PLD TELEKOM INC
424B3, 1998-08-28
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>   1
                                                                  RULE 424(b)(3)
                                                               REG. NO. 333-5398
 
             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 SEPTEMBER 30, 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. Pursuant to the Second Supplemental Indenture, dated June 15, 1998
(the "Second Supplemental Indenture" and, together with the First Supplemental
Indenture, the "Supplemental Indentures"), PLD Capital Asset (U.S.) Inc. became
a guarantor of the Senior Notes and the Convertible Notes and a Leasing Company,
as defined in the Indentures, as amended. See "Summary--The Company--The 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 heretofore
amended, and references to the "Senior Note Indenture," the "Convertible Note
Indenture" and the "Indentures" shall refer to such indentures as heretofore
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 August 25, 1998, the last
reported closing price of the Common Stock was $3.4375 per share.
                            ------------------------
 
     SEE "RISK FACTORS" ON PAGES 33 TO 57 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 AUGUST 28, 1998
<PAGE>   2
 
                           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. 3 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.
 
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<PAGE>   3
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:
 
     (a) Amendment No. 2 to Annual Report on Form 10-K/A, filed with the
         Commission on July 22, 1998, for the fiscal year ended December 31,
         1997;
 
     (b) Quarterly Report on Form 10-Q, filed with the Commission on May 15,
         1998, for the quarter ended March 31, 1998, as amended by the Form
         10-Q/A filed with the Commission on July 22, 1998;
 
     (c) Quarterly Report on Form 10-Q, filed with the Commission on August 14,
         1998, for the quarter ended June 30, 1998;
 
     (d) Current Report on Form 8-K, filed with the Commission on April 22,
         1998; and
 
     (e) 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).
 
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<PAGE>   4
 
                                    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 subsidiaries are: (i) PeterStar Company
Limited ("PeterStar"), which provides integrated local, long distance and
international telecommunications services in St. Petersburg through a fully
digital fiber optic network; (ii) 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) ALTEL (known until May 1998 as BECET
International)("ALTEL"), which currently provides the only national cellular
service in Kazakhstan.
 
     In August 1998, News America Incorporated, through an affiliate ("News"),
acquired a 38% interest in the Company in a series of transactions with the
Company and Cable and Wireless plc ("Cable & Wireless"). Prior to the completion
of these transactions, Cable & Wireless had been, since 1994, the Company's
principal shareholder. As part of the transactions, the Company acquired an
additional 11% interest in PeterStar and a 50% interest in Belarus-Netherlands
Belcel Joint Venture ("BELCEL"), a mobile telephone business in Belarus. See
"--Recent Developments--Transactions with Cable & Wireless and News."
 
     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, ALTEL, paid two dividends in 1997 and has paid a further
two dividends to date in 1998. 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 started to receive payments in 1998.
 
     The Company's receivables are all denominated in U.S. Dollars, as are its
Senior Notes, its Convertible Notes and its Revolving Credit Notes (as
hereinafter defined), which represent all of its outstanding indebtedness.
Certain of its operating subsidiaries have incurred bank indebtedness, and are
expected to continue to do so from time to time. All such indebtedness has been,
and is expected to continue to be denominated in U.S. Dollars. The Company's
operating subsidiaries invoice in U.S. Dollars, but receive payment in local
currency at the then-current rate of exchange for the U.S. Dollar. The Company
faces an exchange risk to the extent that payment is delayed, or the operating
subsidiary experiences any difficulty in converting the local currency payment
received into U.S. Dollars. The Company does not attempt to hedge this exchange
risk. To date, this exchange risk has not been significant. However, there can
be no assurance that delays or difficulties in converting local currencies may
not occur and that such developments, in conjunction with volatility in the
local currencies, may not have a material adverse effect upon the Company.
 
     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
 
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<PAGE>   5
 
partners include: Petersburg Telephone System ("PTN"), 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 ALTEL; 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.
 
PETERSTAR COMPANY LIMITED
 
     PeterStar, in which the Company owns a 71% interest, operates a fully
digital, city-wide fiber optic telecommunications network in St. Petersburg that
is interconnected with the network of PTN, 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 PTN 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 PTN, PeterStar intends
to continue to provide targeted support to PTN 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 PTN 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 PTN, 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
 
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<PAGE>   6
 
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.
 
     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 third quarter 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
 
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<PAGE>   7
 
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 PTN to connect its customers
in St. Petersburg. BCL had approximately 1,200 lines 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.
 
ALTEL
 
     ALTEL (which recently changed its name from BECET International), in which
the Company owns a 50% interest, currently operates the only national cellular
network in Kazakhstan. The other 50% of ALTEL 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 Company understands that
Daewoo may have disposed, or may be in the process of disposing, of 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 ALTEL 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.
ALTEL's cellular telecommunications network in Kazakhstan currently consists of
separate systems in Almaty, South Kazakhstan (Chimkent), Karaganda, Pavlodar,
Astana (formerly Akmola), Aktyubinsk, Kustanai, East Kazakhstan
(Ust-Kamenogorsk), Atyrau, Taraz, Petropavlovsk and Kyzl Orda. As of December
31, 1997, ALTEL'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. ALTEL commenced cellular service in September 1994 and
has since experienced significant subscriber and revenue growth. As of December
31, 1997, ALTEL had 11,102 subscribers, as compared to 6,957 subscribers as of
December 31, 1996. During the year ended December 31, 1997, ALTEL'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 ALTEL. 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 ALTEL 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.
 
BELCEL
 
     BELCEL, in which the Company acquired a 50% interest in August 1998, is a
Belarussian joint venture which operates an NMT-450 cellular network in Belarus.
The remaining 50% of BELCEL is held by the Minsk City Telephone Network (45%)
and the Minsk Regional Telephone Network (5%). As of April 30,
 
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<PAGE>   8
 
1998, BELCEL had approximately 10,000 subscribers and provided coverage for a
geographic area of over 6,000,000 people, or "POPS." The Company understands
that the Government of Belarus is considering the grant of additional cellular
licenses, although none has yet been granted. The Company intends to grow the
business of BELCEL principally through subscriber penetration, with additional
network coverage only anticipated where this can be justified by market
conditions.
 
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.
 
     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
PTN 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 PTN 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
                                        8
<PAGE>   9
 
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.
 
     Belarus.  Belarus also presents opportunities for the Company, but the
Company is unlikely to invest substantial resources in pursuing these until
there is some improvement in the current weak economic conditions in Belarus.
See "Risk Factors--Country Risks" and "--Risks Involving BELCEL."
 
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 to purchase an aggregate of 4,182,000 shares of Common Stock
(the "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 Warrants were
initially issued as units (the "Units") and the 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."
 
     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
 
TRANSACTIONS WITH CABLE & WIRELESS AND NEWS
 
     On August 14, 1998, the Company concluded a series of transactions with
News and Cable & Wireless which resulted, among other things, in the acquisition
by the Company of: (i) an additional 11% interest in its subsidiary PeterStar
from News (after its acquisition of such interest from Cable & Wireless); and
(ii) a 50% interest in BELCEL and certain intercompany indebtedness from Cable &
Wireless. In connection with these acquisitions, the Company issued an aggregate
of 4.3 million shares of its Common Stock to News and Cable & Wireless. In
addition, Cable & Wireless sold to News its complete stake in the Company
(including the Common Stock being issued by the Company to Cable & Wireless in
exchange for the interest in BELCEL and a warrant to purchase 250,000 shares of
Common Stock). As a result of these transactions, News now holds a 38% interest
in the Company and has become the Company's largest shareholder.
 
                                        9
<PAGE>   10
 
     In addition, by agreement with the Company, News is entitled to nominate
for election four of the current 10 directors of the Company (in the event that
the Company's board or directors is enlarged, the number of persons News can
nominate will be proportionately increased).
 
     The Company acquired its additional 11% interest in PeterStar by acquiring
100% of the shares of PLD Holdings Limited, a Bermuda company ("PLD Holdings"),
the owner of that 11% interest. The Company acquired its 50% interest in BELCEL
by acquiring all of the shares of CommStruct International Byelorussia BV, a
corporation organized under the laws of the Netherlands ("CIBBV"), which owns
such 50% interest. Pursuant to the terms of the Indentures, both PLD Holdings
and CIBBV are required (and are expected to enter into the necessary
supplemental indentures as promptly as practicable hereafter) to become
Guarantors of the Senior Notes and the Convertible Notes.
 
RUSSIAN FINANCIAL MARKETS
 
     In recent months, there has been considerable turmoil and uncertainty in
the Russian financial markets, prompted in large part by the crisis in the Asian
financial markets which began in late 1997 and is still continuing, and the
economic and political problems being experienced by a number of Asian
countries. These developments have been accompanied by a substantial decline in
the Russian stock market, the Moscow Times Index having dropped over 75% since
January 1, 1998. These developments have led the Russian government to raise
interest rates significantly and to seek special assistance from the
International Monetary Fund. In August 1998, the Russian government announced a
widening of the trading range in which the Russian Rouble would be permitted to
float, which will likely lead to a decrease in the value of the Rouble relative
to other currencies (or an effective devaluation of the Rouble), together with a
moratorium on certain foreign debt payments.
 
     At the present time, it is not possible to predict the effect of the
effective devaluation of the Russian Rouble, although it is possible that it
could exacerbate existing economic problems in Russia. It is not likely to
immediately affect the Company's operating subsidiaries which, although they
receive payment in local currencies, invoice by reference to U.S. Dollars.
However, it could bring on increased economic difficulties in Russia which in
turn could have an impact on the Company's operating subsidiaries in that
country, the effect of which it is impossible to assess at the present time.
There can be no assurance that these developments will not have a material
adverse effect upon the Company in the future.
 
INCREASED INTEREST RATE ON INDEBTEDNESS
 
     Under the terms of the Senior Notes and the Revolving Credit Notes (as
defined below), the interest rate payable increases if the Company has not
raised $20,000,000 in additional equity by May 31, 1998. The Company did not
complete such an equity offering by such date and accordingly the interest rate
on the Senior Notes increased from 14% to 14.5% per annum, and the interest rate
on the Revolving Credit Notes increased from 12% to 15% per annum, in each case
effective June 1, 1998. Such rates revert to their former levels once the equity
offering has been completed. The accreted value of the Senior Notes as of June
30, 1998 was $103.8 million. Interest due thereon accretes until December 1,
1998, and thereafter is payable in cash, semi-annually, on each June 1 and
December 1 thereafter. The amount currently outstanding in respect of the
Revolving Credit Notes is $14,420,000, and interest is payable thereon monthly
in cash.
 
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
                                       10
<PAGE>   11
 
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 commenced 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 A 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.
 
     In addition, the Company is 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 is 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 Company did not make the "targeted reduction" for July 31, 1998 with
the result that 30,000 warrants will be issued to the holders of the Series A
Notes and 16,000 warrants will be issued to the holders of the Series B Notes.
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 (including the 46,000 already issued) is 182,000. All
of the warrants expire on December 31, 2008.
 
                                       11
<PAGE>   12
 
     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.
 
          - 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
                                       12
<PAGE>   13
 
             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 the First Supplemental Indenture, bringing the amendments to the
Indentures and certain related documents into effect. In addition, the Company
agreed to issue 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 (collectively, the
"Consent Warrants"). If all of these warrants are exercised, the Company will
issue a total of 266,800 shares of Common Stock.
 
     Pursuant to the Second Supplemental Indenture, PLD Capital Asset (U.S.)
Inc. became a guarantor of the Senior Notes and the Convertible Notes and a
Leasing Company, as defined in the Indentures, as amended.
 
                                  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
 
                                       13
<PAGE>   14
 
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 at that time. As a result of the
continuance of the Company to Delaware (see "--The Company--Change of Company
Name and Continuance"), these registration statements were amended to conform to
the requirements applicable to companies incorporated in the U.S., and
accordingly the Company and the Guarantors filed amendments to all of the
registration statements to effect this. In the meantime, the Company was in
default of its obligations under the Registration Rights Agreement, as a result
of which it was required to pay Special Interest to the holders of the Senior
Notes and the Convertible Notes. The registration statements were declared
effective by the Commission on July 30, 1998. The Company was in default of its
obligations under the Registration Rights Agreement with respect to the
Convertible Notes until such date. Special Interest will continue to accrue with
respect to the Senior Notes until the exchange offer for the Senior Notes is
consummated, which is expected to occur in September 1998. 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 have been 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."
 
                                       14
<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.
 
                          [CORPORATE STRUCTURE GRAPH]
 
- ---------------
(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) Of its total 71% interest in PeterStar, the Company holds 60% through NWE
    Cyprus and 11% through PLD Holdings, a former subsidiary of Cable & Wireless
    which the Company acquired from News in August 1998. See "--Recent
    Developments--Transactions with Cable & Wireless and News." PLD Holdings is
    anticipated to become a Guarantor of the Senior Notes and the Convertible
    Notes as promptly as practicable hereafter. The other shareholder of
    PeterStar is Telecominvest (29%), which is owned 51% by an affiliate of
    Commerzbank AG, 25% by PTN and 24% by SPMMTS, and which was formed by PTN
    and SPMMTS to act as a holding company for their respective interests in a
    number of telecommunications ventures in Northwest Russia.
 
                                       15
<PAGE>   16
 
(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 "-- Recent
    Developments -- Acquisition of Additional Interests in Technocom;" "Risk
    Factors--Risks Involving the Company--Effect of Technocom Minority
    Shareholders' Put Options on Company's Ability to Transfer its Stake in
    Technocom."
 
    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 ALTEL 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 ALTEL 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 Company understands that
    Daewoo may have disposed, or may be in the process of disposing, of 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.
 
(7) The Company holds its 50% interest in BELCEL through its wholly owned
    subsidiary CIBBV, a corporation organized under the laws of the Netherlands.
    The remaining interests in BELCEL are currently held by the Minsk City
    Telephone Network (45%) and the Minsk Regional Telephone Network (5%). CIBBV
    is anticipated to become a Guarantor of the Senior Notes and the Convertible
    Notes as promptly as practicable hereafter.
 
(8) As of one of the conditions to the approval of the Consent Solicitation, PLD
    Leasing is to be wound up as soon as possible.
 
(9) Pursuant to the Second Supplemental Indenture, PLD Capital Asset (U.S.) Inc.
    became a guarantor of the Senior Notes and the Convertible Notes and a
    Leasing Company, as defined in the Indentures, as amended.
 
                                       16
<PAGE>   17
 
                               THE EXCHANGE OFFER
 
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 September
                                         30, 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.
 
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
 
                                       17
<PAGE>   18
 
                                         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.
 
                                       18
<PAGE>   19
 
                               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
Indentures. See "-- Recent Developments--Consent Solicitation."
 
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.
                                         Pursuant to the terms of the Senior
                                         Notes, because the Company did not
                                         receive, on or before May 31, 1998, $20
                                         million in Cash Proceeds (as defined
                                         herein) from a sale or sales of
                                         Qualified Stock (as defined herein) of
                                         the Company, the interest rate on the
                                         Senior Notes increased to 14.5% per
                                         annum commencing on June 1, 1998 and
                                         continuing until the interest payment
                                         date prior to which the Company shall
                                         have received such $20 million in Cash
                                         Proceeds. 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
 
                                       19
<PAGE>   20
 
                                         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."
 
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
                                       20
<PAGE>   21
 
                                         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 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
                                       21
<PAGE>   22
 
                                         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 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--Cer-
 
                                       22
<PAGE>   23
 
                                         tain 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." The
                                         Registration Statement was declared
                                         effective by the Commission on July 30,
                                         1998 and the Exchange Offer is expected
                                         to be consummated in September 1998.
 
     For additional information concerning the Senior Notes, see "Description of
the Exchange Notes and Other Private Placement Securities--The Notes."
 
                                       23
<PAGE>   24
 
                     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
 
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."
 
Guarantees..........................     The Convertible Notes are jointly and
                                         severally, irrevocably and
                                         unconditionally guaranteed on a senior
                                         sub-
 
                                       24
<PAGE>   25
 
                                         ordinated 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."
 
                                       25
<PAGE>   26
 
Sinking Fund........................     None.
 
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
 
                                       26
<PAGE>   27
 
                                         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."
 
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."
 
                                       27
<PAGE>   28
 
                                         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
                                         Convertible Notes and the Convertible
                                         Note Shares and filed an amendment
                                         thereto simultaneously with the filing
                                         of an amendment to the Registration
                                         Statement. The registration statement
                                         relating to the Convertible Notes and
                                         the Convertible Note Shares was
                                         declared effective by the Commission on
                                         July 30, 1998.
 
     For additional information concerning the Convertible Notes, see
"Description of the Exchange Notes and Other Private Placement Securities--The
Notes."
 
THE UNITS
 
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
 
                                       28
<PAGE>   29
 
                                         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. The
                                         registration statement relating to the
                                         Warrants and the Warrant Shares was
                                         declared effective by the Commission on
                                         July 30, 1998.
 
     For additional information concerning the Warrants, see "Description of the
Exchange Notes and Other Private Placement Securities--The Warrants."
 
                                       29
<PAGE>   30
 
               SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
 
     The following summary consolidated financial data as of June 30, 1998 and
for the six months ended June 30, 1998 and 1997 have been derived from, and
should be read in conjunction with, the unaudited consolidated financial
statements of the Company and the 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 unaudited consolidated financial
statements as of June 30, 1998 and for the six months ended June 30, 1998 and
1997 and 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>
                              SIX MONTHS ENDED
                                  JUNE 30,                      YEAR ENDED DECEMBER 31,
                              -----------------   ---------------------------------------------------
                               1998      1997       1997       1996       1995      1994       1993
                              -------   -------   --------   --------   --------   -------   --------
                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                           <C>       <C>       <C>        <C>        <C>        <C>       <C>
Statement of Operations
  Data:
  Operating revenues........  $74,406   $50,280   $114,424   $ 61,966   $ 29,120   $ 8,526   $  2,308
  Operating expenses........   61,285    45,165    102,406     59,099     38,266    17,248      7,606
                              -------   -------   --------   --------   --------   -------   --------
Operating income/(loss).....   13,121     5,115     12,018      2,867     (9,146)   (8,722)    (5,298)
                              -------   -------   --------   --------   --------   -------   --------
  Earnings/(loss) from
     continuing operations
     before income taxes and
     minority interest......    2,838    (1,404)    (3,428)    (6,271)   (13,440)   (9,491)    (5,264)
  Income taxes..............    5,171     3,440      7,739      3,669      1,490        --         --
  Loss from continuing
     operations before
     minority interest......   (2,333)   (4,844)   (11,167)    (9,940)   (14,930)   (9,491)    (5,264)
  Minority interest.........    7,534     3,223      9,399      2,521        551        --         --
                              -------   -------   --------   --------   --------   -------   --------
  Loss from continuing
     operations.............   (9,867)   (8,067)   (20,566)   (12,461)   (15,481)   (9,491)    (5,264)
  Discontinued operation....       --        --         --         --         --        --     (5,138)
                              -------   -------   --------   --------   --------   -------   --------
  Loss for the
     year/period............  $(9,867)  $(8,067)  $(20,566)  $(12,461)  $(15,481)  $(9,491)  $(10,402)
                              =======   =======   ========   ========   ========   =======   ========
  Loss per common
     share(1)...............  $ (0.30)  $ (0.25)  $  (0.64)  $  (0.39)  $  (0.49)  $ (0.78)  $  (1.33)
                              =======   =======   ========   ========   ========   =======   ========
  Weighted average number of
     shares outstanding.....   33,423    31,731     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)....  $(9,867)  $(8,067)  $(20,566)  $(12,461)  $(15,481)  $(9,491)  $(10,402)
</TABLE>
 
                                       30
<PAGE>   31
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                      JUNE 30,   ---------------------------------------------------
                                        1998       1997       1996       1995       1994      1993
                                      --------   --------   --------   --------   --------   -------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:
  Cash and cash equivalents(2)......  $ 16,023   $ 17,256   $ 40,674   $ 15,676   $ 56,710   $   948
  Non-cash working capital
     (deficiency)...................    (5,110)   (18,642)   (26,440)   (22,001)   (17,706)   (5,121)
  Escrow funds......................    21,658     33,868     40,984         --         --        --
  Property and equipment, net.......   148,129    134,998     93,039     45,357     21,718     6,306
  Telecommunications licenses,
     net............................    73,746     78,837     72,310     49,583     54,099    18,337
  Investments and other assets......    33,329     32,801     39,052     29,293     18,925     2,223
  Investment in Teleport-TP.........        --         --         --     23,564     15,699        --
  Total assets......................   334,910    335,586    306,357    178,092    171,760    28,700
  Long-term debt....................   142,747    133,516    107,954         --         --     4,297
  Shareholders' equity..............   119,373    127,231    137,954    135,832    147,470    11,448
</TABLE>
 
<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
</TABLE>
 
                                       31
<PAGE>   32
 
<TABLE>
<CAPTION>
                                                                      AS OF DECEMBER 31,
                                                              ----------------------------------
           NETWORK AND SELECTED STATISTICAL DATA:              1997      1996      1995    1994
           --------------------------------------             -------   -------   ------   -----
<S>                                                           <C>       <C>       <C>      <C>
ALTEL:
  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.
 
                                       32
<PAGE>   33
 
                                  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, Kazakhstan and Belarus 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 Belarus 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, Kazakhstan and Belarus has been
characterized by uncertainty and instability.
 
     In the Russian Federation, a particular issue has been the 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.
                                       33
<PAGE>   34
 
     There is also significant instability in the executive branch. While Boris
Yeltsin, President of the Russian Federation, has significant power vested in
him as President, he has used that power to make frequent changes in ministerial
appointments which have created uncertainty as to the policies his government
will pursue. Furthermore, he has recently announced that he will not run for
re-election in 2000. The efforts of other candidates to be elected as President,
and 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.
 
     The political situation in Belarus is similar to that in Kazakhstan, in
that President Aleksandr Lukashenko essentially controls the organs of
government. In addition, his rule is characterized by outside observers as
autocratic, because of a perceived lack of tolerance for opposition. President
Lukashenko has announced his intention to re-unite Belarus with the Russian
Federation, although it is not clear whether the Russian Government is
supportive of this proposal.
 
     Economic Risks -- Uncertain Pace of, and Difficulties Experienced in,
Economic Reform; Reliance on Foreign Economic Aid. 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.
 
     Conversely, while the Government of Belarus initially sought to introduce
free market reforms, more recently the President has reversed this direction, so
that the economy, while manifesting some free market characteristics, has
essentially returned to a regime of centralized control. This has resulted in a
declining economy, rampant inflation and falling standards of living. It is not
possible to predict how, or when, these conditions may improve.
 
     -- Limited Experience with Free Market Economy. Russian businesses have
limited operating history in free market conditions and have had limited
experience compared with Western companies with the entering into and
performance of contractual obligations. Accordingly, as compared to Western
companies, such businesses are often characterized by management that lacks
experience in responding to changing market conditions and limited capital
resources with which to develop their operations. In addition, the Russian
Federation has limited infrastructure to support a market system and banks and
other financial systems are not well developed or well regulated. Businesses
therefore may experience difficulty in obtaining working capital
 
                                       34
<PAGE>   35
 
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.
 
     -- Recent Financial Turmoil. In the early part of 1998 there has been
considerable turmoil and uncertainty in the Russian financial markets, prompted
in large part by the crisis in the Asian financial markets which began in late
1997 and is still continuing, and the economic and political problems being
experienced by a number of Asian countries. These developments have been
accompanied by a substantial decline in the Russian stock market, the Moscow
Times Index having dropped over 75% since January 1, 1998. These developments
have led the Russian government to raise interest rates significantly and to
seek special assistance from the International Monetary Fund. In August 1998,
the Russian government announced a widening of the trading range in which the
Russian Rouble would be permitted to float, which will likely lead to a decrease
in the value of the Rouble relative to other currencies (or an effective
devaluation of the Rouble), together with a moratorium on certain foreign debt
payments.
 
     At the present time it is not possible to predict the effect of the
effective devaluation of the Russian Rouble, although it is possible that it
could exacerbate existing economic problems in Russia. It is not likely to
immediately affect the Company's operating subsidiaries which, although they
receive payment in local currencies, invoice by reference to U.S. Dollars.
However, it could bring on increased economic difficulties in Russia which in
turn could have an impact on the Company's operating subsidiaries in that
country, the effect of which it is impossible to assess at the present time.
There can be no assurance that these developments will not have a material
adverse effect upon the Company in the future.
 
     Restrictions on Currency Conversion; Historical Volatility in Currency
Prices. None of the Russian Rouble, the Kazakh Tenge or the Belarus Ruble are
convertible outside of their home countries.
 
     In Belarus, there are significant (and increasing) controls on currency
conversion, including requirements that exports only be sold for hard currency
which must then be converted into Belarus Rubles at a low "official" rate of
exchange. While there is some trading at the higher "unofficial" rates of
exchange, the Belarus Ruble is, to all intents, inconvertible.
 
     In Russia and Kazakhstan, 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 and, in the case of the Kazakh
Tenge, during the early part of 1998. During the early part of 1998, the Russian
Rouble has been under considerable pressure. See "-- Economic Risks -- Recent
Financial Turmoil." Historically, the Company has largely been able to limit its
exposure to declines in the value of the Russian 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, ALTEL
may face greater exchange risks as a result of new Kazakh regulations regarding
invoicing.
 
     In respect of Belarus, where government controls have made the currency
essentially inconvertible, the Company is still in the process of developing
billing and payment strategies to deal with this situation.
 
     The Company does not hedge any of its exchange risks. Any of these
developments, in conjunction with further declines, or volatility, in the value
of the Russian Rouble, the Belarus Ruble 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."
 
                                       35
<PAGE>   36
 
     Legal Risks -- Underdeveloped Legal System. The Russia Federation,
Kazakhstan and Belarus lack fully developed legal systems. Their laws are
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 their courts in respect of a breach
of law or regulation, or in an ownership dispute, may be difficult to obtain,
particularly in Belarus and Kazakhstan, where the political situation is
characterized by one-man rule and it is not clear whether, or to what extent,
the rule of law is respected or upheld in those countries.
 
     Risks associated with the Russian, Kazakh and Belarus 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, Belarus 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, Belarus or Kazakhstan for the reciprocal enforcement of
foreign court judgments.
 
     Furthermore, the relative infancy of business and legal cultures in the
Russia Federation, Belarus 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.
 
     -- Possible Additional Liability of Shareholders. 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.
 
     -- Limited Protection of Minority Shareholders. Russian laws regulating
ownership, control and corporate governance of Russian companies may, in some
cases, provide limited protection to shareholders, particularly 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. See "-- Risks
Involving the Company -- Potential Conflicts of Interest." Nevertheless, there
are signs that Russian securities regulators
                                       36
<PAGE>   37
 
and courts have become more sympathetic to the need to protect minority
shareholders, and more willing to set aside management decisions (such as sales
below value to insiders or highly dilutive share issues). At the same time
procedural protections to which U.S. shareholders are accustomed, such as
contingent fee arrangements or the ability to bring class actions, are as yet
still unknown in Russia.
 
     Social Risks. The political and economic changes in the Russian Federation,
Belarus 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,
Belarus or Kazakh economy) and increased violence, any of which could have a
material adverse effect on the Company.
 
     In addition, the local and international press have reported significant
organized criminal activity, particularly in large metropolitan centers,
directed at revenue-generating businesses, and an increased integration of
Russian organized crime with major international criminal organizations. A
substantial increase 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 Belarus and
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, Belarus 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.
 
     -- Capital Expenditures and Working Capital for Operating Businesses. The
Company 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 ALTEL 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.
 
     -- Acquisitions and Other Business Development. 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.
 
     -- Payment of Principal and Interest on Outstanding Indebtedness. 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
$14,420,000, which bears interest at an annual rate of 12%, payable monthly in
cash. The
                                       37
<PAGE>   38
 
interest rate on the Revolving Credit Notes increased to 15% on June 1, 1998 as
a result of the Company not raising $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 June 30, 1998,
the accreted value of the Senior Notes on the Company's balance sheet was $103.8
million. These Notes accrete until December 1, 1998, when interest on the full
accreted value is payable semi-annually thereafter in cash. Until May 31, 1998
these Notes accreted at the rate of 14% per annum. As a result of the Company
not raising $20,000,000 in additional equity by May 31, 1998, as of June 1, 1998
they commenced to accrete at 14.5% per annum. The first semi-annual payment of
interest in cash, due June 1, 1999, will be at least $8,610,000. The exact
amount of the semi-annual interest payment will depend on the accreted value of
the Senior Notes as of December 1, 1998 and the interest rate then payable. The
Senior Notes 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
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. The Company did not effect the
targeted reduction for July 31, 1998, with the result that 30,000 warrants will
be issued to the holders of the Series A Notes and 16,000 warrants will be
issued to the holders of the Series B Notes. 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
(including the 46,000 warrants already issued) 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."
 
                                       38
<PAGE>   39
 
     -- Possible Effects of Insufficient Capital Resources. 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.
 
     Also, failure to generate the required funds in a timely manner could lead
to the Company defaulting under equipment purchase contracts, which could lead
to the loss of important equipment, or under the indebtedness referred to above,
which could result in acceleration and actions by the holders of such
indebtedness to realize upon guarantees and other security for such
indebtedness. Any of such events could have a material adverse impact upon the
Company and its shareholders.
 
     Limitations on Activities Imposed by Indentures and Revolving Credit
Agreement. The Indentures pursuant to which the Senior Notes and the Convertible
Notes were issued in the June 1996 Placement, and the Revolving Credit Agreement
pursuant to which the Revolving Credit Notes were issued in November 1997,
contain covenants which impose substantial restrictions upon activities in which
the Company may wish to engage. These covenants also cover the activities of the
Company's "Restricted Subsidiaries", meaning companies in which the Company has
directly or indirectly a greater than 50% interest (but specifically including
ALTEL). These covenants, which in many cases are extremely complex, include
restrictions upon the types, amounts and terms of indebtedness which may be
incurred (including the giving of guarantees) and of the security which may be
given for such indebtedness, restrictions upon payment of dividends (other than
by subsidiaries to the Company), bars on additional investments other than those
falling within relatively narrow exceptions (such as investments in wholly-owned
subsidiaries, or to increase the size of the Company's interest in a
subsidiary), limits on sale-leaseback transactions or the issuance of preferred
stock, restrictions on transactions with affiliates unless certain conditions
are met, and the requirement that sales of assets be made for 75% cash proceeds
and all of the proceeds be re-invested within one year or used to pay
indebtedness. In addition, as a result of the Company not having raised
$20,000,000 in additional equity by May 31, 1998, under the terms of the Series
A and Series B Notes, the Company is not permitted until such equity is raised,
to make any unscheduled debt repayments or to make any capital expenditures (or
fund any subsidiary's capital expenditures) other than out of the proceeds of
the Senior Notes being held in escrow. These covenants impose substantial
restraints upon the ability of the Company and its subsidiaries to conduct their
respective businesses, and upon their capacity to engage freely in transactions
which may be beneficial or to respond timely to opportunities they may encounter
and, to this extent, could affect the growth and development of these companies.
Additionally, their breadth and complexity raises the possibility that the
Company or a subsidiary may inadvertently breach a covenant, thereby triggering
a default and possible acceleration of the indebtedness. While the Company may
endeavor to obtain waivers of particular covenants or of possible breaches
thereof, see "Summary -- Recent Developments -- Consent Solicitation," that
procedure is cumbersome and slow and not conducive to prompt decision making.
Finally, the requirement that the Company only access the funds in escrow may
impact its ability to respond promptly to its subsidiaries' capital expenditure
needs. See "-- Capital Requirements."
 
     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 substantial degree to which the Company in leveraged could have
important consequences including, but not limited to, the following: (i) 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
 
                                       39
<PAGE>   40
 
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 by
any future wholly owned subsidiaries, 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 assets constituting Convertible Note
Collateral. The Convertible Notes are also guaranteed by NWE Cyprus, BCL, WTC
and the Leasing Companies, and by any future wholly owned subsidiaries, but are
secured on a first priority basis by the Convertible Note Collateral, 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 by any future
wholly owned subsidiaries, 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 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
 
                                       40
<PAGE>   41
 
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, or to fund its
working capital requirements, 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, Belarus,
Netherlands 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 Exchange Notes and Other Private Placement
Securities -- The Notes -- Guarantees" and "--Ability to Realize on Collateral."
 
                                       41
<PAGE>   42
 
     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," 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 or any other wholly owned subsidiary which is a
Guarantor 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, Belarus and
Kazakhstan, see "-- Country Risks -- Legal Risks -- Underdeveloped Legal
System," and the readiness of local partners and courts to respect and recognize
such rights is uncertain, including the rights of 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, Belarus
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 Russia, Belarus 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, Belarus 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, Belarus 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, Belarus 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 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
 
                                       42
<PAGE>   43
 
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"; 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.
 
     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
                                       43
<PAGE>   44
 
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, Belarus 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, Belarus
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, Belarus and Kazakh authorities and, in the
case of Kazakhstan, the unfamiliarity of those administering the tax system with
the international tax treaty system, while in the case of Belarus, its very
status under the tax treaties to which it may be a party remains very unclear.
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, Belarus 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 -- Underdeveloped Legal
System."
 
     Currency Controls -- Risks of Changing Regulatory and Administrative
Environment. Belarus currently effectively prevents the making of all payments
in hard currency and the repatriation of capital and profits. 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.
 
     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 -- Restrictions on
Currency Conversion; Historical Volatility in Currency Prices." There can be no
assurance that, because of future 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.
 
     In respect of Belarus, the Company is currently in the process of
developing strategies to deal with the fact that the Belarus Ruble is currently
effectively inconvertible.
 
                                       44
<PAGE>   45
 
     -- Currency Licensing Requirements. 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 -- Underdeveloped Legal
System." 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 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 in Russia and Kazakhstan 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 -- Restrictions on Currency Conversion; Historical Volatility
in Currency Prices." 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. In
respect of Belarus, the Company is currently in the process of developing
strategies to deal with the fact that the Belarus Ruble is currently effectively
inconvertible.
 
     -- Licensing Requirements for Prior Investments. 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.
 
     -- Possible Effects of Currency Controls and Regulations on the Company's
Ability to Meet its Obligations.  There can be no assurance that, due to the
risks outlined above, the Company will not experience difficulties or delays in
receiving cash flows from its operating subsidiaries. Any such difficulties or
delays could materially affect the Company's ability to make payments on its
outstanding indebtedness and could result in defaults in the Company's payment
obligations under that indebtedness or an acceleration of the maturity of that
debt. In addition, the Company's ability to meet its working capital
requirements or to declare and pay dividends to its shareholders could be
adversely affected by any cash flow restrictions experienced by the Company.
 
                                       45
<PAGE>   46
 
     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 71% ordinary share interest in PeterStar and a 50% interest in each of
ALTEL and BELCEL. 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, ALTEL, BELCEL 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 PeterStar, of Telecominvest and PTN; in the
case of ALTEL, of Kazakhtelekom; in the case of BELCEL, of the Minsk Regional
Telephone Network and the Minsk City Telephone Network; 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. In summary, the absence of complete legal control by the
Company over the operations of PeterStar, ALTEL, BELCEL 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 ALTEL 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. See "-- Limitations on Activities Imposed by Indentures and
Revolving Credit Agreement." 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
 
                                       46
<PAGE>   47
 
"-- Risks Involving PeterStar Company Limited and Baltic Communications
Limited -- Dependence on PTN 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 Rick Macy. The Company also relies
heavily on the experience of Maxut Saurenbekov and Rex Power for the technical
guidance and operational and financial management of ALTEL. 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 cellular networks in
Kazakhstan and Belarus 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 entered into a support
services agreement which set out the terms, on an arm's-length basis, under
which the Company and its subsidiaries had access to Cable & Wireless'
resources. While this agreement was terminated following the disposition by
Cable & Wireless of its stake in the Company, the Company currently knows of no
reason why it would not be able to continue to draw upon the resources of Cable
& Wireless on an ad-hoc basis thereafter, but no assurances can be made that
such resources will continue to be made available to the Company, or at what
cost. See "Summary -- Recent Developments -- Transactions with Cable & Wireless
and News."
 
     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
partners in its operating businesses are also potential -- and in some cases
actual -- competitors. For example, PTN has recently completed the installation
of a fiber optic network in St. Petersburg which will improve call completion
rates on the PTN network and could provide a serious alternative to PeterStar's
network and permit PTN 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, ALTEL'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 efforts by the KMOC to limit ALTEL's
exclusive license and permit more cellular operators in Kazakhstan will have
upon the Kazakh telecommunications market and the Company in particular, nor how
the possible plans of the Government of Belarus to award additional cellular
licenses could affect BELCEL's business. See "--Impact of Auction of Stakes in
Sviazinvest on the Company and the Telecommunications Market in Russia,"
"--Risks Involving ALTEL" and "--Risks Involving BELCEL." Finally, the
increasing ability of Russian telecommunications companies to access Western
capital
 
                                       47
<PAGE>   48
 
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 "--Impact of Auction of Stakes in Sviazinvest on the
Company and the Telecommunications Market in Russia."
 
     Potential Conflicts of Interest. Each of the Company's principal partners
in PeterStar, ALTEL and Teleport-TP have interests that may conflict with those
of the Company.
 
     PTN, 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 ALTEL, may be a significant competitor for ALTEL'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. Belarus and 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.
 
     Impact of Auction of Stakes in Sviazinvest on the Company and the
Telecommunications Market in Russia. In 1997, it was reported that,
notwithstanding its previously announced plans to have Sviazinvest compete with
Rostelecom, the Russian government had consolidated its telecommunications
holdings in Sviazinvest and Rostelecom by transferring its shareholding in
Rostelecom (38% of the common stock, and 51% of the voting stock) to
Sviazinvest. The balance of the shares in Rostelecom remain in the hands of
private investors. In April 1997, the government announced that it was seeking
to sell 49% of Sviazinvest in 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. 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. The timing of both the auction of an
additional stake in Sviazinvest and its proposed bond offering has become
increasingly uncertain in light of the financial turmoil in Russia. In light of
all of the foregoing, it is unclear what impact the consolidation of the
government's telecommunications holdings and the auctions of
 
                                       48
<PAGE>   49
 
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, the Kazakh telecommunications system is
currently regulated by the Kazakh Ministry of Communications (the "KMOC") and
the Belarus telecommunications system is currently regulated by the Belarus
Ministry of Communications (the "BMOC"), 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 either Belarus or
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 ALTEL--Effect of Sale of Stake in Kazakhtelekom on ALTEL
and the Telecommunications Market in Kazakhstan."
 
     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--Capital and Management Resources
Required for Network Expansion; Management of Growth."
 
     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,
BELCEL and ALTEL 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 on Company's Ability
to Transfer its Stake in Technocom.  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 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
 
                                       49
<PAGE>   50
 
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. In the event the Company determined to sell its stake
in Technocom, the existence of these agreements could adversely affect the
Company's ability to do so. The Company has no present intention to dispose of
its shares in 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, ALTEL, 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 June 30, 1998, the Company had
outstanding 33,520,748 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 13,234,380 shares
of Common Stock. Of the outstanding shares of Common Stock, 22,089,269 are
freely transferable without restriction or further registration under the
Securities Act. The remaining 11,431,479 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 June 30, 1998) and are subject to
certain resale restrictions under the Securities Act; of these, 5,140,264 shares
are held by parties who possess certain registration rights for the resale of
such shares. In addition, the Company has registered for resale by the holders
thereof the 3,840,645 shares issuable upon conversion of the Convertible Notes
(the "Convertible Note Shares") and the 4,182,000 Warrant Shares and has agreed
to register for resale by the holders thereof 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") the 423,000 shares
issuable upon conversion of the Travelers Warrants (the "Travelers Warrant
Shares") and the 266,800 shares issuable upon conversion of the Consent Warrants
(the "Consent Warrant Shares"). Following the effectiveness of the registration
statements covering the resale of the Initial Purchaser Warrant Shares, the
Travelers Warrant Shares and the Consent Warrant Shares, and the conversion of
the Convertible Notes and the exercise of the Warrants, the Initial Purchaser
Warrants, the Travelers Warrants and the Consent Warrants, a total of 30,901,714
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 Warrant
Shares, the Initial Purchaser Warrant Shares, the Travelers Warrant Shares, the
shares issuable upon the conversion of the Additional Warrants and the Default
Warrants and the Consent Warrant 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."
                                       50
<PAGE>   51
 
     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.
 
     Reliance on Telecommunications Licenses; Risks of Revocation or
Renegotiation of 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. Based on its experience in renewing existing, and obtaining new,
licenses and its general knowledge of the licensing environment in Russia,
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, based on its experience in renewing
existing, and obtaining new, licenses and its general knowledge of the licensing
environment in Russia, 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 or the imposition of penalties. It is not possible to calculate the
amount of any penalties which might be imposed, which are in the discretion of
the RFCTI.
 
     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.
Based on its experience in renewing existing, and obtaining new, licenses and
its general
                                       51
<PAGE>   52
 
knowledge of the licensing environment in Russia, 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. Based on its
experience in renewing existing, and obtaining new, licenses and its general
knowledge of the licensing environment in Russia, 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. Based on that knowledge and experience, 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 or the imposition of penalties. It is not possible
to calculate the amount of any penalties which might be imposed, which are in
the discretion of the RFCTI.
 
     No assurance can be given that 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 PTN, SPMMTS
and other operators for the completion of most of its calls. The PeterStar
network is linked to the PTN network, which gives PeterStar access to PTN'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 PTN and SPMMTS. PeterStar's current interconnect
agreements with SPMMTS and PTN 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 PTN 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 PTN Facilities. PeterStar is also dependent on PTN's
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 PTN to house
its exchanges in PTN buildings, nor has it paid rentals for ducts or tunnels.
Although PTN 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 PTN commencing in 1998. The exact
fee, and the timing of the fee, has not yet been determined.
 
     Capital and Management Resources Required for Expansion of Direct Dial
Services; Management of Growth. PeterStar has recently commenced several
projects designed to expand its direct dial services in St. Petersburg and
Northwest Russia. PeterStar has agreed with PTN 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 PTN, 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 "-- Risks Involving the
Company -- Capital Requirements."
                                       52
<PAGE>   53
 
     Pressure to Provide Residential Service. The Vassilievski Island project
also represents part of a continuing effort on the part of PTN 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 PTN has now
been privatized, the Company does not believe that the pressures on PTN to
improve residential service have lessened. Although the Company believes that
PeterStar has, following long and detailed negotiations with PTN, fulfilled its
commitment to the residential customers, there can be no assurance that PTN will
not continue to try to involve PeterStar in this effort, or that PTN's 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.
 
RISKS INVOLVING ALTEL
 
     Limited Operating History. ALTEL was formed in January 1994 and commenced
commercial operations in September 1994. Although ALTEL generated profits for
the years ended December 31, 1996 and 1997, there can be no assurance that ALTEL
will be able to generate sufficient revenues or control its costs sufficiently
to remain profitable in the future.
 
     Reliance on Telecommunications License; Elimination of Exclusivity
Provision. ALTEL'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
ALTEL 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 ALTEL is to be the exclusive provider of cellular
service in Kazakhstan for the first five years of the license term. The
exclusivity provision of ALTEL'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, ALTEL 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 ALTEL believes that a resolution of the
kind envisaged would put to rest the issues that have been raised regarding
ALTEL's existing license and assure ALTEL 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 ALTEL will not continue, or that
ALTEL will in fact be able to compete successfully with any new licensees. See
"-- Country Risks -- Legal Risks."
 
     Effect of Network Expansion on Management Resources; Management of
Growth. ALTEL 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 ALTEL, 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 ALTEL network, and any future expansion of the network,
successfully could have a material adverse effect on the Company.
 
                                       53
<PAGE>   54
 
     Effect of Sale of Stake in Kazakhtelekom on ALTEL and the
Telecommunications Market in Kazakhstan. Since its formation, ALTEL has been 50%
owned, directly or indirectly, by the government of Kazakhstan. ALTEL 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 ALTEL. Currently, the government's 50% interest in ALTEL 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 Company understands that Daewoo may have disposed, or may be in
the process of disposing, of the remainder of its stake in Kazakhtelekom. These
transactions create considerable uncertainty as to the government's attitude
towards Kazakhtelekom. 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 ALTEL and its business. There can be no assurance that the
government's favorable attitude towards ALTEL will continue to the same degree.
Any significant change in the government's attitude toward ALTEL could have a
material adverse effect on the Company.
 
     Dependence on Interconnect Parties. Under the terms of its license, ALTEL
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
ALTEL, notwithstanding the fact that its license exempts it from payment of such
charges. The imposition of such interconnection charges would impact ALTEL'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.
 
     Reliance on Telecommunications Licenses; Risks of Revocation or
Renegotiation of 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. Based on its experience in
renewing existing, and obtaining new, licenses and its general knowledge of the
licensing environment in Russia, 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. Based on that knowledge and experience, 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
 
                                       54
<PAGE>   55
 
could result in the revocation of the license or its renegotiation on terms
unfavorable to Teleport-TP or the imposition of penalties. It is not possible to
calculate the amount of any penalties which might be imposed, which are in the
discretion of the RFCTI. 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
"-- Capital and Management Resources Required for Network Expansion; Management
of Growth." Additionally, while Rostelecom currently utilizes approximately 900
circuits, it is only contractually committed to utilize, on a 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 -- Impact of Auction of
Stakes in Sviazinvest on the Company and the Telecommunications Market in
Russia."
 
     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.
                                       55
<PAGE>   56
 
     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.
 
     Capital and Management Resources Required for Network Expansion; Management
of Growth -- Capital and Management Resources. 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.
 
     -- Difficulties in Implementing Network Expansion. 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 -- Underdeveloped Legal System."
 
     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.
 
     -- Significant Competition. 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 -- Impact of Auction of Stakes in Sviazinvest on
the Company and the Telecommunications Market in Russia."
                                       56
<PAGE>   57
 
RISKS INVOLVING BELCEL
 
     The Company has only recently acquired BELCEL and is currently in the
process of assessing the risks involving BELCEL and its operations. From its
pre-acquisition assessment of BELCEL, it would appear that the principal risks
affecting BELCEL are:
 
     - BELCEL is as reliant as the Company's other operating companies on the
       licenses under which it operates. The termination, non-renewal or
       re-negotiation on unfavorable terms of these licenses could have a
       material adverse effect on BELCEL's business and operations.
 
     - BELCEL's business has been and will continue to be adversely affected by
       the weak state of the Belarus economy.
 
     - BELCEL's ability to service its U.S. dollar -- and other hard
       currency -- denominated indebtedness and other obligations will be
       severely impacted by the essential inconvertibility of the Belarus Ruble,
       the currency in which it receives payments from customers. This could
       lead to default in respect of those hard currency obligations, which
       could have a material adverse effect upon its business.
 
     - BELCEL's operations are dependent upon the facilities of Beltelekom, the
       Belarus national telephone operator, for the connection of its calls.
       These facilities are of limited capacity and in urgent need of upgrading,
       which will inhibit the further expansion of BELCEL's network and customer
       base.
 
     - BELCEL will likely be dependent upon the availability of Western
       expatriate personnel to oversee its operations. Recent initiatives by the
       Government of Belarus which may restrict the entry of such personnel into
       Belarus may adversely affect the Company's ability to oversee and develop
       BELCEL's business.
 
     At the same time, the impact of these risks upon the Company is
significantly ameliorated by the fact that the Company's investment in BELCEL,
which the Company valued at approximately $4.4 million, is relatively
insignificant in relation to the Company's overall assets, and the further fact
that the Company intends to limit further investment in BELCEL until such time
as the uncertainties described above have been better defined and/or the
commercial viability of any additional investment has been established.
 
                                       57
<PAGE>   58
 
                               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 "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 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 Senior Note 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. The Company has elected not to file the Senior Note
Registration Statement but instead is proceeding with the Exchange Offer
pursuant to this Prospectus.
 
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 July 1, 1998, there was one
registered Holder of the
 
                                       58
<PAGE>   59
 
Outstanding Notes. Solely for reasons of administration (and for no other
purpose), the Company has fixed the close of business on August 21, 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 September 30, 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 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.
 
                                       59
<PAGE>   60
 
     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 accordingly the
Company has been incurring Special Interest for the period from October 10, 1996
to date. Since the Exchange Offer was not consummated by December 9, 1996, the
Company will continue to accrue Special Interest on the Senior Notes until the
Exchange Offer is consummated, which is expected to be in September 1998.
 
     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 THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
 
                                       60
<PAGE>   61
 
     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. Holders of Outstanding Notes that are tendering by book-entry
transfer to the Exchange Agent's account at DTC can execute the tender through
the DTC Automated Tender Offer Program ("ATOP"), for which the transaction will
be eligible. DTC participants that are accepting the Exchange Offer must
transmit their acceptance to DTC, which will verify the acceptance and execute a
book-entry delivery to the Exchange Agent's DTC account. DTC will then send an
agent's message to the Exchange Agent for its acceptance. 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. DTC
participants may also accept the Exchange Offer prior to the Expiration Date by
submitting a Notice of Guaranteed Delivery through ATOP.
 
     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
                                       61
<PAGE>   62
 
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 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.
 
                                       62
<PAGE>   63
 
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.
 
                                       63
<PAGE>   64
 
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:
 
<TABLE>
    <S>                                        <C>
    By Hand or Overnight Courier:              By Registered or Certified Mail:
    The Bank of New York                       The Bank of New York
    101 Barclay Street, Floor 7E               101 Barclay Street
    New York, New York 10286                   New York, New York 10286
    Attention: Securities Processing Windows   Attention: Jackie Warren
    Ground Level Reorganization, 7E            Corporate Trust Operations, 7E
</TABLE>
 
     By Facsimile (for Eligible Institutions only): (212) 815-6339,
       with telephone confirmation (212-815-5924)
 
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.
 
                                       64
<PAGE>   65
 
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."
 
                                       65
<PAGE>   66
 
                     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 Indentures. 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
 
                                       66
<PAGE>   67
 
accordance with the Depositary's applicable procedures, in addition to those
provided for in the Indenture or the Warrant Agreement.
 
     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
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<PAGE>   68
 
Agent, as the case may be. It is expected that such instructions will be based
upon directions received 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 plus any additional amounts
accreted over the period June 1, 1998 through November 30, 1998 (see
"-- Principal, Maturity and Interest"), 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
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<PAGE>   69
 
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. 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 $12 million of the net proceeds of the Senior Notes has
been invested by the Company in PLD Capital Asset (U.S.) Inc. and used by it to
purchase Telecommunications Assets. A further $8 million of the net proceeds of
the Senior Notes has been 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
 
                                       69
<PAGE>   70
 
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."
 
     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
 
     Except as described in the next paragraph, 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 (except as described
in the next paragraph) 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 (except as described in the next paragraph). 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
 
                                       70
<PAGE>   71
 
Notes. Interest on the Senior Notes will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
 
     Pursuant to the terms of the Senior Notes, because the Company did not
receive, 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 interest rate on the Senior Notes
increased to 14.5% per annum commencing on June 1, 1998 and continuing 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 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 exact accreted value of the Senior Notes as
of December 1, 1998 may exceed $123.0 million, depending on the interest rate at
which the Senior Notes accrete up to such date and whether the Company elects to
pay the additional accreted interest on the Senior Notes in full on December 1,
1998.
 
     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 with respect to the Senior Notes. The obligation to pay
Special Interest on the Convertible Notes terminated on July 30, 1998, the date
the registration statement relating to the Convertible Notes and the Convertible
Note Shares was declared effective by the Commission. Special Interest will
continue to accrue on the Senior Notes until the Exchange Offer is consummated,
which is expected to occur in September 1998. 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.
 
                                       71
<PAGE>   72
 
  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, 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."
 
     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
 
                                       72
<PAGE>   73
 
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.
 
     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
                                       73
<PAGE>   74
 
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 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
 
                                       74
<PAGE>   75
 
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 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
 
                                       75
<PAGE>   76
 
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.
 
     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
                                       76
<PAGE>   77
 
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.
 
  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, $12 million of such net proceeds
has been invested in PLD Capital Asset (U.S.) Inc. and used by it to acquire
Telecommunications Assets, a further $8 million has been 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
 
                                       77
<PAGE>   78
 
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
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
 
                                       78
<PAGE>   79
 
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 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:
 
<TABLE>
<CAPTION>
                            YEAR                              PERCENTAGE
                            ----                              ----------
<S>                                                           <C>
2002........................................................  104.000%
2003 and thereafter.........................................  100.000%
</TABLE>
 
                                       79
<PAGE>   80
 
     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 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
                                       80
<PAGE>   81
 
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 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
                                       81
<PAGE>   82
 
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;
(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
 
                                       82
<PAGE>   83
 
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 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
 
                                       83
<PAGE>   84
 
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 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
                                       84
<PAGE>   85
 
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.
 
     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
 
                                       85
<PAGE>   86
 
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.
 
     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
 
                                       86
<PAGE>   87
 
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, 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
 
                                       87
<PAGE>   88
 
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.
 
                                       88
<PAGE>   89
 
     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
 
                                       89
<PAGE>   90
 
(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.
 
     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.
 
                                       90
<PAGE>   91
 
     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
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
 
                                       91
<PAGE>   92
 
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 (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
                                       92
<PAGE>   93
 
"--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.
 
     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
                                       93
<PAGE>   94
 
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 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
                                       94
<PAGE>   95
 
     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
 
          (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;
 
                                       95
<PAGE>   96
 
          (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;
 
          (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
 
                                       96
<PAGE>   97
 
     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.
 
     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
 
                                       97
<PAGE>   98
 
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.
 
  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
                                       98
<PAGE>   99
 
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 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
 
                                       99
<PAGE>   100
 
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. Pursuant to such provision, and as authorized by the First Supplemental
Indenture, $8 million has been advanced to Technocom pursuant to the Technocom
Note. The remaining funds retained in the Company Senior Note Escrow Account are
required to be utilized by the Company 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
                                       100
<PAGE>   101
 
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 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 or 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
                                       101
<PAGE>   102
 
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.
 
     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
 
                                       102
<PAGE>   103
 
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 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
                                       103
<PAGE>   104
 
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 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.
 
                                       104
<PAGE>   105
 
     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.
 
     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
                                       105
<PAGE>   106
 
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
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
 
                                       106
<PAGE>   107
 
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.
 
  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
 
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<PAGE>   108
 
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.
 
  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.
 
                                       108
<PAGE>   109
 
  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.
 
     "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.
 
                                       109
<PAGE>   110
 
     "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 ALTEL 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).
 
     "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.
 
                                       110
<PAGE>   111
 
     "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.
 
     "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
                                       111
<PAGE>   112
 
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.
 
     "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.
 
                                       112
<PAGE>   113
 
     "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 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.
                                       113
<PAGE>   114
 
     "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.
 
     "First 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.
 
     "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 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
 
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<PAGE>   115
 
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.
 
     "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
 
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<PAGE>   116
 
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
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
                                       116
<PAGE>   117
 
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 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
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<PAGE>   118
 
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, are being contested in good faith and
with respect to which adequate reserves are being maintained, to the extent
 
                                       118
<PAGE>   119
 
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 i n 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.
 
     "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
 
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<PAGE>   120
 
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.
 
     "Second Supplemental Indenture" means the Second Supplemental Indenture
dated as of June 15, 1998, among the Company, the Guarantors, Clayton Waite,
Apropos Investments Limited, and The Bank of New York, as Senior Note Trustee,
Convertible Note Trustee and collateral agent or escrow agent under certain
Collateral Documents.
 
     "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.
 
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<PAGE>   121
 
     "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
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 ALTEL, provided that the Company owns directly or
indirectly 50% of the then outstanding shares of Voting Stock of ALTEL.
 
     "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 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
 
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<PAGE>   122
 
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 8.9% 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 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
 
                                       122
<PAGE>   123
 
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
"--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 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
                                       123
<PAGE>   124
 
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.
 
     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.
 
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<PAGE>   125
 
  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 each such registration statement was declared effective on
July 30, 1998.
 
  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).
 
     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
 
                                       125
<PAGE>   126
 
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 Company has elected not to file the Senior Note
Shelf Registration Statement but instead is continuing to endeavor to cause the
Exchange Offer Registration Statement to become 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 accordingly the Company has been
incurring Special Interest since October 10, 1996. Since the Exchange Offer was
not consummated by December 9, 1996, the Company will continue to accrue Special
Interest on the Senior Notes until the Exchange Offer is consummated, which is
expected to be in September 1998.
 
     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.
 
                                       126
<PAGE>   127
 
  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 Statement was
not declared effective by October 10, 1996 and accordingly the Company incurred
Special Interest from October 10, 1996 until July 30, 1998, the date on which
the Convertible Note Registration Statement was declared effective by the
Commission.
 
     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.
                                       127
<PAGE>   128
 
     The registration statement with respect to the resale by the holders
thereof of the Convertible Notes and the Convertible Note Shares was declared
effective by the Commission on July 30, 1998.
 
  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 registration statement with respect to the resale by the holders
thereof of the Warrants and the Warrant Shares was declared effective by the
Commission on July 30, 1998.
 
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<PAGE>   129
 
                                    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
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<PAGE>   130
 
binding on the initial 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
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<PAGE>   131
 
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 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.
 
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<PAGE>   132
 
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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<PAGE>   133
 
                   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. A substantial number of the terms, particularly
the covenants, in the Revolving Credit Agreement, match the terms of the Senior
Note Indenture and various related documents. Under the terms of the Revolving
Credit Agreement, any amendments to the terms of the Senior Note Indenture and
related documents are automatically incorporated in the Revolving Credit
Agreement. Pursuant to this, the Revolving Credit Agreement has been amended, to
the extent its terms match the terms of the Senior Note Indenture, by the
Supplemental Indenture. Unless the context requires otherwise, any reference
herein to the Revolving Credit Agreement, the Revolving Credit Notes and the
guarantees and warrants given in connection therewith shall refer to such
documents and securities as so amended.
 
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
 
                                       133
<PAGE>   134
 
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.
 
     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.
 
     If the Company has not received on or before May 31, 1998, $20 million in
net cash proceeds from an Equity Issuance, the Series A Notes and the Series B
Notes will bear interest at the rate of 15% per annum for the period commencing
on June 1, 1998 until maturity. The Company did not complete such Equity
Issuance prior to May 31, 1998 and accordingly the interest rate on the Series A
and Series B Notes increased to 15% per annum.
 
     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.
 
     Because the Company did not receive 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.
 
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<PAGE>   135
 
     The Company is 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 "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>
 
     In the event that at the time any commitment is reduced, the amount
borrowed exceeds the amount of the commitment as so reduced, the Company is
obligated to repay 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 and, as
such, have been amended to the extent that the Senior Note Indenture has been
amended by the Supplemental Indenture. The holders of the Series A and Series B
Notes have agreed to incorporate in the Revolving Credit Agreement all further
amendments made to the Senior Note Indenture hereafter.
 
     However, in addition to the foregoing, the Company has agreed that, because
it did not receive 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 Company did not effect the "targeted reduction
in commitment" for July 31, 1998 and accordingly will issue 30,000 Additional
Warrants to the holders of the Series A Notes and 16,000 Additional Warrants to
the holders of the Series B Notes.
 
     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
 
                                       135
<PAGE>   136
 
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.
 
     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.
 
                                       136
<PAGE>   137
 
                          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 June 30, 1998, there
were 33,520,748 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-
                                       137
<PAGE>   138
 
qualified stock options, incentive stock options, stock 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 consultants and 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 June 30, 1998,
options to purchase an aggregate of 4,022,000 shares of Common Stock were
outstanding (including options granted under the Prior Plan) at exercise prices
ranging from $4.875 to $11.3817.
 
     As of June 30, 1998, warrants to purchase an aggregate of 5,371,800 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, which it has agreed to sell to News
America. See "Summary--Recent Developments--Transactions with Cable & Wireless
and News."
 
     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.
 
     See "Summary--Recent Developments--The Consent Solicitation" for a
description of the terms of the Consent Warrants issued to the holders of the
Senior Notes and the Convertible Notes pursuant to the Consent Solicitation.
 
Registration Rights
 
     As of June 30, 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,
and with respect to any shares of Common Stock issuable upon exercise of any
Additional Warrants or Default Warrants. See "Description of Certain Other
Indebtedness--Description of Warrants."
 
     The Company has also granted demand and piggyback registration rights to
News in respect of the shares of Common Stock acquired by News from Cable &
Wireless and the shares issued to News by the Company in August 1998, together
with any other security of the Company owned from time to time by News which is
registrable under the United States securities laws.
 
                                       138
<PAGE>   139
 
     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 June 1996 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.
 
                                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
                                       139
<PAGE>   140
 
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.
 
                                    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 ended December 31,
1996, 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, 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,
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.
 
                                       140
<PAGE>   141
 
- ------------------------------------------------------
- ------------------------------------------------------
 
  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............    2
Additional Information................    2
Incorporation of Certain Documents by
  Reference...........................    3
Summary...............................    4
Risk Factors..........................   33
The Exchange Offer....................   58
Description of the Exchange Notes and
  Other Private Placement
  Securities..........................   66
Taxation..............................  129
Description of Certain
  Other Indebtedness..................  133
Description of Capital Stock..........  137
Use of Proceeds.......................  139
Plan of Distribution..................  139
Experts...............................  140
Legal Matters.........................  140
</TABLE>
 
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
 
                                 EXCHANGE OFFER
                       14% SENIOR DISCOUNT NOTES DUE 2004
 
                                PLD TELEKOM INC.
                               -----------------
                                   PROSPECTUS
                               -----------------
                                AUGUST 28, 1998
 
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