterStar in this effort, or that PTS' continued
support for PeterStar's access to the business market may be linked to
PeterStar's further commitment to develop the residential market in St.
Petersburg.
<PAGE> 46
RISKS INVOLVING BECET INTERNATIONAL
Limited Operating History. BECET was formed in January 1994 and commenced
commercial operations in September 1994. Although BECET generated profits for
the years ended December 31, 1996 and 1997, there can be no assurance that BECET
will be able to generate sufficient revenues or control its costs sufficiently
to remain profitable in the future.
Telecommunications License. BECET's business is dependent on the 15-year
renewable license issued in February 1994 for the creation and operation of
cellular communications networks in Kazakhstan for local, long distance and
international calling, using the 800 MHZ frequency band and "AMPS" technology.
Under the terms of the license BECET was required to provide cellular services
to Almaty and ten to twelve additional regional centers by the end of 1996, a
condition which has been met. The license specifies that BECET is to be the
exclusive provider of cellular service in Kazakhstan for the first five years of
the license term. The exclusivity provision of BECET's license has recently been
the subject of scrutiny by various governmental agencies in Kazakhstan, and
questions have been raised as to its validity. In order to put the matter to
rest, BECET has been discussing with the KMOC substituting a new license with
revised terms for its existing license. While those terms are not finally
negotiated, they would likely include eliminating the exclusivity provision
(which terminates in any event in February 1999). Management of BECET believes
that a resolution of the kind envisaged would put to rest the issues that have
been raised regarding BECET's existing license and assure BECET a suitable
environment in which to continue the development of its business. Management
also believes that, by virtue of its cost structure and its market penetration
to date, it is in a good position to compete with any parties who are hereafter
licensed to operate cellular networks in Kazakhstan, even those which may enjoy
the backing of the KMOC or other agencies of the government of Kazakhstan.
However, there can be no assurance that efforts to limit the scope of its
license or otherwise revise its terms in a way which could be detrimental to
BECET will not continue, or that BECET will in fact be able to compete
successfully with any new licensees. See "-- Country Risks -- Legal Risks."
Network Expansion. BECET has engaged in a significant expansion of its
cellular network, from its initial base of operations in Almaty to a total of 12
cities throughout Kazakhstan as of December 31, 1997. The timing of such
expansion was dictated by the terms of the license, so that in some regions it
occurred at a time when economic activity in those regions was still at a
sufficiently low level as to raise a question as to whether, and if so, when,
cellular service in such regions will be commercially viable. Furthermore,
because of the distances involved, the difficulty of hiring, training and
supervising staff at remote locations and the underdeveloped nature of the
business infrastructure, such as banks and professional advisers in many of the
proposed locations for expansion, the establishment and provision of cellular
service will present significant challenges to the management of BECET, and
there can be no assurance that these challenges will be met successfully in all
cases. In addition, further network development is planned on a targeted basis
to address key market sectors. Failure to manage the BECET network, and any
future expansion of the network, successfully could have a material adverse
effect on the Company.
Sale of Stake in Kazakhtelekom. Since its formation, BECET has been 50%
owned, directly or indirectly, by the government of Kazakhstan. BECET believes
that the attitude of the government towards its operations has generally been
favorable and that this has derived in some part from the government's interest
in BECET. Currently, the government's 50% interest in BECET is held through
Kazakhtelekom, which until May 1997 was owned 100% by the government. In May
1997, the Kazakh government announced that it had sold a 40% interest in
Kazakhtelekom to Daewoo. However, in March 1998, it was reported that Daewoo had
sold a portion of its stake (reported to be approximately 10%) to an unnamed
third party. The report did not indicate whether Daewoo proposed to sell or
retain the remainder of its stake in Kazakhtelekom. Both of these transactions
create considerable uncertainty as to the government's attitude towards
Kazakhtelekom. There is also a question as to Daewoo's intentions with respect
to the remainder of their stake. In addition, the KMOC recently issued a revised
license to Kazakhtelekom specifically naming it as the exclusive national
network operator in Kazakhstan, and giving it a wide range of powers to carry
out this function. The Company has not yet fully assessed what impact these
matters may or will have on BECET and its business. There can be no assurance
that the government's favorable attitude towards BECET will continue to the same
degree. Any significant change in the government's attitude toward BECET could
have a material adverse effect on the Company.
<PAGE> 47
Dependence on Interconnect Parties. Under the terms of its license, BECET
is entitled to interconnection free of charge to networks operated by
Kazakhtelekom, the public switched telephone network operator, for the
completion of its local, long distance and international calls. The loss of, or
any significant limitation on, its access to such network could have a material
adverse effect on the Company. Further, under its revised license, Kazakhtelekom
was directed to assess interconnection charges for connection to its network,
and to levy such charges on a basis which will yield it a profit. Kazakhtelekom
may try to use this authority to endeavor to assess interconnection charges on
BECET, notwithstanding the fact that its license exempts it from payment of such
charges. The imposition of such interconnection charges would impact BECET's
profitability, perhaps materially.
RISKS INVOLVING TECHNOCOM LIMITED AND TELEPORT-TP
Limited Operating History. Technocom was formed in January 1992. Until
1995, its principal business was Teleport-TP, which commenced operations in late
1993. In view of their limited operating history, there can be no assurance that
they will generate sufficient revenues or control their costs sufficiently to
become and remain profitable in the future. Nor can there be any assurance that
Technocom's other businesses, all of which have only just commenced operations
or are still in the planning stage, will become or remain profitable.
Telecommunications Licenses. Teleport-TP holds four licenses from the
RFCTI with respect to its operations. Two licenses expire in 2004, one in 2002
and one in 2001. One of the licenses, expiring in November 2004, limits the
number of subscribers under such license to 18,050 (15,000 within Moscow's city
limits) and requires that 12,635 be in place by November 1997. Another license,
expiring in October 2004, limits the number of subscribers to 1,700 and requires
that 1,190 be in place by October 28, 1997. The third license, expiring in
January 2002, provides that the installed subscriber capacity of Teleport-TP's
data network must permit the connection of at least 70,000 subscribers by
December 2000 and at least 100,000 subscribers by the expiration of the term of
the license, but it does not impose any limit on the number of subscribers. The
fourth license, expiring in 2001, provides that the total installed capacity of
Teleport-TP's long distance network should be at least 100,000 numbers with at
least 70,000 numbers operational by May 2000. Management of Teleport-TP believes
that the subscriber numbers are not strict requirements but are instead designed
to provide general guidance as to the number of subscribers intended to be
included on the system. Management further believes that, so long as a license
is being actively utilized, such license will not be terminated nor other
sanctions imposed if Teleport-TP failed to have the minimum number of
subscribers in place by the specified date or if it exceeded the maximum number
of subscribers permitted by the license, but there can be no assurance that the
RFCTI would not take a different position, which in turn could result in the
revocation of the license or its renegotiation on terms unfavorable to
Teleport-TP. The loss of, or the failure to obtain renewal of, or any
substantial limitation upon the terms of, any of Teleport-TP's licenses could
have a material adverse effect on the Company.
No assurance can be given that Teleport-TP will be able to maintain its
licenses, that the terms will not be interpreted, altered or renegotiated to its
disadvantage or that they will be renewed upon expiration. See "-- Country
Risks -- Legal Risks." The loss of, or a substantial limitation upon the terms
of, Teleport-TP's licenses could have a material adverse effect on the Company.
Although Teleport-TP's failure to satisfy any of the conditions of the
foregoing licenses could result in the revocation of such licenses, which in
turn could have a material adverse effect upon Teleport-TP and the Company, the
management of Technocom believes that this would be unlikely to occur as long as
Teleport-TP is otherwise providing needed services to its customers. The Company
also knows of no reason why any of these licenses will not be renewed upon their
expiration; however, the expiration of these licenses without renewal, or their
renewal on less favorable terms, could have a material adverse impact upon the
Company.
Dependence on Rostelecom as Customer; Necessity to Further Develop Customer
Base. Rostelecom accounted for approximately 27% of Teleport-TP's total
revenues for the year ended December 31, 1997, as compared to 41% for the year
ended December 31, 1996. Teleport-TP will seek, through the installation of its
long distance network facilities, to develop a substantial alternative customer
base in order to reduce its dependance on Rostelecom; however, there can be no
assurance that it will be able to do so successfully. Thus, for the immediate
future Rostelecom will likely remain Teleport-TP's single largest customer.
While the risk of Rostelecom taking action which could harm Teleport-TP should
be ameliorated because of the fact that Rostelecom itself owns 44% of
Teleport-TP, any significant negative change in the relationship with Rostelecom
could have a material adverse effect upon both Teleport-TP and Technocom. See
"-- Network Expansion." Additionally, while Rostelecom currently utilizes
approximately 900 circuits, it is only contractually committed to utilize, on a
<PAGE> 48
long-term basis, 100 circuits. Until Teleport-TP is able to develop a broader
customer base, any significant cutback by Rostelecom in the number of circuits
it utilizes could have a material adverse impact on Teleport-TP and Technocom.
In addition, at this time it is unclear what impact the consolidation of
the Russian government's holdings in Sviazinvest and Rostelecom and the sale of
significant stakes in Sviazinvest to Russian and foreign investors will have on
the Russian telecommunications market in general and the Company and Technocom
in particular. See "-- Risks Involving the Company -- Auction of Stakes in
Sviazinvest."
Dependence on MGTS Facilities. Teleport-TP is dependent upon the
facilities of MGTS for the operation of its existing network in Moscow, since a
substantial part of the fiber optic cabling it uses is laid in the ducts of MGTS
pursuant to agreements under which Teleport-TP pays MGTS for the use of such
facilities. The agreements between Teleport-TP and MGTS are one year agreements
which are subject to automatic one year renewals unless MGTS provides a timely
notice of cancellation. The current agreements expire on December 31, 1998.
Technocom knows of no reason why MGTS would refuse to renew these agreements.
However, the failure on the part of MGTS to renew these agreements or to honor
their terms could have a material adverse effect on Teleport-TP.
Dependence on MTR-Sviaz Facilities. Teleport-TP is dependent upon the
facilities of MTR-Sviaz to terminate certain traffic to users on the MTR-Sviaz
network. MTR-Sviaz uses leased circuits from a number of providers, access to
the Teleport-TP fiber cable facilities and the Mosenergo internal communications
network to terminate its calls. Teleport-TP uses the MTR-Sviaz facilities to
locate its Internet gateway, from which links to Internet service providers
(ISPs) are provided via leased and dial-up lines on the public network.
Furthermore, Teleport-TP acts as the long distance gateway for subscribers to
the MTR-Sviaz network. Teleport-TP and MTR-Sviaz have developed a carrier
services agreement to formally set out the relationship between the operators.
In addition, like many major Russian companies, Mosenergo experiences
liquidity problems from time to time. While the relationship with Mosenergo has
the potential to be mutually beneficial as described above, the increased
dependence on the Mosenergo network may make Technocom more vulnerable to
Mosenergo's liquidity problems, both in terms of pressure for financial support
for the expansion of its network, and in its ability to achieve prompt
settlement of accounts.
Network Expansion. Technocom, through Teleport-TP, has commenced a major
program for the provision to cities and other locations throughout the Russian
Federation of satellite-based long distance and international telecommunications
service (the latter through Teleport-TP's international gateway in Moscow).
Installation of the first phase of the long distance network program commenced
in 1996, with 29 sites installed as of December 31, 1997. The Company currently
plans to install equipment in a total of 45 sites by the end of the first half
of 1998. This represents a major expansion of Teleport-TP's operations which
will require substantial capital and special management efforts if it is to be
carried into effect successfully. See "-- Risks Involving the Company -- Capital
Requirements."
Further expansion of the network program beyond the initial 45 sites will
be defined by customer demand and, therefore, has yet to be fully determined.
The ability of the Company to expand such a program further will also be heavily
dependent on the efforts of management, as well as the availability of
additional capital on favorable terms or internally generated cash. Failure on
the part of Teleport-TP to manage the development of this network successfully
could have a material adverse effect on the Company.
Teleport-TP has experienced significant delays in its network roll-out
program. Factors in these delays have included: (i) logistical difficulties
installing sites during the winter season; (ii) unsuitable local site
conditions; (iii) administrative difficulties with local and regional
governmental authorities; (iv) technical interconnect difficulties with local
switching exchanges; and (v) availability of suitable human resources. In
particular, notwithstanding the licenses granted to Teleport-TP by the Former
MOC, and administered by its successor, the RFCTI, local and regional
governmental authorities have imposed, and may continue to attempt to impose,
licensing and other conditions with respect to Teleport-TP's operations in their
respective jurisdictions or areas of influence. The need on the part of
Teleport-TP to comply with such unanticipated local regulations has
significantly delayed, and may continue to delay, the implementation of the
network program. See "-- Country Risks -- Political Risks" and "-- Legal Risks."
<PAGE> 49
For the program to be commercially successful, Teleport-TP will have to
identify commercially viable markets for its services in each of the locations
which it intends to serve. In many areas of the Russian Federation the economic
conditions are still very weak and growth rates uncertain, and hence the ability
of a particular region to be, or to become within the short term, a successful
market for the network may be difficult to gauge. The results of operations will
be directly affected by Teleport-TP's success in identifying economically viable
locations for the development of its network.
Furthermore Teleport-TP has had, and in all likelihood will continue to
have, to form alliances with suitable regional partners. There can be no
assurance that the arrangements made so far, or any future arrangements, will
prove to be commercially viable.
Finally, Teleport-TP anticipates significant competition from other
companies seeking to serve the Russian long distance telephone market. While
Rostelecom, the principal long distance carrier in the Russian Federation,
appears to be supportive of Teleport-TP's development program, any decision by
Rostelecom to compete directly with Teleport-TP or to impede the implementation
of Teleport-TP's network could have a material adverse effect upon the program
itself and upon the Company. See "-- Dependence upon Rostelecom as Customer;
Necessity to Further Develop Customer Base." In addition, at this time, it is
unclear what impact the consolidation of the Russian government's
telecommunications holdings (including Rostelecom) in Sviazinvest and the
auctions of significant stakes in Sviazinvest will have on the Russian
telecommunications market in general and the Company in particular. See
"-- Risks Involving the Company -- Auction of Stakes in Sviazinvest."
26
<PAGE> 50
THE EXCHANGE OFFER
Purpose and Effect
The Outstanding Notes were issued and sold by the Company to the
Initial Purchaser on June 12, 1996 pursuant to the Purchase Agreement. The
Initial Purchaser subsequently resold the Outstanding Notes in reliance on Rule
144A under the Securities Act. The Company and the Initial Purchaser also
entered into the Registration Agreement, pursuant to which the Company agreed
with respect to the Outstanding Notes, unless not permitted by applicable United
States law, to, among other things, (i) cause the Exchange Offer Registration
Statement to be filed with the Commission as soon as possible after the closing
date of the offering of the Outstanding Notes but in no event later than July
27, 1996, (ii) use its best efforts to cause such Exchange Offer Registration
Statement to become effective on or prior to October 10, 1996 and (iii) upon the
effectiveness of such Exchange Offer Registration Statement, to commence and
consummate the Exchange Offer and cause the Exchange Offer Registration
Statement to be effective continuously, and keep the Exchange Offer open, for a
period of at least 30 days and use its best efforts to consummate the Exchange
Offer within 60 days (or longer if required by applicable law). The Exchange
Offer is intended to satisfy the Company's obligations under the Registration
Agreement with respect to the Senior Notes.
In the event that either (a) any changes in law or applicable
interpretation of the staff of the Commission do not permit the Company to
effect the Exchange Offer, (b) the Exchange Offer Registration Statement is not
declared effective on or prior to October 10, 1996 or (c) the Exchange Offer is
not consummated on prior to December 9, 1996, then the Company has agreed to
cause to be filed on or prior to 60 days thereafter a shelf registration
statement under the Securities Act (which may be an amendment to the Exchange
Offer Registration Statement) (the "Shelf Registration Statement"), relating to
all Outstanding Notes the transfer of which is subject to restriction and to use
its reasonable best efforts to cause such Shelf Registration Statement to become
effective on or prior to 120 days thereafter. The Company has agreed to use its
best efforts to keep the Shelf Registration Statement continuously effective,
supplemented and amended as required to the extent necessary to ensure that it
is available for transfers of Outstanding Notes by the holders thereof for a
period of at least two years following the date on which such Shelf Registration
Statement becomes effective under the Securities Act.
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions
set forth herein and in the accompanying Letter of Transmittal, to issue to the
holders of Outstanding Notes, as evidence of the Company's indebtedness, $1,000
in principal amount at maturity of Exchange Notes in substitution for each
$1,000 in principal amount at maturity of Outstanding Notes. The Company will
accept for replacement any and all Outstanding Notes that are validly tendered
on or prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of
the Outstanding Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Outstanding Notes being tendered for
replacement. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company, and to the terms and provisions
of the Registration Agreement. See "--Conditions to the Exchange Offer."
Outstanding Notes may be tendered only in multiples of $1,000. Subject
to the foregoing, Holders may tender less than the aggregate principal amount
represented by the Outstanding Notes held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Outstanding Notes (or so indicate pursuant to the procedures for
book-entry transfer).
As of the date of this Prospectus, $123,000,000 in aggregate principal
amount at maturity of the Outstanding Notes were outstanding, the maximum
principal amount authorized by the indenture under which the Outstanding Notes
were issued and the Exchange Notes will be issued (the "Senior Note Indenture")
in substitution for all Senior Notes. As of April 2, 1998, there was one
registered Holder of the Outstanding Notes. Solely for reasons of
27
<PAGE> 51
administration (and for no other purpose), the Company has fixed the close of
business on May __, 1998 as the record date (the "Record Date") for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially. Only a Holder of the Outstanding Notes (or such
Holder's legal representative or attorney-in-fact) may participate in the
Exchange Offer. There will be no fixed record date for determining Holders of
the Outstanding Notes entitled to participate in the Exchange Offer. The Company
believes that, as of the date of this Prospectus, no such Holder is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company.
The Company shall be deemed to have accepted validly tendered
Outstanding Notes when, as and if the Company has given oral notice (confirmed
in writing) of such acceptance to the Exchange Agent. The Exchange Agent will
act as agent for the tendering Holders of Outstanding Notes and for the purposes
of receiving the Exchange Notes from the Company.
If any tendered Outstanding Notes are not accepted for replacement
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Outstanding Notes will
be returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Expiration Date; Extensions; Amendments
The Expiration Date shall be June ___, 1998, at 5:00 p.m. New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 10:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Outstanding Notes, (ii) to extend the Exchange Offer, and (iii) to
amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered Holders of the Outstanding
Notes.
Termination of Certain Rights
The Registration Agreement provides for the payment of additional
interest to Holders of the Outstanding Notes upon the nonoccurrence of certain
events. If (i) either the Exchange Offer Registration Statement or the Shelf
Registration Statement (either, a "Required Registration Statement") required to
be filed is not filed with the Commission on or prior to the date specified for
such filing in the Registration Agreement, (ii) any such Required Registration
Statement is not declared effective by the Commission on or prior to the date
specified for such effectiveness in the Registration Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been consummated
on or prior to the date specified in the Registration Agreement, or (iv) any
Required Registration Statement required is filed and declared effective but
shall thereafter cease to be effective or fail to be usable for its intended
purpose without being succeeded immediately by a post-effective amendment to
such Required Registration Statement that cures such failure and that is itself
declared effective for a period of more than 30 consecutive days (each such
event referred to in clauses (i) through (iv), a "Registration Default"), then
commencing on the day following the date on which such Registration Default
occurs, the Company has agreed to pay to each holder of Outstanding Notes,
during the 90-day period immediately following the occurrence of such
Registration Default, additional interest ("Special Interest") in an amount
equal to $0.01 per week per $1,000 principal amount of Outstanding Notes held by
such holder for so long as the Registration Default continues. The amount of
Special Interest payable to each holder shall increase by an additional $0.01
per week per $1,000 principal amount of
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Outstanding Notes held by such holder for each subsequent 90-day period up to a
maximum of $0.5 per week per $1,000 principal amount of Outstanding Notes held
by such holder.
A Registration Default shall cease, and Special Interest shall cease to
be payable with respect to such Registration Default (1) upon the filing of the
applicable Required Registration Statement in the case of clause (i) above, (2)
upon the effectiveness of the applicable Required Registration Statement, in the
case of clause (ii) above, (3) upon the consummation of the Exchange Offer, in
the case of (iii) above, and (4) when the applicable Required Registration
Statement becomes effective or usable in the case of clause (iv) above.
Notwithstanding the foregoing to the contrary, (I) the amount of Special
Interest payable shall not increase because more than one Registration Defaults
have occurred and are pending, (II) a holder of Outstanding Notes who is not
entitled to the benefits of the Shelf Registration Statement (i.e., such holder
has not elected to include Outstanding Notes in such Shelf Registration
Statement or has failed to provide all the required information) shall not be
entitled to Special Interest with respect to a Registration Default that
pertains to the Shelf Registration Statement and (III) a holder of Outstanding
Notes constituting an unsold allotment from the original sale of the Outstanding
Notes or who otherwise is not entitled to participate in the Exchange Offer
shall not be entitled to Special Interest by reason of a Registration Default
that pertains to an Exchange Offer. Holders of Exchange Notes will not be
eligible to receive Special Interest.
The Company did not file the Exchange Offer Registration Statement
until August 9, 1996 and therefore incurred Special Interest for the period from
July 27, 1996 until August 9, 1996. This Senior Note Registration Default was
cured, and Special Interest ceased to accrue, upon the filing of the Exchange
Offer Registration Statement on August 9, 1996. The Exchange Offer Registration
Statement was not declared effective by October 10, 1996, and has still not been
declared effective, and accordingly the Company has been incurring Special
Interest for the period from October 10, 1996 to date.
All accrued Special Interest shall be paid to Holders in the same
manner in which payments of interest are made pursuant to the Senior Note
Indenture.
Accreted Value of the Exchange Notes
No cash interest is payable on the Senior Notes prior to June 1, 1999.
The payment of interest on the Senior Notes in respect of the period from the
Issue Date to December 1, 1998 will effectively be deferred until Maturity and
such deferred interest will be compounded semi-annually and added to the
outstanding principal amount of the Senior Notes. Thus, holders of Outstanding
Notes that are accepted for replacement will not receive accrued interest
thereon at the time of replacement. The Accreted Value of the Exchange Notes
initially will be equal to the Accreted Value of the Outstanding Notes at the
time of the replacement. See "Description of the Exchange Notes and Other
Private Placement Securities--The Notes--Certain Definitions" for the definition
of "Accreted Value."
Procedures for Tendering Outstanding Notes
The tender of a Holder's Outstanding Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder who wishes to tender
Outstanding Notes for replacement pursuant to the Exchange Offer must transmit
such Outstanding Notes, together with a properly completed and duly executed
Letter of Transmittal, including all other documents required by such Letter of
Transmittal, for receipt by the Exchange Agent at the address set forth in this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED
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THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Any financial institution that is a participant in the Book-Entry
Transfer Facility System of The Depository Trust Company ("DTC") may make
book-entry delivery of the Outstanding Notes by causing DTC to transfer such
Outstanding Notes into the Exchange Agent's account in accordance with DTC's
procedures for such transfer. In connection with a book-entry transfer, a Letter
of Transmittal need not be transmitted to the Exchange Agent, provided that the
book-entry transfer procedure must be complied with prior to 5:00 p.m., New York
City time, on the Expiration Date.
Each signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Outstanding Notes surrendered for
replacement pursuant hereto are tendered (i) by a registered Holder of the
Outstanding Notes who has not completed either the box entitled "Special
Exchange Instructions" or the box entitled "Special Delivery Instructions" in
the Letter of Transmittal, or (ii) by an Eligible Institution (as defined
below). In the event that a signature on a Letter of Transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by a firm which is a member of a registered national securities exchange
or the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or
otherwise be an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If the
Letter of Transmittal is signed by a person other than the registered Holder of
the Outstanding Notes, the Outstanding Notes surrendered for replacement must
either (i) be endorsed by the registered Holder, with the signature thereon
guaranteed by an Eligible Institution, or (ii) be accompanied by a bond power,
in satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered Holder, with the signature thereon guaranteed by an
Eligible Institution. The term "registered Holder" as used herein with respect
to the Outstanding Notes means any person in whose name the Outstanding Notes
are registered on the books of the registrar under the Senior Note Indenture.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the Outstanding Notes tendered for
replacement will be determined by the Company in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered and to
reject any Outstanding Notes the Company's acceptance of which might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to particular Outstanding Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Outstanding Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer (including the Letter of
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes for replacement must be cured
within such period of time as the Company shall determine. The Company will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Outstanding Notes for replacement but shall not incur any
liability for failure to give such notification. Tenders of the Outstanding
Notes will not be deemed to have been made until such irregularities have been
cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of
attorney or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
Any beneficial owner of the Outstanding Notes (a "Beneficial Owner")
whose Outstanding Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender
Outstanding Notes in the Exchange Offer should contact such registered Holder
promptly and instruct such registered Holder to tender on such Beneficial
Owner's behalf. If such Beneficial Owner wishes to tender directly, such
Beneficial Owner must, prior to completing and executing the Letter of
Transmittal and tendering Outstanding
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<PAGE> 54
Notes, make appropriate arrangements to register ownership of the Outstanding
Notes in such Beneficial Owner's name. Beneficial Owners should be aware that
the transfer of registered ownership may take considerable time.
By tendering, each registered Holder will represent to the Company
that, among other things (i) it is not an affiliate of the Company, (ii) any
Exchange Notes to be acquired by it are being acquired in the ordinary course of
its business and (iii) at the time of commencement of the Exchange Offer, it has
no arrangement with any person to participate (within the meaning of the
Securities Act) in the distribution of the Exchange Notes. In connection with a
book-entry transfer, each participant will confirm that it makes the
representations and warranties contained in the Letter of Transmittal.
Guaranteed Delivery Procedures
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes or any other documents required by the Letter of Transmittal
to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date (or complete the procedure for book-entry transfer on a timely basis), may
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth in the Letter of Transmittal. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution and a Notice of
Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed by
such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Outstanding Notes, and the
principal amount of tendered Outstanding Notes, stating that the tender is being
made thereby and guaranteeing that, within five business days after the date of
delivery of the Notice of Guaranteed Delivery, the tendered Outstanding Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Outstanding Notes in proper form for transfer (or confirmation
of a book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at DTC) must be received by the Exchange Agent within five business days
after the Expiration Date. Any Holder who wishes to tender Outstanding Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Outstanding Notes prior to 5:00 p.m., New York City
time, on the Expiration Date.
Acceptance Of Outstanding Notes for Exchange; Delivery Of Exchange Notes
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, the Company will accept any and all Outstanding Notes that are properly
tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will
be delivered promptly after acceptance of the Outstanding Notes. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted validly
tendered Outstanding Notes, when, as, and if the Company has given oral notice
(confirmed in writing) thereof to the Exchange Agent.
In all cases, issuances of Exchange Notes in substitution for
Outstanding Notes that are accepted for replacement pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of such
Outstanding Notes, a properly completed and duly executed Letter of Transmittal
and all other required documents (or of confirmation of a book-entry transfer of
such Outstanding Notes into the Exchange Agent's account at DTC); provided,
however, that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Outstanding Notes are not accepted for any reason, such unaccepted
Outstanding Notes will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
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Withdrawal Rights
Tenders of the Outstanding Notes may be withdrawn by delivery of a
written notice to the Exchange Agent, at its address set forth on the back cover
page of this Prospectus, at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Outstanding Notes to be withdrawn (the
"Depositor"), (ii) identify the Outstanding Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Outstanding Notes, as
applicable), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Outstanding Notes were
tendered (including any required signature guarantees) or be accompanied by a
bond power in the name of the person withdrawing the tender, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered Holder, with the signature thereon guaranteed by an Eligible
Institution together with the other documents required upon transfer by the
Senior Note Indenture, and (iv) specify the name in which such Outstanding Notes
are to be re-registered, if different from the Depositor, pursuant to such
documents of transfer. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
in its sole discretion. The Outstanding Notes so withdrawn will be deemed not to
have been validly tendered for replacement for purposes of the Exchange Offer.
Any Outstanding Notes which have been tendered for replacement but which are
withdrawn will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal. Properly withdrawn Outstanding Notes may
be retendered by following one of the procedures described under "--Procedures
for Tendering Outstanding Notes" at any time on or prior to the Expiration Date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
replacement, or to issue Exchange Notes in substitution for, any properly
tendered Outstanding Notes not theretofore accepted, and may terminate the
Exchange Offer, or, at its option, modify or otherwise amend the Exchange Offer
as provided herein before accepting such Outstanding Notes if either of the
following events occur:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer, or
there shall have been proposed, adopted or enacted any law, statute or
regulation that in the judgment of the Company might impair the ability of the
Company to proceed with the Exchange Offer or have a material adverse effect on
the contemplated benefits of the Exchange Offer to the Company; or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which, in the Company's judgment, might materially
impair the Company's ability to proceed with the Exchange Offer.
If the Company determines that either or both of the conditions have
not been met, the Company may (i) refuse to accept any Outstanding Note and
return all tendered Outstanding Notes to Holders who have tendered, (ii) extend
the Exchange Offer and retain all Outstanding Notes tendered prior to the
expiration of the Exchange Offer, subject to the rights of Holders to withdraw
such Outstanding Notes (see "--Withdrawal Rights") or (iii) waive such
unsatisfied condition or conditions with respect to the Exchange Offer and
accept all properly tendered Outstanding Notes that have not been withdrawn or
revoked. If such waiver constitutes a material change to the Exchange Offer, the
Company will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to all Holders of Outstanding Notes and will extend the
Exchange Offer for a period of five to 10 business days, depending upon the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to 10-day business day period.
The foregoing conditions are for the sole benefit of the Company and
may be waived, in whole or in part, in its sole discretion. The foregoing
conditions must be either satisfied or waived prior to termination of the
Exchange Offer.
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Consequences Of Failure To Tender Outstanding Notes
Holders who do not tender their Outstanding Notes by the Expiration
Date will be unable to acquire Exchange Notes in substitution for Outstanding
Notes pursuant to the Exchange Offer. Outstanding Notes held by Holders who do
not tender their Outstanding Notes may not be offered or sold in the United
States or to, or for the account or benefit of, United States persons (as such
term is defined in Regulation S under the Securities Act) except in accordance
with an applicable exemption from the registration requirements thereof.
The Exchange Agent; Assistance
The Bank of New York is the Exchange Agent. All tendered Outstanding
Notes, executed Letters of Transmittal and other related documents should be
directed to the Exchange Agent. Questions and requests for assistance and
requests for additional copies of this Prospectus, the Letter of Transmittal and
other related documents should be addressed to the Exchange Agent as follows:
By hand, overnight courier or registered or certified mail:
The Bank of New York
101 Barclay Street
New York, NY 10286
Attention:
Fees and Expenses
All expenses incident to the Company's consummation of the Exchange
Offer and compliance with the Registration Agreement will be borne by the
Company, including without limitation: (i) all registration and filing fees and
expenses (including filings made with the National Association of Securities
Dealers, Inc. (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel, as may be required by the rules and
regulations of the National Association of Securities Dealers, Inc.)), (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws, (iii) all expenses of printing (including printing certificates
for the Exchange Notes and prospectuses), (iv) all fees and disbursements of
counsel for the Company, (v) reasonable fees and disbursements of not more than
one counsel, reasonably satisfactory to the Company, chosen by the holders of a
majority of the principal amount of the Outstanding Notes and (v) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, and the
fees and expenses of any person, including special experts, retained by the
Company.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the
issuance of Exchange Notes in substitution for Outstanding Notes pursuant to the
Exchange Offer. If, however, a transfer tax is imposed for any reason other than
the issuance of Exchange Notes in substitution for Outstanding Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
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Accounting Treatment
The Exchange Notes will be regarded as a further evidence of the
Company's indebtedness originally evidenced by the Outstanding Notes and
accordingly will be recorded at the same carrying value as the Outstanding
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by the Company for
accounting purposes. The expenses of the Exchange Offer will be amortized over
the term of the Exchange Notes.
Resales of the Exchange Notes
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer to a Holder in substitution
for Outstanding Notes may be offered for resale, resold and otherwise
transferred by such Holder in the United States (other than (i) a broker-dealer
who purchased Outstanding Notes directly from the Company for resale pursuant to
Rule 144A under the Securities Act or any other available exemption under the
Securities Act, or (ii) a person that is an "affiliate," within the meaning of
Rule 405 under the Securities Act, of the Company) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the Holder is acquiring the Exchange Notes in the ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes. However,
if any Holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Exchange Notes, such
Holder (i) cannot rely on the position of the staff of the Commission enunciated
in the no-action letters regarding Morgan Stanley & Co., Incorporated (available
June 5, 1991) and Exxon Capital Holdings Corporation (available April 13, 1989),
or interpreted in the Commission interpretive letter to Shearman & Sterling
(available July 2, 1993), or similar no-action or interpretive letters, and (ii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. Each broker-dealer that
receives Exchange Notes for its own account in substitution for Outstanding
Notes, where such Outstanding Notes were acquired by such broker-dealer as a
result of market-making or other trading activities, acknowledges thereby that
it will deliver a copy of this Prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution."
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DESCRIPTION OF THE EXCHANGE NOTES AND OTHER PRIVATE PLACEMENT SECURITIES
The following section provides a summary of the material terms of the
Senior Notes, the Convertible Notes and the Warrants. However, this prospectus
relates solely to the Exchange Offer with respect to the Senior Notes, in which
Exchange Notes will be issued in substitution for Outstanding Notes. Separate
registration statements, incorporating separate prospectuses, have been filed
with the Commission with respect to the resale, by the holders thereof, of (i)
the Convertible Notes and the Convertible Note Shares and (ii) the Warrants and
the Warrant Shares. The description of the terms of the Convertible Notes and
the Warrants is contained herein in order to provide additional information
regarding the other securities issued in the Private Placement Offering.
Further, the description set forth below includes the amendments to the
terms of the Senior Note Indenture and the Convertible Note Indenture effected
by the Supplemental Indenture. See "--Supplemental Indenture, Amendment
Agreement, Consent and Waiver." See "--The Notes - Certain Definitions" for
definitions of certain capitalized terms used in this section but not otherwise
defined.
BOOK-ENTRY; DELIVERY AND FORM
All Outstanding Notes are, and all Exchange Notes will be, represented
by a permanent global Note in fully registered form without coupons (the "Global
Outstanding Note" and the "Global Exchange Note", respectively, and each, a
"Global Senior Note"). All Convertible Notes are represented by a permanent
global Convertible Note in fully registered form without coupons (the "Global
Convertible Note"). All Warrants are represented by a permanent global Warrant
in fully registered form (the "Global Warrant"). The Global Outstanding Note,
the Global Convertible Note and the Global Warrant have been, and the Global
Exchange Note will be deposited with the Trustee or Warrant Agent, as the case
may be, as custodian for the Depositary, and registered in the name of the
Depositary or of a nominee of the Depositary. The Global Outstanding Note, the
Global Exchange Note and the Global Convertible Note are referred to
individually as a "Global Note" and collectively as "Global Notes".
Upon issuance of the Global Outstanding Note, the Global Convertible
Note and the Global Warrant, the Depositary credited, and upon the issuance of
the Global Exchange Note, the Depositary will credit, on its internal system,
the respective amount of the individual beneficial interests in such Global
Note, or the respective amount of the individual beneficial interests in the
Global Warrant, to persons who have accounts with the Depositary
("Participants"). Such accounts initially will be designated by or on behalf of
the Initial Purchaser. Ownership of beneficial interests in the Global Notes or
the Global Warrant will be shown on, and the transfer of such beneficial
interests will be effected only through, records maintained by the Depositary or
its nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons other than Participants).
Qualified institutional buyers may hold their interests in any Global Senior
Note, the Global Convertible Note or the Global Warrant directly through the
Depositary if they are Participants, or indirectly through organizations which
are Participants.
So long as the Depositary or its nominee is the registered owner of any
Global Senior Note or the Global Convertible Note, the Depositary or such
nominee, as the case may be, will be considered the sole owner of the Notes
represented by such Global Note for all purposes under the applicable Indenture
and such Notes except for the determination of any Additional Amounts (as
defined below in "--The Notes--Additional Amounts"), if any, payable with regard
to such Notes. So long as the Depositary or its nominee is the registered owner
of the Global Warrant, the Depositary or such nominee, as the case may be, will
be considered the sole owner of the Warrants represented by the Global Warrant
for all purposes under the Warrant Agreement and the Warrants. Accordingly,
beneficial owners of an interest in a Global Note or the Global Warrant must
rely on the procedures of the Depositary, and if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise any rights and fulfill any obligations of a holder
under the Indentures or the Warrant Agreement, as the case may be. No beneficial
owner of an interest in a Global Note or the Global Warrant will be able to
transfer that interest except in accordance with the Depositary's applicable
procedures, in addition to those provided for in the Indenture or the Warrant
Agreement.
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Payments of the principal of, premium, if any, and interest (including
Special Interest (as defined below in "--The Notes--Registration Rights"), if
any, and Additional Amounts, if any) on, any Global Senior Note or the Global
Convertible Note, and payments made with respect to the Global Warrant, will be
made to the Depositary or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, any Trustee, the Warrant Agent or any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial interests in any Global
Senior Note or the Global Convertible Note or the Global Warrant or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
The Company expects that the Depositary or its nominee, upon receipt of
any payment of principal, premium or interest (including Special Interest, if
any) and Additional Amounts, if any, in respect of any Global Senior Note or the
Global Convertible Note, as applicable, or upon receipt of any payment made in
respect of the Global Warrant, will credit Participants' accounts with payments
in amounts proportionate to such Participants' respective beneficial interests
in the principal amount of such Global Note or the amount of such Global
Warrant, as the case may be, as shown on the records of the Depositary or its
nominee. The Company also expects that payments by Participants to owners of
beneficial interests in any Global Senior Note or the Global Convertible Note or
the Global Warrant held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Notes or Warrants (including the
presentation of Notes or Warrants for exchange as described below) only at the
direction of one or more Participants to whose accounts interests in the Global
Notes or Global Warrant is credited and only in respect of such portion of the
aggregate principal amount of Notes or aggregate amount of Warrants, as the case
may be, as to which such Participant or Participants has or have given such
direction.
The Depositary has advised the Company as follows: the Depositary is a
limited purpose trust company organized under the laws of the State of New York,
a "banking organization" within the meaning of New York Banking Law, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary was created to
hold securities for its Participants and facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Indirect access to the Depositary system is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant ("Indirect
Participants").
Although the Depositary and its Participants are expected to follow the
foregoing procedures in order to facilitate transfers of interests in the Global
Notes and the Global Warrant among Participants, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company, any Trustee, the Warrant Agent or
any Paying Agent will have any responsibility for the performance by the
Depositary, Participants or Indirect Participants of their respective
obligations under the rules and procedures governing their operations.
Owners of beneficial interests in any Global Senior Note or the Global
Convertible Note or the Global Warrant will be entitled to receive Senior Notes,
Convertible Notes or Warrants in definitive form ("Definitive Senior Notes",
"Definitive Convertible Notes" and "Definitive Warrants", respectively), as the
case may be, if the Depositary is at any time unwilling or unable to continue
as, or ceases to be, a "Clearing Agency" registered under Section 17A of the
Exchange Act, and a successor to the Depositary registered as a "Clearing
Agency" under Section 17A of the Exchange Act is not appointed by the Company
within 90 days. Any Definitive Senior Notes, Definitive Convertible Notes or
Definitive Warrants issued in exchange for beneficial interests in any Global
Senior Note or the Global Convertible Note or the Global Warrant will be
registered in such name or names as the Depositary shall instruct the applicable
Trustee or the Warrant Agent, as the case may be. It is expected that such
instructions will be based upon directions received
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by the Depositary from Participants with respect to ownership of beneficial
interests in any Global Senior Note or the Global Convertible Note or Global
Warrant.
In addition to the foregoing, on or after the occurrence of an Event of
Default under either Indenture, owners of beneficial interests in any Global
Senior Note or the Global Convertible Note will be entitled to request and
receive Definitive Senior Notes or Definitive Convertible Notes, as the case may
be. Such Definitive Senior Notes or Definitive Convertible Notes will be
registered in such name or names as the Depositary shall instruct the applicable
Trustee.
THE NOTES
GENERAL
The Senior Notes have been issued under the Senior Note Indenture among
the Company, the Guarantors and The Bank of New York, as trustee under the
Senior Note Indenture (the "Senior Note Trustee"). The Convertible Notes have
been issued pursuant to the Convertible Note Indenture among the Company, the
Guarantors and The Bank of New York, as trustee (the "Convertible Note Trustee"
and together with the Senior Note Trustee, the "Trustees"). For purposes of this
description of the Notes, the term "Company" refers to PLD Telekom Inc. and does
not include its subsidiaries except for purposes of financial data determined on
a consolidated basis.
The terms of the Senior Notes and the Senior Note Guarantees include
those stated in the Senior Note Indenture, the related Senior Note Collateral
Documents and those made a part of the Senior Note Indenture by reference to the
Trust Indenture Act of 1939 as in effect on the date of the Senior Note
Indenture (the "Trust Indenture Act"). Similarly, the terms of the Convertible
Notes and the Convertible Note Guarantees include those stated in the
Convertible Note Indenture, the related Convertible Note Collateral Documents
and those made a part of the Convertible Note Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and holders of the
Notes are referred to the applicable Indenture, the applicable Collateral
Documents and the Trust Indenture Act for a complete statement of such terms.
Copies of the Indentures and the related Collateral Documents are available from
the Company on request. The statements and definitions of terms under this
caption relating to the Notes, the Guarantees, the applicable Indentures and the
related Collateral Documents are summaries and do not purport to be complete.
Such summaries make use of certain terms defined in the Indentures and are
qualified in their entirety by express reference to the applicable Indentures.
Certain terms used herein are defined below under "--Certain Definitions."
The Senior Notes are senior obligations of the Company, limited in an
aggregate principal amount to $123.0 million, and are secured by a first lien on
the Property and assets constituting collateral as described in the Senior Note
Collateral Documents (the "Senior Note Collateral") and a second lien on the
Property and assets constituting collateral as described in the Convertible Note
Collateral Documents (the "Convertible Note Collateral"). See "--Collateral and
Security." The Senior Notes are generally senior in right of payment to the
Convertible Notes, except as set forth in the next succeeding paragraph.
Otherwise, the Senior Notes rank pari passu in right of payment with all
existing and future senior unsecured indebtedness of the Company, and are senior
in right of payment to all existing and future subordinated indebtedness of the
Company. The obligations of the Company to pay the principal of and premium, if
any, and interest and Special Interest (as defined above in "The Exchange
Offer--Termination of Certain Rights"), if any, and Additional Amounts (as
defined below in "-- Additional Amounts"), if any, on the Senior Notes and all
other obligations of the Company under the Senior Note Indenture, the Senior
Note Collateral Documents and the Convertible Note Collateral Documents are,
jointly and severally, irrevocably and unconditionally guaranteed by the
Company's Wholly-Owned Restricted Subsidiaries which are the Guarantors (the
"Guarantors"). See "--Guarantees."
The Convertible Notes are senior obligations of the Company, limited in
an aggregate principal amount to $26.5 million, and are secured by a first lien
on the Convertible Note Collateral and a second lien on the Senior Note
Collateral. See "--Collateral and Security." The Convertible Notes are generally
subordinated in right of payment to the Senior Notes, provided that the
Convertible Notes are secured by a first priority lien on Convertible Note
Collateral which consists principally of all of the Technocom Preferred Stock
owned directly or indirectly by the Company, and the Convertible Notes rank as
to such Convertible Note Collateral pari passu in right of payment to the Senior
Notes.
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Otherwise, the Convertible Notes rank pari passu in right of payment with all
other existing and future unsecured indebtedness of the Company and are senior
in right of payment to all existing and future subordinated indebtedness of the
Company. The obligations of the Company to pay the principal of and premium, if
any, and interest and Special Interest, if any, and Additional Amounts, if any,
on the Convertible Notes and all other obligations of the Company and the other
Guarantors under the Convertible Note Indenture and the Convertible Note
Collateral Documents, are jointly and severally, irrevocably and unconditionally
guaranteed on a senior subordinated basis by the Guarantors. See "--Guarantees".
Each $1,000 of principal amount at Stated Maturity of the Convertible Notes is
convertible into 144.93 shares of Common Stock, subject to adjustment in certain
events. See "--Conversion Rights of Convertible Notes."
All net proceeds of the Senior Notes, other than $14.5 million which is
available to be used by the Company for general corporate purposes and $22.5
million which has been used to repay existing Indebtedness owed to a Canadian
chartered bank on the Issue Date, were deposited in an account in the name of
and beneficially owned by the Company, which has been pledged to, and is under
the sole dominion and control of, the Senior Note Trustee acting for its benefit
and the benefit of the holders of the Senior Notes and the Convertible Note
Trustee, acting for its benefit and the benefit of the holders of the
Convertible Notes (the "Company Senior Note Escrow Account"). Such funds will,
at the direction of the Company except during the existence of a Default or an
Event of Default, be invested in Eligible Cash Equivalents. Up to $9 million of
the net proceeds of the Senior Notes were permitted to be used by the Company to
make Investments in entities primarily engaged or proposing to engage in the
Telecommunications Business in Russia or Kazakhstan constituting Qualified
Investments and, pursuant thereto, in November 1997 the Company withdrew $9
million from the Company Senior Note Escrow Account and used such funds,
together with other borrowed funds to acquire an additional 29.65% interest in
Technocom. A further $7 million of the net proceeds of the Senior Notes has been
invested by the Company in PLD Leasing and used by it to purchase
Telecommunications Assets. A further $8 million of the net proceeds of the
Senior Notes will be advanced to Technocom as authorized by and subject to
certain conditions set forth in the Supplemental Indenture. The remaining
portion of the net proceeds of the Senior Notes (approximately $25 million),
together with any interest earned on the Investments of such funds in Eligible
Cash Equivalents, is available to be invested by the Company in the Leasing
Companies. Each Leasing Company is a U.S. or a Cypriot corporation, a Guarantor
and a Wholly-Owned Restricted Subsidiary organized for the limited purpose of
acquiring Telecommunications Assets and leasing or selling such
Telecommunications Assets to Restricted Subsidiaries and Qualified Joint
Ventures in the Russian Federation and Kazakhstan pursuant to leases or
installment sales (the "Telecommunications Asset Agreements") and, to the
limited degree permitted by the Senior Note Indenture, making new or additional
Investments in entities primarily engaged or proposing to engage in the
Telecommunications Business in the Russian Federation or Kazakhstan constituting
Qualified Investments with funds received from payments under the
Telecommunications Asset Agreements or from other Qualified Investments or
investment of such funds in Eligible Cash Equivalents. The Senior Note Indenture
provides that each Leasing Company will be a separate, special-purpose
Subsidiary with corporate organizational documents containing certain
limitations (including restrictions on the nature of the Leasing Company's
business, the requirement of independent directors being on its Board of
Directors, and a restriction on its ability to commence a voluntary case or
proceeding under any applicable bankruptcy or insolvency law without the prior
unanimous affirmative vote of all of its directors). The Company's Investments
in a Leasing Company will be either in the form of an equity investment or an
intercompany loan and will be evidenced by means of Capital Stock or an
Intercompany Note of such Leasing Company, as applicable. Any such Intercompany
Note will be secured by the related Telecommunications Asset Agreements and
Qualified Investments, if any, of such Leasing Company. Any such Capital Stock
of a Leasing Company, and all Telecommunications Asset Agreements, Intercompany
Notes and Qualified Investments, and Intercompany Notes received in respect of
loans, will constitute part of the Senior Note Collateral, subject to certain
exceptions for Qualified Investments made with funds constituting Convertible
Note Collateral. See "--Collateral and Security" and "--Possession, Use and
Release of Collateral."
$20 million of net proceeds of the Convertible Notes has been utilized
by the Company to acquire Technocom Preferred Stock and the balance thereof has
been used for general corporate purposes. All Technocom Preferred Stock owned
directly or indirectly by the Company constitutes part of the Convertible Note
Collateral. See "--Collateral and Security" and "--Possession, Use and Release
of Collateral."
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The Convertible Note Indenture does not contain any restrictions on the
payment of dividends or the making of distributions, investments or certain
other restricted payments or any financial covenants. Other than the protection
afforded by the Convertible Note Collateral, the Convertible Note Indenture and
the Convertible Note Collateral Documents contain no covenants or other
provisions against a sudden and dramatic decline in credit quality of the
Convertible Notes, except as described below in "--Right to Require Repurchase
of Convertible Notes Upon a Termination of Trading."
As of December 31, 1997, the total outstanding indebtedness and other
liabilities of the Company ranking in right of payment pari passu with the
Senior Notes and the Convertible Notes was approximately $21.8 million and the
total outstanding indebtedness and other liabilities of the Guarantors on a
combined consolidated basis, that ranked in right of payment pari passu with the
Senior Note Guarantees and the Convertible Note Guarantees of such Guarantors
was $2.2 million. The Convertible Notes and Convertible Note Guarantees are
generally subordinated to the Senior Notes and the Senior Note Guarantees,
respectively, except that the Convertible Notes rank pari passu in right of
payment with the Senior Notes with regard to the Convertible Note Collateral and
are secured by a first priority Lien in the Convertible Note Collateral. The
Notes are effectively subordinated in right of payment to all existing and
future third-party liabilities (including trade payables and other non-debt
obligations) of the non-Guarantor Subsidiaries of the Company. As of December
31, 1997, the liabilities of such non-Guarantor Subsidiaries on a combined
consolidated basis were approximately $42.1 million. In addition, the Senior
Note Indenture permits under limited circumstances the creation of, or the
designation of existing Restricted Subsidiaries as, Unrestricted Subsidiaries.
Such Unrestricted Subsidiaries are not generally subject to the covenants
applicable to the Company and the Restricted Subsidiaries under the Senior Note
Indenture and will not be parties to Telecommunication Asset Leases or receive
Qualified Investments. The operations of the Company are conducted through its
Subsidiaries and, therefore, the Company is dependent upon cash flow from those
entities to meet its obligations. Accordingly, the Company anticipates that the
primary source of cash to pay the Company's obligations under the Notes will be
derived from the operations of the Restricted Subsidiaries. See "Risk
Factors--Risks Involving the Company--Holding Company Structure; Difficulties in
Enforcing Guarantees and Security; Effective Subordination of Notes to
Indebtedness of Subsidiaries."
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $123.0
million and will mature on June 1, 2004. The Senior Notes have been issued at a
discount to the aggregate principal amount to generate gross proceeds to the
Company of $87,697,300. The Senior Notes will accrete interest from the Issue
Date at a rate computed as if the Senior Notes had been issued bearing interest
at the rate of 14% per annum on May 31, 1996 (being at a rate of 14.9445% per
annum for the period from the Issue Date through November 30, 1996), compounded
semi-annually, to an aggregate principal amount of $123.0 million by December 1,
1998. Thereafter, interest on the Senior Notes will accrue at the rate of 14%
per annum and will be payable in cash semi-annually on June 1 and December 1 of
each year, commencing June 1, 1999, to the person in whose name the Senior Note
(or any predecessor Senior Note) is registered at the close of business on May
15 or November 15 next preceding such interest payment date. The effect of the
foregoing is that the Senior Notes will bear interest at the rate of 14.9445%
per annum from the Issue Date through November 30, 1996 and 14% per annum
thereafter. The payment of interest on the Senior Notes in respect of the period
from the Issue Date to December 1, 1998, however, will effectively be deferred
until Maturity and such deferred interest will be compounded semi-annually and
added to the outstanding principal amount of the Senior Notes. Interest on the
Senior Notes will be computed on the basis of a 360-day year comprised of twelve
30-day months. If the Company has not received on or before May 31, 1998, $20
million in Cash Proceeds from a sale or sales of Qualified Stock of the Company
occurring subsequent to the Issue Date (other than Qualified Stock issued upon
the exercise of Warrants or upon conversion of the Convertible Notes), the
Senior Notes will bear interest at the rate of 14.5% per annum commencing on
June 1, 1998 until the interest payment date prior to which the Company shall
have received such $20 million in Cash Proceeds from such a sale of Qualified
Stock. Commencing on any such interest payment date, the Senior Notes will again
bear interest at
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the rate of 14% per annum. For purposes of this interest rate adjustment
provision, the Company will be deemed to have raised such $20 million in Cash
Proceeds if a Change of Control has occurred.
The Convertible Notes are limited in aggregate principal amount to
$26.5 million and will mature on June 1, 2006. The Convertible Notes will bear
interest from the Issue Date at a rate computed as if the Convertible Notes had
been issued bearing interest at the rate of 9% per annum on May 31, 1996 (being
the rate of 9.5858% per annum from the Issue Date through November 30, 1996),
and the Convertible Notes will bear interest at the rate of 9% per annum from
December 1, 1996. Interest will be payable in cash semi-annually on June 1 and
December 1 of each year, commencing December 1, 1996, to the person in whose
name the Convertible Note is registered at the close of business on May 15 or
November 15 next preceding such interest payment date. Interest on the
Convertible Notes will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Notwithstanding any other term of the Indentures, the Company shall not
be obliged to pay any interest or other amounts under or in connection with
either Indenture in excess of the amount or rate permitted under or consistent
with applicable law.
If the Company does not comply with certain deadlines set forth in the
Registration Agreement with respect to the conduct of an exchange offer for the
Senior Notes or the registration of either the Senior Notes or the Convertible
Notes for resale under a shelf registration statement, holders of the Senior
Notes and/or holders of the Convertible Notes become entitled to Special
Interest. As a result of missing a deadline respecting the filing of the several
Registration Statements, the Company incurred an obligation to pay Special
Interest on the Senior Notes and the Convertible Notes for the period from July
27, 1996 until August 9, 1996. As a result of missing a further deadline
relating to the effectiveness of the several Registration Statements, the
Company became obligated to pay Special Interest on the Senior Notes and the
Convertible Notes starting on October 10, 1996 and such obligation continues as
of the date hereof. See "The Exchange Offer--Termination of Certain Rights" and
"--Registration Rights--Convertible Notes."
Principal of, premium, if any, and interest, Additional Amounts, if
any, and Special Interest, if any, on the Senior Notes and the Convertible Notes
will be payable, and the Senior Notes and the Convertible Notes may be presented
for registration of transfer or exchange, at the applicable office or agency of
the Company maintained for such purposes, which office or agency shall be
maintained in the Borough of Manhattan, The City of New York. At the option of
the Company, interest, Additional Amounts and Special Interest may be paid by
check mailed to the registered holders at their registered addresses. The Senior
Notes and the Convertible Notes will each be issued without coupons and in fully
registered form only, in denominations of $1,000 and integral multiples thereof.
Unless otherwise designated by the Company, the Company's office or agency in
The City of New York will be the office of the Trustees maintained for such
purpose located at 101 Barclay Street, Floor 21 West, New York, New York 10286,
Attention: Corporate Trust Department.
GUARANTEES
Each Indenture provides that each of the Leasing Companies, NWE Cyprus,
WTC, BCL, and any future Wholly-Owned Subsidiaries of the Company (and any other
Subsidiaries that guarantee any Indebtedness of an Obligor) shall, jointly and
severally, irrevocably and unconditionally guarantee to each holder of Senior
Notes and to the Senior Note Trustee, and to each holder of Convertible Notes
and the Convertible Note Trustee, that: (i) the principal of, premium, if any,
and interest, Additional Amounts, if any, and Special Interest, if any, on the
Senior Notes or the Convertible Notes, as the case may be, will be paid in full
when due, whether at maturity or on any interest payment date, by acceleration,
call for redemption, upon a Change of Control Offer, Asset Sale Offer, purchase
or otherwise, and interest on the overdue principal of and interest, if any,
Additional Amounts, if any, and Special Interest, if any, on such Notes, if
lawful, and all other obligations of the Company to the holders or the Trustees
under the Indentures or the Notes will be promptly paid in full or performed,
all strictly in accordance with the terms of the applicable Indenture, the
applicable Collateral Documents and the applicable Notes; and (ii) in case of
any extension of time of payment or renewal of any Senior Notes or Convertible
Notes, as the case may be, or any of such other obligations, they will be paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at maturity, by acceleration,
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call for redemption, upon a Change of Control Offer, Asset Sale Offer, purchase
or otherwise. Failing payment by the Company when due of any amount so
guaranteed for whatever reason, the Guarantors shall, subject to the following
paragraph, be jointly and severally obligated to pay the same before failure so
to pay becomes an Event of Default. Holders of the Senior Notes shall have
priority over the holders of the Convertible Notes with respect to all payments
made by any Guarantor except as to assets of any Guarantor constituting
Convertible Note Collateral, as to which holders of the Convertible Notes shall
have priority. Payments under the Guarantee to be given by BCL (and any other
Russian company that becomes a Guarantor under the Indentures) may require a
license from the Russian Central Bank. See "Risk Factors--Risks Involving the
Company--Currency Controls; Restrictions on Repatriation of Payments; Prior
Investments."
The obligations of each Guarantor will be limited to the maximum amount
that will, after giving effect to all other contingent and fixed liabilities of
such Guarantor and after giving effect to any collections from or payments made
by or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Senior Note Guarantee or its Convertible Note
Guarantee, as applicable, or pursuant to its contribution obligations under the
Senior Note Indenture or the Convertible Note Indenture, as applicable, result
in the obligations of its Senior Note Guarantee or its Convertible Note
Guarantee, as applicable, not constituting a fraudulent conveyance or fraudulent
transfer, or not otherwise being void, voidable or unenforceable under any
bankruptcy, reorganization, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law. Each
Guarantor that makes a payment or distribution under a Senior Note Guarantee or
a Convertible Note Guarantee shall be entitled to a contribution from each other
Guarantor having a Senior Note Guarantee or a Convertible Note Guarantee, as
applicable, in a pro rata amount based on the Adjusted Net Assets of each such
other Guarantor. See "Risk Factors--Risks Involving the Company--Holding Company
Structure; Difficulties in Enforcing Guarantees and Security; Effective
Subordination of Notes to Indebtedness of Subsidiaries."
The Senior Note Indenture provides that no Guarantor shall consolidate
with or merge with or into (whether or not such Guarantor is the surviving
person) another corporation, Person or entity whether or not affiliated with
such Guarantor (but excluding any consolidation, amalgamation or merger if the
surviving corporation is no longer a Subsidiary) unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor under the Senior Note Indenture pursuant to a
supplemental indenture and appropriate Senior Note Collateral Documents and
Convertible Note Collateral Documents in form reasonably satisfactory to the
Senior Note Trustee under the Senior Notes, the Senior Note Indenture and the
Senior Note Collateral Documents and Convertible Note Collateral Documents; (ii)
in the case of a Leasing Company, such Guarantor or the Person formed by or
surviving any such consolidation or merger is a separate, special-purpose,
Wholly-Owned Restricted Subsidiary constituting a Leasing Company; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default under the Senior Note Indenture exists; and (iv) such Guarantor, or any
Person formed by or surviving any such consolidation or merger, (A) will have
Consolidated Net Worth (immediately after giving effect to such transaction but
prior to any purchase accounting adjustments resulting from the transaction)
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction and (B) will be permitted by virtue of the
Company's Indebtedness to Operating Cash Flow Ratio to incur, immediately after
giving effect to such transaction, at least $1.00 of additional Indebtedness
pursuant to the terms of the first paragraph of the covenant described under
"--Certain Covenants--Limitation on Indebtedness." The Convertible Note
Indenture provides that no Guarantor shall consolidate with or merge with or
into (whether or not such Guarantor is the surviving person) another
corporation, Person or entity whether or not affiliated with such Guarantor (but
excluding any consolidation, amalgamation or merger if the surviving corporation
is no longer a Subsidiary) unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such Guarantor
under the Convertible Note Indenture pursuant to a supplemental indenture and
appropriate Senior Note Collateral Documents and Convertible Note Collateral
Documents in form reasonably satisfactory to the Convertible Note Trustee under
the Convertible Notes, the Convertible Note Indenture and the Senior Note
Collateral Documents and Convertible Note Collateral Documents; and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default under the Convertible Note Indenture exists. In connection with any such
consolidation or merger, each Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel stating that such consolidation or merger
is permitted by the Indenture to which it is a party.
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Each Indenture provides that in the event of a sale or other transfer
or disposition of all of the Capital Stock of any Guarantor other than the
Leasing Companies or NWE Cyprus to any person that is not an Affiliate of the
Company in compliance with the terms of such Indenture, then such Guarantor
shall be deemed automatically and unconditionally released and discharged of any
obligations under its Guarantee issued under such Indenture and the related
Collateral Documents without any further action on the part of the applicable
Trustee or any holder; provided that the Net Cash Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of such
Indenture. See "--Asset Sales."
Although holders of the Senior Notes will be direct creditors of each
Guarantor by virtue of its Senior Note Guarantee, and holders of the Convertible
Notes will be direct creditors of each Guarantor by virtue of its Convertible
Note Guarantee, existing or future creditors of a Guarantor, a trustee in
bankruptcy or a Guarantor as a debtor-in-possession could avoid or subordinate
such Senior Note Guarantee or such Convertible Note Guarantee, as applicable,
under U.S. fraudulent conveyance laws, if applicable, in the event that it were
successful in establishing that (i) the Guarantee was incurred with intent to
hinder, delay, or defraud any present or future creditor or (ii) the Guarantor
in question did not receive fair consideration or reasonably equivalent value
for issuing its Senior Note Guarantee or its Convertible Note Guarantee, as
applicable, and that it (a) was insolvent at the time of such issuance, or (b)
was rendered insolvent by reason of such issuance, or (c) was engaged in a
business or transaction for which its assets constituted unreasonably small
capital to carry on its business, or (d) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they matured. Among
other things, a legal challenge of the Guarantee on U.S. fraudulent conveyance
grounds may focus on the benefits, if any, realized by the Guarantor in question
as a result of the issuance by the Company of the Senior Notes or the
Convertible Notes, as the case may be. Under Cypriot fraudulent preference laws,
if applicable, an existing or future creditor of a Guarantor or a liquidator of
a Guarantor could avoid (a) its Senior Note Guarantee or its Convertible Note
Guarantee, as applicable, or the grant of any lien on property of such Guarantor
to secure such Guarantee in the event that a winding up petition were presented
within six months of the execution of such Guarantee and such creditor or
liquidator were successful in establishing that the giving of such Guarantee or
the granting of such lien, as the case may be, was made with the dominant
intention of giving a creditor a preference over other creditors and was a
voluntary act of such Guarantor or (b) a floating charge created within 12
months of the presentation of a winding up petition unless such Guarantor was
solvent immediately after such creation except to the extent of any cash paid to
such Guarantor in consideration of the creation of such floating charge. In
addition, under Cypriot fraudulent transfer laws, if applicable, an existing or
future creditor of a Guarantor could set aside any lien on property of such
Guarantor to secure its Senior Note Guarantee or its Convertible Note Guarantee,
as applicable, if such creditor were successful in establishing that such lien
was granted with the intent to hinder or delay its creditors or any of them. A
Guarantee may also be avoided, declared unenforceable or subordinated to other
obligations of the applicable Guarantor under any bankruptcy, reorganization,
receivership, insolvency, liquidation or other similar legislation or legal
principles under any other applicable foreign law, including (in the case of
BCL) Russian law. To the extent any Guarantee was avoided as a fraudulent
conveyance or held unenforceable for any other reason, the holders of the
applicable Notes would cease to have any claim in respect of the Guarantor in
question and would be solely creditors of the Company, and may be required to
return all amounts received pursuant to such Guarantee. In such event, or in the
event of the subordination of such Guarantee, the claims of the holders of the
Notes would be subject to the prior payment of all liabilities of the Guarantor
in question. Similarly, the claims of the holders of Convertible Notes would be
subject to the prior payment of all obligations of the Guarantor in question
under its Senior Note Guarantee other than as a result of the Convertible Note
Collateral. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy the claims of the holders of
the Senior Notes or the holders of the Convertible Notes relating to any
avoided, unenforceable or subordinated portion of the Senior Note Guarantees or
the Convertible Note Guarantees, as applicable.
ADDITIONAL AMOUNTS
Except to the extent required by law, any and all payments of, or in
respect of, any Note shall be made free and clear of and without deduction for
or on account of any and all present or future taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
imposed by Canada, Russia, Cyprus or any other jurisdiction with which the
Company or any Guarantor has some connection (including any jurisdiction (other
than the
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United States of America) from or through which payments under the Notes or the
Guarantees are made) or any political subdivision of or any taxing authority in
any such jurisdiction ("Canadian Taxes," "Russian Taxes," "Cypriot Taxes" or
"Other Taxes," respectively). If the Company or any Guarantor shall be required
by law to withhold or deduct any Canadian Taxes, Russian Taxes, Cypriot Taxes or
Other Taxes from or in respect of any sum payable under a Note or pursuant to a
Guarantee, the sum payable by the Company or such Guarantor, as the case may be,
thereunder shall be increased by the amount ("Additional Amounts") necessary so
that after making all required withholdings and deductions, the holder shall
receive an amount equal to the sum that it would have received had no such
withholdings and deductions been made; provided that any such sum shall not be
paid in respect of any Canadian Taxes, Russian Taxes, Cypriot Taxes or Other
Taxes to a holder (an "Excluded Holder") (i) resulting from the beneficial owner
of such Note carrying on business or being deemed to carry on business in or
through a permanent establishment or fixed base in the relevant taxing
jurisdiction or any political subdivision thereof or having any other connection
with the relevant taxing jurisdiction or any political subdivision thereof or
any taxing authority therein other than the mere holding or owning of such Note,
being a beneficiary of the applicable Guarantees, the receipt of any income or
payments in respect of such Note or the applicable Guarantees or the enforcement
of such Note or the applicable Guarantees, (ii) resulting from the Company or
any Guarantor not dealing at arm's length with such holder at the time of such
payment or at the time the amount of such payment is deemed to have been paid or
credited or (iii) that would not have been imposed but for the presentation
(where presentation is required) of such Note for payment more than 180 days
after the date such payment became due and payable or was duly provided for,
whichever occurs later. The Company or the Guarantors, as applicable, will also
(i) make such withholding or deduction and (ii) remit the full amount deducted
or withheld to the relevant authority in accordance with applicable law, and, in
any such case, the Company will furnish to each holder on whose behalf an amount
was so remitted, within 30 calendar days after the date the payment of any
Canadian Taxes, Russian Taxes, Cypriot Taxes or Other Taxes is due pursuant to
applicable law, certified copies of tax receipts evidencing such payment by the
Company or the Guarantors, as applicable. The Company will, upon written request
of each holder (other than an Excluded Holder), reimburse each such holder for
the amount of (i) any Canadian Taxes, Russian Taxes, Cypriot Taxes or Other
Taxes so levied or imposed and paid by such holder as a result of payments made
under or with respect to any Notes, and (ii) any Canadian Taxes, Russian Taxes,
Cypriot Taxes or Other Taxes so levied or imposed with respect to any
reimbursement under the foregoing clause (i) so that the net amount received by
such holder (net of payments made under or with respect to such Notes or the
applicable Guarantees) after such reimbursement will not be less than the net
amount which the holder would have received if Canadian Taxes, Russian Taxes,
Cypriot Taxes or Other Taxes on such reimbursement had not been imposed.
At least 30 calendar days prior to each date on which any payment under
or with respect to the Senior Notes or the Convertible Notes is due and payable,
if the Company or the Guarantors, as applicable, will be obligated to pay
Additional Amounts with respect to such payment, the Company or the Guarantors,
as applicable, will deliver to the applicable Trustee an Officers' Certificate
stating the fact that such Additional Amounts will be payable and the amounts so
payable and will set forth such other information necessary to enable such
Trustee to pay such Additional Amounts to holders on the payment date.
At the date of this Prospectus, no Russian Taxes, Cypriot Taxes or
Other Taxes are imposed, and therefore no Additional Amounts would be payable in
respect of such taxes, in respect of any sum payable by the Company as principal
of, premium or interest on the Senior Notes or the Exchange Notes or the
Convertible Notes, or in respect of any sum payable by any Guarantor, except
that payments made by BCL under its Guarantee (to the extent they represent
interest) may be subject to Russian withholding tax. Based in part on a
confirmation obtained from Revenue Canada that certain rulings previously
obtained from Revenue Canada confirming certain issues with respect to Canadian
Taxes will continue to apply, Canadian counsel has advised the Company that no
Additional Amounts would be payable in respect of Canadian Taxes, in respect of
the Senior Notes, the Exchange Notes or the Convertible Notes.
In addition, the Company or the Guarantors will pay any stamp, issue,
registration, documentary or other similar taxes and duties, including interest
and penalties, in respect of the creation, issue and offering the Senior Notes
and the Convertible Notes payable in Canada, the United States, the Russian
Federation or Cyprus or any political subdivision thereof or taxing authority of
or in the foregoing. The Company and the Guarantors will also pay and indemnify
the Trustees, the holders of the Senior Notes and the holders of the Convertible
Notes from and against all court fees and
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<PAGE> 67
taxes or other taxes and duties, including interest and penalties, paid by any
of them in any jurisdiction in connection with any action permitted to be taken
by the Trustees or such holders to create the Liens on the Senior Note
Collateral or the Convertible Note Collateral, as applicable, and to enforce the
obligations of the Company or the Guarantors under the Senior Notes, the Senior
Note Indenture, the Senior Note Guarantees and the Senior Note Collateral
Documents and under the Convertible Notes, the Convertible Note Indenture, the
Convertible Note Guarantees and the Convertible Note Collateral Documents.
CONVERSION RIGHTS OF CONVERTIBLE NOTES
The Convertible Notes will be convertible into Common Shares of the
Company at any time on or after August 11, 1996, and prior to redemption or
final maturity, initially at the conversion price of $6.90 per share. The right
to convert Convertible Notes which have been called for redemption will
terminate at the close of business on the Business Day preceding the Redemption
Date. See "--Optional Redemption" below.
The conversion price will be subject to adjustment upon the occurrence
of any of the following events: (a) the payment of dividends and other
distributions in Common Shares on any class of Capital Stock of the Company, (b)
the issuance to all holders of Common Shares of rights, options or warrants
entitling them to subscribe for or purchase Common Shares or securities
convertible into or exchangeable for Common Shares at a price per share less
than the Current Market Price of such Common Shares (determined as provided in
the Convertible Note Indenture) as of the date fixed for determination of the
holders of Common Shares entitled to receive such rights, options or warrants,
(c) subdivisions and combinations of Common Shares, (d) distributions to all
holders of Common Shares of evidences of indebtedness, shares of any class of
its Capital Stock, cash or other assets (including securities, but excluding any
dividend or distribution referred to in clause (a) or (c), any rights, options
or warrants referred to in clause (b) and any non-extraordinary cash dividends),
(e) the issuance of Common Shares or securities convertible into or exchangeable
for Common Shares for a consideration per share less than the Current Market
Price per share (determined as provided in the Convertible Note Indenture) to
the extent that the below market portion of such issuances (together with the
below market or above market portions (as the case may be) of all other below
market issuances and above market tender or exchange offers) is greater than
2.0% of the Company's total market capitalization (as determined pursuant to the
Convertible Note Indenture) of the Common Shares, (f) distributions consisting
exclusively of cash to all holders of Common Shares in an aggregate amount that,
together with (i) other all-cash distributions made within the preceding 12
months to all holders of Common Shares and (ii) the aggregate of any cash and
the fair market value of other consideration paid in respect of any tender offer
by the Company or any Subsidiary for the Common Shares and any purchase by the
Company of Common Shares in the open market consummated within the preceding 12
months, exceeds 12.5% of the Company's current Market Capitalization, (g) the
consummation of a tender or exchange offer made by the Company or any Subsidiary
for the Common Shares or the purchase by the Company of shares of Common Shares
in the open market to the extent the above market portion of such tender or
exchange offers (together with the below market or above market portions (as the
case may be) of all other above market tender or exchange offers and all below
market issuances) is greater than 2.0% of the Company's total market
capitalization (as determined pursuant to the Convertible Note Indenture), (h)
certain reclassifications and (i) certain other events that could have the
effect of depriving holders of the Convertible Notes of the benefit of all or a
portion of the conversion rights in respect of any Convertible Note. The events
described in clause (e) are subject to certain exceptions described in the
Convertible Note Indenture, including, without limitation, (A) certain bona fide
public offerings and private placements and (B) Common Shares (and options
exercisable therefor) issued to the Company's directors, officers and employees
under bona fide employee benefit plans in an aggregate amount not to exceed 1.0%
of the Common Shares outstanding at the Issue Date.
No adjustment in the conversion price will be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the conversion price; provided, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment. Moreover,
no adjustment in the conversion price shall be required for any transaction in
which holders of Convertible Notes are to participate on a basis and with notice
that the Company's Board of Directors determines to be fair and appropriate in
light of the basis and notice on which holders of Common Shares participate in
the transaction.
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In addition to the foregoing adjustments, the Company will be permitted
to reduce the conversion price as it considers to be advisable in order that any
event treated for United States federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the Common Stock or,
if that is not possible, to diminish any income taxes that are otherwise payable
because of such event. In the case of any consolidation or merger of the Company
with any other corporation (other than one in which no change is made in the
Common Stock), or any sale or transfer of all or substantially all of the assets
of the Company, subject to the following sentence the holder of any Convertible
Note then outstanding will have the right thereafter to convert such Convertible
Note only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock into which such Convertible Note might have
been converted immediately prior to such consolidation, merger, sale or
transfer; and adjustments will be provided for events subsequent thereto that
are as nearly equivalent as practical to the conversion price adjustments
described above.
Fractional shares of Common Stock will not be issued upon conversion,
but, in lieu thereof, the Company will pay a cash adjustment based upon the then
closing price at the close of business on the day of conversion. If any
Convertible Notes are surrendered for conversion during the period from the
close of business on any regular record date through and including the next
succeeding interest payment date (except any such Convertible Notes called for
redemption), such Convertible Notes when surrendered for conversion must be
accompanied by payment in next day funds of an amount equal to the interest
thereon which the registered Holder on such record date is to receive. Except as
described in the preceding sentence, no interest will be payable by the Company
on converted Convertible Notes with respect to any interest payment date
subsequent to the date of conversion. No other payment or adjustment for
interest or dividends is to be made upon conversion.
SUBORDINATION PROVISIONS
The payment of the principal of and premium, if any, and interest
(including Additional Amounts, if any, and Special Interest, if any) on the
Convertible Notes is, to the extent set forth in the Convertible Note Indenture,
subordinated in right of payment to the prior payment in full of such Senior
Notes and all other obligations of the Company and the Guarantors under the
Senior Notes, the Senior Note Guarantees and the Senior Note Collateral
Documents (the "Senior Indebtedness"); except that with regard to Technocom
Preferred Stock and other Convertible Note Collateral, the holders of the Senior
Notes shall, to the extent set forth in the Senior Note Indenture, be
subordinated in right of payment to the prior payment in full of the Convertible
Notes and all other obligations of the Company and the Guarantors as to all
assets of the Company or the Guarantors constituting Convertible Note
Collateral. If there is a payment or distribution of assets to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshalling of assets or any bankruptcy, insolvency or
similar proceedings of the Company or a Guarantor, as applicable, the holders of
the Senior Notes will be entitled to receive payment in full of all amounts due
or to become due thereon or provision for such payment in money or money's worth
must be made before the holders of the Convertible Notes will be entitled to
receive any payment in respect of the principal of or premium, if any, or
interest (including Additional Amounts, if any, and Special Interest, if any) on
the Convertible Notes other than in respect of the assets constituting
Convertible Note Collateral, as to which the holders of the Convertible Notes
will first be entitled to receive payment in full of all amounts due or to
become due thereon. In the event of the acceleration of the Maturity of the
Convertible Notes, the holders of the Senior Notes will first be entitled to
receive payment in full in cash of all amounts due thereon or provision for such
payment in money or money's worth before the holders of the Convertible Notes
will be entitled to receive any payment for the principal of or premium, if any,
or interest (including Additional Amounts, if any, and Special Interest, if any)
on the Convertible Notes other than in respect of the Convertible Note
Collateral, as to which the holders of the Convertible Notes will first be
entitled to receive payment in full of all amounts due or to become due thereon.
No payments on account of principal of or premium, if any, or interest
(including Additional Amounts, if any, and Special Interest, if any) on the
Convertible Notes or on account of the purchase or acquisition of Convertible
Notes may be made if there has occurred and is continuing a default in any
payment with respect to Senior Indebtedness, any acceleration of the maturity of
any Senior Indebtedness or if any judicial proceeding is pending with respect to
any such default, other than in respect of the Convertible Note Collateral.
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COLLATERAL AND SECURITY
The Company originally deposited approximately $46 million of the net
proceeds of the Senior Notes into the Company Senior Note Escrow Account. Such
funds are required to be invested at the direction of the Company except during
the continuance of a Default or an Event of Default in Eligible Cash
Equivalents. $9 million of such net proceeds have been used by the Company to
acquire an additional interest in Technocom, $7 million of such net proceeds has
been invested in PLD Leasing and used by it to acquire Telecommunications
Assets, a further $8 million will be advanced to Technocom as provided in the
Supplemental Indenture, and the remaining portion of such net proceeds retained
in the Company Senior Note Escrow Account, together with any interest on the
Investments of such funds in Eligible Cash Equivalents, are required to be
invested by the Company in the Leasing Companies by means of transferring funds
from the Company Senior Note Escrow Account to an account in the name of and
beneficially owned by the Leasing Company in question, which will be pledged to
and be under the sole dominion and control of the Senior Note Trustee acting for
its benefit and the benefit of the holders of the Senior Notes and the
Convertible Note Trustee acting for its benefit and the benefit of the holders
of the Convertible Notes (each a "Leasing Company Escrow Account"). Each such
Investment will be evidenced by Capital Stock of the Leasing Company, or an
Intercompany Note of the Leasing Company, as applicable, which Capital Stock or
Intercompany Note will be pledged to secure, first, the Senior Notes and,
second, the Convertible Notes, pursuant to the Senior Note Collateral Documents.
The applicable Leasing Company will contemporaneously utilize such funds to
purchase Telecommunications Assets and contemporaneously lease or sell such
Telecommunications Assets to a Restricted Subsidiary or Qualified Joint Venture
pursuant to a Telecommunications Asset Agreement. All payments made by the
lessee or purchaser to a Leasing Company will be required to be deposited into
that Leasing Company's Leasing Company Escrow Account. Such funds will also
constitute Senior Note Collateral and may be invested in Eligible Cash
Equivalents and shall only be utilized to purchase additional Telecommunications
Assets for additional Telecommunications Asset Agreements, to pay principal of,
premium, if any, on and interest (including Additional Amounts, if any, and
Special Interest, if any) on the Senior Notes and after the payment in full of
the foregoing, the Convertible Notes, or to the extent permitted by the Senior
Note Indenture, to make Qualified Investments. See "--Possession, Use and
Release of Collateral" and "--Certain Definitions--Permitted Investments."
The Company was required to and did utilize $20.0 million of the net
proceeds of the Convertible Notes to acquire Preferred Stock of Technocom. All
Technocom Preferred Stock, whether acquired with the net proceeds of the
Convertible Notes or otherwise, will be Convertible Note Collateral. The Company
is required to deposit dividends, distributions, payments and proceeds of the
Technocom Preferred Stock in an account in the name of and beneficially owned by
the Company which will be pledged to, and be under the sole dominion and control
of the Convertible Note Trustee acting for its benefit and the benefit of the
holders of the Convertible Notes and the Senior Note Trustee acting for its
benefit and the benefit of the holders of the Senior Notes (the "Company
Convertible Note Escrow Account"). Pending the reinvestment of such amounts in
Qualified Investments, any funds in such Company Convertible Note Escrow Account
will be invested, at the direction of the Company except during the continuance
of a Default or an Event of Default in Eligible Cash Equivalents. In addition,
such funds and Eligible Cash Equivalents will also constitute Convertible Note
Collateral. The Convertible Notes will also be secured by any Qualified
Investments, or Intercompany Notes representing intercompany loans or advances,
made by the Company with the funds contained in the Company Convertible Note
Escrow Account. See "--Possession, Use and Release of Collateral" and "--Certain
Definitions--Permitted Investments."
The Senior Notes are secured in a first position and the Convertible
Notes in a second position on, in addition to the Company Senior Note Escrow
Account and the Leasing Company Escrow Accounts and the funds and Investments in
Eligible Cash Equivalents contained therein, the following Collateral: (i) a
pledge by the Company of the Capital Stock of each of the Leasing Companies, NWE
Cyprus, BCL and any other future Wholly-Owned Subsidiary of the Company or
future Guarantor, and any and all dividends, distributions, payments and
proceeds thereof and a pledge by NWE Cyprus of the Capital Stock of WTC and any
and all dividends, distributions and proceeds thereof (collectively the "Pledged
Stock"); (ii) a pledge by the Leasing Companies of all Telecommunications Asset
Agreements, all payments made thereunder and all proceeds thereof; (iii) a
pledge by the Company and the Leasing Companies of all Qualified Investments
(other than any Qualified Investments made with the dividends, distributions,
payments and proceeds of Technocom Preferred Stock) and all dividends,
distributions, payments and proceeds thereof; (iv) a pledge by the Company and
all Wholly-Owned Subsidiaries of all Intercompany Notes from any Restricted
Subsidiary (other than any Intercompany Notes made with dividends,
distributions, payments and proceeds of Technocom Preferred Stock) and with
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regard to Intercompany Notes representing loans to the Leasing Companies of any
proceeds of the Senior Notes, a collateral assignment of the related collateral
documents which purport to grant a Lien on the Telecommunication Asset
Agreements and Qualified Investments to secure the payment of all such
Intercompany Notes owing to the Company and all distributions, dividends,
interest and principal payments and other payments attributable thereto; and
(vi) all books and records regarding the foregoing.
The Convertible Notes are secured in a first position and the Senior
Notes in a second position on the following Collateral: (i) all Technocom
Preferred Stock and all proceeds thereof, (ii) the Company Convertible Note
Escrow Account and the funds and investments in Eligible Cash Equivalents
contained therein, (iii) a pledge by the Company of all Qualified Investments,
or Intercompany Notes representing intercompany loans or advances, made by the
Company with funds contained in the Company Convertible Note Escrow Account, and
all proceeds thereof, and (iv) all books and records regarding the foregoing.
At all times on or after November 30, 1998, the Company will be
required to have funds or Eligible Cash Equivalents in an aggregate amount not
less than an amount necessary to pay on the next succeeding interest payment
date the interest, including Additional Interest, if any, and Special Interest,
if any, on the Senior Notes then outstanding, in the Company Senior Note Escrow
Account and/or the Leasing Company Escrow Accounts. See "--Ability to Realize on
Collateral" and "--Possession, Use and Release of Collateral."
No appraisals of any of the Senior Note Collateral or any
Telecommunications Assets proposed to be acquired and leased pursuant to
Telecommunications Asset Agreements of the Property or assets proposed to be
acquired with the proceeds of the amounts paid in respect of any Qualified
Investment or of any of the Technocom Preferred Stock constituting Convertible
Note Collateral or the Property or assets acquired or being acquired with the
proceeds of the amounts paid in respect thereof have been prepared by or on
behalf of the Company in connection with the issuance of the Senior Notes or the
Convertible Notes and the value of the Senior Note Collateral, any such
Telecommunications Assets or such other Property or assets or the Technocom
Preferred Stock or such other Convertible Note Collateral at any time will
depend on market conditions and other economic and political conditions
including the availability of suitable buyers for the Senior Note Collateral,
such Telecommunications Assets or such Technocom Preferred Stock.
The Senior Note Collateral Documents provide that the Net Cash Proceeds
of Asset Sales of assets constituting Senior Note Collateral shall promptly be
deposited, without commingling prior to such deposit, in the Company Senior Note
Escrow Account or a Leasing Company Escrow Account, as applicable, and be
subject to a first priority perfected Lien in favor of the Senior Note Trustee
and a second priority perfected Lien in favor of the Convertible Note Trustee.
Similarly, the Convertible Note Collateral Documents provide that the Net Cash
Proceeds of Asset Sales of assets constituting Convertible Note Collateral shall
promptly be deposited, without commingling prior to such deposit, in the Company
Convertible Note Escrow Account and be subject to a first priority perfected
Lien in favor of the Convertible Note Trustee and a second priority perfected
Lien in favor of the Senior Note Trustee. Amounts in such Escrow Accounts shall
be released in accordance with the provisions of the applicable Indenture and
the related Collateral Documents. All or a part of the cash held in such Escrow
Accounts shall be invested, at the direction of the Company except during the
continuance of an Default or Event of Default under the appropriate Indenture,
in Eligible Cash Equivalents, provided that all such Eligible Cash Equivalents
shall continue to be Senior Note Collateral or Convertible Note Collateral, as
the case may be. See "--Possession, Use and Release of Collateral."
Pursuant to the Senior Note Indenture, upon a Default or the
acceleration of the maturity of the principal amount of the Senior Notes, the
interest of the holders of the Senior Notes in the Convertible Note Collateral
will be expressly subordinated in right of payment to the interest in the
Convertible Note Collateral of the holders of the Convertible Notes. To the
extent that Convertible Notes are converted or redeemed, the amount of
indebtedness with priority over the Senior Notes will be commensurately reduced.
Pursuant to the Convertible Note Indenture, upon a Default or the
acceleration of the maturity of the stated amount of the Convertible Notes, the
interest of the holders of the Convertible Notes in the Senior Note Collateral
will be expressly subordinated in right of payment to the interest held in the
Senior Note Collateral by the holders of the
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Senior Notes. In the event that the Senior Notes are redeemed, there will be no
such subordination and the lien of the Convertible Notes will become a first
priority Lien in the Senior Note Collateral. In the event of a default, the
Senior Note Trustee will have the sole right to direct enforcement in respect of
the Senior Note Collateral. Similarly, in the event of a default, the
Convertible Note Trustee will have the sole right to direct enforcement in
respect of the Convertible Note Collateral.
OPTIONAL REDEMPTION
Senior Notes
The Senior Notes are not redeemable at the option of the Company prior
to June 13, 2001 except as provided in "--Optional Tax Redemption", below.
Thereafter, the Senior Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount
at Stated Maturity) set forth below, plus accrued and unpaid interest (if any),
Additional Amounts (if any) and Special Interest (if any), if redeemed during
the period from June 13, 2001 through May 31, 2002 at a percentage of 108.000%
and thereafter during the twelve months beginning June 1 of the years indicated
below:
YEAR PERCENTAGE
---- ----------
2002 104.000%
2003 and thereafter 100.000%
Convertible Notes
The Convertible Notes are not redeemable at the option of the Company
prior to June 1, 2000, except as provided in "--Optional Tax Redemption" below.
During the period from June 1, 2000 to May 31, 2002 the Company may redeem all
but not less than all of the Convertible Notes, upon not less than 30 nor more
than 60 days' notice, if the Closing Price (as defined in the Convertible Note
Indenture) of the Common Stock is 150% of the Conversion Price for thirty days,
at a redemption price equal to 100% of the principal amount thereof plus accrued
and unpaid interest (if any), Additional Amounts, (if any) and Special Interest
(if any). On or after June 1, 2002, the Convertible Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at 100% of the principal amount thereof plus
accrued and unpaid interest (if any), Additional Amounts (if any) and Special
Interest (if any).
OPTIONAL TAX REDEMPTION
The Senior Notes and the Convertible Notes may be redeemed at the
option of the Company, in whole but not in part, upon not less than 30 nor more
than 60 days' notice given as provided in the applicable Indenture in the case
of the Senior Notes at a redemption price equal to the Accreted Value thereof,
plus accrued and unpaid interest, if any (including Additional Amounts, if any,
and Special Interest, if any), to the date fixed therefor (subject to the right
of holders of record on the relevant record date to receive interest (including
Additional Amounts, if any, and Special Interest, if any) due on the interest
payment date that is on or prior to the redemption date), or in the case of the
Convertible Notes at a redemption price equal to the principal amount thereof,
plus accrued and unpaid interest (including Additional Amounts, if any, and
Special Interest, if any), due on the interest payment date that is on or prior
to the redemption date) and any other amounts due if, as a result of any change
in or amendment to the laws or any regulations or rulings promulgated thereunder
of Canada, Cyprus, Russia or any other jurisdiction with which the Company or
any Guarantor has any connection (other than as a result of a merger or
consolidation of the Company with or into a newly formed corporation solely for
the purpose of moving the Company's domicile out of Canada) or any political
subdivision thereof or any authority thereof or having power to tax therein, or
any change in the application or official interpretation of such laws or
regulations, or any change in administrative policy or assessing practice of the
applicable taxing authority, which change or amendment becomes effective on or
after May 24, 1996, the Company or the Guarantors (if the Senior
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Note Guarantees or Convertible Note Guarantees are called) are or would be
required on the next succeeding interest payment date to pay Additional Amounts
with respect to the Senior Notes, the Exchange Notes or the Senior Note
Guarantees or with respect to Convertible Notes or the Convertible Note
Guarantees and the payment of such Additional Amounts cannot be avoided by the
use of any reasonable measures available to the Company or the Guarantors, as
the case may be. The Company will also pay to holders on the redemption date any
Additional Amounts payable in respect of the period ending on the redemption
date.
Prior to the publication of any notice of redemption pursuant to this
provision, which in no event will be given earlier than 90 days prior to the
earliest date on which the Company or the Guarantors, as the case may be, would
be required to pay such Additional Amounts were a payment in respect of either
the Senior Notes or the Convertible Notes then due, the Company shall deliver to
the applicable Trustee an Officers' Certificate stating that (i) the obligation
to pay such Additional Amounts cannot be avoided by the Company or the
Guarantors, as the case may be, taking reasonable measures and (ii) an opinion
of counsel, independent of the Company and the Guarantors and approved by the
applicable Trustee, to the effect that the Company or the Guarantors have or
will become obligated to pay such Additional Amounts as a result of such change
or amendment. Such notice, once delivered by the Company to the applicable
Trustee, will be irrevocable. The applicable Trustee shall accept such Officers'
Certificate and Opinion of Counsel as sufficient evidence of the satisfaction of
the condition precedent set forth in clauses (i) and (ii) above, in which event
it shall be conclusive and binding on the holders.
MANDATORY REDEMPTION
Except as set forth under "--Repurchase at the Option of Holders upon a
Change of Control," "--Asset Sales" and "--Right to Require Repurchase of
Convertible Notes Upon a Termination of Trading," the Company is not required to
make mandatory redemption payments or sinking fund payments with respect to the
Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 principal amount or an integral multiple thereof) of such holder's Notes
pursuant to an irrevocable and unconditional offer described below (the "Change
of Control Offer") at a purchase price (the "Change of Control Purchase Price")
in the case of the Senior Notes equal to 101% of the Accreted Value thereof plus
accrued and unpaid interest, if any, and Additional Amounts, if any, and Special
Interest, if any, thereon, or in the case of the Convertible Notes, equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
and Additional Amounts, if any, and Special Interest, if any, thereon, to any
Change of Control Payment Date (as defined below).
Within 30 days following any Change of Control, the Company or the
applicable Trustee (at the expense of the Company) is required to mail a notice
to each holder stating, among other things: (1) that a Change of Control Offer
is being made pursuant to the covenant in the applicable Indenture entitled
"Repurchase at the Option of Holders upon a Change of Control" and that all
Notes properly tendered will be accepted for payment; (2) the Change of Control
Purchase Price and the date Notes are to be purchased pursuant to the Change of
Control Offer (the "Change of Control Payment Date"), which shall be no earlier
than 30 days nor later than 40 days subsequent to the date such notice is
mailed; (3) that any Notes or portions thereof not properly tendered will
continue to accrete in value or accrue interest, as applicable, and Additional
Amounts and Special Interest, if applicable; (4) that, unless the Company
defaults in the payment of the Change of Control Purchase Price, all Notes or
portions thereof accepted for payment pursuant to the Change of Control Offer
shall cease to accrete in value or accrue interest, as applicable, and
Additional Amounts and Special Interest, if applicable, from and after the
Change of Control Payment Date; (5) that holders electing to have any Notes or
portions thereof purchased pursuant to a Change of Control Offer will be
required to surrender such Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice, prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile
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transmission or letter setting forth the name of the holder, the principal
amount of Notes delivered for purchase, and a statement that such holder is
withdrawing such holder's election to have such Notes or portions thereof
purchased pursuant to the Change of Control Offer; (7) that any holder electing
to have Notes purchased pursuant to the Change of Control Offer must specify the
principal amount that is being tendered for purchase, which principal amount
must be $1,000 at Stated Maturity or an integral multiple thereof; (8) if
Certificated Notes have been issued, that any holder of Certificated Notes whose
Certificated Notes are being purchased only in part will be issued new
Certificated Notes equal in principal amount to the unpurchased portion of the
Certificated Note or Notes surrendered, which unpurchased portion must be equal
to $1,000 in principal amount at Stated Maturity or an integral multiple
thereof; and (9) the instructions and any other information necessary to enable
any holders to accept a Change of Control Offer or effect withdrawal of such
acceptance.
The Company will comply with the requirements of Section 14(e) under
the Exchange Act and any other securities laws and regulations, to the extent
such laws and regulations are applicable, in connection with the repurchase of
any Notes pursuant to a Change of Control Offer.
On or before the Change of Control Payment Date, the Company is
required to (1) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer; (2) irrevocably deposit with the Paying
Agent in immediately available funds an amount equal to the Change of Control
Purchase Price in respect of all Notes or portions thereof so accepted,
including interest, Additional Amounts and Special Interest, if applicable; and
(3) deliver, or cause to be delivered, to the applicable Trustee the Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof tendered to the Company and accepted for payment. The Paying Agent shall
promptly mail to each holder of Notes so accepted payment in an amount equal to
the Change of Control Purchase Price for such Notes and the applicable Trustee
shall promptly authenticate and mail to each holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note shall be in a principal amount of $1,000 or any
integral multiple thereof. The Company shall publicly announce the results of a
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The existence of the holders' right to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control may deter a
third party from acquiring the Company in a transaction that constitutes a
Change of Control. If a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds to pay the Change of
Control Purchase Price for all Notes tendered by holders seeking to accept the
Change of Control Offer. In addition, instruments governing other Indebtedness
of the Company or any Guarantor may prohibit the Company or such Guarantor from
purchasing any Notes prior to their stated maturity, including pursuant to a
Change of Control Offer. In the event that a Change of Control Offer occurs at a
time when the Company does not have sufficient available funds to pay the Change
of Control Purchase Price for all Notes tendered pursuant to such offer or at a
time when the Company is prohibited from purchasing the Notes (and the Company
is unable either to obtain the consent of the holders of the relevant
indebtedness or to repay such indebtedness), an Event of Default would occur
under the Indentures. In addition, one of the events that constitutes a Change
of Control under the Indentures is a sale, conveyance, transfer or lease of all
or substantially all of the property of the Company or the Company and the
Restricted Subsidiaries taken as a whole. Each Indenture is governed by New York
law, and there is no established definition under New York law of "substantially
all" of the assets of a corporation. Accordingly, if the Company were to engage
in a transaction in which it disposed of less than all of its assets, a question
of interpretation could arise as to whether such disposition was of
"substantially all" of its assets and whether the Company was required to make a
Change of Control Offer.
Except as described herein with respect to a Change of Control, neither
Indenture contains any other provisions that permit holders of Notes to require
that the Company repurchase or redeem Notes in the event of a takeover,
recapitalization or similar restructuring.
ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless (i) no Event of Default under the Indentures
shall have occurred and be continuing or shall occur as a consequence thereof;
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(ii) the Company or such Restricted Subsidiary, as the case may be, receives net
consideration at the time of such Asset Sale at least equal to the Fair Market
Value (as evidenced by a Board Resolution of the Company delivered to the
Trustees) of the Property or assets sold or otherwise disposed of; (iii) at
least 75% of the consideration received by the Company or such Restricted
Subsidiary for such Property or assets consists of Cash Proceeds; and (iv) the
Company or such Restricted Subsidiary, as the case may be, uses the Net Cash
Proceeds from such Asset Sale in the manner set forth below. To the extent that
the assets which are the subject of any Asset Sale constitute Senior Note
Collateral, all proceeds thereof shall, to the extent permitted by law, be
subject to a perfected Lien for the benefit of, first, the Senior Note Trustee
and the holders of the Senior Notes, and then the Convertible Note Trustee and
the holders of the Convertible Notes, which Lien shall have the same priority as
the Lien on the Senior Note Collateral which was the subject of such Asset Sale,
and all Net Cash Proceeds from such an Asset Sale shall be deposited in the
Company Senior Note Escrow Account or a Leasing Company Escrow Account, if
applicable, unless the Senior Notes are no longer outstanding in which case such
Net Cash Proceeds shall be deposited in the Company Convertible Note Escrow
Account. To the extent that assets which are the subject of any Asset Sale
constitute Telecommunications Assets subject to a Telecommunications Asset
Agreement which is Senior Note Collateral, all proceeds thereof shall, to the
extent permitted by applicable law, be subject to a perfected Lien for the
benefit of, first, the Senior Note Trustee and the holders of the Senior Notes,
and then the Convertible Note Trustee and the holders of the Convertible Notes,
which Lien shall have the same priority as the Lien on such Telecommunications
Asset Agreements governing the Telecommunications Assets which were the subject
of such Asset Sale, and all Net Cash Proceeds from such an Asset Sale of
Telecommunications Assets must be deposited in the applicable Leasing Company's
Leasing Company Escrow Account, unless the Senior Notes are no longer
outstanding in which case such Net Cash Proceeds shall be deposited in the
Company Convertible Note Escrow Account. To the extent that the assets which are
the subject of any Asset Sale constitute Convertible Note Collateral, all
proceeds thereof shall, to the extent permitted by law, be subject to a
perfected Lien for the benefit, first, the Convertible Note Trustee and the
holders of the Convertible Notes and then the Senior Note Trustee and the
holders of the Senior Notes, which Lien shall have the same priority as the Lien
on the Convertible Note Collateral which was the subject of such Asset Sale, and
all Net Cash Proceeds from such an Asset Sale shall be deposited in the Company
Convertible Note Escrow Account, unless the Convertible Notes are no longer
outstanding in which case such Net Cash Proceeds shall be deposited in the
Company Senior Note Escrow Account.
The Senior Note Indenture provides that, to the extent that assets
subject to an Asset Sale consist of Senior Note Collateral other than a
Telecommunications Asset Agreement or Telecommunications Assets subject to a
Telecommunications Asset Agreement, the Company shall have the option, within
365 days of such Asset Sale, to reinvest the Net Cash Proceeds (or any portion
thereof) from such Asset Sale in another asset or business in the same or
similar lines of business as the Company and its Restricted Subsidiaries (the
"Replacement Assets") (or enter into a binding agreement to reinvest such Net
Cash Proceeds (or any portion thereof) prior to the end of such 365-day period,
provided that such reinvestment is completed within 90 days after the end of
such 365-day period); provided that such Replacement Assets are subject to a
Lien in favor of the Senior Note Trustee or a collateral agent for the benefit
of the Senior Note Trustee and for the equal and ratable benefit of the holders
and for the benefit of the Convertible Note Trustee and the equal and ratable
benefit of holders of Convertible Notes, which Lien has the same priority as had
the Lien on such Senior Note Collateral, which was the subject of such Asset
Sale. To the extent that assets subject to an Asset Sale consist of Convertible
Note Collateral, the Company shall have the option, within 365 days of such
Asset Sale, to reinvest the Net Cash Proceeds (or any portion thereof) from such
Asset Sale in Replacement Assets (or enter into a binding agreement to reinvest
such Net Cash Proceeds (or any portion thereof) prior to the end of such 365-day
period, provided that such reinvestment is completed within 90 days after the
end of such 365-day period); provided that such Replacement Assets are subject
to a Lien in favor of the Convertible Note Trustee or a collateral agent for the
benefit of the Convertible Note Trustee and for the equal and ratable benefit of
the holders of Convertible Notes and for the benefit of the Senior Note Trustee
and the equal and ratable benefit of holders of the Senior Notes, which Lien has
the same priority as had the Lien on such Convertible Note Collateral, which was
the subject of such Asset Sale. To the extent that assets subject to an Asset
Sale constitute Telecommunications Assets subject to a Telecommunications Asset
Agreement, the Company shall have the option, within 365 days of such Asset
Sale, to cause the applicable Leasing Company to reinvest the Net Cash Proceeds
from such Asset Sale (or any portion thereof) in Telecommunications Assets to be
leased pursuant to a new Telecommunications Asset Agreement ("Replacement
Telecommunication Assets") (or enter into, or cause the applicable Leasing
Company to enter into, a binding agreement to reinvest such Net Cash
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Proceeds (or any portion thereof) prior to the end of such 365-day period,
provided that such reinvestment is completed within 90 days after the end of
such 365-day period), and with respect to any proceeds of insurance paid on
account of the loss of or damage to any such Telecommunications Assets, or
compensation or other proceeds for any such Telecommunications Assets taken by
condemnation, eminent domain or similar proceedings, such Net Cash Proceeds are
applied as provided above or applied to reimburse the applicable Leasing Company
for expenditures made, and costs incurred, to repair, rebuild, replace or
restore the Telecommunications Assets subject to such loss, damage or taking. To
the extent that assets subject to an Asset Sale do not constitute Senior Note
Collateral, Telecommunications Assets subject to a Telecommunications Asset
Agreement or Convertible Note Collateral, the Company shall have the option
within 365 days of such Asset Sale (i) to reinvest (or enter into a binding
agreement to reinvest prior to the end of such 365-day period, provided that
such reinvestment is completed within 90 days after the end of such 365-day
period) an amount equal to the Net Cash Proceeds (or any portion thereof) from
such Asset Sale in Replacement Assets, and/or (ii) apply an amount equal to such
Net Cash Proceeds (or remaining Net Cash Proceeds) to the permanent reduction of
Indebtedness of the Company (other than Indebtedness to a Restricted Subsidiary)
that is pari passu in right of payment with the Senior Notes or to the permanent
reduction of Indebtedness of any Restricted Subsidiary that is pari passu in
right of payment with the Senior Note Guarantees, if applicable (other than
Indebtedness owed to, or Preferred Stock owned by, the Company or a Restricted
Subsidiary of the Company). Any Net Cash Proceeds from any Asset Sale that are
not used to reinvest in Replacement Assets or Replacement Telecommunications
Assets and/or to reduce pari passu Indebtedness of the Company or the Guarantors
to the extent permitted by the Senior Note Indenture shall constitute "Excess
Proceeds"; provided that, with respect to any Asset Sale by a Person which is
not a Wholly-Owned Restricted Subsidiary, the amount of Net Cash Proceeds which
shall constitute Excess Proceeds to be used to make an Asset Sale Offer (as
defined below) shall be limited to the percentage of such unused Net Cash
Proceeds received by such Person equal to a percentage determined by dividing
the direct or indirect interest of the Company in the Capital Stock of such
Person by the total then outstanding Capital Stock of such Person determined as
of the date of such Asset Sale.
Subject to the limitations set out in the next following paragraph, if
at any time the aggregate amount of Excess Proceeds exceeds $5 million, the
Company shall, within 30 days thereafter, use such Excess Proceeds to make an
offer to purchase Senior Notes (a "Senior Note Asset Sale Offer") on a pro rata
basis from all holders of Notes in an aggregate principal amount equal to the
maximum principal amount that may be purchased out of Excess Proceeds, at a
purchase price (the "Offer Purchase Price") in cash equal to 100% of the
Accreted Value thereof on any purchase date, plus accrued and unpaid interest,
if any, Additional Amounts, if any, and Special Interest, if any, to the
purchase date, in accordance with the procedures set forth in the Senior Note
Indenture; provided that, if any such assets subject to such Asset Sale
constitute Convertible Note Collateral, the Company shall be required to apply
such Excess Proceeds attributable to such Asset Sale first to an Asset Sale
Offer for the Convertible Notes pursuant to the Convertible Note Indenture (a
"Convertible Note Asset Sale Offer," a Senior Note Asset Sale Offer and a
Convertible Asset Sale Offer being collectively called "Asset Sale Offers") and,
to the extent that the aggregate amount of Convertible Notes tendered pursuant
to the Convertible Note Asset Sale Offer is less than such Excess Proceeds, then
to the Senior Note Asset Sale Offer; and provided further that if such assets
subject to such Asset Sale are subject to a Lien which is and is permitted to be
pari passu with the Lien in favor of the Senior Note Trustee or a collateral
agent, the Company shall only be required to apply a pro rata portion of such
Excess Proceeds to the Asset Sale Offer. To the extent that assets subject to an
Asset Sale are not and are not required to be subject to a Lien in favor of the
Senior Note Trustee or do not constitute Telecommunications Assets subject to a
Telecommunications Asset Agreement or Convertible Note Collateral, the Company
may apply 100% of the Excess Proceeds thereof to the prepayment of obligations
outstanding in respect of Indebtedness that is pari passu to the Senior Notes or
the Senior Note Guarantees to the extent required thereunder. If (x) no
obligations are outstanding in respect of or under such pari passu Indebtedness
or (y) the holders of such pari passu Indebtedness entitled to receive payment
elect not to receive the payments provided for in the previous sentence, or (z)
the application of such Net Cash Proceeds results in the complete prepayment of
all such Indebtedness, then such Excess Proceeds or any remaining portion
thereof will be required to be applied by the Company to the Senior Note Asset
Sale Offer. Upon completion of a Senior Note Asset Sale Offer (including payment
of the Offer Purchase Price), any surplus Excess Proceeds that were the subject
of such offer shall cease to be Excess Proceeds, and the Company may then use
such amounts for general corporate purposes. Subject to the limitations set out
in the next following paragraph, the Company may at any time by delivering an
Officers' Certificate and Board Resolution to the Trustee waive its
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reinvestment options and proceed to make a Senior Note Asset Sale Offer,
notwithstanding that any applicable period for reinvestment shall not have
expired.
The Convertible Note Indenture provides that, to the extent that assets
subject to an Asset Sale consist of Convertible Note Collateral, the Company
shall have the option, within 365 days of such Asset Sale, to reinvest the Net
Cash Proceeds (or any portion thereof) from such Asset Sale in another asset or
business in the same or similar lines of business as the Company and its
Restricted Subsidiaries (the "Replacement Assets") (or enter into a binding
agreement to reinvest such Net Cash Proceeds (or any portion thereof) prior to
the end of such 365-day period, provided that such reinvestment is completed
within 90 days after the end of such 365-day period); provided that such
Replacement Assets are subject to a Lien in favor of the Convertible Note
Trustee or a collateral agent for the benefit of the Convertible Note Trustee
and the equal and ratable benefit of the holders of the Convertible Notes and
for the Senior Note Trustee and the equal and ratable benefit of the Senior
Notes, which Lien has the same priority as had the Lien on such Convertible Note
Collateral which was the subject of such Asset Sale. To the extent that assets
subject to an Asset Sale consist of Senior Note Collateral other than a
Telecommunications Asset Agreement, the Company shall have the option, within
365 days of such Asset Sale, to reinvest the Net Cash Proceeds (or any portion
thereof) from such Asset Sale in Replacement Assets (or enter into a binding
agreement to reinvest such Net Cash Proceeds (or any portion thereof) prior to
the end of such 365-day period, provided that such reinvestment is completed
within 90 days after the end of such 365-day period); provided that such
Replacement Assets are subject to a Lien in favor of the Senior Note Trustee or
a collateral agent for the benefit of the Senior Note Trustee and for the equal
and ratable benefit of the holders of Senior Notes and for the benefit of the
Convertible Note Trustee and the equal and ratable benefit of holders of
Convertible Notes, which Lien has the same priority as had the Lien on such
Senior Note Collateral which was the subject of such Asset Sale. To the extent
that assets subject to an Asset Sale constitute Telecommunications Assets
subject to a Telecommunications Asset Agreement, the Company shall have the
option, within 365 days of such Asset Sale, to cause the applicable Leasing
Company to reinvest the Net Cash Proceeds from such Asset Sale (or any portion
thereof) in Telecommunications Assets to be leased pursuant to a new
Telecommunications Asset Agreement ("Replacement Telecommunication Assets") (or
enter into, or cause the applicable Leasing Company to enter into, a binding
agreement to reinvest such Net Cash Proceeds (or any portion thereof) prior to
the end of such 365-day period, provided that such reinvestment is completed
within 90 days after the end of such 365-day period), and with respect to any
proceeds of insurance paid on account of the loss of or damage to any such
Telecommunications Assets, or compensation or other proceeds for any such
Telecommunications Assets taken by condemnation, eminent domain or similar
proceedings, such Net Cash Proceeds are applied as provided above or applied to
reimburse the applicable Leasing Company for expenditures made, and costs
incurred, to repair, rebuild, replace or restore the Telecommunications Assets
subject to such loss, damage or taking. To the extent that assets subject to an
Asset Sale do not constitute Convertible Note Collateral, Senior Note Collateral
or Telecommunications Assets subject to a Telecommunications Asset Agreement,
the Company shall have the option within 365 days of such Asset Sale (x) to
reinvest (or enter into a binding agreement to reinvest prior to the end of such
365-day period, provided that such reinvestment is completed within 90 days
after the end of such 365-day period) an amount equal to the Net Cash Proceeds
(or any portion thereof) from such Asset Sale in Replacement Assets, and/or (y)
apply an amount equal to such Net Cash Proceeds (or remaining Net Cash Proceeds)
to the permanent reduction of Indebtedness of the Company (other than
Indebtedness to a Restricted Subsidiary) that is pari passu in right of payment
with the Notes or to the permanent reduction of Indebtedness of any Restricted
Subsidiary that is pari passu in right of payment with the Guarantees, if
applicable (other than Indebtedness owed to, or Preferred Stock owned by, the
Company or a Restricted Subsidiary of the Company) and/or (z) repurchase Senior
Notes pursuant to a "Senior Note Asset Sale Offer" (pursuant to and as defined
in the Senior Note Indenture for the purposes thereof as an "Asset Sale Offer")
within 545 days of such Asset Sale. Any Net Cash Proceeds from any Asset Sale
that are not used to reinvest in Replacement Assets or Replacement
Telecommunications Assets and/or to reduce pari passu Indebtedness of the
Company or the Guarantors to the extent permitted by the Convertible Note
Indenture shall constitute "Convertible Note Excess Proceeds"; provided that,
with respect to any Asset Sale by a Person which is not a Wholly-Owned
Restricted Subsidiary, the amount of Net Cash Proceeds which shall constitute
Convertible Note Excess Proceeds to be used to make a Convertible Note Asset
Sale Offer shall be limited to the percentage of such unused Net Cash Proceeds
received by such Person equal to a percentage determined by dividing the direct
or indirect interest of the Company in the Capital Stock of such Person by the
total then outstanding Capital Stock of such Person determined as of the date of
such Asset Sale.
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Subject to the limitations set out in the next following paragraph, if
at any time the aggregate amount of Convertible Note Excess Proceeds exceeds $5
million, the Company shall, within 30 days thereafter, use such Convertible Note
Excess Proceeds to make a Convertible Note Asset Sale Offer on a pro rata basis
from all holders of Convertible Notes in an aggregate principal amount equal to
the maximum principal amount that may be purchased out of Convertible Note
Excess Proceeds, at a purchase price (the "Offer Purchase Price") in cash equal
to 100% of the principal amount thereof on any purchase date, plus accrued and
unpaid interest, if any, Additional Amounts, if any, and Special Interest, if
any, to the purchase date, in accordance with the procedures set forth in the
Convertible Note Indenture; provided that, if any such assets subject to an
Asset Sale constitute Senior Note Collateral or Telecommunication Assets subject
to a Telecommunications Asset Agreement, the Company shall be required to apply
that portion of such Excess Proceeds attributable to such Asset Sale of Senior
Note Collateral, as is permitted to be so applied under the Senior Note
Indenture (the "Permitted Portion"), first, to a Senior Note Asset Sale Offer
unless the Senior Notes are no longer outstanding and the Senior Note Indenture
has been satisfied and discharged and, to the extent that the aggregate amount
paid pursuant to the Senior Note Asset Sale Offer is less than such Permitted
Portion, then to a Convertible Note Asset Sale Offer; and provided further that
if such assets subject to such Asset Sale are subject to a Lien which is pari
passu with the Lien in favor of the Convertible Note Trustee, the Company shall
only be required to apply a pro rata portion of such Convertible Note Excess
Proceeds to the Convertible Note Asset Sale Offer. To the extent that assets
subject to an Asset Sale are not and are not required to be subject to a Lien in
favor of the Convertible Note Trustee, the Company may apply 100% of the
Convertible Note Excess Proceeds thereof to the prepayment of obligations
outstanding in respect of Indebtedness that is pari passu to the Convertible
Notes or the Convertible Note Guarantees to the extent required thereunder
provided that no such Convertible Note Excess Proceeds may be applied to the
prepayment of the Senior Notes except pursuant to a Senior Note Asset Sale
Offer. If (x) no obligations are outstanding in respect of or under such pari
passu Indebtedness or (y) the holders of such pari passu Indebtedness entitled
to receive payment elect not to receive the payments provided for in the
previous sentence, or (z) the application of such Net Cash Proceeds results in
the complete prepayment of all such Indebtedness, then such Convertible Note
Excess Proceeds or any remaining portion thereof will be required to be applied
by the Company to the Convertible Note Asset Sale Offer. Upon completion of a
Convertible Note Asset Sale Offer (including payment of the Offer Purchase
Price), any surplus Convertible Note Excess Proceeds that were the subject of
such offer shall cease to be Excess Proceeds, and the Company may then use such
amounts for general corporate purposes. Subject to the Company's complying with
the provisions of the Senior Note Indenture and to the limitations set out in
the next following paragraph, the Company may at any time by delivering an
Officers' Certificate and Board Resolution to the Convertible Note Trustee waive
its reinvestment options and proceed to make a Convertible Note Asset Sale
Offer, notwithstanding that any applicable period for reinvestment shall not
have expired.
The Company will comply with the requirements of Section 14(e) under
the Exchange Act and any other securities laws and regulations, to the extent
such laws and regulations are applicable, in connection with the repurchase of
Notes pursuant to an Asset Sale Offer.
RIGHT TO REQUIRE REPURCHASE OF CONVERTIBLE NOTES UPON A TERMINATION OF
TRADING
In the event of any Termination of Trading (as defined below) occurring
after the Issue Date and on or prior to Maturity, each holder of Convertible
Notes will have the right, at such holder's option, to require the Company to
repurchase all or any part of such holder's Convertible Notes on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Termination of Trading as described below at a price (the "Repurchase
Price") equal to 100% of the principal amount thereof, together with accrued and
unpaid interest, if any, Additional Amounts, if any, and Special Interest, if
any, thereon to the Repurchase Date. On or prior to the Repurchase Date, the
Company shall irrevocably deposit with the Convertible Note Trustee or a Paying
Agent an amount of money sufficient to pay the Repurchase Price of the
Convertible Notes which are to be repaid on or promptly following the Repurchase
Date.
Failure by the Company to provide timely notice of a Termination of
Trading, as provided for below, or to repurchase the Convertible Notes when
required under the preceding paragraph will result in an Event of Default under
the Convertible Note Indenture whether or not such repurchase is permitted by
the subordination provisions of the Convertible Note Indenture.
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On or before the 15th day after the occurrence of a Termination of
Trading, the Company is obligated to mail to all holders of Convertible Notes a
notice of the occurrence of such Termination of Trading, the Repurchase Date,
the date by which the repurchase right must be exercised, the Repurchase Price
for Convertible Notes and the procedures which the holder must follow to
exercise this right. To exercise the repurchase right, the holder of a
Convertible Note must deliver, on or before the close of business on the
Repurchase Date, irrevocable written notice to the Company (or an agent
designated by the Company for such purpose) and to the Convertible Note Trustee
of the holder's exercise of such right, together with the certificates
evidencing the Convertible Notes with respect to which the right is being
exercised, duly endorsed for transfer. Such written notice is irrevocable.
A "Termination of Trading," shall occur if the Common Stock of the
Company (or other common stock into which the Convertible Notes are then
convertible) is neither listed for trading on a U.S. national securities
exchange nor approved for trading on an established automated over-the-counter
trading market in the United States.
The right to require the Company to repurchase Convertible Notes as a
result of the occurrence of a Termination of Trading could create an Event of
Default under the Senior Note Indenture, as a result of which any repurchase
could, absent a waiver, be blocked by the subordination provisions of the
Convertible Notes. See "--Subordination of Convertible Notes". Failure by the
Company to repurchase the Convertible Notes when required will result in an
Event of Default under the Convertible Note Indenture whether or not such
repurchase is permitted by the subordination provisions. The Company's ability
to pay cash to the holders of Convertible Notes upon a repurchase may be limited
by certain financial covenants contained in the other then existing Indebtedness
of the Company.
The Company will comply with the requirements of Section 14(e) under
the Exchange Act and any other securities laws and regulations, to the extent
such laws and regulations are applicable, in connection with the repurchase of
Convertible Notes pursuant to an offer to repurchase upon a Termination of
Trading.
The foregoing provisions would not necessarily afford holders of the
Convertible Notes protection in the event of highly leveraged or other
transactions involving the Company or the Restricted Subsidiaries that may
adversely affect such holders. In addition, the foregoing provisions may
discourage open market purchases of the Common Stock or a non-negotiated tender
or exchange offer for such Common Stock and, accordingly, may limit a
stockholder's ability to realize a premium over the market price of the Common
Stock in connection with any such transaction.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Senior Note
Indenture and, where expressly indicated, the Convertible Note Indenture:
Limitation on Indebtedness
The Company will not, and will not permit its Restricted Subsidiaries
to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) and the Company will not issue any Disqualified Stock or permit
any of its Restricted Subsidiaries to issue any Disqualified Stock; provided
that the Company and its Restricted Subsidiaries other than the Leasing
Companies or NWE Cyprus may incur Indebtedness or issue Disqualified Stock if,
after giving effect to such issuance or incurrence on a pro forma basis, the
Indebtedness to Operating Cash Flow Ratio of the Company does not exceed 5.0 to
1.0.
The foregoing limitation will not apply to: (a) the incurrence by the
Company of Indebtedness under the Revolving Credit Facilities, provided that the
aggregate principal amount of Indebtedness at any time outstanding under or in
respect of such facilities, together with any Indebtedness then outstanding
which was permitted to be incurred pursuant to clauses (j) and (n) below, shall
not exceed $25 million, and provided further that such Indebtedness of the
Company may only be secured by Inventory and Receivables of the Company; (b) the
Existing Indebtedness; (c) the incurrence by the Company or any of its
Restricted Subsidiaries of intercompany Indebtedness owing to any of its
Restricted Subsidiaries, provided that any such Indebtedness is junior and
subordinate to the Notes and the Guarantees,
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if applicable, and such Indebtedness is held at all times by the Company or a
Restricted Subsidiary of the Company; (d) Indebtedness of any Restricted
Subsidiary to the Company or a Wholly-Owned Restricted Subsidiary of the
Company, provided that such intercompany Indebtedness is evidenced by an
Intercompany Note or by a Telecommunications Asset Agreement; (e) Indebtedness
of a Restricted Subsidiary constituting a sublease or conditional sale to a
Restricted Subsidiary from another Restricted Subsidiary of Telecommunications
Assets leased or sold to such other Restricted Subsidiary pursuant to a
Telecommunications Asset Agreement; (f) the incurrence by the Company or any of
its Restricted Subsidiaries other than the Leasing Companies or NWE Cyprus of
Interest Hedging Obligations with respect to any floating rate Indebtedness that
is permitted by the covenant described in this paragraph; (g) the incurrence by
the Company of any Exchange Rate Obligations, provided that such Exchange Rate
Obligations were entered into in connection with transactions in the ordinary
course of business or the incurrence of Indebtedness that is permitted by the
covenant described in this paragraph; (h) the incurrence of Indebtedness
evidenced by the Senior Notes and the Senior Note Guarantees pursuant to the
Senior Note Indenture and the Senior Note Collateral Documents and by the
Convertible Notes and the Convertible Note Guarantees pursuant to the
Convertible Note Indenture and the Convertible Note Collateral Documents; (i)
Indebtedness in respect of performance, surety or appeal bonds provided by the
Company in the ordinary course of business; (j) Indebtedness of Restricted
Subsidiaries other than Leasing Companies or NWE Cyprus in an aggregate
principal amount not to exceed $15 million at any one time outstanding, provided
that the aggregate principal amount of all such Indebtedness at any time
outstanding, together with Indebtedness then outstanding which was permitted to
be incurred pursuant to clauses (a) above and (n) below, shall not exceed $25
million; (k) International Vendor Indebtedness not to exceed an aggregate
principal amount of $40 million at any one time outstanding, provided that
Leasing Companies and NWE Cyprus may not incur any International Vendor
Indebtedness; (l) the incurrence by the Company or any of its Restricted
Subsidiaries of Refinancing Indebtedness issued in exchange for, or the proceeds
of which are used to refinance, repurchase, replace, refund or defease
("Refinance" and correlatively, "Refinanced" and "Refinancing") Indebtedness
permitted pursuant to clause (b) or (h) of this paragraph, provided that (i) the
amount of such Refinancing Indebtedness shall not exceed the principal amount
of, premium, if any, and accrued interest (and Additional Amounts and Special
Interest on the Notes) on the Indebtedness so Refinanced (or if such
Indebtedness was issued with original issue discount, the original issue price
plus amortization of the original issue discount at the time of the repayment of
such Indebtedness) plus the fees, expenses and costs of such Refinancing and
reasonable prepayment premiums, if any, in connection therewith, (ii) such
Refinancing Indebtedness shall have a stated maturity no earlier than the
Indebtedness being Refinanced, (iii) such Refinancing Indebtedness shall have an
Average Life equal to or greater than the Average Life of the Indebtedness being
Refinanced, (iv) if the Indebtedness being Refinanced is subordinated in right
of payment to the Senior Notes or the Senior Note Guarantees, as applicable,
such Refinancing Indebtedness shall be subordinated in right of payment to the
Senior Notes or the Senior Guarantees, as applicable, on terms at least as
favorable to the holders of the Senior Notes as those contained in the
documentation governing the Indebtedness being so Refinanced, and (v) no
Restricted Subsidiary shall incur Refinancing Indebtedness to Refinance
Indebtedness of the Company or another Restricted Subsidiary; (m) the incurrence
of Indebtedness representing reimbursement obligations to issuers of permitted
bona fide letters of credit; (n) the incurrence by the Company of Indebtedness
under the Revolving Credit Agreement, including all guarantees given in
connection therewith, provided that such Revolving Credit Agreement is not
changed or amended in any way except to conform the covenants thereof (and the
related definitions of terms used therein) to the corresponding covenants (and
related definitions) of the Indentures; and (o) Indebtedness of the Company or
any Restricted Subsidiary constituting a guarantee of Indebtedness permitted to
be incurred pursuant to clauses (j) and (k) above, provided that (A) any such
guarantee by the Company shall not, for purposes only of clause (a) above,
constitute "Indebtedness", and (B) any such guarantee by a Restricted Subsidiary
(other than any guarantee referred to in clause (n) above) shall, constitute
"Indebtedness", including for the purposes of clause (a) above, and provided
further, that no such guarantee of Indebtedness incurred pursuant to clause (j)
or (k) above shall be secured by a Lien on Property of the Company or any
Restricted Subsidiary.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
Both the Senior Note Indenture and the Convertible Note Indenture
provide that the Company will not permit any Restricted Subsidiary to guarantee,
directly or indirectly, any Indebtedness of the Company, other than pursuant to
the Guarantees or the guarantees given in connection with the Revolving Credit
Agreement.
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Limitation on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any Liens of any kind (other than Permitted Liens) on or with
respect to any of its Property or assets now owned or hereafter acquired, or any
interest therein or any income or profits therefrom, without effectively
providing that the Senior Notes and/or the Senior Note Guarantees, as
applicable, shall be secured equally and ratably with (and provided that the
Senior Notes and/or the Senior Note Guarantees, as applicable, shall be secured
prior to any secured obligation that is subordinated in right of payment to the
Senior Notes and/or the Senior Note Guarantees, as applicable) the obligations
so secured for so long as such obligations are so secured.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into, assume, guarantee or
otherwise become liable with respect to any Sale and Leaseback Transaction,
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Sale and Leaseback Transaction at
least equal to the Fair Market Value (as evidenced by a Board Resolution
delivered to the Senior Note Trustee) of the Property or assets subject to such
transaction; (ii) the Attributable Indebtedness of the Company or such
Restricted Subsidiary with respect thereto is included as Indebtedness and would
be permitted by the covenant described under "--Limitation on Indebtedness" and
any Liens granted thereby would be permitted by the covenant described under
"--Limitation on Liens"; and (iii) the Net Cash Proceeds from such transaction
are applied in accordance with the provisions described under "--Asset Sales."
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment unless, at
the time of and after giving effect to such proposed Restricted Payment (i) no
Default or Event of Default under the Senior Note Indenture shall have occurred
and be continuing or shall occur as a consequence thereof; (ii) after giving
effect, on a pro forma basis, to such Restricted Payment and the incurrence of
any Indebtedness the net proceeds of which are used to finance such Restricted
Payment, the Company could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of "--Limitation on Indebtedness"; and (iii)
after giving effect to such Restricted Payment on a pro forma basis, the
aggregate amount expended or declared for all Restricted Payments after the
Issue Date does not exceed the sum of (A) 50% of the Consolidated Net Income of
the Company (or, if Consolidated Net Income shall be deficit, minus 100% of such
deficit) for the period (taken as one accounting period) beginning on the last
day of the fiscal quarter immediately preceding the Issue Date and ending on the
last day of the fiscal quarter immediately preceding the date of such Restricted
Payment, plus (B) 100% of the aggregate Net Cash Proceeds received by the
Company subsequent to the Issue Date from the issuance or sale (other than to a
Subsidiary) of shares of its Qualified Stock, including Qualified Stock issued
upon the exercise of options, warrants or rights to purchase Qualified Stock,
plus (C) 100% of the amount of any Indebtedness of the Company or any of its
Restricted Subsidiaries (as expressed on the face of a balance sheet in
accordance with GAAP), or the carrying value of any Disqualified Stock, which
has been converted into, exchanged for or satisfied by the issuance of shares of
Qualified Stock of the Company subsequent to the Issue Date, less the amount of
any cash, or the value of any other Property distributed by the Company or its
Restricted Subsidiaries upon such conversion, exchange or satisfaction, plus (D)
100% of the net reduction in Investments, subsequent to the Issue Date, in any
Person, resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of Property (but only to the
extent such interest, dividends, repayments or other transfers of Property are
not included in the calculation of Consolidated Net Income), in each case to the
Company or any Restricted Subsidiary from any Person (including without
limitation, from Unrestricted Subsidiaries) or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed in the case of any
Person the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person and in each such case which was treated as
a Restricted Payment, minus (E) 100% of the amount of Investments made or
dividends paid pursuant to clauses (v), (vi) and (vii) of the following
paragraph subsequent to the Issue Date.
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The foregoing limitations shall not prevent the Company from (i) paying
a dividend on its Capital Stock at any time within 60 days after the declaration
thereof if, on the declaration date, the Company could have paid such dividend
in compliance with the Senior Note Indenture; (ii) retiring (A) any Capital
Stock of the Company or any Restricted Subsidiary of the Company or (B)
Indebtedness of the Company that is subordinate to the Notes or (C) Indebtedness
of a Restricted Subsidiary of the Company, in exchange for, or out of the
proceeds of the substantially concurrent sale of, Qualified Stock of the
Company; (iii) so long as no Default or Event of Default under the Senior Note
Indenture shall have occurred and be continuing or shall occur as a consequence
thereof, retiring any Indebtedness of the Company subordinated in right of
payment to the Notes in exchange for, or out of the proceeds of, the
substantially concurrent incurrence of Indebtedness of the Company (other than
Indebtedness to a Subsidiary of the Company), provided that such new
Indebtedness (A) is subordinated in right of payment to the Notes at least to
the same extent as, (B) has an Average Life at least as long as, and (C) has no
scheduled principal payments due in any amount earlier than, any equivalent
amount of principal under the Indebtedness so retired; (iv) so long as no
Default or Event of Default under the Senior Note Indenture shall have occurred
and be continuing or shall occur as a consequence thereof, retiring any
Indebtedness of a Restricted Subsidiary of the Company in exchange for, or out
of the proceeds of, the substantially concurrent incurrence of Indebtedness of
the Company or any Restricted Subsidiary that is permitted under the covenant
described under "--Limitation on Indebtedness" and that (A) is not secured by
any assets of the Company or any Restricted Subsidiary to a greater extent than
the retired Indebtedness was so secured, (B) has an Average Life at least as
long as the retired Indebtedness and (C) is subordinated in right of payment to
the Notes or the Guarantees, as applicable, at least to the same extent as the
retired Indebtedness; (v) so long as no Default or Event of Default under the
Senior Note Indenture shall have occurred and be continuing or shall occur as a
consequence thereof, making loans to members of management of the Company as
required pursuant to employment agreements with such members, in an aggregate
principal amount not to exceed $500,000, provided that any repayment of such
loans (but only to the extent such payments are not included in the calculation
of Consolidated Net Income of the Company) shall reduce the amount of such
Investments; (vi) so long as no Default or Event of Default under the Senior
Note Indenture shall have occurred and be continuing or shall occur as a
consequence thereof, making Investments in Qualified Joint Ventures in an
aggregate amount not to exceed $5 million, provided that any repayment of loans
or advances, return of capital or other transfer of Property (but only to the
extent such distributions are not included in the calculation of Consolidated
Net Income of the Company) shall reduce the amount of such Investments; (vii)
paying dividends to minority stockholders or partners of a Restricted Subsidiary
(other than to a Person who is otherwise an Affiliate), provided that the
Company or the Restricted Subsidiary that is the stockholder or partner of such
non-Wholly Owned Restricted Subsidiary shall receive pro rata dividends at the
same time and in the same form and composition of consideration as the dividends
paid to the minority stockholders or partners; and (viii) so long as no Default
or Event of Default under the Senior Note Indenture shall have occurred and be
continuing, the Company may redeem the Convertible Notes pursuant to the terms
of the Convertible Note Indenture or repurchase Convertible Notes pursuant to a
Change of Control Offer, a Convertible Note Asset Sale Offer or a repurchase
offer upon a Termination of Trading of the Common Shares of the Company pursuant
to the terms of the Convertible Note Indenture.
Not later than the date of making any Restricted Payment, any
Investment made pursuant to clause (vi) of the previous paragraph, any dividend
made pursuant to clause (vii) of the previous paragraph, and any redemption or
repurchase made pursuant to clause (viii) of the previous paragraph, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment, dividend, Investment or redemption is permitted and setting
forth the basis upon which any required calculations were computed, which
calculations may be based upon the Company's or applicable Restricted
Subsidiary's latest available financial statements.
Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, cause or suffer to exist or become effective or enter
into an encumbrance or restriction (other than pursuant to law or regulation) on
the ability of any Restricted Subsidiary (i) to pay dividends or make any other
distributions in respect of its Capital Stock or pay any Indebtedness or other
obligation owed to the Company or any Restricted Subsidiary of the Company; (ii)
to make loans or advances to the Company or any Restricted Subsidiary of the
Company; or (iii) to transfer any of its Property or assets to the Company or
any other Restricted Subsidiary of the Company, except: (a) any encumbrance or
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restriction existing as of the Issue Date pursuant to the Senior Note Indenture
or the Senior Note Collateral Documents, the Convertible Note Indenture or the
Convertible Note Collateral Documents, an agreement relating to the Revolving
Credit Facilities or the Existing Indebtedness or any existing agreement listed
on a schedule to the Senior Note Indenture or contained in the
Telecommunications Asset Leases and the Intercompany Notes and the related
collateral documents; (b) any encumbrance or restriction pursuant to an
agreement relating to an acquisition of assets or Property, so long as the
encumbrances or restrictions in any such agreement related solely to the assets
or Property so acquired (and are not or were not created in anticipation of or
in connection with the acquisition thereof); (c) any encumbrances or
restrictions relating to any Indebtedness of any Restricted Subsidiary existing
on the date on which such Restricted Subsidiary is acquired by the Company or
any Restricted Subsidiary (other than Indebtedness incurred by such Restricted
Subsidiary in connection with or in anticipation of its acquisition), provided
that the EBITDA of such Restricted Subsidiary is not taken into account in
determining whether such acquisition is permitted by the terms of the Senior
Note Indenture; (d) any encumbrance or restriction pursuant to an agreement
effecting a permitted Refinancing of Indebtedness issued pursuant to an
agreement referred to in the foregoing clauses (a) through (c), so long as the
encumbrances and restrictions contained in any such Refinancing agreement are
not materially more restrictive than the encumbrances and restriction contained
in such agreements; (e) customary provisions restricting subletting or
assignment of any lease of the Company or any Restricted Subsidiary or customary
provisions in certain agreements that restrict the assignment of such agreement
or any rights thereunder; (f) any temporary encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or Property and assets of, such Restricted Subsidiary; and (g)
any restriction on the sale or other disposition of assets or Property securing
Indebtedness as a result of a Permitted Lien on such assets or Property
permitted by the covenant described under "--Limitation on Liens."
Limitation on Issuance and Sale of Preferred Stock of Restricted
Subsidiaries
The Company (i) shall not permit any Restricted Subsidiary to issue any
Preferred Stock other than to the Company or a Restricted Subsidiary (provided
that the Leasing Companies and NWE Cyprus may not issue Preferred Stock to a
Restricted Subsidiary), and (ii) shall not permit any Person other than the
Company or a Restricted Subsidiary to own any Preferred Stock of any Restricted
Subsidiary, except for (a) a sale of 100% of the Capital Stock of a Restricted
Subsidiary sold in a transaction not prohibited by the covenant described under
"--Asset Sales"; (b) Preferred Stock of a Restricted Subsidiary issued and
outstanding on the Issue Date and held by Persons other than the Company or any
Restricted Subsidiary; (c) Capital Stock of a Restricted Subsidiary issued and
outstanding prior to the time that such Person becomes a Restricted Subsidiary
so long as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by the Company; and
(d) any Disqualified Stock permitted to be issued under the covenant described
under "--Limitation on Indebtedness".
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, sell, lease, transfer, or otherwise
dispose of, any of its Property or assets to, or purchase any Property or assets
from, or enter into any contract, agreement, understanding, loan, advance or
guarantee with or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (a) such Affiliate Transaction complies with
the other covenants of the Senior Note Indenture, (b) such Affiliate Transaction
is on terms that are no less favorable to the Company or such Restricted
Subsidiary than those that would have been obtained in a comparable arm's-length
transaction by the Company or such Restricted Subsidiary with a Person that is
not an Affiliate and (c) the Company delivers to the Senior Note Trustee (i)
with respect to any Affiliate Transaction involving aggregate payments in excess
of $5 million, a Board Resolution certifying that such Affiliate Transaction
complies with clause (a) above and that such Affiliate Transaction has been
approved by a majority of the disinterested directors who have determined that
such Affiliate Transaction is in the best interests of the Company or such
Restricted Subsidiary and (ii) with respect to any Affiliate Transaction
involving aggregate payments in excess of $25 million, an opinion as to the
fairness from a financial point of view to the Company or such Restricted
Subsidiary issued by an investment banking firm of national standing, or in the
case of a transaction involving a sale or transfer of assets subject to
valuation such as real estate, an appraisal issue by a nationally recognized
appraisal firm, together with an Officers' Certificate to the effect that such
opinion complies with this clause
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(ii); provided that the following shall not be deemed Affiliate Transactions:
(i) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
industry practice; (ii) any agreement or arrangement with respect to the
compensation of a director of the Company or any Restricted Subsidiary approved
by the Board of Directors and consistent with industry practice; (iii)
transactions between or among the Company, its Wholly-Owned Restricted
Subsidiaries or its majority-owned Restricted Subsidiaries (so long as no
minority interest is owned by a Person which is otherwise an Affiliate, provided
that the indirect beneficial ownership interest of Cable & Wireless in PeterStar
will not be deemed to be such a minority interest so long as Cable & Wireless
does not directly or indirectly own beneficially more than 11% of PeterStar);
(iv) transactions constituting Restricted Payments permitted by the covenant
described under "--Restricted Payments"; and (v) transactions pursuant to
contracts existing on the Issue Date and listed on a schedule to the Senior Note
Indenture; and (vi) loans and advances to employees and officers of the Company
or a Restricted Subsidiary in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary, provided
that the aggregate principal amount of all such loans and advances shall not
exceed $500,000 at any one time outstanding.
Restricted and Unrestricted Subsidiaries
Both the Senior Note and the Convertible Note Indentures provide that
the Company may designate a Subsidiary (including a newly formed or newly
acquired Subsidiary) of the Company or any of its Restricted Subsidiaries, other
than the Leasing Companies, NWE Cyprus, WTC and Technocom, as an Unrestricted
Subsidiary, provided that (i) no portion of the Indebtedness or any other
obligation (contingent or otherwise) of such Subsidiary (x) is guaranteed by the
Company or any Restricted Subsidiary, (y) is recourse to or obligates the
Company or any Restricted Subsidiary in any way or (z) subjects any Property or
assets of the Company or any Restricted Subsidiary, directly or indirectly,
contingent or otherwise, to the satisfaction thereof, (ii) such Subsidiary does
not have any obligations which, if in default, would result in a cross default
on Indebtedness of the Company or a Restricted Subsidiary (other than
Indebtedness to the Company or a Restricted Subsidiary) and (iii) such
Subsidiary has total assets of $50,000 or less or such designation is effective
immediately upon such Person's becoming a Subsidiary. Notwithstanding the
foregoing, no Subsidiary may be designated an Unrestricted Subsidiary if such
Subsidiary, directly or indirectly, held Capital Stock of a Restricted
Subsidiary. Unless so designated as an Unrestricted Subsidiary, any Person that
becomes a Subsidiary of the Company or any of its Restricted Subsidiaries shall
be classified as a Restricted Subsidiary thereof. Except for Restricted
Subsidiaries' having total assets of $50,000 or less, no Restricted Subsidiary
may be redesignated as an Unrestricted Subsidiary.
The Senior Note Indenture further provides that the Company will not,
and will not permit any of its Restricted Subsidiaries to, take any action or
enter into any transaction or series of transactions that would result in a
Person (other than a newly formed Subsidiary having no outstanding Indebtedness
(other than Indebtedness to the Company or a Restricted Subsidiary) at the date
of determination) becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of an Unrestricted Subsidiary or otherwise)
unless, after giving effect to such action, transaction or series of
transactions on a pro forma basis, (i) the Company could incur at least $1.00 of
additional Indebtedness pursuant to the first paragraph of "--Limitation on
Indebtedness" and (ii) no Default or Event of Default under the Senior Note
Indenture would occur.
Subject to preceding paragraph in the case of the Senior Note
Indenture, an Unrestricted Subsidiary may be redesignated as a Restricted
Subsidiary. The designation of a Subsidiary as an Unrestricted Subsidiary or the
designation of an Unrestricted Subsidiary as a Restricted Subsidiary, which
designation, in the case of the Senior Note Indenture, shall be made in
compliance with the preceding paragraph, shall be made by the Board of Directors
pursuant to a Board Resolution delivered to the Trustees and shall be effective
as of the date specified in such Board Resolution, which shall not be prior to
the date such Board Resolution is delivered to the Trustees.
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Limitations on Line of Business
The Senior Note Indenture provides that neither the Company nor any of
its Restricted Subsidiaries will directly or indirectly engage to any
substantial extent in any lines or lines of business activity other than the
Telecommunications Business.
Limitation on Sales of Telecommunications Asset Leases or Qualified
Investments
The Leasing Companies will not directly or indirectly transfer, convey,
sell, lease or make any other disposition (including, without limitation,
dispositions pursuant to any consolidation or merger) of a Telecommunications
Asset Agreement or any Qualified Investments.
Reports
The Senior Note Indenture and the Convertible Note Indenture provide
that, whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the Commission the annual and other reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were
subject thereto, such documents to be filed with the Commission on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required to file them. The Company shall also (whether or not it is
required to file reports with the Commission), within 30 days of each Required
Filing Date, (i) transmit by mail to all holders of Notes, as their names and
addresses appear in the applicable Note Register and to any Persons that request
such reports in writing, without cost to such holders or Persons, and (ii) file
with the applicable Trustee, copies of the annual and other reports and other
documents (without exhibits) which the Company has filed or would have filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act, any
successor provisions thereto or this covenant. The Company shall not be required
to file any report with the Commission if the Commission does not permit such
filing.
Leasing Companies and NWE Cyprus
The Senior Note Indenture and the Convertible Note Indenture provide
that each Leasing Company shall at all times remain a special purpose U.S. or
Cypriot corporation which is a Guarantor and a Wholly-Owned Restricted
Subsidiary with corporate organizational documents containing certain
limitations (including restrictions on the nature of the Leasing Company's
business, the requirement of independent directors being on its Board of
Directors, and a restriction on its ability to commence a voluntary case or
proceeding under any applicable bankruptcy or insolvency law without the prior
unanimous affirmative vote of all of its directors). NWE Cyprus shall at all
times remain a Cypriot corporation and a Wholly-Owned Subsidiary.
Technocom
The Senior Note Indenture and the Convertible Note Indenture provide
that Technocom may not, in any transaction or series of related transactions,
consolidate with, or merge with or into, any other Person or otherwise change
its domicile into any other jurisdiction (through a sale of assets or otherwise)
unless Technocom or such Person, as the case may be, continues to be owned in an
identical proportion and manner as Technocom is owned immediately prior to such
consolidation or merger or change of domicile, the preferential $20 million
dividend and liquidation, dissolution or winding-up rights of the Technocom
Preferred Stock are not changed, there is no class of Capital Stock authorized
having rights superior to the Technocom Preferred Stock after giving effect to
such transaction or transactions, and such consolidation, merger, or other
change of domicile does not adversely affect the perfection or priority of the
Liens in the Technocom Preferred Stock.
Collateral Agents
The Senior Note Indenture and the Convertible Note Indenture provide
that in the event that any collateral agent appointed on or before the Issue
Date or thereafter in respect of one or more jurisdictions resigns or is
terminated without the contemporaneous appointment of a new collateral agent in
such jurisdiction or jurisdictions, the Company shall
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procure or cause to be procured, within 45 days after the Senior Note Trustee or
the Convertible Note Trustee, as the case may be, has given notice to the
Company of such resignation or termination, a recognized financial institution,
with capital of not less than $10 million, in such jurisdiction or
jurisdictions, which the Senior Note Trustee or the Convertible Note Trustee may
lawfully appoint as a collateral agent in respect of Senior Note Collateral or
Convertible Note Collateral.
WTC
The Senior Note Indenture and the Convertible Note Indenture provide
that, provided no Default or Event of Default has occurred and is continuing or
would occur as a result of the following transaction, WTC may consolidate with
or merge with NWE Cyprus or transfer all or substantially all of its assets to
NWE Cyprus in connection with a winding-up or liquidation of WTC.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Indentures provide that the Company shall not, in any transaction
or series of related transactions, consolidate with, or merge with or into, any
other Person or permit any other Person to merge with or into the Company (other
than a merger of a Restricted Subsidiary into the Company in which the Company
is the continuing corporation), or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of the Property and assets of the
Company and its Restricted Subsidiaries taken as a whole to any other Person,
unless:
(i) either (a) the Company shall be the continuing corporation
or (b) the corporation (if other than the Company) formed by such
consolidation or into which the Company is merged, or the Person which
acquires, by sale, assignment, conveyance, transfer, lease or
disposition, all or substantially all of the Property and assets of the
Company and its Restricted Subsidiaries taken as a whole (any such
corporation or Person, the "Surviving Entity"), shall be a corporation
organized and validly existing under the laws of Canada or any province
or political subdivision thereof or the United States of America, any
political subdivision thereof, any state thereof or the District of
Columbia, or the United Kingdom or Bermuda and shall expressly assume,
by a supplemental indenture and other appropriate Collateral Documents
in form reasonably satisfactory to the applicable Trustee, the due and
punctual payment of the principal of (and premium, if any) and interest
and Additional Amounts, if any, and Special Interest, if any, on all
the Notes and the performance of the Company's covenants and
obligations under the applicable Indenture and the related Collateral
Documents;
(ii) immediately after giving effect to such transaction or
series of related transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of
transactions), no Event of Default or Default under the Senior Note
Indenture or the Convertible Note Indenture, as applicable, shall have
occurred and be continuing or would result therefrom;
(iii) in the case of the Senior Note Indenture only,
immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or scenes of
transactions) the Company (or the Surviving Entity, if the Company is
not continuing) would be permitted to incur $1.00 of additional
Indebtedness pursuant to the Indebtedness to Operating Cash Flow Ratio
text set forth in the applicable Indenture and described in the first
paragraph of "--Limitation on Indebtedness";
(iv) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of
transactions), the Company (or the Surviving Entity, if the Company is
not continuing) shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Company immediately prior to
such transaction; and
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(v) the Company (or the Surviving Entity, if the Company is
not continuing) would not be subject to any materially adverse tax
effect as a result of such transaction or series of transactions.
In connection with any consolidation, merger, conveyance, lease or
other disposition contemplated by the preceding paragraph, the Company shall
deliver, or cause to be delivered, to each Trustee, in form reasonably
satisfactory to such Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, lease or
disposition and any supplemental indenture in respect thereto comply with the
applicable Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indentures
(except where otherwise expressly indicated):
(a) default in the payment of interest (or Additional Amounts
and Special Interest, if any) on, or any other amount due in respect
of, any Note issued pursuant to such Indenture when the same becomes
due and payable, and the continuance of such default for a period of 30
days;
(b) default in the payment of the principal of (or premium, if
any, on) any Note issued pursuant to such Indenture at its Maturity,
upon optional redemption, required repurchase (including pursuant to a
Change of Control Offer, an Asset Sale Offer or, in the case of the
Convertible Note Indenture, a repurchase offer upon a Termination of
Trading of the Common Shares) or otherwise or the failure to make an
offer to purchase any Note as required in such Indenture;
(c) in the case of the Senior Note Indenture, the Company
fails to comply with any of its covenants or agreements contained in
such Indenture and described in "--Limitation on Indebtedness",
"--Limitation on Sale and Leaseback Transactions", "--Restricted
Payments" or "--Collateral Agents", in the case of both Indentures,
fails to perform or comply with the provisions described under
"--Repurchase at the Option of Holders upon a Change of Control,"
"--Asset Sales" or "--Consolidation, Merger, Conveyance, Lease or
Transfer," or in the case of the Convertible Note Indenture, fails to
perform or comply with the provisions described under "--Right to
Require Repurchase of Convertible Notes Upon a Termination of Trading;"
(d) default in the performance, or breach, of any covenant or
warranty of the Company in such Indenture (other than a covenant or
warranty addressed in (a), (b) or (c) above) or any Collateral Document
and continuance of such Default or breach for a period of 45 days after
written notice thereof has been given to the Company by the applicable
Trustee or to the Company and the applicable Trustee by holders of at
least 25% of the aggregate principal amount at Stated Maturity of the
outstanding applicable Notes;
(e) in the case of the Convertible Note Indenture, the
occurrence and continuance of an Event of Default under the Senior Note
Indenture for a period of 15 days after written notice of the
occurrence of such Event of Default has been given to the Company by
the Convertible Note Trustee or a holder or holders of Convertible
Notes, which notice states that such an event constitutes a Default
under the Convertible Note Indenture;
(f) Indebtedness of the Company or any Restricted Subsidiary
is not paid when due within the applicable grace period, if any, or is
accelerated by the holders thereof and, in either case, the principal
amount of such unpaid or accelerated Indebtedness exceeds $10 million;
(g) the entry by a court of competent jurisdiction of one or
more final judgments against the Company or any Restricted Subsidiary
in an uninsured or unindemnified aggregate amount in excess of $5
million which is not discharged, waived, appealed, stayed, bonded or
satisfied for a period of 60 consecutive days;
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(h) the entry by a court having jurisdiction in the premises
of (i) a decree or order for relief in respect of the Company or any
Significant Restricted Subsidiary in an involuntary case or proceeding
under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable federal, state, or foreign bankruptcy, insolvency, or
other similar law or (ii) a decree or order adjudging the Company or
any Significant Restricted Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of, or in respect of, the
Company or any Significant Restricted Subsidiary under U.S. bankruptcy
laws, as now or hereafter constituted, or any other applicable federal,
state or foreign bankruptcy, insolvency, or similar law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Significant Restricted
Subsidiary or of any substantial part of the Property or assets of the
Company or any Significant Restricted Subsidiary, or ordering the
winding-up or liquidation of the affairs of the Company or any
Significant Restricted Subsidiary, and the continuance of any such
decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days;
(i) (i) the commencement by the Company or any Significant
Restricted Subsidiary of a voluntary case or proceeding under U.S.
bankruptcy laws, as now or hereafter constituted, or any other
applicable federal, state or foreign bankruptcy, insolvency or other
similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent; or (ii) the consent by the Company or any
Significant Restricted Subsidiary to the entry of a decree or order for
relief in respect of the Company or any Significant Restricted
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy
laws, as now or hereafter constituted, or any other applicable federal,
state, or foreign bankruptcy, insolvency or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
the Company or any Significant Restricted Subsidiary; or (iii) the
filing by the Company or any Significant Restricted Subsidiary of a
petition or answer or consent seeking reorganization or relief under
U.S. bankruptcy laws, as now or hereafter constituted, or any other
applicable federal, state or foreign bankruptcy, insolvency or other
similar law; or (iv) the consent by the Company or any Significant
Restricted Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the
Company or any Significant Restricted Subsidiary or of any substantial
part of the Property or assets of the Company or any Significant
Restricted Subsidiary or the making by the Company or any Significant
Restricted Subsidiary of an assignment for the benefit of creditors; or
(v) the admission by the Company or any Significant Restricted
Subsidiary in writing of its inability to pay its debts generally as
they become due; or (vi) the taking of corporate action by the Company
or any Significant Restricted Subsidiary in furtherance of any such
action;
(j) any related Guarantee or Collateral Document ceases to be
in effect (except as otherwise permitted by such Indenture or the
related Collateral Documents), or the Company or any Guarantor shall
deny or disaffirm its obligations under its related Guarantee, any
related Collateral Document or the applicable Notes, or the applicable
Notes and/or the related Guarantees fail to be secured by any
theretofore perfected security interests or liens in the Collateral
(except as permitted by such Indenture or the related Collateral
Documents), which in each circumstance continues for a period of 30
days after receipt of a written notice thereof from the Trustee to the
Company, or from holders of at least 25% of the aggregate principal
amount of such Notes then outstanding to the Company and the applicable
Trustee;
(k) with respect to the Senior Note Indenture, a Change of
Control described in clause (i) of "--Certain Definitions--Change of
Control" occurs or, with respect to the Convertible Note Indenture, a
Change of Control described in any of clauses (i), (ii) or (iii) of
"--Certain Definitions--Change of Control" occurs; or
(l) if any assets of the Company or any of its Restricted
Subsidiaries shall be nationalized, expropriated, declared forfeit or
otherwise permanently taken by governmental action (the" Seized
Assets"), and the book value of such Seized Assets (less the book value
of the expropriation proceeds) shall constitute more than 15% of the
book value, on a consolidated basis, of all of the Company's assets
minus current assets as they are reported on the Company's most recent
quarterly consolidated balance sheet.
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If any Event of Default (other than an Event of Default specified in
clause (h) or (i) above) occurs and is continuing, or if an Event of Default
specified in clause (k) above occurs and is continuing and the Company fails to
make the Change of Control Offer as described under "--Repurchase at the Option
of the Holders upon a Change of Control", then and in every such case the
applicable Trustee or the holders of not less than 25% of the outstanding
aggregate principal amount at Stated Maturity of the Senior Notes or the
Convertible Notes, as the case may be, may declare the Default Amount of,
premium, if any, and any accrued and unpaid interest (and Additional Amounts, if
any, and Special Interest, if any) on all such Notes then outstanding to be
immediately due and payable by a notice in writing to the Company (and to the
applicable Trustee if given by holders of such Notes), and upon any such
declaration, all amounts payable in respect of the Senior Notes and the
Convertible Notes, as the case may be, will become and be immediately due and
payable. If any Event of Default specified in clause (g) or (h) above occurs,
the Default Amount of, premium if any, and any accrued and unpaid interest (and
Additional Amounts, if any, and Special Interest, if any) on the Senior Notes or
the Convertible Notes, as the case may be, then outstanding shall become
immediately due and payable without any declaration or other act on the part of
the applicable Trustee or any holder of such Notes. In the event of a
declaration of acceleration because an Event of Default set forth in clause (f)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured, or waived by
the holders of the relevant Indebtedness, within 60 days after such event of
default. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled (A) if
the Senior Notes have been repaid, (B) if the Event of Default under the Senior
Note Indenture triggering such Event of Default pursuant to clause (e) above
shall be remedied or cured, or waived by the holders of the Senior Notes, or (C)
if the Senior Notes have been accelerated, then the acceleration of the Senior
Notes shall have been rescinded within 60 days of the occurrence of such Event
of Default under the Senior Note Indenture, and, in the case of clauses (A), (B)
or (C) above, the Senior Note Trustee so certifies to the Convertible Note
Trustee, provided that any such event described in clause (A), (B) or (C) above
must occur prior to the commencement of foreclosure proceedings or other
enforcement proceedings with respect to the Convertible Note Indenture or any of
the Convertible Note Collateral Documents. Until and including November 30,
1998, the "Default Amount" shall equal the Accreted Value of the Senior Notes
and 100% of the principal amount at Stated Maturity of the Convertible Notes, as
applicable. On or after December 1, 1998, the Default Amount shall equal 100% of
the principal amount at Stated Maturity of the Senior Notes or the Convertible
Notes, as applicable. Under certain circumstances, the holders of a majority in
principal amount at Stated Maturity of the outstanding Senior Notes or the
outstanding Convertible Notes, as applicable, by notice to the Company and the
Trustee may rescind an acceleration and its consequences.
The holders of a majority in aggregate principal amount at Stated
Maturity of the Senior Notes or the outstanding Convertible Notes then
outstanding, as applicable, by notice to the applicable Trustee may on behalf of
the holders of all such Notes waive any existing Default or Event of Default
under the applicable Indenture and its consequences under the applicable
Indenture except a continuing Default or Event of Default in the payment of
interest (and Additional Amounts, if any, and Special Interest, if any) on,
premium, if any, on or the principal of, such Notes. Subject to the provisions
of the applicable Indenture relating to the duties of the Trustee, the
applicable Trustee is under no obligation to exercise any of its rights or
powers under the applicable Indenture at the request, order or direction of any
of the holders, unless such holders have offered to such Trustee reasonable
security or indemnity. Subject to the provisions of the Senior Note Indenture or
the Convertible Note Indenture, as the case may be, and applicable law, the
holders of a majority in aggregate principal amount of the Senior Notes or the
Convertible Notes, as applicable, at the time outstanding have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or exercising any trust or power conferred
upon such Trustee.
The Company is required to deliver to each Trustee annually a statement
regarding compliance with the respective Indentures, and the Company is required
within 5 days after becoming aware of any Default or Event of Default under the
respective Indentures, to deliver to the Trustee a statement describing such
Default or Event of Default, its status and what action the Company is taking or
proposes to take with respect thereto.
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ABILITY TO REALIZE ON COLLATERAL
The proceeds of any sale of the Senior Note Collateral in whole
pursuant to the Senior Note Indenture and the related Senior Note Collateral
Documents following an Event of Default may not be sufficient to satisfy
payments due on, first, the Senior Notes and/or, second, the Convertible Notes.
Similarly, the proceeds of any sale of Convertible Note Collateral in whole
pursuant to the Convertible Note Indenture and the related Convertible Note
Collateral Documents following an Event of Default may not be sufficient to
satisfy payments due on, first, the Convertible Notes and/or, second, the Senior
Notes. In addition, the ability of the holders of the Notes to realize upon the
Collateral may be limited in the event of a bankruptcy or insolvency or pursuant
to applicable laws, including securities laws.
If an Event of Default occurs and is continuing and the Senior Notes or
the Convertible Notes become payable in full, the applicable Trustee, on behalf
of the holders of the Senior Notes or the Convertible Notes, as applicable, in
addition to any other rights or remedies available to it under the Senior Note
Indenture and the Senior Note Collateral Documents or the Convertible Note
Indenture and the related Convertible Note Collateral Documents, may take such
action as it deems advisable to protect and enforce its rights in the Senior
Note Collateral or Convertible Note Collateral, including the institution of
sale or foreclosure proceedings. The proceeds received by such Trustee from any
such sale or foreclosure will be applied by such Trustee first to pay the
expenses of such sale or foreclosure and fees and other amounts then payable to
the Trustee under the applicable Indenture, and thereafter to pay amounts due
and payable with respect to the applicable Notes.
The right of the Senior Note Trustee or the Convertible Note Trustee to
repossess and dispose of the Senior Note Collateral or the Convertible Note
Collateral, as applicable, upon acceleration of the Senior Notes or the
Convertible Notes, as applicable, is likely to be significantly impaired by
applicable bankruptcy or insolvency law if a bankruptcy or insolvency proceeding
were to be commenced by or against the Company or any Guarantor prior to or
possibly even after such Trustee has repossessed and disposed of the Senior Note
Collateral or the Convertible Note Collateral, as applicable. Under the United
States Bankruptcy Code, a secured creditor such as the Trustee is prohibited
from repossessing its security from a debtor in a bankruptcy case, or from
disposing of security repossessed from such debtor, without bankruptcy court
approval. Moreover, applicable U.S. bankruptcy law generally permits the debtor
to continue to retain and to use collateral (and the proceeds, products,
offspring, rents or profits of such collateral) even though the debtor is in
default under the applicable debt instruments, provided generally that the
secured creditor is given "adequate protection." The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
collateral and may include, if approved by the court, cash payments or the
granting of additional or replacement security for any diminution in the value
of the collateral as a result of the stay of repossession or disposition or any
use of the collateral by the debtor during the pendency of the bankruptcy case.
In view of the lack of a precise definition of the term "adequate protection"
and the broad discretionary powers of a bankruptcy court, it is impossible to
predict how long payments under the Senior Notes or the Senior Note Guarantees
or under the Convertible Notes or the Convertible Note Guarantees could be
delayed following commencement of a bankruptcy case, whether or when the Senior
Note Trustee or the Convertible Note Trustee would repossess or dispose of the
Senior Note Collateral or the Convertible Note Collateral, as applicable, or
whether or to what extent holders of the Senior Notes and the Convertible Notes
would be compensated for any delay in payment or loss of value of the Senior
Note Collateral or the Convertible Note Collateral, as applicable, through the
requirements of "adequate protection." Furthermore, in the event that the
bankruptcy court determines that the value of the Senior Note Collateral or the
Convertible Note Collateral, as applicable, is not sufficient to repay all
amounts due on the Notes, the holders of the Senior Notes or the Convertible
Notes, as applicable, would have "undersecured claims." Applicable U.S.
bankruptcy laws do not permit the payment and/or accrual of interest, costs and
attorneys' fees for "undersecured claims" during the debtor's bankruptcy case.
Under applicable Cypriot law, after the presentation of a winding up
petition in respect of a Cyprus company any disposition of, including any
attachment, sequestration, distress or execution against, property of such
company or any transfer of shares or alteration in the status of members of such
company is void unless approved by the court. The court has authority to
authorize dispositions of property if such disposition would benefit creditors
of such company. The liquidator of a company subject to winding up proceedings
is required to take under his custody or control all property to which such
company is or appears to be entitled. Subject to court approval, a creditor
holding a lien, charge or other security interest in property of the company in
liquidation may (a) realize the security and prove for any balance
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as an unsecured creditor, (b) estimate the value of its security and prove for
the balance, in which event the liquidator may redeem the security at that value
or require a sale of the applicable property, (c) surrender the security and
prove as an unsecured creditor or (d) rely entirely on its security.
Each of the Indentures contains a provision that, during the
continuance of an Event of Default thereunder, the applicable Trustee will give
no instructions to a collateral agent under any of the Senior Note Collateral
Documents or the Convertible Note Collateral Documents, as the case may be,
relating to Collateral outside of the United States until the holders of a
majority in aggregate principal amount at Stated Maturity of the Senior Notes or
holders of a majority in aggregate principal amount of the Convertible Notes, as
the case may be, instruct the applicable Trustee to act or give instructions to
a collateral agent to act. This procedure may delay the Trustees or any
collateral agent from taking on a timely basis actions which are necessary or
appropriate with regard to such Collateral.
POSSESSION, USE AND RELEASE OF COLLATERAL
All funds deposited in the Company Senior Note Escrow Account
representing net proceeds of the Senior Notes constitute Collateral and will, at
the direction of the Company except during the continuance of a Default or an
Event of Default, be invested in Eligible Cash Equivalents. Up to $9 million of
such funds may be utilized by the Company to make Qualified Investments if, in
respect of each such Qualified Investment, (i) no Default or Event of Default
under the Senior Note Indenture has occurred and is continuing or will occur as
a result thereof, (ii) a Lien on such Qualified Investment is granted to the
Senior Note Trustee or a collateral agent for the benefit of the Senior Note
Trustee and the equal and ratable benefit of the holders of the Senior Notes and
the benefit of the Convertible Note Trustee and the equal and ratable benefit of
the holders of the Convertible Notes so long as the Convertible Notes remain
outstanding to secure the Senior Notes, the Senior Note Guarantees and the other
obligations of the Company and the Guarantors under the Senior Note Indenture
and the other Senior Note Collateral Documents and to secure the Convertible
Notes and the other obligations of the Company and the Guarantors under the
Convertible Notes, the Convertible Note Indenture and the Convertible Note
Collateral Documents; (iii) the entity in which such Qualified Investment is
made has all licenses, registrations and permits necessary to operate the
Telecommunications Business in which it is engaging or proposes to engage on the
date of such Qualified Investment; (iv) all licenses, registrations and permits
required for such Qualified Investment and such Liens have been obtained; and
(v) appropriate Collateral Documents have been executed and delivered and
properly recorded, registered and filed to the extent necessary to make
effective the Liens intended to be created therein. Pursuant to such provision,
$9 million has been utilized by the Company, together with other borrowed funds,
to acquire an additional 29.65% interest in Technocom. $8 million of the funds
retained in the Company Senior Note Escrow Account may be advanced to Technocom
pursuant to a short-term promissory note (the "Technocom Note"), if (i) no
Default or Event of Default under either the Senior Note Indenture or the
Convertible Note Indenture has occurred and is continuing, (ii) Technocom is
utilizing such funds to make payments due under existing contracts, or contracts
(including amendments to or extensions of existing contracts) to be entered
into, for the purchase of Telecommunications Assets, (iii) such
Telecommunications Assets are being made available by Technocom to Teleport-TP
pursuant to a Telecommunications Asset Agreement between them, (iv) first
priority Liens on (A) the Technocom Note have been or are contemporaneously
granted to the Senior Note Trustee or a collateral agent for the benefit of the
Senior Note Trustee and the equal and ratable benefit of the holders of the
Senior Notes to secure the Senior Notes, the guarantees under the Senior Note
Indenture and the other obligations of the Company and the Guarantors under the
Senior Note Indenture and the other Senior Note Collateral Documents, and so
long as the Convertible Notes remain outstanding, for the benefit of the
Convertible Note Trustee and the holders of the Convertible Notes, to secure the
Convertible Notes and the guarantees under the Convertible Note Indenture and
the other obligations of the Company and the Guarantors under the Convertible
Note Indenture and the Convertible Note Collateral Documents, and (B) such
Telecommunications Asset Agreement have been or are contemporaneously granted to
the Company to secure the Technocom Note, (v) Teleport-TP has or has applied for
all licenses, registrations and permits necessary to operate the
Telecommunications Assets subject to such Telecommunications Asset Agreement and
the Telecommunications Business for which such Telecommunications Assets are
intended to be utilized, and (vi) appropriate Collateral Documents have been
executed and delivered and properly recorded, registered and filed to the extent
necessary to make effective the first priority Lien intended to be created
therein and have been delivered to the Senior Note Trustee or the collateral
agent. The remaining funds retained in the Company Senior Note Escrow Account
are required to be utilized by the Company
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to purchase Capital Stock of the Leasing Companies, or to make intercompany
loans to the Leasing Companies evidenced by Intercompany Notes, which will
constitute Collateral, by transferring such funds to the applicable Leasing
Company Escrow Accounts of such Leasing Companies, if (i) no Default or Event of
Default under the Senior Note Indenture has occurred and is continuing or will
occur as a result thereof, (ii) the applicable Leasing Company utilizes such
funds (except for funds to be utilized for Qualified Investments to the extent
permitted by the Senior Note Indenture) to purchase, or to collateralize a bona
fide letter of credit in favor of the supplier thereof in connection with the
purchase of, Telecommunications Assets and in connection therewith to pay
associated freight, insurance, import and export license, customs, value added
tax, installation and software license (provided that such license relates to
software required to operate such Telecommunications Assets) costs required to
be paid under, or in order to implement the contract(s) for the purchase of such
Telecommunications Assets ("Associated Soft Costs") contemporaneously with such
purchase of Capital Stock or intercompany loan, as applicable, from a supplier
located in the United States, Canada, Western Europe (including Scandinavia),
Israel, Japan, Taiwan and South Korea, provided that the amount of such funds
utilized to pay for Associated Soft Costs shall not be greater than 15% of the
purchase price of the related Telecommunications Assets, and provided further
that any funds utilized to collateralize such a letter of credit and not used to
reimburse the issuer thereof shall, upon release of such funds, promptly be
deposited in the Company Senior Note Escrow Account, (iii) the Leasing Company
contemporaneously enters into a Telecommunications Asset Agreement covering such
Telecommunications Assets with a Restricted Subsidiary or Qualified Joint
Venture requiring such Restricted Subsidiary or Qualified Joint Venture to pay
for such Telecommunications Assets and Associated Soft Costs, (iv) Liens on such
Telecommunications Asset Agreement are granted to the Senior Note Trustee or a
collateral agent for the benefit of the Senior Note Trustee and the equal and
ratable benefit of the holders of the Senior Notes, to secure the Senior Notes,
the Guarantees and the other obligations of the Company and the Guarantors under
the Senior Note Indenture and the other Senior Note Collateral Documents and to
secure any applicable Intercompany Note and, so long as the Convertible Notes
remain outstanding, for the benefit of the Convertible Note Trustee and the
holders of the Convertible Notes, to secure the Convertible Notes and the
Guarantees under the Convertible Note Indenture and the other obligations of the
Company or the Guarantors under the Convertible Note Indenture and the
Convertible Note Collateral Documents; (v) the Restricted Subsidiary or
Qualified Joint Venture that will be the lessee or purchaser under the
applicable Telecommunications Asset Agreement has or has applied for all
licenses, registrations and permits necessary to operate the Telecommunications
Assets subject to such Telecommunications Asset Agreement and the
Telecommunications Business for which such Telecommunications Assets are
intended to be utilized; and (vi) appropriate Collateral Documents have been
executed and delivered and properly recorded, registered and filed to the extent
necessary to make effective the Lien intended to be created therein and have
been delivered to the Senior Note Trustee or the collateral agent. All payments
made by an investee, an obligor or a lessee to any Leasing Company in respect of
any Qualified Investments or Intercompany Notes held by such Leasing Company or
any Telecommunications Asset Agreement shall be promptly deposited, without
commingling prior to such deposit, in the applicable Leasing Company Escrow
Account and will also constitute Collateral and be subject to a first priority
perfected Lien in favor of the Senior Note Trustee or a collateral agent and may
be utilized (x) to purchase additional Telecommunications Assets for additional
Telecommunications Asset Agreements if the following conditions are satisfied:
(i) no Default or Event of Default under the Senior Note Indenture has occurred
and is continuing or will occur as a result thereof; (ii) the applicable Leasing
Company utilized such funds to purchase such Telecommunications Assets from a
supplier located in the United States, Canada, Western Europe (including
Scandinavia), Israel, Japan, Taiwan and South Korea ; (iii) the applicable
Leasing Company contemporaneously enters into a Telecommunications Asset
Agreement covering such Telecommunications Assets with a Restricted Subsidiary
or a Qualified Joint Venture; (iv) Liens on such Telecommunications Assets and
Telecommunications Asset Agreement are granted to the Senior Note Trustee or a
collateral agent for the benefit of the Senior Note Trustee and the equal and
ratable benefit of the holders to secure the Senior Notes, the Guarantees and
the other obligations of the Company and the Guarantors under the Senior Note
Indenture and the other Collateral Documents and to secure any applicable
Intercompany Note; (v) the Restricted Subsidiary or Qualified Joint Venture that
will be the lessee or purchaser under the applicable Telecommunications Asset
Agreement has or has applied for all licenses, registrations and permits
necessary to operate the Telecommunications Assets subject to such
Telecommunications Asset Agreement; and (vi) appropriate Collateral Documents
have been executed and delivered and properly recorded, registered or filed to
the extent necessary to make effective to the fullest extent permitted by law
the Lien intended to be created therein; (y) to pay when due the Accreted Value,
premium, if any, on and interest (including Additional Amounts, if any, and
Special Interest, if any) on the Notes; and (z) provided that an aggregate
amount equal to the interest due on
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the Senior Notes in the next succeeding 12 months (the "Minimum Amount")
exclusive of amounts constituting the net proceeds of the Senior Notes or the
Net Cash Proceeds of any Asset Sale (whether or not constituting Excess Proceeds
or Aggregate Unused Proceeds) is in the Company Senior Note Escrow Account and
the Leasing Company Escrow Accounts, which Minimum Amount may be utilized only
for the purposes set forth in clauses (x) and (y) above, any amount in excess of
such Minimum Amount may be invested by the Leasing Companies or the Company in
Qualified Investments to the extent permitted by the Senior Note Indenture if,
in respect of each such Qualified Investment, the following conditions are
satisfied: (i) no Default or Event of Default under the Senior Note Indenture
has occurred and is continuing or will occur as a result thereof; (ii) a Lien on
the Qualified Investment is granted to the Senior Note Trustee or a collateral
agent for the benefit of the Senior Note Trustee and the equal and ratable
benefit of the holders of the Senior Notes, to secure the Senior Notes and the
Guarantees under the Senior Note Indenture and to secure any applicable
Intercompany Note; (iii) the entity in which such Qualified Investment is made
has all licenses, registrations and permits necessary to operate the
Telecommunications Business in which it is engaging or proposes to engage on the
date of such Qualified Investment; (iv) all licenses, registrations and permits
required for such Qualified Investment and such Lien have been obtained; and (v)
appropriate Collateral Documents have been executed and delivered and properly
recorded, registered or filed to the extent necessary to make effective to the
fullest extent permitted by law the Lien intended to be created therein. Any
Telecommunications Assets purchased with the net proceeds of the Senior Notes
that are subject to a Telecommunications Asset Agreement or a series of related
Telecommunications Asset Agreements may not be transferred or shipped to the
lessee or purchaser under the applicable Telecommunications Asset Agreement or
Agreements or to a jurisdiction other than the United States, Canada, Western
Europe (including Scandinavia), Israel, Japan, Taiwan and South Korea unless the
applicable lessee or purchaser has all licenses, registrations and permits
necessary to operate such Telecommunications Assets and the Telecommunications
Business for which such Telecommunications Assets are intended and the Company
delivers to the Trustee a favorable opinion of counsel to such effect. With
respect to any Telecommunications Assets not purchased with the net proceeds of
the Senior Notes, up to $5 million of such Telecommunication Assets may be
shipped or transferred to such lessee or purchaser at any time without such
opinion of counsel being required but thereafter, on each occasion when $5
million in the aggregate of such Telecommunication Assets shall have been
shipped or transferred, such opinion of counsel shall be delivered before any
additional Telecommunication Assets may be shipped or transferred. See
"--Certain Definitions--Permitted Investments."
Although all Pledged Stock, all Intercompany Notes and all other
instruments included in the Senior Note Collateral, including those representing
Qualified Investments, will be delivered to and held by the Senior Note Trustee,
unless and until an Event of Default under the Senior Note Indenture has
occurred and is continuing, the Company and/or the Leasing Companies and/or
other Restricted Subsidiaries, as applicable, shall be entitled to exercise any
voting and consensual rights with respect to such Senior Note Collateral;
provided that unless an Event of Default under the Senior Note Indenture has
occurred and is continuing, the Company, the Leasing Companies or such other
Restricted Subsidiaries will only be entitled to receive and retain free from
the Liens of the Senior Note Collateral Documents payments made under such
Intercompany Notes not evidencing loans to Leasing Companies and any instruments
not constituting Pledged Stock of the Leasing Companies or Qualified
Investments. Prior to payment in full of the Senior Notes in accordance with the
terms of the Senior Notes and the Senior Note Indenture and the other
obligations then due and owing under the Senior Notes, the Senior Note Indenture
and the Senior Note Collateral Documents, any payments received on the Pledged
Stock of the Leasing Companies and any Intercompany Notes evidencing loans of
the net proceeds of the Senior Notes to the Leasing Companies will be retained
in the Company Senior Note Escrow Account and utilized only to make payments on
the Senior Notes. Any payments made under a Telecommunications Asset Agreement
or received from a Qualified Investment will be retained in the applicable
Leasing Company Escrow Account or the Company Senior Note Escrow Account and may
be utilized to purchase additional Telecommunication Assets, to make payments on
the Senior Notes or to make Qualified Investments if the applicable conditions
set forth in the preceding paragraph are complied with. See "--Certain
Definitions--Permitted Investments."
In addition, funds or Eligible Cash Equivalents held in any Leasing
Company Escrow Account may be loaned or advanced to any other Leasing Company
Escrow Account or transferred to the Company Senior Note Escrow Account and,
subject to the provisions of the Senior Note Indenture with respect to
Investments of funds from the Company Senior Note Escrow Account to a Leasing
Company Escrow Account, may be transferred from the Company Senior Note Escrow
Account to any Leasing Company Escrow Account.
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The Senior Note Indenture and the Senior Note Collateral Documents
provide that Senior Note Collateral may be released from the Liens created by
the Senior Note Collateral Documents (a) upon payment in full of (i) the Senior
Notes in accordance with the terms of the Senior Notes and the Senior Note
Indenture and the other obligations then due and owing under the Senior Notes,
the Senior Note Indenture and the Senior Note Collateral Documents, and (ii) the
Convertible Notes in accordance with the terms of the Convertible Notes and the
Convertible Note Indenture and the other obligations then due and owing under
the Convertible Notes, the Convertible Note Indenture and the Convertible Note
Collateral Documents; (b) with respect to inventory, upon the sale of such
inventory in the ordinary course of business; (c) with respect to Senior Note
Collateral sold or disposed of in an Asset Sale if such sale or other
disposition is not prohibited under the Senior Note Indenture and if the Net
Cash Proceeds of such sale or other disposition are applied as provided in the
Senior Note Indenture (see "--Asset Sales"), or, after payment in full of the
Senior Notes, the Convertible Note Indenture; (d) to the extent that a Lien is
granted on such Senior Note Collateral pursuant to subsection (iv) of the
definition of Permitted Liens (see "--Certain Definitions--Permitted Liens");
(e) with respect to amounts in the Company Senior Note Escrow Account or the
Leasing Company Escrow Accounts consisting of Net Cash Proceeds of Asset Sales,
upon the expenditure of such cash if such expenditure is made in accordance with
the Senior Note Indenture, or, after payment in full of the Senior Notes, the
Convertible Note Indenture; (f) with respect to amounts in the Company Senior
Note Escrow Account or the Leasing Company Escrow Accounts constituting net
proceeds of the Senior Notes if the procedures described in the second preceding
paragraph are complied with; (g) with respect to other amounts in the Company
Senior Note Escrow Account and the Leasing Company Escrow Accounts other than
the Net Cash Proceeds of any Asset Sale, payments received on Pledged Stock of
the Leasing Companies, Telecommunications Asset Agreements and Qualified
Investments, if the procedures described in the preceding paragraphs are
complied with; (h) with respect to Collateral that is Capital Stock of a
Guarantor, if such Guarantor is released pursuant to the Senior Note Indenture,
or after payment in full of the Senior Notes, the Convertible Note Indenture;
and (i) with respect to any Intercompany Note not evidencing a loan of net
proceeds of the Senior Notes to the Leasing Companies, upon the repayment,
forgiveness or other termination of such note; provided that all such releases
described above are in compliance with the Trust Indenture Act.
Although all Technocom Preferred Stock and all other instruments
included in the Convertible Note Collateral, including those representing
Qualified Investments, will be delivered to and held by the Convertible Note
Trustee, unless and until an Event of Default under the Convertible Note
Indenture has occurred and is continuing, the Company shall be entitled to
exercise any voting and consensual rights with respect to such Convertible Note
Collateral. Prior to payment in full of the Convertible Notes in accordance with
the terms of the Convertible Notes and the Convertible Note Indenture and the
other obligations then due and owing under the Convertible Notes, the
Convertible Note Indenture and the Convertible Note Collateral Documents, any
payments received on any Convertible Note Collateral, including on the Technocom
Preferred Stock or in respect of any Qualified Investments or Intercompany Notes
that constitute Convertible Note Collateral, shall be promptly deposited,
without commingling prior to such deposit, in the Company Convertible Note
Escrow Account and will also constitute Convertible Note Collateral and be
subject to a first priority perfected Lien in favor of the Convertible Note
Trustee and the holders of the Convertible Notes and a second perfected Lien in
favor of the Senior Note Trustee and the holders of the Senior Notes for the
benefit of, first, the Senior Note Trustee and the holders of the Senior Notes.
All funds deposited in the Company Convertible Note Escrow Account shall be
invested at the direction of the Company, except during the continuance of a
Default or an Event of Default, and at the direction of the Convertible Note
Trustee during the continuance of a Default or an Event of Default, in Eligible
Cash Equivalents pursuant to the terms and conditions of and in the manner
provided for in the Company Convertible Note Escrow Account Agreement. Funds or
Eligible Cash Equivalents in the Company Convertible Note Escrow Account may be
utilized (i) to pay when due principal of, premium, if any, interest (including
Additional Amounts, if any, and Special Interest, if any) on, and any other
amounts due in respect of, the Convertible Notes; or (ii) to make Qualified
Investments if such Qualified Investments are made in a manner which complies
with the immediately following sentence; or (iii) to make an intercompany loan
to a Leasing Company evidenced by an Intercompany Note (which will constitute
Convertible Note Collateral), so long as such Leasing Company thereafter
utilizes the funds received to make Qualified Investments in a manner which
complies with the immediately following sentence. A Qualified Investment shall
be deemed to have been made in compliance with this paragraph if, in respect of
such Qualified Investment, the following conditions are satisfied: (i) no
Default or Event of Default under the Convertible Note Indenture has occurred
and is continuing, or will occur as a result thereof; (ii) a Lien on the
Qualified Investment is granted to the Convertible Note
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Trustee or a collateral agent for the benefit of the Convertible Note Trustee
and the equal and ratable benefit of the holders of the Convertible Notes and
the benefit of the Senior Note Trustee and the equal and ratable benefit of the
holders of the Senior Notes so long as the Senior Notes are outstanding to
secure the Notes, the Guarantees and the other Obligations of the Company and
the Guarantors under the Convertible Note Indenture and the other Collateral
Documents and, on a junior basis, to secure any applicable Intercompany Note and
to secure the Senior Notes and the other obligations of the Company and the
Guarantors under the Senior Notes, the Senior Note Indenture and the Senior Note
Collateral Documents; (iii) the entity in which such Qualified Investment is
made has all licenses, registrations and permits necessary to operate the
Telecommunications Business in which it is engaging or proposes to engage on the
date of such Qualified Investment; (iv) all licenses, registrations and permits
required for such Qualified Investment and such Liens have been obtained; and
(v) appropriate Collateral Documents have been executed and delivered and
properly recorded, registered and filed to the extent necessary to make
effective the Liens intended to be created therein. See "-- Certain
Definitions--Permitted Investments."
The Convertible Note Indenture and the Convertible Note Collateral
Documents provide that Convertible Note Collateral may be released from the
Liens created by the Convertible Note Collateral Documents (a) upon payment in
full of the Convertible Notes or upon conversion of all of the Convertible Notes
in accordance with the terms of the Convertible Notes and the Convertible Note
Indenture and the other obligations then due and owing under the Convertible
Notes, the Convertible Note Indenture and the Convertible Note Collateral
Documents, and upon payment in full of the Senior Notes in accordance with the
terms of the Senior Notes and the Senior Note Indenture and the other
obligations then due and owing under the Senior Notes, the Senior Note Indenture
and the Senior Note Collateral Documents; (b) with respect to inventory, upon
the sale of such inventory in the ordinary course of business; (c) with respect
to Convertible Note Collateral sold or disposed of in an Asset Sale if such sale
or other disposition is not prohibited under the Convertible Note Indenture and
if the Net Cash Proceeds of such sale or other disposition are applied as
provided in the Convertible Note Indenture (see "--Asset Sales"), or after
payment in full or conversion of the Convertible Notes, the Senior Note
Indenture; (d) with respect to amounts in the Company Convertible Note Escrow
Account consisting of Net Cash Proceeds of Asset Sales, upon the expenditure of
such cash if such expenditure is made in accordance with the Convertible Note
Indenture or after payment in full or conversion of the Convertible Notes, the
Senior Note Indenture; (e) with respect to payments received on Technocom
Preferred Stock, if the procedures described in the preceding paragraph are
complied with; and (f) with respect to any Intercompany Note from the Leasing
Companies, upon the repayment, forgiveness or other termination of such note;
provided that all such releases described above are in compliance with the Trust
Indenture Act.
In the event of any Asset Sale that involves any Senior Note Collateral
or involves Telecommunications Assets subject to a Telecommunications Asset
Agreement, the Company or the relevant Restricted Subsidiary shall cause the Net
Cash Proceeds derived or resulting from such Asset Sale to be deposited in the
Company Senior Note Escrow Account or a Leasing Company Escrow Account, as
applicable, on or before the Business Day following the fifth Business Day on
which such Net Cash Proceeds are received by the Company or such Restricted
Subsidiary. Similarly, in the event of any Asset Sale that involves Convertible
Note Collateral, the Company or the relevant Restricted Subsidiary shall cause
the Net Cash Proceeds derived or resulting from such Asset Sale to be deposited
in the Company Convertible Note Escrow Account on or before the Business Day
following the fifth Business Day on which such Net Cash Proceeds are received by
the Company or such Restricted Subsidiary. In the event that the Company or the
relevant Restricted Subsidiary engages in an Asset Sale with respect to any
Senior Note Collateral or Convertible Note Collateral which is permitted by the
applicable Indenture and the related Collateral Documents (or the Company
designates a Guarantor to be an Unrestricted Subsidiary in accordance with the
applicable Indenture), the applicable Trustee shall execute and deliver such
documents as requested by the Company to evidence the release of the Liens of
the applicable Collateral Documents on the assets subject to the Asset Sale or
on the assets owned by such Unrestricted Subsidiary, as applicable. The proceeds
of such Collateral or such Telecommunications Assets (including any earnings
thereon) may be released from the applicable Escrow Account in order to, and in
only such amount as is required to, (a) pay the principal amount of the Notes
tendered pursuant to an applicable Asset Sale Offer; or (b) purchase Replacement
Assets or Replacement Telecommunications Assets, as applicable, to the extent
permitted by the covenant "--Asset Sales" (as provided under "--Asset Sales," in
which case the proceeds of such Senior Note Collateral or Convertible Note
Collateral may be released to the Company, the Guarantor or Restricted
Subsidiary, as applicable, if such proceeds are to be used
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in accordance with the applicable Indenture); provided, that upon consummation
of such Investment or purchase the applicable Trustee shall have received a
first priority fully perfected security interest and the other Trustee shall
have received a second priority fully perfected security interest, subject to
Permitted Liens, in the Property or assets acquired by the Company or any of its
Restricted Subsidiaries in connection therewith or in the case of Replacement
Telecommunications Assets, in the relevant Telecommunications Asset Lease. See
"--Asset Sales."
The disposition of inventory in the ordinary course of the Company's
and Guarantors' businesses, as applicable, may be made without delivery to the
applicable Trustee of certificates required by the Trust Indenture Act. However,
in lieu thereof, the Company will be required to deliver semi-annual Officers'
Certificates to the effect that all such dispositions have been made in the
ordinary course of the applicable Company's or Guarantors' business and that the
proceeds therefrom have been applied in a manner permitted by the respective
Indentures. The Trustees shall, in the absence of negligence or bad faith on its
part, be entitled to rely on Officers' Certificates and opinions of counsel with
respect to the Company's and the Guarantors' compliance with the Collateral
release provisions of the respective Indentures.
The release of any Senior Note Collateral from the terms of the Senior
Note Collateral Documents, or the release, in whole or in part, of the Liens
created by the Senior Note Collateral Documents, will not be deemed to impair
the security under the Senior Note Indenture in contravention of the provisions
thereof and of the Senior Note Collateral Documents if and to the extent that
the Senior Note Collateral is released pursuant to the Senior Note Indenture and
the Senior Note Collateral Documents. In connection with the release of Senior
Note Collateral, the Senior Note Trustee shall determine whether it has received
all documentation required by Section 314(d) of the Trust Indenture Act to
permit such release. The release of any Convertible Note Collateral from the
terms of the Convertible Note Collateral Documents, or the release, in whole or
in part, of the Liens created by the Convertible Note Collateral Documents, will
not be deemed to impair the security under the Convertible Note Indenture in
contravention of the provisions thereof and of the Convertible Note Collateral
Documents if and to the extent that the Convertible Note Collateral is released
pursuant to the Convertible Note Indenture and the Convertible Note Collateral
Documents. In connection with the release of Convertible Note Collateral, the
Convertible Note Trustee shall determine whether it has received all
documentation required by Section 314(d) of the Trust Indenture Act to permit
such release.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company, the Guarantors and the Senior Note Trustee or the
Convertible Note Trustee, as applicable, may, at any time, and from time to
time, without notice to or consent of any holder of the Senior Notes or any
holder of the Convertible Notes, as applicable, enter into one or more
indentures supplemental to the Senior Note Indenture or the Convertible Note
Indenture, as the case may be in form satisfactory to the applicable Trustee,
(1) to evidence the succession of another Person to the Company or the
Guarantors, as applicable, and the assumption by such successor of the covenants
and obligations of the Company in such Indenture, such Notes and the related
Collateral Documents and the Guarantors in the applicable Guarantees, such
Indenture and the related Collateral Documents; (2) to add to the covenants of
the Company, for the benefit of the holders of the Notes, or to surrender any
right or power conferred upon the Company or the Guarantors by such Indenture or
the related Collateral Documents; (3) to add any additional Events of Default;
(4) to provide for uncertificated Notes in addition to or in place of
certificated Notes; (5) to evidence and provide for the acceptance of
appointment under such Indenture of a successor Trustee; (6) to add additional
security for such Notes and/or such Guarantees; (7) to cure any ambiguity in
such Indenture or the related Collateral Documents, to correct or supplement any
provision in such Indenture or the related Collateral Documents which may be
inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under such Indenture or the related
Collateral Documents; provided that such actions shall not adversely affect the
interests of the holders in any material respect; (8) to make provision with
respect to the conversion rights of the holders of the Convertible Notes in the
event of a consolidation, merger or sale of assets involving the Company, as
required by the Convertible Note Indenture; or (9) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
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With the consent of the holders of not less than a majority in
aggregate principal amount at Stated Maturity of the outstanding Senior Notes or
Convertible Notes, the Company, the Guarantors and the Senior Note Trustee or
the Convertible Note Trustee, as applicable, may enter into one or more
indentures supplemental to the Senior Note Indenture or the Convertible Note
Indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of such Indenture or modifying in any
manner the rights of the holders; provided that no such supplemental indenture
shall, without the consent of the holder of each outstanding Senior Note or
Convertible Note, as the case may be: (1) change the Stated Maturity of the
principal of, or any installment of interest on, any Senior Note or Convertible
Note, or reduce as applicable, the principal amount (including, in the case of
the Senior Notes, the Accreted Value at any time) thereof (or premium, if any),
or the interest (including Additional Amounts, if any, or Special Interest, if
any) thereon that would be due and payable upon Maturity thereof, or change the
place of payment where, or the coin or currency in which, any Senior Note or
Convertible Note, as applicable, or any premium or interest (including
Additional Amounts, if any) thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the maturity thereof;
(2) reduce the percentage in principal amount of the outstanding Senior Notes or
Convertible Notes, the consent of whose holders is required for any such
supplemental indenture or required for any waiver of compliance with certain
provisions of the Senior Note Indenture or the Senior Collateral Documents or
certain Defaults thereunder, or the provisions of the Convertible Note Indenture
or the Convertible Note Collateral Documents or certain Defaults thereunder; (3)
modify any of the provisions of the Indentures relating to the waiver of
defaults, except to increase the percentage set forth therein or to provide that
certain other provisions of the Indentures cannot be amended or waived without
the consent of the holder of each outstanding Note affected thereby; or (4)
subordinate in right of payment, or otherwise subordinate, the Senior Notes or
the Senior Note Guarantees to any other Indebtedness other than senior
indebtedness; or (5) modify any provision of either Indenture relating to the
obligations of the Company to make offers to purchase Notes upon a Change of
Control or from the proceeds of an Asset Sale; or (6) make any change in the
subordination provisions of either the Senior or the Convertible Notes that
would adversely affect the holders of such Notes; (7) adversely affect the right
of the holders of Convertible Notes to convert such Convertible Notes; (8)
modify the obligations of the Company to make offers to purchase Notes upon a
Change of Control or from the proceeds of Asset Sales or, in the case of a
Termination of Trading of the Common Stock of the Company, the obligation of the
Company to make an offer to repurchase the Convertible Notes; (9) modify any
provision of this paragraph (except to increase any percentage set forth
herein); or (10) amend, supplement or otherwise modify the provisions of the
applicable Indenture relating to the Guarantees.
The holders of not less than a majority in principal amount at Stated
Maturity of the outstanding Senior Notes or the Convertible Notes, as the case
may be, may, on behalf of the holders of all the Senior Notes or the Convertible
Notes, as the case may be, waive any past Default under the applicable Indenture
and its consequences, except Default in the payment of the principal of (or
premium, if any) or interest on any Senior Notes or Convertible Notes, as the
case may be, or in respect of a covenant or provision hereof which under the
proviso to the prior paragraph cannot be modified or amended without the consent
of the holder of each outstanding Senior Note or Convertible Note affected.
It shall not be necessary for any act of holders to approve the
particular form of any proposed supplement indenture, but it shall be sufficient
if such act shall approve the substance thereof. Notwithstanding the foregoing,
so long as the Convertible Notes are outstanding and the Convertible Note
Indenture has not been satisfied and discharged, the Senior Note Trustee, and so
long as the Senior Notes are outstanding and the Senior Note Indenture has not
been satisfied, the Convertible Note Trustee, shall not cause to become
effective a supplemental indenture (i) amending any Collateral Documents unless
a supplemental indenture to the applicable Indenture making the same amendment
to such Collateral Document becomes simultaneously effective, or (ii) amending
either the provisions relating to "Asset Sales" or "Possession, Use and Release
of Collateral" in any Indenture unless a supplemental indenture to the other
Indenture making the same amendment to the comparable provisions of the other
Indenture, as the case may be, becomes simultaneously effective.
SATISFACTION AND DISCHARGE OF THE INDENTURES, DEFEASANCE
The Company may terminate its obligations and the obligations of the
Guarantors to the holders of the Senior Notes under the Senior Notes, the Senior
Note Indenture, the Senior Note Guarantees and the Senior Note Collateral
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Documents when (i) either (A) all outstanding Senior Notes have been delivered
to the Senior Note Trustee for cancellation or (B) all such Senior Notes not
theretofore delivered to the Senior Note Trustee for cancellation have become
due and payable, will become due and payable within one year or are to be called
for redemption within one year under irrevocable arrangements satisfactory to
the Senior Note Trustee for the giving of notice of redemption by the Senior
Note Trustee in the name and at the expense of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Senior Note Trustee
funds in an amount sufficient to pay and discharge the entire indebtedness on
the Senior Notes not theretofore delivered to the Trustee for cancellation, for
principal of (premium, if any, on) and interest (including Additional Amounts,
if any, and Special Interest, if any) to the date of deposit or maturity or date
of redemption; (ii) the Company has paid or caused to be paid all sums then due
and payable by the Company to the holders of the Senior Notes under the Senior
Note Indenture; and (iii) the Company has delivered an Officers' Certificate and
an opinion of counsel relating to compliance with the conditions set forth in
the Senior Note Indenture. The Company may also terminate its obligations and
the obligations of the Guarantors to the holders of the Convertible Notes under
the Convertible Notes, the Convertible Note Indenture, the Convertible Note
Guarantees and the Convertible Note Collateral Documents when (i) either (A) all
outstanding Convertible Notes have been delivered to the Convertible Note
Trustee for cancellation or (B) all such Convertible Notes not theretofore
delivered to the Convertible Note Trustee for cancellation have become due and
payable, will become due and payable within one year or are to be called for
redemption within one year under irrevocable arrangements satisfactory to the
Convertible Note Trustee for the giving of notice of redemption by the
Convertible Note Trustee in the name and at the expense of the Company, and the
Company has irrevocably deposited or caused to be deposited with the Convertible
Note Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on the Convertible Notes not theretofore delivered to the
Convertible Note Trustee for cancellation, for principal of (premium, if any,
on) and interest (including Additional Amounts, if any, and Special Interest, if
any) to the date of deposit or maturity or date of redemption; (ii) the Company
has paid or caused to be paid all sums then due and payable by the Company under
the Convertible Note Indenture; and (iii) the Company has delivered an Officers'
Certificate and an opinion of counsel relating to compliance with the conditions
set forth in the Indenture; provided that notwithstanding the provisions above,
the holders of the Convertible Notes will retain their conversion rights until
the applicable redemption date.
The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the Senior Notes or the Convertible Notes, as the case
may be, and the respective Indentures, Guarantees and Collateral Documents shall
cease to be of further effect as to all outstanding Senior Notes or the
Convertible Notes, as the case may be, (except as to (i) rights of registration
of transfer, substitution and exchange of Senior Notes or the Convertible Notes,
as the case may be, and the Company's right of optional redemption, (ii) rights
of holders to receive payments of principal of, premium, if any, and interest
(including Additional Amounts and Special Interest, if applicable) on the Senior
Notes or the Convertible Notes, as the case may be, (but not the Change of
Control Purchase Price or the Offer Purchase Price) and any rights of the
holders with respect to such amounts, (iii) the rights, obligations and
immunities of the applicable Trustee under the applicable Indenture, (iv)
conversion rights under the Convertible Note Indenture, and (v) certain other
specified provisions in the applicable Indenture) or (b) cease to be under any
obligation to comply with certain restrictive covenants including those
described under "--Certain Covenants," after the irrevocable deposit by the
Company with the applicable Trustee, in trust for the benefit of the holders, at
any time prior to the Stated Maturity of the Senior Notes or the Convertible
Notes, as the case may be, of (A) money in an amount, (B) U.S. Government
Obligations which through the payment of interest and principal will provide,
not later than one day before the due date of payment in respect of such Notes,
money in an amount, or (C) a combination thereof sufficient to pay and discharge
the principal of, and interest (including Special Interest, if applicable) on,
such Notes then outstanding on the dates on which any such payments are due in
accordance with the terms of the applicable Indenture and of such Notes. Such
defeasance or covenant defeasance shall be deemed to occur only if certain
conditions are satisfied, including, among other things, delivery by the Company
to the applicable Trustee of an opinion of outside counsel acceptable to such
Trustee to the effect that (i) such deposit, defeasance and discharge will not
be deemed, or result in, a taxable event for federal income tax purposes with
respect to the holders; and (ii) the Company's deposit will not result in the
trust or such Trustee being subject to regulation under the Investment Company
Act of 1940.
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THE TRUSTEE
The Bank of New York is the Trustee under each Indenture and its
current address is 101 Barclay Street, Floor 21 West, New York, New York 10286.
The holders of not less than a majority in principal amount of the
outstanding Senior Notes or Convertible Notes, as applicable, will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the applicable Trustee, subject to certain
exceptions. Except during the continuance of an Event of Default under the
Indentures, the Trustees will perform only such duties as are specifically set
forth in the Indentures. The Indentures provide that in case an Event of Default
thereunder shall occur (which shall not be cured or waived), the Trustees will
be required, in the exercise of their respective rights and powers under the
Indentures, to use the degree of care of a prudent person in the conduct of such
person's own affairs. Subject to such provisions, the Trustees will be under no
obligation to exercise any of its rights or powers under the Indentures at the
request of any of the holders of the Senior Notes or Convertible Notes, as
applicable, unless such holders shall have offered to the Trustees indemnity
satisfactory to it against any loss, liability or expense.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company or of any Guarantor, as such, shall have any liability for any
obligations of the Company or the Guarantors under the Notes, the Guarantees or
the Indentures or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of his or her status as a
director, officer, employee, incorporator or stockholder of the Company or of
any Guarantor. By accepting a Note each holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Note to such holder. The waiver and release expressed in this paragraph are
part of the consideration for issuance of the Notes. Nonetheless, such waiver
may not be effective to waive liabilities under the federal securities laws and
it has been the view of the Commission that such a waiver is against public
policy.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the
applicable Indentures. The Company, the Registrars and the Trustees may require
a holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a holder to pay any taxes and fees
required by law or permitted by the applicable Indentures.
CONSENT TO JURISDICTION AND SERVICE
Each Indenture provides that the Company and each Guarantor will
irrevocably appoint CT Corporation System, 1633 Broadway, New York, New York
10019, as its agent for service of process in any suit, action or proceeding
with respect to such Indenture, the related Guarantees and the related
Collateral Documents, and that any such action may be brought in any federal or
state court located in New York County and that the Company and each Guarantor
will submit to the jurisdiction of such courts.
WAIVER OF IMMUNITY
Except as provided in the final sentence of this paragraph, the Senior
Notes Indenture, the Senior Notes, the Senior Notes Guarantees and the Senior
Notes Collateral Documents, and the Convertible Notes Indenture, the Convertible
Notes, the Convertible Note Guarantees and the Convertible Note Collateral
Documents, each include a waiver of sovereign immunity in which the Company and
each Guarantor agree to waive any defense of foreign sovereign immunity from
jurisdiction, attachment in aid of execution and execution to which it might
otherwise be entitled in any action or proceeding related to the Senior Note
Indenture, the Senior Notes, the Senior Note Guarantees and the Senior Note
Collateral Documents, and the Convertible Notes Indenture, the Convertible
Notes, the Convertible Note Guarantees and the Convertible Note Collateral
Documents. Notwithstanding the foregoing, the Company and each Guarantor will
not waive any immunity from attachment prior to judgment to which they may now
or hereafter be entitled.
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GOVERNING LAW
The Senior Note Indenture, the Senior Notes, the Senior Note Guarantees
and the Senior Note Collateral Documents, and the Convertible Note Indenture,
the Convertible Notes, the Convertible Note Guarantees and the Convertible Note
Collateral Documents, will be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
CURRENCY INDEMNITY
The U.S. Dollar is the sole currency of account and payment for all
sums payable by the Company and the Guarantors under or in connection with the
Senior Notes, the Senior Note Guarantees, the Senior Note Indenture and the
Senior Note Collateral Documents, and under or in connection with the
Convertible Notes, the Convertible Note Guaranties, the Convertible Note
Indenture and the Convertible Note Collateral Documents, including damages. Any
amount received or recovered in a currency other than U.S. Dollars (whether as a
result of a judgment or order of a court of any jurisdiction or the enforcement
thereof, in the winding-up or dissolution of the Company or any Guarantor or
otherwise) by the Trustee or any holder of Notes in respect of any sum expressed
to be due to it from the Company or such Guarantor shall only constitute
discharge of the Company or such Guarantor to the extent of the U.S. Dollar
amount which the recipient is able to purchase with the amount so received or
recovered in such other currency on the date of such receipt or recovery (or, if
it is not practicable to make such purchase on such date; provided that such
purchase shall be made on the first date on which it is practicable to do so).
If the amount of U.S. Dollars so purchased is less than the U.S. Dollar amount
expressed to be due to such recipient under any Note, the Company or such
Guarantor shall indemnify such recipient against any loss sustained by it as a
result and, in any event, the Company or such Guarantor shall indemnify such
recipient against the cost of making any such purchase. For the purposes of this
paragraph, it will be sufficient for any such recipient to certify that it would
have suffered a loss had an actual purchase of U.S. Dollars been made with the
amount so received in that other currency on the date of receipt or recovery
(or, if a purchase of U.S. Dollars on such date had not been practicable, on the
first date on which it would have been practicable). To the extent permitted by
applicable law, these indemnities constitute a separate and independent
obligation from the other obligations of the Company or any Guarantor's other
obligations and shall give rise to a separate and independent cause of action in
favor of the Trustee or any holder of Notes, as the case may be.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indentures, except where the context otherwise indicates. Reference is made
to the Indentures for the full definition of all such terms, as well as any
capitalized terms used herein for which no definition is provided.
"Accreted Value" of any outstanding Senior Note as of or to any date of
determination prior to December 1, 1998 shall mean an amount equal to the sum of
(i) the issue price of such Note as determined in accordance with Section 1273
of the Code, plus (ii) the aggregate of the portions of the original issue
discount (the excess of the amounts considered as part of the "stated redemption
price at maturity" of such Note within the meaning of Section 1273(a)(2) of the
Code or any successor provisions, whether denominated as principal or interest,
over the issue price of such Note) that shall theretofore have accrued pursuant
to Section 1272 of the Code (without regard to Section 1272(a)(7) of the Code)
from the date of issue of such Note (a) for each six-month or shorter period
ending June 1 or December 1 prior to the date of determination and (b) for the
shorter period, if any, from the end of such immediately preceding six-month or
shorter period, as the case may be, to the date of determination plus (iii)
accrued and unpaid interest to the date such Accreted Value is paid (without
duplication of any amount set forth in (ii) above), minus all amounts
theretofore paid in respect of such Note, which amounts are considered as part
of the "stated redemption price at maturity" of such Note within the meaning of
Section 1273(a)(2) of the Code or any successor provisions (whether such amounts
paid were denominated principal or interest). On or after December 1, 1998, the
Accreted Value of any outstanding Senior Note will equal the principal amount of
such Note.
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"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Person merging with or into or becoming a Subsidiary
of such specified Person.
"Adjusted Net Assets" of a Guarantor at any date means the amount by
which the fair value of the assets and property of such Guarantor exceeds the
total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under any of its
Guarantees, of such Guarantor at such date.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person; provided that each Unrestricted Subsidiary shall be deemed to be an
Affiliate of the Company and of each other Subsidiary of the Company; provided
that, except for purposes of provisions relating to determining outstanding
Notes, the payment of Notes and the release of Guarantors, neither the Company
nor any of its Wholly-Owned Restricted Subsidiaries shall be deemed to be
Affiliates of each other. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "under common control with,"
and "controlled by"), and as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of Voting Stock, by agreement or otherwise; provided, further, that
beneficial ownership of 10% or more of the Voting Stock of a Person (on a fully
diluted basis) shall be deemed to be control.
"Asset Sale" means, with respect to any Person, any transfer,
conveyance, sale, lease or other disposition (including, without limitation,
dispositions pursuant to any consolidation, amalgamation or merger) by such
Person or any of its Restricted Subsidiaries to any Person other than to such
Person or a Restricted Subsidiary of such Person, in one transaction, or a
series of related transactions (each hereinafter referred to as a
"Disposition"), of (a) Capital Stock of or other equity interests in any
Restricted Subsidiary (other than director's qualifying shares), (b) all or
substantially all of the assets of any division or line of business of such
Person or of any of the Restricted Subsidiaries or (c) of Property or assets of
such Person or any of its Restricted Subsidiaries, the Fair Market Value of
which exceeds $1 million, other than (i) a Disposition of Property in the
ordinary course of business consistent with industry practice, (ii) a
Disposition of Eligible Cash Equivalents, (iii) a Disposition that constitutes a
Restricted Payment under the Senior Note Indenture that is permitted under
"--Restricted Payments", (iv) a Disposition by Technocom of all of its assets
and liabilities to a newly-formed corporation organized in a jurisdiction other
than Ireland formed to acquire such assets and owned in a substantially
identical proportion and manner (and the preferential $20 million dividend and
liquidation, dissolution or winding-up rights of the Technocom Preferred Stock
are not changed) as Technocom is owned immediately prior to such Disposition and
such Disposition does not adversely affect the perfection or priority of the
Liens in the Technocom Preferred Stock, (v) a Disposition by WTC of its interest
in BECET to NWE Cyprus, in connection with a winding-up or liquidation of WTC,
and (vi) a Disposition by the Company in connection with a transaction permitted
pursuant to Article V hereof, the Company in connection with a transaction
permitted under "--Consolidation, Merger, Conveyance, Lease or Transfer", and
(vi) a Disposition by PLD Leasing pursuant to the Supplemental Indenture of
substantially all of its assets to a newly-formed Leasing Company formed under
the laws of one of the United States of America."
"Attributable Indebtedness" means, with respect to any Sale and
Leaseback Transaction of any Person, as at the time of determination, the
greater of (i) the capitalized amount in respect of such transaction that would
appear on the balance sheet of such Person in accordance with GAAP and (ii) the
present value (discounted at a rate consistent with accounting guidelines, as
determined in good faith by such Person) of the payments during the remaining
term of the lease (including any period for which such lease has been extended
or may, at the option of the lessor, be extended) or until the earliest date on
which the lessee may terminate such lease without penalty or upon payment of a
penalty (in which case the rental payments shall include such penalty).
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"Average Life" means, as of any date, with respect to any debt security
or Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (x) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund or
mandatory redemption payment requirements) of such debt security or Disqualified
Stock multiplied in each case by (y) the amount of such principal or redemption
payment, by (ii) the sum of all such principal or redemption payments.
"Board of Directors" means the Board of Directors of the Company or any
Guarantor or any committee thereof duly authorized to act on behalf of such
Board.
"Board Resolution" means a duly adopted resolution of the Board of
Directors in full force and effect at the time of determination and certified as
such.
"Capital Lease Obligation" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Indebtedness
arrangement conveying the right to use) real or personal property of such Person
which is required to be classified and accounted for as a capital lease or a
liability on the face of a balance sheet of such Person in accordance with GAAP
and the stated maturity thereof shall be the date of the last payment of rent or
any amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
"Cash Proceeds" means, with respect to any Asset Sale or issuance or
sale of Capital Stock by any Person, the aggregate consideration received in
respect of such sale or issuance by such Person in the form of cash or Eligible
Cash Equivalents; provided that with regard to an Asset Sale, any liabilities
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto) of the Company or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Senior Notes
or the Senior Note Guarantees, or the Convertible Notes or the Convertible Note
Guarantees) which are assumed by the transferee of any such assets and from
which the Company and such Restricted Subsidiary are completely released shall
be deemed Cash Proceeds.
"Change of Control" shall be deemed to occur if (i) the sale,
conveyance, transfer or lease, whether direct or indirect, of all or
substantially all of the assets of the Company or the Company and the Restricted
Subsidiaries taken as a whole to any "Person" or "group" (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), or any successor provision
to either of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(i) under the Exchange Act) (other than any Wholly-Owned Restricted
Subsidiary of the Company) shall have occurred; (ii) any "Person" or "group"
(within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(i) under the Exchange Act), other than any Permitted Holder,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of more than 50% of the total voting power of all classes of the Voting Stock of
the Company and/or warrants or options to acquire such Voting Stock, calculated
on a fully diluted basis, and such voting power percentage is greater than or
equal to the total voting power percentage then beneficially owned by the
Permitted Holders in the aggregate; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election or appointment by such board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Collateral" means collectively the Senior Note Collateral and the
Convertible Note Collateral.
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"Collateral Documents" means collectively the Senior Note Collateral
Documents and the Convertible Note Collateral Documents.
"Consolidated Interest Expense" means, with respect to any Person for
any period, without duplication (A) the sum of (i) the aggregate amount of cash
and non-cash interest expense (including capitalized interest) of such Person
and its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP in respect of Indebtedness (including, without
limitation, (v) any amortization of debt discount, (w) net costs associated with
Interest Hedging Obligations (including any amortization of discounts), (x) the
interest portion of any deferred payment obligation calculated in accordance
with the effective interest method, (y) all accrued interest and (z) all
commissions, discounts and other fees and charges owed with respect to letters
of credit, bankers' acceptances or similar facilities) paid or accrued, or
scheduled to be paid or accrued, during such period; (ii) dividends or
distributions with respect to preferred stock or Disqualified Stock of such
Person (and of its Restricted Subsidiaries if paid to a Person other than such
Person or its Restricted Subsidiaries) declared and payable in cash; (iii) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Capital Lease Obligation allocable to interest expense in
accordance with GAAP; (iv) the portion of any rental obligation of such Person
or its Restricted Subsidiaries in respect of any Sale and Leaseback Transaction
allocable to interest expense (determined as if such were treated as a Capital
Lease Obligation); and (v) to the extent any Indebtedness of any other Person is
guaranteed by such Person or any of its Restricted Subsidiaries, the aggregate
amount of interest paid, accrued or scheduled to be paid or accrued, by such
other Person during such period attributable to any such Indebtedness, less (B)
to the extent included in (A) above, amortization or write-off of deferred
financing costs of such Person and its Restricted Subsidiaries during such
period and any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness of such Person and its Restricted
Subsidiaries prior to its stated maturity; in the case of both (A) and (B)
above, after elimination of intercompany accounts among such Person and its
Restricted Subsidiaries and as determined in accordance with GAAP. For purposes
of clause (ii) above, dividend requirements attributable to any Preferred Stock
or Disqualified Stock shall be deemed to be an amount equal to the amount of
dividend requirements on such Preferred Stock or Disqualified Stock times a
fraction, the numerator of which is the amount of such dividend requirements,
and the denominator of which is one minus the applicable combined federal,
state, local and foreign income tax rate of the Company and its Restricted
Subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal
year immediately preceding the date of the transaction giving rise to the need
to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP; provided that there shall be excluded therefrom, without duplication,
(i) all items classified as extraordinary, unusual or nonrecurring, (ii) for any
Person (the "Other Person") in which the Person in question or any of its
Restricted Subsidiaries has less than a 100% interest which interest does not
cause the net income of such other Person to be consolidated into the net income
of the Person in question in accordance with GAAP) any net income of such other
Person, except to the extent of the amount of dividends or other distributions
actually paid to such Person or its Restricted Subsidiaries by such other Person
during such period, (iii) the net income of any Person acquired by such Person
or any of its Restricted Subsidiaries in a pooling-of-interests transaction for
any period prior to the date of the related acquisition, (iv) any gain or loss,
net of taxes, realized on the termination of any employee pension benefit plan,
(v) net gains (but not net losses) in respect of Asset Sales by such Person or
its Restricted Subsidiaries, (vi) the net income (but not net loss) of any
Restricted Subsidiary of such Person to the extent that the payment of dividends
or other distributions to such Person is restricted by the terms of its charter
or any agreement, instrument, contract, judgment, order, decree, statute, rule,
governmental regulation or otherwise, except for any dividends or distributions
actually paid by such Restricted Subsidiary to such Person, and (vii) with
regard to a non-Wholly-Owned Restricted Subsidiary, any aggregate net income (or
loss) in excess of such Person's or such Restricted Subsidiary's pro rata share
of such non-Wholly-Owned Restricted Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person and its Restricted Subsidiaries, as
determined on a consolidated basis in accordance with GAAP, less amounts
attributable to Disqualified Stock of such Person.
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"Convertible Note Collateral" means all "collateral" referred to in the
Convertible Note Collateral Documents and all other Property or assets that
become subject to a Lien in favor of the Convertible Note Trustee or a
collateral agent for the benefit of the Convertible Note Trustee and the holders
of the Convertible Notes and, if the Senior Notes are outstanding and the Senior
Note Indenture so requires, for the benefit of the Senior Note Trustee and the
holders of the Senior Notes, but Convertible Note Collateral shall not include
Senior Note Collateral.
"Convertible Note Collateral Documents" means the Company Convertible
Note Security and Pledge Agreement among the Company, the Convertible Note
Trustee, the Senior Note Trustee and the collateral agent named therein, the
Company Convertible Note Escrow Account Agreement among the Company, the
Convertible Note Trustee, the Senior Note Trustee and the escrow agent named
therein, and/or any other document creating a Lien that secures the Convertible
Notes other than the Senior Note Collateral Documents.
"Default" means any event, act or condition, the occurrence of which
is, or after notice or the passage of time or both would be, an Event of
Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, or otherwise matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof or is exchangeable for
Indebtedness at any time, in whole or in part, on or prior to the date on which
the Notes mature.
"EBITDA" means, with respect to any Person for any period, the sum for
such Person for such period of Consolidated Net Income plus, to the extent
reflected in the income statement of such Person for such period from which
Consolidated Net Income is determined, without duplication, (i) Consolidated
Interest Expense, (ii) income tax expense of such Person and its consolidated
Subsidiaries, (iii) depreciation expense, (iv) amortization expense, (v) any
non-cash expense related to the issuance to employees of such Person of options
to purchase Capital Stock of such Person and (vi) any charge related to any
premium or penalty paid in connection with redeeming or retiring any
Indebtedness prior to its stated maturity and minus, to the extent reflected in
such income statement, any noncash credits that had the effect of increasing
Consolidated Net Income of such Person for such period. This definition of
EBITDA is used only for the purpose of this Description of the Senior Notes and
the Senior Note Indenture.
"Eligible Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits,
certificates of deposit, or Eurodollar deposits of any commercial bank organized
in the United States having capital and surplus in excess of $500 million or a
commercial bank organized under the laws of any other country that is a member
of the Organization for Economic Cooperation and Development ("OECD") and has
total assets in excess of $500 million with a maturity date not more than one
year from the date of acquisition, (iii) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any bank meeting the qualifications specified
in clause (ii) above, (iv) direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof maturing, or subject to tender at the option of the
holder thereof, within ninety days after the date of acquisition thereof and, at
the time of acquisition having a rating of A or better from Standard & Poor's or
A-2 or better from Moody's, (v) commercial paper issued by the parent
corporation of any commercial bank organized in the United States having capital
and surplus in excess of $500 million or a commercial bank organized under the
laws of any other country that is a member of the OECD and has total assets in
excess of $500 million and commercial paper issued by non-bank issuers rated A-1
by Standard & Poor's or P-1 by Moody's and in each case maturing within 270 days
after the date of acquisition, (vi) overnight bank deposits and bankers'
acceptances at any commercial bank organized in the United States having capital
and surplus in excess of $500 million or a commercial bank organized under the
laws of any other country that is a member of the OECD and has total assets in
excess of $500 million, (vii) deposits available for withdrawal on demand with a
commercial bank organized in the United States having capital and surplus in
excess of $500 million or a commercial bank organized under the laws of any
other country that is a member of the OECD and has total assets in excess of
$500 million, (viii) investments in money market funds substantially all of
whose assets
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comprise securities of the types described in clauses (i) through (vi), and (ix)
with respect to a Restricted Subsidiary conducting operations in the Russian
Federation or Kazakhstan, demand deposits, certificates of deposit and bank
promissory notes denominated in Russian Roubles or Kazakh Tenge, as the case may
be, and used for ordinary course of business operations by such Restricted
Subsidiary solely in the jurisdiction where such Restricted Subsidiary does
business.
"Exchange Rate Obligation" means, with respect to any Person, any
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Existing Indebtedness" means Indebtedness outstanding on the date of
the Senior Note Indenture (other than Indebtedness under the Revolving Credit
Facilities or permitted by in clauses (j) or (k) of the second paragraph of "--
Limitation on Indebtedness") and disclosed in a schedule attached to the Senior
Note Indenture.
"Fair Market Value" means, with respect to any asset or Property, the
net sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy, as determined in good faith by the
Board of Directors of the Company or a Restricted Subsidiary, as applicable.
"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination; provided that, except as otherwise specifically provided, all
calculations made for purposes of determining compliance with the terms of the
provisions of the Indentures shall utilize GAAP as in effect on the Issue Date.
"guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"guaranteed", "guaranteeing" and "guarantor" shall have meanings correlative to
the foregoing).
"Guarantees" means collectively the Senior Note Guarantees and the
Convertible Note Guarantees.
"incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"incurrence", "incurred", "incurrable" and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness. Indebtedness otherwise
incurred by a Person before it becomes a Restricted Subsidiary of the Company
shall be deemed to have been incurred at the time at which it becomes a
Restricted Subsidiary.
"Indebtedness" means at any time (without duplication), with respect to
any Person, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
money borrowed, (ii) any obligation of such Person evidenced by bonds,
debentures, notes, guarantees or other similar instruments, including, without
limitation, any such obligations incurred in connection with acquisition of
Property, assets or businesses, excluding trade accounts payable made in the
ordinary course of business, (iii) any reimbursement obligation of such Person
with respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) any obligation of such Person issued
or assumed as the deferred purchase price of Property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business, which in either case are not more than 60 days overdue or which are
being contested in good faith), (v) any Capital Lease
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Obligation of such Person, (vi) the maximum fixed redemption or repurchase price
of Disqualified Stock of such Person and, to the extent held by other Persons,
the maximum fixed redemption or repurchase price of Disqualified Stock of such
Person's Restricted Subsidiaries, at the time of determination, (vii) the
notional amount of any Interest Hedging Obligations or Exchange Rate Obligations
of such Person at the time of determination, (viii) any Attributable
Indebtedness with respect to any Sale and Leaseback Transaction to which such
Person is a party and (ix) any obligation of the type referred to in clauses (i)
through (viii) of this definition of another Person and all dividends and
distributions of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise. For purposes of the preceding sentence, the
maximum fixed repurchase price of any Disqualified Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture;
provided that if such Disqualified Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Disqualified
Stock. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability of any guarantees at such date; provided that
for purposes of calculating the amount of the Senior Notes outstanding at any
date, the amount of such Senior Notes shall be the Accreted Value thereof as of
such date unless cash interest has commenced to accrue pursuant to the Senior
Note Indenture, in which case the amount of the Senior Notes outstanding will be
determined pursuant to the Senior Note Indenture and will not include any
accrued and unpaid cash interest which would otherwise be included in Accreted
Value because of clause (iii) of the definition thereof.
"Indebtedness to Operating Cash Flow Ratio" means, as at any date of
determination, the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis as of the date
of determination to (ii) the aggregate amount of EBITDA of the Company and its
Restricted Subsidiaries for the four preceding fiscal quarters for which
financial information is available immediately prior to the date of
determination; provided that any Indebtedness incurred or retired by the Company
or any of its Restricted Subsidiaries during the fiscal quarter in which the
date of determination occurs shall be calculated as if such Indebtedness was so
incurred or retired on the first day of the fiscal quarter in which the date of
determination occurs; and provided, further, that (x) if the transaction giving
rise to the need to calculate the Indebtedness to Operating Cash Flow Ratio
would have the effect of increasing or decreasing Indebtedness or EBITDA in the
future, Indebtedness or EBITDA shall be calculated on a pro forma basis as if
such transaction had occurred on the first day of such four fiscal quarter
period preceding the date of determination, and (y) if during such four fiscal
quarter period, the Company or any of its Restricted Subsidiaries shall have
engaged in any Asset Sale, EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive), or increased by an amount equal to the EBITDA
(if negative), directly attributable to the assets which are the subject of such
Asset Sale and any related retirement of Indebtedness as if such Asset Sale and
related retirement of Indebtedness had occurred on the first day of such four
fiscal quarter period or (z) if during such four fiscal quarter period the
Company or any of its Restricted Subsidiaries shall have acquired any material
assets outside the ordinary course of business, EBITDA shall be calculated on a
pro forma basis as if such asset acquisition and related financing had occurred
on the first day of such four fiscal quarter period.
"Intercompany Notes" means a promissory note representing Indebtedness
of a Restricted Subsidiary owing to the Company or a Restricted Subsidiary,
which, if representing a loan of net proceeds of the Senior Notes to a Leasing
Company, shall have substantially the same Maturity as the Senior Notes and
substantially the same interest payment dates, the same interest rate and
substantially the same covenants as are contained in the Senior Note Indenture
and the Senior Note Collateral Documents and shall be secured by the applicable
Telecommunications Asset Agreements and by the applicable Qualified Investments.
"Interest Hedging Obligation" means, with respect to any Person, an
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its Restricted
Subsidiaries' exposure to fluctuations in interest rates.
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"International Vendor Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary other than the Leasing Companies or NWE Cyprus
incurred or assumed in connection with the purchase within 180 days of such
incurrence or assumption of Property or assets to be used in the business of
such Person or any of its Restricted Subsidiaries in the Russian Federation or
Kazakhstan; provided that the net cash proceeds from the issuance of such
Indebtedness do not exceed 100% of the lesser of the cost or Fair Market Value
of the Property or assets constructed or acquired.
"Inventory" means, with respect to any Person, all present or future
inventory in which a Person has any interest, including goods, wares and
merchandise held for sale or lease or leased or furnished or to be leased or
furnished under a contract of service and all of a Person's present and future
raw materials, work in process, finished goods, parts, components, assemblies,
and packing and shipping materials, wherever located, and documents of title
representing any of the above.
"Investment" in any Person means any direct, indirect or contingent (i)
advance or loan to, guarantee of any Indebtedness of, or extension of credit or
capital contribution to, such Person, (ii) the acquisition of any shares of
Capital Stock, bonds, notes, debentures or other securities of such Person, or
(iii) the acquisition, by purchase or otherwise, of all or substantially all of
the business, assets or stock or other evidence of beneficial ownership of such
Person; provided that Investments shall exclude accounts receivable and other
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices. The amount of an Investment shall be the original cost
of such Investment, plus the cost of all additions thereto and minus the amount
of any portion of such Investment repaid to such Person in cash as a repayment
of principal or a return of capital, as the case may be, but without any other
adjustments for increases or decrease in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
Investment involving a transfer of any Property other than cash, such Property
shall be valued at its Fair Market Value at the time of such transfer.
"Issue Date" means the date on which the Senior Notes or the
Convertible Notes are first authenticated and delivered under the Senior Note
Indenture or the Convertible Note Indenture, being June 12, 1996.
"Joint Venture" means a Telecommunications Company of which less than
50 percent of the Voting Stock is held by the Company; provided that the
Telecommunications Business of such Person is principally conducted in the
Russian Federation and/or Kazakhstan.
"Leasing Company" means a special purpose corporation formed under the
laws of Cyprus or one of the United States of America which is a Guarantor and a
Wholly-Owned Restricted Subsidiary organized for the limited purpose of (i)
acquiring Telecommunications Assets and leasing or selling them pursuant to
Telecommunications Asset Agreements to Restricted Subsidiaries in transactions
in which the monetary consideration for such Telecommunications Assets is paid
immediately or payable over time by such Restricted Subsidiaries and/or (ii)
making Qualified Investments.
"Lien" means, with respect to any Property or other asset, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, easement, encumbrance,
preference, priority or other security or similar agreement or preferential
arrangement of any nature whatsoever on or with respect to such Property or
other asset (including, without limitation, any conditional sale or title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means, when used with respect to a Note, the date on which
the principal of such Note becomes due and payable as provided therein or in the
applicable Indenture, whether at Stated Maturity, on the Change of Control
Payment Date or purchase date established pursuant to the terms of the
applicable Indenture with regard to a Change of Control Offer, an Asset Sale
Offer or an offer to repurchase upon Termination of Trading of the Common Shares
of the Company, as applicable, or by declaration of acceleration, call for
redemption or otherwise.
"Net Cash Proceeds" means, with respect to the sale of any Property or
assets by any Person or any of its Restricted Subsidiaries, Cash Proceeds (other
than any liabilities assumed by the transferee constituting Cash Proceeds
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referred to in the proviso contained in the definition of "Cash Proceeds" set
forth above) received net of (i) all reasonable out-of-pocket expenses of such
Person or such Restricted Subsidiary incurred in connection with such sale,
including, without limitation, all legal, title and recording tax expenses,
commissions and other fees and expenses incurred (but excluding any finder's fee
or broker's fee payable to any Affiliate of such Person) and all federal, state,
foreign and local taxes arising in connection with such sale that are paid or
required to be accrued as liability under GAAP by such Person or its Restricted
Subsidiaries, (ii) all payments made or required to be made by such Person or
its Restricted Subsidiaries on any Indebtedness which is secured by such
Properties or other assets in accordance with the terms of any Lien upon or with
respect to such Properties or other assets or which must, by the terms of such
Lien, or in order to obtain a necessary consent to such transaction or by
applicable law, be repaid in connection with such sale and (iii) all
contractually required distributions and other payments made to minority
interest holders (but excluding distributions and payments to Affiliates of such
Person) in Restricted Subsidiaries of such Person as a result of such
transaction; provided that, in the event that any consideration for a
transaction (which would otherwise constitute Net Cash Proceeds) is required to
be held in escrow pending determination of whether a purchase price adjustment
will be made, such consideration (or any portion thereof) shall become Net Cash
Proceeds only at such time as it is released to such Person or its Restricted
Subsidiaries from escrow; provided, further, that any non-cash consideration
received in connection with any transaction, which is subsequently converted to
cash, shall be deemed to be Net Cash Proceeds at such time, and shall thereafter
be applied in accordance with the Indenture.
"Obligors" means the Company and the Guarantors, collectively;
"Obligor" means any of the Obligors, singly.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the Chief Executive Officer, the Chief
Operating Officer, the President or a Vice President, and by the Chief Financial
Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, a Guarantor or a
Restricted Subsidiary, as applicable, and delivered to a Trustee, which shall
comply with the applicable Indenture.
"Permitted Holders" means Cable and Wireless plc, Navona Communications
Corporation Ltd. and Dominion Resources Inc. and their respective Affiliates
(other than the Company and the Restricted Subsidiaries).
"Permitted Investments" means (i) Eligible Cash Equivalents; (ii)
Investments in Property used in the ordinary course of business; (iii)
Investments in any Wholly-Owned Restricted Subsidiary or any Person as a result
of which such Person becomes a Wholly-Owned Restricted Subsidiary, provided that
the aggregate amount of Investments in non-Guarantor Wholly-Owned Subsidiaries
shall be $1 million reduced by any repayments of loans or advances, return of
capital or other distributions of Property but only to the extent that such
repayments, returns or distributions are not included in the calculation of
Consolidated Net Income of the Company); (iv) Investments pursuant to certain
agreements or obligations of the Company or a Restricted Subsidiary, in effect
on the Issue Date, to make such Investments, and disclosed in a schedule
attached to the Senior Note Indenture; (v) Investments in the Leasing Companies
of funds constituting the net proceeds of the Senior Notes; (vi) Investments in
Restricted Subsidiaries and Qualified Joint Ventures by the Leasing Companies;
provided that such Investments shall be made as Telecommunications Asset
Agreements; (vii) Qualified Investments, if (a) such Qualified Investments are
made with no more than $9 million of net proceeds of the Senior Notes contained
in the Company Senior Note Escrow Account or in Leasing Company Escrow Accounts,
and are otherwise made in compliance with the applicable conditions contained in
the first paragraph of "--Possession, Use and Release of Collateral", (b) such
Qualified Investments are made with funds in the Leasing Company Escrow Accounts
or, if applicable, the Company Senior Note Escrow Account not representing net
proceeds of the Senior Notes in compliance with the applicable conditions
contained in the first paragraph of "--Possession, Use and Release of
Collateral," provided that the aggregate amount of Qualified Investments
constituting Capital Stock or other equity pursuant to this clause (b) shall be
$5 million reduced by any return of capital or other distributions of Property
but only to the extent that such returns or distributions are not included in
the calculation of Consolidated Net Income of the Company, (c) such Qualified
Investments are made directly by the Company with the proceeds of distributions,
dividends or payments by Technocom to the Company or loans by Technocom to the
Company, or are utilized by the Company to make an intercompany loan to a
Leasing Company evidenced by an Intercompany Note (which will constitute
Convertible Note Collateral), which Leasing Company thereupon shall make such
Qualified Investments with the
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proceeds of such Investment by the Company so long as such Qualified Investments
are made in compliance with the conditions in the second proviso in the sixth
paragraph in "--Possession, Use and Release of Collateral", provided that the
aggregate amount of Qualified Investments constituting Capital Stock or other
equity that pursuant to this clause (c) shall be $5 million reduced by any
return of capital or other distribution of Property but only to the extent that
such returns or distributions are not included in the calculation of
Consolidated Net Income of the Company, (d) such Qualified Investment is Capital
Stock of a Restricted Subsidiary, which Investment has the effect of increasing
the percentage of ownership interest of the Company or a Restricted Subsidiary
in Capital Stock of such Restricted Subsidiary, or (e) such Qualified Investment
is in a Person that as a result of such Qualified Investment becomes a
Restricted Subsidiary of the Company; (viii) Investments by Restricted
Subsidiaries which are lessees or buyers of Telecommunications Assets under
Telecommunications Asset Agreements in transactions in which the monetary
consideration for such Telecommunications Assets is paid immediately or is
payable over time, provided that such Investments shall be made as a sublease or
installment sale of the Telecommunications Assets subject to the
Telecommunications Asset Agreement to which such Restricted Subsidiary is a
party as lessee or buyer; (ix) Investments in Restricted Subsidiaries, provided
that such Investments in excess of an aggregate principal amount of $5 million
shall be made as loans evidenced by Intercompany Notes or such Investments are
Technocom Preferred Stock and are made with funds constituting proceeds of the
Senior Notes; (x) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits; (xi) Interest Hedging Obligations with respect to any
floating rate Indebtedness that is permitted by the terms of the Indenture to be
outstanding; (xii) Exchange Rate Obligations, provided that such Exchange Rate
Obligations were entered into in connection with transactions in the ordinary
course of business or the incurrence of Indebtedness that is permitted by the
terms of the Senior Note Indenture to be outstanding; (xiii) bonds, notes,
debentures or other debt securities received as a result of Asset Sales
permitted under the covenant described under "--Asset Sales"; and (xiv)
Investments in existence on the Issue Date.
"Permitted Liens" means (i) Liens created by the Senior Note Indenture
and the Senior Note Collateral Documents or that otherwise secure the payment of
the Senior Notes or the Senior Note Guarantees, and liens created by the
Convertible Note Indenture or the Convertible Note Collateral Documents or which
otherwise secure the payment of the Convertible Notes or the Convertible Note
Guarantees; (ii) Liens on Property or assets of a Person existing at the time
such Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company or becomes a Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not secure any Property or assets of the Company
or any of its Restricted Subsidiaries other than the Property or assets subject
to the Liens prior to such merger or consolidation; (iii) Liens on Property or
assets existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary, provided that such Liens were not given in contemplation
of such acquisition; (iv) Liens to secure the payment of all or a part of the
purchase price or construction cost of Property or assets acquired or
constructed in the ordinary course of business after the Issue Date, provided
that the Indebtedness secured by such Liens shall not exceed the lesser of 80%
of the cost or Fair Market Value of the Property or assets acquired or
constructed and such Liens shall not extend to any other Property or assets; (v)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases not constituting Capitalized Lease Obligations, statutory or regulatory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business consistent with industry
practice; (vi) Liens existing as of the Issue Date and disclosed in a schedule
attached to the Senior Note Indenture; (vii) Liens on Receivables and Inventory
of the Company and its Restricted Subsidiaries to secure Indebtedness permitted
to be incurred under clause (a) of the second paragraph of "--Limitation on
Indebtedness"; (viii) any Lien on Property of the Company in favor of the United
States of America or any state thereof, or any instrumentality of either, to
secure certain payments pursuant to any contract or statute; (ix) any Lien for
taxes or assessments or other governmental charges or levies not then due and
payable (or which, if due and payable, are being contested in good faith and for
which adequate reserves are being maintained, to the extent required by GAAP);
(x) easements, rights-of-way, licenses and other similar restrictions on the use
of Properties or minor imperfections of title that, in the aggregate, are not
material in amount and do not in any case materially detract from the Properties
subject thereto or interfere with the ordinary conduct of the business of the
Company or its Restricted Subsidiaries; (xi) any Lien to secure obligations
under workmen's compensation laws or similar legislation, including any Lien
with respect to judgments which are not currently dischargeable; (xii) any
statutory warehousemen's, materialmen's or other similar Liens for sums not then
due and payable (or which, if due and payable,
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are being contested in good faith and with respect to which adequate reserves
are being maintained, to the extent required by GAAP); (xiii) Liens to secure
any International Vendor Indebtedness, provided that such Liens do not extend to
any Property or assets other than the Property or assets the acquisition of
which was financed by such Indebtedness; (xiv) Liens in favor of the Company or
any Wholly-Owned Restricted Subsidiary, including Liens securing the
Intercompany Notes and the Telecommunications Asset Agreements; (xv) Liens in
favor of Technocom securing any leases by Technocom of Telecommunications Assets
to its Restricted Subsidiaries; (xvi) Liens in favor of a Restricted Subsidiary
which is a lessor or seller of Telecommunications Assets under a
Telecommunications Asset Agreement securing a sublease or re-sale of such
Telecommunications Assets to another Restricted Subsidiary; (xvii) Liens
securing reimbursement obligations with respect to bona fide letters of credit
that encumber documents and other Property (including, without limitation, the
proceeds of funds withdrawn from the Company's Senior Note Escrow Account)
relating to such letters of credit and the products and proceeds thereof,
provided that such reimbursement obligations secured by funds withdrawn from the
Company Senior Note Escrow Account shall not be otherwise secured with Property
of the Company or any Restricted Subsidiary; (xviii) Liens to secure any
permitted extension, renewal, refinancing or refunding (or successive
extensions, renewals, refinancings or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in the foregoing clauses (ii) and
(iii), provided that such Liens do not extend to any other Property or assets
and the principal amount of the Indebtedness secured by such Liens is not
increased; and (xix) Liens securing the Travelers Revolving Credit Agreement.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, excluding Capital Stock in any other Person.
"Qualified Investment" means an Investment in a Telecommunications
Company primarily engaged or proposing to engage in the Telecommunications
Business in the Russian Federation or Kazakhstan.
"Qualified Joint Venture" means a Joint Venture in which the Company
owns directly or indirectly Voting Stock thereof on the Issue Date, which Joint
Ventures are disclosed in a schedule to the Senior Note Indenture, and any
future Joint Venture in which the Company owns 20% or more of the Voting Stock
thereof.
"Qualified Stock" of any Person means a class of Capital Stock other
than Disqualified Stock.
"Receivables" means, with respect to any Person, all of the following
Property and interests in Property of such Person, whether now existing or
existing in the future or hereafter acquired or arising: (i) accounts, (ii)
accounts receivable, including, without limitation, all rights to payment
created by or arising from sales of goods, leases of goods or the rendition of
services no matter how evidenced, whether or not earned by performance, (iii)
all unpaid seller's or lessor's rights including, without limitation,
rescission, replevin, reclamation and stoppage in transit, relating to any of
the foregoing or arising therefrom, (iv) all rights to any goods or merchandise
represented by any of the foregoing after creation of the foregoing, including,
without limitation, returned or repossessed goods, (v) all reserves and credit
balances with respect to any such accounts receivable or account debtors, (vi)
all letters of credit, security or guarantees for any of the foregoing, (vii)
all insurance policies or reports relating to any of the foregoing, (viii) all
collection or deposit accounts relating to any of the foregoing, (ix) all
proceeds of any of the foregoing, and (x) all books and records relating to any
of the foregoing.
"Refinancing Indebtedness" means any Indebtedness incurred in
connection with the Refinancing of other Indebtedness.
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"Restricted Payment" means (i) a dividend or other distribution
declared or paid on the Capital Stock of the Company or to the Company 's
stockholders (in their capacity as such), or declared or paid to any Person
other than to the Company or any Restricted Subsidiary of the Company on the
Capital Stock of any Restricted Subsidiary of the Company, in each case, other
than dividends, distributions or payments made solely in Qualified Stock of the
Company or such Restricted Subsidiary, (ii) a payment made by the Company or any
of its Restricted Subsidiaries (other than to the Company or any Restricted
Subsidiary of the Company) to purchase, redeem, acquire or retire any Capital
Stock of the Company or of a Restricted Subsidiary of the Company, (iii) a
payment made by the Company or any of its Restricted Subsidiaries (other than a
payment made solely in Qualified Stock of the Company) to redeem, repurchase,
defease (including an in-substance or legal defeasance) or otherwise acquire or
retire for value (including pursuant to mandatory repurchase covenants), prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment, Indebtedness of the Company or such Restricted Subsidiary which is
subordinate (whether pursuant to its terms or by operation of law) in right of
payment to the Senior Notes, or the Senior Note Guarantees, as applicable) or
which was scheduled to mature on or after the maturity of the Senior Notes or
(iv) an Investment in any Person, including an Unrestricted Subsidiary or the
designation of a Subsidiary as an Unrestricted Subsidiary, other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been classified as an "Unrestricted Subsidiary."
"Revolving Credit Facilities" means credit facilities pursuant to which
the borrower can increase or decrease at its option its borrowings under such
facilities up to a specified maximum by making drawdowns and repayments and
further drawdowns from time to time during the term of the facilities and for
which the only liens are Liens on Receivables and Inventories; provided that a
credit facility shall not be a Revolving Credit Facility for the purposes hereof
where the purpose to which the borrowings are applied is limited directly or
indirectly by the terms of such facility.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.
"Senior Note Collateral" means all "collateral" referred to in the
Senior Note Collateral Documents and all other Property or assets that become
subject to a Lien in favor of the Senior Note Trustee for its benefit and the
benefit of the holders of the Senior Notes.
"Senior Note Collateral Documents" means the Company Senior Note
Security and Pledge Agreement among the Company, the Senior Note Trustee and the
collateral agent named therein, the Company Senior Note Escrow Account Agreement
among the Company, the Senior Note Trustee and the escrow agent named therein,
the Leasing Company Security and Pledge Agreements, each among a Leasing
Company, the Senior Note Trustee and the collateral agent named therein, the
Leasing Company Escrow Account Agreements, each among a Leasing Company, the
Senior Note Trustee and the escrow agent named therein, a Pledge Agreement among
NWE Cyprus, the Senior Note Trustee and the collateral agent named therein,
and/or any other document creating a Lien that secures the Senior Notes.
"Significant Restricted Subsidiary" means a Restricted Subsidiary that
is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Subsidiary" means, with respect to any Person, (i) any corporation
more than 50% of the outstanding shares of Voting Stock of which is owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries of
such
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Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interests of which are owned, directly or
indirectly, by such Person, or by one or more other Subsidiaries of such Person,
or by such Person and one or more other Subsidiaries of such Person, or (iii)
any limited partnership of which such Person or any Subsidiary of such Person is
a general partner, and BECET, provided that the Company owns directly or
indirectly 50% of the then outstanding shares of Voting Stock of BECET.
"Supplemental Indenture" means the First Supplemental Indenture,
Amendment Agreement, Consent and Waiver, dated March 20, 1998, among the
Company, the Guarantors, Clayton Waite, Apropos Investments Ltd., and The bank
of New York, as Senior Note Trustee, Convertible Note Trustee and collateral
agent or escrow agent under certain Collateral Documents.
"Technocom" means Technocom Limited, an Irish company and a Restricted
Subsidiary, provided that, in the event of any Disposition of all of Technocom's
assets and liabilities as contemplated in the definition of "Asset Sale",
"Technocom" shall mean the transferee in such Disposition.
"Telecommunications Assets" means, with respect to any Person, assets
(including, without limitation, rights of way, trademarks and licenses to use
copyrighted material), that are utilized by such Person, directly or indirectly,
in a Telecommunications Business. For purposes of determining a
Telecommunications Company but not for purposes of determining whether Property
or assets may be subject to a Telecommunications Asset Agreement,
Telecommunications Assets shall also include stock, joint venture or partnership
interests in another Person, provided that substantially all of the assets of
such other Person consist of Telecommunications Assets, and provided, further,
that if such stock, joint venture or partnership interests are held by the
Company or a Restricted Subsidiary, such other Person either is, or immediately
following the relevant transaction shall become, a Restricted Subsidiary of the
Company pursuant to the terms of the applicable Indentures. The determination of
what constitutes Telecommunication Assets shall be made by the Board of
Directors of the Company and evidenced by a Board Resolution delivered to the
Trustees.
"Telecommunications Asset Agreement" means a lease or installment sale
agreement where title is transferred to the buyer pursuant to which a Leasing
Company leases or sells, in a transaction in which the monetary consideration
therefor is paid immediately or is payable over time, Telecommunications Assets
which consist of equipment and rights acquired in connection with the lease or
sale thereof (including, without limitation, software licenses) to a Restricted
Subsidiary or Qualified Joint Venture in the Russian Federation or Kazakhstan,
provided that if the lessor or seller does not retain title to such
Telecommunications Assets until payment of the full amount of the lease payments
or purchase price due from the lessee or purchaser, such Telecommunications
Assets are subject to all necessary pledges, assignments, mortgages, trusts,
liens or other security interests which are valid and perfected so as to create
a first priority interest under Russian or Kazakh law, as applicable.
"Telecommunications Business" means the business of (i) transmitting,
or providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) creating, developing or
marketing communications related network equipment, software and other devices
for use in (i) above or (iii) evaluating, participating or pursuing any other
activity or opportunity that is related to those specified in (i) or (ii) above
and includes, without limitation, any business which the Company and its
Restricted Subsidiaries are currently engaged on the Issue Date.
"Telecommunications Company" means any Person substantially all of the
assets of which consist of Telecommunications Assets.
"Teleport" means Teleport-TP, a Russian joint stock company of the
closed type.
"U.S. Government Obligations" means (x) securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the
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payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which in either case are not
callable or redeemable at the option of the issuer thereon, and (y) depository
receipts issued by a bank (as defined in Section 3(a)(2) of the Securities Act)
as custodian with respect to any U.S. Government Obligation which is specified
in clause (x) above and held by such bank for the account of the holder of such
depository receipt, or with respect to any specific payment of principal or
interest on any U.S. Government Obligation which is so specified and held,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal or interest of the
U.S. Government Obligation evidenced by such depository receipt.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
Company has classified as an "Unrestricted Subsidiary," and that has not been
reclassified as a Restricted Subsidiary, pursuant to the terms of the
Indentures.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary,
all of the outstanding Capital Stock (other than directors' qualifying shares)
of which are owned, directly or indirectly, by the Company.
THE WARRANTS
GENERAL
Pursuant to the Private Placement Offering, the Company issued an
aggregate of 123,000 Warrants to the purchasers of the Units. The Warrants were
issued pursuant to a Warrant Agreement, dated as of May 31, 1996 (the "Warrant
Agreement"), between the Company and The Bank of New York, as Warrant Agent (the
"Warrant Agent"). The Warrants are subject to all terms in the Warrant Agreement
and holders of Warrants are referred to the Warrant Agreement, a copy of which
is available from the Company on request, for a complete statement of such
terms. The statements and definitions of terms under this caption relating to
the Warrants are summaries and do not purport to be complete. Such summaries
make use of certain terms defined in the Warrant Agreement and are qualified in
their entirety by express reference to the Warrant Agreement.
Each Warrant is evidenced by a Warrant Certificate which entitles the
holder thereof to purchase 34 Common Shares (each a "Warrant Share") from the
Company at an Exercise Price of $6.60 per share, subject to adjustment as
described below. Subject to certain limitations, the Warrants may be exercised
at any time beginning December 10, 1996 and on or prior to the close of business
on June 12, 2006 (the "Expiration Date"). Warrants that are not exercised by the
Expiration Date will expire. The Company will give notice of expiration not less
than 90 nor more than 120 days prior to the Expiration Date to registered
holders of the then outstanding Warrants.
The aggregate number of Warrant Shares issuable upon exercise of the
Warrants is equal to approximately 9.2% of the outstanding Common Shares, on a
fully diluted basis as of the date of this Prospectus.
CERTAIN TERMS
Exercise
In order to exercise all or any of the Warrants represented by a
Warrant Certificate, the holder thereof is required to surrender to the Warrant
Agent the Warrant Certificate, a duly executed copy of the subscription form set
forth in the
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Warrant Certificate and payment in full of the Exercise Price for each Warrant
Share or other security as to which a Warrant is being exercised. Payment for
securities upon exercise of a Warrant may be made in cash or by certified check,
official bank check or bank cashier's check payable to the order of the Company.
Upon the exercise of any Warrant in accordance with the Warrant Agreement, the
Warrant Agent shall instruct the Company to transfer promptly to, or upon the
written order of, the holder of such Warrant appropriate evidence of ownership
of any Warrant Share or other securities or property to which such holder is
entitled, registered or otherwise placed in such name or names as such holder
may direct in writing, and the Company shall deliver such evidence of ownership
to the person or persons entitled to receive the same, including, without
limitation, any cash payable to adjust for fractional interests in Warrant
Shares issuable upon such exercise. If less than all of the Warrants evidenced
by a Warrant Certificate are to be exercised, a new Warrant Certificate will be
issued for the remaining number of Warrants. All Warrant Shares or other
securities issuable by the Company upon the exercise of the Warrants shall be
validly issued, fully paid and nonassessable.
No fractional Warrant Shares will be issued upon exercise of the
Warrants. If any fraction of a Warrant Share would, except for the foregoing
provision, be issuable upon the exercise of any Warrants (or specified portion
thereof), the Company will pay an amount in cash equal to the Current Market
Price per share of Common Shares, as determined on the trading day immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction, computed to the nearest whole cent.
Certificates for Warrants will be issued in global form or registered
form as definitive warrant certificates and no service charge will be made for
registration of transfer or exchange upon surrender of any Warrant Certificate
at the office of the Warrant Agent maintained for that purpose. See "Description
of the Exchange Notes and Other Private Placement Securities--Book-entry;
Delivery and Form." The Company will pay all documentary stamp taxes
attributable to the initial issuance of Warrant Shares upon the exercise of the
Warrants; provided that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue of
any Warrant Certificates or certificates for Warrant Shares in a name other than
that of the registered holder of a Warrant Certificate surrendered under the
exercise of a Warrant. The Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration or transfer or exchange of Warrant Certificates.
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares is then effective under,
or the exercise of such Warrants is exempt from the registration requirements
of, the Securities Act.
Adjustments
The Exercise Price and the number of Warrant Shares issuable upon
exercise of the Warrants will be subject to adjustment upon the occurrence of
any of the following events: (a) the payment of dividends and other
distributions in Common Shares on any class of Capital Stock of the Company, (b)
the issuance to all holders of Common Shares of rights, options or warrants
entitling them to subscribe for or purchase Common Shares or securities
convertible into or exchangeable for Common Shares at a price per share less
than the Current Market Price of such Common Shares (determined as provided in
the Warrant Agreement) as of the date fixed for determination of the holders of
Common Shares entitled to receive such rights, options or warrants, (c)
subdivisions and combinations of Common Shares, (d) distributions to all holders
of Common Shares of evidences of indebtedness, shares of any class of its
Capital Stock, cash or other assets (including securities, but excluding any
dividend or distribution referred to in clause (a) or (c), any rights, options
or warrants referred to in clause (b) and any non-extraordinary cash dividends),
(e) the issuance of Common Shares or securities convertible into or exchangeable
for Common Shares for a consideration per share less than the Current Market
Price per share (determined as provided in the Warrant Agreement) to the extent
that the below market portion of such issuances (together with the below market
or above market portions (as the case may be) of all other below market
issuances and above market tender or exchange offers) is greater than 2.0% of
the Company's total market capitalization (as determined pursuant to the Warrant
Agreement) of the Common Shares, (f) distributions consisting exclusively of
cash to all holders of Common Shares in an aggregate amount that, together with
(i) other all-cash distributions made within the preceding 12 months to all
holders of Common Shares and (ii) the aggregate of any cash
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and the fair market value of other consideration paid in respect of any tender
offer by the Company or any Subsidiary for the Common Shares and any purchase by
the Company of Common Shares in the open market consummated within the preceding
12 months, exceeds 12.5% of the Company's current Market Capitalization, (g) the
consummation of a tender or exchange offer made by the Company or any Subsidiary
for the Common Shares or the purchase by the Company of Common Shares in the
open market to the extent the above market portion of such tender or exchange
offers (together with the below market or above market portions (as the case may
be) of all other above market tender or exchange offers and all below market
issuances) is greater than 2.0% of the Company's total market capitalization (as
determined pursuant to the Warrant Agreement), (h) certain reclassifications and
(i) certain other events that could have the effect of depriving holders of the
Warrants of the benefit of all or a portion of the conversion rights in respect
of any Warrant. The events described in clause (e) are subject to certain
exceptions described in the Warrant Agreement, including, without limitation,
(A) certain bona fide public offerings and private placements and (B) Common
Shares (and options exercisable therefor) issued to the Company's directors,
officers and employees under bona fide employee benefit plans in an aggregate
amount not to exceed 1.0% of the Common Shares outstanding at the Issue Date.
No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the Exercise Price; provided, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment. Moreover,
no adjustment in the Exercise Price shall be required for any transaction in
which holders of Warrants are to participate on a basis and with notice that the
Company's Board of Directors determines to be fair and appropriate in light of
the basis and notice on which holders of Common Shares participate in the
transaction.
In addition to the foregoing adjustments, the Company will be permitted
to reduce the Exercise Price as it considers to be advisable in order that any
event treated for United States federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the Common Shares
or, if that is not possible, to diminish any income taxes that are otherwise
payable because of such event.
No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least 1.0% in the
Exercise Price, provided that any adjustment which is not made will be carried
forward and taken into account in any subsequent adjustment.
Mergers, Consolidations and Certain Other Transactions
Except as otherwise provided herein, in the event the Company
consolidates with, merges with or into, or sells all or substantially all of its
property and assets to another Person, each Warrant thereafter shall entitle the
holder thereof to receive upon exercise thereof the number of shares of capital
stock or other securities or property which the holder of a Common Share is
entitled to receive upon completion of such consolidation, merger or sale of
assets. If the Company merges or consolidates with, or sells all or
substantially all of its property and assets to, another Person and, in
connection therewith, consideration to the holders of Common Shares in exchange
for their shares is payable solely in cash, or in the event of the dissolution,
liquidation or winding-up of the Company, then the holders of the Warrants will
be entitled to receive distributions on an equal basis with the holders of
Common Shares or other securities issuable upon exercise of the Warrants, as if
the Warrants had been exercised immediately prior to such event, less the
Exercise Price. Upon receipt of such payment, if any, the Warrants will expire
and the rights of the holders thereof will cease.
In case of any such merger, consolidation or sale of assets, the
surviving or acquiring Person and, in the event of any dissolution, liquidation
or winding-up of the Company, the Company, shall deposit promptly with the
Warrant Agent the funds or other consideration, if any, necessary to pay the
holders of the Warrants. After such funds and the surrendered Warrant
Certificate are received, the Warrant Agent shall make payment by delivering a
check in such amount as is appropriate (or, in the case of consideration other
than cash, shall transfer such other consideration as is appropriate) to such
Person or Persons as it may be directed in writing by the holders surrendering
such Warrants.
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No Rights as Stockholders
The holders of unexercised Warrants are not entitled, as such, to
receive dividends or other distributions with respect to the Common Shares,
receive notice of any meeting of the stockholders of the Company, consent to any
action of the stockholders of the Company, receive notice of any other
stockholder proceedings, or to any other rights as stockholders of the Company.
RESERVATION OF SHARES
The Company is authorized to issue such number of Common Shares as
shall be issuable upon the exercise of all outstanding Warrants. Such Common
Shares, when paid for and issued, will be duly and validly issued, fully paid
and non-assessable, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issue thereof.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the
consent of the holders of the Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not materially adversely affect
the rights of any holder. Any amendment or supplement to the Warrant Agreement
that has a material adverse effect on the interests of the holders of the
Warrants shall require the written consent of the holders of a majority of the
then outstanding Warrants. The consent of each holder of the Warrants affected
shall be required for any amendment pursuant to which the Exercise Price would
be increased or the number of Warrant Shares purchasable upon exercise of
Warrants would be decreased (other than pursuant to adjustments provided in the
Warrant Agreement).
REGISTRATION RIGHTS
General
Pursuant to the Registration Agreement, the Company agreed, for the
benefit of the holders of the Senior Notes, the Convertible Notes and the
Warrants, to file registration statements with the Commission with respect to
(i) the Exchange Offer with respect to the Senior Notes (the "Exchange Offer
Registration Statement") or, alternatively, a shelf registration statement for
the resale of the Senior Notes by the holders thereof, (ii) the resale, by the
holders thereof, of the Convertible Notes and the Convertible Note Shares (the
"Convertible Note Shelf Registration Statement" and the "Convertible Note Shares
Shelf Registration Statement", respectively) and (iii) the resale, by the
holders thereof, of the Warrants and the Warrant Shares (the "Warrant Shelf
Registration Statement").
The Company filed the foregoing registration statements with the
Commission in August 1996 and has now filed amendments with respect to all such
registration statements.
Senior Notes; Exchange Offer
Pursuant to the Registration Agreement, the Company agreed with respect
to the Outstanding Notes, unless not permitted by applicable federal law, to
cause to be filed with the Commission, on or before July 26, 1996, the Exchange
Offer Registration Statement under the Securities Act and to use its reasonable
best efforts to cause such Exchange Offer Registration Statement to become
effective on or prior to October 10, 1996. The Company also agreed, upon the
effectiveness of the Exchange Offer Registration Statement, to commence and
consummate the Exchange Offer and cause the Exchange Offer Registration
Statement to be effective continuously, and keep the Exchange Offer open for a
period of at least 30 days, and use its best efforts to consummate the Exchange
Offer within 60 days (or longer, if required by applicable law).
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In the event that either (a) any changes in law or applicable
interpretation of the staff of the Commission do not permit the Company to
effect the Exchange Offer, (b) the Exchange Offer Registration Statement is not
declared effective on or prior to October 10, 1996, or (c) the Exchange Offer is
not consummated on or prior to December 9, 1996, then the Company has agreed to
cause to be filed on or prior to 60 days thereafter a shelf registration
statement under the Securities Act (which may be an amendment to the Exchange
Offer Registration Statement) (the "Senior Note Shelf Registration Statement"),
relating to all Outstanding Notes, the transfer of which is subject to
restriction and to use its reasonable best efforts to cause such Senior Note
Shelf Registration Statement to become effective under the Securities Act on or
prior to 120 days thereafter. The Company shall use its best efforts to keep the
Senior Note Shelf Registration Statement continuously effective, supplemented
and amended to the extent necessary to ensure that it is available for transfers
of Outstanding Notes by the holders thereof for a period of at least two years
following the date on which the Senior Note Shelf Registration Statement becomes
effective.
The Registration Agreement provides for the payment of additional
interest to Holders of Outstanding Notes upon the nonoccurrence of certain
events. If (i) either the Exchange Offer Registration Statement or the Senior
Note Shelf Registration Statement (either, a "Senior Note Registration
Statement") is not filed with the Commission on or prior to the date specified
for such filing in the Registration Agreement, (ii) any Senior Note Registration
Statement is not declared effective by the Commission on or prior to the date
specified for such effectiveness in the Registration Agreement (the
"Effectiveness Target Date"), (iii) the Exchange Offer has not been consummated
on or prior to the date specified in the Registration Agreement, or (iv) any
Senior Note Registration Statement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such Senior
Note Registration Statement that cures such failure and that is itself declared
effective for a period of more than 30 consecutive days (each such event
referred to in clauses (i) through (iv), a "Senior Note Registration Default"),
then commencing on the day following the date on which such Senior Note
Registration Default occurs, the Company has agreed to pay to each holder of
Outstanding Notes, during the 90-day period immediately following the occurrence
of such Senior Note Registration Default, additional interest ("Special
Interest") in an amount equal to $0.01 per week per $1,000 principal amount of
Outstanding Notes held by such holder for so long as the Senior Note
Registration Default continues. The amount of Special Interest payable to each
holder shall increase by an additional $0.01 per week per $1,000 principal
amount of Outstanding Notes held by such holder for each subsequent 90-day
period up to a maximum of $0.5 per week per $1,000 principal amount of
Outstanding Notes held by such holder.
A Senior Note Registration Default shall cease, and Special Interest
shall cease to be payable with respect to such Senior Note Registration Default
(1) upon the filing of the applicable Senior Note Registration Statement in the
case of clause (i) above, (2) upon the effectiveness of the applicable Senior
Note Registration Statement, in the case of clause (ii) above, (3) upon the
consummation of the Exchange Offer, in the case of clause (iii) above, and (4)
when the applicable Senior Note Registration Statement becomes effective or
usable in the case of clause (iv) above. Anything in the foregoing to the
contrary notwithstanding, (I) the amount of Special Interest payable shall not
increase because more than one Senior Note Registration Default has occurred and
is pending, (II) a holder of Outstanding Notes who is not entitled to the
benefits of the Senior Note Shelf Registration Statement (i.e., such holder has
not elected to include Outstanding Notes in such Senior Note Shelf Registration
Statement or has failed to provide all the required information) shall not be
entitled to Special Interest with respect to a Senior Note Registration Default
that pertains to the Senior Note Shelf Registration Statement, and (III) a
holder of Outstanding Notes constituting an unsold allotment from the original
sale of the Outstanding Notes or who is otherwise not entitled to participate in
the Exchange Offer shall not be entitled to Special Interest by reason of a
Senior Note Registration Default that pertains to the Exchange Offer. Holders of
Exchange Notes will not be eligible to receive Special Interest.
The Company did not file the Exchange Offer Registration Statement
until August 9, 1996 and therefore incurred Special Interest for the period from
July 27, 1996 until August 9, 1996. The Exchange Offer Registration Statement
was not declared effective by October 10, 1996 and has not yet been declared
effective, and accordingly the Company has been incurring Special Interest since
October 10, 1996.
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All accrued Special Interest shall be paid to Holders in the same
manner in which payments of interest are made pursuant to the Senior Note
Indenture.
Convertible Notes
Pursuant to the Registration Agreement, the Company agreed to cause to
be filed, on or before July 26, 1996, the Convertible Note Shelf Registration
Statement under the Securities Act and to use its reasonable best efforts to
cause such Convertible Note Shelf Registration Statement to become effective on
or prior to October 10, 1996. The Company also agreed to use its best efforts to
keep the Convertible Note Registration Statement continuously effective,
supplemented and amended to ensure that it is available for sales of Convertible
Notes by the Holders thereof until the earlier of (a) such time as all
Convertible Notes have been sold thereunder or converted and (b) ten years after
its effective date.
The Company also agreed to cause to be filed on or prior to July 26,
1996 a shelf registration statement under the Securities Act (the "Convertible
Note Shares Shelf Registration Statement"), relating to the Convertible Note
Shares and to use its reasonable best efforts to cause such Convertible Note
Shares Shelf Registration Statement to become effective on or prior to October
10, 1996. The Company also agreed to use its best efforts to keep the
Convertible Note Shares Shelf Registration Statement continuously effective,
supplemented and amended to the extent necessary to ensure that it is available
for sales of Convertible Note Shares by the Holders thereof entitled to the
benefit of such Registration Statement until the earlier of (A) three years
after all Convertible Notes have been converted and (B) ten years after its
effective date.
The Registration Agreement provides for the payment of additional
interest to Holders of the Convertible Notes upon the nonoccurrence of certain
events. If (i) the Convertible Note Registration Statement is not filed with the
Commission on or prior to July 26, 1996, (ii) the Convertible Note Registration
Statement is not declared effective by the Commission on or prior to October 10,
1996, or (iii) the Convertible Note Registration Statement is filed and declared
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective for a period of more than 30 consecutive days (each
such event referred to in clauses (i) through (iii), a "Convertible Note
Registration Default"), then commencing on the day following the date on which
such Convertible Note Registration Default occurs, the Company has agreed to pay
to each holder of Convertible Notes, during the 90-day period immediately
following the occurrence of such Convertible Note Registration Default,
additional interest ("Special Interest") in an amount equal to $0.01 per week
per $1,000 principal amount of Convertible Notes held by such holder for so long
as the Convertible Note Registration Default continues. The amount of Special
Interest payable to each holder shall increase by an additional $0.01 per week
per $1,000 principal amount of Convertible Notes held by such holder for each
subsequent 90-day period up to a maximum of $0.5 per week per $1,000 principal
amount of Convertible Notes held by such holder.
A Convertible Note Registration Default shall cease, and Special
Interest shall cease to be payable with respect to such Convertible Note
Registration Default (1) upon the filing of the Convertible Note Registration
Statement in the case of clause (i) above, (2) upon the effectiveness of the
Convertible Note Registration Statement, in the case of clause (ii) above, and
(3) when the Convertible Note Registration Statement becomes effective or usable
in the case of clause (iii) above. Notwithstanding the foregoing to the
contrary, (I) the amount of Special Interest payable shall not increase because
more than one Convertible Note Registration Defaults have occurred and are
pending and (II) a holder of Convertible Notes who is not entitled to the
benefits of the Convertible Note Registration Statement (i.e., such holder has
not elected to include Convertible Notes in such Convertible Note Registration
Statement or has failed to provide all the required information) shall not be
entitled to Special Interest with respect to a Convertible Note Registration
Default that pertains to the Convertible Note Registration Statement.
The Company did not file the Convertible Note Registration Statement
until August 9, 1996 and therefore incurred Special Interest for the period from
July 27, 1996 until August 9, 1996. The Convertible Note Registration
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Statement was not declared effective by October 10, 1996 and has not yet been
declared effective, and accordingly the Company has been incurring Special
Interest since October 10, 1996.
All accrued Special Interest shall be paid to Holders in the same
manner in which payments of interest are made pursuant to the Convertible Note
Indenture.
The Company has not yet complied with its obligations respecting the
Convertible Note Shares Shelf Registration Statement.
Warrants and Warrant Shares
The Company is required, under the terms of the Registration Agreement,
to (i) file a shelf registration statement with respect to resale of the
Warrants by the holders thereof (the "Warrant Shelf Registration Statement")
with the Commission within 45 days after the date of original issuance of the
Warrants; (ii) cause the Warrant Shelf Registration Statement to be declared
effective under the Securities Act within 120 days after the date of original
issuance of the Warrants; and (iii) keep effective the Warrant Shelf
Registration Statement until the earlier of (A) such time as all Warrants have
been sold thereunder or exercised and (B) ten years after its effective date.
The Company also is required, under the terms of the Registration
Agreement, to (i) file a shelf registration statement with respect to the
Company's issuance of the Warrant Shares to holders upon exercise of the
Warrants (the "Warrant Shares Shelf Registration Statement") with the Commission
within 270 days after the date of original issuance of the Warrants, (ii) cause
the Warrant Shares Shelf Registration Statement to be declared effective under
the Securities Act within 180 days after the date of original issuance of the
Warrants and (iii) keep effective the Warrant Shares Shelf Registration
Statement (or a successor registration statement thereto) until the earlier of
(A) three years after all Warrants have been exercised and (B) ten years after
its effective date.
The Company has not yet complied with any of these requirements.
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TAXATION
This summary of certain U.S. federal income tax considerations
addresses tax considerations applicable to a purchaser of Senior Notes that is a
citizen or resident of the United States or a U.S. domestic corporation or
partnership or that otherwise will be subject to U.S. federal income taxation on
a net income basis in respect of the Senior Notes (a "U.S. Holder"). The summary
deals only with U.S. Holders that will hold Senior Notes as capital assets but
does not address tax considerations applicable to (i) U.S. Holders that may be
subject to special tax rules, such as U.S. tax-exempt entities, banks, insurance
companies, or dealers in securities or currencies, (ii) U. S. Holders that have
a "functional currency" other than the U.S. Dollar.
This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), as in effect on the date of this Prospectus as well as regulations
promulgated thereunder and existing administrative interpretations and court
decisions.
PERSONS WHO WOULD BE CONSIDERED TO BE U.S. HOLDERS AND THAT ARE
CONSIDERING THE PURCHASE OF SENIOR NOTES ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO
THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE
LAWS OF ANY OTHER JURISDICTION.
EFFECT OF EXCHANGE OFFER; REGISTRATION OF EXCHANGE NOTES
Because the Exchange Notes will be identical in all material respects
to the Outstanding Notes, an exchange of the securities pursuant to the Exchange
Offer should not produce, for federal income tax purposes, recognizable gain or
loss to either the Company or a holder of an exchanged Outstanding Note. The
holder will have an initial adjusted tax basis and a holding period in the
Exchange Note equal to his or her adjusted tax basis and holding period in
exchange for Outstanding Note. In addition, the tax consequences of holding the
Exchange Notes will be the same as the tax consequences of holding the
Outstanding Notes. Therefore, the summary below of the tax consequences of
holding the Senior Notes relates both to the Exchange Notes and the Outstanding
Notes.
The Company was obligated under the terms of the June 1996 Placement
to register the Exchange Offer with the Commission. As a result of missing a
deadline respecting the filing of the Registration Statement, the Company
incurred an obligation to accrue Special Interest on the Senior Notes from
July 27, 1996 until August 9, 1996. As a result of missing a further deadline
relating to the effectiveness of the Registration Statement, the Company became
obligated to accrue Special Interest on the Senior Notes starting on October 10,
1996 and such obligation continues as of the date hereof, and will continue
until the consummation of the Exchange Offer. See "The Exchange Offer--
Termination of Certain Rights." This Special Interest should not result in a
deemed taxable exchange of the Senior Notes. Although the characterization of
such Special Interest is uncertain, such Special Interest probably constitutes
contingent interest which is generally not includable in income before it is
fixed or paid, but which is generally includable, as ordinary interest income,
when it is paid or accrued.
PAYMENT OF INTEREST AND ADDITIONAL AMOUNTS
As discussed under "Original Issue Discount" below, all stated interest
on the Senior Notes will be treated as original issue discount ("OID") and thus
will be includable as ordinary income as it accrues in accordance with the
original issue discount rules.
ORIGINAL ISSUE DISCOUNT
The Senior Notes were issued with OID equal to the excess of the stated
redemption price (as defined below) of the Senior Notes over the issue price (as
defined below) of the Senior Notes. A holder of a debt instrument issued with
OID generally must include OID in ordinary gross income as it accrues, possibly
in advance of the receipt of cash attributable to that income.
Amount of OID. The Company allocated the issue price of the Units
between the Senior Notes and Warrants based upon their relative fair market
values on the Issue Date, and such allocation generally will be binding on the
initial
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purchaser of a Unit, other than a purchase that explicitly discloses on its
federal income tax return that it plans to use an allocation that is
inconsistent with the allocation determined by the Company. The "issue price" of
the Units was determined as the initial offering price to the public (not
including bond houses, brokers, or similar persons or organizations acting in
the capacity of an underwriter, placement agent or wholesaler) at which a
substantial amount of the Units were first sold.
The stated redemption price at maturity of the Senior Notes is the
total of all payments provided by the Senior Note that are not payments of
"qualified stated interest". A qualified stated interest payment is generally
any one of a series of stated interest payments on a note that are
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually during the entire term of the note at a single fixed
rate of interest or, subject to certain conditions, based on one or more
interest indices. Because of the provisions of the Senior Notes deferring the
first payment of interest on the Senior Notes until December 1, 1998, no portion
of the interest that is payable with respect to the notes will constitute
qualified stated interest, and, consequently, all stated interest amounts will
be included in the Senior Notes' stated redemption price at maturity for
purposes of determining the amount of OID.
Taxation of OID. Each U.S. Holder of a Senior Note will be required to
include in gross income an amount equal to the sum of the "daily portions" of
the OID for all days during the taxable year in which such holder owns the
Senior Note. The daily portions of OID will be determined on a constant yield
basis by allocating to each day during the taxable year in which the holder
holds the Senior Note a pro rata portion of the OID thereon that is attributable
to the "accrual period" in which such day is included. The amount of the OID
attributable to each full accrual period will be the product of the "adjusted
issue price" (as defined below) of the Senior Note and the annual yield to
maturity (as defined below) of the Senior Note. The adjusted issue price of a
Senior Note at the beginning of an accrual period is the original issue price of
the Senior Note plus the aggregate amount of OID allocable to all prior accrual
periods, less the amount of all payments other than qualified stated interest
payments (if any) made with respect to the Senior Note in all prior accrual
periods. The annual yield to maturity is the discount rate (appropriately
adjusted to reflect the length of accrual periods) that, when used in computing
the present value of all principal and interest payments to be made on the
Senior Note, produces an amount equal to its issue price. As a result of this
"constant yield" method of including OID income, the amounts so includable in
income by a U.S. Holder in respect of a Senior Note will be lesser in the early
years and greater in the later years than the amounts that would be includable
on a straight-line basis.
The "accrual period" for the Senior Notes is the six-month period that
ends on either June 1 or December 1 of each year during the term of the Senior
Note. The initial accrual period of the Senior Notes is the short period
beginning on the Issue Date and ending on the day before the first day of the
first full accrual period. The amount of OID attributable to such initial
accrual period may be computed under any reasonable method.
The Company will report annually to the Internal Revenue Service
("IRS") and to record holders of the Senior Notes information with respect to
OID accruing during the calendar year. Information regarding OID accruals will
be based upon the adjusted issue price of a Note determined as if the record
holder were the original holder of the Senior Note.
A subsequent U.S. Holder of a Senior Note that purchases a Senior Note
at a cost less than its remaining redemption amount (as defined below) also
generally will be required to include in gross income the daily portions of OID,
calculated as described above. However, if the U.S. Holder acquires the Senior
Note at a price greater than its adjusted issue price (with acquisition
premium), the subsequent U. S. Holder may reduce its periodic inclusions of OID
to reflect the premium paid over the adjusted issue price. The "remaining
redemption amount" for a Senior Note is the total of all future payments to be
made on the Senior Note other than payments of qualified stated interest.
Effect of Redemption Rights on Calculation of OID. The Company may
redeem the Senior Notes at a prescribed premium at any time on or after June 1,
2001. Also, in the event of a Change of Control, the Company will be required to
offer to redeem all of the Senior Notes at the request of the Noteholders.
Applicable U.S. Treasury Regulations provide that a redemption right in respect
of a Senior Note will not affect the yield or maturity date of the Senior Note
for purposes of determining the amount and accrual of OID unless, based on all
of the facts and circumstances as of the
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issue date, it is more likely than not that the redemption right will be
exercised. The Company has no present intention of treating the redemption
provisions of the Senior Notes as affecting the computation of the yield or
maturity date of any Senior Note.
TREATMENTS OF SUBSEQUENT PURCHASERS OF SENIOR NOTES
Premium. The U.S. Holder of a Senior Note that purchases the Senior
Note at a cost greater than its remaining redemption amount (as defined in
"Taxation of OID" above) will be considered to have purchased the Senior Note at
a premium, and may elect to amortize such premium (as an offset to interest
income), using a constant yield method, over the remaining term of the Senior
Note. Such election, once made, generally applies to all Senior Notes held or
subsequently acquired by the U.S. Holder on or after the first taxable year to
which the election applied and may not be revoked without the permission of the
IRS. A U.S. Holder that elects to amortize such premium must reduce its tax
basis in a Senior Note by the amount of the premium amortized during its holding
period. Senior Notes purchased at a premium will not be subject to the OID rules
described above. With respect to a U.S. Holder that does not elect to amortize
the bond premium the amount of bond premium will be included in the holder's tax
basis when the Senior Note matures or is disposed of by the U.S. Holder.
Market Discount. If a subsequent U.S. Holder of a Senior Note purchases
the Senior Note at a price that is lower than its adjusted issue price, by .025%
or more of its adjusted issue price multiplied by the number of remaining whole
years to maturity, the Note will be considered to bear "market discount" (in an
amount equal to the difference between such purchase price and such adjusted
issue price) in the hands of such U.S. Holder. In such case, a gain realized by
the U.S. Holder on the sale or retirement of the Senior Note will be treated as
ordinary interest income to the extent of the market discount that occurred on
the Senior Note while held by such U.S. Holder. In addition, the U.S. Holder
could be required to defer the deduction of a portion of the interest paid on
any indebtedness incurred or continued to purchase or carry the Senior Note. In
general terms, market discount on a Senior Note will be treated as accruing
ratably over the term of such Senior Note, or, at the election of the U.S.
Holder under a constant yield method. Alternatively, a U.S. Holder may elect to
include market discount in income currently as it accrues (on either a ratable
or constant yield basis), in which case the rule regarding deferral of interest
deductions will not apply. Such elections, once made, applies to all market
discount bonds acquired by the taxpayer on or after the first day of the first
taxable year to which such election applied and may not be revoked without the
consent of the IRS.
SALE OR EXCHANGE OF SENIOR NOTES
Upon the sale, exchange, retirement or other disposition of a Senior
Note, a U.S. Holder generally will recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement and
the U.S. Holder's adjusted tax basis in such Senior Note. The adjusted tax basis
of a Senior Note for a U.S. Holder that has purchased the Senior Note in the
Offering generally will equal the portion of the issue price of the Unit
allocable to the Senior Notes increased by the portion of OID previously
included in gross income as of the date of disposition (and the accrual of
market discount, if any, which the holder has previously elected to include in
gross income on an annual basis) and reduced by any amortized premium. See the
discussion above under "Original Issue Discount" concerning the allocations of
the issue price of the Units between the Senior Notes and the Warrants on the
Issue Date.
Except as discussed under "Market Discount" above, gain or loss
recognized by a U.S. Holder on the sale, exchange, retirement or other
disposition of a Senior Note generally will be long-term capital gain or loss if
the U.S. Holder has held the Senior Note for more than eighteen months at the
time of disposition, mid-term capital gain or loss if the U.S. Holder has held
the Senior Note for more than twelve months, but not more than eighteen months
and otherwise will be short-term capital gain or loss. The Code provides
preferential treatment under certain circumstances for net long-term and
mid-term capital gains realized by individual investors. The ability of U.S.
Holders to offset capital losses against ordinary income is limited.
BACKUP WITHHOLDING
A U.S. Holder of a Senior Note may be subject to backup withholding at
the rate of 31% with respect to interest paid on a Senior Note, and gross
proceeds upon sale or retirement of a Senior Note unless such holder (a) is a
corporation or other exempt recipient and, when required, demonstrates this fact
or (b) provides, when required, a correct taxpayer identification number,
certifies under the penalty of perjury that the holder is not subject to backup
withholding and otherwise complies with applicable requirements, of the backup
withholding rules. Furthermore, a holder of a Senior Note that does not provide
the holder's correct taxpayer identification number may be subject to penalties
imposed by the IRS. Backup withholding will be made when cash payments are made
with respect to the Senior Note. Backup withholding is not an additional tax;
any amounts so withheld will be allowed as a refund or credit against the
holder's federal income tax liability provided that the required information is
furnished to the IRS.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
On November 26, 1997 the Company, and its wholly-owned subsidiaries,
WTC and BCL, entered into a Revolving Credit Note and Warrant Agreement (the
"Revolving Credit Agreement") with The Travelers Insurance Company and The
Travelers Indemnity Company (collectively, the "Travelers Parties"). Under the
Revolving Credit Agreement the Company is permitted to borrow up to $12,400,000
to fund up to 80% of the cost of acquiring additional capital stock in its
Restricted Subsidiaries, and a further $3,100,000 for general corporate purposes
(but not including acquisition of additional capital stock in its Restricted
Subsidiaries). Its borrowings with respect to acquisition of additional capital
stock in its Restricted Subsidiaries are to be evidenced by its issuance of its
12% Series A Senior Secured Revolving Credit Notes due 1998 (the "Series A
Notes"), and its borrowings for general corporate purposes are to be evidenced
by its issuance of its 12% Series B Senior Revolving Credit Notes due 1998 (the
"Series B Notes" and, together with the Series A Notes, the "Revolving Credit
Notes"). All borrowings under the Revolving Credit Agreement are required to be
guaranteed by WTC and BCL. Also, in connection with the Revolving Credit
Agreement the Company issued warrants to purchase its Common Stock to the
Travelers Parties, and may be required to issue further warrants upon the
occurrence of certain events hereafter.
On November 26, 1997 the Company borrowed $12,320,000 under the
Revolving Credit Agreement in order to acquire 28 ordinary shares of Technocom
(the "Technocom Shares"), as part of a larger transaction in which the Company
increased its percentage holdings of Technocom ordinary shares from 50.75% to
80.4% (see, "Summary--Recent Developments), and issued $12,320,000 in aggregate
principal amount of its Series A Notes to the Travelers Parties. Also on the
same day, the Company borrowed a further $3,100,000 for general corporate
purposes and issued $3,100,000 in aggregate principal amount of its Series B
Notes to the Travelers Parties
Set forth below is a summary of the material terms of the Revolving
Credit Agreement, the Revolving Credit Notes and the guarantees given and
warrants issued in connection therewith.
Description of the Revolving Credit Notes and Guarantees
The Series A Notes are senior secured obligations of the Company,
limited in an aggregate principal amount to $12,400,000, and are secured by a
first lien on the Technocom Shares and on the Company's inventory and accounts
receivable. The Series B Notes are senior obligations of the Company, limited in
an aggregate principal amount to $3,100,000, and are secured by a first lien on
the Company's inventory and accounts receivable. The Series A Notes and the
Series B Notes rank pari passu in right of payment to each other, except to the
extent of the value of the Technocom Shares, as to which the Series A Notes rank
senior in right of payment to the Series B Notes. Otherwise, the Series A and
Series B Notes rank pari passu in right of payment with all existing and future
senior unsecured indebtedness of the Company, and are senior in right of payment
to all existing and future subordinated indebtedness of the Company and, to the
extent of the value of the collateral for the Series A and Series B Notes, to
all other indebtedness of the Company, including the Senior Notes and the
Convertible Notes. The Series A and Series B Notes are effectively subordinated
to all existing and future indebtedness, including trade payables, of the
subsidiaries of the Company other than the Travelers Guarantors.
The obligations of the Company to pay the principal of, and interest
and Additional Amounts, if any, on the Series A and Series B Notes and all other
obligations of the Company under the Revolving Credit Agreement are, jointly and
severally, irrevocably and unconditionally guaranteed by BCL and WTC, and are
required to be so guaranteed by any future Wholly-Owned Restricted Subsidiary of
the Company and any other subsidiary which guarantees any indebtedness of the
Company or any other obligor under the Series A or Series B Notes (collectively,
the "Travelers Guarantors").
The Series A Notes are limited in aggregate principal amount to
$12,400,000 and will mature on December 31, 1998. The Series A Notes bear
interest from November 26, 1997 at a rate of 12% per annum, payable in cash
monthly on the last day of each month. Interest on the Series A Notes will be
computed on the basis of the actual number of days elapsed over a 360-day year.
If the Company has not received on or before May 31, 1998, $20 million in net
cash
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proceeds from an Equity Issuance, the Series A Notes will bear interest at the
rate of 15% per annum for the period commencing on June 1, 1998 until maturity.
The Series B Notes are limited in aggregate principal amount to
$3,100,000 and will mature on September 30, 1998. The Series B Notes bear
interest from November 26, 1997 at a rate of 12% per annum, payable in cash
monthly on the last day of each month. Interest on the Series B Notes will be
computed on the basis of the actual number of days elapsed over a 360-day year.
The Company is also obligated to pay as "Additional Amounts" any taxes
which it or any Travelers Guarantor may be required to withhold or deduct from
any payment due to any holders of the Series A or Series B Notes, together with
any additional amounts needed to "gross up" such payment to take account of any
taxes payable in respect of the receipt thereof.
Both the Series A and the Series B Notes come due in full upon any
Change of Control.
The obligation of the Travelers Parties to make advances under the
Revolving Credit Agreement is permanently reduced on January 1, 1998 by the
amount by which the amount which may be borrowed thereunder exceeds the amount
actually borrowed. Pursuant to the foregoing, the maximum amount which may be
borrowed for the acquisition of additional capital stock in Restricted
Subsidiaries was reduced from $12,400,000 to $12,320,000.
In addition, the Company is permitted voluntarily to reduce the amount
which may be borrowed under the Revolving Credit Agreement at any time, provided
that the minimum amount of any such voluntary reduction shall be $300,000, and
all such voluntary reductions shall be in integral multiples of $100,000.
The Company is required to reduce the aggregate commitments by
$1,000,000 on July 31, 1998 and on the last day of each succeeding month.
The Company is also required to repay any amounts borrowed out of the
proceeds received by the Company from any sale of assets which do not constitute
Senior Note Collateral, Telecommunications Assets subject to a
Telecommunications Asset Agreement or Convertible Note Collateral, and from any
Equity Issuance. Upon any such repayment, the Commitments shall be permanently
reduced by the amount of such repayment.
In the event that the Company has not received net cash proceeds of at
least $20,000,000 from an Equity Issuance on or prior to May 31, 1998,
commencing with August 31, 1998, the aggregate commitments will be permanently
reduced by the difference between the amount of cash the Company had on hand as
of the end of the preceding month, reduced by the amount applied during the
succeeding month for operating expenses, taxes and payments of interest and
principal on account of indebtedness and the amount of certain "required
reserves". The amount of the "required reserve" for July 1998 is $11,000,000 and
the amount of such "required reserve" reduces by $1,000,000 each month
thereafter.
The Company will be obligated to issue additional warrants to the
holders of the Series A and Series B Notes in the event that the Company does
not effect certain "targetted reductions in commitment" as follows:
<TABLE>
<CAPTION>
Commitment Reduction Date Targeted Reduction Amount
------------------------- -------------------------
<S> <C>
July 31, 1998 $ 500,000
August 31, 1998 500,000
September 30, 1998 1,000,000
October 31, 1998 1,500,000
November 30, 1998 1,500,000
</TABLE>
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In the event that at the time any commitment is reduced, the amount
borrowed exceeds the amount of the 1993 commitment as so reduced, the Company is
obliged so much of the amount borrowed as is necessary to bring the amount
borrowed within the reduced commitment.
All reductions in commitment made pursuant to the foregoing are to be
applied first to the Series B Commitment until it is reduced to zero, and
thereafter to the Series A Commitment.
The Revolving Credit Agreement contains covenants restricting the
ability of the Company and certain of its subsidiaries to incur additional
indebtedness, pay dividends or make distributions in respect of the Company's
capital stock, make investments or certain other restricted payments, create
liens, engage in sale-leaseback transactions, enter into transactions with
affiliates, sell assets, engage in mergers and acquisitions, and engage in
businesses other than the telecommunications business. In addition, the
Revolving Credit Agreement limits the ability of certain of the Company's
subsidiaries to issue guarantees and preferred stock, or to create restrictions
on their ability to pay dividends and make certain other payments to the
Company. These covenants are essentially a "mirror image" of the covenants
contained in the Senior Note Indenture. Furthermore, the holders of the Series A
and Series B Notes have agreed to incorporate in the Revolving Credit Agreement
all amendments made to the Senior Note Indenture by the Supplemental Indenture.
However, in addition to the foregoing, the Company has agreed that, if
it has not received net cash proceeds of at least $20,000,000 from an Equity
Issuance prior to May 31, 1998, following May 31, 1998 it will not (i) make any
unscheduled payments in respect of outstanding indebtedness, (ii) make any
"Restricted Payment", or (iii) make any capital expenditures, or contribute
funds to its subsidiaries to permit them to make capital expenditures, other
than out of funds in the Senior Note Escrow Account.
Description of Warrants
On November 26, 1997, in connection with the issuance of the Series A
and Series B Notes, the Company issued warrants to purchase a total of 315,000
shares of its common stock to the holders of the Series A Notes, and further
warrants to purchase a total of 108,000 shares of its common stock to the
holders of the Series B Notes. Such warrants are hereinafter referred to as the
"Initial Warrants".
In the event that the Company does not effect any of the "targeted
reductions in commitment" referred to in "--Description of the Revolving Credit
Notes and Guarantees" above, the holders of the Series A Notes shall receive
30,000 additional warrants to purchase shares of the Company's common stock on
each date on which such reduction was not made. In the event that the Company
does not effect the "targeted reductions in commitment" scheduled for July 31,
1998 and August 31, 1998, the holders of the Series B Notes (which otherwise
come due on September 30, 1998) shall receive 16,000 additional warrants to
purchase shares of such common stock. Such warrants are hereinafter referred to
as the "Additional Warrants."
The exercise price for the Initial and Additional Warrants referred to
above is $8.625 per share, except that, if the Series B Notes are not repaid in
full by September 30, 1998, the exercise price of all warrants issued to the
holders of the Series B Notes becomes $0.01, and, if the Series A Notes are not
repaid in full by December 31, 1998, the exercise price of all warrants issued
to the holders of the Series A Notes also becomes $0.01. All of the warrants
expire on December 31, 2008.
If the Series B Notes are not repaid in full on September 30, 1998,
then, commencing September 30, 1998 and on the last day of each succeeding month
until the Series B Notes have been repaid in full, the holders of the Series B
Notes shall receive 32,000 additional warrants to purchase shares of the
Company's common stock at a price of $0.01 per share. If the Series A Notes are
not repaid in full on December 31, 1998, then, commencing December 31, 1998 and
on the last day of each succeeding month until the Series A Notes have been
repaid in full, the holders of the Series A Notes shall receive 70,000
additional warrants to purchase shares of such common stock at a price of $0.01
per share. All such warrants (hereinafter referred to as the "Default Warrants")
have an expiration date ten years after their respective dates of issue.
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Upon the request of the holders of a majority of the applicable class
of warrants, which may only be made once a majority of the warrants of such
class have been exercised, the Company will file a shelf registration statement
with the Commission with respect to the shares acquired or to be acquired upon
the exercise of such warrants within 90 days, and will use its best efforts to
cause such registration statement to become effective on or prior to 150 days
from the date of the original request, and thereafter to keep the registration
statement continuously effective, supplemented and amended to the extent
necessary to ensure that it is available for sales of the shares of common stock
acquired or to be acquired upon the exercise of such warrants, until the earlier
of (i) two years after a majority of the applicable class of warrants have been
exercised, and (ii) ten years after the applicable registration statement
becomes effective.
Certain Definitions
The terms "Additional Amounts", "Asset Sale", "Change of Control",
"Convertible Note Collateral", "Restricted Payment", "Restricted Subsidiary",
"Telecommunications Assets", "Telecommunications Asset Agreement" and
"Wholly-Owned Restricted Subsidiary", as used in the Revolving Credit Agreement,
have substantially the same meanings as the meanings given to those terms in the
Senior Note Indenture.
The term "Equity Issuance" means the issuance by the Company of shares,
interests, participations or other equivalents in the equity interest (however
designated) in the Company, and any rights (other than indebtedness convertible
into an equity interest), warrants or options to acquire an equity interest in
the Company.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital of the Company consists of 100,000,000 shares of
Common Stock, par value $0.01 per share, and 100,000,000 shares of preferred
stock, par value $0.01 per share ("Preferred Stock"). As of March 15, 1998,
there were 33,324,290 shares of Common Stock, 405,217 shares of Preferred Stock,
Series II, and 41,667 shares of Preferred Stock, Series III outstanding.
COMMON STOCK
The holders of Common Stock are 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.
PREFERRED STOCK
The Preferred Stock as a class are issuable in series by resolution of
the Board of Directors. The Preferred Stock of each series 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. The Preferred
Stock as a class is entitled to a preference over the Common Stock and over any
other shares ranking junior to the 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 Delaware General Corporation Law
and to the provisions of any particular series, Preferred Stock of any series
may be purchased for cancellation or redeemed by the Company, in whole or in
part, and may have attached thereto a right of conversion into Common Stock or
other securities of the Company. The holders of the Preferred Stock are not,
except as otherwise specifically provided by law or by the provisions attaching
to any series, entitled to receive notice, to attend or to vote at any meeting
of the shareholders of the Company.
The following is a description of the outstanding series of Preferred
Stock of the Company:
Preferred Stock, Series II. The Preferred Stock, Series II 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 Preferred Stock, Series II 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 Preferred Stock, Series II by invitation
for tenders at a price per share not exceeding Cdn.$1.00 per share. The
Preferred Stock, Series II are not convertible into Common Stock.
Preferred Stock, Series III. The Preferred Stock, Series III 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 Preferred Stock, Series III 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 Preferred Stock, Series III by invitation
for tenders at a price per share not exceeding Cdn.$1.00 per share. The
Preferred Stock, Series III are not convertible into Common Stock.
OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK
Pursuant to the Company's Stock Option Plan as in effect prior to June
12, 1997 (the "Prior Plan"), options to purchase shares of Common Stock of the
Company could be granted to directors, officers and key employees of the Company
and its subsidiaries.
At the Company's Annual Meeting of Shareholders held on June 12, 1997
the Company's shareholders approved an amendment and restatement of the Prior
Plan (as so amended and restated, the "Plan") to broaden the scope of grants
which could be made thereunder, as well as the range of persons eligible to
receive such grants, to introduce for the first time an overall ceiling on the
number of shares of Common Stock which could be issued, and to make various
other revisions to the terms of the Prior Plan. Pursuant to the Plan,
non-qualified stock options, incentive stock options, stock
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appreciation rights, restricted stock and "performance units" (pursuant to which
cash payments may be made depending on the achievement with specified periods of
time of certain goals) may be granted. The eligible participants under the Plan
are the Company's directors and employees, as well as outside advisors to the
Company and designated key employees of the Company's subsidiaries. The maximum
number of shares issued or reserved for issuance under the Plan may not at any
time exceed fifteen percent (15%) of the total issued and outstanding shares of
Common Stock, and the maximum number of shares that shall be subject to grants
to any individual may not exceed 1,500,000 at any time. Holders of options
issued under the Prior Plan were permitted to elect to have their grants
governed by the terms of the Plan as amended and restated, and also, where their
exercise prices were denominated in Canadian dollars, to have such exercise
prices converted into, and thereafter expressed in terms of, U.S. dollars, at
the rate of exchange in effect on June 12, 1997. All of the holders of options
issued under the Prior Plan have made this election. As of March 15, 1998,
options to purchase an aggregate of 2,770,334 shares of Common Stock were
outstanding (including options granted under the Prior Plan) at exercise prices
ranging from $5.0625 to $11.3817.
As of March 15, 1998, warrants to purchase an aggregate of 5,105,000
shares of Common Stock were outstanding, including the Warrants and the Initial
Purchaser Warrants.
Dominion held warrants to purchase (i) 100,000 shares of Common Stock,
at an exercise price of Cdn.$14.50 per share of Common Stock, granted as
consideration for the provision by Dominion of a short-term credit facility and
(ii) 50,000 shares of Common Stock, at an exercise price of Cdn.$11.3125,
granted as consideration for Dominion's guarantee of the initial bank facility.
Cable & Wireless held warrants to purchase 250,000 shares of Common Stock, at an
exercise price of Cdn.$11.3125, granted as consideration for Cable & Wireless'
guarantee of the initial bank facility.
In November 1997, in connection with the issuance of the Revolving
Credit Notes, the Company issued to the Travelers Parties the Travelers Warrants
to purchase an aggregate of 423,000 shares of Common Stock at an initial
exercise price of $8.625. The Travelers Warrants expire on December 31, 2008.
See "Description of the Exchange Notes and Other Private Placement
Securities--The Warrants" for a description of the terms of the Warrants.
REGISTRATION RIGHTS
As of March 15, 1998, 6,250,264 shares of Common Stock were held by
parties possessing certain demand registration and/or piggyback registration
rights. With certain exceptions (such as underwriting discount and commissions),
all expenses incurred in a Demand Registration or Piggyback Registration will be
borne by the Company. Navona held registration rights for 5,140,264 shares of
Common Stock. Dominion held Piggyback Registration rights for the resale of
1,110,000 shares of Common Stock it acquired upon conversion of Preferred Stock
Series VIII.
The Travelers Parties have demand registration rights with respect to
the 423,000 shares of Common Stock issuable upon exercise of the Travelers
Warrants. See "Description of Certain Other Indebtedness--Description of the
Warrants."
In addition to demand registration and piggyback registration rights,
see "Description of the Exchange Notes and Other Private Placement
Securities--Registration Rights" for a description of the registration rights
granted in connection with the Private Placement pursuant to the Registration
Agreement.
TRANSFER AGENT AND REGISTRAR
The Transfer Agents and Registrars for the Common Stock are The Bank of
Nova Scotia Trust Company of New York, One Liberty Plaza, 23rd Floor, New York,
NY 10006, (212) 225-5470 and Montreal Trust Company of Canada, 151 Front Street
West, 8th Floor, Toronto, Ontario, Canada M5J 2N1, (416) 981-9500.
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USE OF PROCEEDS
Neither the Company nor the Guarantors will receive any cash proceeds
in connection with the issuance of the Exchange Notes pursuant to the Exchange
Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (each, a "Restricted Holder") must acknowledge
that it will deliver this Prospectus in connection with any resale of such
Exchange Notes. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Restricted Holder in connection with resales of
Exchange Notes received in exchange for Outstanding Notes where such Outstanding
Notes were acquired as a result of market-making activities or other trading
activities. For a period of 180 days after the Expiration Date, the Company will
use reasonable efforts to make this Prospectus available to any Restricted
Holder for use in connection with any such resale, provided that such Restricted
Holder indicates in the Letter of Transmittal that it is a broker-dealer. In
addition, until - , 1998, all Restricted Holders effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
Neither the Company nor the Guarantors will receive any proceeds from
the exchange of Outstanding Notes for Exchange Notes by Restricted Holders.
Exchange Notes received by Restricted Holders for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, or at prices related to such
prevailing market prices on negotiated prices. Any such resale may be made
directly to purchasers or to or through Restricted Holders who may receive
compensation in the form of commissions or concessions from any such Restricted
Holder and/or the purchasers of any Exchange Notes. Any Restricted Holder that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any person that participates in the distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such Restricted Holders may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a Restricted Holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Restricted Holder that requests such
documents in the Letter of Transmittal.
By acceptance of this Exchange Offer, each Restricted Holder that
receives Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt
of notice from the Company of the happening of any event which makes any
statement in this Prospectus untrue in any material respect or which requires
the making of any changes in this Prospectus in order to make the statements
therein not misleading (which notice the Company agrees to deliver promptly to
such Restricted Holder), such Restricted Holder will suspend use of this
Prospectus until the Company has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Restricted Holder. If the Company gives any such
notice to suspend the use of this Prospectus, it will extend the 180-day period
referred to above by the number of days during the period from and including the
date of the giving of such notice up to and including when Restricted Holders
shall have received copies of the supplemented or amended Prospectus necessary
to permit resales of Exchange Notes.
The Company has agreed to pay all expenses incident to the Exchange
Offer, other than commissions or concessions of any broker or dealer, and will
indemnify the holders of the Outstanding Notes against certain liabilities,
including liabilities under the Securities Act.
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EXPERTS
The consolidated financial statements of PLD Telekom Inc. as of
December 31, 1997 and for the year then ended, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of PLD Telekom Inc. as of
December 31, 1996 and for each of the years in the two-year period then ended,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG, chartered accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of NWE Capital (Cyprus) Ltd. as
of December 31, 1997 and 1996 and for each of the years in the three-year
period ended December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Wireless Technology
Corporations Limited, as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG, chartered accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Technocom Limited, as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG, chartered
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Exchange Notes are being passed upon for the
Company by E. Clive Anderson, Esq., Senior Vice President and General Counsel
of the Company.
106
<PAGE> 130
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE
OFFER NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements
Additional Information
Incorporation of Certain Documents by
Reference
Summary
Risk Factors
The Exchange Offer
Description of the Exchange Notes and
Other Private Placement Securities
Taxation
Description of Certain Other
Indebtedness
Description of Capital Stock
Use of Proceeds
Plan of Distribution
Experts
Legal Matters
</TABLE>
================================================================================
EXCHANGE OFFER
14% SENIOR DISCOUNT NOTES DUE 2004
PLD TELEKOM INC.
PROSPECTUS
_________ __, 1998
================================================================================
<PAGE> 131
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 15. INDEMNIFICATION OF DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF THE
REGISTRANT
Section 145 of the Delaware General Corporation Law (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 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 any 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.
Article 6 of the Company's By-Laws makes mandatory the indemnification
of directors, officers and other authorized representatives of the Company
expressly authorized under Section 145 of the DGCL.
The Certificate of Incorporation of the Company provides that no
director of the Company 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 Company 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 the Company also provide that the Company may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company 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 Company would have the
power or the obligation to indemnify such person against such liability under
the provisions of the By-Laws.
II-1
<PAGE> 132
ITEM 16. EXHIBITS
4.1 Indenture dated as of May 31, 1996 among the Company as Issuer, NWE
Capital (Cyprus) Limited, PLD Asset Leasing Limited, PLD Capital
Limited, Baltic Communications Limited and Wireless Technology
Corporations Limited as Guarantor, and The Bank of New York, as
Trustee, with respect to $123,000,000 aggregate principal amount at
stated maturity of 14% Senior Discount Notes due 2004. (1)
4.2 Global Note representing 14% Senior Discount Notes due 2004. (2)
5.1 Opinion of E. Clive Anderson, Esq. as to legality of securities.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG
23.3 Consent of KPMG
23.4 Consent of KPMG
23.5 Consent of KPMG
23.6 Consent of E. Clive Anderson, Esq. (included in Exhibit 5.1)
- ------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (Exhibit 4.2).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (Exhibit 4.4).
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement;
Provided, however, that subparagraphs (a)(1)(i) and (a)(1)(ii)
of this section do not apply if the information required to be included in a
post-effective amendment by those subparagraphs is contained in periodic reports
filed with or furnished to the Commission by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE> 133
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose
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 (and each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this registration statement shall be deemed
to be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) 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.
(d) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 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.
(e) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction that was not
the subject of and included in the registration statement when it became
effective.
II-3
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York on April 3, 1998.
PLD TELEKOM INC.
By: /s/ JAMES R. S. HATT
-------------------------------------------
JAMES R. S. HATT
President and Chief Executive Officer
By: /s/ SIMON EDWARDS
-------------------------------------------
SIMON EDWARDS
Chief Financial Officer
(Principal accounting officer)
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below in so signing also
makes, constitutes and appoints James R.S. Hatt and Simon Edwards, and each of
them acting alone, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to execute and cause to be filed with the
Securities and Exchange Commission any and all amendments and post-effective
amendments to this Registration Statement and in each case to file the same,
with all exhibits thereto and other documents in connection therewith, and
hereby ratifies and confirms all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Boris Antoniuk Director April 3, 1998
- -------------------------------
Boris Antoniuk
/s/ Edward Charles Dilley Director April 3, 1998
- -------------------------------
Edward Charles Dilley
/s/ James R. S. Hatt Director April 3, 1998
- -------------------------------
James R. S. Hatt
/s/ Simon Edwards Director April 3, 1998
- -------------------------------
Simon Edwards
/s/ Gordon Humphrey Director April 3, 1998
- -------------------------------
Gordon Humphrey
/s/ Gennady Kudriatsev Director April 3, 1998
- -------------------------------
Gennady Kudriatsev
/s/Vladimir Kvint Director April 3, 1998
- -------------------------------
Vladimir Kvint
/s/ Julian Rawle Director April 3, 1998
- -------------------------------
Julian Rawle
/s/ Robert Smith Director April 3, 1998
- -------------------------------
Robert Smith
</TABLE>
II-4
<PAGE> 135
<TABLE>
<S> <C> <C>
/s/ David Stovel Director April 3, 1998
- -------------------------------
David Stovel
</TABLE>
II-5
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has duly caused this Amendment No. 1 to Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York on April 3, 1998.
BALTIC COMMUNICATIONS LIMITED
By: /s/ James Hatt
--------------------------
James Hatt
Director
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below in so signing also
makes, constitutes and appoints James R.S. Hatt, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement and in each case to file the same, with all exhibits
thereto and other documents in connection therewith, and hereby ratifies and
confirms all that said attorney-in-fact or his substitute or substitutes may do
or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/ James R.S. Hatt Director April 3, 1998
- ------------------------
James R.S. Hatt
/s/ Simon Edwards Director April 3, 1998
- ------------------------
Simon Edwards
/s/ Peter Owen Edmunds Director April 3, 1998
- ------------------------
Peter Owen Edmunds
/s/ Alan Brooks Director April 3, 1998
- ------------------------
Alan Brooks
II-5
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has duly caused this Amendment No. 1 to Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York on April 3, 1998.
NWE CAPITAL (CYPRUS) LIMITED
By: /s/ Clayton A. Waite
--------------------------
Clayton A. Waite
Director
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below in so signing also
makes, constitutes and appoints Clayton A. Waite, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement and in each case to file the same, with all exhibits
thereto and other documents in connection therewith, and hereby ratifies and
confirms all that said attorney-in-fact or his substitute or substitutes may do
or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/ Clayton Waite Director April 3, 1998
- ------------------------
Clayton A. Waite
/s/ Christos Clerides Director April 3, 1998
- ------------------------
Christos Clerides
/s/ Phivos Clerides Director April 3, 1998
- ------------------------
Phivos Clerides
/s/ James R.S. Hatt Director April 3, 1998
- ------------------------
James R.S. Hatt
II-6
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has duly caused this Amendment No. 1 to Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York on April 3, 1998.
PLD ASSET LEASING LIMITED
By: /s/ Clayton A. Waite
-----------------------
Clayton A. Waite
Director
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below in so signing also
makes, constitutes and appoints Clayton A. Waite, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement and in each case to file the same, with all exhibits
thereto and other documents in connection therewith, and hereby ratifies and
confirms all that said attorney-in-fact or his substitute or substitutes may do
or cause to be done by virtue hereof.
Signature Title Date
/s/ Clayton Waite Director April 3, 1998
- -----------------------
Clayton A. Waite
/s/ Andreas Vasiliou Director April 3, 1998
- -----------------------
Andreas Vasiliou
/s/ Stella Constantinou Director April 3, 1998
- -----------------------
Stella Constantinou
/s/ Moisis Moiseos Director April 3, 1998
- -----------------------
Moisis Moiseos
II-7
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has duly caused this Amendment No. 1 to Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York on April 3, 1998.
PLD CAPITAL LIMITED
By: /s/ Clayton A. Waite
---------------------
Clayton A. Waite
Director
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below in so signing also
makes, constitutes and appoints Clayton A. Waite, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement and in each case to file the same, with all exhibits
thereto and other documents in connection therewith, and hereby ratifies and
confirms all that said attorney-in-fact or his substitute or substitutes may do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Clayton Waite Director April 3, 1998
- --------------------------
Clayton A. Waite
/s/ Andreas Vasiliou Director April 3, 1998
- --------------------------
Andreas Vasiliou
/s/ Stella Constantinou Director April 3, 1998
- --------------------------
Stella Constantinou
/s/ Moisis Moiseos Director April 3, 1998
- --------------------------
Moisis Moiseos
</TABLE>
II-8
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has duly caused this Amendment No. 1 to Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York on April 3, 1998.
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
By: /s/ Clayton A. Waite
------------------------------------
Clayton A. Waite
Director
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below in so signing also
makes, constitutes and appoints Clayton A. Waite, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement and in each case to file the same, with all exhibits
thereto and other documents in connection therewith, and hereby ratifies and
confirms all that said attorney-in-fact or his substitute or substitutes may
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Clayton A. Waite Director April 3, 1998
- -------------------------
Clayton A. Waite
/s/ Robert Smith Director April 3, 1998
- -------------------------
Robert Smith
/s/ Gordon Owen Director April 3, 1998
- -------------------------
Gordon Owen
</TABLE>
II-9
<PAGE> 141
EXHIBIT INDEX
5.1 Opinion of E. Clive Anderson, Esq. as to legality of securities
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG
23.3 Consent of KPMG
23.4 Consent of KPMG
23.5 Consent of KPMG
23.6 Consent of E. Clive Anderson, Esq. (included in Exhibit 5.1)
II-10
<PAGE> 1
EXHIBIT 5.1
PLD TELEKOM INC.
680 FIFTH AVENUE
24TH FLOOR
NEW YORK, NEW YORK 10019
April 3, 1998
PLD Telekom Inc.
680 Fifth Avenue
24th Floor
New York, New York 10019
Re: PLD Telekom Inc.
Registration Statement on Form S-4
Dear Sirs:
I am General Counsel of PLD Telekom Inc., a Delaware corporation (the
"Company"), and have acted for the Company in connection with the preparation
and filing with the Securities and Exchange Commission of Amendment No. 1 to
Registration Statement on Form F-10 on Form S-4 (File No. 333-5398) (as amended,
the "Registration Statement") of the Company and the subsidiary guarantors named
therein, for registration under the Securities Act of 1933, as amended, of
$123,000,000 aggregate principal amount at stated maturity of the Company's 14%
Senior Discount Notes Due 2004 (the "New Notes"), issuable in connection with
the exchange offer of New Notes for the Company's outstanding 14% Senior
Discount Notes Due 2004 (the "Old Notes").
In this connection, I have reviewed (a) the Registration Statement; (b) the
Company's Certificate of Incorporation and Bylaws; (c) the Indenture relating to
the New Notes and the Old Notes (the "Indenture"); and (d) certain records of
the Company's corporate proceedings as reflected in its minute books. In my
examination, I have assumed the genuineness of all signatures, the authenticity
of all documents submitted to me as originals and the conformity with the
original of all documents submitted to me as copies thereof.
Based on the foregoing, and subject to the qualifications stated herein, I am of
the opinion that the New Notes have been duly authorized by the Company and,
when
<PAGE> 2
executed on behalf of the Company, authenticated by the Trustee and delivered in
accordance with the terms of the Indenture and as contemplated by the
Registration Statement, will constitute the legal, valid and binding obligations
of the Company, enforceable against it in accordance with their terms, subject
to applicable bankruptcy, insolvency, reorganization and similar laws affecting
creditors' rights and remedies generally, and general equitable principles.
My opinion set forth above is limited to the laws of the State of New York and
the General Corporation Law of the State of Delaware.
I consent to the use of this opinion as an exhibit to the Registration Statement
and to the reference to me in the Registration Statement and the Prospectus
constituting a part hereof under the caption "Legal Matters."
Very truly yours,
/s/ E. Clive Anderson
<PAGE> 1
Exhibit 23.1
To the Board of Directors
PLD Telekom Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration
statement.
KPMG Peat Marwick LLP
New York, New York
April 3, 1998
<PAGE> 1
Exhibit 23.2
To the Board of Directors
PLD Telekom Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration
statement.
KPMG
Chartered Accountants
Calgary, Canada
April 3, 1998
<PAGE> 1
Exhibit 23.3
To the Board of Directors
NWE Capital (Cyprus) Limited:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration
statement.
KPMG
St. Petersburg, Russia
April 3, 1998
<PAGE> 1
Exhibit 23.4
To the Board of Directors
Technocom Limited
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration
statement.
KPMG
Chartered Accountants
Dublin, Ireland
April 3, 1998
<PAGE> 1
Exhibit 23.5
To the Board of Directors
Wireless Technology Corporations Limited:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration
statement.
KPMG
Moscow, Russia
April 3, 1998
