<PAGE>   1

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K
(MARK ONE)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
      OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

          FOR THE TRANSITION PERIOD FROM                TO

                         COMMISSION FILE NUMBER 0-20444

                                PLD TELEKOM INC.
                    (FORMERLY PETERSBURG LONG DISTANCE INC.)
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                 <C>
                     DELAWARE                                           13-3950002
          (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER IDENTIFICATION NO.)
          INCORPORATION OR ORGANIZATION)

           680 FIFTH AVENUE, 24TH FLOOR                                    10019
                   NEW YORK, NY                                         (ZIP CODE)
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (212) 262-6060

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
          TITLE OF EACH CLASS           NAME OF EACH EXCHANGE ON WHICH REGISTERED
          -------------------           -----------------------------------------
<S>                                     <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE           NASDAQ NATIONAL MARKET
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE
                                (TITLE OF CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this annual report on Form 10-K or any amendment to
this annual report on Form 10-K.  [ ]

     As of March 27, 1998, the aggregate market value of the Common Stock held
by non-affiliates of the registrant was $178,045,652. Such aggregate market
value was computed by reference to the closing sale price of the Common Stock as
reported on the National Market segment of The Nasdaq Stock Market on such date.
For purposes of making this calculation only, the registrant has defined
affiliates as including all executive officers, directors and beneficial owners
of more than ten percent of the Common Stock of the Company.

     As of March 27, 1998, there were 33,324,290 shares of the registrant's
Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     As stated in Part III of this annual report on Form 10-K, portions of the
definitive proxy statement to be filed within 120 days after the end of the
fiscal year covered by this annual report on Form 10-K are incorporated herein
by reference.

     Unless the context indicates otherwise, the terms "PLD" and "Company" refer
to PLD Telekom Inc.

================================================================================
<PAGE>   2

                                PLD TELEKOM INC.

        FORM 10-K ANNUAL REPORT FOR FISCAL YEAR ENDED DECEMBER 31, 1997

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
PART I
Item 1.   Business....................................................     1
Item 2.   Properties..................................................    63
Item 3.   Legal proceedings...........................................    64
Item 4.   Submission of matters to a vote of security holders.........    64

PART II
Item 5.   Market for registrant's common equity and related
          stockholder matters.........................................    64
Item 6.   Selected financial data.....................................    66
Item 7.   Management's discussion and analysis of financial condition
          and results of operations...................................    67
Item 8.   Financial statements and supplementary data.................    84
Item 9.   Changes in and disagreements with accountants on accounting
          and financial disclosures...................................    84

PART III
Item 10.  Directors and executive officers of the registrant..........    85
Item 11.  Executive compensation......................................    85
Item 12.  Security ownership of certain beneficial owners and
          management..................................................    85
Item 13.  Certain relationships and related transactions..............    85

PART IV
Item 14.  Exhibits, financial statement schedules and reports on forms
          8-K.........................................................    86
</TABLE>
<PAGE>   3

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

     PLD Telekom Inc. ("PLD" or the "Company"), through its operating
subsidiaries, is a major provider of local, long distance and international
telecommunications services in the Russian Federation and Kazakhstan. The
Company's four principal operating businesses are: (i) PeterStar Company Limited
("PeterStar"), which provides integrated local, long distance and international
telecommunications services in St. Petersburg through a fully digital fiber
optic network; (ii) Technocom Limited ("Technocom"), which, through Teleport-TP,
provides dedicated international telecommunications services to Russian and
foreign businesses in Moscow and operates a satellite-based pan-Russian long
distance network; (iii) Baltic Communications Limited ("BCL"), which provides
dedicated international telecommunications services in St. Petersburg; and (iv)
BECET International ("BECET"), which currently provides the only national
cellular service in Kazakhstan. Since 1994, Cable and Wireless plc ("Cable &
Wireless"), a leading global communications company whose shares are listed on
the London and New York Stock Exchanges, has invested approximately $85 million
for an approximately 30% stake in the Company's Common Stock. Cable & Wireless
has recently announced that it is involved in active discussions with a view
towards disposing of its stake in the Company, but that no definitive agreement
has been reached. See "-- Relationship with Cable and Wireless plc."

     The Company's objective is to be a leading participant in the targeted
development of telecommunications infrastructure in the emerging markets of the
Russian Federation and other countries of the former Soviet Union. The Company
expects to achieve this goal through: (i) expanding and further integrating its
existing business and network infrastructure into the public telecommunications
networks; (ii) providing high quality national long distance services in the
Russian Federation to complement the international long distance services it
currently provides to its business customers; (iii) providing additional
value-added services such as wireless communications, fax, data and Internet
service as a means of developing new traffic streams; and (iv) further
developing relationships with local and national strategic partners in the
Russian Federation and other countries of the former Soviet Union.

     The Company has several potential sources of cash flows, including fees
from management services, dividends, repayment of intercompany advances, lease
payments and payments under equipment sales contracts. The Company currently
generates fees from management services provided to certain of its operating
subsidiaries. Although its ability to generate dividend income in the near
future may be limited due to the cash flow requirements of its operating
businesses, the Company expects to receive dividends in the future. One of its
operating subsidiaries, BECET, paid two dividends in 1997. The Company received
payments in respect of intercompany advances during the course of 1997 and
expects this to continue in 1998. In relation to leases and equipment sales
contracts entered into with its operating subsidiaries, the Company anticipates
starting to receive payments during 1998.

     The fostering of existing, and the creation of new, partnerships with local
and regional partners is crucial to the long-term success of the Company in this
environment. In its operating businesses, the Company's partners include:
Petersburg Telephone System ("PTS"), the local telephone system operator in St.
Petersburg, and St. Petersburg Intercity & International Telephone ("SPMMTS"),
the gateway for national and international long distance calls to and from St.
Petersburg, which together hold an indirect 14% interest in PeterStar;
Kazakhtelekom, the state-owned national telecommunications operator in
Kazakhstan and the holder of a 50% interest in BECET; and AO Rostelecom
("Rostelecom"), the primary long distance and international carrier in the
Russian Federation and a 44% shareholder in Teleport-TP. The Company will seek
to continue developing ventures with local partners who can provide: (i)
assistance in obtaining telecommunications operating licenses; (ii) access to
network facilities; and (iii) political support.

CORPORATE STRUCTURE

     The following chart shows the corporate structure of the Company and its
material interests (but excludes intermediate holding companies and leasing
companies such as NWE Capital (Cyprus) Ltd.
<PAGE>   4

("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.

                          [CORPORATE STRUCTURE CHART]
---------------
(1) The Company holds its interests in a number of its subsidiaries through NWE
    Cyprus to take advantage of the double taxation treaty between Cyprus and
    the Russian Federation.

(2) The other shareholders of PeterStar are: PLD Holdings Ltd., a company
    registered in Bermuda (11%), which is indirectly wholly owned by Cable &
    Wireless; and Telecominvest (29%), which is owned 51% by an affiliate of
    Commerzbank AG, 25% by PTS and 24% by SPMMTS, and which was formed by PTS
    and SPMMTS to act as a holding company for their respective interests in a
    number of telecommunications ventures in Northwest Russia.

(3) In November 1997, the Company acquired an additional 29.65% of the ordinary
    shares in Technocom, bringing its total interest to the current 80.40% As a
    result, the remaining interests in Technocom are beneficially owned by: (i)
    Plicom Limited (14.57%), an Irish company beneficially owned by the family
    interests of Mr. Mark Klabin ("Plicom"); and (ii) Elite International
    Limited (5.03%), an Irish company beneficially owned by a trust advised by
    Dr. Boris Antoniuk ("Elite"). The Company

                                        2
<PAGE>   5

    understands that Dr. Antoniuk has the power to exercise the voting rights of
    the shares in Technocom owned by Elite. The remainder of the interests held
    by Plicom and Elite are subject to put and call arrangements with the
    Company. See "-- Acquisition of Additional Interests in Technocom;" "-- Risk
    Factors -- Risks Involving the Company -- Effect of Technocom Minority
    Shareholders' Put Options."

     Technocom also holds an effective 100% interest in Space Communication
     Services (SCS) Limited, a company organized under the laws of Guernsey,
     Channel Islands ("SCS"), which acts as Teleport-TP's marketing arm for the
     selling and administration of TV broadcasting services, and a 50% interest
     in Rosh Telecom Limited, a telecommunications equipment distributor.

(4) The Company holds its 50% interest in BECET through its wholly owned
    subsidiary, Wireless Technology Corporations Limited ("WTC"), a corporation
    organized under the laws of the British Virgin Islands, which in turn is
    wholly owned by NWE Cyprus. The other 50% interest in BECET is currently
    held by Kazakhtelekom, a Kazakh joint stock company, formerly wholly owned
    by the government of Kazakhstan, which operates the public telephone network
    in that country. In May 1997, the Kazakh government announced the sale of a
    40% stake in Kazakhtelekom to Daewoo. However, in March 1998, it was
    reported that Daewoo had sold a portion of its stake (reported to be
    approximately 10%) to an unnamed third party. The report did not indicate
    whether Daewoo proposed to sell or retain the remainder of its stake in
    Kazakhtelekom.

(5) In 1996, Technocom's interest in Teleport-TP was increased to its current
    49.33% (56% voting interest) through: (i) its acquisition of a 55.51%
    interest in JV Technopark Limited ("Technopark"), which owns a 7.5% interest
    in Teleport-TP; and (ii) the acquisition by Roscomm Limited, a Guernsey
    company ("Roscomm"), which is 66.67% beneficially owned by Technocom and
    which already owned a 5% interest in Teleport-TP, of an additional 5%
    interest previously held in trust for the VVC, the All-Russian Exhibition
    Center, a business park in Moscow. Technocom holds 38.5% of its beneficial
    interest directly, 6.67% through its 66.67% beneficial interest in Roscomm
    (which owns a 10% interest in Teleport-TP), and 4.16% through its 55.51%
    interest in Technopark (which owns a 7.5% interest in Teleport-TP). The
    remaining 44% voting interest in Teleport-TP is held by Rostelecom.

     Teleport-TP holds a 25% interest in Gorizont-RT, a cellular
     telecommunications operator in the Republic of Sakha. The remaining
     interests in Gorizont-RT are held by Sakhatelekom (51%) and local business
     partners (24%).

(6) Technocom holds a 49% interest in MTR-Sviaz, a wireline telecommunications
    operator in Moscow. The remaining 51% interest is held by Mosenergo, the
    Moscow city power utility.

RELATIONSHIP WITH CABLE AND WIRELESS PLC

     The Company has had a working relationship with Cable & Wireless, which
currently holds a 30% stake in the Company's Common Stock, since the time Cable
& Wireless first acquired an interest in the Company in 1994. The relationship
has allowed the Company to draw upon Cable & Wireless' commercial and technical
expertise and has provided the Company with access to Cable & Wireless': (i)
expatriate management; (ii) training facilities; and (iii) technical and project
management staff to assist in evaluating and implementing new investment
opportunities. Cable & Wireless currently holds two of the 10 seats on the
Company's Board of Directors and will continue to do so as long as it holds at
least a 25% voting interest in the Company. Cable & Wireless has recently
announced that it is involved in active discussions with a view towards
disposing of its stake in the Company, but that no definitive agreement has been
reached. See "-- Risk Factors -- Risks Involving the Company -- Historical
Dependence on Cable and Wireless plc."

THE PRIVATE PLACEMENT OF NOTES AND WARRANTS

     In June 1996, the Company issued the following securities to a limited
number of U.S. institutional investors (the "June 1996 Placement"): (i)
$123,000,000 aggregate principal amount at maturity of 14% Senior Discount Notes
due 2004 (the "Senior Notes"); (ii) 123,000 warrants (the "Placement Warrants")
to purchase an aggregate of 4,182,000 shares of Common Stock (the "Placement
Warrant Shares"); and (iii) $26,500,000 aggregate principal amount of 9%
Convertible Subordinated Notes due 2006 (the

                                        3
<PAGE>   6

"Convertible Notes" and together with the Senior Notes, the "Notes"). The Senior
Notes and the Placement Warrants were initially issued as units (the "Units")
and the Placement Warrants became separable from the Senior Notes on December
10, 1996.

     Pursuant to a consent solicitation dated March 4, 1998, the Company
proposed, and the required number of holders of the Senior and Convertible Notes
approved, certain amendments to the Senior Note and Convertible Note Indentures.
See "-- 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.

ACQUISITION OF ADDITIONAL INTERESTS IN TECHNOCOM

     On November 26, 1997 the Company acquired a further 59 ordinary shares of
Technocom, thereby increasing its percentage interest in Technocom from 50.75%
to 80.4%. The Company acquired 30 of these shares from Plicom, one of the two
other shareholders of Technocom, for $18.5 million in cash. The remaining 29
shares were acquired from the other shareholder of Technocom, Elite, for $6.25
million in cash and 1,316,240 shares of Common Stock. Sale of these shares is
prohibited prior to January 1, 2000.

     In addition, the Company restructured certain "put and call" arrangements
with the other two shareholders of Technocom. Under these arrangements as
originally structured, the remaining ordinary shares of Technocom held by these
shareholders (29 shares, or approximately 14.6% of the total ordinary shares
outstanding, in the case of Plicom, and 10 shares, or approximately 5% of the
total ordinary shares outstanding, in the case of Elite) were to have been
independently valued in 1999 and the Company had the right to call, and Plicom
and Elite had the right to put, their respective interests at the per share
value established by the valuation.

     These arrangements were restructured as follows. In the case of the
interest held by Plicom, while the date on which the put or call could be
exercised did not change, the valuation procedure was eliminated and the "put
and call" price for its interest was set at a fixed $17,500,000. In the case of
Elite, two of its remaining ten ordinary shares were made subject to a new put
and call arrangement which would come into effect in 1998, with the "put and
call" price to be $1 million or, at Elite's option, that number of shares of the
Common Stock which resulted from dividing $1 million by the lower of $5.85 and
the average closing price of such shares over the preceding ten trading days.
The remaining eight ordinary shares continued to be subject to the existing put
and call arrangements in 1999, except that the valuation would be made by the
Company and the amount paid pursuant to the exercise of either the put or the
call could not exceed $9,620,689 or be less than $6,689,655.

     The Company financed these acquisitions by using $9 million from the
proceeds of the Senior Notes (and, pursuant to the terms of the Indenture
governing the Senior Notes, pledging 17 of the Technocom shares acquired), and
also by issuing $12.32 million in 12% Series A secured revolving credit notes
(the "Series A Notes") and $3.1 million in 12% Series B revolving credit notes
(the "Series B Notes" and, together with the Series A Notes, the "Revolving
Credit Notes"), to The Travelers Insurance Company and

                                        4
<PAGE>   7

The Travelers Indemnity Company (collectively, the "Travelers Parties") pursuant
to a Revolving Credit Note and Warrant Agreement dated November 26, 1997 between
the Company and the Travelers Parties (the "Revolving Credit Agreement").
Required amortization of the Revolving Credit Notes at the rate of $1,000,000
per month commences on July 31, 1998. The Series B Notes come due on September
30, 1998, and the Series A Notes come due on December 31, 1998. Both the Series
A Notes and the Series B Notes are secured by the Company's inventory and
accounts receivable. In addition, the Series B Notes are secured by 28 of the
Technocom shares acquired. In addition to issuing the Series A and Series B
Notes, the Company also issued to the Travelers Parties a total of 423,000
warrants to purchase Common Stock at $8.625 at any time up to December 31, 2008
(the "Travelers Warrants"). A value of $423,000, which has been ascribed to the
Travelers Warrants, has been included in the Company's shareholders' equity.

     In addition, the Company will be obligated to issue additional warrants to
the holders of the Series A and B Notes should the Company not effect certain
"targeted reductions in commitment" as follows:

<TABLE>
<CAPTION>
COMMITMENT REDUCTION DATE   TARGETED REDUCTION AMOUNT
-------------------------   -------------------------
<S>                         <C>
  July 31, 1998                    $  500,000
  August 31, 1998                  $  500,000
  September 30, 1998               $1,000,000
  October 31, 1998                 $1,500,000
  November 30, 1998                $1,500,000
</TABLE>

     The holders of the Series A Notes will receive 30,000 additional warrants
to purchase shares of the Company on each date on which such reduction was not
made. In the event that the Company has not made the "targeted reductions"
scheduled for July 31, 1998 and August 31, 1998, the holders of the Series B
Notes will receive 16,000 additional warrants to purchase shares of such common
stock. The exercise price of the above warrants is $8.625 per share, except
that, if the Series B Notes are not repaid in full by September 30, 1998, the
exercise price of all warrants issued to the holders of the Series B Notes
becomes $0.01 per share, and, if the Series A Notes are not repaid in full by
December 31, 1998, the exercise price of all warrants issued to the holders of
the Series A Notes also becomes $0.01. The total number of warrants which could
be issued under these arrangements is 182,000. All of the warrants expire on
December 31, 2008.

     In addition, if the Series B Notes are not repaid in full on September 30,
1998, then, commencing September 30, 1998 and on the last day of each succeeding
month until the Series B Notes have been repaid in full, the holders of the
Series B Notes shall receive 32,000 additional warrants to purchase shares of
the Company's stock at a price of $0.01 per share. If the Series A Notes are not
repaid in full on December 31, 1998, then, commencing December 31, 1998 and on
the last day of each succeeding month until the Series A Notes have been repaid
in full, the holders of the Series A Notes shall receive 32,000 additional
warrants to purchase shares of the Company's stock at a price of $0.01 per
share. All such warrants, referred to as "Default Warrants" will have an
expiration date ten years after their respective dates of issue.

THE CONSENT SOLICITATION

     In 1997, the Company made the determination to solicit the holders of the
Senior Notes and the Convertible Notes with a view to making certain amendments
to the Indentures governing such Notes, intended to give the Company more
flexibility in conducting its business and also to clarify certain provisions of
those Indentures, in both cases based upon the Company's experience in operating
under the terms of the Indentures since they were first executed in June 1996.

     In summary, the amendments were intended to achieve the following:

     - Broaden the range of transactions by which the Company can use escrowed
       funds in order to make telecommunications assets available to its
       operating companies

     - Permit the Company or its special purpose subsidiaries to use escrowed
       funds to secure letters of credit issued to suppliers of
       telecommunications assets

                                        5
<PAGE>   8

     - 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 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

                                        6
<PAGE>   9

Convertible Note Indenture a five-year warrant to purchase 2 shares of Common
Stock at a price of $6.90 per share for each $1,000 in unpaid principal amount
of the Convertible Notes held by such holder.

     As of close of business on March 18, 1998, when the solicitation period
ended, parties holding 100% in principal amount at stated maturity of the Senior
Notes and 85.66% in principal amount at stated maturity of the Convertible Notes
had consented to the amendments. Pursuant to such consents, The Bank of New
York, as trustee under the Indentures, the Company and certain other parties
executed a supplemental indenture, dated March 20, 1998 (the "Supplemental
Indenture"), bringing the amendments to the Indentures and certain related
documents into effect. In addition, the Company issued a total of 123,000
five-year warrants to purchase 1.8 shares of Common Stock at $6.90 per share to
the holders of the Senior Notes, and a total of 22,700 five-year warrants to
purchase 2 shares of Common Stock at a price of $6.90 per share to the holders
of the Convertible Notes. If all of these warrants are exercised, the Company
will issue a total of 266,800 shares of Common Stock.
                            ------------------------

     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."

TELECOMMUNICATIONS IN THE FORMER SOVIET UNION

     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. The telephone network itself was highly
centralized, reflecting the centralized nature of the Soviet economy. Telephonic
links were directed towards the center of the network while neglecting
inter-regional links. As a result, the ability to direct calls between regions
without going through the center remains limited, which in turn has been a major
constraint on economic growth in regional markets. Being committed to a "hub and
spoke" network, the former Soviet Union never developed a trunk "backbone"
capable of providing network expansion on a nationwide basis.

     Consistent with a political philosophy which limited access to the world
outside the former Soviet Union, all international calls originating in the
former Soviet Union until 1992 were routed through a single international
exchange in Moscow which had a capacity of only 3,200 circuits. Due to the
inadequacies of the public network, as well as to ensure secrecy, many
individual ministries and security organizations, including the Communist Party
itself, established their own private nationwide networks. These private
networks absorbed a substantial amount of the relatively limited resources
available for investment in telecommunications. At the same time, these networks
currently present an opportunity for the development of a national network apart
from the existing public network.

     With the break-up of the Soviet Union and the liberalization of the
economies of its former republics, the demand for telecommunications services
has increased significantly. However, the governments of the countries of the
former Soviet Union do not currently have the significant capital necessary for
the development of the telecommunications infrastructure. As a result, they have
actively encouraged market liberalization, privatization and foreign investment
in the telecommunications sector. This has resulted in significant development
in the areas of fixed wire overlay systems, private networks and cellular and
data services. 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.

  TELECOMMUNICATIONS IN THE RUSSIAN FEDERATION

     The Russian telecommunications sector has experienced substantial
difficulty in meeting the rapidly growing demand for telecommunications services
in the Russian Federation. At the local level, there has been

                                        7
<PAGE>   10

a significant growth in joint ventures providing discrete telecommunications
services, such as international access and cellular service. While the bulk of
this activity has been in Moscow and St. Petersburg, it has occurred in other
regions as well. This trend has been encouraged by the Russian government which
has issued over 600 licenses through the Ministry of Communications of the
Russian Federation (the "Former MOC") (which as of March 17, 1997 has been
replaced by the Russian Federal Committee on Telecommunications and Informatics
(the "RFCTI")) to these new service providers. Most joint ventures involve a
Russian and a foreign partner. Many of these joint ventures have remained
moribund; however, where they have commenced operations, there has been an
immediate improvement in telecommunications services in the targeted areas.
Since much of the marketing activity has been aimed at the business community,
the benefits of these improvements have not been (and for the foreseeable future
are not likely to be) widely felt by residential customers, particularly those
outside major metropolitan areas.

     When the Former MOC was reorganized in 1991, the Russian government decided
to convert each regional telephone center into a separate, privatized company
with the government maintaining the controlling interest in the company. There
are approximately 85 of these regional telephone companies. The government's
interests in these companies are now held through Sviazinvest.

     The national and international long distance market in the Russian
Federation is dominated by Rostelecom, a formerly state-owned enterprise which
has been privatized, but in which the Russian government continues to hold a 38%
equity and 51% voting interest through Sviazinvest. Until 1991, Rostelecom was
the monopoly provider of national and international long distance service. Since
then, the Former MOC has issued licenses to approximately twenty other providers
of international services. Rostelecom itself has entered into a number of joint
ventures to develop its network and services, including through its
participation in Teleport-TP. Rostelecom was originally charged by the Former
MOC with the task of developing a long distance "backbone" as the basis for a
new nationwide network, known as the "Russian Digital Overlay Network" or "50 X
50" (based on the fact that the "backbone" was to consist of fifty digital trunk
switches and 50,000 kilometers of fiber optic cables and microwave relays).
However, work on the "50 X 50" project ceased in June 1995, when the government
of the Russian Federation announced that Sviazinvest would become a second long
distance and international carrier in the Russian Federation, with the intention
that it would become a nationwide competitor to Rostelecom.

     Sviazinvest, which was originally 100% owned by the Russian State Property
Committee, is a holding company for the Russian government's interests in the 85
local and regional telephone companies across the Russian Federation. In
general, Sviazinvest has a portfolio that comprises holdings of 35% of the
equity interest and 51% of the voting interests, with a number of notable
exceptions, in these telephone companies. Sviazinvest is represented on the
board of directors of each of these companies, but does not participate in the
day-to-day management of the operations.

     In 1997, it was reported that, notwithstanding its previously announced
plans to have Sviazinvest compete with Rostelecom, the Russian government had
consolidated its telecommunications holdings in Sviazinvest and Rostelecom by
transferring its shareholding in Rostelecom (38% of the common stock, and 51% of
the voting stock) to Sviazinvest. The balance of the shares in Rostelecom remain
in the hands of private investors. In April 1997, the government announced that
it was seeking to sell 49% of Sviazinvest in two auctions, one as to a 25% stake
open to Russian and foreign investors and the other as to a 24% stake open only
to Russian investors. In July 1997, the government announced that the 25% stake
had been sold to a consortium which included Oneximbank and Renaissance Capital,
for a purchase price of $1.875 billion. Following this auction, the Russian
government announced its intention to increase the size of the other stake being
sold to 25% minus one share. The schedule for the auction of the second stake
has not been announced, but it is currently expected to occur by the end of the
third quarter of 1998. While it is not yet clear how the proceeds of this sale
will be employed, it is understood that the government wishes to have a
substantial part, if not all, of the proceeds allocated to its current budget
deficit. At the same time, Sviazinvest has announced plans to raise $400 million
through a Eurobond offering later in 1998. In light of all of the foregoing, it
is unclear what impact the consolidation of the government's telecommunications
holdings and the auctions of significant stakes in Sviazinvest will have on the
Russian telecommunications market in general and the Company in particular.
                                        8
<PAGE>   11

     The provision of telecommunication services is currently regulated by the
Law on Telecommunications which came into effect on February 22, 1995 (the
"Telecommunications Law"). While the Former MOC had significant regulatory
powers prior to the passage of the Telecommunications Law, principally through
the issuance of new licenses, telecommunications had traditionally been viewed
as the province of the military and security services. The Telecommunications
Law placed control of the Russian telecommunications network in the hands of a
civilian regulatory authority. Under the Telecommunications Law, the Former MOC
was, and now the RFCTI is, charged with the responsibility of coordinating the
development of telecommunications in the Russian Federation and regulating the
provision of services. Specifically, the Former MOC was and now the RFCTI is,
given authority to issue telecommunications licenses, allocate frequencies and
certify equipment for use in Russia, although it is not yet clear whether the
RFCTI will in fact continue to operate in the same manner, and wield the same
influence as the Former MOC. See "-- Risk Factors -- Risks Involving the
Company -- Regulatory Uncertainties." The Telecommunications Law also
establishes a number of important principles in the telecommunications area,
including the guarantee of equal access for all providers of telecommunications
services and safeguards for private business activity in the telecommunications
sector. The Telecommunications Law extends these principles to foreign companies
and individuals, thereby recognizing the need to encourage foreign participation
in the development of the Russian telecommunications sector.

     The Federal Committee for Regulating Natural Monopolies in
Telecommunications has been empowered to regulate international and, since
mid-1997, domestic long distance tariffs, together with interconnect fees for
public operators in the Russian Federation. In addition, this Committee has the
authority to establish the framework for local fees and tariffs which, in the
future, will be regulated by newly-established Regional Committees for
Regulating Natural Monopolies. At the current time, regional governments set and
regulate local tariffs, and it is currently uncertain as to how, and when, local
tariff regulation will be transferred to the Regional Committees. The Company's
businesses are not public operators and will therefore not be directly affected
by any tariff regulation imposed by the Federal or Regional Committees.

     While the RFCTI appears to have succeeded to all of the powers and
authorities of the Former MOC (with the exception of tariff regulation), it is
not yet clear whether it will in fact continue to operate in the same manner,
and wield the same influence as the Former MOC. In particular, it is not clear
whether the RFCTI will be able to control the actions of local governmental and
other regulatory authorities who may endeavor to impose their own informal
licensing and other regulatory requirements or conditions on operators. In
addition, in the area of tariff regulation, it is not yet clear how the various
Committees will interact with the regional governments, and the regional
governments may continue to seek to regulate tariffs in their regions. See
"-- Risk Factors -- Risks Involving Technocom Limited and Teleport-TP -- Network
Expansion."

     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.

     MGTS has also announced a number of initiatives designed to develop the
Moscow public network. In 1996, it was reported that MGTS planned to invest
approximately $70 million in modernization programs. Two projects are to be
carried out jointly with AT&T and Rostelecom and are aimed at creating 400,000
new access lines using fiber optic cable and digital exchanges. MGTS will be
responsible for 75% to 80% of the total cost of the investments, with the
remainder being supplied by joint venture partners and through credits. To date,
MGTS has received a $50 million credit from Credit Suisse associated with
equipment supplied by AT&T. A second project involving Siemens contemplates the
installation of an additional 300,000 digital lines.

     In addition to MGTS, there are a number of digital overlay networks in
Moscow which involve a Western investor (e.g., GPT, Belgacom, Lucent
Technologies (formerly, AT&T Network Systems ("Lucent")) and Global TeleSystems
("GTS")) and a local Russian partner (usually MGTS, the Central Telegraph Office
or

                                        9
<PAGE>   12

Rostelecom). Finally, there are a number of private network facilities owned by
the local and regional utilities that provide services to a limited market
segment.

     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.
Certain calls to other countries of the former Soviet Union can still be routed
through the Rostelecom network although this network primarily consists of
analog switching and is characterized by significant call failure rates. For
callers on private networks, international access is generally provided by
direct satellite facilities, such as Teleport-TP. The telecommunications market
in Moscow also supports four cellular operators (two analog and two digital) and
nine paging networks.

     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, a joint
venture with GPT.

     St. Petersburg.  The telephone network serving St. Petersburg is operated
by PTS, the local telephone company which was privatized in May 1993. PTS has
1,800,000 lines in operation, amounting to a nominal penetration rate of 36%.
PTS's intra-city traffic is carried through a network of thirty-four transit
exchanges distributed throughout St. Petersburg and all connected to each other
in a "cobweb" fashion. The existing PTS network is outdated and overloaded,
producing congestion, interference, "crossed lines" and poor transmission
quality. Only 23% of PTS's exchanges are digital/electronic, and some of its
equipment is over 40 years old. PTS has recently installed a modern fiber optic
loop which, once operational, will significantly enhance its ability to deliver
traffic throughout its service area, and in addition has commenced efforts to
access the international capital markets in order to raise funds with which to
further modernize its system. PTS has entered into a number of other, primarily
wireless, telecommunications joint ventures.

     PTS routes long distance traffic through a gateway exchange operated by
SPMMTS. This traffic is then passed to the Rostelecom long distance network for
delivery throughout the rest of the Russian Federation and the other countries
of the former Soviet Union. The Company acquired a 10.4% equity interest in
SPMMTS in 1994, which it sold in June 1997.

     SPMMTS is the gateway for international calls to and from St. Petersburg.
SPMMTS has a number of options for the forwarding of international calls. Such
calls can be directed to an international gateway owned by St. Petersburg
International ("SPI"), a joint venture between British Telecommunications plc
("BT") and SPMMTS which has satellite connections to the UK. In addition, SPMMTS
has access, via Rostelecom, to the undersea cable between Russia and Denmark for
international traffic. Finally, SPMMTS has the option to route international
traffic through the international gateway in Moscow. In addition to SPMMTS,
there are several independent dedicated networks which provide international
telecommunications access in St. Petersburg, including BCL. Under the terms of
its license, PeterStar is required to route its long distance and international
traffic via the public network gateway.

     The telecommunications market in St. Petersburg also supports three
cellular operators (two analog and one digital) and a number of paging networks.

     In 1996, PTS and SPMMTS formed Telecominvest, originally as a joint venture
to act as a holding company for their respective interests in a number of
telecommunications ventures in Northwest Russia. Subsequently, also in 1996, a
Commerzbank affiliate acquired a 51% interest in Telecominvest. Currently
Telecominvest owns 29% of PeterStar, 31% of North West GSM ("NW GSM"), the
digital 900 MHZ operator for St. Petersburg, 49% of Neva Cable and 5% of Neda
Paging. It is understood that PTS intends to transfer all or part of its
interests in Delta Telecom and Neva Paging to Telecominvest, subject to final
agreement with their joint venture partners. Although as a result of this
activity Telecominvest will hold interests in regional cellular operators which
are customers of PeterStar, as well as other ventures which may

                                       10
<PAGE>   13

be possible customers for PeterStar, it is unclear what the exact nature of
Telecominvest's plans are with respect to these holdings or how such plans will
affect PeterStar.

  TELECOMMUNICATIONS IN KAZAKHSTAN

     At the time of Kazakhstan's independence in 1991, the Kazakh telephone
system consisted of the same outdated network equipment as the other telephone
systems in the former Soviet republics. Currently, only 13% of Kazakhstan's
population of approximately 17,000,000 has telephone lines. The existing
national telephone network consists of approximately 1,900,000 lines, of which
330,000 are in Almaty. Due to the outdated condition of much of the
telecommunications infrastructure in Kazakhstan, basic telephone service is
characterized by poor transmission quality. Quality international lines are
available only to subscribers willing to pay premium rates for the services of
an overlay operator. As a result, wireless communications are becoming an
increasingly important aspect of telecommunications in Kazakhstan.

     The national network is served by trunk switches in 19 regional centers
throughout the country. New transit switches supplied by Alcatel and Lucent have
been installed in approximately one half of the regional centers, and there are
plans to complete the modernization of the remaining regional centers. The
existing inter-regional long distance transmission network is wholly analog,
based on high capacity coaxial cables running north to south and east to west
through the major cities. In addition, a balanced pair cable route passes
diagonally northwest from Almaty to the remaining regional centers in the middle
of Kazakhstan. All of these cables are equipped with outdated Soviet or East
German analog transmission equipment. These analog transmission routes are
expected to be replaced by modern fiber optic cable and digital transmission
systems. Kazakhtelekom, in a joint venture with Deutsche Telekom, has developed
a fiber optic network linking Alekseyevka (a city 30 kilometers from Almaty) to
the new capital city of Akmola.

     All local exchange switching in Kazakhstan has been via electromechanical
exchanges using outdated equipment. The first modern digital exchange installed
in Almaty consists of an early generation digital switch with a capacity of
20,000 lines. Conversion of all local exchanges to modern digital equipment is
planned and some conversion has already begun. However, since modernization of
the local exchanges and associated networks will be extremely costly and likely
to produce a slow return on capital investment, it is estimated to be at least
two to three years before there is a significant increase in modern digital
local exchange capacity and growth in network capacity.

     Until 1992, the sole means of international access to and from Kazakhstan
was through a central switch located in Moscow. Kazakhstan acquired its own
international gateway in August 1992 when a new AT&T 5ESS switch was installed
in Almaty. It now has approximately 800 direct international circuits via
satellite with 22 countries, including the United States, Japan, Australia,
Germany, France, Israel and Turkey and via analog cables to Moscow. Kazakhstan
has also announced plans to participate in projects to install fiber optic cable
links between China, the countries of Central Asia and Europe, which on current
forecasts will commence service in 2000.

     The Kazakh Law on Enterprises dated February 13, 1991 authorizes the
Cabinet of Ministers to issue licenses for certain types of activities in
Kazakhstan, including the provision of telecommunications services. The Cabinet
of Ministers delegated the authority to license telecommunication providers,
allocate frequencies and certify telecommunications equipment to the Kazakh
Ministry of Communications (the "KMOC"). Pursuant to this delegation of
authority, the KMOC adopted temporary procedures for the consideration of
applications for and the issuance of such licenses. In April 1995, President
Nazarbayev issued a decree setting forth the licensing procedures in greater
detail. The decree also confirmed the authority of the Cabinet of Ministers to
grant licenses and the right of non-Kazakh companies and individuals to equal
treatment in the granting of licenses. However, apart from these licensing
procedures, there is virtually no other regulation in the telecommunications
sector, and no comprehensive regulatory framework. Administration of the
telecommunications sector is essentially left to the discretion of the KMOC.

     Actual operation of the public telephone network is carried out by
Kazakhtelekom, which was created for this purpose in June 1994, as well as
regional operators. A variety of functions previously carried out by other
governmental entities, including representation of the Kazakh government in
international telecommunica-
                                       11
<PAGE>   14

tions matters and the planning and development of the network in Kazakhstan,
have been transferred to Kazakhtelekom. Kazakhtelekom has recently been granted
a revised license giving it specific authority to act as the exclusive operator
of the Kazakh national network and to represent the Kazakh government in
international telecommunications matters, along with a broad series of powers to
enable it to fulfil this function. Kazakhtelekom carries out its functions under
the oversight and direction of the KMOC. In May 1997, the Kazakh government
announced that it had sold a 40% stake in Kazakhtelekom to Daewoo. However, in
March 1998, it was reported that Daewoo had sold a portion of its stake
(reported to be approximately 10%) to an unnamed third party. The report did not
indicate whether Daewoo proposed to sell or retain the remainder of its stake in
Kazakhtelekom. See "-- Risk Factors -- Risks Involving BECET
International -- Sale of Stake in Kazakhtelekom" and "-- Ownership and
Management of Operating Subsidiaries -- BECET International -- Relationship with
Other Equity Holders."

PETERSTAR COMPANY LIMITED

  OVERVIEW

     PeterStar, in which the Company owns a 60% interest, operates a fully
digital, city-wide fiber optic telecommunications network in St. Petersburg that
is interconnected with the network of PTS, the local telephone company, as well
as the Russian national and international long distance systems. PeterStar
provides integrated, high quality, digital telecommunications services with
modern transmission equipment, including local, national and international long
distance and value-added services, to businesses in St. Petersburg. The
PeterStar network provides an alternative to the PTS network, which to date has
been characterized by significant capacity constraints. PeterStar is able to
provide integrated telecommunications services to business customers, including
users of high bandwidth voice, data and video communications services.
PeterStar's network is designed to support a wide range of telecommunications
products and services with a high degree of reliability. Additionally, PeterStar
provides the three cellular operators in St. Petersburg with access to digital
switching and transmission capacity which significantly improves their ability
to consistently receive and deliver their customers' traffic. As of December 31,
1997, PeterStar had a total of 114,774 lines, of which 85,948 were provided to
cellular operators.

     PeterStar, which started limited service in 1993, generated net income for
the year ended December 31, 1997 of $16.5 million on operating revenues of $54.5
million, as compared to net income of $5.9 million on operating revenues of
$32.5 million for the year ended December 31, 1996. Subscriber lines installed
increased from 52,005 at the end of 1996 to 114,774 at December 31, 1997,
reflecting increased penetration of the business community and cellular
operators. PeterStar accounted for 47.6% of the Company's operating revenues for
the year ended December 31, 1997, as compared to 52.4% for the year ended
December 31,1996.

  STRATEGY

     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 RFCTI to a total of
approximately 200,000 lines by 2001. PeterStar has recently added incremental
transmission capacity and upgraded its transmission network from STM-4 to
STM-16, as well as introducing new service features such as ISDN capability,
which allows simultaneous transmission of voice, data, video and still images.
In addition, as part of its strategic relationship with PTS, PeterStar intends
to continue to provide targeted support to PTS in its efforts to upgrade and
modernize its network. The business environment in St. Petersburg continues to
improve, with the ongoing growth of small to mid-sized Russian and foreign
businesses and the development of the banking and financial services industries.
PeterStar has placed increased emphasis on this market segment in order to
capitalize on what it considers to be a significant market opportunity.

     PeterStar has recently commenced several projects designed to expand its
direct dial services in St. Petersburg and Northwest Russia. PeterStar has
agreed with PTS to undertake a major infrastructure project involving the
replacement of analog exchanges with digital exchanges for certain parts of the
network on Vassilievski Island, a city district in St. Petersburg. This project
will require the conversion of

                                       12
<PAGE>   15

approximately 30,000 business and residential lines that are currently operated
by PTS, after which such lines become a part of the PeterStar network. In
addition, PeterStar plans to further enhance its transit network capabilities in
order to provide continued support to the cellular and other network providers
in terminating traffic in St. Petersburg and to the national and international
gateway.

  PRODUCTS AND SERVICES

     PeterStar currently provides: (i) voice and data services to business and
residential customers; (ii) switched transit services for cellular and other
network operators; and (iii) value-added voice and data services. PeterStar
markets its products and services through its own direct sales force which
targets mainly corporate accounts.

     PeterStar also provides, or plans to introduce, a number of value-added
voice and data services to complement the basic fixed network services it
currently provides. The Company believes that the ability to provide such
services on the PeterStar digital network is a key competitive advantage in the
St. Petersburg marketplace. Current and planned services include the following:

     Data Services.  PeterStar provides high speed data links across the city of
St. Petersburg. These connections provide links between the computer networks of
banks and large companies, allowing for data interchange between a variety of
back office systems. The target customer for such services is the emerging
financial sector, with the Russian Stock Market, Sberbank, Promstroibank, and
Bank St. Petersburg all currently using PeterStar's services. Other customers
for these high speed links, such as Reuters, utilize PeterStar to deliver
value-added services to their own customers.

     Operator services.  PeterStar has provided operator assistance service
since the third quarter of 1995 pursuant to a 1995 agreement with SPMMTS. The
agreement with SPMMTS provides PeterStar with primary access to the "07" (long
distance) operators connecting customers on a non-automatic dial destination
throughout the Russian Federation and the other countries of the former Soviet
Union. Other operator services offered include conference calling and
person-to-person calling. PeterStar also plans to provide access to wider
databases including those provided by C.P.Y. Yellow Pages Limited, the Company's
wholly owned subsidiary which publishes a business-to-business directory for St.
Petersburg ("Yellow Pages").

     Calling Card Services.  In November 1995, PeterStar launched a direct dial
calling card service, enabling subscribers to dial directly through to the
PeterStar network if using a tone dial telephone. The service, which provides
both debit and credit card service, is also available via the PeterStar operator
service for pulse and rotary dial telephones. PeterStar has recently expanded
this service offering through co-operation with Comstar, a network operator in
Moscow, providing PeterStar customers access in Moscow. The Company is currently
considering a further expansion of its calling card platform in conjunction with
the development of the Teleport-TP national network facilities.

     Audiotext.  PeterStar has recently launched audiotext (i.e., "1-900")
services, offering recorded information including information on cultural
events, weather, traffic and horoscopes.

     Equipment Sales.  PeterStar offers customers a wide range of
telecommunications equipment as a means of enhancing its service. It offers
PBXs, key systems, handsets, and the full range of customer terminals including
Partner, Partner Plus, Merlin and Definity. PeterStar also offers a maintenance
service for the equipment.

     Frame Relay.  PeterStar has commenced the operation of a frame relay data
network service as an enhanced feature of its current service offering.
Customers include Citibank, the Russian Central Bank and the Russian Stock
Market.

     ATM.  PeterStar has installed an ATM service, including eight switches, for
selected customers to complement the existing service offering. Customers
include Coca-Cola and financial institutions such as Promstroibank and Bank St.
Petersburg, and it is anticipated that an expansion of this service will take
place once market demand has been confirmed.

                                       13
<PAGE>   16

     ISDN.  PeterStar has installed an ISDN platform to service the demand in
the local marketplace. PeterStar also offers international ISDN services,
following agreement on the standard for C-7 signaling and the upgrading of the
international gateway.

     Internet.  Since August 1996, PeterStar has provided its subscribers access
to the Internet via WEBplus, a local Internet service provider. PeterStar
provides dial-up and dedicated network access to customers wishing to use the
WEBplus service.

  CUSTOMERS AND MARKETING

     PeterStar's customer base currently consists of three general categories:
(i) business customers; (ii) cellular and other network operators; and (iii)
residential customers. PeterStar's primary focus is the provision of voice and
data services to business customers, including those which generate large
amounts of outgoing long distance and international traffic.

     PeterStar has experienced a shift in its customer base, from foreign
companies (which tend to use the higher priced international services) to
predominantly Russian businesses and, to a lesser extent, residential customers
(for whom local calling is the principal usage).

     The following table illustrates, as of December 31, 1994, 1995, 1996 and
1997, the number of lines on the PeterStar network, set forth by customer
segment:

<TABLE>
<CAPTION>
                                   NO. OF              NO. OF              NO. OF              NO. OF
                                   LINES               LINES               LINES               LINES
                                   AS OF     % OF      AS OF     % OF      AS OF     % OF      AS OF     % OF
                                  DEC. 31,   1997     DEC. 31,   1996     DEC. 31,   1995     DEC. 31,   1994
TYPE OF CUSTOMER                    1997     TOTAL      1996     TOTAL      1995     TOTAL      1994     TOTAL
----------------                  --------   -----    --------   -----    --------   -----    --------   -----
<S>                               <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>
Direct dial -- business.........   24,344      21%     12,482      24%      4,840      23%     1,500       36%
Direct dial -- residential......    4,482       4%      2,310       4%      2,029       9%       214        5%
Cellular operators..............   85,948      75%     37,213      72%     14,659      68%     2,386       59%
                                  -------     ---      ------     ---      ------     ---      -----      ---
          Total.................  114,774     100%     52,005     100%     21,528     100%     4,100      100%
                                  =======     ===      ======     ===      ======     ===      =====      ===
</TABLE>

  COMMERCIAL VOICE AND DATA SERVICES

     PeterStar's digital overlay network provides its customers with improved
connectivity, as well as a package of exchange services such as call waiting,
call forwarding and three-way conferencing. PeterStar offers its customers a
choice between new digital installations or the upgrading of existing PTS analog
connections to digital capability. New lines are provided via either traditional
copper connections or fiber optic cables.

     For domestic long distance connections, PeterStar offers dedicated digital
circuits to Moscow. Moscow is the destination of approximately 80% of the long
distance traffic from St. Petersburg, all other national traffic being directed
to the national switching center of Rostelecom in Moscow for delivery throughout
the Russian Federation.

     SPMMTS is the gateway for international calls to and from St. Petersburg
and SPMMTS has a number of options for the forwarding of international calls.
Such calls can be directed to an international gateway owned by SPI, a joint
venture between BT and SPMMTS which has satellite connections to the UK. In
addition, SPMMTS has access, via Rostelecom, to the undersea cable between
Russia and Denmark for international traffic. Finally, SPMMTS has the option to
route international traffic through the international gateway in Moscow. In
addition to SPMMTS, there are several independent dedicated networks which
provide international telecommunications access in St. Petersburg, including
BCL.

     Call revenues and total minutes in the commercial voice and data services
segment (i.e, non-cellular) amounted to $22.5 million, $12.8 million, $6.2
million and $4.4 million, and 126,220,000, 71,128,000, 19,995,000, and
6,153,000, in 1997, 1996, 1995 and 1994, respectively.

     Business Customers.  PeterStar's primary focus has been the provision of
telecommunications products and services to business customers, including those
which generate large amounts of outgoing international

                                       14
<PAGE>   17

traffic. PeterStar targets both foreign and, increasingly, Russian businesses
which have requirements for high quality local, long distance and international
telecommunications services. As of December 31, 1997, Russian businesses, such
as Baltika Brewery and LenEnergo, represented approximately 70% of PeterStar's
19,862 business subscriber lines and foreign businesses, such as ABB, Rothmans
Inc., Unilever N.V., Littlewoods, Coopers and Lybrand and Cadbury, represented
the balance. Total call revenues from PeterStar's directly connected business
customers were $19.6 million in 1997, 45% of which was accounted for by Russian
businesses.

     Residential Customers.  As of December 31, 1997, PeterStar had connected
4,482 residential customers to its network. Revenues from direct dial
residential customers (principally connection charges and line rentals) totaled
$171,000 in 1997. At present, PeterStar does not directly receive any call
revenues from its residential customers. See "-- Billing, Tariffs and
Interconnection Charges -- Tariffs -- Residential Customers." PeterStar has
commenced a project with PTS to upgrade telecommunications services on
Vassilievski Island, a project which will increase the number of residential
customers on the PeterStar network. See "-- Expansion of Voice and Data
Services."

  EXPANSION OF VOICE AND DATA SERVICES

     PeterStar has agreed with PTS to undertake an infrastructure project
centering on the replacement of analog step-by-step and cross-bar exchanges with
digital telecommunications equipment for Vassilievski Island, a city district in
St. Petersburg. The project will require the conversion of a total of
approximately 30,000 business and residential lines that are currently operated
by PTS, over the 1997-98 period, after which such lines become part of the
PeterStar network and the users will become PeterStar customers. Approximately
2,800 lines were converted at the end of 1997; an additional 3,000 lines are
expected to be converted by the end of the second quarter of 1998, with the
balance completed by the end of the third quarter of 1998. While the business
customers will be charged PeterStar tariffs, the residential customers will only
pay PeterStar the equivalent PTS rate for the line rental. PeterStar anticipates
collecting the revenues on national and international calling from these
customers, although the level of such calling for residential customers, who are
expected to be the bulk of the new customers, is not expected to be substantial.
The total cost of the project is estimated at between $18-20 million, of which
$13 million is for network infrastructure and the balance for civil works and
local network upgrades. This amount also includes approximately $3 million for
an upgrade to the core PeterStar overlay network.

     PeterStar also expects to increase its operating presence in Northwest
Russia through the targeted development of digital infrastructure to connect
business customers and to develop operational relationships with the regional
telephone companies. PeterStar is exploring the possibilities for closer
cooperation with both Teleport-TP and BCL in connection with the expansion of
its core business in St. Petersburg and the implementation of its strategy in
Northwest Russia.

     The implementation of the proposed expansion in direct dial services
involves a variety of risks, including those set forth in "-- Risk
Factors -- Risks Involving PeterStar Company Limited and Baltic Communications
Limited."

  CELLULAR SERVICES

     The three cellular operators in St. Petersburg currently utilize the
PeterStar network to deliver high quality services to their customers and
provide reliable access to the local, long distance and international networks.
PeterStar's digital infrastructure enhances the ability of the cellular
operators to consistently receive and deliver their customer's traffic, a
benefit that is not achievable by using the outdated PTS transmission network.
In addition, the lack of capacity on the PTS network provides a significant
constraint on the ability of the cellular operators to expand their capacity to
meet market demand. Access to the PeterStar network provides these cellular
operators with the additional capacity necessary to accommodate their planned
growth.

     The number of cellular customers in St. Petersburg has increased from
approximately 6,400 at December 31, 1994 to approximately 107,000 at December
31, 1997, as St. Petersburg has become one of the

                                       15
<PAGE>   18

fastest growing cellular markets in Russia. Subscribers are primarily business
customers who use cellular service as a mobile telecommunications tool rather
than as an alternative to the wireline network.

     The three cellular operators in St. Petersburg are:

     Delta Telecom.  Delta, the NMT 450 operator, was connected to the PeterStar
network in September 1995. Delta, a joint venture between PTS and an affiliate
of U.S. West Media Group, Inc., has over 30,000 active subscribers on its
network, of which 16,596 were connected as of December 31, 1997 to the PeterStar
network for local access and overflow long distance and international access,
with the balance connected via PTS. PeterStar recently reached an agreement with
Delta whereby Delta has connected the remainder of its cellular subscribers to
the PeterStar network.

     North West GSM.  NW GSM, the digital 900 MHZ operator for the city, has
been connected to the PeterStar system since September 1994. At December 31,
1997, all of NW GSM's subscribers (of which 52,681 are active) were connected to
the PeterStar network, which provides NW GSM with local, long distance and
international digital access.

     Fora Communications.  Fora, a joint venture between Millicom International
Cellular ("Millicom") and the City of St. Petersburg, is an AMPS 800 cellular
system that has been connected to the PeterStar network since July 1994. At
December 31, 1997, all of Fora's subscribers (of which 16,671 are active
subscribers) were connected to the PeterStar network, which provides Fora with
local, long distance and international digital access.

     The following table sets forth, for each cellular operator, the number of
active lines connected to PeterStar at December 31, 1994, 1995, 1996 and 1997:

<TABLE>
<CAPTION>
   CELLULAR OPERATOR     DECEMBER 31, 1997   DECEMBER 31, 1996   DECEMBER 31, 1995   DECEMBER 31, 1994
   -----------------     -----------------   -----------------   -----------------   -----------------
<S>                      <C>                 <C>                 <C>                 <C>
Fora Communications....       16,671               8,603               3,410               1,896
NorthWest GSM..........       52,681              22,210               7,049                 490
Delta Telecom..........       16,596               6,400               4,200                  --
</TABLE>

     Call revenues and total minutes in the cellular segment amounted to $9.0
million, $5.2 million, $2.2 million and $0.2 million, and 119,096,000,
57,729,000, 17,830,000, and 2,005,000 minutes, in 1997, 1996, 1995 and 1994,
respectively.

  NETWORK AND FACILITIES

     PeterStar's network and facilities give it the ability to provide advanced
digital services to the telecommunications market in St. Petersburg, services
that the Company believes PTS, with its primarily analog network, will be unable
to provide in the near term due to internal funding constraints at PTS. The
PeterStar network consists of digital exchanges which are connected by fiber
optic cables, advanced transmission systems and remote switching units and
concentrators. The fiber optic network forms three rings, permitting traffic to
be re-routed in the event that a cable is cut or damaged. The network is fully
interconnected with the PTS network, with direct and indirect connections via
approximately 540 kilometers of fiber optic cable to all thirty-four PTS transit
exchanges distributed throughout St. Petersburg. These direct connections to all
of the primary PTS exchanges enable callers to by-pass congestion on the PTS
network. The fiber optic cables also provide direct links to the national and
international switch, providing PeterStar customers with high quality long
distance and international access. PeterStar expects that it will continue to
incrementally add switching, transmission capacity and local loop infrastructure
to its core network in order to address its target market in St. Petersburg and
regional points of presence.

     In addition to core network development, PeterStar, as part of its goal to
be the full service telecommunications provider to the business community in St.
Petersburg, undertook a number of specialized customer connections to its
network, tailoring the solution to the specific customers' needs. This involved
investment in, among other things, new cable, trunked radio, and customer
premises equipment. Contracts concluded in 1997 include those with the Central
Bank of Russia, Pepsi, Pratt & Whitney, AT&T (USA Direct) and IBM.

                                       16
<PAGE>   19

     PeterStar has signed a contract with Tadiran, an Israeli wireless equipment
manufacturer, to supply 1,500 lines of wireless local loop infrastructure.
PeterStar intends to deploy such equipment where: (i) local loop infrastructure
is non-existent or of poor quality; and (ii) the cost of installing cable would
be prohibitive. PeterStar may expand this service if the initial project proves
successful. It is anticipated that the equipment will be installed during the
first half of 1998.

     The PeterStar network currently consists of two AT&T 5ESS exchanges and
several remote concentrators. PeterStar's Vassilievski Island exchange now
serves as its main transit exchange, and is linked to the other PeterStar
exchange located in Ligovskaia, in the central business district of St.
Petersburg, as well as with PTS and SPMMTS. The Vassilievski Island exchange has
the capacity to serve a large number of customers, both in the immediate
vicinity of Vassilievski Island and at remote locations via the fiber optic
network. This capacity enables PeterStar to carry substantial volumes of traffic
to and from the PTS network to other network operators, such as cellular,
Internet and paging operators, and to provide high quality links for long
distance and international calls. PeterStar has recently added incremental
transmission capacity and upgraded its transmission network from STM-4 to
STM-16, as well as working on the provision of new service features. In
addition, as part of its strategic relationship with PTS, PeterStar intends to
continue to provide targeted support to PTS in its effort to upgrade and
modernize its network. See "-- Risk Factors -- Risks Involving PeterStar Company
Limited and Baltic Communications Limited -- Dependence on PTS Facilities" and
"-- Products and Services -- Expansion of Voice and Data Services."

  BILLING, TARIFFS AND INTERCONNECTION CHARGES

     Billing

     PeterStar provides monthly itemized bills to its customers denominated in
U.S. Dollars. Installation and initiation charges, line rental and local and
long distance call charges must be paid in Roubles at the U.S. Dollar/Rouble
exchange rate on the date when the customer instructs its bank to make payment.
Currency regulations govern the currency in which international call charges may
be paid. Russian resident companies are required to pay in Roubles, while
non-resident companies may pay in Roubles or U.S. Dollars. Customers who are
permitted to pay in U.S. Dollars are also able to pay by U.S. Dollar-denominated
credit cards, as PeterStar is now registered to accept all major credit cards.
Late fees are assessed on all invoices after 30 days, at the rate of 7.25% per
month. By denominating its bills in U.S. Dollars (and exchanging Roubles at the
then current U.S. Dollar/Rouble exchange rate), PeterStar limits the exchange
rate risk otherwise associated with transacting business in a foreign currency.
See "-- Risk Factors -- Country Risks -- Currency Risks."

     Tariffs

     There are no specific regulations regarding tariffs charged by PeterStar.
PeterStar sets its tariffs taking into account those charged by PeterStar's
interconnect parties, namely PTS, SPMMTS and SPI, as well as competitive
pressures in the marketplace. PeterStar charges its customers for the
installation of equipment and initiation of service, line rental, local, long
distance and international calls and special services.

     In the period during which PeterStar has operated, there has been
significant price convergence between PeterStar and public network national and
international call tariffs. As PeterStar has widened its customer base, it has
reduced its national and international call tariffs. At the same time, public
network tariffs have increased for long distance access. Until PTS introduces
local call metering to its customers, PeterStar will not receive any such
revenues from its residential customers, and the timing of the introduction of
such metering remains unclear.

     PeterStar's published tariff for local calls is $0.03 per minute peak (8 AM
to 8 PM) and $0.02 per minute at other times. For domestic long distance calls,
the tariffs range from $0.38 to $0.98 per minute, depending on the call's
destination and the time of the call. For international long distance calls,
tariffs are based on the call's destination and the time of the call, with peak
time tariffs ranging from $0.98 to $2.98 per minute. The tariffs for peak time
calls to Europe and North America are $1.30 and $1.90 per minute, respectively.
PeterStar offers discounts, based on call volumes, for customers who make a
large number of calls per month.

                                       17
<PAGE>   20

     The installation charge for PeterStar telephone lines has been $500 per
line for the first 4 lines, $350 per line for the next five lines and $200 per
line for each line above nine lines. Commencing April 1998, the installation
charge will be $450 per line, regardless of the number of lines installed. For 2
Mb/s digital circuits, the installation charge is currently $4,500 for the first
circuit and $3,500 for each additional circuit. The monthly rental charge is $20
for a telephone line and $750 for a 2 Mb/s digital circuit.

     Business Customers.  PeterStar business customers are charged the full
PeterStar published tariffs for installation and initiation charges, line rental
and local, long distance and international calls. Certain discounts are given
for installations based on the number of lines installed at a single customer
location and for call volumes.

     Cellular Operators.  The cellular companies pay PeterStar for the
installation and lease of 2 Mb/s links, a connection charge for each number
connected and a monthly rental fee for each number, plus volume related call
charges.

     Residential Customers.  PeterStar currently only receives line rental and
connection charges from residential customers at the PTS rate. PeterStar will
not receive local call charges from residential customers until PTS imposes such
charges and then will only receive charges at the PTS rate. Long distance and
international calls are billed directly to residential customers by SPMMTS and
PeterStar receives no part of these revenues. For residential customers
connected as part of the Vassilievski Island project, PeterStar collects all
revenues for long distance and international calling, with some of the charges
at PTS tariff levels.

     Interconnection Charges

     PeterStar has been able to negotiate favorable tariffs for interconnection
fees and carrier charges with both PTS and SPMMTS. PeterStar's current
interconnect agreements with PTS and SPMMTS expire in December and November
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. PeterStar anticipates
that it will have to pay a local line rental charge to PTS commencing in 1998.
The exact fee, and the timing of the fee, has not yet been determined, but
PeterStar believes that a certain element of such fee can be exchanged for
transmission capacity provided by PeterStar to PTS. See "-- Risk Factors --
Risks Involving PeterStar Company Limited and Baltic Communications
Limited -- Dependence on Interconnect Parties" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."

  SUPPLIERS

     Lucent is PeterStar's primary network equipment supplier. PeterStar has
entered into a series of equipment supply agreements with Lucent for the
purchase of telecommunications equipment, including transmission systems,
switching equipment and related software, for the PeterStar network. In
addition, Lucent has been the provider of the switching and other equipment for
the Vassilievski Island project. See "-- Description of Agreements -- PeterStar
Company Limited." PeterStar also has supplier relationships with ECI/Rosh
Telecom for SDH transmission equipment, GDC for the supply of certain elements
of its data network and Tadiran for the supply of wireless local loop
infrastructure.

BALTIC COMMUNICATIONS LIMITED

     BCL, in which the Company acquired a 100% equity interest in April 1996,
provides international direct dial, international payphone and leased line
services for Russian and foreign businesses in St. Petersburg and, commencing
during 1997, the Leningrad Oblast. BCL also offers a number of advanced
broadband services, as well as "carrier's carrier" services to other
telecommunications operators. BCL has its own switching and international
transmission facilities in St. Petersburg, which act as a gateway for corporate
customers in both Moscow and St. Petersburg. The BCL network consists of an
international and local switch and capacity on the international fiber optic
cable via Finland to Sweden and the United Kingdom. BCL's primary international
carrier relationships are with Telia of Sweden, Cable & Wireless Communications
of the United
                                       18
<PAGE>   21

Kingdom and Lattelekom of Latvia. BCL rents local access from PeterStar and PTS
to connect its customers in St. Petersburg.

     See "-- Telecommunications Licenses -- Baltic Communications Limited" for a
description of the telecommunications licenses held by BCL.

     BCL had approximately 1,200 lines as of December 31, 1997 and generated
approximately 8.3 million minutes of traffic for the year ended December 31,
1997. BCL is currently investigating means to increase the capacity on its
network and to provide additional capacity for "carrier's carrier" services.

     The Company endeavors to cross-sell the distinct service offerings provided
by PeterStar and BCL to their respective customer bases. For example,
PeterStar's marketing representatives are now also able to market BCL's
international private line services to PeterStar's and other corporate
customers. In addition, the acquisition provides the Company with the
opportunity to: (i) potentially realize economies of scale at the operational
level (i.e. a single sales and customer services channel and coordinated
technical resources); and (ii) introduce new services to targeted markets in a
more efficient manner. In addition, PeterStar and BCL are exploring the
possibilities of closer cooperation in connection with the expansion of their
respective core businesses in St. Petersburg and the implementation of their
strategies in Northwest Russia.

     BCL generated net income for the year ended December 31, 1997 of $0.5
million on operating revenues of $7.6 million. The Company acquired BCL in April
1996 and it therefore accounted for only nine months of earnings to December 31,
1996. BCL generated net income for the nine months ended December 31, 1996 of
$0.7 million on operating revenues of $5.1 million. BCL accounted for 6.6% of
the Company's operating revenues for the year ended December 31, 1997, compared
to 8.2% for the year ended December 31, 1996.

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.

     The Yellow Pages database is widely respected as the most comprehensive and
reliable data source for organizations operating within the city. Local
governmental bodies, including the local telephone company, cannot provide
accurate data information due to bureaucratic intricacies and a number of
peculiarities of operating within the city's developing economy.

TECHNOCOM LIMITED

  OVERVIEW

     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 in MTR-Sviaz, a venture formed by
Technocom and Mosenergo, the Moscow city power utility, to modernize and
commercialize a portion of Mosenergo's internal telecommunications network. See
"-- Ownership and Management of Operating Subsidiaries -- Technocom Limited."

     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

                                       19
<PAGE>   22

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 SCS, a marketing company responsible for selling and administering
television broadcasting services.

     Technocom recorded a net loss for the year ended December 31, 1997 of $4.7
million on operating revenues of $21.2 million, as compared with a net loss of
$0.2 million on operating revenues of $4.4 million for the year ended December
31, 1996. Technocom accounted for 18.5% of the Company's operating revenues for
the year ended December 31,1997 as compared to 7.1% for the year ended December
31, 1996.

     Teleport-TP recorded a net loss for the year ended December 31, 1997 of
$2.8 million on operating revenues of $16.9 million, as compared with a net loss
of $0.1 million on revenues of $11.1 million for the year ended December 31,
1996.

  STRATEGY

     Teleport-TP is expanding its existing operations from the provision of
international telecommunications services to the provision of domestic long
distance telecommunications services in the Russian Federation utilizing Western
satellite capacity and technology. The Company believes that there is a largely
untapped market for satellite-based services between various regions of the
Russian Federation due to the current poor quality, or total absence, of
terrestrial long distance lines in many areas. Installation of the first phase
of the long distance network commenced in the second half of 1996, with 29 sites
installed as of December 31, 1997. Technocom has contracted with the
telecommunications equipment supplier Scientific-Atlanta, Inc. to supply
equipment for a total of 45 sites which, based on current plans, will be
installed by the end of the first half of 1998. Technocom is currently
formulating its plans in connection with the installation of additional earth
stations and has held preliminary discussions with Scientific-Atlanta on this
subject.

     Technocom expects to further develop its group's presence in Moscow through
the targeted development of infrastructure via Teleport-TP and MTR-Sviaz, and
through co-operation agreements with other network providers to deliver value
added voice and data services to the corporate market. Teleport-TP and MTR-Sviaz
are presently working together to address the corporate market, with MTR-Sviaz
providing or arranging to provide the local infrastructure in Moscow, connecting
customers to Teleport-TP for national and international access.

  TELEPORT-TP

     Overview

     Since 1994, Teleport-TP has operated an international telecommunications
network providing dedicated voice, data and video services, as well as
bandwidth, to Russian and foreign businesses and private telecommunications
networks. During 1997, Teleport-TP continued the installation of a long distance
network which is being targeted to high volume customers requiring high quality,
reliable long distance service across the Russian Federation. Targeted customers
include: (i) regional public telephone companies (Electrosviaz); (ii) local
public telephone companies; (iii) private cellular, wireline, data and other
network operators; and (iv) corporate users.

     Dedicated International Network Services

     Products and Services

     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
                                       20
<PAGE>   23

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.

     In order to reach those countries to which it has not yet opened direct
routes, Teleport-TP has entered into carrier relationships with Deutsche Telekom
("DT") in Germany, AT&T in the United States and Kokusai Denshin Denwa Co., Ltd.
("KDD") in Japan. Teleport-TP receives at least the same accounting rates and
equal division of revenues from DT, AT&T and KDD as has been negotiated between
the predecessor to the RFCTI and the German, United States and Japanese
governments.

     Television Transmission.  An additional source of revenue for Teleport-TP
has been the provision of international circuits for the transmission of
television signals to broadcasters who require international transmission
capacity on an as-needed, rather than a scheduled, basis. Customers for this
service include Capital Cities -- ABC, NHK and Fuji TV of Japan and TV India.
Revenues from the transmission of television signals totaled approximately
$413,000 for the year ended December 31, 1997, accounting for approximately 2.4%
of Teleport-TP's revenues for the period.

     Customers and Marketing

     Rostelecom.  Rostelecom, the primary national and international carrier in
the Russian Federation and the holder of a 44% ownership interest in
Teleport-TP, is Teleport-TP's principal customer for dedicated international
network services. As of December 31, 1997, Teleport-TP leased approximately 900
active circuits via Intelsat and Eutelsat to Rostelecom, pursuant, as to the
Intelsat circuits, to a five-year contract signed on December 1, 1992 and, as to
the Eutelsat circuits, a ten-year contract which commenced in September 1995.
Revenue from Rostelecom in 1997 totaled $4.7 million. The contract with respect
to the Intelsat circuits was renewed in December 1997 for an additional
three-year term, and is automatically renewable upon the expiration of its
initial term, unless terminated by either party. Rostelecom utilizes Teleport-TP
on traffic routes where it does not yet have a direct terrestrial connection and
where the cost of a terrestrial connection would be prohibitive. On such routes,
Teleport-TP provides Rostelecom with a means of accessing high quality digital
international circuits that are not available via other Russian satellite or
terrestrial means. See "-- Risk Factors -- Risks Involving Technocom Limited and
Teleport-TP -- Dependence on Rostelecom as Customer; Necessity to Further
Develop Customer Base."

     Carrier Relationships.  Teleport-TP, through its direct carrier
relationships principally with KDD of Japan, generates revenues from the
carriage of traffic to and from the Russian Federation. Teleport-TP carried
approximately 4.1 million minutes of incoming international traffic to its
private network during the year ended December 31, 1997.

     Private Networks.  Teleport-TP also has relationships with a number of
business centers and private network operators. Teleport-TP's most important
private network customer to date has been Sprint Sviaz, a Russian subsidiary of
Global One, which leases 60 international circuits. Other customers include
MTR-Sviaz, Technopark, the Intourist Computer Center and the Oil House Business
Center.

     Network and Facilities

     Teleport-TP Network.  Teleport-TP's dedicated international
telecommunications network consists of an earth station (with three antennae),
an international gateway switch and fiber optic cable. These network facilities
are owned by Technocom and leased to Teleport-TP. The earth station consists of
two Standard-A 18.3 meter antennas linked to two Intelsat satellites, one of
which (at 342 degrees) serves Western Europe and the

                                       21
<PAGE>   24

United States and the other of which (at 62 degrees) serves the Far East, and a
13 meter antenna linked to a Eutelsat satellite (at 21.5 degrees) which provides
additional connectivity to European countries. See "-- Description of
Agreements -- Technocom Limited -- Teleport-TP -- International Network
Facilities -- Intelsat" and "-- Eutelsat."

     Fiber optic cable links Teleport-TP's switch with its principal customers,
including the national network of Rostelecom, the national television switching
center in Ostankino, and a number of business parks, overlay network operators
such as MTR-Sviaz and Comstar, and state-owned utilities located in Moscow and
the Moscow region.

     Teleport-TP is connected to the facilities of MTR-Sviaz to terminate
certain traffic to users on the MTR-Sviaz network. MTR-Sviaz uses both leased
circuits from a number of network providers, access to the Teleport-TP fiber
optic facilities, and the Mosenergo internal communications network to terminate
its calls. Teleport-TP also uses the MTR-Sviaz facilities to locate its Internet
gateway, from which links to Internet Service Providers are provided via leased
and dial-up lines on the public network. Teleport-TP also acts as the long
distance gateway for subscribers on the MTR-Sviaz network.

     The fiber optic cable utilizes the underground duct facilities of MGTS, the
operator of the local telephone network in Moscow, under one year agreements
which are subject to automatic one year renewals unless either party provides
timely notice of cancellation. The current agreements expire on December 31,
1998. See "-- Risk Factors -- Risks Involving Technocom Limited and
Teleport-TP -- Dependence on MGTS Facilities."

     Intelsat Arrangements.  Teleport-TP currently routes international traffic
through two Intelsat satellites at 342 degrees and 62 degrees pursuant to a
fifteen year contract with Intelsat signed in January 1993. In addition,
Teleport-TP has commenced using transponder capacity on a third Intelsat
satellite (at 66 degrees) in connection with the development of its long
distance network program. The agreement requires quarterly payments of $616,500
for the remainder of its term. See "-- Long Distance Network Services -- Network
and Facilities."

     The Intelsat system, with 22 operational satellites of 4 different
configurations, is of significantly greater size, and provides greater coverage,
than any of its competitors. Intelsat's global capacity makes it the leading
international telecommunications satellite operator. The Intelsat organization
is able to offer flexible and reliable satellite capacity, supported by a
variety of contingency plans. Additionally, because of the strength of the
Intelsat organization, manufacturers and operators have designed their ground
stations to be compatible with Intelsat's specifications, creating a system that
is global and transparent to users and their customers.

     Since January 1993, Teleport-TP has been one of only three direct Intelsat
customers in the Russian Federation. In December 1997 the government of the
Russian Federation also designated Teleport-TP as that country's sole private
investing entity, as a result of which, following the completion of certain
licensing requirements, Teleport-TP will become an equity participant in the
Intelsat organization. Teleport-TP's relationship with Intelsat provides a
number of advantages to Teleport-TP and its customers, including: (i) high
quality and reliable service resulting from the reliability of the satellite
system; (ii) a wide range of service options; (iii) a wide range of consulting
and training services; and (iv) operational planning and management services
reflecting Intelsat's experience with in excess of 60 telecommunications
satellites over a period of 30 years. See "-- Long Distance Network
Services -- Network and Facilities."

     Eutelsat Arrangements.  Pursuant to a ten-year agreement with Eutelsat,
which commenced in September 1995, Teleport-TP has access to a total switched
capacity of 1,800 international circuits. Teleport-TP currently provides access
to six countries in Europe via a Eutelsat satellite at 21.5 degrees.

     Teleport-TP is the only private registered Eutelsat operator in the Russian
Federation and, during 1997, became an equity participant in Eutelsat as well.
Eutelsat is the intergovernmental organization responsible for providing
satellite communications space segment facilities for almost all European
nations. Although originally designed to provide principally television and
radio capacity, Eutelsat satellites now carry large quantities of
telecommunications traffic. Unlike Teleport-TP, most of the signatories to
Eutelsat are national telephone companies, often with a right to exclusive use
or monopoly control of operations of users within their home territory.
                                       22
<PAGE>   25

     Teleport-TP has already benefitted from its relationships with Eutelsat by
obtaining relatively inexpensive access to the Eutelsat system. Pursuant to the
initial agreement between Teleport-TP and Eutelsat, 50% of the cost of the earth
station is being financed on favorable terms by Eutelsat and 300 satellite
circuits are being provided free to Teleport-TP for the first three years.

     The Eutelsat system is designed to have high transponder capacity, with
built-in redundancy, both within its satellites and by the provision of in-orbit
spare capacity. Additionally, the transponder, antenna and cross-connect
facilities make for very flexible space segment capacity. The Company believes
that Teleport-TP's position as a participant in Eutelsat and a provider of
Eutelsat services in the Russian Federation will provide it with a considerable
strategic advantage with respect to intra-European telecommunications.

     Long Distance Network Services

     Products and Services

     The Company believes that there is a largely untapped market for satellite
links between various regions of the Russian Federation due to the current poor
quality, or total absence, of terrestrial long distance lines in many areas. In
order to expand its customer base beyond Moscow and to meet growing demand for
reliable telecommunications links, Teleport-TP is developing satellite links
using PAMA/SCPC (Pre-Assigned Multiple Access/Single Channel Per Carrier)
technology between cities and regions in the Russian Federation. These links
will be provided by Teleport-TP, under the registered tradename "Satelink",
directly between cities and regions, without going through Teleport-TP's Moscow
hub. In particular, Teleport-TP is seeking to address the market for
inter-regional communications where call completion rates are understood to be
low, primarily due to the underdeveloped nature of the Rostelecom
infrastructure. In addition, Teleport-TP is seeking to address the market for
intra-regional communications where call completion is the responsibility of the
regional network provider. In such instances Teleport-TP becomes an integral
part of regional network developments. Currently, Teleport-TP has reached
agreements with Uraltelecom and the regional operators in Tomsk, Sakha, Rostov
and Chita for such regional networks. While, due to various startup problems
including logistical difficulties and administrative difficulties with local and
regional governmental authorities, there have been significant delays in the
installation of, and the clearance to operate the equipment for this network, it
is expected that a total of 45 sites will be installed by the end of the first
half of 1998. See "-- Risk Factors -- Risks Involving Technocom Limited and
Teleport-TP -- Network Expansion."

     Internet Services.  Teleport-TP opened an Internet gateway during the first
quarter of 1997, using the registered tradename "Portal." The gateway is
configured to provide high speed data access to regional Internet service
providers as well as leased line and dial-up access in Moscow for corporate
clients.

     Television Services.  Teleport-TP has formulated a strategy to address the
growing demand for the resale of transponder capacity to domestic television
companies for: (i) the distribution of programming to regional sites for onward
terrestrial re-broadcasting; and (ii) direct distribution of digital TV
broadcasting. Both services would utilize additional capacity on the Intelsat 66
degrees satellite.

     Private Line Services.  Teleport-TP also provides national and
international private leased circuit access to corporate entities, either as
part of an integrated private network package or on a case-by-case basis as
defined by the customer.

     Value-Added Services.  The Company anticipates that Teleport-TP will
develop a portfolio of corporate network services to address this specific
market sector as Teleport-TP's operations mature. Cooperation with PeterStar in
addressing this corporate market is also envisaged.

     Customers and Marketing

     These long distance services are being targeted to high volume customers
requiring high quality, reliable long distance service across the Russian
Federation. Targeted customers include: (i) regional and local public telephone
companies (Electrosviaz); (ii) private cellular, wireline, data and other
network operators; and (iii) corporate users. As of December 31, 1997, 22
contracts had been signed (covering a total of 39 cities). Of

                                       23
<PAGE>   26

these, 9 are with regional and local public telephone companies, 6 are with
cellular operators and alternative local access providers and the balance are
with corporate and individual users.

     Implementation of these contracts in a timely manner is subject to the
ability of Teleport-TP to comply with any new operating conditions that may be
set by the local and regional governmental authorities in the areas in which it
operates. See "-- Risk Factors -- Risks Involving Technocom Limited and
Teleport-TP -- TP -- Network Expansion."

     Teleport-TP will act as a "carrier's carrier" to public telephone companies
and cellular, wireline and other operators. Teleport-TP will provide these
operators with long distance and, in many cases, international access so that
these operators can provide high quality access to their own subscribers.

     In developing a package of voice and data services for the corporate user,
Teleport-TP has enhanced its marketing and sales functions through recruitment
of experienced sales personnel and is addressing three distinct corporate market
segments: (i) the corporate market where the main focus of the customer is
located in Moscow and St. Petersburg (where co-operation can take place with
PeterStar and BCL), but where the customer also requires regional network
services; (ii) international ventures with requirements for both national and
international connectivity; and (iii) the corporate market in which the customer
has made the decision to expand to the regional cities or in which the
decision-making will take place in the regional centers.

     Network and Facilities

     The Teleport-TP network uses Scientific-Atlanta Skylinx.DDS(TM) Digital
PAMA/SCPC and IDR satellite telephony systems, a technology that is used by
public telephone companies either as a market entry mechanism or as an
enhancement of the existing terrestrial infrastructure. The network utilizes an
18.3-meter Standard-A Intelsat satellite master antenna at the hub site in
Moscow. Agreements are in place with Intelsat for access to 72 MHZ of
transponder capacity on the Intelsat 704 satellite at 66 degrees. Teleport-TP
believes that using this digital capacity from Intelsat represents a competitive
advantage over telecommunications operators using less reliable Russian domestic
satellite systems. Customers on Teleport-TP's long distance network, initially
public and private telecommunications companies, have the choice of taking
permanent leased circuits or switched circuits, depending on their requirements.
In addition, corporate customers now have the ability to create their own
private networks throughout the Russian Federation using this combination of
permanent and switched circuits.

     As of December 31, 1997, 29 medium (7 meter) and small (4.5 meter) antenna
terminals had been installed in major cities throughout the Russian Federation;
including Murmansk, Volgodonsk, Cheliabinsk, Ekaterinburg, Rezh, Yakutsk, Mirny
and Neriungry, providing digital voice and data services. It is anticipated that
a total of 45 antennas will be installed by the end of the first half of 1998.
The system is designed to be flexible, allowing for timely installation of
antennas in regional sites without changing the existing network configuration.
Additional channel units can be quickly installed at existing sites should
demand increase.

     The network will have full mesh topology allowing customers in remote sites
to connect with other remote sites without going through a central hub station,
thus avoiding a "double-hop" on the satellite. This offers considerable
improvement over traditional "star" configuration satellite-based systems.

     In order to satisfy the demands of the corporate market, Teleport-TP
intends to install antennas of 2.4 meter diameter for specific corporate
customer applications. These antennae will be supplied by the current network
provider, Scientific-Atlanta, and will be configured to offer the same
functionality as the larger antennae connected to the public network providers.
It is anticipated that Teleport-TP will either sell or lease these antennae to
the end-user customer.

     In addition, the Teleport-TP long distance network interconnects with
Rostelecom for the delivery of calls to locations where Teleport-TP does not
have its own facilities.

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<PAGE>   27

  MTR-SVIAZ

     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 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.

     MTR-Sviaz is a venture between Mosenergo (51%) and Technocom (49%) to
modernize and commercialize a portion of Mosenergo's internal telecommunications
network. MTR-Sviaz commenced operations in the third quarter of 1996 with the
initial network program encompassing the installation of a 10,000 line Siemens
exchange as a central switching node on the existing Mosenergo
telecommunications network. The switch is connected to Teleport-TP via fiber
optic cable, giving customers on the Mosenergo network direct access to the
digital long distance facilities of the Teleport-TP network. In addition to the
Mosenergo organization itself, other entities connected to the Mosenergo network
include commercial enterprises located at business centers on Mosenergo
premises.

     Technocom's contribution to MTR-Sviaz includes provision of the switch to
service 8,000 Moscow city lines and 2,000 lines on the internal Mosenergo
network and the acquisition of 4,000 Moscow city lines. The switch and lines
were purchased by Technocom and are leased to MTR-Sviaz. See "-- Description of
Agreements -- Technocom Limited -- MTR-Sviaz." Further capital investment may be
required if subscriber demand is greater than anticipated. Customers on the
MTR-Sviaz network include Mosenergo (1,000 lines) and nine Internet service
providers.

  OTHER ACTIVITIES

     Cellular Services.  Teleport-TP holds a 25% interest in Gorizont-RT, a
joint venture which has a license to provide GSM cellular service in the
Republic of Sakha, a semi-autonomous region of the Russian Federation. The other
parties to the joint venture are Sviazservice (24%) and Sakhatelekom, the local
Electrosviaz (51%). The network is currently operational in the city of Yakutsk
and service is expected to commence in the first half of 1998 in the cities of
Mirny and Neriungry. In addition to taking an equity interest in the project,
Teleport-TP will provide the long distance access for the venture through the
installation of Satelink antennae at the above three sites. In addition,
Teleport-TP has an agreement with Sakhatelekom for the provision of long
distance access. The telecommunications network equipment for the two additional
network sites has been bought by Technocom from Italtel and is being leased to
Gorizont-RT. As of December 31, 1997, Gorizont-RT had approximately 1,000
subscribers generating approximately $180,000 in revenues per month.

     Teleport-TP paid an initial fee for its participation, and was required to
provide three antennae and two digital switches capable of serving 1,500
subscribers. Teleport-TP receives 27% of the income derived from new
installations, line rentals and local calling, and 80% of the income derived
from long distance and international calling. Sakhatelekom has committed to
provide a minimum of 90,000 minutes of traffic per month, at a minimum tariff of
$1.50 per minute. Gorizont-RT's license has a term of eight years and requires
that 20% coverage of the territory of the Republic of Sakha (and an installed
network capacity of 3,000 numbers) be achieved by the end of 1997 and 50%
coverage of the territory of the Republic of Sakha (and an installed network
capacity of 20,000 numbers) be achieved by the end of 2004. Gorizont-RT did not
meet the initial coverage requirement by the end of 1997, but management does
not believe that this will have any material impact on its future licensing
position.

     Other Joint Ventures.  Technocom anticipates that it may, either directly
or through Teleport-TP, enter into joint ventures with local partners in
connection with the development of local network infrastructure either wireline
or wireless, to complement the development of its long distance network.

                                       25
<PAGE>   28

  SUPPLIERS

     The telecommunications equipment for the long distance network is being
supplied by Scientific-Atlanta. Under the initial supply agreement entered into
in November 1995, Teleport-TP was supplied with one master earth station and
seven medium and 23 small remote earth stations. An amendment to this agreement,
made in November 1996, provides for the supply of an additional 11 medium and
three small earth stations, in addition to upgrades to seven existing
facilities. Additional amendments to the agreement were made in 1997 to cover
the purchase of additional equipment and upgrades to existing facilities. The
master earth station is co-located, together with Teleport-TP's international
network facilities, on the grounds of the VVC. Technocom has commenced
preliminary discussions with Scientific Atlanta regarding expansion of the
network program in 1998. The equipment is owned by Technocom and leased to
Teleport-TP. See "-- Description of Agreements -- Technocom
Limited -- Teleport-TP -- Long Distance Network Facilities."

     Technocom has used a variety of major international suppliers to acquire
equipment for the building of the Teleport-TP network for dedicated
international telecommunications services.

     Lucent supplied the two initial Intelsat Standard-A earth stations and the
associated 5ESS international switch, along with a vendor financing package.
Hughes supplied the Eutelsat earth station, which is being financed 50% by
Hughes and 50% through a financing package arranged by Eutelsat.

     The third Intelsat antenna and all remote antennas, together with other
operating equipment and software for the Satelink network, have been supplied by
Scientific-Atlanta and Siemens.

     ECI Telecom of Israel has supplied the Digital Channel Multiplication
Equipment and modems for the Teleport-TP international and domestic long
distance service facilities.

     Teleport-TP has contracted with Siemens AG of Germany for the supply of the
converter technology to ensure that the Teleport-TP network can interface
correctly with the many switching protocols used in the Russian public network.

     Supply arrangements were concluded with Italtel for the provision of GSM
cellular switches and related equipment for the Gorizont-RT venture; this
equipment has been installed in the cities of Mirny and Neriungry.

  BILLING AND TARIFFS

     Billing

     International Network Services.  Teleport-TP bills the operators of the
networks it serves, who in turn are responsible for billing the individual
subscribers to those networks. For its foreign carrier relationships,
Teleport-TP has agreed with KDD, DT and AT&T the inter-administration settlement
process for international traffic settlements.

     Long Distance Network Services.  Teleport-TP invoices the operators of
public telephone, and private cellular, wireline and other networks, which in
turn invoice their own subscribers. Teleport-TP invoices all corporate users
directly.

     Currency of Billing.  Teleport-TP's bills are predominantly denominated in
U.S. Dollars. Installation and initiation charges, line rental and local and
long distance call charges must be paid in Roubles at the U.S. Dollar/Rouble
exchange rate on the date when the customer instructs its bank to make payment.
Currency regulations govern the currency in which international call charges may
be paid. Russian resident companies are required to pay in Roubles, while
non-resident companies are permitted to pay in Roubles or U.S. Dollars. By
denominating its bills in U.S. Dollars (and exchanging Roubles at the then
current U.S. Dollar/Rouble exchange rate), Teleport-TP limits the exchange rate
risk otherwise associated with transacting business in a foreign currency. See
"-- Risk Factors -- Country Risks -- Currency Risks."

                                       26
<PAGE>   29

     Tariffs

     International Network Services.  Teleport-TP is not subject to federal or
local regulation on tariffs. Teleport-TP sets its tariffs taking into account
those charged by its interconnect parties, as well as competitive pressures in
the marketplace. Teleport-TP maintains tariffs for international calls, private
line services for corporate clients and television transmissions. Teleport-TP
also has fixed line charges, for connection and rental fees, although these
currently do not contribute significantly to its revenues. However, as
Teleport-TP expands its activities and more private customers are connected to
its network, revenues from fixed line charges may become more significant.

     The tariff schedule that Teleport-TP offers to its dedicated network
customers for international calls ranges from $1.35 to $2.60 per minute,
depending on the call's destination and the volume of calls placed by each
customer regardless of the time or day. Teleport-TP offers a range of discounts
for customers that exceed a certain targeted level of call minutes. Discount
packages are being developed for individual customers on a case-by-case basis as
the business matures. Teleport-TP provides international private leased circuits
to corporate customers commencing at $2,600 per month for point-to-point 64 kb/s
circuits, with prices determined by the amount of bandwidth and the destination
required by the customer.

     International Television Broadcasting Services.  The basic charge for use
of Teleport-TP facilities for television broadcasting is $803 for the first ten
minutes of broadcast time, and $25 for each additional minute. Due to the
administration required for each set-up, the customer is charged for a minimum
of ten minutes on each occasion.

     Domestic Long Distance Network Services.  Tariffs for the satellite-based
domestic long distance network services range between $0.20 and $1.50 per
minute, depending on the call's destination and the volume of traffic. The
tariffs for PAMA and IDR circuits will be determined by the distance to the
operator and will range between $10,000 and $40,000 per month. Tariff packages
are being developed for individual customers on a case-by-case basis as the
business matures and will incorporate, where necessary, the sale or lease of the
antenna as part of the package. Tariffs for private leased circuits to corporate
customers range between $3,000 and $5,000 per month for point-to-point 64 kb/s
circuits, with higher prices for higher bandwidth as required by the customer.

BECET INTERNATIONAL

  OVERVIEW

     BECET, in which the Company owns a 50% interest, currently operates the
only national cellular network in Kazakhstan. The other 50% of BECET is held by
Kazakhtelekom, the operator of the national telephone network in Kazakhstan. In
May 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
(reported to be approximately 10% of Kazakhtelekom) to an unnamed third party.
The report did not indicate whether Daewoo proposed to sell or retain the
remainder of its stake in Kazakhtelekom. Kazakhtelekom recently received a
revised license specifically naming it as the exclusive national network
operator in Kazakhstan, and giving it a wide range of powers to carry out this
function.

     The Company's primary objectives for BECET are to increase revenues and
cash flows through increased subscriber penetration, usage and network coverage.
Cellular service provides a rapid and relatively inexpensive way to overcome the
deficiencies of the wireline telecommunications infrastructure in Kazakhstan.
BECET's cellular telecommunications network in Kazakhstan currently consists of
separate systems in Almaty, South Kazakhstan (Chimkent), Karaganda, Pavlodar,
Akmola, Aktyubinsk, Kustanai, East Kazakhstan (Ust-Kamenogorsk), Atyrau, Taraz,
Petropavlovsk and Kyzl Orda. As of December 31, 1997, BECET's cellular
telecommunications network covered a geographic area of approximately 4,200,000
people, or "POPS", representing 24% of the total population, in 12 cities. BECET
commenced cellular service in September 1994 and has since experienced
significant subscriber and revenue growth. As of December 31, 1997, BECET had
11,102 subscribers, as compared to 6,957 subscribers as of December 31, 1996.
During the

                                       27
<PAGE>   30

year ended December 31, 1997, BECET's subscribers generated average monthly
recurring revenues of $220 per subscriber.

     See "-- Telecommunications Licenses -- BECET International" for a
description of the telecommunications license held by BECET.

     BECET, which began operations in September 1994, generated net income for
the year ended December 31, 1997 of $7.2 million on operating revenues of $30.0
million, as compared to net income of $4.5 million on operating revenues of
$19.1 million for the year ended December 31, 1996. The subscriber base grew
from 2,882 at the end of 1995 to 11,102 at December 31, 1997. BECET accounted
for 26.2% of the Company's operating revenues for the year ended December 31,
1997.

  STRATEGY

     The Company believes the development of a market economy in Kazakhstan is
likely to increase demand for modern telecommunications services, including
wireless communications, as demonstrated by the subscriber growth experienced to
date by BECET. While the Kazakh telephone network is expected to be modernized
over time, the Company believes this is likely to be an expensive and lengthy
process. The Company believes that this environment provides BECET with the
opportunity to provide customers in Kazakhstan with a viable, high quality
alternative to wireline telephone service during the period it will take to
modernize the basic public network.

  NETWORK AND FACILITIES

     As of December 31, 1997, BECET's cellular telecommunications network in
Kazakhstan consisted of separate systems in Almaty, South Kazakhstan (Chimkent),
Karaganda, Pavlodar, Akmola, Aktyubinsk, Kustanai, East Kazakhstan
(Ust-Kamenogorsk), Atyrau, Taraz, Petropavlovsk and Kyzl Orda, and it met the
second (and final) "coverage" condition of its license from the KMOC by having
11 systems in place by December 31, 1996. Further installations remain dependent
upon many factors including the successful location of additional cell sites and
the results of marketing and other studies. As of December 31, 1997, investment
in BECET's cellular network infrastructure and support facilities totaled
approximately $28.9 million. BECET anticipates that its capital expenditure
program in 1998 will total approximately $8.2 million and will be used to
develop new installations, expand network capacity in the existing cities
(particularly in Almaty, Akmola and Atyrau), introduce pre-paid cellular
services and technical safeguards against cloning fraud, and to upgrade
equipment. The Company believes that this funding will all be provided by
internally generated cashflows.

     All BECET systems are connected to the local telephone network and the
regional trunk switch in the cities where they are located. The system in Almaty
is also linked to an international trunk exchange and the Akmola system will be
linked to a new international switch in that city when it becomes operational.
Long distance and international calls are completed using the national and
international network of Kazakhtelekom. International calls are switched through
a digital exchange in Almaty.

     Space for most BECET switches, cell sites and associated equipment is
provided by Kazakhtelekom. BECET also uses space in a Kazakhtelekom exchange
building in Almaty for office and administrative purposes. BECET has also
established, and will continue to establish, customer service centers in each
city in which service is offered. Virtually all space for customer service
centers and equipment not provided by Kazakhtelekom is leased, although BECET
has purchased its facilities in Taraz, one base station site and building in
Chimkent and a base station building in Karaganda. BECET is considering the
purchase of a central office building in Almaty, although suitable premises have
yet to be identified. Commencing March 1998, BECET is leasing new premises in
Almaty to combine its central retail store and provide a larger customer service
center.

     In November 1997, the official political capital of Kazakhstan was moved
from Almaty to Akmola. Although BECET does have a presence in Akmola, the
long-term effect of this move on BECET's business remains uncertain. For
example, BECET could need to incur the cost of moving its administrative
functions to

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<PAGE>   31

Akmola. Currently, both the number of customers in Akmola and the traffic
between Almaty and Akmola are increasing, but there is a risk that the move
could result in reduced cellular activity in Almaty in the future.

  PRODUCTS AND SERVICES

     BECET customers may choose from three types of cellular service: service
within a single city, service within Kazakhstan as a whole, and full service
including international access. Optional services include call waiting, three
party conferencing, call forwarding, voice mail and busy transfer. BECET also
markets cellular telephones and related equipment manufactured by Motorola.

     BECET offers a roaming facility between the home city of the subscriber and
other cities served by the BECET network. In addition, as of December 31, 1997,
BECET had established roaming agreements with other cellular operators: (i)
Katel in Kyrgyzstan; (ii) Uzdunrobita in Uzbekistan, (iii) SCC in the Russian
city of Omsk, (iv) BEELINE in Moscow; and (v) Fora in St. Petersburg.

     BECET will introduce a pre-paid cellular system by mid-1998, thereby adding
to its existing service offerings. In addition to further reducing the potential
for bad debts, this system will also permit BECET to market a portable unit
having fewer features and more economical pricing, thus enabling BECET to expand
into a new and potentially much larger market segment than that to which it has
addressed its marketing efforts to date.

     BECET markets its cellular services through its own outside direct sales
force, which targets corporate and government accounts and high volume
consumers, together with customer service centers. Although subscribers to
BECET's services include individuals, BECET anticipates that for the foreseeable
future its services will appeal principally to businesses. While all market
segments are growing, BECET is experiencing the most significant growth in the
area of Kazakh businesses and individuals.

     BECET does business under the registered trade name "ALTEL" and features
this name in all of its marketing and promotional activity. BECET uses a variety
of marketing channels to promote its services, including television, radio,
newspapers, billboards and sponsorship of concerts and other popular events.
BECET believes that both the identification of the "ALTEL" trade name with its
services, and its marketing activities, have been effective in stimulating
demand for its products and services. In order to reinforce this identification,
BECET is in the process of changing its corporate name to "ALTEL".

  OPERATIONS

     Billing and Tariffs

     Subscribers are billed monthly in U.S. Dollars for access charges, airtime
charges, and toll charges and optional services. Government regulations
determine the currency in which invoices may be paid, which depends upon the
residency status of the customer. Domestic subscribers may pay only in Tenge,
while foreign subscribers are permitted to pay in Tenge or U.S. Dollars.
Historically, if the payment was made in Tenge, the subscriber was required to
convert the invoice amount to Tenge at the exchange rate effective on the date
of payment. Commencing March 1998, BECET is now required to issue a tax invoice
with each bill stating the amount in Tenge as of the billing date, and the
customer then pays that Tenge amount. BECET is therefore now exposed to a
greater currency risk since the Tenge could weaken against the U.S. Dollar in
the time between the dates the bill is issued (and the exchange rate set) and
the bill is paid.

     Under the terms of its license, BECET is free to establish the rates for
all cellular services provided on its network, without prior approval from the
KMOC. BECET's pricing is subject to review by the Kazakh Anti-Monopoly
Commission. BECET currently employs one pricing structure for all of its
customers, but Kazakh government agencies are offered a 25% discount on
activation and a 35-40% discount on monthly access fees and airtime charges.
Currently, BECET has 141 subscribers in this category and management does not
expect this number to increase significantly over time.

     A new subscriber currently pays a one-time activation fee of $474 or $336
and makes a security advance of $500, $250, or $100 to cover monthly fees and
usage charges depending on whether the subscriber has

                                       29
<PAGE>   32

international, inter-city or local access, respectively. Non-residents of
Kazakhstan pay security advances of $850, $350 or $250 depending on whether the
subscriber has international, inter-city or local access. Monthly access fees
are $24 for local service alone, $48 for inter-city service and $78 for full
international service. Usage charges are $0.30 off-peak and $0.48 per minute
plus the applicable tariffs for international and inter-city calls. In addition,
there is a monthly fee of $6.00 for each optional service, including call
waiting, three party conferencing, call forwarding, itemized billing and busy
transfer. BECET also charges its subscribers a fee for the ability to roam to
other regional cities. BECET periodically offers special tariff-related
promotions which include discounts on certain elements of the tariff schedule
when packaged together. In addition, certain customers are offered volume
discounts on the tariff schedule. BECET is currently developing a simplified
range of tariff packages, effectively bundling the service offering and linking
call tariffs to the subscribers' calling patterns. It is anticipated that these
tariff packages will be available to the market during the first half of 1998.
All of the above tariffs include VAT at the rate of 20%.

     Interconnection

     BECET is dependent on its interconnection to networks operated by
Kazakhtelekom for the completion of its local, long distance and international
calls. BECET pays an annual license fee to the KMOC in lieu of all frequency or
interconnection charges, equal to up to 6% of its after-tax profits as
calculated by the Kazakh statutory audit. BECET pays Kazakhtelekom a tariff in
respect of local calls, and enjoys a preferential tariff in respect of long
distance and international calls which provides BECET with an average margin of
25% on such calls. Kazakhtelekom has recently been authorized, in connection
with its appointment as the exclusive operator of the Kazakh national network,
to levy interconnection charges, and to do this on a basis which yields it a
profit. There can be no assurance that Kazakhtelekom will not use this authority
to start assessing interconnection charges against BECET, notwithstanding that
BECET is already paying a license fee expressly stated to be in lieu of
interconnection charges. See "Risk Factors -- Risks Involving BECET
International -- Dependence on Interconnect Parties" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Year Ended December 31, 1997 Versus Year
Ended December 31, 1996 -- BECET International."

     Suppliers

     BECET has entered into a series of agreements with Motorola for the
purchase of the equipment required for its cellular network. See "-- Description
of Agreements -- BECET International."

OTHER OPERATIONS

  PLD MANAGEMENT SERVICES LIMITED

     PLD Management Services Limited ("PLDMS") is a wholly owned subsidiary of
the Company based in the United Kingdom that to date has performed certain
management, commercial and technical consulting, investor relations, new
business development, corporate finance and accounting services for and on
behalf of the Company. As a result of the Continuance, the Company has
transferred most of these functions to New York City. PLDMS has charged, and
will continue to charge, the costs it incurs in providing its services,
principally salaries, travel and office costs, to both the Company and its
subsidiaries.

COMPETITION

  PETERSTAR COMPANY LIMITED

     PeterStar is building and operating its business in a highly competitive
environment. PeterStar does not have an exclusive license to provide
telecommunications services in St. Petersburg, and a number of other entities,
including Russian companies and international joint ventures, are competing with
PeterStar for a share of the St. Petersburg telecommunications market. A number
of such companies (or their joint venture partners) are larger than PeterStar
and have greater access to capital or resources.

     Although PTS has historically supported the development of PeterStar, PTS
and PeterStar must be regarded as competitors in the telephony segment. PTS can
offer its customers the same core services as
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<PAGE>   33

PeterStar, notwithstanding (to date) the lower transmission quality and call
completion rates of the PTS network. Furthermore, PTS has recently completed the
installation of a modern fiber optic loop in St. Petersburg which, when
operational, will significantly enhance its ability to carry traffic and
therefore to compete with PeterStar (in particular for the carriage of cellular
traffic). In addition, PTS has commenced efforts to raise funds to further
modernize its network by accessing the international capital markets. Although
PeterStar believes that PTS would require substantial additional capital to
completely modernize its network, PTS, either alone or though Telecominvest, is
free at any time to enter into joint venture arrangements with other foreign
partners to modernize its network independently of PeterStar. While PeterStar
believes that there is a constructive working relationship between PeterStar and
PTS, there can be no assurance that PTS will not in the future start to compete
more aggressively with PeterStar and/or that future disputes between the
partners will not occur and/or that PTS will not seek another partner. See
"-- Risk Factors -- Risks Involving PeterStar Company Limited and Baltic
Communications Limited -- Dependence on Interconnect Parties" and "-- Ownership
and Management of Operating Subsidiaries -- PeterStar Company Limited."

     The other major competitors to PeterStar are: (i) Global One, the
international joint venture between Sprint, DT, France Telecom and its Russian
partner, the telegraph office, which provides national and international voice
and data services to certain destinations; and (ii) Sovintel, a joint venture
between Rostelecom and GTS, which is currently based in Moscow, both of which
have been expanding their operations in St. Petersburg. Since they are generally
unable to compete effectively with PeterStar based on quality, these competitors
principally compete on the basis of price, thereby exerting some price pressure
on PeterStar. PeterStar reacted to the increased competition from GlobalOne and
Sovintel in 1997 through a combination of, among other things, tariff
reductions, volume discounts and dialing plans for large customers.

     Other competitors include: (i) Combellga, a joint venture of CominCom,
BelgaCom, Alcatel Bell and MMTS which operates an international overlay network
in Moscow and has been attempting to penetrate the St. Petersburg market,
offering international access similar to BCL, as well as long distance access to
Moscow; (ii) JS Leivo, a joint venture of LenEnergo and Imatran Voima of Finland
which provides outgoing international access; (iii) St. Petersburg Teleport,
which offers only outgoing international services and offers lower priced
services; and (iv) Metrocom, which provides local data access in St. Petersburg.
In addition, the three cellular operators in St. Petersburg are competitors of
PeterStar because they offer local, long distance and international access. At
the same time, each cellular operator uses PeterStar to deliver its traffic. See
"-- PeterStar Company Limited -- Products and Services -- Cellular Services."

  TELEPORT-TP

     Teleport-TP is building and operating its business in a highly competitive
environment. Both in the market for international telecommunications services
and the pan-Russian long distance market, Teleport-TP faces competition from a
number of entities, including Russian companies and international joint
ventures. A number of such companies (or their joint venture partners) are
larger than Teleport-TP and have greater access to capital or resources.

     International Network Services

     In providing international circuits and direct dial services in Moscow,
Teleport-TP faces competition from a number of operators offering similar
services. Such operators, including Comstar, Combellga, Telmos and Sovintel, are
primarily targeting Russian and foreign businesses in the city, replicating the
services that PeterStar is providing in St. Petersburg. In terms of providing
international circuits, Teleport-TP faces direct competition from the Russian
Space Communications Corporation, the state owned operator which uses both
Intelsat and the Russian satellites, and indirectly from Rostelecom, which owns
capacity in and operates the international cable facilities connecting the
Russian Federation to the telecommunications networks of the major global
carriers.

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<PAGE>   34

     Long Distance Network Services

     In providing long distance services, Teleport-TP faces competition from a
number of sources, both on a national and regional basis. Nationally,
Teleport-TP faces competition from Rostelecom in the provision of long distance
access to the local telephone companies. Rostelecom currently appears to support
the continued development of Teleport-TP and Rostelecom stands to gain from its
relationship with Teleport-TP, not only as a Teleport-TP shareholder but also to
the extent that expansion of the Teleport-TP network facilitates the
modernization of the Rostelecom network on a targeted basis. There are no other
commercial national networks of the same scale as the Rostelecom network,
although there are a number of private networks, including those of the
Ministries of Defense and Railways, that could, if funding were made available,
provide further competition to Teleport-TP.

     At this time, it is unclear what impact the consolidation of the
government's telecommunications holdings and the auctions of significant stakes
in Sviazinvest will have on the Russian telecommunications market in general and
the Company in particular. See "-- Telecommunications in the Former Soviet
Union -- Telecommunications in the Russian Federation."

     Teleport-TP also faces competition from other Western-financed entities
seeking to provide various forms of higher bandwidth voice and data
communications services throughout Russia, including: (i) TeleRoss, a subsidiary
of GTS, which is offering service in 12-15 cities using the Russian domestic
satellite systems; (ii) Rosnet, principally a provider of data network services;
(iii) Aerocom, a satellite and fiber optic-based carrier's carrier based in
Moscow, which provides international circuits via the Russian Express satellite
network; (iv) Belcom, a private carrier providing international point-to-point
leased circuits to the oil and gas companies in remote locations, and secondly
closed user group services to communities of interest; (v) Romantis, a satellite
based provider of services targeted at the corporate user; and (vi)
Tass-Loutsch, a satellite-based venture formed by Trans-World Communications and
ITAR-TASS to offer access to network operators.

  BECET INTERNATIONAL

     There is currently no other licensed cellular network operating in
Kazakhstan. A local "pirate" operator named Tolkyn at one time operated a
limited radio-based communications system, which was believed to have no more
than 200 subscribers in the city of Almaty. However, the government of
Kazakhstan appears desirous to establish a GSM network in Kazakhstan and to
license one or more parties to develop this. See "-- Telecommunications
Licenses -- BECET International." Until more details of the network and
licensing process are known, BECET is currently unable to assess the impact of
this potential development upon its business.

TELECOMMUNICATIONS LICENSES

  PETERSTAR COMPANY LIMITED

     In June 1996, PeterStar was granted a license, which superseded a license
granted in November 1994, for an eight year term expiring November 2004 to
provide local, national and international telecommunications services within St.
Petersburg and the surrounding region. One of the conditions of this license is
that access to long distance and international communications be through the
public network. 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). Management believes that, so
long as they are being actively utilized, all such licenses will be renewed at
the end of their respective terms.

     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. 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,

                                       32
<PAGE>   35

1997, PeterStar had 114,774 lines, of which 85,948 were provided to cellular
operators. PeterStar does not believe that its license would be terminated or
re-negotiated, that it would be forced to reduce the number of its subscribers,
or that other penalties would be imposed, by reason of its exceeding its 106,000
line ceiling, but there can be no assurance that the RFCTI would not take a
different position.

     The dedicated network license permits PeterStar to provide long distance
and international telephone transmission services to dedicated network operators
(such as BCL) in St. Petersburg and the surrounding region for a term expiring
in September 2001. This license therefore enables PeterStar to offer its clients
the potential cost efficiencies and synergies which come from working with
affiliated companies, as well as allowing PeterStar and BCL to explore ways to
work together to provide integrated solutions to customer needs. The dedicated
network license sets the number of lines which PeterStar may have at 30,000 and
requires that capacity equal to 21,000 lines be introduced by September 1999.
Once again, 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. See
"-- Risk Factors -- Risks Involving PeterStar Company Limited and Baltic
Communications Limited -- Telecommunications Licenses."

  BALTIC COMMUNICATIONS LIMITED

     BCL's primary license permits it to provide long distance and international
telephone, facsimile and data transmission services within St. Petersburg and
the surrounding region for a term expiring on December 31, 2003. Management
believes that, so long as it is being actively utilized, BCL's license will be
renewed at the end of its current term. BCL is not required to route its long
distance traffic through the facilities of SPMMTS, and has its own international
facilities providing cable access. However, BCL's license does not permit it to
interconnect with PTS's public network. BCL is therefore working with PeterStar
to explore providing integrated long distance and international solutions for
customers. The license sets the upper limit of subscribers to the BCL network at
100,000 and requires that 70,000 of these be in place by January 2001. BCL had
approximately 1,200 lines as of December 31, 1997. 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. See "-- Risk Factors -- Risks Involving PeterStar
Company Limited and Baltic Communications Limited -- Telecommunications
Licenses."

  TECHNOCOM LIMITED

     Teleport-TP

     Teleport-TP has been issued two licenses for long distance and
international leased circuits for dedicated network services and for television,
and a data license providing for interconnection to the public network. In
addition, Teleport-TP has been issued an overlay license to offer local, long
distance and international voice and data services which are interconnected to
the public telephone network in the 40 regions (plus Moscow and St. Petersburg)
in which Teleport-TP's long distance network will initially be operational.
Management believes that, so long as they are being actively utilized, all of
the licenses will be renewed at the expiration of their respective terms.

     License N4207, issued in October 1996 (replacing earlier licenses N100 and
N1661 obtained by Teleport-TP) authorizes Teleport-TP to provide long distance
and international telecommunications services to private networks within
Moscow's city limits and, to a limited extent, elsewhere in the Russian
Federation. No interconnection of the Teleport-TP network with the public
switched telephone network is permitted under this license. License N4207
expires in November 2004.

     A second license, license N4437, issued in October 1996 (replacing an
earlier license N386), authorizes Teleport-TP to provide international leased
lines and circuits for the transmission of television signals within Moscow's
city limits. International lines may only be leased to customers holding an
appropriate license granted by the RFCTI. The license also provides that
Teleport-TP may lease up to 1,000 international circuits for the transmission of
television and telecommunications services. Teleport-TP believes that this
number of

                                       33
<PAGE>   36

lines and circuits is sufficient to cover its requirements through the remainder
of the current term of the license. License N4437 expires October 28, 2004.

     The data license, license N3654, authorizes Teleport-TP to provide data
transmission services in Moscow, St. Petersburg and other cities of the Russian
Federation and permits interconnection with the public network. The data license
expires in January 2002.

     The overlay license, license N4199, permits Teleport-TP to offer local,
long distance and international voice and data services which are interconnected
to the public telephone network in the 40 regions (plus Moscow and St.
Petersburg) in which Teleport-TP's long distance network will initially be
operational. This permits Teleport-TP to deliver calls to all subscribers on the
public network in such regions. License N4199 expires in May 2001.

     License N4207 limits the number of subscribers under such license to 15,000
and requires that 10,500 be in place by October 1999. License N4437, unlike its
predecessor N386, makes no reference to minimum subscriber targets. (License
N386 limited the number of subscribers to 1,700 and required that 1,190 be in
place by October 28, 1997.) License N3654 provides that the installed subscriber
capacity of Teleport-TP's data network should permit the connection of at least
70,000 subscribers by December 2000 and at least 100,000 subscribers by the end
of the license, but it does not impose any limit on the number of subscribers.
License N4199 provides that the total installed capacity of the long distance
network should be at least 100,000 numbers with at least 70,000 numbers
operational by May 2000. Management of Teleport-TP believes that these
subscriber provisions are not strict requirements, but are instead designed to
provide general guidance as to the number of subscribers intended to be included
on the system. Management further believes that, so long as a license is being
actively utilized, such license will not be terminated nor other sanctions
imposed if Teleport-TP failed to have the minimum number of subscribers in place
by any date specified or if it was to exceed the maximum number of subscribers
permitted by the license, but there can be no assurance that the RFCTI would not
take a different position, which in turn could result in the revocation of the
license or its renegotiation on unfavorable terms. See "-- Risk Factors -- Risks
Involving Technocom Limited and Teleport-TP -- Telecommunications Licenses."

     MTR-Sviaz

     MTR-Sviaz has been issued license N3644 which authorizes MTR-Sviaz to
provide local telephone service through interconnection with the public switched
telephone network within the city and region of Moscow. The license permits
connection only through the Mosenergo network. License N3644 is limited to a
maximum of 9,500 lines in the city of Moscow and a further 500 lines in the
Moscow oblast. License N3644 expires in December 2006. Under the terms of the
license, MTR-Sviaz is obligated to have at least 70% of the total number of
subscribers permitted under the terms of the license in place within six years.

     MTR-Sviaz has also been issued license N2463 which authorizes MTR-Sviaz to
provide local and long distance leased line services within the city and region
of Moscow. Local and long distance lines may only be leased to customers holding
an appropriate license issued by the RFCTI. License N2463 is limited to a
maximum of 3,500 lines and expires in October 2001. MTR-Sviaz is obligated by
the terms of the license to have at least 70% of the total number of subscribers
permitted under the license in place by October 1999.

  BECET INTERNATIONAL

     BECET holds a 15-year renewable license issued in February 1994 for the
creation and operation of cellular communications networks in Kazakhstan for
local, long distance and international calling, using the 800 MHZ frequency band
and "AMPS" technology. Under the terms of the license BECET was required to
provide cellular services to Almaty and ten to twelve additional regional
centers by the end of 1996, a condition which has been met. See "-- BECET
International -- Network and Facilities."

     The license specifies that BECET is to be the exclusive provider of
cellular service in Kazakhstan for the first five years of the license term. The
license also specifies that, if the KMOC determines that it will issue any other
license to create and operate a cellular network in accordance with GSM or
NMT-450 standards or

                                       34
<PAGE>   37

any other technology, BECET will be given the right of first refusal with
respect to such license. Additionally, the license is transferable upon approval
by 75% of BECET's shareholders.

     The exclusivity provision of BECET's license has recently been the subject
of scrutiny by various governmental agencies in Kazakhstan, and questions have
been raised as to its validity. In order to put the matter to rest, BECET has
been discussing with the KMOC substituting a new license with revised terms for
its existing license. While those terms are not finally negotiated, they would
likely include a combination of:

     -  eliminating the exclusivity provision (which terminates in any event in
        February 1999);

     -  eliminating BECET's right of first refusal with respect to other
        licenses, in favor of giving it a guaranteed right to participate in any
        tenders or negotiations for a new license; and

     -  eliminating the ability to transfer the license,

     in return for a new 15 year license to be valid from the date of issue.

     Management of BECET believes that a resolution of the kind envisaged would
put to rest the issues that have been raised regarding BECET's existing license
and assure BECET a suitable environment in which to continue the development of
its business. Management also believes that, by virtue of its cost structure and
its market penetration to date, it is in a good position to compete with any
parties who are hereafter licensed to operate cellular networks in Kazakhstan,
even those which may enjoy the backing of the KMOC or other agencies of the
government of Kazakhstan. However, there can be no assurance that efforts to
limit the scope of its license or otherwise revise its terms in a way which
could be detrimental to BECET will not continue, or that BECET will in fact be
able to compete successfully with any new licensees. See "-- Risk Factors --
Country Risks -- Legal Risks" and "-- Risks Involving BECET
International -- Telecommunications License."

DESCRIPTION OF AGREEMENTS

  PETERSTAR COMPANY LIMITED

     Equipment.  Lucent is PeterStar's primary network equipment supplier. In
recent years, both PeterStar and the Company have entered into equipment supply
agreements with Lucent for the purchase of telecommunications equipment,
including transmission systems, switching equipment and related software, for
the PeterStar network, including for the Vassilievski Island project.

     During 1997, PeterStar signed contracts totaling approximately $16.7
million with Lucent for the supply of telecommunications switching equipment and
services for the development of its network and for the Vassilievski Island
project.

     In 1996, contracts totaling $6.6 million were signed with Lucent for the
supply of telecommunications switching and transmission equipment and services
to PeterStar. The equipment is owned by PLD Leasing and leased to PeterStar for
a five year term, with PeterStar having the right to purchase the equipment at
the end of the term. Following the execution of the Supplemental Indenture, the
Company intends to convert the equipment lease with PeterStar into an
installment sales contract.

     Cellular and Other Operators.  Pursuant to interconnect agreements with
Delta, NW GSM and Fora, PeterStar provides interconnect service from the
cellular networks to the local network and a gateway for long distance and
international networks. Traffic interconnections are linked and made through
PeterStar's switch system. The interconnect agreements provide for the following
payments to be made by each cellular operator to PeterStar based on 2 Mb/s trunk
connections, monthly lease fees for each trunk, per-subscriber number fees and
per-minute tariffs. The Delta agreement is for a one year term, renewable for
additional one year periods by mutual agreement. The NW GSM agreement is for a
minimum period of two years, after which

                                       35
<PAGE>   38

either party may terminate upon not less than three months prior written notice.
The agreement with Fora is for two years and may be extended by mutual agreement
for successive five year periods.

  BALTIC COMMUNICATIONS LIMITED

     The Company acquired 100% of the outstanding share capital of BCL on April
1, 1996 for $3.0 million plus an additional capital commitment of up to $1.5
million to cover certain existing liabilities payable to Mercury Communications
(for carrier charges) and to Eutelsat (for satellite circuit charges). Long-term
debt of BCL owed to Cable & Wireless was transferred to (i.e., became payable
to) NWE Cyprus as part of the transaction. In addition, BCL has contracted with
Cable & Wireless Communications of the United Kingdom, Telia of Sweden, and
Comstar and Sovintel of Moscow, for the provision of transit traffic services
through the BCL gateway switch in St. Petersburg.

  TECHNOCOM LIMITED

     Acquisition of Additional Interests in Technocom Limited.  In November
1997, the Company increased its voting interest in Technocom to 80.4% through
the acquisition of additional interests from Plicom and Elite. See "-- Ownership
and Management of Operating Subsidiaries -- Technocom Limited."

     Acquisition of Additional Interests in Teleport-TP.  As a result of two
acquisitions in 1996, Technocom increased its economic interest in Teleport-TP
to 49.33%, its voting interest to 56%, and its control of the nomination of
directors on the five seat board of directors to three.

     First, in May 1996, Roscomm, an entity in which Technocom beneficially owns
a 66.67% interest, increased its ownership interest in Teleport-TP from 5% to
10%. Roscomm purchased the additional 5% interest from VVC for a cash payment of
$2.0 million.

     Second, in December 1996, Technocom acquired a 55.51% interest in
Technopark, which, in turn, holds a 7.5% interest in Teleport-TP and controls
the nomination of one director on the Teleport-TP board. The Technopark interest
was acquired in separate transactions from Elite (38% interest in Technopark)
and Plicom (17.5% interest in Technopark) for an aggregate cash payment of $3.0
million, pursuant to separate Sale-Purchase Agreements between Technocom and
each of Elite and Plicom. Immediately prior to transferring their interests to
Technocom, Elite and Plicom had purchased their interests from five shareholders
of Technopark.

     Equipment Leases.  Equipment purchased by Technocom for the various
projects undertaken by Teleport-TP is leased to Teleport-TP pursuant to lease
agreements between Technocom and Teleport-TP. Equipment purchased by Technocom
for the various projects undertaken by MTR-Sviaz is leased to MTR-Sviaz pursuant
to lease agreements between Technocom and MTR-Sviaz.

     Teleport-TP -- International Network Facilities -- Intelsat.  The original
two Intelsat antennas and the AT&T type 5ESS switch for Teleport-TP's operations
were supplied on a turnkey basis by AT&T for a total cost of approximately $12.8
million (inclusive of all financing charges) payable under a supplier financing
arrangement with AT&T over 48 months. Rostelecom, Technocom and Technopark
guaranteed Teleport-TP's obligations to AT&T, and Teleport-TP provided a
security interest in its assets, including receivables, as security for its
obligations under the financing. In July 1995, Technocom agreed to pay off the
outstanding balance on the AT&T debt of $8.0 million in Teleport-TP in return
for ownership of the assets. Technocom then leased the equipment back to
Teleport-TP over a ten year lease period. In addition, Technocom has purchased
additional network telecommunications equipment valued at $0.5 million which was
also leased to Teleport-TP.

     Teleport-TP -- International Network Facilities -- Eutelsat.  The Eutelsat
antenna was supplied on a turnkey basis pursuant to an equipment purchase and
installation agreement, dated August 25, 1995, between Technocom and Hughes for
a total cost of approximately $2.8 million, including equipment and services.
Fifty percent of the purchase price was financed by the supplier pursuant to a
three-year supplier credit agreement between Technocom and Hughes, supported by
a guarantee drawn on the Bank of Austria as security for Technocom's obligations
to Hughes. The remaining fifty percent of the purchase price was financed by a
five-
                                       36
<PAGE>   39

year loan agreement, dated September 12, 1995, between Eutelsat and Teleport-TP,
which provides for no principal payments during the first 18 months. Pursuant to
the loan agreement, Eutelsat made disbursements under the loan directly to
Hughes. Teleport-TP's obligations to Eutelsat have been guaranteed by the RFCTI.
The funds were provided by Eutelsat on the condition that Teleport-TP will use
the TDMA earth station exclusively for the Eutelsat space segment for a minimum
continuous period of ten years from the start of the earth station's operation.
The equipment is being leased to Teleport-TP by Technocom under a lease
agreement, dated September 1, 1995, pursuant to which Teleport-TP, for a period
of eight years, will make monthly payments of $103,000 to Technocom (which sum
will cover the loan payments due to Eutelsat). Teleport-TP has the right to
purchase the equipment from Technocom at the end of the lease period.

     Teleport-TP -- Long Distance Network Facilities.  The initial equipment for
the satellite-based network, consisting of a master 18-meter antenna in Moscow,
and seven 7-meter and twenty three 4.5-meter remote antennas, was supplied by
Scientific-Atlanta for a total cost of $12.0 million, pursuant to a purchase and
installation agreement between Technocom and Scientific-Atlanta, dated November
16, 1995.

     In November 1996, Technocom and Scientific-Atlanta extended this agreement
to provide for 11 new 7-meter and three new 4.5-meter remote antennas, IDR
equipment for seven of the existing 7-meter remote antennas, one IDR upgrade for
an 11-meter antenna in Kazan and an expansion of the 18-meter master antenna in
Moscow. The total cost of this new agreement is $14.0 million.

     Two further amendments were made to the basic Scientific-Atlanta agreement
during 1997, to cover additional equipment and upgrades to existing facilities,
with a total cost of approximately $1.85 million.

     All of the telecommunications equipment purchased under the
Scientific-Atlanta agreement is being leased to Teleport-TP by Technocom
pursuant to telecommunications asset leases.

     In August 1997, the Company entered into an agreement with Siemens for the
purchase of converters and other telecommunications equipment related to the
long distance network for an aggregate purchase price of approximately three
million Deutsche Marks. The equipment is being leased by Technocom to
Teleport-TP.

     MTR-Sviaz.  Technocom's contribution to MTR-Sviaz included provision of,
among other things, a switch to service 8,000 Moscow city lines and 2,000 lines
on the internal Mosenergo network. Technocom also purchased 4,000 Moscow city
lines, for which it will be paid by MTR-Sviaz as part of the equipment lease
described below. Mosenergo's contribution to MTR-Sviaz includes the provision of
Moscow city lines at a discounted price, the premises for the switch and the
construction of the fiber optic connections between the Mosenergo network and
the Moscow city network. Mosenergo is also responsible for network design,
securing the numbering plan for the 4,000 city lines and supplying the technical
data for connecting the Mosenergo network to the city network. To meet its
contribution commitment, Technocom arranged for the purchase of a HICOM 300
switch for MTR-Sviaz pursuant to a purchase agreement, dated June 2, 1995,
between Technocom and Siemens, for a total cost of approximately DM 4.9 million
(approximately $2.9 million). Seventy percent of the purchase price is being
financed by the supplier, pursuant to a five-year supplier loan agreement
between Technocom and Siemens, supported by a guarantee drawn on the Bank of
Austria as security for at least fifty percent of Technocom's obligations to the
supplier. The HICOM 300 switch is being leased by Technocom to MTR-Sviaz under
an eight-year lease agreement, dated June 1, 1995, pursuant to which MTR-Sviaz
will make monthly payments to Technocom of $253,000. MTR-Sviaz will have the
right to purchase the equipment from Technocom at the end of the lease period.

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<PAGE>   40

  BECET INTERNATIONAL

     BECET has agreed pursuant to an agreement entered into in May 1994 (the
"Motorola Purchase Agreement") to purchase from Motorola the infrastructure
equipment required for the cellular systems to be installed in Almaty and
eighteen other regional centers throughout Kazakhstan. The Motorola Purchase
Agreement requires that BECET purchase the equipment required for Almaty in all
events for the sum of $7.8 million. Management believes that BECET has now met
this requirement. The agreement permits BECET to not proceed with the purchase
of equipment for any of the other sites by so notifying Motorola, subject to
incurring a penalty if this is done less than a specified number of days before
the applicable equipment is scheduled for shipment. Management also believes
that it has complied with these requirements in reducing the total number of
installations in Kazakhstan to 12, including Almaty. Finally, the agreement
prohibits BECET from purchasing cellular system equipment from other suppliers
during the five year term unless the delivery by Motorola of any equipment
ordered by BECET is unreasonably delayed.

     Pursuant to a separate agreement, Motorola has agreed to furnish services
with respect to the equipment, which will include system design, installation,
optimization, system engineering, program management, software maintenance and
on-site switch maintenance.

     The term of both agreements is five years. Thereafter, each agreement will
automatically renew for consecutive five-year terms unless either BECET or
Motorola notifies the other of its intent to terminate such agreement at least
30 days prior to the expiration of the then current five-year term.

EMPLOYEES

  PLD TELEKOM INC.

     As of December 31, 1997, the Company had ten employees, nine of whom were
full-time.

  PLD MANAGEMENT SERVICES LIMITED

     As of December 31, 1997, PLDMS had five employees, four of whom were
full-time.

  PETERSTAR COMPANY LIMITED

     As of December 31, 1997, PeterStar had 392 employees, of whom 306 were
full-time. Of these employees, 390 were Russian nationals and two were
expatriate managers. None of its employees is subject to a collective bargaining
agreement. PeterStar believes that its relations with its employees are good.

  TECHNOCOM LIMITED

     As of December 31, 1997, Technocom and Teleport-TP had 9 and 103 employees,
respectively, all of whom were fulltime. All but two of these employees were
Russian nationals. None of Technocom's or Teleport-TP's employees is subject to
a collective bargaining agreement. Technocom believes that its relations with
its employees are good.

  BECET INTERNATIONAL

     As of December 31, 1997, BECET had 428 employees, two of whom were
part-time. Of these employees, 426 were Kazakh nationals and two were expatriate
managers. The number of employees involved in branch operations was 181. None of
its employees is subject to a collective bargaining agreement. BECET believes
that its relations with its employees are good.

  BALTIC COMMUNICATIONS LIMITED

     As of December 31, 1997, BCL had 84 employees, all of whom were full-time.
Of these employees, 83 were Russian nationals and one was an expatriate manager.
None of its employees is subject to a collective bargaining agreement, although
there is a union representative at BCL. BCL believes that its relations with its
employees are good.

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<PAGE>   41

OWNERSHIP AND MANAGEMENT OF OPERATING SUBSIDIARIES

  PETERSTAR COMPANY LIMITED

     Ownership Structure

     The Company holds its 60% interest in PeterStar through NWE Cyprus. It
acquired its interest at various times over the period 1992 - 96.

     Prior to 1997, the other shareholders of PeterStar were Telecominvest (20%)
and Complus Enterprises Holding S.A. ("Complus") (20%). Telecominvest was a
joint venture between PTS and SPMMTS formed to act as a holding company for
their respective interests in a number of telecommunications ventures in
Northwest Russia. Telecominvest acquired its interest in PeterStar from PTS as
part of PTS' contribution to this joint venture. Complus was a 55% owned
indirect subsidiary of Cable & Wireless.

     In 1996, a Commerzbank affiliate acquired a 51% interest in Telecominvest.
In May 1997, the holdings in PeterStar were restructured in connection with the
recapitalization of PeterStar, so that Telecominvest came to acquire an
additional 9% interest in PeterStar from Complus, while at the same time the
Commerzbank affiliate gave up its interest in Complus, which thereafter became
wholly owned by Cable & Wireless. Cable & Wireless then transferred its 11%
interest in PeterStar from Complus to PLD Holdings. Accordingly, as of December
31, 1997 PeterStar was owned 60% by NWE Cyprus, 11% by PLD Holdings, and 29% by
Telecominvest, which is owned 51% by the Commerzbank affiliate, 25% by PTS and
24% by SPMMTS.

     Relationship with Other Equity Holders

     Under the PeterStar foundation documents, a general meeting of shareholders
may take action through a simple majority of those present. Accordingly, since
the Company has a 60% interest in PeterStar, it should be assured of being able
to take whatever action it requires once a meeting is constituted. However,
representatives of 75% of the ordinary shares must first be present to
constitute a quorum. Thus, it is possible for Telecominvest (and Commerzbank,
through its control position in Telecominvest) to prevent action from being
taken by ensuring that there is no quorum at a shareholders meeting. Also,
pursuant to the PeterStar foundation documents, the shareholders have rights of
first refusal to purchase any shares which any shareholder wishes to transfer,
and to purchase any shares held by any shareholder who is bankrupt or goes into
liquidation.

     PeterStar is dependent on PTS for the completion of most of its calls, and
the PeterStar network is linked to the PTS network, giving PeterStar access to
PTS's large local subscriber base. In addition, PeterStar is dependent on PTS's
buildings, ducts and tunnels in order to house its exchanges and to reach its
customers. To date, PTS has permitted PeterStar to house its exchanges in PTS
buildings and use its other facilities without paying rent or call charges.
Although PTS is required to do this under the terms of PeterStar's foundation
documents, the presently unforeseen refusal by PTS to honor this commitment for
free access or to condition access on unfavorable terms, or to restrict or
condition completion of calls from the PeterStar network, could have a material
adverse effect upon PeterStar, and hence upon the Company. PTS has been pressing
PeterStar to commence making payments for the use of its local lines and
negotiations have been conducted between the parties for the introduction of
local line rental charges. At present it is not possible to predict the outcome
of these negotiations, nor their impact upon PeterStar's results of operations.
Given the extent of the reliance of PeterStar upon PTS, PTS is clearly in a
position to exercise a high degree of influence over PeterStar's affairs as a
practical matter, even as an indirect minority shareholder.

     Notwithstanding its ability to influence PeterStar's affairs, the Company
believes that PTS will continue to support the development of PeterStar's
business as presently planned, and that PTS's business objectives are basically
consistent with PeterStar's own plans.

     Management

     At the beginning of 1997, the board of directors of PeterStar consisted of
seven directors, three of whom were appointed by the Company, two by
Telecominvest and one by Complus. The seventh director was the General Director,
who is required to be nominated by the Company but approved by the general
meeting of
                                       39
<PAGE>   42

shareholders. During 1997, the size of the board was increased to eight, with
three each being appointed by the Company and Telecominvest, and one being
appointed by PLD Holdings, which is wholly owned by Cable & Wireless. The eighth
director remained the General Director, who is still required to be nominated by
the Company subject to final approval by the shareholders.

     Inasmuch as six of the eight directors must be present to constitute a
quorum, the possibility exists that the Telecominvest directors (or any three
other directors) may be able from time to time to prevent the creation of a
quorum. Once a quorum is present, however, the Company is currently reasonably
assured of a majority of the votes on the board, on the basis that both the
director appointed by PLD Holdings, which is wholly-owned by Cable & Wireless,
the Company's principal shareholder and therefore presumed to be likely to
support the Company in respect of matters coming before the PeterStar board, and
the General Director, who is a Company appointee, will vote with the three
Company-appointed directors. Even if only the PLD Holdings director votes with
the three Company appointees, the Company can still achieve a majority of votes
because the PeterStar foundation documents specify that the person designated as
Chairman of the Board (whom the Company is entitled to appoint) also has a
casting vote in the event of a tie vote among the board of directors. This
situation is not expected to change even if Cable & Wireless was to dispose of
its interest in the Company, as it has announced it is in active discussions to
do, because the interests of the Company and Cable & Wireless on matters coming
before the PeterStar board have tended (and are anticipated to continue) to be
identical. However, if (whether as part of its disposition of its interest in
the Company or otherwise) Cable & Wireless was to dispose of its interest in PLD
Holdings to an entity whose objectives or interests are not necessarily aligned
with those of the Company, then the Company's ability to control the PeterStar
board would be placed in question, and the Company would likely have to rely to
a significantly greater degree upon its right to veto specific initiatives at
the PeterStar board level. This right is set forth in a provision in the
foundation documents which specifies that certain significant actions of the
board of directors of PeterStar, including changing its bankers or auditors,
entering into related party transactions, making acquisitions or dispositions
not contemplated by PeterStar's business plan and giving guarantees and pledging
assets, require the affirmative vote of at least one of the three directors
appointed by the Company.

     The day-to-day management of PeterStar is the responsibility of the General
Director and a management board which is composed of the PeterStar divisional
directors. The PeterStar operational divisions are: Sales and Marketing,
Finance, Technical and Operations and Administration.

     The officers of PeterStar are as follows:

<TABLE>
<S>                                      <C>
Vladimir A. Akulich..................    General Director
Stephen Gardner......................    Sales and Marketing Director (through April 1998)
Rick Macy............................    Commercial Director (commencing April 1998)
James Maude..........................    Finance Director
Alexander Belyakov...................    Technical and Operations Director
</TABLE>

     Vladimir Akulich became Acting General Director of PeterStar in March 1995
and was confirmed as General Director in May 1995. Previously, he had been its
Technical and Operations Director. After completing his education at the St.
Petersburg Institute of Communications in 1978, Mr. Akulich worked in the Radio
Communications Equipment Factory until 1982. In 1983, he began his professional
career in the telecommunications industry, holding positions of increasing
responsibility at PTS. His last position at PTS was as Chief Engineer of one of
five telephone nodes in the PTS network. Mr. Akulich is 39 years of age.

     Stephen Gardner became Sales, Marketing and Customer Service Director on
January 1, 1996. Effective April 1998, he will become Vice
President -- Commercial, Russia for PLD. Previously, he was Commercial Director
of BCL, on secondment from Cable & Wireless, in St. Petersburg from February
1994 to December 1995. Prior to that time, he had been an employee of Cable &
Wireless in San Francisco since 1989 as a District Manager and in Los Angeles as
a Senior Sales Executive. Mr. Gardner is a graduate of the University of
Southern California, with a degree in business. Mr. Gardner is 31 years of age.

     Rick Macy is expected to join PeterStar as Commercial Director in April
1998, replacing Stephen Gardner who will then become Vice
President -- Commercial, Russia for PLD. Prior to joining PeterStar,

                                       40
<PAGE>   43

Mr. Macy was the Commercial Director, Moscow for Millicom International
Cellular, where he was responsible for the sales and marketing of all of
Millicom's Russian cellular joint ventures. Previously, he was Area Sales
Manager for Harris Corporation, responsible for their European markets. He also
spent four years as an electronics technician in the U.S. Navy. Mr. Macy is 33
years old.

     James Maude joined PeterStar as Finance Director in September 1996. Prior
to this he worked as an auditor for Deloitte and Touche, opening their office in
St. Petersburg in 1993. During this time he was responsible for world clients of
Deloitte and Touche such as RJR Nabisco. Before moving to Russia, Mr. Maude
worked for Deloitte and Touche in Malawi, Africa, and Binder Hamlyn in London.
Mr. Maude is 36 years old.

     Alexander Belyakov became Technical and Operations Director in May 1996.
His previous positions were Acting Technical and Operations Director (beginning
in March 1995) and Chief Engineer of the Technical Department. Mr. Belyakov
graduated from the St. Petersburg Institute of Communications in 1978. From 1978
until 1982, he worked in "Mezhgorsvjazstroy", where his responsibilities were
the installation of optical fiber links and switching equipment. From 1982
through 1992, he worked in PTS as a leading engineer in digital
telecommunication systems. In January 1993, Mr. Belyakov joined PeterStar and
became Transmission Systems Manager. Mr. Belyakov is 40 years old.

     Service Agreement

     PeterStar entered into a service agreement, dated January 1, 1998, with NWE
Cyprus, pursuant to which, for a one-year term, NWE Cyprus will provide
management services to PeterStar, including advice and assistance with respect
to the design, implementation, operations, marketing and expansion of
PeterStar's network for a one-year term. NWE Cyprus invoices PeterStar quarterly
for these services in U.S. Dollars. PeterStar has had similar agreements with
NWE Cyprus for all years dating back to 1992.

     PLD Telekom Inc. Representative Office

     Following approval by the Company's Board of Directors in April 1997, the
Company has established a representative office of the Company in St.
Petersburg. The office is co-located at the premises of BCL. The Company employs
as its Representative Director Peter Owen Edmunds, formerly with PeterStar, and
two administrative staff members. Mr. Owen Edmunds, who was previously the
Deputy General Director and Sales and Marketing Director of PeterStar, formed
part of the initial team from the Company that helped formulate the development
of PeterStar commencing in April 1992. Prior to joining the Company, Mr. Owen
Edmunds served for 14 years as an officer in the British Army. He served in the
United Kingdom and Germany, ending his military career in Berlin on the Five
Nation Liaison team. Mr. Owen Edmunds underwent Russian language training in the
service and is a qualified Russian interpreter. Mr. Owen Edmunds is 39 years of
age.

TECHNOCOM LIMITED

     Ownership Structure

     The Company holds a 80.4% voting interest in Technocom, with the balance
being held by Plicom (14.57%) and Elite (5.03%). In November 1997, the Company
acquired: (i) 30 Technocom ordinary shares (or approximately 15.1% of the total
such shares issued) held by Plicom, an Irish company beneficially owned by the
family interests of Mr. Mark Klabin, for $18.5 million in cash; and (ii) 29
Technocom ordinary shares (or approximately 14.8% of the total such shares
issued) held by Elite, an Irish company beneficially owned by a trust advised by
Dr. Boris Antoniuk, for $6.25 million in cash and 1,316,240 shares of Common
Stock. See "-- Acquisition of Additional Interests in Technocom."

     Technocom's principal asset is its equity interest in Teleport-TP. The
shareholders of Teleport-TP are Technocom (38.5%), Rostelecom (44%), Roscomm
(10%) and Technopark (7.5%). During 1996, Technocom's direct and indirect
interests in Teleport-TP were increased to 49.33% through: (i) the acquisition
of a 55.51% interest in Technopark, a 7.5% shareholder in Teleport-TP; and (ii)
the acquisition by

                                       41
<PAGE>   44

Roscomm (in which Technocom holds a 66.67% interest) of a 5% interest previously
held in trust for the VVC. The completion of these transactions by Technocom has
given Technocom the ability to control 56% of the voting shares in Teleport-TP
and nominate three of the five seats on the Teleport-TP board, thereby
permitting the consolidation of Teleport-TP's financial results into the
Company's consolidated financial statements under U.S. GAAP effective December
31, 1996. See "-- Risk Factors -- Risks Involving the Company -- Absence of
Complete Control; Dependence on Local Partners."

     Technocom also owns a 49% beneficial interest in MTR-Sviaz. The remaining
51% is owned by Mosenergo, the Moscow city power utility. MTR-Sviaz is a joint
venture formed to modernize and commercialize a portion of Mosenergo's internal
telecommunications network. See "-- Technocom Limited -- MTR-Sviaz."

     Technocom also holds a 50% interest in Rosh Telecom, a venture with ECI, an
Israeli equipment supplier. Rosh Telecom is the exclusive agent for ECI in the
Russian Federation.

     Technocom also has an effective 100% of SCS. SCS acts as Teleport-TP's
marketing arm for satellite circuit capacity made available by Teleport-TP to
international television agencies with occasional broadcasting requirements.

     Relationship with Other Equity Holders

     In connection with the November 1997 acquisitions of portions of the
Technocom interests held by Plicom and Elite, the Company entered into a revised
put and call option agreement with Plicom, whereby 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. In addition, the Company entered into a revised put and call option
agreement with Elite, whereby: (i) Elite has 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 $1.0 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) Elite has the further right, commencing
June 30, 1999 and continuing until June 30, 2019, to require the Company to
acquire its 8 remaining shares in Technocom, and the Company has the right to
require Elite to sell such shares, for a purchase price based on the Company's
valuation of Technocom, provided that such purchase price shall not be less than
$6,689,655 nor more than $9,620,689. See "-- Risk Factors -- Risks Involving the
Company -- Limitations on Ability to Transfer Interests."

     The success of Teleport-TP's business is very dependent upon the continuing
support of Rostelecom. Rostelecom holds a 44% interest in Teleport-TP, and Mr.
Oleg Belov, the general director of Rostelecom, is Rostelecom's representative
on the Teleport-TP board of directors.

     Currently, Rostelecom is Teleport-TP's largest customer for its
international network services, accounting for approximately 27% of total
Teleport-TP revenues in 1997, as compared to 41% in 1996. Teleport-TP leases
Intelsat circuits to Rostelecom pursuant to a five-year contract which commenced
in December 1992 and Eutelsat circuits pursuant to a ten year contract which
commenced in September 1995. The Intelsat contract was renewed in December 1997
for an additional three year term, and is automatically renewable upon the
expiration of its initial term, unless terminated by either party.

     Additionally, to date Rostelecom has supported all of Teleport-TP's plans
(and related license applications) for the expansion of its "Satelink" network
in Russia, even though Rostelecom is the principal provider of national and
international long distance service in Russia (see "-- Telecommunications in the
Former Soviet Union -- Telecommunications in the Russian Federation"), and thus
in direct competition with Teleport-TP (see "-- Competition -- Teleport-TP").
Rostelecom's motivation appears to be its equity interest in Teleport-TP as well
as the fact that Teleport-TP's network provides improved telecommunications
links with areas of the Russian Federation which Rostelecom is unable to serve
fully, or at all, and thus

                                       42
<PAGE>   45

increases traffic utilizing Rostelecom's own network. See "-- Technocom
Limited -- Teleport-TP -- Dedicated International Network Services -- Customers
and Marketing."

     In 1997, it was reported that, notwithstanding its previously announced
plans to have Sviazinvest compete with Rostelecom, the Russian government had
consolidated its telecommunications holdings in Sviazinvest and Rostelecom by
transferring its shareholding in Rostelecom (38% of the common stock, and 51% of
the voting stock) to Sviazinvest. The balance of the shares in Rostelecom remain
in the hands of private investors. In April 1997, the government announced that
it was seeking to sell 49% of Sviazinvest in two auctions, one as to a 25% stake
open to Russian and foreign investors and the other as to a 24% stake open only
to Russian investors. In July 1997, the government announced that the 25% stake
had been sold to a consortium which included Oneximbank and Renaissance Capital,
for a purchase price of $1.875 billion. Following this auction, the Russian
government announced its intention to increase the size of the other stake being
sold to 25% minus one share. The schedule for the auction of the second stake
has not been announced, but it is expected to be completed by the end of the
third quarter of 1998. While it is not yet clear how the proceeds of this sale
will be employed, it is understood that the government wishes to have a
substantial part, if not all, of the proceeds allocated to its current budget
deficit. At the same time, Sviazinvest has announced plans to raise $400 million
through a Eurobond offering later in 1998. In light of all of the foregoing, it
is unclear what impact the consolidation of the government's telecommunications
holdings and the auctions of significant stakes in Sviazinvest will have on the
Russian telecommunications market in general and the Company in particular. See
"-- Telecommunications in the Former Soviet Union -- Telecommunications in the
Russian Federation."

     In view of the importance of the relationship of Rostelecom to Teleport-TP
and the central position which Rostelecom plays in the Russian
telecommunications industry, Rostelecom is clearly in a position to exercise
considerable influence over Teleport-TP's affairs, notwithstanding the fact that
it holds a minority position in the company and its representative on the board
of directors is also in a minority. While there is no guarantee that Rostelecom
will continue to support the expansion of Teleport-TP, the Company knows of no
reason to believe, based on the nature of its support to date and the benefits
it receives from the relationship, that Rostelecom will not continue to support
Teleport-TP in the future. See "-- Risk Factors -- Risks Involving Technocom
Limited and Teleport-TP -- Dependence on Rostelecom as Customer; Necessity to
Further Develop Customer Base."

     Management

     Technocom is managed by a board of directors consisting of five members,
three of whom are designated by the Company, with Plicom and Elite, Technocom's
other shareholders, each nominating one member. The day-to-day management of
Technocom is the responsibility of Boris Antoniuk, who is the principal
executive officer of Technocom. The Company has identified a number of other
executives to work with Dr. Antoniuk, as a result of which efforts Mr. David
Castillo was appointed as Chief Operating Officer of Technocom in January 1998,
and Mr. Michael Maltby was appointed Finance Director of Technocom in February
1998. The Company has also provided, and will continue to provide, logistical,
engineering and project management support to the development of Teleport-TP's
satellite-based long distance network, the costs associated with which are borne
by Technocom.

     In connection with the Company's acquisition of the additional interests in
Technocom, the Company entered into a amendment to its existing consulting
agreement with Plicom, amending and increasing the duties to be performed
thereunder, increasing the annual fee payable thereunder from $100,000 to
$200,000, providing for the payment of expenses reasonably incurred, and
specifying that the agreement will terminate once the Company has acquired the
remainder of Plicom's interest in Technocom. The Company also entered into an
amendment to its existing consulting agreement with Elite, increasing the annual
fee from $108,333 to $158,333. Separately, both Mr. Klabin and Dr. Antoniuk have
agreed not to compete with the Company in the field of telecommunications in the
former Soviet Union both while they are directors of Technocom and for two years
after they cease to be directors of Technocom. See "-- Risk Factors -- Risks
Involving the Company -- Dependence on Key Management."

                                       43
<PAGE>   46

     Boris Antoniuk has served as general manager of Technocom and Chairman and
Chief Executive Officer of Teleport-TP since 1992. Dr. Antoniuk has also served
as a Director of the Company since June 1997 and as Group Director -- CIS and
Russia of the Company since November 1997. He has many years' experience in the
telecommunications field, having worked for various government agencies and
trade delegations in the Soviet Union and Russia since 1974, including six years
as head of the U.S. department of the USSR State Committee for Science and
Technology in Moscow and three years as economic adviser to a deputy Prime
Minister of the USSR Council of Ministers. Since the economic liberalization of
Russia, he has been involved in a number of commercial ventures, including the
publishing of several Russian computer magazines. He also holds the post of
Deputy Chairman of Technopark, a subsidiary of Technocom.

     David Castillo became Chief Operating Officer of Technocom and Teleport-TP
in January 1998. Prior to joining the Company, he was Country Manager of Russia
and the CIS for Dow Jones. From 1994 to 1996, Mr. Castillo was Project and
Development Director for Reuters Russia and CIS, and prior to that he was
Operations Director for Reuters in England. Mr. Castillo is 53 years old.

     Michael Maltby became Finance Director of Technocom in February 1998. Prior
to joining the Company, he was the Financial Director of Belcel, a cellular
operator based in Minsk, Belarus. From 1995 to 1996, Mr. Maltby was a Financial
Systems Accountant for Comstar in Moscow. Previously, he was a chartered
accountant with Ernst & Young where he worked in the London, St. Petersburg and
Moscow offices. Mr. Maltby is 33 years old.

BECET INTERNATIONAL

     Ownership Structure

     The Company's 50% interest in BECET is held by WTC, a British Virgin
Islands corporation and a wholly owned indirect subsidiary of the Company. The
shares of WTC are held by the Company through NWE Cyprus. The other 50% interest
in BECET is currently held by Kazakhtelekom, a joint stock company which is
owned by the government of Kazakhstan and which operates the public telephone
network in that country (the authority to operate such network having been
recently confirmed by the grant to Kazakhtelekom of specific authority to act as
the exclusive operator of the public network in Kazakhstan and as representative
of the Kazakh government in international telecommunications matters). In May
1997, the Kazakh government announced that it had sold 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% of Kazakhtelekom)
to an unnamed third party. The report did not indicate whether Daewoo proposed
to sell or retain the remainder of its stake in Kazakhtelekom. See "-- Risk
Factors -- Risks Involving BECET International -- Sale of Stake in
Kazakhtelekom" and "-- Relationship with Other Equity Holders."

     Relationship with Other Equity Holders

     The relationship between WTC and Kazakhtelekom is governed principally by
the terms of a joint venture agreement entered into in December 1993. The
agreement sets forth the respective capital contributions of the parties. In the
case of the Kazakh partner, these consisted of the cellular license and
frequencies, as well as all physical facilities required for the operation of
the cellular network. As required, WTC contributed cash, equipment, property and
services with an aggregate value of $20.0 million by February 1995. WTC has no
obligation to make any additional contributions. Should the board of directors
of BECET determine that BECET requires an additional capital contribution, then
each shareholder will be required to contribute its proportionate share of the
capital contribution or face dilution.

     Each BECET shareholder has the same voting, distribution and liquidation
rights, except that upon a liquidation, WTC is entitled to receive out of any
distributions the first $20.0 million for its capital contribution plus any
subsequent capital contributions not matched by Kazakhtelekom.

     Prior to February 4, 1999, neither party may sell, assign, pledge or
otherwise transfer its equity interest in BECET without the written consent of
the other party. After February 4, 1999, either party may transfer its equity
interest provided that the transferee agrees to be bound by the terms of the
Joint Venture Agreement.

                                       44
<PAGE>   47

     BECET and Kazakhtelekom entered into an interconnection agreement pursuant
to which Kazakhtelekom agreed to provide BECET with access to the public
switched telephone network in Kazakhstan for the fifteen year term of BECET's
current license free of charge (but subject to payment of certain charges to
local operators for carriage and termination of calls from BECET's network).
While there is no reason to suppose that Kazakhtelekom will not honor this
commitment, the loss of, or any significant limitation on its access to the
network could have a material adverse effect on the operations of BECET.

     While WTC may have the power, pursuant to the management structure
described below, to direct the operations or determine the strategies of BECET,
management believes that it is unlikely, in view of the pivotal importance of
Kazakhtelekom to the business of BECET, that any significant initiatives would
be undertaken by WTC without the consent of Kazakhtelekom. To date,
Kazakhtelekom has not used its position to undermine initiatives proposed by
WTC, nor to cause BECET to take any action to WTC's detriment; however, there
can be no assurance that it will not do so in the future.

     The sale of a 40% stake in Kazakhtelekom to Daewoo in May 1997 may result
in changes in the relationship between BECET and WTC, on the one hand, and
Kazakhtelekom, on the other, but the effects are not possible to predict at the
present time. The March 1998 report regarding the sale by Daewoo of a portion of
its stake (reported to be approximately 10%) to an unnamed third party also
increases uncertainty, as to the government's attitude towards Kazakhtelekom and
Daewoo's intentions with respect to the remainder of their stake. Additionally,
it is not known what effect on BECET, or its license or business, the recent
designation of Kazakhtelekom as the exclusive operator of the public network, or
the recent efforts by the KMOC to eliminate the exclusivity element of BECET's
license and to appoint new licensees, will have. All of these developments will
present new uncertainties and challenges for BECET. See "-- Risk Factors --
Risks Involving BECET International -- Sale of Stake in Kazakhtelekom" and
"-- Telecommunications License," "-- Telecommunications in the Former Soviet
Union -- Telecommunications in Kazakhstan" and "-- Telecommunications
Licenses -- BECET International."

     In connection with the grant of its telecommunications license in 1994, WTC
agreed to lend the KMOC up to $3 million on commercial terms for use for various
KMOC projects. During 1995, the Company advanced $3 million to Monogram Finance
Group Limited ("MFGL") in exchange for a convertible promissory note due on
February 20, 2000. The note is convertible at any time prior to February 29,
2000 into common stock of MFGL representing 50% of its total issued and
outstanding common stock. Its sole asset is an agreement to acquire a 50%
interest in Monogram Telecommunications Limited, a Bermuda company ("MTL"). MTL
has an agreement to acquire 100% of an Irish company known as Kazakhstan
Telecommunications Development Corporation Limited ("KTDC"). KTDC has agreed in
principle with the government of Kazakhstan to assist the government in
connection with the privatization of Kazakhtelekom. While the Company believes
that this arrangement satisfies the commitment given by WTC to the KMOC, there
can be no assurance that the KMOC will not still call upon WTC to advance, and
that WTC will not be obligated to pay, the $3 million.

     Management

     BECET is managed by a board of directors consisting of six members, three
designated by Kazakhtelekom and three by WTC. WTC designates the Chairman of the
Board who has a casting vote in the event of a tie vote. At least four members
of the board are required to approve any of the following actions: amendment of
BECET's charter, dissolution, voluntary bankruptcy, approval of the annual
budget, acquisition of assets or businesses in excess of $5 million or any
disposition or transfer of the BECET license, other investments in excess of $1
million or incurring indebtedness in excess of $2 million. These arrangements
cannot be changed without WTC's consent. Accordingly, while there may be some
question about the enforceability of these arrangements, WTC believes that it
has the ongoing ability to make all significant strategic, operating, financing
and investing decisions on behalf of BECET through the arrangements described
above, although it is not likely that it would choose to take action without the
approval of Kazakhtelekom.

                                       45
<PAGE>   48

     BECET has two co-chief executive officers ("Co-CEOs") and a treasurer who
is also the chief financial officer ("CFO"), and may appoint other officers as
the board determines. In addition, BECET has a chief Kazakh financial officer
("CKFO") who reports directly to the CFO and who is responsible for accounting
matters under Kazakh law as well as serving as a liaison between BECET and the
Kazakh tax authorities. One of the Co-CEOs and the CKFO are appointed by the
directors who are designees of Kazakhtelekom and the other Co-CEO and the CFO
are appointed by the directors who are designees of WTC. The Co-CEO appointed by
the WTC directors has the ultimate responsibility for the management of BECET,
subject to the authority of the board of directors.

     The officers of BECET are as follows:

<TABLE>
<S>                                     <C>
Rex Power...........................    Co-Chief Executive Officer
Maxut Sauranbekov...................    Co-Chief Executive Officer
Tamara Darcy........................    Acting Chief Financial Officer (through April 1998)
Michael Leaver......................    Chief Financial Officer (commencing April 1998)
Natalia V. Sauranbekova.............    Chief Kazakh Financial Officer
</TABLE>

     Rex Power became Co-Chief Executive Officer of BECET in June 1997. He is a
registered chartered engineer and a registered European engineer. Prior to
joining BECET, he worked for Cable & Wireless for over 30 years, mostly in
overseas assignments, including management positions in Nigeria, Saudi Arabia
and Macau. Additional positions with Cable & Wireless included Regional Business
Manager for the Bermuda, Caribbean and Atlantic Islands Region and General
Manager, Eastern Russia/Director, Special Projects in the Northeast Asia Region,
Hong Kong and Japan. Mr. Power is 50 years old.

     Maxut Sauranbekov became Co-Chief Executive Officer of BECET in June 1997.
He joined BECET in October 1994 as Vice President for Marketing, Sales and
Customer Service and then served as Vice President for Corporate Affairs. Prior
to joining BECET, he worked for eight years in various other commercial and
financial ventures. Mr. Sauranbekov is 35 years old.

     Tamara Darcy has served as Acting Chief Financial Officer of BECET since
January 1998, while BECET sought a new Chief Financial Officer. Ms. Darcy has
many years of accounting and financial consulting experience, including with DHL
Worldwide Express in Moscow and Glaxo Holdings in Moscow. She has also worked as
a financial consultant for BCL. Ms. Darcy, who graduated from the Technical
University in St. Petersburg with an engineering degree, is a Chartered
Management Accountant and is fluent in Russian and English. She will resign from
her position upon Michael Leaver becoming the Chief Financial Officer in April
1998.

     Michael Leaver is expected to join BECET as Chief Financial Officer in
April 1998, replacing Tamara Darcy. From 1995 until joining BECET, he was Deputy
General Director of Uralwestcom, a cellular telephony operator in Yekaterinburg.
Previously, Mr. Leaver was the Financial Director for Kiev Tetra Pak, a
Ukrainian joint venture, for three years during its start-up phase. Mr. Leaver
is 41 years old.

     Natalia V. Sauranbekova has more than seven years experience in finance.
For over three years, she was Financial Director at Kazryastechnika, which
provided research and planning services for the KMOC, and prior to that she was
an economist with a number of Kazakh government agencies. She is married to Mr.
Maxut Sauranbekov, one of the two Co-Chief Executive Officers.

     BECET entered into a Consulting and Information Services Agreement with
WTC, dated January 30, 1995, pursuant to which WTC provided certain consulting,
information, management services and personnel expertise to BECET. In
consideration for these services, BECET paid WTC a fee of $25,000 per month plus
3% of BECET's monthly gross revenues. This agreement was terminated as of
December 31, 1997, and BECET is currently negotiating with the Company and
Kazakhtelekom for new consulting agreements. These contracts are anticipated to
provide for consulting fees, in the case of the Company, of $25,000 per month
plus 3.4% of BECET's gross revenues, and, in the case of Kazakhtelekom, of
300,000 Tenge per month plus 1% of BECET's gross revenues, and to be effective
as of January 1, 1998, with a one year term automatically renewable for
successive one year periods unless terminated by either party.

                                       46
<PAGE>   49

RISK FACTORS

     This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to political, social and economic conditions in the
countries of the former Soviet Union and the Commonwealth of Independent States,
the commencement of certain programs and the proposed offering of certain
services by the Company's operating subsidiaries, proposed changes in the
Company's corporate structure and centers of operations and interpretations and
actions of certain regulatory authorities, including in the United States,
Canada, Russia and Kazakhstan, as well as information contained elsewhere in
this Report where statements are preceded by, followed by or include the words
"believes," "expects," "anticipates" or similar expressions. For such statements
the Company claims the protection of the safe harbor for forward-looking
statements contained in the private Securities Litigation Reform Act of 1995.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including without
limitation, those discussed elsewhere in this Report and in the documents
incorporated herein by reference.

COUNTRY RISKS

     General.  Foreign companies conducting operations through affiliates in the
Russian Federation and Kazakhstan face significant political, economic,
currency, legal and social risks. For example, a report released February 20,
1997 by the United States Embassy in Moscow on the commercial environment in the
Russian Federation listed the following general difficulties affecting trade and
investment in the Russian Federation, most of which are also encountered in
Kazakhstan and some or all of which could affect the ability of the Company or
its operating businesses to conduct or realize income from their businesses:

     -  ownership disputes
     -  high taxes, and a frequently changing tax regime
     -  high operating costs
     -  lack of systematic and accessible credit information
     -  corruption and commercial crime
     -  financial illiquidity of many Russian firms
     -  changing requirements from regulatory bodies
     -  lack of market information
     -  an infant commercial legal framework
     -  cultural and language differences
     -  infrastructure problems
     -  payments, arrears and frozen accounts
     -  frequent changes in governmental personnel

     Political Risks.  Since the breakup of the Soviet Union, the political
situation in the Russian Federation and Kazakhstan has been characterized by
uncertainty and instability.

     In the Russian Federation, the political situation has been characterized
by tensions between the executive and legislative branches of the government and
efforts by the regions and autonomous republics of the Russian Federation to
gain a greater degree of independence (the most dramatic example of which was
the conflict in Chechnya). Lack of consensus between local and regional
authorities and the federal government often results in the enactment of
conflicting legislation at various levels and may result in political
instability. This lack of consensus may have negative economic effects on the
Company, which could be material to its operations. Communist and nationalist
parties wield strong influence in the lower house of Parliament (the Duma) and
have made gains in regional governorships which could result in a slow down or
reversal of the development of a free market economy.

     During the transformation to a market-oriented economy in the Russian
Federation, legislation has been enacted to protect property against
expropriation and nationalization. However, a resurgence in nationalism could
result in pressures for the reduction or even elimination of non-Russian
ownership of Russian businesses, and there can be no assurance that such
recently enacted protections would be enforced in the event of an attempted
expropriation or nationalization. Legislation to restrict foreign ownership in
the telecommunications
                                       47
<PAGE>   50

industry is introduced from time to time and, while not expected to become law,
is symptomatic of these increasingly nationalistic attitudes. Boris Yeltsin,
President of the Russian Federation, recently announced that he will not run for
re-election in 2000. The resulting change in leadership at that time could
result in political instability and substantial changes in government policies.
Any such matters could have a material adverse effect on the Company.

     The political situation in Kazakhstan is characterized by one-man rule by
President Nursultan Nazarbayev who demonstrates considerable political power.
While such concentration of power may at times be perceived as providing a
stabilizing influence, it also increases the risk of nepotism, arbitrary
decision-making and significant policy changes in the event of succession. In
addition, Russia has substantial political and economic influence in Kazakhstan
and may seek to use such influence to further its own goals, which may be
inconsistent with the national interests of Kazakhstan and create political
instability in that country, which could have a material adverse effect on the
Company.

     Economic Risks.  Until recently, the economies of both the Russia
Federation and Kazakhstan were administered by the central authorities of the
former Soviet Union. Following the collapse of those authorities and the command
economy they managed, the governments of both the Russian Federation and
Kazakhstan sought to implement policies designed to introduce free market
economies into their respective countries. While these policies have met with
some success, the economies of both the Russian Federation and Kazakhstan have
been characterized by high unemployment, high rates of business failure, the
deterioration of certain sectors of the economy, high government debt relative
to gross domestic product and declining real wages. In both the Russian
Federation and Kazakhstan real economic improvement has been limited to specific
regions (the Moscow and St. Petersburg regions in Russia, and Almaty in
Kazakhstan). The Russian Federation is still experiencing a lack of political
consensus as to the scope, content and pace of free market reforms. No assurance
can be given that policies to introduce or support a free market economy will
continue to be implemented in either the Russian Federation or Kazakhstan, that
these countries will remain receptive to foreign investment or that the
economies of the Russia Federation or Kazakhstan will stabilize. The failure of
any of these to occur could have a material adverse effect on the Company. In
addition, the Russian Federation currently receives substantial financial
assistance from several foreign governments and international organizations. To
the extent any of this financial assistance is reduced or eliminated, economic
development in the Russian Federation may be adversely affected, and any
resulting difficulties in the Russian economy could have a material adverse
effect on the Company.

     Russian businesses have limited operating history in free market conditions
and have had limited experience compared with Western companies with the
entering into and performance of contractual obligations. Accordingly, as
compared to Western companies, such businesses are often characterized by
management that lacks experience in responding to changing market conditions and
limited capital resources with which to develop their operations. In addition,
the Russian Federation has limited infrastructure to support a market system and
banks and other financial systems are not well developed or well regulated.
Businesses therefore may experience difficulty in obtaining working capital
facilities. Moreover, the Russian banking system has faced and may encounter in
the future liquidity crises as well as other problems arising as a result of
under-capitalization of the banking sector as a whole. A general Russian banking
crisis could have a material adverse effect on the Company's operations and
financial performance and on the ability of its customers to pay amounts due.

     Currency Risks.  The Russian Rouble and the Kazakh Tenge are not
convertible outside of the Russian Federation and Kazakhstan, respectively.
Within those countries, a market exists for the conversion of Roubles and Tenge
into other currencies, but it is limited in size and is subject to rules
limiting the purposes for which conversion may be effected. The history of
trading in the Russian Rouble and Kazakh Tenge against the U.S. Dollar has been
characterized by significant declines in value and considerable volatility.
Although the Russian Rouble and the Kazakh Tenge experienced relative stability
against the U.S. Dollar during 1996 and 1997, there is a risk of further
declines in value and continued volatility in the future. Historically, the
Company has largely been able to limit its exposure to declines in the value of
the Rouble and the Tenge because its operating businesses invoice their
customers in U.S. Dollars which is permitted under current Russian and Kazakh
regulations. The Company's customers then pay in local currency at the
then-current
                                       48
<PAGE>   51

exchange rate to the U.S. Dollar. The Company's operating businesses have
experienced certain costs in exchanging local currencies for U.S. Dollars, but
to date these have not been material. Nonetheless, no assurance can be given
that the Company's operating businesses will continue to be able to bill
customers in U.S. Dollars or in local currencies in amounts determined by
reference to the value of the U.S. Dollar, or that they will continue to be able
to exchange local currencies for U.S. Dollars without significant difficulties,
delays or costs. In particular, BECET may face greater exchange risks as a
result of new Kazakh regulations regarding invoicing. See "-- BECET
International -- Operations -- Billing and Tariffs." Any of these developments,
in conjunction with further declines, or volatility, in the value of the Rouble
or the Tenge against the U.S. Dollar, could have a material adverse effect on
the Company. See also "-- Risks Involving the Company -- Currency Controls;
Restrictions on Repatriation of Payments; Prior Investments."

     Legal Risks.  Both the Russia Federation and Kazakhstan lack fully
developed legal systems. Russian and Kazakh law is evolving rapidly and in ways
that may not always coincide with market developments, resulting in ambiguities,
inconsistencies and anomalies, and ultimately in investment risk that would not
exist in more developed legal systems. Furthermore, effective redress in Russian
and Kazakh courts in respect of a breach of law or regulation, or in an
ownership dispute, may be difficult to obtain.

     Risks associated with the Russian and Kazakh legal systems include: (i) the
untested nature of the independence of the judiciary and its immunity from
economic, political or nationalistic influences; (ii) the relative inexperience
of judges and courts in commercial dispute resolution, and generally in
interpreting legal norms; (iii) inconsistencies among laws, presidential decrees
and governmental and ministerial orders and resolutions; (iv) often times
conflicting local, regional and national laws, rules and regulations; (v) the
lack of judicial or administrative guidance on interpreting the applicable
rules; and (vi) a high degree of discretion on the part of government
authorities and arbitrary decision-making which increases, among other things,
the risk of property expropriation. The result has been considerable legal
confusion, particularly in areas such as company law, property, commercial and
contract law, securities law, foreign trade and investment law and tax law. No
assurance can be given that the uncertainties associated with the existing and
future laws and regulations of the Russian Federation or Kazakhstan will not
have a material adverse effect on the Company. In addition, there is no
guarantee that a foreign investor would obtain effective redress in any court.
No treaty exists between the United States and the Russian Federation or
Kazakhstan for the reciprocal enforcement of foreign court judgments.

     Furthermore, the relative infancy of business and legal cultures in the
Russia Federation and Kazakhstan are reflected in the inadequate commitment of
local business people, government officials, agencies and the judicial system to
honor legal rights and agreements, and generally to uphold the rule of law.
Accordingly, the Company may, from time to time, confront threats of, or actual,
arbitrary or illegal revision or cancellation of its licenses and agreements,
and face uncertainty or delays in obtaining legal redress, any of which could
have a material adverse effect on the Company.

     The Civil Code of the Russian Federation and the Law of the Russian
Federation on Joint Stock Companies generally provide that shareholders in a
Russian joint stock company are not liable for the obligations of the joint
stock company, and only bear the risk of loss of their investment. However, if a
company (an "effective parent") is capable of determining decisions by another
company (an "effective subsidiary"), and such capability is provided for in the
charter of the effective subsidiary or in a contract between the companies, and
if the effective parent gives obligatory directions to the effective subsidiary,
such effective parent bears joint and several responsibility for transactions
concluded by such effective subsidiary in carrying out such directions. In
addition, an effective parent is secondarily liable for an effective
subsidiary's debts in the event an effective subsidiary becomes insolvent or
bankrupt resulting from the action or inaction of an effective parent which is
capable of determining decisions of the effective subsidiary whether as a result
of the effective parent's ownership interest, pursuant to the terms of a
contract between the companies or in any other way. In such instances, other
shareholders of the effective subsidiary may claim compensation for the
effective subsidiary's losses from the effective parent which caused the
effective subsidiary to take action(s) or fail to take action(s) knowing that
such action(s) or failure to take action(s) would result in losses. Accordingly,
it is possible that the Company may be deemed to be an effective parent of
certain of its

                                       49
<PAGE>   52

subsidiaries and therefore be liable in certain cases for the debts of its
effective subsidiaries. Such liability could have a material adverse effect on
the Company.

     Russian laws regulating ownership, control and corporate governance of
Russian companies may, in some cases, provide limited protection to minority
shareholders. Disclosure and reporting requirements, and anti-fraud and insider
trading legislation have only recently been enacted and most Russian companies
and managers are not accustomed to such restrictions on their activities. The
concept of fiduciary duties on the part of management or directors to their
companies or shareholders is also new and is not well developed.

     Social Risks.  The political and economic changes in both the Russian
Federation and Kazakhstan since the break up of the former Soviet Union have
resulted in significant social dislocations, as existing governing structures
have collapsed and new ones are only beginning to take shape. The resulting
broad decline in the standard of living has often resulted in substantial
political pressure on the government to slow or even reverse the economic
policies currently being pursued. In addition, such decline in the standard of
living has led in the past, and could lead in the future, to labor and social
unrest. Such labor and social unrest may have political, social and economic
consequences, such as increased support for a renewal of centralized authority,
increased nationalism (with restrictions on foreign investment in the Russian or
Kazakh economy) and increased violence, any of which could have a material
adverse effect on the Company.

     In addition, the local and international press have reported significant
organized criminal activity, particularly in large metropolitan centers,
directed at revenue-generating businesses, and an increased integration of
Russian organized crime with major international criminal organizations. A
substantial increase in property crime in large cities has also been reported.
Finally, the local and international press have reported high levels of official
corruption in the locations where the Company's operating businesses operate. No
assurance can be given that organized or other crime or claims that the Company
or any of its operating businesses has been involved in official corruption will
not in the future have a material adverse effect on the Company.

     Official Data Reliability.  The official data published by Russian federal,
regional and local governments and federal agencies, and by the Kazakh
government and its agencies, are substantially less complete or reliable than
those of Western countries, and there can be no assurance that the official
sources from which certain of the information set forth herein has been drawn
are reliable. Official statistics may also be produced on different bases than
those used in Western countries. Any discussion of matters relating to the
Russian Federation or Kazakhstan herein must therefore be subject to uncertainty
due to concerns about the completeness or reliability of available official and
public information.

RISKS INVOLVING THE COMPANY

     History of Losses.  The Company has reported net losses during each of its
years of operations and there can be no assurance that the Company will be able
to generate profits in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

     Capital Requirements.  The Company's capital requirements arise in three
main areas. First, it may need to provide for the capital expenditures and
working capital needs of its operating businesses until such time as such
operating businesses become self-sustaining. To date, only BECET has achieved
that position. The Company has significant cash; however, the bulk of this
(representing the proceeds of the Senior Notes) is being held in escrow and can
only be released from escrow upon compliance with certain conditions. Those
conditions include a specific requirement that the funds be used solely to
acquire assets for use in a telecommunications business. This requirement means,
among other things, that these funds cannot be used for the working capital
needs of the operating businesses, or to pay for civil engineering and related
works required in connection with the installation of telecommunications
networks. In addition, the Company has found compliance with the conditions for
release burdensome, in that it is time consuming and expensive.

     Second, the Company needs funds to acquire and/or develop new businesses.
Again, the funds in escrow can only be used for this to the extent that
equipment is being purchased; start up costs and working capital have to be met
out of other Company funds.

                                       50
<PAGE>   53

     Lastly, the Company has significant debt service requirements. Currently,
it is indebted under the Series A and Series B Notes to the Travelers Parties in
the amount of $15,420,000, which bears interest at an annual rate of 12%,
payable monthly in cash. This interest rate increases to 15% if the Company has
not raised $20,000,000 in additional equity by May 31, 1998. The Series A and
Series B Notes are required to be amortized at the rate of $1,000,000 per month
starting in July 1998. The Series B Notes, whose original principal amount is
$3,100,000, are due in full on September 30, 1998, and the Series A Notes, in
the original principal amount of $12,320,000, are due in full on December 31,
1998. In addition, the Company is obligated under the Senior Notes and the
Convertible Notes issued in June 1996. As of December 31, 1997, the value of the
Senior Notes on the Company's balance sheet was $95.7 million. These Notes
accrete at the rate of 14% per year until December 1, 1998, when interest on the
full accreted value of $123,000,000 is payable semi-annually thereafter in cash.
The first such semi-annual cash payment, amounting to $8,610,000, is due on June
1, 1999. The Senior Notes will accrete at 14.5% per year if the Company has not
raised $20,000,000 in additional equity by May 31, 1998. They come due in full
on June 1, 2004. The Convertible Notes (in the principal amount of $26,500,000)
come due on June 1, 2006, and bear interest, payable semi-annually in cash, at
the rate of 9% per year.

     In addition, pursuant to the terms of the Travelers Warrants, under certain
circumstances additional warrants may be issued and/or the exercise price of the
Travelers Warrants may be reduced. In the event that the Company does not effect
any of the specified targeted reductions in commitment for the Series A Notes,
the holders of the Series A Notes will receive 30,000 additional warrants to
purchase shares of the Company's common stock on each date on which such
reduction was not made. In the event that the Company does not effect the
specified targeted reductions in commitment for the Series B Notes scheduled for
July 31, 1998 and August 31, 1998, the holders of the Series B Notes (which
otherwise come due on September 30, 1998) shall receive 16,000 additional
warrants to purchase shares of such common stock. Any additional warrants are
referred to as the "Additional Warrants." The Company could be required to issue
up to 182,000 additional 10-year warrants to purchase shares of Common Stock
under these arrangements.

     The exercise price for the Travelers Warrants and Additional Warrants is
$8.625 per share, except that, if the Series B Notes are not repaid in full by
September 30, 1998, the exercise price of all warrants issued to the holders of
the Series B Notes becomes $0.01, and, if the Series A Notes are not repaid in
full by December 31, 1998, the exercise price of all warrants issued to the
holders of the Series A Notes also becomes $0.01. All of the warrants expire on
December 31, 2008. In addition, if the Series B Notes are not repaid in full on
September 30, 1998, then, commencing September 30, 1998 and on the last day of
each succeeding month until the Series B Notes have been repaid in full, the
holders of the Series B Notes shall receive 32,000 additional warrants to
purchase shares of the Company's common stock at a price of $0.01 per share. If
the Series A Notes are not repaid in full on December 31, 1998, then, commencing
December 31, 1998 and on the last day of each succeeding month until the Series
A Notes have been repaid in full, the holders of the Series A Notes shall
receive 70,000 additional warrants to purchase shares of such common stock at a
price of $0.01 per share. These default warrants (the "Default Warrants") have
an expiration date ten years after their respective dates of issue.

     The issuance of Additional Warrants and/or the Default Warrants could
result in the issuance of a substantial number of additional shares of Common
Stock upon their exercise. In addition, any adjustment of the exercise price on
the Travelers Warrants, the Additional Warrants and the Default Warrants would
result in the issuance of the shares of Common Stock at a significant discount,
resulting in substantial dilution to the holders of the Company's Common Stock.

     The Company may face significant challenges in meeting its obligations to
pay cash interest on the indebtedness referred to above, and in effecting its
repayment upon its maturity. See "-- Holding Company Structure; Barriers to
Realizing Cash from Subsidiaries."

     Any or all of these matters may require that the Company raise funds in a
public or private equity or debt offering. If the Company is required to conduct
such an offering, its ability to do so on acceptable terms, if at all, will be
affected by several factors, including financial market conditions and the value
and performance of the Company at the time of such offering or refinancing,
which in turn may be affected by many factors,

                                       51
<PAGE>   54

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 its assets, any of
which could have a material adverse effect upon the growth of the Company's
businesses and on the Company.

     Effect of Substantial Leverage.  As of December 31, 1997, the Company had
approximately $133.5 million of consolidated long-term debt and shareholders'
equity of approximately $126.8 million.

     The degree to which the Company is 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
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, limit 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 less leveraged basis and have significantly greater operating and
financial flexibility than the Company.

     Holding Company Structure; Other Barriers to Realizing Cash from
Subsidiaries.  As a holding company that conducts virtually all of its business
through subsidiaries, the Company has essentially no source of cash other than
distributions and other payments from its subsidiaries. In order to pay cash
interest on the Convertible Notes and the Series A and Series B Notes (and, 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
Series A or Series B Notes at maturity, or to redeem or repurchase the Notes or
the Series A or Series B Notes, the Company will be required to obtain the
necessary cash from its subsidiaries. As set forth hereinafter, there may be a
number of legal and other hurdles to be overcome in connection with obtaining
such cash from its subsidiaries.

     The ability of the Company's subsidiaries to make payments to the Company
may be constrained by: (i) their own ability to generate sufficient cash from
their operations; (ii) the level of taxation, particularly corporate profits and
withholding taxes, in the jurisdictions in which they operate, see
"-- Taxation"; (iii) exchange controls and repatriation restrictions in effect
in the jurisdictions in which they operate, see "-- Currency Controls;
Restrictions on Repatriation of Payments; Prior Investments"; and (iv) the
ownership interests of other investors in the Company's subsidiaries.

     Taxation.  Taxes payable by Russian and Kazakh companies are substantial
and include value-added taxes ("VAT"), excise taxes, export taxes and income
taxes. The tax risks of investing in the Russian Federation and Kazakhstan can
be substantial. Obtaining the benefits of any relevant tax treaties can be
extremely difficult due to the documentary and other requirements imposed by the
Russian and Kazakh authorities and, in the case of Kazakhstan, the unfamiliarity
of those administering the tax system with the international tax treaty system.
In addition, a recent instruction issued by the Russian State Tax Service
mandates full withholding regardless of tax treaty status and requires the
recipient to seek to obtain a refund for withholding in excess of treaty
amounts. The need to deal with these issues may negate or impair tax planning
initiatives undertaken by the Company to reduce its and its subsidiaries'
overall tax obligations. Furthermore, the taxation systems in the Russian
Federation and Kazakhstan are at an early stage of development and are subject
to varying interpretations, frequent changes and inconsistent and arbitrary
enforcement at the federal, regional and local levels. In certain instances, new
taxes have been given retroactive effect.

     Technocom established a representative office in Moscow in October 1995 and
registered this office with the relevant Russian tax authorities. As a result of
this, Technocom became subject to profits and other

                                       52
<PAGE>   55

Russian taxes as of such date. Inasmuch as Technocom operated to some extent in
the Russian Federation prior to this date, without clarifying its tax status
with any Russian taxing authority, it is also possible that tax officials may
take the position that Technocom may be subject to Russian taxes with respect to
the period before October 1995. See "-- Country Risks -- Legal Risks."

     Currency Controls; Restrictions on Repatriation of Payments; Prior
Investments.  While applicable legislation in both the Russian Federation and
Kazakhstan currently permits the repatriation of profits and capital and the
making of other payments in hard currency, the ability of the Company to
repatriate such profits and capital and to make such other payments is dependent
upon the continuation of the existing legal regimes for currency control and
foreign investment, administrative policies and practices in the enforcement of
such legal regimes and the availability of foreign exchange in sufficient
quantities in those countries.

     In addition, under current currency regulations in the Russian Federation
and Kazakhstan, while there do not appear to be additional administrative
requirements for the payment of dividends or interest on debt, specific licenses
from both the Central Bank and the National Bank of Kazakhstan are required for
the making of equipment lease payments to a foreign lessor and for repayments of
principal on debt with a term of more than 180 days. Failure to obtain such
currency licenses where required can result in the imposition of fines and
penalties. While the requirements for obtaining such licenses largely involve
the production of documentation, not only are the documentary requirements
themselves burdensome, but there can be no assurance that the entity granting
the licenses may not impose additional, substantive requirements for the grant
of a license or deny a request for a license on an arbitrary basis. See
"-- Country Risks -- Legal Risks." Furthermore, the time typically taken by the
Central Bank and the National Bank of Kazakhstan to issue such licenses can be
lengthy. In the case of the Central Bank, delays of up to one year or more in
the issuance of licenses have not been uncommon. The failure of the Company to
obtain, or any significant delay in the issuance of, such licenses could
substantially delay the time at which the Company may receive payments under
such leases. To address this problem, and based on the Company's belief that
currency licenses are presently not required in the Russian Federation for
payments under installment sales contracts, the Company has proposed providing
equipment to its operating businesses on an installment sales basis rather than
through leasing and, as a result of the Consent Solicitation, the Indentures
have been amended to permit the Company to make installment sales as well as
leases of equipment to its operating businesses. However, there is no assurance
that the Central Bank or other relevant Russian entity will not construe the
applicable currency legislation as requiring licenses for installment sales as
well as leases. Failure to obtain currency licenses, where required, can result
in the imposition of fines and penalties, significant delays in delivering
equipment to the Company's operating businesses and resulting difficulties in
generating cash flows from the Company's operating businesses in the Russian
Federation.

     Finally, the Company's ability to repatriate distributions and other
payments in hard currency will be dependent upon the continued ability of the
Company's operating subsidiaries to bill their customers in U.S. Dollars or the
equivalent amount of local currency, as well as their ability to freely exchange
local currency receipts into U.S. Dollars. See "-- Country Risks -- Currency
Risks." There can be no assurance that, because of changes in Russian and Kazakh
currency regulations, the Company's ability to fully and/or on a timely basis
realize benefits from its operations in the Russian Federation and Kazakhstan
through the receipt of hard currency payments will continue.

     Until 1995, most direct foreign investment in the Russian Federation
appears to have been made without licenses from the Central Bank, due to the
lack of clear guidelines from the Central Bank governing such investments.
However, in 1995 the Central Bank confirmed that licenses were required for such
direct foreign investments and that upon application it would issue licenses
specifically authorizing such direct foreign investments in Russian companies.
In response to private inquiries, the Central Bank also indicated that it would
consider retroactive licensing of previously made direct foreign hard currency
investments upon appropriate application. The Company is actively reviewing with
the managements of its operating subsidiaries its obligations to comply with
these licensing requirements, particularly on a retroactive basis. If the
Central Bank were to determine that the Company did not hold the required
licenses, this could give rise to substantial fines and penalties.

                                       53
<PAGE>   56

     Anti-Monopoly Committee Approval.  Under Russian anti-monopoly legislation,
transactions which potentially influence competition in the Russian Federation
are subject to the prior consent of the Russian Anti-Monopoly Committee. The
Anti-Monopoly Committee generally has wide discretion to approve or disapprove
transactions falling within the scope of its authority, though in practice
transactions are rarely challenged. The time typically required by the
Anti-Monopoly Committee to review a proposed transaction varies between three
and four months. Failure to obtain prior consent may constitute grounds for the
Anti-Monopoly Committee to seek a court decision declaring the relevant
transaction null and void. In particular, transactions (including rental or
lease transactions) which involve the transfer of assets amounting to more than
10% of the assets of a transferor to a transferee, are subject to prior consent
of the Anti-Monopoly Committee.

     This requirement on its face applies to companies leasing assets to other
companies, including Technocom and PLD Leasing, which would therefore need to
obtain such consent before leasing equipment to the Company's operating
subsidiaries. While the Company has been advised that such requirement should
not apply to such arrangements, there can be no assurance that the Anti-Monopoly
Committee will concur and accordingly that the Anti-Monopoly Committee will not
require such consent. Although the Company does not believe that equipment
leases could have an anti-competitive effect in the Russian Federation, no
assurance can be given that consent from the Anti-Monopoly Committee will be
granted. The refusal of the Anti-Monopoly Committee to give consent to any
equipment leases could have a material adverse effect upon the Company.

     Absence of Complete Control; Dependence on Local Partners.  The Company's
principal assets are its interests in its operating subsidiaries. The Company
holds a 60% ordinary share interest in PeterStar and a 50% interest in BECET.
The Company also has a 80.4% interest in Technocom, which in turn currently has
a 49.33% direct and indirect beneficial economic interest (56.0% voting
interest) in Teleport-TP and a 49% interest in MTR-Sviaz. While the Company may
have the ability, in the case of PeterStar, BECET and Teleport-TP, to direct the
operations or determine the strategies of such subsidiaries under the terms of
their respective constituent documents, the enforceability of some of the
Company's rights is uncertain. See "-- Country Risks -- Legal Risks." Further,
the other shareholders may, as a practical matter, be able to impede the
Company's ability to exercise effective control. In addition, the Company would
be unlikely to take significant initiatives without the approval, in the case of
PeterStar, of Telecominvest and PTS; in the case of BECET, of Kazakhtelekom;
and, in the case of Teleport-TP, of Rostelecom. See "-- Ownership and Management
of Operating Subsidiaries." Certain of the Company's operating subsidiaries are
dependent on continued access, on favorable terms, to the facilities of certain
of the Company's partners, and this may adversely affect the Company's ability
to rely on its legal rights to influence the conduct of the business of its
operating subsidiaries. Finally, in the case of PeterStar, any disposition by
Cable & Wireless of its 11% interest in PeterStar could adversely affect the
Company's ability to control the PeterStar board. The likelihood of such
disposition has increased significantly as a result of Cable & Wireless'
announcement that it is considering alternatives for disposing of its interest
in the Company. See "-- Ownership and Management of Operating
Subsidiaries -- PeterStar Company Limited." In summary, the absence of complete
legal control by the Company over the operations of PeterStar, BECET and
Teleport-TP, coupled with the dependence of these ventures on continued access
to the facilities of the Company's partners, could have a material adverse
effect on the Company. Finally, PeterStar, Technocom, Teleport-TP and BECET are
all restricted subsidiaries under the Senior Note Indenture and the Convertible
Note Indenture, and the Company is required by the terms of such indentures not
to permit its restricted subsidiaries to violate the various covenants contained
in such Indentures. There can be no assurance that the Company will always be in
a position to comply with this obligation, and its failure to do so could cause
a default under the Senior Note Indenture or the Convertible Note Indenture.

     Susceptibility to Political and Other Pressures.  Although the governments
of the countries and regions in which the Company operates may be limited in the
extent to which they can legally direct the Company's policies, in practice they
may be able to exercise significant influence. As a consequence, not only may
the Company's activities be restrained if a governmental entity is not
supportive, but the Company may be forced to take action to support policies or
agendas of the government which are not in its commercial or other

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interests. In addition, in order to maintain good working relationships with its
partners, the Company may need to take certain actions which may not necessarily
be in its commercial or business interests. See "-- Risks Involving PeterStar
Company Limited and Baltic Communications Limited -- Dependence on PTS
Facilities."

     Dependence on Key Management.  The Company's various operating businesses
are managed by a small number of key management personnel, both expatriate and
local. PeterStar is dependent upon its general director, Vladimir Akulich, and
upon its expatriate managers, James Maude and Stephen Gardner. The Company also
relies heavily on the experience of Maxut Saurenbekov and Rex Power for the
technical guidance and operational and financial management of BECET. The
further expansion of the Technocom business depends upon the continued
involvement of Boris Antoniuk in the management of Technocom's affairs and those
of its subsidiaries. While Dr. Antoniuk is under contract to Technocom and the
Company, no assurance can be given that his services or the services of these
other key individuals will continue to be available to the Company's operating
subsidiaries. In addition, the Company is dependent on its core management team
of James Hatt, John Davies, Simon Edwards, Alan Brooks and Conor Carroll, as
well as Peter Owen Edmunds, who heads the Company's representative office in St.
Petersburg. Neither the Company nor its operating subsidiaries carry "key-man"
insurance with respect to these individuals. The Company could be materially and
adversely affected if any key management personnel should cease to be active for
any reason in the management at the corporate and/or operating subsidiary level.

     Historical Dependence on Cable and Wireless plc.  The Company is engaged in
developing various telecommunications businesses in challenging environments.
The scope of some of its projects, e.g. the development of a cellular network in
Kazakhstan and the development of a satellite-based long distance network across
the Russian Federation, requires both significant financial and human resources.
The Company has been able to draw, when necessary, on the worldwide expertise
(access to which is paid for on a case by case basis) of Cable & Wireless to
assist the Company's operating businesses in certain areas of their operations.
The Company and Cable & Wireless have entered into a support services agreement
which sets out the terms, on an arm's-length basis, under which the Company and
its subsidiaries have access to Cable & Wireless' resources. Cable & Wireless
has recently announced that it is involved in active discussions with a view
towards disposing of its stake in the Company, but that no definitive agreement
has been reached. If such a disposition occurs, no assurance can be made that
such support will continue to be made available to the Company.

     Competition.  The Company is developing and operating its businesses in
highly competitive environments. A number of companies compete with the
Company's operating businesses, many of which have access to greater financial
and technical resources than the Company. There can be no assurance that the
Company will be able to overcome successfully the competitive pressures to which
it is subject, both in the markets in which it currently operates and in markets
into which it might expand. Furthermore, in many instances the Company's
partners in its operating businesses are also potential -- and in some cases
actual -- competitors. For example, PTS has recently completed the installation
of a fiber optic network in St. Petersburg which will improve call completion
rates on the PTS network and could provide a serious alternative to PeterStar's
network and permit PTS to compete more effectively for business in St.
Petersburg. In addition, while Rostelecom appears to be generally supportive of
the development of Teleport-TP's long distance network, such network is in
direct competition with the national long distance network operated by
Rostelecom, and there can be no assurance that Rostelecom will continue to
support the development of Teleport-TP's network. Similarly, BECET's cellular
network in Kazakhstan could be seen as being in competition with the national
network operated by Kazakhtelekom. At this time it is unclear what impact the
consolidation of the Russian government's holdings in Sviazinvest and Rostelecom
and the sale of significant stakes in Sviazinvest to Russian and foreign
investors will have on the Russian telecommunications market in general and the
Company in particular, nor what impact the recently announced sale of a 40%
stake in Kazakhtelekom to Daewoo and the efforts by the KMOC to limit BECET's
exclusive license and permit more cellular operators in Kazakhstan will have
upon the Kazakh telecommunications market and the Company in particular. See
"-- Auction of Stakes in Sviazinvest" and "-- Risks Involving BECET
International." Finally, the increasing ability of Russian telecommunications
companies to access Western capital markets for their financing needs

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<PAGE>   58

may reduce their reliance on the Company for financing and improvement of their
networks. Such reduced reliance may affect the Company's ability to exert
influence on its Russian partners in the operating businesses. See "-- Auction
of Stakes in Sviazinvest," "-- Telecommunications in the Former Soviet Union"
and "-- Competition."

     Potential Conflicts of Interest.  Cable & Wireless and each of the
Company's principal partners in PeterStar, BECET and Teleport-TP have interests
that may conflict with those of the Company.

     Cable & Wireless, which holds an indirect 11% interest in PeterStar, has
other investments in the Russian Federation and other countries of the
Commonwealth of Independent States. PTS, which holds its interest in PeterStar
through Telecominvest and is the main provider of basic telephony services in
St. Petersburg, already competes to some degree with PeterStar for customers and
may increasingly become a substantial competitor with the eventual upgrading of
its telecommunications network. See "-- Competition -- PeterStar Company
Limited." Kazakhtelekom, the public switched telephone network operator and the
Company's partner in BECET, may be a significant competitor for BECET's cellular
operations when it improves the telephony services it provides in Kazakhstan by
upgrading its fixed wire telecommunications network, or if it should be awarded
one of the new cellular licenses the Kazakh government is considering issuing.
See "-- Competition -- BECET International." 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. See "-- Competition -- Teleport-TP." Finally,
certain directors of the Company's operating subsidiaries also act as directors
or officers of its partners in the Russian Federation and Kazakhstan. See
"-- Dependence on Key Management."

     In light of these competing interests, and, in particular, the extent of
the legal and practical control that the Company's partners have over the
affairs of the Company and its operating subsidiaries, any or all of the
companies named above may use their influence, through the directors they
appoint to the boards of the Company and its operating subsidiaries or
otherwise, to benefit themselves or other businesses in which they have an
interest at the expense of the Company and its operating subsidiaries, subject
to such limited fiduciary duties as they may have under applicable law.
Moreover, such persons are not obliged (except for such obligations as they may
have under applicable law) to allocate to the Company and its operating
businesses corporate opportunities of which they become aware through the
directors referred to above or otherwise. No assurance can be given that the
fiduciary duty and corporate opportunity doctrines that exist under United
States law will provide adequate protections to the Company's shareholders
against the pursuit of such conflicting interests. Kazakh law currently provides
no protection in this regard and, while Russian corporate law has recently
introduced the concept of the fiduciary duties of corporate officers and
directors, the law is too new for any prediction to be made as to how much
protection it will, in fact, provide. The pursuit of conflicting interests by
the persons referred to above could have a material adverse effect on the
Company.

     Auction of Stakes in Sviazinvest.  In 1997, it was reported that,
notwithstanding its previously announced plans to have Sviazinvest compete with
Rostelecom, the Russian government had consolidated its telecommunications
holdings in Sviazinvest and Rostelecom by transferring its shareholding in
Rostelecom (38% of the common stock, and 51% of the voting stock) to
Sviazinvest. The balance of the shares in Rostelecom remain in the hands of
private investors. In April 1997, the government announced that it was seeking
to sell 49% of Sviazinvest in two auctions, one as to a 25% stake open to
Russian and foreign investors and the other as to a 24% stake open only to
Russian investors. In July 1997, the government announced that the 25% stake had
been sold to a consortium which included Oneximbank and Renaissance Capital, for
a purchase price of $1.875 billion. Following this auction, the Russian
government announced its intention to increase the size of the other stake being
sold to 25% minus one share. The schedule for the auction of the second stake
has not been announced, but it is expected to be completed by the end of the
third quarter of 1998. While it is not yet clear how the proceeds of this sale
will be employed, it is understood that the government wishes to have a
substantial part, if not all, of the proceeds allocated to its current budget
deficit. At the same time, Sviazinvest has announced plans to raise $400 million
through a Eurobond offering later in 1998. In light of all of the foregoing, it
is unclear what impact the consolidation of the government's

                                       56
<PAGE>   59

telecommunications holdings and the auctions of significant stakes in
Sviazinvest will have on the Russian telecommunications market in general and
the Company in particular.

     Regulatory Uncertainties.  The Company's operating businesses operate in
uncertain regulatory environments. The Russian telecommunications system is
currently regulated by the RFCTI, and the Kazakh telecommunications system is
currently regulated by the KMOC, largely through the issuance of licenses.
Despite the 1995 enactment of the Telecommunications Law in Russia, considerable
uncertainty still exists as to the application and interpretation of many of its
terms. There is currently no comprehensive legal framework with respect to the
provision of telecommunications services in Kazakhstan, although a number of
laws, decrees and regulations govern or affect the telecommunications sector.
Further, the recently announced appointment of Kazakhtelekom as the exclusive
operator of the public telephone network in Kazakhstan and/or the recently
announced sale of a 40% stake in Kazakhtelekom to Daewoo, may lead to
restructuring of the telecommunications sector in Kazakhstan, the effects of
which are difficult to predict at the present time. See "-- Risks Involving
BECET International -- Sale of Stake in Kazakhtelekom."

     While the RFCTI appears to have succeeded to all of the powers and
authorities of the Former MOC, it is not yet clear whether it will in fact
continue to operate in the same manner and wield the same influence as the
Former MOC. In particular, it is unclear whether the RFCTI will be able to
control the actions of local and regional governmental authorities who may
endeavor to impose new conditions upon operators in their respective
jurisdictions or areas of influence. As an example, significant delays in the
rollout of Teleport-TP's long distance network have been caused by
administrative difficulties experienced with local and regional governmental
authorities. See "-- Risks Involving Technocom Limited and
Teleport-TP -- Network Expansion."

     The absence of adequate regulation in the telecommunications sector has
meant that decisions, including the granting and renewal of licenses, may at
times be made by governmental officials without reference to precedent or
procedure. The introduction of regulation of tariffs, or any other type of
regulation, could have far-reaching, and potentially materially adverse effects
on the Company.

     Limitations on Ability to Transfer Interests.  The terms of the PeterStar
and BECET shareholder and joint venture agreements, and the terms of the
shareholder and joint venture agreements relating to Teleport-TP and MTR-Sviaz,
impose restrictions on the Company's ability to transfer its interests in such
companies and give the other shareholders in such companies certain pre-emptive
and other similar rights. It is likely that the Company's ability to transfer
its interests in other future investments will be similarly limited. The
restrictions on, and other provisions relating to the sale of these interests,
and the lack of liquidity in the market for interests the Company now holds or
may acquire, may impede their resale by the Company. While it may be possible to
arrange for negotiated sales with one or more buyers, the Company may not be
able to realize value from these interests, or acceptable terms, in a timely
manner or at all.

     Effect of Technocom Minority Shareholders' Put Options.  The Company has
put and call agreements with Plicom and Elite which, following the November 1997
acquisition by the Company of a portion of each of their interests in Technocom,
beneficially own 14.57% and 5.03%, respectively, of the ordinary shares of
Technocom. Under the put and call option agreement with Plicom, Plicom has the
right, commencing June 30, 1999 and continuing until June 30, 2019, to require
the Company to acquire its remaining holding in Technocom, and the Company has
the right to require Plicom to sell such holding, for a purchase price of $17.5
million. Under its put and call option agreement with Elite, Elite has: (i) the
right, commencing June 30, 1998 and continuing until June 30, 2019, to require
the Company to acquire 2 of its remaining shares in Technocom, and the Company
has the right to require Elite to sell such shares, for a purchase price of $1
million or, at Elite's option, that number of shares of Common Stock which
results from dividing $1 million by the lower of $5.85 and the average closing
price of such shares over the preceding ten trading days; and (ii) the further
right, commencing June 30, 1999 and continuing until June 30, 2019, to require
the Company to acquire its 8 remaining shares in Technocom, and the Company has
the right to require Elite to sell such shares, for a purchase price based on
the Company's valuation of Technocom, provided that such purchase price shall
not be less than $6,689,655 nor more than $9,620,689. The existence of these
agreements could adversely affect the Company's ability to dispose of its shares
of Technocom.

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     Management of Growth.  The Company is at a relatively early stage of
development and has experienced, and may continue to experience, rapid growth
resulting from the continued development of PeterStar, BECET, Technocom and its
other operating businesses. The Company's future growth will require the Company
to manage its expanding operations and to adapt its operational systems to
respond to changes in the business environment. The expansion of the Company's
operations has placed and will continue to place significant demands on the
Company and its management to improve the Company's operational, financial and
management information systems, to develop further the management skills of the
Company's managers and supervisors and to continue to train, motivate and
effectively manage the Company's employees. The failure of the Company to manage
its growth effectively could have a material adverse effect on the Company.

RISKS INVOLVING PETERSTAR COMPANY LIMITED AND BALTIC COMMUNICATIONS LIMITED

     Limited Operating History.  PeterStar was formed in May 1992 and started
operating a modern digital telephone exchange network in St. Petersburg in
February 1993. BCL, which was acquired by the Company in April 1996, was also
formed in 1992 to provide international direct dial and private line services
for foreign companies in St. Petersburg. While both PeterStar and BCL generated
profits in the years ended December 31, 1996 and 1997, in view of their limited
operating history there can be no assurance that PeterStar or BCL will be able
to generate sufficient revenues or control their costs enough to remain
profitable in the future.

     Telecommunications Licenses.  PeterStar's business is dependent on the
maintenance of its principal telecommunications license which permits it to
operate a public telephone system in the Russian Federation for a term expiring
in November 2004. Other licenses that have been issued to PeterStar include a
dedicated network license (expiring September 2001), a data communications
license (expiring May 2001), a telematics license (expiring May 2001) and a
videoconferencing license (expiring June 2001). The main PeterStar license,
governing the provision of public telecommunications services, sets the number
of lines which PeterStar may have in St. Petersburg and the surrounding region
at 106,000, and requires that capacity equal to 74,200 lines be introduced by
June 1999. However, management of PeterStar believes that the maximum and
minimum number of lines are not strict requirements but are instead designed to
provide general guidance as to the number of lines intended to be included on
the system. As of December 31, 1997, PeterStar had 114,774 lines, of which
85,948 were provided to cellular operators. PeterStar does not believe that its
license would be terminated or re-negotiated, that it would be forced to reduce
the number of its subscribers, or that other penalties would be imposed, by
reason of its exceeding its 106,000 line ceiling, but there can be no assurance
that the RFCTI would not take a different position. The dedicated network
license permits PeterStar to provide long distance and international telephone
transmission services to dedicated network operators (such as BCL) in St.
Petersburg and the surrounding region for a term expiring in September 2001.
This license therefore enables PeterStar to offer its clients the potential cost
efficiencies and synergies which come from working with affiliated companies, as
well as allowing PeterStar and BCL to explore ways to work together to provide
integrated solutions to customer needs. The dedicated network license sets the
number of lines which PeterStar may have at no less than 30,000 and requires
that capacity equal to 21,000 lines be introduced by September 1999. Once again,
management of PeterStar believes that these maximum and minimum number of lines
are not strict requirements but are instead designed to provide general guidance
as to the number of lines intended to be included on the system. There can be no
assurance that the RFCTI would not interpret the provisions of the licenses
differently, which in turn could result in the revocation of the licenses or
their renegotiation on terms unfavorable to PeterStar.

     BCL's primary license permits it to provide long distance and international
telephone, facsimile and data transmission services to private networks in St.
Petersburg and the surrounding region for a term expiring on December 31, 2003.
Management believes that, so long as it is being actively utilized, BCL's
license will be renewed at the end of its current term. The license limits the
number of subscribers to 100,000 and requires that 70,000 of these be in place
by January 2001. Management of BCL believes that the maximum and minimum line
numbers are not strict requirements but are instead designed to provide general
guidance as to the number of lines intended to be included on the system. As of
December 31, 1997, BCL had approximately 1,200 lines. BCL has no reason to
believe that its license would be terminated if it either exceeded 100,000

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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.

     No assurance can be given that either PeterStar or BCL will be able to
maintain its licenses, that the terms will not be interpreted, altered or
renegotiated to its disadvantage or that they will be renewed upon expiration.
See "-- Country Risks -- Legal Risks." The loss of, or a substantial limitation
upon the terms of, either PeterStar's or BCL's licenses could have a material
adverse effect on the Company.

     Dependence on Interconnect Parties.  PeterStar is dependent on PTS, SPMMTS
and other operators for the completion of most of its calls. The PeterStar
network is linked to the PTS network, which gives PeterStar access to PTS's
large local subscriber base. PeterStar is required by the terms of its license
to route all long distance and international calls through the public network.
PeterStar has been able to negotiate favorable tariffs for interconnection fees
and carrier charges with both PTS and SPMMTS. PeterStar's current interconnect
agreements with SPMMTS and PTS expire in November and December 1998,
respectively. The agreements provide for automatic extensions at the end of
their term unless otherwise terminated by either party. The interconnection fees
and carrier charges payable under the interconnect agreements are subject to
renegotiation between the parties from time to time. There can be no assurance,
however, that PeterStar will continue to have access to the PTS network or that
PeterStar will continue to receive such favorable tariffs. The loss of access to
such network or increases in such tariffs could have a material adverse effect
upon the Company.

     Dependence on PTS Facilities.  PeterStar is also dependent on PTS'
buildings, ducts and tunnels in order to house its exchanges and to reach its
customers. To date, PeterStar has not been required to pay rent to PTS to house
its exchanges in PTS buildings, nor has it paid rentals for ducts or tunnels.
Although PTS is required to provide certain of these facilities under the terms
of PeterStar's foundation documents, the presently unforeseen loss of access to
these facilities or the availability of access only on unfavorable terms could
have a material adverse effect upon the Company. PeterStar anticipates that it
will have to pay a local line rental charge to PTS commencing in 1998. The exact
fee, and the timing of the fee, has not yet been determined.

     Expansion of Direct Dial Services.  PeterStar has recently commenced
several projects designed to expand its direct dial services in St. Petersburg
and Northwest Russia. PeterStar has agreed with PTS to undertake an
infrastructure project centering on the replacement of analog exchanges with
digital exchanges for certain parts of the network on Vassilievski Island, a
city district in St. Petersburg. This project will require the conversion of
approximately 30,000 business and residential lines that are currently operated
by PTS, after which such lines become a part of the PeterStar network. In
addition, PeterStar plans to further enhance its transit network capabilities in
order to provide continued support to the cellular and other network providers
in terminating traffic in St. Petersburg and to the national and international
gateway. PeterStar also expects to increase its operating presence in Northwest
Russia through the targeted development of digital infrastructure to connect
business customers and develop operational relationships with the regional
telephone companies. These projects represent a major expansion of PeterStar's
operations which will require substantial capital and special management efforts
if they are to be carried into effect successfully. See "-- Capital
Requirements."

     Pressure to Provide Residential Service.  The Vassilievski Island project
also represents part of a continuing effort on the part of PTS to deal with
unanswered demand for improved residential service in St. Petersburg. The local
calling element of residential service is presently provided free of charge
(other than connection fees and line rental charges), and there has been
considerable political resistance to the introduction of time-based charges for
local calls. Even after calling charges have been introduced, it is likely to
remain a low margin business for the foreseeable future. Even though PTS has now
been privatized, the Company does not believe that the pressures on PTS to
improve residential service have lessened. Although the Company believes that
PeterStar has, following long and detailed negotiations with PTS, fulfilled its
commitment to the residential customers, there can be no assurance that PTS will
not continue to try to involve PeterStar in this effort, or that PTS' continued
support for PeterStar's access to the business market may be linked to
PeterStar's further commitment to develop the residential market in St.
Petersburg.

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RISKS INVOLVING BECET INTERNATIONAL

     Limited Operating History.  BECET was formed in January 1994 and commenced
commercial operations in September 1994. Although BECET generated profits for
the years ended December 31, 1996 and 1997, there can be no assurance that BECET
will be able to generate sufficient revenues or control its costs sufficiently
to remain profitable in the future.

     Telecommunications License.  BECET's business is dependent on the 15-year
renewable license issued in February 1994 for the creation and operation of
cellular communications networks in Kazakhstan for local, long distance and
international calling, using the 800 MHZ frequency band and "AMPS" technology.
Under the terms of the license BECET was required to provide cellular services
to Almaty and ten to twelve additional regional centers by the end of 1996, a
condition which has been met. The license specifies that BECET is to be the
exclusive provider of cellular service in Kazakhstan for the first five years of
the license term. The exclusivity provision of BECET's license has recently been
the subject of scrutiny by various governmental agencies in Kazakhstan, and
questions have been raised as to its validity. In order to put the matter to
rest, BECET has been discussing with the KMOC substituting a new license with
revised terms for its existing license. While those terms are not finally
negotiated, they would likely include eliminating the exclusivity provision
(which terminates in any event in February 1999). See "-- Telecommunications
Licenses -- BECET International." Management of BECET believes that a resolution
of the kind envisaged would put to rest the issues that have been raised
regarding BECET's existing license and assure BECET a suitable environment in
which to continue the development of its business. Management also believes
that, by virtue of its cost structure and its market penetration to date, it is
in a good position to compete with any parties who are hereafter licensed to
operate cellular networks in Kazakhstan, even those which may enjoy the backing
of the KMOC or other agencies of the government of Kazakhstan. However, there
can be no assurance that efforts to limit the scope of its license or otherwise
revise its terms in a way which could be detrimental to BECET will not continue,
or that BECET will in fact be able to compete successfully with any new
licensees. See "-- Country Risks -- Legal Risks" and "-- Telecommunications
License."

     Network Expansion.  BECET has engaged in a significant expansion of its
cellular network, from its initial base of operations in Almaty to a total of 12
cities throughout Kazakhstan as of December 31, 1997. The timing of such
expansion was dictated by the terms of the license, so that in some regions it
occurred at a time when economic activity in those regions was still at a
sufficiently low level as to raise a question as to whether, and if so, when,
cellular service in such regions will be commercially viable. Furthermore,
because of the distances involved, the difficulty of hiring, training and
supervising staff at remote locations and the underdeveloped nature of the
business infrastructure, such as banks and professional advisers in many of the
proposed locations for expansion, the establishment and provision of cellular
service will present significant challenges to the management of BECET, and
there can be no assurance that these challenges will be met successfully in all
cases. In addition, further network development is planned on a targeted basis
to address key market sectors. Failure to manage the BECET network, and any
future expansion of the network, successfully could have a material adverse
effect on the Company.

     Sale of Stake in Kazakhtelekom.  Since its formation, BECET has been 50%
owned, directly or indirectly, by the government of Kazakhstan. BECET believes
that the attitude of the government towards its operations has generally been
favorable and that this has derived in some part from the government's interest
in BECET. Currently, the government's 50% interest in BECET is held through
Kazakhtelekom, which until May 1997 was owned 100% by the government. In May
1997, the Kazakh government announced that it had sold a 40% interest in
Kazakhtelekom to Daewoo. However, in March 1998, it was reported that Daewoo had
sold a portion of its stake (reported to be approximately 10%) to an unnamed
third party. The report did not indicate whether Daewoo proposed to sell or
retain the remainder of its stake in Kazakhtelekom. Both of these transactions
create considerable uncertainty as to the government's attitude towards
Kazakhtelekom. There is also a question as to Daewoo's intentions with respect
to the remainder of their stake. In addition, the KMOC recently issued a revised
license to Kazakhtelekom specifically naming it as the exclusive national
network operator in Kazakhstan, and giving it a wide range of powers to carry
out this function. The Company has not yet fully assessed what impact these
matters may or will have on BECET and its business. There can be no assurance
that the government's favorable attitude towards BECET will continue to the same
degree. Any
                                       60
<PAGE>   63

significant change in the government's attitude toward BECET could have a
material adverse effect on the Company.

     Dependence on Interconnect Parties.  Under the terms of its license, BECET
is entitled to interconnection free of charge to networks operated by
Kazakhtelekom, the public switched telephone network operator, for the
completion of its local, long distance and international calls. The loss of, or
any significant limitation on, its access to such network could have a material
adverse effect on the Company. Further, under its revised license, Kazakhtelekom
was directed to assess interconnection charges for connection to its network,
and to levy such charges on a basis which will yield it a profit. Kazakhtelekom
may try to use this authority to endeavor to assess interconnection charges on
BECET, notwithstanding the fact that its license exempts it from payment of such
charges. The imposition of such interconnection charges would impact BECET's
profitability, perhaps materially.

RISKS INVOLVING TECHNOCOM LIMITED AND TELEPORT-TP

     Limited Operating History.  Technocom was formed in January 1992. Until
1995, its principal business was Teleport-TP, which commenced operations in late
1993. In view of their limited operating history, there can be no assurance that
they will generate sufficient revenues or control their costs sufficiently to
become and remain profitable in the future. Nor can there be any assurance that
Technocom's other businesses, all of which have only just commenced operations
or are still in the planning stage, will become or remain profitable.

     Telecommunications Licenses.  Teleport-TP holds four licenses from the
RFCTI with respect to its operations. Two licenses expire in 2004, one in 2002
and one in 2001. One of the licenses, expiring in November 2004, limits the
number of subscribers under such license to 18,050 (15,000 within Moscow's city
limits) and requires that 12,635 be in place by November 1997. Another license,
expiring in October 2004, limits the number of subscribers to 1,700 and requires
that 1,190 be in place by October 28, 1997. The third license, expiring in
January 2002, provides that the installed subscriber capacity of Teleport-TP's
data network must permit the connection of at least 70,000 subscribers by
December 2000 and at least 100,000 subscribers by the expiration of the term of
the license, but it does not impose any limit on the number of subscribers. The
fourth license, expiring in 2001, provides that the total installed capacity of
Teleport-TP's long distance network should be at least 100,000 numbers with at
least 70,000 numbers operational by May 2000. Management of Teleport-TP believes
that the subscriber numbers are not strict requirements but are instead designed
to provide general guidance as to the number of subscribers intended to be
included on the system. Management further believes that, so long as a license
is being actively utilized, such license will not be terminated nor other
sanctions imposed if Teleport-TP failed to have the minimum number of
subscribers in place by the specified date or if it exceeded the maximum number
of subscribers permitted by the license, but there can be no assurance that the
RFCTI would not take a different position, which in turn could result in the
revocation of the license or its renegotiation on terms unfavorable to
Teleport-TP. The loss of, or the failure to obtain renewal of, or any
substantial limitation upon the terms of, any of Teleport-TP's licenses could
have a material adverse effect on the Company.

     No assurance can be given that Teleport-TP will be able to maintain its
licenses, that the terms will not be interpreted, altered or renegotiated to its
disadvantage or that they will be renewed upon expiration. See "-- Country
Risks -- Legal Risks." The loss of, or a substantial limitation upon the terms
of, Teleport-TP's licenses could have a material adverse effect on the Company.

     Although Teleport-TP's failure to satisfy any of the conditions of the
foregoing licenses could result in the revocation of such licenses, which in
turn could have a material adverse effect upon Teleport-TP and the Company, the
management of Technocom believes that this would be unlikely to occur as long as
Teleport-TP is otherwise providing needed services to its customers. The Company
also knows of no reason why any of these licenses will not be renewed upon their
expiration; however, the expiration of these licenses without renewal, or their
renewal on less favorable terms, could have a material adverse impact upon the
Company.

     Dependence on Rostelecom as Customer; Necessity to Further Develop Customer
Base.  Rostelecom accounted for approximately 27% of Teleport-TP's total
revenues for the year ended December 31, 1997, as compared to 41% for the year
ended December 31, 1996. Teleport-TP will seek, through the installation of its
                                       61
<PAGE>   64

long distance network facilities, to develop a substantial alternative customer
base in order to reduce its dependance on Rostelecom; however, there can be no
assurance that it will be able to do so successfully. Thus, for the immediate
future Rostelecom will likely remain Teleport-TP's single largest customer.
While the risk of Rostelecom taking action which could harm Teleport-TP should
be ameliorated because of the fact that Rostelecom itself owns 44% of
Teleport-TP, any significant negative change in the relationship with Rostelecom
could have a material adverse effect upon both Teleport-TP and Technocom. See
"-- Network Expansion." Additionally, while Rostelecom currently utilizes
approximately 900 circuits, it is only contractually committed to utilize, on a
long-term basis, 100 circuits. Until Teleport-TP is able to develop a broader
customer base, any significant cutback by Rostelecom in the number of circuits
it utilizes could have a material adverse impact on Teleport-TP and Technocom.

     In addition, at this time it is unclear what impact the consolidation of
the Russian government's holdings in Sviazinvest and Rostelecom and the sale of
significant stakes in Sviazinvest to Russian and foreign investors will have on
the Russian telecommunications market in general and the Company and Technocom
in particular. See "-- Risks Involving the Company -- Auction of Stakes in
Sviazinvest."

     Dependence on MGTS Facilities.  Teleport-TP is dependent upon the
facilities of MGTS for the operation of its existing network in Moscow, since a
substantial part of the fiber optic cabling it uses is laid in the ducts of MGTS
pursuant to agreements under which Teleport-TP pays MGTS for the use of such
facilities. The agreements between Teleport-TP and MGTS are one year agreements
which are subject to automatic one year renewals unless MGTS provides a timely
notice of cancellation. The current agreements expire on December 31, 1998.
Technocom knows of no reason why MGTS would refuse to renew these agreements.
However, the failure on the part of MGTS to renew these agreements or to honor
their terms could have a material adverse effect on Teleport-TP.

     Dependence on MTR-Sviaz Facilities.  Teleport-TP is dependent upon the
facilities of MTR-Sviaz to terminate certain traffic to users on the MTR-Sviaz
network. MTR-Sviaz uses leased circuits from a number of providers, access to
the Teleport-TP fiber cable facilities and the Mosenergo internal communications
network to terminate its calls. Teleport-TP uses the MTR-Sviaz facilities to
locate its Internet gateway, from which links to Internet service providers
(ISPs) are provided via leased and dial-up lines on the public network.
Furthermore, Teleport-TP acts as the long distance gateway for subscribers to
the MTR-Sviaz network. Teleport-TP and MTR-Sviaz have developed a carrier
services agreement to formally set out the relationship between the operators.

     In addition, like many major Russian companies, Mosenergo experiences
liquidity problems from time to time. While the relationship with Mosenergo has
the potential to be mutually beneficial as described above, the increased
dependence on the Mosenergo network may make Technocom more vulnerable to
Mosenergo's liquidity problems, both in terms of pressure for financial support
for the expansion of its network, and in its ability to achieve prompt
settlement of accounts.

     Network Expansion.  Technocom, through Teleport-TP, has commenced a major
program for the provision to cities and other locations throughout the Russian
Federation of satellite-based long distance and international telecommunications
service (the latter through Teleport-TP's international gateway in Moscow).
Installation of the first phase of the long distance network program commenced
in 1996, with 29 sites installed as of December 31, 1997. The Company currently
plans to install equipment in a total of 45 sites by the end of the first half
of 1998. This represents a major expansion of Teleport-TP's operations which
will require substantial capital and special management efforts if it is to be
carried into effect successfully. See "-- Risks Involving the Company -- Capital
Requirements."

     Further expansion of the network program beyond the initial 45 sites will
be defined by customer demand and, therefore, has yet to be fully determined.
The ability of the Company to expand such a program further will also be heavily
dependent on the efforts of management, as well as the availability of
additional capital on favorable terms or internally generated cash. Failure on
the part of Teleport-TP to manage the development of this network successfully
could have a material adverse effect on the Company.

                                       62
<PAGE>   65

     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."

     For the program to be commercially successful, Teleport-TP will have to
identify commercially viable markets for its services in each of the locations
which it intends to serve. In many areas of the Russian Federation the economic
conditions are still very weak and growth rates uncertain, and hence the ability
of a particular region to be, or to become within the short term, a successful
market for the network may be difficult to gauge. The results of operations will
be directly affected by Teleport-TP's success in identifying economically viable
locations for the development of its network.

     Furthermore Teleport-TP has had, and in all likelihood will continue to
have, to form alliances with suitable regional partners. There can be no
assurance that the arrangements made so far, or any future arrangements, will
prove to be commercially viable.

     Finally, Teleport-TP anticipates significant competition from other
companies seeking to serve the Russian long distance telephone market. While
Rostelecom, the principal long distance carrier in the Russian Federation,
appears to be supportive of Teleport-TP's development program, any decision by
Rostelecom to compete directly with Teleport-TP or to impede the implementation
of Teleport-TP's network could have a material adverse effect upon the program
itself and upon the Company. See "-- Dependence upon Rostelecom as Customer;
Necessity to Further Develop Customer Base." In addition, at this time, it is
unclear what impact the consolidation of the Russian government's
telecommunications holdings (including Rostelecom) in Sviazinvest and the
auctions of significant stakes in Sviazinvest will have on the Russian
telecommunications market in general and the Company in particular. See
"-- Risks Involving the Company -- Auction of Stakes in Sviazinvest."

ITEM 2.  PROPERTIES

     Executive Offices and Representative Office.  As a result of the
Continuance, the Company has closed its executive offices in Toronto, where the
Company previously leased approximately 500 square feet of office space on a
month-to-month basis. The Company has established an executive office in New
York, New York, consisting of approximately 6,000 square feet of office space,
which it has leased through December 31, 1999.

     The Representative Office of PLD is co-located with the premises of BCL in
St. Petersburg.

     PLD Management Services Limited.  PLD Management Services Limited, a wholly
owned English subsidiary of the Company, maintains an office in London, England
where it leases approximately 2,400 square feet of office space pursuant to a
long-term lease. In connection with the Continuance, the Company has moved many
of the functions performed by this office to the United States during 1997,
although the Company anticipates continuing to have an operational support
facility in England for the foreseeable future.

     PeterStar Company Limited.  PeterStar's principal office, which it leases
from PTS, is located on Vassilievski Island, St. Petersburg, Russia. Its
principal switches are also located at this site. PeterStar also occupies other
space in St. Petersburg which is used to house other switching and transmission
equipment.

     Baltic Communications Limited.  BCL's principal office, which it leases on
a commercial basis, is located in the Admiralteiski district of St. Petersburg,
Russia. BCL's commercial and technical facilities are located at this location.

     Technocom Limited.  Technocom uses Teleport-TP's office space and does not
own any real property. Teleport-TP leases premises, which also house its
administrative functions, at VVC. Teleport-TP's core

                                       63
<PAGE>   66

network, comprising the switching facilities and the four Intelsat and Eutelsat
earth stations, are also located at VVC.

     BECET International.  BECET leases space for its administrative offices in
a Kazakhtelekom exchange building located in Almaty. It also leases space from
Kazakhtelekom for its switches, cell sites and associated equipment in
Kazakhstan, and leases other space in cities in Kazakhstan where it has
operations for customer service centers, although BECET has purchased its
facilities in Taraz. BECET is considering the purchase of a building in Almaty
so as to permit the consolidation of a number of operations housed in different
locations throughout the city.

     The Company believes that its offices and the various facilities used by
PeterStar, BECET, Technocom and Teleport-TP are suitable and adequate for their
respective current businesses and operations.

ITEM 3.  LEGAL PROCEEDINGS

     Neither the Company nor its subsidiaries are parties to any material legal
proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter of 1997.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY

     The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "PLDI" (as of March 6, 1997). Prior to this date it was quoted under
the symbol "PLDIF." The Company's Common Stock is also listed on 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 the Continuance
of the Company in Delaware on February 28, 1997, the Company's Common Stock was
referred to as "Common Shares." The Common Shares began trading on The Toronto
Stock Exchange on September 28, 1987 and on the Nasdaq National Market on
February 18, 1993. The Company's principal market, based on the percentage of
trading volume, is the Nasdaq National Market.

                                       64
<PAGE>   67

     The following table sets forth the high and low closing prices for the
Company's Common Stock, as reported by Nasdaq, for each full quarterly period
within the two most recent fiscal years. The prices below represent prices
between dealers, without adjustment for retail mark-ups, mark-downs or
commissions, and may not reflect actual transactions.

<TABLE>
<CAPTION>
                                                     CLOSING PRICES
                                                    -----------------
                                                     HIGH       LOW
                                                    ------    -------
<S>                                                 <C>       <C>
1996
  1st Quarter.....................................  $6.375    $4.625
  2nd Quarter.....................................  $9.000    $4.500
  3rd Quarter.....................................  $8.500    $6.125
  4th Quarter.....................................  $8.125    $5.50

1997
  1st Quarter.....................................  $8.000    $5.625
  2nd Quarter.....................................  $5.875    $4.4375
  3rd Quarter.....................................  $9.250    $4.875
  4th Quarter.....................................  $9.750    $5.250
</TABLE>

     On March 25, 1998, the closing sale price for a share of Common Stock as
reported on the Nasdaq National Market was $8.00. As of March 27, 1998, there
were 314 holders of record of the Company's Common Stock.

     The Company did not declare dividends on its Common Stock in 1997 and does
not intend to declare dividends on its Common Stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

     During the year ended December 31, 1997, the following issuances of
unregistered securities of the Company were made:

     (a) On November 26, 1997, the Company issued $12.32 million in Series A
Notes and $3.1 million in Series B Notes, to The Travelers Parties. The Series A
Notes and the Series B Notes were issued to a limited number of institutional
investors in reliance upon Section 4(2) of the Securities Act of 1933 as a
transaction not involving a public offering. No commissions were paid to any
underwriter, broker or dealer in connection with such issuance. The net proceeds
from the issuance of the Series A Notes and the Series B Notes were used in
connection with the Company's acquisition of additional interests in Technocom.
See "Business -- Acquisition of Additional Interests in Technocom."

     The Series B Notes come due on September 30, 1998, and the Series A Notes
come due on December 31, 1998. Both the Series A Notes and the Series B Notes
are secured by the Company's inventory and accounts receivable. In addition, the
Series B Notes are secured by 28 of the Technocom shares acquired. In addition
to issuing the Series A and Series B Notes, the Company also issued to the
Travelers Parties a total of 423,000 warrants to purchase Common Stock at $8.625
at any time up to December 31, 2008, and may become obligated to issue
additional warrants to the Travelers Parties in the event that certain
amortization payments are not made, or if the Series A or Series B Notes are not
paid in full at their maturity.

     (b) In partial consideration for the acquisition of additional interests in
Technocom from Elite, on November 26, 1997, the Company issued, at the direction
of Elite, an aggregate of 1,316,240 shares of Common Stock to P.S. Marketing &
Consulting Services Limited, a Gibraltar company. The shares of Common Stock
were issued to a single institutional investor in reliance upon Section 4(2) of
the Securities Act of 1933 as a transaction not involving a public offering. No
commissions were paid to any underwriter, broker or dealer in connection with
such issuance.

                                       65
<PAGE>   68

ITEM 6.  SELECTED FINANCIAL DATA

     The following summary consolidated financial and operating data was derived
from, and should be read in conjunction with, the audited Consolidated Financial
Statements of the Company and the related notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contained elsewhere herein. Prior to the Continuance the Company's audited
Consolidated Financial Statements were prepared in accordance with Canadian
GAAP, which differ in certain respects from U.S. GAAP. See Note 15 to the
Company's audited Consolidated Financial Statements. As a result of the
Continuance, the consolidated financial data presented below for the fiscal
years 1994 and 1993 have been restated in accordance with U.S. GAAP.

<TABLE>
<CAPTION>
                                                   FISCAL YEAR ENDED DECEMBER 31,
                                       -------------------------------------------------------
                                         1997        1996        1995       1994        1993
                                         ----        ----        ----       ----        ----
                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                    <C>         <C>         <C>         <C>        <C>
STATEMENT OF OPERATIONS DATA:
  Operating revenues.................  $114,424    $ 61,966    $ 29,120    $ 8,526    $  2,308
  Operating expenses.................   102,406      59,099      38,266     17,248       7,606
                                       --------    --------    --------    -------    --------
  Operating income/(loss)............    12,018       2,867      (9,146)    (8,722)     (5,298)
                                       --------    --------    --------    -------    --------
  Loss from continuing operations
     before income taxes and minority
     interest........................    (3,428)     (6,271)    (13,440)    (9,491)     (5,264)
  Income taxes.......................     7,739       3,669       1,490         --          --
  Loss from continuing operations
     before minority interest........   (11,167)     (9,940)    (14,930)    (9,491)     (5,264)
  Minority interest..................     9,399       2,521         551         --          --
                                       --------    --------    --------    -------    --------
  Loss from continuing operations....   (20,566)    (12,461)    (15,481)    (9,491)     (5,264)
  Discontinued operations............        --          --          --         --      (5,138)
                                       --------    --------    --------    -------    --------
  Loss for the year..................  $(20,566)   $(12,461)   $(15,481)   $(9,491)   $(10,402)
                                       ========    ========    ========    =======    ========
  Loss per common share(1)...........  $  (0.64)   $  (0.39)   $  (0.49)   $ (0.78)   $  (1.33)
                                       ========    ========    ========    =======    ========
  Weighted average number of shares
     outstanding.....................    32,061      31,579      31,315     12,663       8,155
</TABLE>

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                       -------------------------------------------------------
                                         1997        1996        1995        1994       1993
                                         ----        ----        ----        ----       ----
<S>                                    <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA:
  Cash and cash equivalents(2).......  $ 17,256    $ 40,674    $ 15,676    $ 56,710    $   948
  Non-cash working
     capital/(deficiency)............   (18,642)    (26,440)    (22,001)    (17,706)    (5,121)
  Escrow funds.......................    33,868      40,984          --          --         --
  Property and equipment, net........   134,998      93,039      45,357      21,718      6,306
  Telecommunications licenses........    78,837      72,310      49,583      54,099     18,337
  Investments and other assets.......    32,801      39,052      29,293      18,925      2,223
  Investment in Teleport-TP..........        --          --      23,564      15,699         --
  Total assets.......................   335,586     306,357     178,092     171,760     28,700
  Shareholders' equity...............   127,231     137,954     135,832     147,470     11,448
</TABLE>

---------------
(1) In 1993, loss per common share includes a loss from discontinued operations
    of $(0.63).

(2) The December 31, 1996 and December 31, 1995 balances includes cash of $9.0
    million and $6.1 million, respectively, held on deposit as collateral to
    secure bank indebtedness of the same amount.

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<PAGE>   69

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     Except as otherwise indicated, all references to 1995, 1996 and 1997 refer
to the fiscal year ended on December 31 of those years respectively.

INTRODUCTION

     Basis of Presentation.  Effective February 28, 1997 PLD Telekom Inc. was
continued as a Delaware corporation. As a result, the consolidated financial
statements for 1995, 1996 and 1997 have been prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP). Prior
to 1996, the audited consolidated financial statements were prepared in
accordance with Canadian GAAP, with a reconciliation to U.S. GAAP. EBITDA, which
is used as a measure of operating performance, is defined as follows: earnings
before taxes and minority interest plus interest (interest expense less interest
income) plus depreciation and amortization.

     Principal Operations and Future Activities.  The Company's key interests at
December 31, 1997 include a 60% equity interest in PeterStar, which provides
telecommunication services in St. Petersburg, Russia; a 50% equity interest in
BECET, which provides cellular services in Kazakstan; and an 80.4% equity
interest in Technocom which, through its 49.33% equity interest in Teleport-TP,
operates an international teleport in Moscow, fiber optic networks in Moscow and
its environs and a satellite-based long distance network across Russia. Cable &
Wireless is the Company's principal shareholder at December 31, 1997. The
consolidation of financial information in the 1997 financial statements differs
from 1996 by reflecting the Company's acquisition of an additional 29.65%
interest in Technocom effective December 31, 1997. The consolidation of
financial information in the 1996 financial statements differs from 1995 by
reflecting (i) the Company's acquisition of 100% of the outstanding shares of
BCL in April 1996; and (ii) the acquisition by Technocom of a controlling voting
interest in Teleport-TP effective December 31, 1996.

     The Company's telecommunications businesses are developing rapidly in an
emerging economy which, by its nature, has an uncertain economic, political and
regulatory environment. The general risks of operating businesses in the former
Soviet Union include the possibility for rapid change in government policies,
economic conditions, the tax regime and foreign currency regulations. In
addition, Teleport-TP's satellite-based long distance network is at an early
stage of its development and operations.

     Ultimate recoverability of the Company's investments in PeterStar, BECET
and Teleport-TP is dependent upon each of these subsidiaries achieving and
maintaining profitability, which is dependent to a certain extent on the
stabilization of the economies of the former Soviet Union, the ability to
maintain the necessary telecommunications licenses and the ability to obtain
adequate financing to meet capital commitments.

     Effect of change from Canadian GAAP to U.S. GAAP.  The effect of the
restatement of prior year comparatives from Canada to U.S. GAAP is explained in
Note 15 to the consolidated financial statements. However, the main differences
may be summarized as follows: (i) under Canadian GAAP, the Convertible Notes
issued in connection with the June 1996 Placement are a compound financial
instrument and the debt and equity elements are separately accounted for. Under
U.S. GAAP, the Convertible Notes are accounted for as a single debt instrument
under the "Long-term debt" caption; and (ii) U.S. GAAP does not permit the
capitalization of pre-operating costs. Therefore, in anticipation of the change
to U.S. GAAP, effective December 31, 1996 the Company changed its Canadian GAAP
policy with respect to pre-operating costs to be in accordance with U.S. GAAP.
As a result, all such costs were retroactively expensed.

     Accounting Standards.  Statement of Financial Accounting Standards No. 130
(SFAS 130), "Reporting Comprehensive Income," and Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosure about Segments of an
Enterprise and Related Information," were issued in June 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. This Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has not determined the

                                       67
<PAGE>   70

impact of SFAS 130 on its financial statements. SFAS 131 establishes standards
for the way public companies report information about operating segments in
annual financial statements and requires that those companies report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company is
required to adopt both new standards in the first quarter of 1998.

     Management Fees.  Certain of the Company's subsidiaries pay management fees
to their shareholders, including the Company. The figures presented for the
subsidiaries reflect all payments of such fees -- ie, management fees are
included in operating expenses in the same way as other expenses of the
subsidiary. Profitability measures -- EBITDA, operating profit and net
income -- are therefore quoted after accounting for such payments.

RESULTS OF OPERATIONS

  YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996

     PLD Telekom Inc. -- Consolidated

     In 1997, the Company reported a loss of $20.6 million, or $0.64 per share,
on total revenues of $118.0 million, including operating revenues of $114.4
million. This compares with a loss in 1996 of $12.5 million, or $0.39 per share,
on total revenues of $66.8 million (operating revenues of $62.0 million). EBITDA
of $30.3 million compared with $12.1 million in 1996.

     The loss of $20.6 million in 1997 incorporates a profit contribution from
PeterStar of $16.5 million (after income taxes of $3.2 million), a profit
contribution from BECET of $7.2 million (after income taxes of $3.6 million), a
profit contribution from BCL of $0.5 million (after income taxes of $0.4
million), corporate interest and other income of $3.1 million, a corporate
foreign exchange gain of $0.1 million and a corporate gain on the disposal of an
investment of $1.0 million, offset by a net loss of $4.7 million incurred in
Technocom, corporate general and administrative costs of $8.3 million, interest
on corporate bank indebtedness and long-term debt of $16.7 million, corporate
amortization and depreciation charges of $8.5 million, corporate taxes of $0.9
million and minority interest charges of $10.0 million relating to PeterStar,
BECET and Technocom.

     Operating revenues.  Consolidated operating revenues increased by 85% from
$62.0 million in 1996 to $114.4 million in 1997, principally as a result of
strong growth in PeterStar and BECET, and the consolidation of a full year's
revenues from BCL and Teleport-TP in 1997. Operating revenues from PeterStar
increased in 1997 to $54.5 million from $32.5 million in 1996 due mainly to a
continued rapid increase in line penetration from 52,005 at December 31, 1996 to
114,774 at December 31, 1997. BECET contributed operating revenues of $30.0
million, as compared to $19.1 million in 1996. This increase is attributable to
the growth in BECET's subscriber base from 6,957 at December 31, 1996 to 11,120
at December 31, 1997. Technocom contributed operating revenues of $21.2 million
in 1997, compared to $4.4 million in 1996, largely as a result of the
consolidation of Teleport-TP. BCL contributed operating revenues of $7.6 million
for the Company in its first full year as an operating subsidiary of the Company
compared with part year revenues of $5.1 million in 1996. Yellow Pages
contributed $1.0 million in operating revenues in 1997 compared to $0.8 million
in 1996.

     Direct costs.  Direct costs, including the direct costs of sales of all of
the Company's subsidiaries, increased 81% in 1997 to $39.2 million. As a
percentage of revenues, direct costs reduced marginally to 34% from 35% in 1996.

     General and administrative costs.  General and administrative costs include
the day-to-day expenses in all five subsidiary operations as well as corporate
expenses. Consolidated general and administrative expenses increased 56% from
$24.8 million in 1996 to $38.7 million in 1997, reflecting the continued growth
in the scale and extent of the operating businesses and the full year
consolidation of BCL and Teleport-TP. As a percentage of operating revenues,
these costs continued a downward trend, falling from 62% in 1995 to 40% in 1996
to 34% in 1997.

     Depreciation.  Depreciation increased 100% from $5.2 million in 1996 to
$10.4 million in 1997, reflecting 1997 capital expenditures within the operating
businesses of $43.0 million as the build-out of the PeterStar,
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BECET and Teleport-TP networks progressed. In 1996, $43.2 million was invested
in these companies' networks.

     Amortization.  Upon the acquisition by the Company of its interests in
PeterStar, BECET and Technocom (incorporating Teleport-TP), the differential
between the purchase price and the fair value of the net assets acquired was
allocated to the telecommunications licenses held by these entities. These
licenses, which expire in 2004, 2009 and 2004 respectively, are being amortized
on a straight line basis over the appropriate terms. In this respect, in 1997,
the Company incurred total non-cash amortization charges of $7.4 million,
including $2.6 million relating to the telecommunications licenses of PeterStar,
$2.1 million relating to the telecommunications license of BECET and $2.7
million relating to the telecommunications licenses of Teleport-TP. The Company
also incurred amortization charges of $0.2 million relating to goodwill
associated with the acquisition of Yellow Pages and $1.2 million relating to
deferred financing costs associated with the senior discount and convertible
subordinated note financing undertaken in 1996. In 1996, the Company incurred
amortization charges of $4.7 million relating to the telecommunications licenses
of PeterStar and BECET, together with $0.2 million relating to goodwill
associated with Yellow Pages and $0.7 million relating to deferred financing
costs. In addition, included in Technocom's share of the 1996 results of its
equity investments were amortization charges of $2.5 million relating to the
telecommunications licenses of Teleport-TP.

     Interest expense.  Interest expense of $17.8 million consisted of interest
on bank indebtedness and short-term borrowings of $1.3 million and interest on
long-term debt of $16.5 million. Interest on the Senior Notes and the
Convertible Notes resulted in total interest charges on long-term debt of $16.5
million for the full year in 1997 compared to $8.7 million in 1996. Of this
amount, $2.4 million related to the Convertible Notes and was paid during the
year. The balance of $14.1 million was added to the accreted value of the Senior
Notes on the Company's balance sheet.

     Interest and other income.  Interest and other income in 1997 of $3.6
million compared with $4.9 million in 1996. Interest earned on the Company's
escrow account (funds from which may be used to acquire telecommunications
equipment or telecommunications companies in Russia and Kazakhstan) totaled $2.2
million in 1997 compared with $1.3 million earned for the partial year in 1996.
Escrowed funds are invested in short-term reverse repurchase agreements secured
by U.S. treasury bonds. Interest earned at the subsidiary level totaled $1.0
million for the year.

     Gain on disposal of investments and property and equipment.  Gain on
disposals of investments in 1997 related to the $1.0 million earned on the
Company's sale of its 10.4% interest in SPMMTS for gross proceeds of $17.2
million in June 1997, offset by a loss on disposal of equipment of $0.3 million
at BCL.

  PeterStar Company Limited

     PeterStar reported net income of $16.5 million and an operating profit of
$20.5 million on operating revenues of $54.5 million for the year ended December
31, 1997, compared to net income of $5.9 million and an operating profit of $8.0
million on operating revenues of $32.5 million for the year ended December 31,
1996. EBITDA grew to $24.1 million for the year ended December 31, 1997,
representing 44% of revenues, compared to EBITDA of $10.3 million, representing
31% of revenues in 1996.

     Revenues.  Call revenues for the year ended December 31, 1997 ($31.5
million) were 47% higher than the call revenues in the year ended December 31,
1996 ($21.5 million), reflecting increases in subscriber lines installed and
transit traffic carried during the period. Total subscriber lines increased by
121%, to 114,774 at December 31, 1997 from 52,005 at December 31, 1996. Directly
connected customers (i.e. business and residential lines) increased to 28,826
from 14,792, or 95%, over the same period. Lines to cellular operators increased
by 131% to 85,948 lines at December 31, 1997 from 37,213 lines at December 31,
1996.

     Revenues from line rentals increased by 92%, reflecting the increase in
installed lines, both fixed and cellular. Similarly, installation fees grew at a
rate of 118% over the year ended December 31, 1996, reflecting the increased
number of lines put into service.

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     Call revenues accounted for 58% of operating revenues for the year ended
December 31, 1997 compared to 66% in 1996, installation fees accounted for 22%
of total revenues for the year ended December 31, 1997 compared to 17% in 1996
and line rentals accounted for 20% of total revenues for the year ended December
31, 1997 compared to 17% in 1996.

     Of PeterStar's total network traffic in 1997, 87% was local compared with
89% in 1996 and 9% was long distance in 1997 compared with 7% in 1996.
International traffic was unchanged in 1997 at 4% of total network traffic.
These changing traffic patterns have reduced revenue per line to $654 in 1997
from $885 in 1996, while recurring revenue per line (calling charges and line
rentals) were $520 per line compared to $736 in 1996. By the end of 1997,
Russian businesses accounted for 70% of PeterStar's customers and 45% of its
revenues. These trends are expected to continue as Russian companies and
individuals increasingly constitute PeterStar's customer base.

     PeterStar expects line growth for both fixed and cellular services to
continue as the market expands for high quality digital telecommunications
services. PeterStar believes that its focus on the introduction of data services
such as frame relay and ATM services will increase revenues and improve its
competitive positioning.

     Gross Profit.  Gross profit increased 86% to $38.6 million for the year
ended December 31, 1997 from $20.7 million in 1996. The gross margin of 71% is
significantly higher than the margin of 64% in 1996 due to discounted outpayment
charges on higher traffic volumes, although continuing competition, plus the
possibility that PTS may start to levy access charges in 1998, is expected to
put pressure on margins in the future.

     Operating expenses.  Operating expenses increased 43% to $18.2 million for
the year ended December 31, 1997 from $12.7 million in 1996. Operating expenses
represented 33% of revenues in 1997 compared to 39% in 1996, as revenue
generation grew faster than costs. In particular, staff costs and depreciation
each accounted for 22% of total operating expenses for the year ended December
31, 1997, compared to 30% and 21%, respectively, for the same period in 1996.
Staff costs increases were directly related to the growth in PeterStar's
business during the year, with overall staff levels increasing from 220 in 1996
to 310 at the end of 1997. The biggest increases in staffing were in the sales
and marketing and technical departments. Staffing is expected to increase to
approximately 400 employees in 1998. Depreciation is expected to increase in
1998 as a result of $25 million in planned capital expenditures.

  BECET International

     BECET recorded net income of $7.2 million and an operating profit of $10.9
million on operating revenues of $30.0 million for the year ended December 31,
1997, compared to net income of $4.5 million and operating income of $6.0
million on operating revenues of $19.1 million for the year ended December 31,
1996. EBITDA grew to $13.9 million for the year ended December 31, 1997,
compared to EBITDA of $7.8 million for the same period in 1996.

     Revenues.  Call revenues for the year ended December 31, 1997 ($18.9
million) were 60% higher than the call revenues for the same period in 1996
($11.8 million), reflecting a substantial increase in subscribers during the
period, from 6,957 at December 31, 1996 to 11,120 at December 31, 1997.
Subscription fees increased during the year by 53% to $3.8 million, connection
fees increased by 5% to $1.7 million and equipment sales increased by 45% to
$4.7 million. Other revenues of $1.0 million increased fivefold during the year.

     Call revenues accounted for 63% of operating revenues for the year ended
December 31, 1997, up marginally from 62% in 1996, subscription fees accounted
for 13% of total revenues for the year ended December 31, 1997 -- unchanged from
1996, connection fees accounted for 6% of total revenues for the year ended
December 31, 1997 compared with 8% in 1996, while equipment sales represented
16% of revenues, as against 17% in 1996.

     Local and incoming traffic during 1997 accounted for 75% of total traffic
compared with 76% during 1996, mobile to mobile traffic accounted for 11% of
total traffic compared with 9% in 1996, while long distance traffic in 1997
accounted for 7% of total traffic compared with 6% during 1996, and
international traffic
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accounted for only 7% of total traffic compared with 9% during 1996. BECET's
customer base increasingly consists of Kazak companies and individuals, who tend
not to use its higher priced long distance and international services. This has
had an effect upon per subscriber revenues -- total revenue per subscriber for
the year ended December 31, 1997 was $3,382 against $3,886 per subscriber for
1996, while recurring revenue per subscriber also reduced from $2,900 in 1996 to
$2,666 per subscriber in 1997. The reductions in total per subscriber and
recurring per line revenues also stem from the different calling patterns of
these classes of customers who generally use as much as 38% less airtime as the
foreign business customers. BECET expects both of these trends to continue;
however, BECET expects to offset the effects of these factors by continuing to
expand its overall customer base, through, among other things, the introduction
of pre-paid cellular service during 1998.

     Gross Profit.  Gross profit increased 69% to $23.1 million for the year
ended December 31, 1997 from $13.7 million in 1996. Gross margin showed
continued improvement at 77% of operating revenues compared to the 72% margin
realized in 1996, primarily due to the greater calling volumes and reduced
dependence on revenues from equipment sales.

     Operating Expenses.  Operating expenses increased 60% to $12.3 million for
the year ended December 31, 1997 from $7.7 million in 1996, reflecting the
opening of an additional 4 operating sites and the increase in staffing from 307
at the end of 1996 to 426 at December 31, 1997. Operating expenses were
relatively unchanged at 41% of revenues in 1997 compared to 40% in 1996.
Depreciation accounted for 11% of total revenues for the year ended December 31,
1997, compared to 10% for the same period in 1996, in each case reflecting the
considerable capital investment in BECET over the past two years. Depreciation
is expected to increase in 1998 as BECET deploys an additional $8.2 million of
capital investment.

  Technocom Limited

     Technocom recorded a net loss of $4.7 million and an operating loss of $4.3
million on operating revenues of $21.2 million for the year ended December 31,
1997, compared to a net loss of $0.2 million and an operating loss of $0.7
million on operating revenues of $4.4 million for the year ended December 31,
1996. EBITDA showed a loss of $1.6 million for the year ended December 31, 1997,
compared to an EBITDA loss of $0.6 million in 1996. In 1997, the results of
Technocom's principal asset, Teleport-TP, were consolidated with those of
Technocom as a result of its acquisition of an additional 7.5% voting interest
(12.5% voting interest) in Teleport-TP, late in 1996. In 1996, Technocom's
investment in Teleport-TP was accounted for using the equity method.

     Technocom's 1997 revenues of $21.2 million consisted of $16.9 million in
telecommunications revenues generated by Teleport-TP, $2.0 million in finance
lease income from MTR-Sviaz and $2.3 million in other income.

     Technocom's consolidated net loss of $4.7 million consisted of a net loss
of $2.8 million within Teleport-TP (including finance lease interest expense), a
$1.2 million loss within Technocom's statutory accounts, a $0.2 million loss
within Technopark (55% owned by Technocom) and a $0.3 million loss within SCS
(100% owned by Technocom), amortization charges of $0.3 million, and share of
losses from equity investments of $0.5 million offset by a minority interest
credit of $0.6 million.

     The net loss of $2.8 million at Teleport-TP, which is 49.3% owned by
Technocom but consolidated with Technocom's results based on voting control of
56%, consisted of $16.9 million in revenues offset by direct costs of $11.8
million, operating expenses of $6.5 million and finance lease interest of $1.4
million.

     The $1.2 million loss within Technocom's statutory accounts relates to a
gross margin on revenues, including finance lease income, of $3.4 million and
interest and other income of $1.0 million offset by selling, general and
administrative expenses of $3.1 million, taxes of $1.2 million and interest
expense of $1.1 million.

     Share of losses from equity investments of $0.5 million consists of
Technocom's 49% share of losses from MTR-Sviaz of $0.9 million, offset by
Technocom's 50% share of net income from Rosh Telecom of $0.4 million.

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     In 1996, Technocom's primary revenue stream was from the leasing of
telecommunications equipment to Teleport-TP and MTR-Sviaz, which generated lease
income of $1.4 million. Technocom also earned revenues from a number of other
telecommunications projects and the provision of marketing services to
Teleport-TP, in total amounting to $3.0 million.

     Direct costs of $2.1 million in 1996 related to the provision of these
marketing services to Teleport-TP. Operating expenses of $3.0 million included
$2.1 million of general and administrative expenses and $0.3 million relating to
an investment write-off.

     Interest income of $1.3 million was generated in 1996.

     Presented below is a comparison of Teleport-TP's result of operations in
1997 and 1996.

     Teleport-TP generated a 1997 net loss of $2.8 million, operating loss of
$1.4 million and EBITDA of $0.9 million on revenues of $16.9 million, compared
with a net loss of $0.1 million, an operating profit of $0.1 million and EBITDA
of $1.4 million on revenues of $11.1 million for the year ended December 31,
1996.

     Revenues.  Teleport-TP generated revenues from three sources in 1997:
international leased circuits, occasional TV broadcasting, and direct dial
telephony services. Overall revenues for the year ended December 31, 1997
increased 52% to $16.9 million from $11.1 million for the year ended December
31, 1996, primarily reflecting the increase in international incoming traffic.

     Revenue from international circuits of $5.3 million amounted to 31.5% of
total revenue for the year ended December 31, 1997, as compared with 42% of
total revenue in 1996. Revenue from this source increased marginally as circuits
are leased for a fixed sum for a term of years, and revenue growth can generally
only be achieved by increasing the number of circuits leased. Revenues of $3.4
million from national circuits accounted for 20% of revenues in 1997, a
significant increase from 1996. Revenues from the provision of international
television broadcasting services and other income amounted to $3.3 million or
19.5% of total revenues, up from $0.8 million (6% of total revenues) in 1996.
Other international direct dial services generated $4.9 million or 28.8% of
total Teleport-TP revenues, compared to 52% of revenues in 1996. The Company had
anticipated that Teleport-TP's long distance services would be a more
significant contributor to revenues in 1997, but continued logistical delays in
installing remote earth stations delayed the start up of many sites until very
late in 1997. The Company continues to expect that these services will provide
steady revenue growth during 1998 and beyond as the various sites planned become
operational. Teleport-TP expects to complete the installation of the first 45
sites on the network by mid-1998.

     Gross profit.  Teleport-TP's gross profit increased 12.5% to $5.1 million
for the year ended December 31, 1997 from $4.6 million in 1996. The gross margin
decreased to 30.4% from 41% in 1996, primarily due to costs associated with the
build-out and operation of the satellite network and lower margins earned on the
network's national traffic which commenced in 1997.

     Operating expenses.  Operating expenses increased 48% to $6.6 million for
the year ended December 31, 1997 from $4.4 million in 1996. General and
administrative costs increased 35% to $3.5 million for the year ended December
31, 1997, compared with $2.6 million in 1996, reflective of increased personnel
and other costs relating to the development of the long distance network.
Depreciation of assets under capital lease was $2.2 million for the year ended
December 31, 1997, compared with $1.0 million in 1996, and is expected to
increase further in 1998 as Teleport-TP acquires an additional $10 million in
equipment related to the build-out of its long distance network. The Company
also expects Teleport-TP to increase its operating expenses in 1997 as it
further develops its long distance services.

     Interest.  Lease interest expense increased from $0.5 million in 1996 to
$1.4 million in 1997 resulting from an increase in rentals payable under
equipment leases between Technocom and Teleport-TP.

  Baltic Communications Limited

     The Company acquired BCL on April 1, 1996, and accordingly only the nine
months ended December 31, 1996 were consolidated in the Company's 1996 financial
statements. BCL recorded operating income of $1.1 million and net income of $0.5
million on revenues of $7.6 million for the full year in 1997 compared to
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operating and net income of $0.7 million on revenues of $5.1 million for the
nine months ended December 31, 1996. EBITDA of $1.7 million in 1997 compared
with $1.2 million in the nine months ended December 31, 1996.

     Revenues.  Call revenues accounted for 79% of total revenues for the year
ended December 31, 1997, primarily driven by international call minutes. Call
revenues accounted for 81% of 1996 revenues. Line rentals accounted for 14% of
total revenue in 1997 compared to 12% in 1996. The balance of revenues,
consisting of installations and equipment sales, accounted for 7% of revenues in
1997 compared to 7% of revenues in 1996.

     Gross profit.  Gross profit of $4.7 million (61% of revenues) compared with
gross profit of $3.0 million (59% of revenues) generated in the nine months
ended December 31, 1996.

     Operating expenses.  Operating expenses totaled $3.9 million (51% of
revenues) in 1997 compared to $2.3 million (46% of revenues) incurred in the
nine months ended December 31, 1996. Staff costs and depreciation accounted for
49% and 21% of total operating costs in 1997 compared to 45% and 22%
respectively of total operating costs for the nine months ended December 31,
1996.

  St. Petersburg Yellow Pages

     Yellow Pages recorded a 25% increase in revenues to $1.0 million in 1997 as
a result of a 19% increase in the number of companies placing advertisements in
the directory during the year. Gross profits increased 40% to $0.7 million in
1997 (70% of sales), from $0.5 million in 1996 (63% of sales), reflecting both
revenue growth and increased operating leverage. A net loss of $3,000 in 1997
compared to a net profit of $33,000 in 1996.

YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995

     PLD Telekom Inc. -- Consolidated

     In 1996, the Company reported a net loss of $12.5 million, or $0.39 per
share, on total revenues of $66.8 million, including operating revenues of $62.0
million. This compared to a net loss in 1995 of $15.5 million, or $0.49 per
share, on total revenues of $31.2 million (operating revenues of $29.1 million).

     The loss of $12.5 million in 1996 incorporated a profit contribution from
PeterStar of $5.9 million (after profits tax of $1.8 million), a profit
contribution from BECET of $4.5 million (after profits tax of $1.5 million), a
profit contribution from BCL of $0.7 million (after profits tax of $0.2
million), and corporate interest and other income of $2.8 million, offset by
corporate general and administrative costs of $6.3 million, interest on
corporate bank indebtedness and long-term debt of $9.5 million, amortization
charges of $5.6 million, a share of the loss from equity investments of $2.7
million (including amortization of licenses of $2.5 million) and minority
interest charges of $2.5 million relating primarily to PeterStar and BECET.

     Operating revenues.  Consolidated operating revenues increased by 113% from
$29.1 million in 1995 to $62.0 million in 1996, principally as a result of
strong growth in PeterStar and BECET and the addition of BCL to the portfolio
with effect from April 1, 1996. Operating revenues from PeterStar grew 118% in
1996, to $32.5 million from $14.9 million in 1995, due mainly to a continued
rapid increase in line penetration from 21,528 at December 31, 1995 to 52,005 at
December 31, 1996. BECET contributed operating revenues of $19.1 million, as
compared to $9.3 million in 1995. This increase was attributable to the growth
in BECET's subscriber base from 2,882 at December 31, 1995 to 6,957 at December
31, 1996. Technocom contributed operating revenues of $4.4 million in both 1996
and 1995 from its leasing of telecommunications equipment and from
telecommunications projects. BCL contributed operating revenues of $5.1 million
for the Company, and Yellow Pages contributed $0.8 million for the full year.

     Direct costs.  Direct costs were 35% of operating revenues in 1996 compared
to 36% of operating revenues in 1995, and include the direct costs of sales of
PeterStar, BECET, Technocom, BCL and Yellow Pages.

     General and administrative costs.  Consolidated general and administrative
expenses increased 36% from $18.2 million in 1995 to $24.8 million in 1996,
reflecting the continued growth in the scale and extent of

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the operating businesses and the acquisition of BCL. As a percentage of
operating revenues these costs exhibited a downward trend, falling from 62% in
1995 to 40% in 1996. At the corporate level, general and administrative overhead
increased to $6.3 million in 1996 from $5.1 million in 1995.

     Depreciation.  Depreciation increased 36% from $3.8 million in 1995 to $5.2
million in 1996, reflecting 1996 capital expenditures within the operating
businesses of $43.2 million as the build-out of the PeterStar and BECET networks
progressed.

     Amortization.  In 1996, the Company incurred total non-cash amortization
charges of $5.6 million, including $2.6 million relating to the
telecommunications licenses of PeterStar, and $2.1 million relating to the
telecommunications license of BECET. In addition, it incurred charges of $0.2
million relating to goodwill associated with the acquisition of Yellow Pages and
$0.7 million relating to deferred financing costs. As well as the $5.6 million
of amortization noted above, the Company's share of the results of its equity
investments -- Teleport-TP, MTR-Sviaz and Rosh Telecom -- which were accounted
for on an equity basis, included amortization of $2.5 million relating to the
telecommunications licenses of Teleport-TP. Total amortization charges in 1995
were $6.2 million principally relating to the PeterStar, BECET and Teleport-TP
telecommunications licenses.

     Interest expense.  On June 12, 1996, the Company completed a $149.5 million
private placement consisting of (i) 123,000 units consisting of $123 million
aggregate principal amount at stated maturity of Senior Notes together with
Placement Warrants to purchase a total of 4,182,000 shares of Common Stock; and
(ii) $26.5 million aggregate principal amount of 9% convertible notes. The
purchase/conversion prices respectively on the Warrants and the convertible
notes are $6.60 and $6.90 per share of Common Stock.

     These debt instruments represented entirely new indebtedness of the Company
and resulted in an interest charge on long-term debt in 1996 of $8.7 million as
against zero expense in 1995. Prior to the completion of this offering the
Company had a $22.5 million bank facility with a Canadian chartered bank (CIBC),
guaranteed by Cable & Wireless, which resulted in corporate interest charges of
$0.7 million in 1996, as compared with $0.5 million in 1995, and which together
with interest expenses relating to certain indebtedness of Technocom yields
total interest expense on bank indebtedness of $1.2 million in 1996 ($1.0
million in 1995).

     Interest and other income.  Under the terms of the debt offering, $46.0
million was deposited into an escrow account, for subsequent disbursement into
telecommunications equipment or telecommunications companies in Russia and
Kazakstan. All funds which had yet to be disbursed were invested throughout the
period in short-term reverse repurchase agreements secured by U.S. treasury
bonds. These investments, together with interest earned on other cash deposits
and miscellaneous other income, produced total interest and other income at the
corporate level of $2.8 million, compared with $0.4 million in 1995. The bulk of
the remainder of the $4.9 million accrued in Technocom.

  PeterStar Company Limited

     PeterStar had net income of $5.9 million and an operating profit of $8.0
million on operating revenues of $32.5 million for the year ended December 31,
1996, compared to a net loss of $1.0 million and an operating profit of $0.1
million on operating revenues of $14.9 million for the year ended December 31,
1995. EBITDA grew to $10.3 million for the year ended December 31, 1996,
representing 31% of revenues, compared to EBITDA of $2.4 million, representing
16% of revenues, for the same period in 1995.

     Revenues.  Call revenues for the year ended December 31, 1996 ($21.5
million) were 149% higher than the call revenues in the year ended December 31,
1995 ($8.6 million), reflecting increases in subscriber lines installed and
transit traffic carried during the period. Total subscriber lines increased by
142%, to 52,005 at December 31, 1996 from 21,528 at December 31, 1995. Directly
connected customers (i.e. business and residential lines) increased to 14,792
from 6,869, or 115%, over the same period. Lines to cellular operators increased
by 153%, to 37,213 lines at December 31, 1996 from 14,659 lines at December 31,
1995.

     Revenues from line rentals increased by 298%, reflecting the increase in
installed lines, both fixed and cellular. Conversely, installation fees grew
only at a rate of 29% over the year ended December 31, 1995,
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reflecting a reduction in the level of fees implemented by PeterStar during 1996
and the fact that installation fees on cellular lines are substantially lower
than on fixed lines.

     Call revenues accounted for 66% of operating revenues for the year ended
December 31, 1996 compared to 58% in 1995, installation fees accounted for 17%
of operating revenues for the year ended December 31, 1996 compared to 28% in
1995 and line rentals accounted for 17% of operating revenues for the year ended
December 31, 1996 compared to 9% in 1995. (In addition, in 1995 other income
represented a further 5% of operating revenues.)

     PeterStar experienced in 1996 a shift in its customer base, from foreign
companies which used the higher priced international and long distance services
to a predominantly Russian business and residential market for which local
calling is the principal usage. Thus, 89% of PeterStar's total network traffic
in 1996 was local compared with 84% in 1995, 7% of traffic was long distance in
1996 compared with 9% in 1995, and only 4% of traffic was international in 1996
compared with 7% in 1995. Accordingly, total revenue per line for the year ended
December 31, 1996 was $885 as against $1,163 per line for 1995, while recurring
revenue per line (calling charges and line rentals) were $736 per line as
against $783 in 1995.

     Gross profit.  Gross profit increased 115% to $20.7 million for the year
ended December 31, 1996 from $9.6 million in 1995. The gross margin of 64% was
slightly lower than the margin of 65% in 1995, with lower tariffs on
international traffic being offset by a reduction in the level of payments due
to the carriers of this traffic and an increase in local traffic where
PeterStar, under the terms of its arrangements with PTS, does not pay carrier
charges.

     Tariffs.  During 1996 there was continuing pressure on international rates
(part of a global trend in the telecommunications industry). PeterStar also
reduced tariffs on certain other routes, in response to competition.

     Operating expenses.  Operating expenses increased 32% to $12.7 million for
the year ended December 31, 1996 from $9.6 million in 1995. Operating expenses
represented 39% of revenues in 1996 compared to 64% in 1995, as revenue
generation grew faster than costs. In particular, staff costs and depreciation
accounted for 30% and 21%, respectively , of total operating expenses for the
year ended December 31, 1996, compared to 45% and 28%, respectively, for the
same period in 1995. The slower growth in staff costs reflected the fact that
personnel during 1996 only increased to 232 from 226 at the end of 1995, while
depreciation was lower because all capital investments in PeterStar were made in
the latter half of the year.

  BECET International

     BECET recorded net income of $4.5 million and an operating profit of $6.0
million on operating revenues of $19.1 million for the year ended December 31,
1996, compared to a net loss of $0.2 million and an operating loss of $0.5
million on revenues of $9.3 million for the year ended December 31, 1995. EBITDA
grew to $7.8 million for the year ended December 31, 1996, compared to EBITDA of
$0.6 million for the same period in 1995.

     Revenues.  Call revenues for the year ended December 31, 1996 ($11.8
million) were 137% higher than the call revenues for the same period in 1995
($5.0 million), reflecting a substantial increase in subscribers during the
period. Total subscribers increased from 2,882 at December 31, 1995 to 6,957 at
December 31, 1996. Subscription fees increased by 166%, connection fees
increased by 35% and equipment sales increased by 57% over 1995.

     Call revenues accounted for 62% of operating revenue for the year ended
December 31, 1996 compared to 53% in 1995, subscription fees accounted for 13%
of total revenues for the year ended December 31, 1996 compared to 11% in 1995,
connection fees accounted for 8% of total revenues for the year ended December
31, 1996 compared with 13% in 1995, while equipment sales represented 17% of
revenues, as against 23% in 1995.

     Local and incoming traffic during 1996 accounted for 76% of total traffic
compared with 75% during 1995, mobile to mobile traffic accounted for 9% of
total traffic compared with 6% in 1995, while long distance traffic in 1996
accounted for 6% of total traffic compared with 7% during 1995, and
international traffic

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<PAGE>   78

accounted for only 9% of total traffic compared with 12% during 1995. Total
revenue per subscriber for the year ended December 31, 1996 was $3,886 against
$5,513 per subscriber for 1995, while recurring revenue per subscriber also
reduced from $3,490 in 1995 to $2,900 per subscriber in 1996 reflective of
BECET's customer base shifting to Kazakh companies and individuals, who tended
not to use its higher priced long distance and international services. The
reductions in total per subscriber and recurring per line revenues also stemmed
from the different calling patterns of these classes of customers who generally
used as much as 40% less airtime than the foreign business customers.

     Gross Profit.  Gross profit increased 123% to $13.7 million for the year
ended December 31, 1996 from $6.2 million in 1995. The gross margin of 72% was
an improvement from the 66% margin realized in 1995, primarily due to the
greater calling volumes and reduced dependence on revenues from equipment sales.

     Operating Expenses.  Operating expenses increased 15% to $7.7 million for
the year ended December 31, 1996 from $6.7 million in 1995, reflecting the
opening of an additional eight operating sites and the increase in staffing from
220 at the end of 1995 to 307 at December 31, 1996. Operating expenses
represented 40% of revenues in 1996 compared to 72% in 1995, the difference
representing both BECET's increasing realization of economies of scale and
substantial growth in revenue generation. Depreciation accounted for 10% of
total revenues for the year ended December 31, 1996, compared to 12% for the
same period in 1995, in each case reflecting the considerable capital investment
in the BECET network.

  Technocom Limited

     Technocom recorded a net loss of $0.2 million and an operating loss of $0.7
million on operating revenues of $4.4 million for the year ended December 31,
1996, compared to net income of $1.1 million and an operating profit $1.1
million on operating revenues of $4.4 million for the year ended December 31,
1995. EBITDA showed a loss of $0.6 million for the year ended December 31, 1996,
compared to EBITDA of $1.1 million, for the same period in 1995.

     Interest income of $1.3 million was generated in 1996, compared with $0.9
million in 1995.

     Effective December 31, 1996, Technocom acquired an additional interest in
Teleport-TP which gave Technocom effective control over Teleport-TP. The
following is a discussion of Teleport-TP's results of operations in 1996 when
Teleport-TP was accounted for using the equity method.

     Technocom's principal asset, Teleport-TP, in which it has a 49.3% interest
as at December 31, 1996, recorded a net loss of $0.1 million and an operating
profit of $0.1 million on revenues of $11.1 million for the year ended December
31, 1996, compared to a net loss of $0.1 million and an operating profit of $2.9
million on revenues of $7.1 million for the year ended December 31, 1995. EBITDA
decreased to $1.4 million for the twelve months ended December 31, 1996,
compared to EBITDA of $3.4 million for the same period in 1995.

     Revenues.  In 1996, Teleport-TP generated revenues from three sources:
international leased circuits, occasional TV broadcasting, and direct dial
telephony services. Revenues for the year ended December 31, 1996 increased 56%
to $11.1 million from $7.1 million for the year ended December 31, 1995,
primarily reflecting the increase in international incoming traffic. Revenues
from international circuits amounted to 42% of total revenue for the year ended
December 31, 1996, as compared with 58% of total revenue in 1995. Revenues
remained relatively stable because circuits are leased for a fixed sum for a
term of years, and revenue growth can generally only be achieved by increasing
the number of circuits leased. Revenues from the provision of international
television broadcasting services amounted to $0.75 million or 6% of total
revenues, down from $1.1 million (15% of total revenues) in 1995. Other
international direct dial services generated $5.7 million or 52% of total
Teleport-TP revenues.

     Gross Profit.  Teleport-TP gross profit decreased 8% to $4.6 million for
the year ended December 31, 1996 from $5.0 million in 1995. The gross margin
declined to 41% from 71% in 1995, primarily due to the greater dependence on
calling revenues rather than the higher margin leased circuit revenues.

     Operating Expenses.  Operating expenses increased 52% to $4.4 million for
the year ended December 31, 1996 from $2.9 million in 1995. General and
administrative costs increased 63% to $2.6 million for the

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<PAGE>   79

year ended December 31, 1996, compared with $1.6 million in 1995 reflective of
increased personnel and other costs relating to the development of the long
distance network. Depreciation of assets under capital lease was $1.0 million
for the year ended December 31, 1996, compared with $0.6 million in 1995.

     Interest.  Lease interest expense decreased from $1.4 million in 1995 to
$0.5 million in 1996 resulting from a reduction in rentals payable under the of
equipment leases between Technocom and Teleport-TP.

  Baltic Communications Limited

     The Company acquired BCL on April 1, 1996, and therefore it has only been
consolidated for the nine months ended December 31, 1996. There is no comparable
information available for prior years. BCL recorded net income of $0.7 million
and an operating profit of $0.7 million on revenues of $5.1 million for the nine
months ended December 31, 1996. EBITDA of $1.2 million was also recorded for
this period.

     Revenues.  Call revenues accounted for 81% of total revenues for the year
ended December 31, 1996, primarily driven by international call minutes.
Installation fees accounted for 7% of total revenues with line rentals
accounting for the balance. The Company expects that BCL will continue to derive
most of its revenues from directly connected business customers and acting as a
transit gateway for other international operators.

     Gross Profit.  A gross profit of $3.0 million was generated for the nine
months ended December 31, 1996, a gross margin of 59%. The Company expects this
margin to reduce over time as a result of continuing pressure on international
rates.

     Operating Expenses.  Operating expenses of $2.3 million were incurred for
the nine months ended December 31, 1996, representing 46% of revenues. Staff
costs and depreciation account for 45% and 22% respectively of total operating
costs for the year ended December 31, 1996. The Company does not expect to see
any significant change to the operating costs in BCL in 1997.

  Yellow Pages

     Yellow Pages recorded an operating profit of $33,000 on revenues of $0.8
million for the year ended December 31, 1996, compared to an operating loss of
$29,000 on revenues of $0.5 million for the year ended December 31, 1995. Gross
profit increased 70% to $0.5 million in 1996, from $0.3 million in 1995.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's emergence as a key player in the telecommunications markets
of the C.I.S. has involved significant investment in telecommunications assets,
licenses and property and equipment, which have been financed through public and
private placements of equity stock, a private placement of long-term debt
instruments, shareholder loans, bank lines of credit and trade financing.

     From time to time, the Company has had discussions with other
telecommunications entities concerning the establishment of possible
relationships or other transactions, including the taking of equity positions in
the Company or its subsidiaries. While no agreement has materialized to date
from any such discussions, the Company will continue to consider appropriate
opportunities.

     Effective February 28, 1997, the Company continued from Ontario into
Delaware and, in connection therewith, moved its executive offices to the United
States. The benefits of this continuance are anticipated to include improved
access to the U.S. capital markets, reduced costs of financing and streamlining
of management and operations. No material adverse tax charges resulted from this
continuance.

PETERSTAR COMPANY LIMITED

     By December 31, 1996, PeterStar had invested a total of $43.0 million in
property and equipment, related primarily to the construction of its fiber optic
ring around central St. Petersburg and the construction of a new digital
exchange on Vassilievski Island. In 1997, PeterStar invested a further $26.2
million on new switching equipment increasing transmission capacity, and
improving access to the long distance and international
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<PAGE>   80

gateway between PeterStar and SPMMTS. PeterStar expects to fund its 1998 capital
expenditures, estimated at approximately $25 million, from a combination of the
Company's escrow funds, bank and supplier financing and its own internal
cashflows.

BECET INTERNATIONAL

     Total investment in the cellular telecommunications network and related
support infrastructure, such as customer service centers and administration
facilities, totaled $28.9 million by December 1996.

     BECET had capital expenditures of approximately $4.3 million in 1997 and
anticipates an additional $8.2 million in 1998 in connection with further
investment in cities where the network currently operates. This continued
expansion in 1998 is expected to be entirely financed through BECET's own
internally generated cashflows.

TECHNOCOM LIMITED

     Technocom is pursuing a number of new telecommunications opportunities
throughout the Russian Federation including its joint venture with Mosenergo,
the Moscow city power utility, called MTR-Sviaz. Technocom has thus far invested
approximately $5.2 million in MTR-Sviaz, principally through the acquisition of
telecommunications equipment and numbering capacity which it then leased to
MTR-Sviaz.

     Technocom is also significantly involved in supporting the development by
Teleport-TP of a satellite-based long distance network. During 1996, Technocom
had capital expenditures of approximately $11.0 million related to the
Teleport-TP project. Funding was provided, in part, from the $20.0 million
contributed to Technocom by the Company out of the proceeds of the debt
placement in June 1996. Additional funding of approximately $10 million will be
required in 1998 and will be provided from a combination of sources including
supplier financing, Technocom's own internally generated cashflows, and proceeds
from the Company's escrow account.

PLD TELEKOM INC. -- CORPORATE

     In connection with the continuance of the Company from Ontario to Delaware,
the Company closed its executive offices in Toronto, Canada on February 27, 1997
and subsequently established executive offices in New York, USA in the second
quarter of 1997. At the same time the Company reduced substantially the
activities carried out by its wholly owned subsidiary, PLDMS, from its offices
in London, England. The Company estimates that its total corporate overhead
costs, including management salaries, professional costs, investor relations
costs, regulatory fees and general office costs, will be $8.5 million in 1998
and expects to fund these by a combination of cash on hand, and management fees
and dividends to be paid by the Company's operating subsidiaries.

WORKING CAPITAL AND OTHER BALANCE SHEET ITEMS

     At December 31, 1997, the Company had a working capital deficit (not
including funds held in escrow) of $1.4 million compared to a working capital
surplus of $14.2 million at December 31, 1996. The reduction in working capital
was primarily the result of the Company's acquisition of the additional 29.65%
interest in Technocom for gross consideration of $32.1 million. The acquisition,
which increased the Company's ownership in Technocom to 80.4%, was financed with
$12.32 million 12% Series A Senior Secured Revolving Credit Notes, $3.1 million
12% Series B Senior Revolving Credit Notes, both due in 1998, a $9.0 million
draw from escrow of the proceeds of the Senior Notes originally issued in June
1996 and the issuance of 1,316,240 shares of Common Stock from treasury.

     The Company placed privately a total of $149.5 million in Senior and
Convertible Notes in June 1996. The proceeds, which amounted to $105.0 million
(net of discounts, commissions and expenses), were used to pay off the Company's
$22.5 million bank facility and to meet the Company's then outstanding $20.0
million commitment to Technocom, with the remainder being targeted for capital
investments in the existing operating units, the development of additional
products and services to be delivered over the Company's

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<PAGE>   81

networks, and general corporate purposes. Funds targeted for capital investment
or new products and services were required to be held in escrow.

     The Senior Notes mature on June 1, 2004 with interest accreted at a rate of
14% per annum, compounding semi-annually, to an aggregate principal amount of
$123 million by December 31, 1998. Cash interest does not accrue on the Senior
Notes prior to December 31, 1998. Thereafter, interest will accrue at the rate
of 14% per annum and will be payable in cash, semi-annually, on June 1 and
December 1 of each year, commencing June 1, 1999.

     The Convertible Notes, with a face value of $26.5 million, mature on June
1, 2006 with interest accruing at the rate of 9% per annum, payable in cash,
semi-annually, on June 1 and December 1 of each year.

     At December 31, 1997, the funds being held in escrow, which are not
included in current assets, totaled $33.9 million compared to $41.0 million at
the end of 1996. The Company's ability to access these funds freely is
restricted since the funds in escrow can only be accessed after compliance with
a number of conditions, including ensuring that the funds are only used for
certain designated purposes and that certain other safeguards are in place. The
Company believes that the funds in escrow should be sufficient to implement the
business plans of its operating subsidiaries at least through 1998.

     The indentures governing the release of the escrow funds have recently been
amended to broaden the range of transactions for which the Company may use the
escrow funds to make telecommunications assets available to its operating
subsidiaries. It is anticipated that $8 million will be released from escrow
shortly. The indentures have also been amended to revise certain covenants
relating to corporate indebtedness, the guarantee of subsidiary debt, and the
establishment of U.S. special purpose subsidiaries.

     Under the terms of the Company's Senior Notes, the Company is required to
raise $20 million in a common share financing by May 31, 1998. Should the
Company not complete such an offering by May 31, 1998, the annual interest rate
on the Senior Notes will automatically increase to 14.5% until such time as an
offering in completed.

     The obligation to raise $20 million in equity is also a requirement under
the terms of the Series A and B Senior Revolving Credit Notes issued in November
1997. Should the Company not raise $20 million in equity prior to May 31, 1998,
the interest rate on the 12% Series A and B Notes will increase to 15% per annum
for the period commencing on June 1, 1998 until maturity. Interest on both the
Series A and B Notes is payable monthly in arrears. The Series A Notes mature on
December 30, 1998 and the Series B Notes mature on September 30, 1998. The
Company is also required, under the terms of the Revolving Credit Notes, to
reduce the aggregate commitments of the Notes by $1 million on July 31, 1998 and
on the last day of each succeeding month.

     In connection with the issuance of the Series A and B Notes, the Company
issued warrants to purchase a total of 423,000 shares of its Common Stock. In
addition, the Company will be obligated to issue additional warrants to the
holders of the Series A and B Notes should the Company not effect certain
"targeted reductions in commitment" as follows:

<TABLE>
<CAPTION>
COMMITMENT REDUCTION DATE   TARGETED REDUCTION AMOUNT
-------------------------   -------------------------
<S>                         <C>
  July 31, 1998                    $  500,000
  August 31, 1998                  $  500,000
  September 30, 1998               $1,000,000
  October 31, 1998                 $1,500,000
  November 30, 1998                $1,500,000
</TABLE>

     The holders of the Series A Notes will receive 30,000 additional warrants
to purchase shares of the Company on each date on which such reduction was not
made. In the event that the Company has not made the "targeted reductions"
scheduled for July 31, 1998 and August 31, 1998, the holders of the Series B
Notes will receive 16,000 additional warrants to purchase shares of such common
stock. The exercise price of the above warrants is $8.625 per share, except
that, if the Series B Notes are not repaid in full by September 30,

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<PAGE>   82

1998, the exercise price of all warrants issued to the holders of the Series B
Notes becomes $0.01 per share, and, if the Series A Notes are not repaid in full
by December 31, 1998, the exercise price of all warrants issued to the holders
of the Series A Notes also becomes $0.01. The total number of warrants which
could be issued under these arrangements is 182,000. All of the warrants expire
on December 31, 2008.

     In addition, if the Series B Notes are not repaid in full on September 30,
1998, then, commencing September 30, 1998 and on the last day of each succeeding
month until the Series B Notes have been repaid in full, the holders of the
Series B Notes shall receive 32,000 additional warrants to purchase shares of
the Company's stock at a price of $0.01 per share. If the Series A Notes are not
repaid in full on December 31, 1998, then, commencing December 31, 1998 and on
the last day of each succeeding month until the Series A Notes have been repaid
in full, the holders of the Series A Notes shall receive 32,000 additional
warrants to purchase shares of the Company's stock at a price of $0.01 per
share. All such warrants, referred to as "Default Warrants" will have an
expiration date ten years after their respective dates of issue.

     The Company's consolidated balance sheet at December 31, 1997 reflects
total assets of $335.6 million, as compared to $306.4 million at December 31,
1996. Total assets at December 31, 1997 were comprised of $52.1 million in
current assets (including $17.3 million of cash and term deposits), $135.0
million in property and equipment, $78.8 million in telecommunications licenses
related to PeterStar, BECET and Teleport-TP, escrow funds of $33.9 million, and
other assets and the investments of $32.8 million including $11.1 million in
goodwill relating to the Company's acquisition of an additional 29.65% interest
in Technocom effective December 31, 1997. Long-term indebtedness of $133.5
million, as a percentage of total assets, was 39.8% at December 31, 1997. The
corresponding figures at December 31, 1996 were $108.0 million and 35.2%.

     Shareholders' equity of $127.2 million at December 31, 1997 compared with
$138.0 million at the end of 1996 and consisted of $204.3 million in common
stock and additional paid-in capital, offset by the Company's deficit of $77.1
million. Capital stock increased during the year as a result of the issuance of
1,316,240 common shares, at an effective price of $5.85 per share, as part
consideration in respect of the Company's acquisition of the additional interest
in Technocom and the exercise throughout the year of 312,166 share options and
warrants at prices ranging between C$3.50 and US$6.50. The Company's ratio of
long-term indebtedness to equity at December 31, 1997 was 104.9% compared with
78.3% at December 31, 1996.

     To the extent that: (i) actual cash flows from operations are below the
Company's estimates as a result of lower than expected revenues per line or
higher operating costs; or (ii) development costs of the build-out of the
PeterStar, BECET and Technocom/Teleport-TP networks exceed current estimates,
the Company may be required to seek additional debt or equity financing beyond
that required above.

YEAR 2000 ISSUE

     The Year 2000 issue exists because many computer systems and applications,
particularly older systems and applications, use a two-digit, rather than a
four-digit, date field to designate a particular year. As a result, with the
century change, date-sensitive systems may recognize dates in the twenty-first
century (i.e., after 2000) as dates in the twentieth century (i.e., the
corresponding year commencing with the prefix 19--). Equally, such systems may
not recognize dates in the twenty-first century at all. All of this could lead
to system failures or miscalculations which could lead to disruption of
operations such as data being lost, an inability to process transactions,
incorrect data being generated and critical deadlines being overlooked. The
impact of these disruptions could be significant.

     The Company has addressed the Year 2000 issue in the following ways.

     First, the Company has contacted, and has required all of its operating
businesses to contact the manufacturers of equipment and producers of software
which they use in their businesses (or review "websites" or other materials
published by such parties relating to such equipment or software). Such survey
has indicated that, except in a few instances, all such equipment and software
is Year 2000 compliant. Where possible, steps are being taken to upgrade or
replace equipment which is not Year 2000 compliant. While there can be no
assurance that disruptions will not occur, the Company believes, based on this
survey and the fact

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<PAGE>   83

that much of the equipment and software on which its businesses are for the most
part of recent vintage, that it should not encounter material problems in this
particular area.

     While it does not appear that any of the parties from whom the Company or
any of its operating businesses have obtained goods or services in the past have
provided specific undertakings regarding Year 2000 compliance, and there is some
doubt whether existing warranties or other undertakings will in fact be
construed to cover Year 2000 compliance, starting in January 1998, all operating
businesses are also being required to use their best efforts to obtain specific
warranties of Year 2000 compliance from parties with which they contract for
products or services thereafter.

     Additionally, such operating businesses have been required to review the
terms under which they have heretofore supplied products and/or services to
third parties. No case has been identified in which any operating business has
specifically guaranteed Year 2000 compliance, and the Company has instituted a
policy regarding the giving of such guarantees in the future in order to control
and limit possible exposure thereunder. Further, since none of the operating
businesses manufacture equipment or produce proprietary software for customers
other than in exceptional cases, virtually all such transactions involve the
re-sale or assignment of products and services supplied by others. Accordingly,
the Company believes that, to the extent that such products and services are
either warranted or shown to be Year 2000 compliant, its own exposure is
commensurately reduced.

     The Company has investigated the possibility of obtaining insurance against
liability arising out of claims that products or services supplied are not Year
2000 compliant, but has determined that such insurance is not obtainable upon
terms which are sufficiently comprehensive and/or is only obtainable upon terms
which are uneconomical given the level of perceived risk, and accordingly has
elected not to pursue such insurance.

     Based on all of the foregoing, the Company believes that it does not have
any material exposure to claims that the products or services it supplies are
not Year 2000 compliant, that the cost of ensuring that equipment and software
used in its operations and the operations of its operating businesses is likely
to be immaterial, and that the possible disruptions to all such operations
arising from Year 2000 problems is likely to be relatively minimal.

TAXATION

     The Company and its subsidiaries are subject to a number of taxes in
different jurisdictions. The most significant taxes affecting the Company and
its subsidiaries are likely to be taxes in Russia and Kazakhstan (including
withholding taxes) and income taxes payable by the Company in the United States.
Withholding taxes could apply to distributions by the Company's operating
businesses in Russia and Kazakhstan and to distributions by intermediate level
companies in jurisdictions outside Russia, Kazakhstan, Canada and the United
States. The Company has attempted to mitigate the potential for withholding tax
liabilities by structuring its interests through a Cypriot holding company,
thereby taking advantage of the double taxation treaty between the Russian
Federation and Cyprus. As a result of the Continuance and its ability to take
advantage of the double taxation treaties between the United States and the
Russian Federation and Kazakhstan, respectively, the Company may elect to hold
its interests through one or more Delaware holding companies. Notwithstanding
this, obtaining the benefits of applicable tax treaties can be extremely
difficult due to the documentary and other requirements imposed by the Russian
and Kazakh authorities. For example, the Kazakh tax authorities require that an
exemption application be submitted in respect of every payment made, while at
the same time requiring non-standard certifications from the home country taxing
authority. In addition, a recent instruction issued by the Russian State Tax
Service mandates full withholding regardless of any treaty and requires the
recipient to seek to obtain a refund for withholding in excess of treaty
amounts. The need to comply with these provisions may negate or impair tax
planning initiatives undertaken by the Company to reduce its and its
subsidiaries' overall tax obligations.

     In general, the Company's Russian and Kazakh operating businesses are faced
with a wide variety of taxes, including property taxes, advertising taxes, road
taxes, housing taxes, transport taxes and education taxes. In addition,
PeterStar, Technocom and BECET are subject to corporate profits taxes of 34%,
35% and

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30%, respectively. The tax systems in Russia and Kazakhstan have changed rapidly
in recent years and may undergo additional changes, which may have a material
adverse effect on the Company.

     Technocom established a representative office in Moscow in October 1995 and
registered this office with the relevant Russian tax authorities. This resulted
in Technocom becoming 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 VAT and/or profits and other Russian taxes with
respect to the period before October 1995.

     At December 31, 1997, the Company had operating loss carryforwards for U.S.
federal income tax purposes of approximately $26.3 million. In assessing the
realizability of the deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable future income during the periods
in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning in making these assessments.

     At December 31, 1996, the Company had operating loss carryforwards for
Canadian income tax purposes of approximately $36.0 million and allowable
capital loss carryforwards of approximately $19.0 million. Upon the Company's
emigration to the United States in February 1997, these losses do not carryover
for U.S. tax purposes.

CURRENCY CONTROLS

  THE RUSSIAN FEDERATION

     Exchange Controls.  The Russian Federation currently has in place
relatively liberal policies regarding hard currency transfers by Russian
residents to non-residents. Payments in U.S. Dollars may generally be made
freely between Russian residents (which generally includes all Russian companies
and citizens resident in Russia) and non-residents (which generally includes
non-Russian companies even if they have a representative office or other
permanent establishment in Russia) for current currency transactions (generally
those where payment is made within 180 days of the provision of goods and
services). Payments in U.S. Dollars classified as movements of capital (which
generally includes direct investments, portfolio investments, acquisition of
real estate and payments made pursuant to loan, lease, sale of goods and
services agreements having terms of over 180 days) are subject to licensing by
the Central Bank. While PeterStar believes that it has applied for all the
necessary licenses, not all licenses have been received. Failure to apply for
the appropriate licenses, or to receive the outstanding licenses could result in
fines and penalties. Additionally, delays in the receipt of licenses will also
delay the time at which the Company can start to realize cashflows from the
leasing of assets to its operating subsidiaries in Russia. See "Business -- Risk
Factors -- Risks Involving the Company -- Currency Controls; Restrictions on
Repatriation of Payments; Prior Investments."

     Payments between Russian residents must generally be made in Roubles.
Russian companies may exchange Roubles for U.S. Dollars if they can document
U.S. Dollar-denominated liabilities that are due and payable within specified
periods. Russian companies are required to convert 50% of most hard currency
earnings into Roubles, but (as noted in the preceding sentence) may be able to
reconvert such amounts into hard currency if they can document hard currency
denominated liabilities that are due and payable within a specified period.
Roubles may not be lawfully exported from, or converted into, other currencies
outside of Russia.

     Availability of Hard Currency for Conversion Purposes.  The ability of
foreign investors to convert Roubles into hard currency is also subject to the
availability of hard currency in the Russian currency markets. Although there is
an existing market within Russia for the conversion of Roubles into other
currencies, including the interbank currency exchange, over-the-counter and
currency futures markets, the development of this market is uncertain.

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     Exchange Rates.  Significant fluctuations in the value of the Rouble
against the U.S. Dollar and other hard currencies can also have a material
impact on the value of a foreign investor's Rouble dividend income or Rouble
proceeds from the sale of Rouble denominated securities. In recent years, the
Rouble has experienced a significant depreciation relative to the U.S. Dollar
and other hard currencies, although during 1996 and 1997 it achieved relative
stability vis-a-vis the U.S. Dollar and other hard currencies.

     Repatriation.  Although Russian law governing foreign investment guarantees
foreign investors the right to repatriate their earnings from Russian
investments, the Russian exchange control regime, including licensing
requirements administered by the Central Bank, may materially affect their
ability to do so and may increase the cost of such repatriation. See
"Business -- Risk Factors -- Risks Involving the Company -- Currency Controls;
Restrictions on Repatriation of Payments; Prior Investments."

  KAZAKHSTAN

     Exchange Controls.  Kazakhstan currently has in place relatively liberal
policies governing hard currency transfers by Kazakh residents to non-residents.
Residents (which generally includes all Kazakh companies and citizens resident
in Kazakhstan) can use hard currency to pay non-residents (which generally
includes all non-Kazakh companies and their branch offices and representative
offices in Kazakhstan) for current currency transactions (generally those where
payment is made within 180 days of the provision of goods or services). Payments
in U.S. Dollars classified as movements of capital (which generally includes
direct investments, portfolio investments, payments with respect to real estate
and payments made after 180 days for goods and services) are subject to
licensing by the National Bank of Kazakhstan.

     Payments between Kazakh residents must generally be made in Tenge. Kazakh
companies may exchange Tenge for U.S. Dollars if they can document U.S.
Dollar-denominated liabilities that are due and payable within specified
periods. The National Bank of Kazakhstan does not currently require the
conversion of hard currency earnings into Tenge. Tenge may not be lawfully
exported from Kazakhstan or converted into other currencies outside of
Kazakhstan.

     Availability of Hard Currency for Conversion Purposes.  The ability of
foreign investors to convert Tenge into hard currency is also subject to the
availability of hard currency in the Kazakh currency markets. Although there is
an existing market within Kazakhstan for the conversion of Tenge into other
currencies, including the interbank currency exchange and the over-the-counter
markets, the development of this market is uncertain.

     Exchange Rates.  Significant fluctuations in the value of the Tenge against
the U.S. Dollar and other hard currencies can also have a material impact on the
value of a foreign investor's Tenge dividend income or Tenge proceeds for the
sale of Tenge-denominated securities. Since January 1995, the Tenge has
experienced relative stability against the U.S. Dollar and other hard
currencies.

     Repatriation.  Kazakhstan's foreign investment legislation provides that
earnings from investments made by foreign investors may be freely repatriated
provided that all applicable fees and taxes have been paid. However, the
exchange control regime in Kazakhstan may materially affect an investor's
ability to do so and may increase the cost of such repatriation. See
"Business -- Risk Factors -- Risks Involving the Company -- Currency Controls;
Restrictions on Repatriation of Payments; Prior Investments."

INFLATION

     Since the break-up of the Soviet Union, both the Russian and Kazakh
economies have been characterized by high rates of inflation. Although in 1996
and 1997, inflation in both countries decreased substantially, there is no
assurance that these trends will continue. In recent years, the devaluation of
the Rouble and Tenge has not kept pace with inflation. To the extent that the
Company's costs are denominated in the Rouble or the Tenge and devaluation of
these currencies does not fully offset inflation, the Company's local currency
costs will increase in hard currency terms. If the Company's operating
businesses are unable to increase prices in line with inflation, due to
competitive pressures or otherwise, the results of operations of the Company's
operating businesses may be adversely affected.

                                       83
<PAGE>   86

EXCHANGE RATES

     The following tables summarize the Rouble-U.S. Dollar and Tenge-U.S. Dollar
exchange rates since January 1994 in the case of the Rouble and since October
1994 in the case of the Tenge:

                      ROUBLE/U.S. DOLLAR EXCHANGE RATES(1)

<TABLE>
<CAPTION>
MONTH                                                         1994     1995     1996     1997
-----                                                         -----    -----    -----    -----
<S>                                                           <C>      <C>      <C>      <C>
January.....................................................  1,247    3,550    4,640    5,636
February....................................................  1,560    4,059    4,736    5,676
March.......................................................  1,688    4,400    4,830    5,726
April.......................................................  1,761    4,008    4,940    5,760
May.........................................................  1,841    5,130    5,031    5,773
June........................................................  1,918    4,958    5,105    5,771
July........................................................  1,988    4,539    5,189    5,798
August......................................................  2,060    4,405    5,352    5,824
September...................................................  2,204    4,445    5,396    5,861
October.....................................................  2,643    4,495    5,455    5,887
November....................................................  3,085    4,509    5,511    5,917
December....................................................  3,249    4,578    5,550    5,997
</TABLE>

---------------
(1) Spot rate on the last business day of each month.

                      TENGE/U.S. DOLLAR EXCHANGE RATES(1)

<TABLE>
<CAPTION>
MONTH                                                         1994    1995    1996    1997
-----                                                         ----    ----    ----    -----
<S>                                                           <C>     <C>     <C>     <C>
January.....................................................          55.6    65.5     75.8
February....................................................          60.1    65.3     75.5
March.......................................................          60.8    66.0     75.3
April.......................................................          63.5    67.1     75.4
May.........................................................          64.3    66.9     75.5
June........................................................          64.3    67.2     75.6
July........................................................          63.2    67.5     75.5
August......................................................          59.0    68.1     75.6
September...................................................          60.9    68.8     75.6
October.....................................................  50.0    61.7    69.5     75.6
November....................................................  50.0    63.9    70.4     75.6
December....................................................  50.0    59.6    73.1     76.2
</TABLE>

---------------
(1) Spot rate on the last business day of each month.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of the Company and its subsidiaries
and supplementary data required by this item are attached to this report
beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

     None.

                                       84
<PAGE>   87

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information concerning directors and compliance with Section 16(a) of the
Securities Exchange Act of 1934, called for by this Item will be contained in
the Company's definitive proxy statement for the 1998 Annual Meeting of
Shareholders (the "Proxy Statement"), and is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     Information with respect to this Item will be contained in the Proxy
Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information with respect to this Item will be contained in the Proxy
Statement and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information with respect to this Item will be contained in the Proxy
Statement and is incorporated herein by reference.

                                       85
<PAGE>   88

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) 1.  Financial Statements.  Financial Statements listed in the
             accompanying Index to Financial Statements appearing on page F-1
             are filed as part of this annual report on Form 10-K.

         2.  Exhibits.  (see (c) below).

     (b) Reports on Form 8-K

     On December 16, 1997, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission regarding the Company's acquisition of
additional interests in Technocom and the related financing transaction with the
Travelers Parties.

     (c) Exhibits

     The following is a list of exhibits filed as part of this Annual Report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  2       Certificate of Domestication. (Exhibit 3.1)(9)
  3.1     Certificate of Incorporation. (Exhibit 3.2)(9)
  3.2     By-Laws. (Exhibit 3.3)(9)
  4.1     Indenture dated as of May 31, 1996 among the Registrant, as
          Issuer, NWE Capital (Cyprus) Limited, PLD Asset Leasing
          Limited, PLD Capital Limited, Baltic Communications Limited
          and Wireless Technology Corporations Limited as Guarantors,
          and The Bank of New York, as Trustee, with respect to
          $123,000,000 aggregate principal amount at stated maturity
          of 14% Senior Discount Notes due 2004 (the "Senior Note
          Indenture") (including exhibits B, C, D and K only).
          (Exhibit 4.1)(10)
  4.2     Indenture dated as of May 31, 1996 among the Registrant as
          Issuer, NWE Capital (Cyprus) Limited, PLD Asset Leasing
          Limited, PLD Capital Limited, Baltic Communications Limited
          and Wireless Technology Corporations Limited as Guarantors,
          and The Bank of New York, as Trustee, with respect to
          $26,500,000 aggregate principal amount of 9% Convertible
          Subordinated Notes due 2006 (the "Convertible Note
          Indenture") (including exhibit B only). (Exhibit 4.2)(10)
  4.3*    First Supplemental Indenture, Amendment Agreement, Consent
          and Waiver, dated as of March 20, 1998, among the
          Registrant, as Issuer, NWE Capital (Cyprus) Limited, PLD
          Asset Leasing Limited, PLD Capital Limited, Wireless
          Technology Corporations Limited and Baltic Communications
          Limited, as Guarantors, Clayton A. Waite and Apropos
          Investments Ltd., as nominee shareholders, and The Bank of
          New York, as Trustee.
  4.4     Global Note representing 14% Senior Discounted Notes due
          2004. (Exhibit 4.3)(10)
  4.5     Global Note representing 9% Convertible Subordinated Notes
          due 2006. (Exhibit 4.4)(10)
  4.6     Warrant Agreement dated as of May 31, 1996 between the
          Registrant and The Bank of New York as Warrant Agent.
          (Exhibit 4.9)(10)
  4.7     Warrant Certificate of the Registrant for 123,000 Warrants
          exercisable on or after December 10, 1996 and on or before
          June 12, 2006. (Exhibit 4.5)(10)
  4.8     Smith Barney Warrant Agreement dated as of May 31, 1996
          between the Registrant and The Bank of New York as Warrant
          Agent. (Exhibit 4.10)(10)
  4.9     Smith Barney Warrant Certificate of the Registrant for
          100,000 Warrants exercisable as to 50,000 Common Shares on
          or after June 12, 1996 and as to 50,000 Common Shares on or
          after October 30, 1996 and on or before April 30, 2001.
          (Exhibit 4.6)(10)
</TABLE>

                                       86
<PAGE>   89

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  4.10    Registration Rights Agreement dated as of May 31, 1996
          between the Registrant and Smith Barney Inc. (Exhibit
          4.7)(10)
  4.11    Purchase Agreement dated May 24, 1996 between the Registrant
          and Smith Barney Inc. (without exhibits). (Exhibit 4.8)(10)
  4.12    Company Senior Note Escrow Account Agreement dated as of May
          31, 1996 among The Bank of New York as Escrow Agent, as
          Trustee under the Senior Note Indenture, as Trustee under
          the Convertible Note Indenture and the Registrant. (Exhibit
          4.11)(10)
  4.13    Company Convertible Note Escrow Account Agreement dated as
          of May 31, 1996 among The Bank of New York as Escrow Agent,
          as Trustee under the Senior Note Indenture, as Trustee under
          the Convertible Note Indenture and the Registrant. (Exhibit
          4.12)(10)
  4.14    Leasing Company Escrow Account Agreement (PLD Asset Leasing
          Limited) dated as of May 31, 1996 among The Bank of New York
          as Escrow Agent, as Trustee under the Senior Note Indenture,
          as Trustee under the Convertible Note Indenture and PLD
          Asset Leasing Limited. (Exhibit 4.13)(10)
  4.15    Leasing Company Escrow Account Agreement (PLD Capital
          Limited) dated as of May 31, 1996 among The Bank of New York
          as Escrow Agent, as Trustee under the Senior Note Indenture,
          as Trustee under the Convertible Note Indenture and PLD
          Capital Limited. (Exhibit 4.14)(10)
  4.16    Company Senior Note Security and Pledge Agreement dated as
          of May 31, 1996 by the Registrant in favor of The Bank of
          New York, as Trustee under the Senior Note Indenture, as
          Trustee under the Convertible Note Indenture, and as
          Collateral Agent. (Exhibit 4.15)(10)
  4.17    Company Convertible Note Security and Pledge Agreement dated
          as of May 31, 1996 by the Registrant in favor of The Bank of
          New York, as Trustee under the Convertible Note Indenture,
          as Trustee under the Convertible Note Indenture, and as
          Collateral Agent. (Exhibit 4.16)(10)
  4.18    Leasing Company Security and Pledge Agreement (PLD Asset
          Leasing Limited) dated as of May 31, 1996 by PLD Asset
          Leasing Limited in favor of The Bank of New York, as Trustee
          under the Senior Note Indenture, as Trustee under the
          Convertible Note Indenture, and as Collateral Agent.
          (Exhibit 4.17)(10)
  4.19    Leasing Company Security and Pledge Agreement (PLD Capital
          Limited) dated as of May 31, 1996 by PLD Capital Limited in
          favor of The Bank of New York, as Trustee under the Senior
          Note Indenture, as Trustee under the Convertible Note
          Indenture, and as Collateral Agent. (Exhibit 4.18)(10)
  4.20    NWE Cyprus Senior Note Security and Pledge Agreement dated
          as of May 31, 1996 by NWE Capital (Cyprus) Ltd. in favor of
          The Bank of New York, as Trustee under the Senior Note
          Indenture, as Trustee under the Convertible Note Indenture,
          and as Collateral Agent. (Exhibit 4.19)(10)
  4.21*   Revolving Credit Agreement, dated as of November 26, 1997,
          between the Registrant, The Travelers Insurance Company and
          The Travelers Indemnity Company.
  4.22*   Form of 12% Series A Senior Secured Revolving Credit Note.
  4.23*   Form of 12% Series B Senior Secured Revolving Credit Note.
  4.24*   Warrant Agreement, dated as of November 26, 1997, between
          the Registrant and The Bank of New York, as Warrant Agent.
  4.25*   Form of Series A Warrant Certificate.
  4.26*   Form of Series B Warrant Certificate.
  4.27*   Registration Rights Agreement, dated as of November 26,
          1997, between the Registrant, The Travelers Insurance
          Company and The Travelers Indemnity Company.
</TABLE>

                                       87
<PAGE>   90

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  4.28*   Guaranty Agreement, dated as of November 26, 1997, made and
          given by Wireless Technology Corporations Limited and Baltic
          Communications Limited in favor of The Travelers Insurance
          Company and The Travelers Indemnity Company.
  4.29*   Trust Agreement, dated as of November 26, 1997, between the
          Registrant and The Bank of New York, as Trustee.
  4.30*   Security Agreement (Inventory and Receivables), dated as of
          November 26, 1997, between the Registrant and The Bank of
          New York, as Trustee.
  4.31*   Pledge Agreement, dated as of November 26, 1997, between the
          Registrant and The Bank of New York, as Trustee.
 10.1*    PLD Telekom Inc. 1997 Equity Compensation Plan.
 10.2*    Service Agreement, dated August 1, 1997, between the
          Registrant and James R.S. Hatt.
 10.3*    Employment Letter, effective June 1, 1997, between the
          Registrant and John G. Davies.
 10.4*    Amendment, dated July 30, 1997, to Employment Letter between
          the Registrant and John G. Davies.
 10.5*    Service Agreement, dated July 1, 1997, between the
          Registrant and Simon Edwards.
 10.6     Service Agreement, dated January 1, 1995, between PLD
          Management Services Limited and Conor Carroll. (Exhibit
          2(l))(8)
 10.7*    Amended and Restated Service Agreement, dated August 1,
          1997, between the Registrant and Conor Carroll.
 10.8*    Service Agreement, dated November 26, 1997, between the
          Registrant and Boris Antoniuk.
 10.9*    Consultancy Agreement, dated December 28, 1994, between
          Technocom Limited and Elite International Limited.
 10.10*   Amendment, dated November 26, 1997, to the Consultancy
          Agreement between Technocom Limited and Elite International
          Limited.
 10.11    Service Agreement between the Registrant and Newmark Capital
          Limited dated as of January 1, 1995. (Exhibit 2(o))(8)
 10.12    Purchase Agreement dated August 12, 1992, as amended,
          between the Registrant and Dominion Capital. (Exhibit
          2(o))(2)
 10.13    Warrant to Purchase Common Shares dated October 2, 1992
          between the Company and Dominion Capital Inc. (Exhibit
          2(l))(2)
 10.14    Warrant to Purchase Common Shares dated June 8, 1994 between
          the Company and Dominion Capital Inc. (Exhibit 10.27)(4)
 10.15    Warrant to Purchase Common Shares dated July 28, 1994
          between the Company and Dominion Capital Inc. (Exhibit
          10.28)(4)
 10.16    Purchase Agreement dated November 17, 1992 between the
          Registrant, The Emerging Markets Telecommunications Fund,
          Inc., The Universal Global Fund and The Universal Emerging
          Markets Fund. (Exhibit 2(r))(2)
 10.17    Share Purchase Agreement dated as of November 5, 1993
          between the Registrant and Navona Communications Corporation
          Ltd. (Exhibit 3(a))(3)
 10.18    Subscription Agreement dated as of March 3, 1994 between the
          Registrant and Navona Communications Corporation Ltd.
          (Exhibit 3(e))(3)
 10.19    Variation Agreement dated as of March 25, 1994 between the
          Registrant and Navona Communications Corporation Ltd.
          (Exhibit 3(f))(3)
 10.20    Variation Agreement dated as of March 29, 1994 between the
          Registrant and Navona Communications Corporation Ltd.
          (Exhibit 3(g))(3)
</TABLE>

                                       88
<PAGE>   91

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 10.21    Further Variation Agreement dated as of June 3, 1994 between
          the Registrant and Navona Communications Corporation Ltd.
          (Exhibit 3(h))(3)
 10.22    Agreement to Purchase Warrants dated July 28, 1994 between
          the Registrant and Cable & Wireless. (Exhibit 10.25)(4)
 10.23    Option Agreement between Cable and Wireless plc and the
          Registrant dated January 27, 1996. (Exhibit 2(b))(8)
 10.24    Assignment of Receivables between Cable and Wireless plc and
          NWE Capital (Cyprus) Limited dated February 2, 1996.
          (Exhibit 2(d))(8)
 10.25    Agreement dated May 31, 1992 between Tiller International
          Limited and the Registrant. (Exhibit 2(m))(1)
 10.26    Joint Venture Agreement dated as of December 31, 1993
          between Wireless Technology Corporations Limited and
          Kompania Besprovodnye Seti Sviazi. (Exhibit 3(b))(3)
 10.27    Interconnection Agreement dated as of February 4, 1994
          between the Ministry of Communications of the Republic of
          Kazakhstan and BECET International. (Exhibit 3(d))(3)
 10.28*   Amendment, dated February 28, 1996, to the Interconnection
          Agreement between Kazakhtelekom and BECET International.
 10.29    Cellular System Equipment Purchase Agreement dated as of May
          4, 1994 between BECET International and Motorola Inc.
          (Exhibit 3(k))(3)
 10.30    Cellular System Installation & Optimization Agreement dated
          as of May 4, 1994 between BECET International and Motorola
          Inc. (Exhibit 3(l))(3)
 10.31    Put and Call Letter Agreement dated as of June 3, 1994
          between the Company and Monogram Telecommunications Limited.
          (Exhibit 3(i))(3)
 10.32    Subscription Agreement dated February 21, 1995 for
          $3,000,000 convertible note issued to the Registrant by
          Monogram. (Exhibit 2(a))(7)
 10.33    Agreement for the Acquisition of Ninety Percent of the
          Issued Share Capital of St. Petersburg Mayorality & Tiller
          dated as of March 7, 1994 among the Registrant, Tiller
          International Limited and Dian A/O. (Exhibit 3(j))(3)
 10.34    Shareholders and Subscription Agreement dated as of November
          3, 1994 between the Registrant, Bradenham Holdings Limited
          and Strikeland Limited. (Exhibit 2.6)(5)
 10.35    Purchase Agreement between Baltic Communications Limited and
          the Registrant dated January 27, 1996. (Exhibit 2(a))(8)
 10.36    Share Purchase Agreement dated April 26, 1995 between Lant
          Investments Limited and the Registrant. (Exhibit 2(b))(7)
 10.37    Escrow Agreement among the Registrant, Lant Investments
          Limited and Montreal Trust Company of Canada. (Exhibit
          2(c))(7)
 10.38    Registration Rights Agreement dated as of April 26, 1995
          between the Registrant and Lant Investments Limited.
          (Exhibit 2(d))(7)
 10.39    Side letter between the Registrant and Baltic Communications
          Limited dated January 27, 1996. (Exhibit 2(c))(8)
 10.40    Share Sale and Purchase Agreement dated November 2, 1994
          between the Registrant and Plicom Limited. (Exhibit 2.3)(4)
 10.41    Form of Subscription and Shareholder Agreement between the
          Registrant, Plicom Limited, Elite International Limited and
          Technocom Limited. (Exhibit 2.4)(6)
 10.42*   Amendment, dated November 26, 1997, to Subscription and
          Shareholder Agreement between the Registrant, Plicom
          Limited, Elite International Limited and Plicom Limited.
</TABLE>

                                       89
<PAGE>   92

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 10.43    Form of Deed of Covenant between the Registrant and Plicom
          Limited. (Exhibit 2.5)(4)
 10.44    Form of Put and Call Option Agreement dated November 4, 1994
          between the Company and Plicom Limited. (Exhibit 10.20)(4)
 10.45    Form of Put and Call Option Agreement dated November 4, 1994
          between the Registrant and Elite International Limited.
          (Exhibit 10.21)(4)
 10.46*   Amendment, dated November 26, 1997, to Put and Call Option
          Agreement between the Registrant and Plicom Limited.
 10.47*   Amended and Restated Put and Call Option Agreement, dated
          November 26, 1997, between the Registrant and Elite
          International Limited.
 10.48*   Share Purchase Agreement, dated November 26, 1997, among the
          Registrant, Technocom Limited, Plicom Limited and Mark
          Klabin.
 10.49*   Share Purchase Agreement, dated November 26, 1997, among the
          Registrant, Technocom Limited and Elite International
          Limited.
 10.50*   Securities Sale and Purchase Agreement between the
          Registrant and Redford Limited relating to SPMMTS.
 10.51    Agreement for Lease dated as of April 27, 1994 between the
          Registrant and The Scottish Life Assurance Company. (Exhibit
          3(o))(3)
 10.52*   Sublease, dated June 4, 1997, between the Registrant and The
          Seiko Corporation of America.
 10.53    License Granted to BECET International for the Operation of
          a Cellular Telecommunication System Providing Mobile
          Radiocommunications Services dated as of February 4, 1994.
          (Exhibit 3(c))(3)
 10.54    License No. 2463 issued to MTR-Sviaz dated September 21,
          1995 (Russian). (Exhibit 2(f))(8)
 10.55    License No. 4904 issued by the RSCC to PeterStar Company
          Limited for the provision of local, national and
          international telecommunications services via a dedicated
          network. (Exhibit 10.3)(10)
 10.56    License No. 4274 issued by the RSCC to PeterStar Company
          Limited for the provision of local and intercity telephone
          communications services. (Exhibit 10.4)(10)
 10.57    License No. N4199 issued by the RSCC to Teleport-TP for the
          provision of local and international telephone
          communications. (Exhibit 10.5)(10)
 10.58    License No. N4207 issued by the RSCC to Teleport-TP for the
          provision of international telecommunication services via
          dedicated network. (Exhibit 10.6)(10)
 10.59    License No. N4437 issued by the RSCC to Teleport-TP for the
          provision of international leased lines and circuits for the
          transmission of television signals. (Exhibit 10.7)(10)
 10.60    License No. 3654 issued to Teleport-TP for providing data
          transmission services. (Exhibit (2(e))(8)
21*       List of Subsidiaries.
 23.1*    Consent of KPMG Peat Marwick LLP.
 23.2*    Consent of KPMG.
</TABLE>

---------------
  *  Filed herewith.

 (1) Filed as an Exhibit to the Company's Annual Report on Form 20-F for the
     year ended December 31, 1991.

 (2) Filed as an Exhibit to the Company's Form 8 Amendment to Form 20-F for the
     year ended December 31, 1991.

 (3) Filed as an Exhibit to the Company's Annual Report on Form 20-F for the
     year ended December 31, 1993.

 (4) Filed as an Exhibit to the Company's Registration Statement on Form F-1
     (File No. 33-86184).

                                       90
<PAGE>   93

 (5) Filed as an Exhibit to Pre-Effective Amendment No. 1 to the Company's
     Registration Statement on Form F-1 (File No. 33-86184).

 (6) Filed as an Exhibit to Pre-Effective Amendment No. 4 to the Company's
     Registration Statement on Form F-1 (File No. 33-86184).

 (7) Filed as an Exhibit to the Company's Annual Report on Form 20-F for the
     year ended December 31, 1994.

 (8) Filed as an Exhibit to the Company's Annual Report on Form 20-F for the
     year ended December 31, 1995.

 (9) Filed as an Exhibit to the Company's Current Report on Form 8-K dated March
     7, 1997.

(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
     fiscal year ended December 31, 1996.

                                       91
<PAGE>   94

                                PLD TELEKOM INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                            ITEM                              PAGE
                            ----                              ----
<S>                                                           <C>
Independent Auditors' Report................................  F-2
Consolidated balance sheets as of December 31, 1997 and
  1996......................................................  F-4
Consolidated statements of operations for the years ended
  December 31, 1997, 1996 and 1995..........................  F-5
Consolidated statements of shareholders' equity for the
  years ended December 31, 1997, 1996 and 1995..............  F-6
Consolidated statements of cash flows for the years ended
  December 31, 1997, 1996 and 1995..........................  F-7
Notes to consolidated financial statements..................  F-8
</TABLE>

FINANCIAL STATEMENT SCHEDULES:

     All financial statement schedules are omitted as the required information
is not applicable or the information is presented in the consolidated financial
statements or related notes.

                                       F-1
<PAGE>   95

                          INDEPENDENT AUDITORS' REPORT

Shareholders and Board of Directors
PLD Telekom Inc.:

     We have audited the accompanying consolidated balance sheet of PLD Telekom
Inc. as of December 31, 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1997, and the results of its operations and the changes in
its financial position for the year then ended in conformity with generally
accepted accounting principles.

                                          KPMG PEAT MARWICK LLP

New York, NY
March 23, 1998

                                       F-2
<PAGE>   96

                                AUDITORS' REPORT

Shareholders and Board of Directors
PLD Telekom Inc.:

     We have audited the accompanying consolidated balance sheet of PLD Telekom
Inc. as of December 31, 1996 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and the results of its operations and the changes in its
financial position for each of the years in the two-year period ended December
31, 1996 in accordance with United States generally accepted accounting
principles.

KPMG

Chartered Accountants
Toronto, Canada
March 21, 1997

                                       F-3
<PAGE>   97

                                PLD TELEKOM INC.

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents (note 7)........................  $ 17,256    $ 40,674
  Trade receivables, net of allowance of $3,226 and $1,986,
     respectively...........................................    17,078      10,528
  Other receivables and prepaids............................     8,615       3,522
  Inventory.................................................     2,802       1,840
  Due from related parties (note 13(c)).....................     6,320       4,408
                                                              --------    --------
          Total current assets..............................    52,071      60,972
Escrow funds (note 9).......................................    33,868      40,984
Property and equipment, net (note 4)........................   134,998      93,039
Telecommunications licenses (note 3), net of amortization of
  $26,294 and $18,640, respectively.........................    78,837      72,310
Due from related parties (note 13(c)).......................     3,011          --
Other investments (note 5)..................................     7,036      24,094
Other assets (note 6).......................................    25,765      14,958
                                                              --------    --------
          Total assets......................................  $335,586    $306,357
                                                              ========    ========
                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Bank indebtedness (note 7)................................        --      15,829
  Short-term borrowings (note 8)............................    20,320          --
  Accounts payable..........................................    13,597      17,781
  Accrued liabilities.......................................     5,750       3,126
  Due to related parties (note 13(d)).......................     5,336       4,039
  Deferred revenues.........................................     3,128       1,078
  Customer deposits.........................................     3,070       1,644
  Other current liabilities.................................     2,256       3,241
                                                              --------    --------
          Total current liabilities.........................    53,457      46,738
                                                              --------    --------
Long-term debt (note 9).....................................   133,516     107,954
Minority interest...........................................    21,382      13,711
Commitments and contingencies (note 14)
Shareholders' equity (notes 9 and 10):
  Preferred stock, par value $.01 per share in 1997 and no
     par value in 1996. Authorized 100,000,000 shares in
     1997 and unlimited number of shares in 1996; issued and
     outstanding 446,884 shares.............................         4          31
  Common stock, par value $.01 per share in 1997 and no par
     value in 1996. Authorized 100,000,000 shares in 1997
     and unlimited number of shares in 1996; issued and
     outstanding 33,324,290 shares in 1997 and 31,696,034
     shares in 1996.........................................       333     180,878
  Additional paid-in capital................................   204,007      13,592
  Accumulated deficit.......................................   (77,113)    (56,547)
                                                              --------    --------
          Total shareholders' equity........................   127,231     137,954
                                                              --------    --------
          Total liabilities and shareholders' equity........  $335,586    $306,357
                                                              ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   98

                                PLD TELEKOM INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
              (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                         1997           1996           1995
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Revenues:
  Telecommunications (note 13(a))...................  $   112,468    $    60,562    $    27,686
  Finance lease income..............................        1,956          1,404          1,434
                                                      -----------    -----------    -----------
                                                          114,424         61,966         29,120
Direct costs........................................       39,186         21,709         10,382
                                                      -----------    -----------    -----------
          Gross profit..............................       75,238         40,257         18,738
                                                      -----------    -----------    -----------
Operating expenses:
  General and administrative........................       38,716         24,791         18,168
  Depreciation......................................       10,433          5,226          3,837
  Amortization......................................        7,867          4,883          4,659
  Taxes other than income taxes.....................        6,204          2,490          1,220
                                                      -----------    -----------    -----------
          Total operating expenses..................       63,220         37,390         27,884
                                                      -----------    -----------    -----------
          Operating income/(loss)...................       12,018          2,867         (9,146)
Other income/(expense):
  Share of loss from equity investments, after
     amortization of licenses of $2,477 and $1,528
     in 1996 and 1995, respectively.................         (537)        (2,692)        (1,555)
  Interest and other income.........................        3,614          4,859          2,066
  Interest expense..................................      (17,846)        (9,973)          (957)
  Amortization of deferred financing costs..........       (1,152)          (684)            --
  Foreign exchange loss.............................         (274)          (648)          (443)
  Gain/(loss) on disposal of investments and
     property and equipment.........................          749             --           (915)
  Provision for amounts due from a shareholder of
     PeterStar (note 13(e)).........................           --             --         (2,490)
                                                      -----------    -----------    -----------
          Loss before income taxes and minority
            interest................................       (3,428)        (6,271)       (13,440)
Income taxes (note 11)..............................        7,739          3,669          1,490
                                                      -----------    -----------    -----------
          Loss before minority interest.............      (11,167)        (9,940)       (14,930)
Minority interest...................................        9,399          2,521            551
                                                      -----------    -----------    -----------
          Net loss..................................  $   (20,566)   $   (12,461)       (15,481)
                                                      ===========    ===========    ===========
Net loss per common share:
  Basic.............................................  $     (0.64)   $     (0.39)   $     (0.49)
                                                      ===========    ===========    ===========
  Diluted...........................................  $     (0.64)   $     (0.39)   $     (0.49)
                                                      ===========    ===========    ===========
Weighted average common shares outstanding..........   32,061,070     31,579,201     31,314,662
                                                      ===========    ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   99

                                PLD TELEKOM INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                          PREFERRED STOCK         COMMON STOCK
                                          ----------------   ----------------------
                                          NUMBER               NUMBER                 ADDITIONAL
                                            OF                   OF                    PAID-IN     ACCUMULATED
                                          SHARES    AMOUNT     SHARES      AMOUNT      CAPITAL       DEFICIT      TOTAL
                                          -------   ------   ----------   ---------   ----------   -----------   -------
<S>                                       <C>       <C>      <C>          <C>         <C>          <C>           <C>
Balance at January 1, 1995..............  446,884    $ 31    30,012,214   $ 173,034         --       (28,605)    144,460
Conversion of Series VIII preferred
  shares................................       --      --     1,110,000       4,886         --            --       4,886
Issuance of shares for CPY Yellow Pages
  Limited (note 3(f))...................       --      --       368,820       1,900         --            --       1,900
Exercise of warrants and options........       --      --        16,000          67         --            --          67
Net loss for the year...................       --      --            --          --         --       (15,481)    (15,481)
                                          -------    ----    ----------   ---------    -------       -------     -------
Balance at December 31, 1995............  446,884      31    31,507,034     179,887         --       (44,086)    135,832
Exercise of options.....................       --      --       189,000         991         --            --         991
Issuance of warrants (note 9)...........       --      --            --          --     13,592            --      13,592
Net loss for the year...................       --      --            --          --         --       (12,461)    (12,461)
                                          -------    ----    ----------   ---------    -------       -------     -------
Balance at December 31, 1996............  446,884      31    31,696,034     180,878     13,592       (56,547)    137,954
Increase in par value from none to $.01
  (note 10).............................       --      --            --    (180,561)   180,561            --          --
Change in par value of preferred stock
  (note 10).............................       --     (27)           --          --         27            --          --
Common stock cancellations..............       --      --          (150)         --         --            --          --
Exercise of options and warrants........       --      --       312,166           3   1,736...            --       1,739
Issuance of shares (note 3(c))..........       --      --     1,316,240          13      7,668            --       7,681
Issuance of warrants (note 8(a))........       --      --            --          --        423            --         423
Net loss for the year...................       --      --            --          --         --       (20,566)    (20,566)
                                          -------    ----    ----------   ---------    -------       -------     -------
Balance at December 31, 1997............  446,884    $  4    33,324,290   $     333    204,007       (77,113)    127,231
                                          =======    ====    ==========   =========    =======       =======     =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   100

                                PLD TELEKOM INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                1997       1996       1995
                                                              --------    -------    -------
<S>                                                           <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $(20,566)   (12,461)   (15,481)
  Adjustments to reconcile net loss to net cash provided
    by/(used in) operating activities:
    Depreciation and amortization...........................    19,452     10,793      8,496
    Accrued interest on senior discount notes...............    14,260      7,349         --
    Minority interest.......................................     9,399      2,521        551
    Gain on sale of SPMMTS..................................    (1,001)        --         --
    Deferred revenue........................................     2,050       (898)     1,958
    Share of loss of equity investments.....................       537      2,692      1,555
    Other...................................................        --        300      1,543
    Changes in operating assets and liabilities, net of
      effects of acquisitions:
      Increase in trade receivables.........................    (6,550)    (2,478)    (1,681)
      (Increase)/decrease in other receivables and
         prepaids...........................................    (5,093)     1,827     (1,909)
      Increase in inventory.................................      (962)      (392)      (608)
      Change in amounts due from or to related parties......       386     (4,743)    (2,499)
      Increase/(decrease) in accounts payable, accrued
         liabilities, customer deposits, and other current
         liabilities........................................    (1,119)    11,108      1,351
                                                              --------    -------    -------
         Net cash provided by/(used in) operating
           activities.......................................    10,793     15,618     (6,724)
                                                              --------    -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures......................................   (38,990)   (43,201)   (31,538)
  Proceeds from sale of SPMMTS..............................    17,180         --         --
  Escrow funds..............................................     7,116    (40,984)        --
  Purchase of 30% investment in Technocom...................   (25,608)        --         --
  Teleport-TP finance lease and advances....................        --      3,916     (7,733)
  Investments in Baltic Communications Limited, J.V.
    Technopark Limited and Teleport-TP, net of cash
    acquired................................................        --     (7,515)        --
  Other investments.........................................       181       (140)    (3,000)
  Other assets..............................................      (747)      (267)    (6,822)
                                                              --------    -------    -------
         Net cash used in investing activities..............   (40,868)   (88,191)   (49,093)
                                                              --------    -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term debt borrowings/(repayments)...................   (10,929)    (6,550)    22,379
  Proceeds from issuance of 12% Revolving Credit Notes......    15,420         --         --
  Proceeds from issuance of 14% Senior Discount Notes.......        --     87,697         --
  Proceeds from issuance of 9% Convertible Subordinated
    Notes...................................................        --     26,500         --
  Deferred financing costs..................................        --     (9,224)        --
  Proceeds from issuance of common stock....................     1,739        991         67
  Cash dividends paid to minority shareholders..............    (1,000)        --         --
  Loans from shareholders...................................        --     (1,843)       405
  Related company advances..................................        --         --       (815)
  Due to equipment supplier.................................        --         --     (4,384)
  Recapitalization of PeterStar.............................     1,427         --         --
  Other financing...........................................        --         --     (2,869)
                                                              --------    -------    -------
         Net cash provided by financing activities..........     6,657     97,571     14,783
                                                              --------    -------    -------
         (Decrease)/increase in cash and cash equivalents...   (23,418)    24,998    (41,034)
Cash and cash equivalents at beginning of year..............    40,674     15,676     56,710
                                                              --------    -------    -------
Cash and cash equivalents at end of year....................  $ 17,256     40,674     15,676
                                                              ========    =======    =======
Supplementary disclosures:
  Noncash investing and financing activities:
    Supplier financing......................................  $ 11,302         --         --
                                                              ========    =======    =======
    Issuance of common stock for a portion of purchase price
      of Technocom..........................................  $  7,681         --         --
                                                              ========    =======    =======
  Interest paid.............................................  $  3,381      2,425        380
                                                              ========    =======    =======
  Income taxes paid.........................................  $  7,424      3,678        809
                                                              ========    =======    =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-7
<PAGE>   101

                                PLD TELEKOM INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(1) BUSINESS, OPERATIONS AND FUTURE ACTIVITIES

     The Company was previously incorporated under the laws of Ontario, Canada
and on August 1, 1996 changed its name from Petersburg Long Distance Inc. to PLD
Telekom Inc. (PLD). Effective February 28, 1997, PLD was incorporated in the
United States as a Delaware corporation. Through its majority-owned and
controlled subsidiaries, the Company is a provider of local, long distance and
international telecommunications services in the former Soviet Union.

     The Company's telecommunications businesses are at various stages of
development and are growing rapidly in an emerging economy which, by its nature,
has an uncertain economic, political and regulatory environment. The general
risks of operating businesses in the former Soviet Union include the possibility
for rapid change in government policies, economic conditions, the tax regime and
foreign currency regulations.

     Ultimate recoverability of the Company's investments is dependent upon its
ability to achieve and maintain profitability, which is dependent to a certain
extent on the stabilization of the economies of the former Soviet Union, the
ability to maintain the necessary telecommunications licenses and the ability to
obtain adequate financing to meet capital commitments.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The Company's significant accounting policies are summarized as follows:

  (a) Basis of Presentation

     The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
(U.S. GAAP).

     The consolidated financial statements include the accounts of the Company
and its majority-owned and controlled subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Investment in
affiliates in which the Company has significant influence, but does exercise
control, are accounted for under the equity method. Investments of the Company
over which significant influence is not exercised are carried under the cost
method.

  (b) Cash and Cash Equivalents

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1997
and 1996, the Company's cash equivalents consist of term deposits of
approximately $7.2 million and $4.2 million, respectively.

  (c) Investments

     Management determines the appropriate classification of its investments at
the time of purchase and classifies them as trading, available-for-sale or
held-to-maturity in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities." At December 31, 1997 and 1996, the Company's
investments which are held in escrow consist of U.S. Treasury Bonds with a
carrying value of $33.9 million and $41.0 million, respectively, have been
classified as available-for-sale. In accordance with SFAS 115, the Company
carries their available-for-sale investments at fair value, with unrealized
gains and losses reported as a separate line item in shareholders' equity. Due
to the short maturity period (1997 -- maturing on January 7, 1998 and 1996 --
maturing on January 5, 1997), the carrying value of these investments
approximates its fair market value at December 31, 1997 and 1996.

  (d) Revenue Recognition

     The Company records telecommunication revenues as earned, at the time
services are provided.

  (e) Inventory

     Inventory is stated at the lower of average cost or net realizable value
and is composed of telephony products held for resale to customers.

                                       F-8
<PAGE>   102
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

  (f) Property and Equipment

     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:

<TABLE>
<S>                                                        <C>
Telecommunications equipment.............................  10 years
Buildings................................................  28.5 years
Leasehold improvements...................................  10 years
Office furniture and equipment (including computer         3 - 5
  equipment).............................................  years
</TABLE>

     Interest cost incurred during the period of construction of property and
equipment is capitalized. The interest cost capitalized in 1997 amounted to
$927,791.

  (g) Intangible Assets

     Telecommunications licenses are being amortized on a straight-line basis
over the terms of the licenses.

     Goodwill represents the excess of the purchase price over the fair values
of the net assets acquired and is being amortized on a straight-line basis over
periods ranging from ten to twenty years.

     Deferred financing costs represent costs incurred to issue debt. Deferred
financing costs are capitalized and amortized over the term of the related debt.

  (h) Fair Value of Financial Instruments

     The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, escrow funds, trade and other receivables, amounts due
from or to related parties, bank indebtedness and accounts payable approximate
fair value due to their short maturities. The fair value of long-term debt is
based on discounted cash flow analysis.

  (i) Reporting Currency and Foreign Currency Translation

     The statutory accounts of the Company's consolidated subsidiaries are
maintained in accordance with local accounting regulations and are stated in
local currencies.

     Local statements are adjusted to U.S. GAAP and then translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52
(SFAS 52), "Foreign Currency Translation."

     Under SFAS 52, the financial statements of foreign entities in highly
inflationary economies are measured in all cases using the U.S. dollar as the
functional currency. U.S. dollar transactions are shown at their historical
value. Monetary assets and liabilities denominated in local currencies are
translated into U.S. dollars at the prevailing period-end exchange rate. All
other assets and liabilities are translated at historical exchange rates.
Results of operations have been translated using the monthly average exchange
rates. Translation differences resulting from the use of these different rates
are included in the accompanying consolidated statements of operations.

  (j) Income Taxes

     Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income or expense in the period it occurs.

  (k) Net Loss Per Common Share

     The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," on December 31, 1997. SFAS No.
128 establishes standards for computing and presenting earnings per share
("EPS") and supersedes Accounting Principles Board ("APB") Opinion No. 15,
"Earnings per Share." SFAS No. 128 also requires dual presentation of basic and
diluted EPS for

                                       F-9
<PAGE>   103
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

complex capital structures on the face of the consolidated statements of
operations. Basic EPS is computed by dividing income or loss by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution from the exercise or conversion of securities into common
stock, such as stock options, at the beginning of the period being reported on.
Per share amounts for 1996 and 1995 have been retroactively restated to give
effect to SFAS 128 and were not different from EPS measured under APB No. 15.

     Net loss and weighted average shares outstanding used for computing diluted
loss per common share were the same as that used for computing basic loss per
common share for each of the years ended December 31, 1995, 1996 and 1997.

     The Company had potentially dilutive common stock equivalents of 1,293,000,
135,000 and 150,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, which were not included in the computation of diluted net loss per
common share because they were antidilutive for the periods presented.

  (l) Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.

  (m) Equity Compensation

     Prior to January 1, 1996, the Company accounted for its equity compensation
plan in accordance with the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, compensation
expense was recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method, as defined in SFAS 123, had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure required by SFAS 123.

  (n) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

     The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. SFAS
121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

  (o) Reclassifications

     Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.

(3) BUSINESSES AND ACQUISITIONS

     The Company's key interests at December 31, 1997 include a 60% equity
interest in PeterStar Company Limited ("PeterStar"); a 50% equity interest in
BECET International ("BECET"); and an approximate 80% equity interest in
Technocom Limited ("Technocom"), which holds an approximate 49% equity interest
in

                                      F-10
<PAGE>   104
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

Teleport-TP ("Teleport-TP"). The Company also owns 100% of Baltic Communications
Limited ("BCL") and 100% of CPY Yellow Pages Limited ("Yellow Pages").

  (a) PeterStar

     PeterStar is a joint stock company registered in 1992 under the laws of the
Russian Federation to provide international and domestic telecommunications
services for St. Petersburg. In November 1994, PeterStar was granted a new
license to provide these services for a further ten years. The license was
reissued in June 1996 and sets the maximum number of lines which PeterStar may
have at 106,000 and requires that 74,200 lines be introduced by June 1999. At
December 31, 1997, PeterStar had 114,774 lines in place.

     In October 1992, the Company acquired a 50% interest in PeterStar for
consideration of $19.8 million. An additional 9% interest was acquired in March
1994 for consideration of $8.2 million and an additional 1% interest was
acquired in April 1996 for $1.8 million. All of the considerations have been
allocated to telecommunications licenses. The Company's interest in PeterStar is
owned by its wholly owned subsidiary, NWE Capital (Cyprus) Limited ("NWE
Cyprus"), a company incorporated in Cyprus.

  (b) BECET

     BECET provides cellular services pursuant to a 15-year license to operate a
cellular telephony system in Kazakhstan until February 2009. The Company's 50%
interest in BECET is owned by its wholly owned subsidiary, Wireless Technology
Corporations Limited ("WTC"), a company incorporated in the territory of the
British Virgin Islands, which in turn is owned by NWE Cyprus.

     In connection with the acquisition of BECET, the Company was committed to
provide financing of up to $3.0 million to fund a number of special
telecommunications projects undertaken by the Ministry of Communications in
Kazakhstan. In 1995, the Company provided such financing in the form of a
convertible note (see note 5(b)).

  (c) Technocom

     The Company subscribed for preferred shares of Technocom, a company
incorporated in the Republic of Ireland, in the amount of $40.0 million, of
which $20.0 million was subscribed for on acquisition in 1994 and the remaining
$20.0 million was subscribed for in June 1996 from the proceeds of the financing
described in note 9. The preferred shares entitle the Company to the first $20.0
million of Technocom's dividend distributions. After receipt of such preference
dividends, all the preferred shares will be converted into a single ordinary
share of Technocom. The carrying value of the Company's investment in
Teleport-TP and minority interest were each increased by a total of $10.0
million in 1995/1996 to reflect the minority interest's ultimate share in the
preferred equity.

     On November 26, 1997, PLD acquired an additional 59 ordinary shares of
Technocom increasing its ownership from 50.1% to 80.4%. The total consideration
for the acquisition was $32.5 million, plus acquisition costs of approximately
$840,000 and was allocated to telecommunications licenses, goodwill, and
purchase of minority interest in the amounts of $16.0 million, $11.1 million,
and $6.0 million, respectively. Approximately $24.8 million was paid in cash and
the remainder in shares of PLD common stock (1,316,240 shares of common stock
with a fair market value of $5.85 per share, which cannot be sold until the year
2000). The cash element of the transaction was funded with escrowed funds and
with the proceeds from the Company's 12% Revolving Credit Notes (see note 8).

     In addition, the Company restructured certain "put and call" arrangements
with the other two shareholders of Technocom. Under these arrangements, as
originally structured, the remaining ordinary shares of Technocom held by these
shareholders (29 shares, or approximately 14.6% of the total ordinary shares
outstanding, and 10 shares, or approximately 5% of the total ordinary shares
outstanding) were to have been independently valued in 1999 and the Company had
the right to call, and the other two shareholders had the right to put, their
respective interests at the per share value established by the valuation.

                                      F-11
<PAGE>   105
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

     These arrangements were restructured as follows. In the case of the holder
of the 29 shares, 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 $17.5 million. In the case of the holder of
the 10 shares, 2 of its remaining 10 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 the holder'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 10 trading days. The
remaining 8 ordinary shares continue to be subject to the existing put and call
arrangements in 1999, except that the valuation will be made by the Company and
the amount paid pursuant to the exercise of either the put or the call cannot
exceed $9.6 million or be less than $6.7 million.

     On December 20, 1996, Technocom acquired 55.5% of the outstanding shares of
J.V. Technopark Limited ("Technopark") from the minority shareholders of
Technocom for $3.0 million. Technopark is incorporated in Russia and owns a 7.5%
equity interest in Teleport-TP and commercial property in Moscow. The
acquisition of Technopark has been accounted for using the purchase method.

  (d) Teleport-TP

     The Company currently controls 56% of the voting interests in Teleport-TP
through its ownership of Technocom (see note 3(c)), which has a 49.3% equity
interest in Teleport-TP. The Company originally acquired a 41.8% equity
investment in Teleport-TP through its acquisition of 50.8% of the outstanding
common stock of Technocom. In May 1996, Technocom acquired an additional 3.3%
indirect equity interest in Teleport-TP for cash consideration of $2.0 million,
substantially all of which was allocated to Teleport-TP's telecommunications
licenses. The additional interest was acquired through a company controlled by a
minority shareholder of Technocom.

     Teleport-TP is a Russian joint stock company which holds four operating
licenses. The first license expires in November 2004 and authorizes Teleport-TP
to provide long distance and international telecommunications services to
private networks within Moscow and, to a limited extent, elsewhere in the
Russian Federation. Teleport-TP is required by the terms of the license to have
at least 10,500 subscribers (which is 70% of the maximum number of subscribers
permitted under the license) in place by October 1999. Under the terms of the
license agreement, there are no penalties should Teleport-TP not attain the
required number of lines.

     The second license expires in October 2004 and permits the operation of
1,000 international leased circuits for the transmission of television and
telecommunications services. The third license, which expires in January 2002,
permits the provision of data services with interconnection to the public
network and requires capacity for 70,000 subscribers by December 2000. The
fourth license, which expires in May 2001, is an overlay license which permits
Teleport-TP to offer local, long distance and international voice and data
services which are interconnected to the public telephone network in 40 regions
across Russia.

                                      F-12
<PAGE>   106
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

     As a result of the acquisition of Technopark, the Company consolidated
Teleport-TP's balance sheet at December 31, 1996. The results of operations of
Teleport-TP have been included in the consolidated statements of operations from
January 1, 1997. The consolidation of Teleport-TP's balance sheet at December
31, 1996 is summarized as follows:

<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
<S>                                                      <C>
Cash.................................................       $    70
Other current assets.................................         4,386
Current liabilities..................................        (1,526)
Equipment under capital lease, net...................         7,415
Other property, plant and equipment, net.............           622
Other assets.........................................           655
Capital lease obligation to Technocom................        (4,153)
Due to Technocom.....................................        (3,468)
Due to related parties...............................        (3,405)
Minority interest....................................          (411)
Telecommunications licenses, net of accumulated
  amortization of $4,005.............................        25,595
                                                            -------
          Carrying value of investment in Teleport-TP
            prior to consolidation...................       $25,780
                                                            =======
</TABLE>

     Condensed financial information of Teleport-TP for the years ended December
31, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                                                            1996       1995
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Telecommunications revenues..............................  $11,104    $ 7,070
Cost of sales............................................    6,534      2,083
                                                           -------    -------
          Gross profit...................................    4,570      4,987
                                                           -------    -------
Operating expenses:
  General and administrative.............................    2,617      1,606
  Other taxes............................................      592         --
  Depreciation of assets under capital lease.............    1,016        570
  Other depreciation and amortization....................      200        762
                                                           -------    -------
                                                             4,425      2,938
                                                           -------    -------
          Operating income...............................      145      2,049
Interest on capital lease................................     (531)    (1,434)
Other interest and financing charges, net................      251       (343)
                                                           -------    -------
          Earnings/(loss) before income taxes............     (135)       272
Income taxes.............................................       --       (335)
                                                           -------    -------
          Net loss.......................................  $  (135)   $   (63)
Technocom's interest therein.............................      (75)       (27)
Amortization of excess purchase price....................   (2,477)    (1,528)
                                                           -------    -------
          Share of Teleport-TP loss......................  $(2,552)   $(1,555)
                                                           =======    =======
</TABLE>

     Teleport-TP's revenues for the years ended December 31, 1996 and 1995,
include sales to its minority shareholder of $4.6 million and $5.0 million,
respectively, making Teleport-TP to some extent economically dependent on its
minority shareholder.

     Teleport-TP's cost of sales for the year ended December 31, 1996 includes
costs of $2.9 million charged by a company controlled by one of the minority
shareholders of Technocom.

                                      F-13
<PAGE>   107
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

     General and administrative expenses for the year ended December 31, 1996
include costs of $576,000 related to marketing services provided by a company
controlled by one of the minority shareholders of Technocom.

(e) BCL

     Effective April 1, 1996, the Company acquired all of the outstanding shares
of BCL from Cable & Wireless and its Russian partners for cash consideration of
$3.0 million, plus acquisition costs of $253,000. BCL is a Russian joint stock
company which provides international direct dial, international pay phone and
private line services to a corporate customer base in St. Petersburg. BCL's
results of operations are included in the consolidated financial statements from
the date of acquisition.

     The acquisition has been accounted for using the purchase method.

  (f) Yellow Pages

     On April 26, 1995 the Company, through NWE Cyprus, acquired all the
outstanding shares of Yellow Pages, a company incorporated in the Republic of
Cyprus, for consideration of 368,820 common shares of the Company valued at $1.9
million, plus acquisition costs of $244,000. Yellow Pages publishes a Yellow
Pages directory and owns a database of Russian and foreign businesses in St.
Petersburg. Yellow Pages' results of operations are included in the consolidated
financial statements from the date of acquisition.

     The acquisition has been accounted for by the purchase method and
substantially all of the consideration was allocated to goodwill.

(4) PROPERTY AND EQUIPMENT

     Property and equipment at December 31, 1997 and 1996 consist of the
following:

<TABLE>
<CAPTION>
                                                           1997        1996
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Telecommunications equipment:
  Installed............................................  $123,902    $ 80,291
  Uninstalled..........................................    10,396       3,677
Buildings..............................................     5,434       3,194
Office furniture and equipment (including computer
  equipment)...........................................     8,054       6,538
Leasehold improvements.................................     6,082       4,443
Advances to equipment suppliers........................     4,252       7,999
                                                         --------    --------
          Total property and equipment.................   158,120     106,142
Less: accumulated depreciation.........................   (23,122)    (13,103)
                                                         --------    --------
          Property and equipment, net..................  $134,998    $ 93,039
                                                         ========    ========
</TABLE>

     Property and equipment includes telecommunications equipment with a cost of
$16.5 million which has been pledged under the terms of the long-term
installment agreements (see note 9).

                                      F-14
<PAGE>   108
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

(5) OTHER INVESTMENTS

     Other investments at December 31, 1997 and 1996 consist of the following:

<TABLE>
<CAPTION>
                                                             1997      1996
                                                            ------    -------
                                                             (IN THOUSANDS)
<S>                                                         <C>       <C>
Investment in St. Petersburg Intercity & International
  Telephone, at cost......................................  $   --    $16,179
Investment in Monogram Finance Group Limited..............   3,000      3,000
Equity investment in MTR-Sviaz............................   3,128      4,588
Equity investment in Rosh Telecom.........................     542        327
Investment in Gorizont-RT, at cost........................     224         --
Other investments, at cost................................     142         --
                                                            ------    -------
          Total...........................................  $7,036    $24,094
                                                            ======    =======
</TABLE>

  (a) Investment in St. Petersburg Intercity & International Telephone (SPMMTS)

     The Company held a 10.4% equity interest (13.9% voting interest) in SPMMTS,
a privatized Russian company which operates the long distance and international
gateway in St. Petersburg.

     In June 1997, the Company sold its investment in SPMMTS for proceeds of
$17.2 million. The gain of $1.0 million is included in gain on disposal of
investments and property and equipment on the consolidated statement of
operations.

  (b) Investment in Monogram Finance Group Limited

     During the year ended December 31, 1995, the Company advanced $3.0 million
to Monogram Finance Group Limited ("Monogram") in exchange for a convertible
promissory note due on February 20, 2000. The note is convertible into common
shares of Monogram at any time prior to February 20, 2000 at the then current
fair market price of the shares.

  (c) Equity Investment in MTR-Sviaz

     Technocom has a 49% equity interest in a Russian joint stock company,
MTR-Sviaz, which is a joint venture with Mosenergo, the Moscow city power
utility, to modernize and commercialize a portion of Mosenergo's internal
telecommunications network. MTR-Sviaz holds two operating licenses and commenced
operations in late 1996. The first license authorizes MTR-Sviaz to provide local
and long distance leased line services within the city and region of Moscow.
Under the second license, MTR-Sviaz is authorized to provide local telephone
services through interconnection (via the Mosenergo network) with the public
switched telephone network within the city and region of Moscow. During 1997 and
1996, Technocom leased telecommunications equipment and access rights with a net
book value of $4.7 million and $5.2 million, respectively, to MTR-Sviaz under
finance leases. For the years ended December 31, 1997 and 1996, the Company
recorded finance lease income of $2.0 million and $872,000, respectively,
related to these leases. At December 31, 1997 and 1996, the investment in
MTR-Sviaz is composed of a finance lease receivable of $4.5 million and $5.0
million, offset by the Company's share of losses of MTR-Sviaz of $1.4 million
and $427,000, respectively.

                                      F-15
<PAGE>   109
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

     Future minimum lease payments receivable from MTR-Sviaz, by year and in the
aggregate, are as follows:

<TABLE>
<CAPTION>
                                                              (IN THOUSANDS)
<S>                                                           <C>
1998........................................................      $2,530
1999........................................................       2,530
2000........................................................       1,704
2001........................................................         547
2002........................................................         547
Thereafter..................................................       1,958
                                                                  ------
          Total minimum lease payments......................       9,816
Amounts representing interest...............................       5,324
                                                                  ------
          Present value of minimum lease payments...........      $4,492
                                                                  ======
</TABLE>

(6) OTHER ASSETS

     Other assets at December 31, 1997 and 1996 consist of the following:

<TABLE>
<CAPTION>
                                                            1997       1996
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Goodwill, net of accumulated amortization of $574 and
  $359...................................................  $12,709      1,796
Deferred financing costs, net of accumulated amortization
  of $1,836 and $684.....................................    7,811      8,540
Deferred charges.........................................      861        700
Other....................................................    4,384      3,922
                                                           -------    -------
                                                           $25,765    $14,958
                                                           =======    =======
</TABLE>

(7) CASH AND CASH EQUIVALENTS AND BANK INDEBTEDNESS

     The Company's cash and cash equivalents at December 31, 1997 and 1996
consist of the following:

<TABLE>
<CAPTION>
                                                            1997       1996
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Cash and cash equivalents on deposit:
  In Russia and Kazakhstan...............................  $ 7,611    $ 5,210
  Outside Russia and Kazakhstan..........................    9,645     10,935
Term deposit (interest bearing), restricted to secure
  bank loan of Technocom.................................       --      9,000
Term deposits (interest bearing), restricted to secure
  overdraft balances and accounts payable of Technocom...       --     15,529
                                                           -------    -------
                                                           $17,256    $40,674
                                                           =======    =======
</TABLE>

     As at December 31, 1997 and 1996, Technocom has overdraft balances of $-0-
and $6.8 million and demand bank loans of $-0- and $9.0 million (bearing
interest at 5.8125%). The demand bank loans were secured by term deposits in the
same amount held at the same bank.

     Technocom has entered into bank guarantees in connection with certain of
its telecommunications equipment supplier financing agreements. The amount of
the guarantees reduces automatically in accordance with installments paid. The
amounts outstanding as of December 31, 1997 under these supplier financing
agreements secured by bank guarantees are approximately $3.6 million (see note
9).

                                      F-16
<PAGE>   110
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

(8) SHORT-TERM BORROWINGS

     The Company's short-term borrowings at December 31, 1997 and 1996 consist
of the following:

<TABLE>
<CAPTION>
                                                            1997       1996
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
12% Revolving Credit Notes...............................  $15,420         --
Note payable.............................................    4,000         --
Bank loan facility.......................................      900         --
                                                           -------    -------
                                                           $20,320         --
                                                           =======    =======
</TABLE>

  (a) 12% Revolving Credit Notes

     In November 1997, the Company issued $12.4 million in Series A secured
revolving credit notes (the "Series A Notes"), and $3.1 million in Series B
revolving credit notes (the "Series B Notes"), to The Travelers Insurance
Company and The Travelers Indemnity Company (collectively, the "Travelers
Parties"). Both the Series A Notes and the Series B Notes are secured by the
Company's inventory and accounts receivable. In addition, the Series B Notes are
secured by 28 of the 59 Technocom ordinary shares acquired (see note 3(c)).

     Both the Series A and B Notes bear interest at an annual rate of 12%,
payable monthly in cash. This interest rate increases to 15% if the Company has
not raised $20 million in additional equity by May 31, 1998. The Series A and
Series B Notes are required to be amortized starting in July 1998. The Series B
Notes, whose original principal amount is $3.1 million, are due in full on
September 30, 1998, and the Series A Notes, in the original principal amount of
$12.3 million, are due in full on December 31, 1998. 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"). These warrants have been valued at
$423,000 and will be amortized over the term of the revolving credit notes.

     The Company may become obligated to issue additional warrants to the
holders in the event that certain amortization payments are not made in
accordance with the agreement or if the Notes are not paid in full at maturity.
Additionally, in the event that the Notes are not paid in full at maturity, all
warrants issued and issuable carry an exercise price of $.01 per share.

  (b) Note Payable

     Note payable at December 31, 1997 consists of a promissory note issued to
Scientific Atlantic, Inc. ("Scientific Atlantic") on June 10, 1997. The
promissory note, in settlement of equipment and services, is due on June 10,
1998. This note was discounted to West Merchant Bank at a rate of approximately
7.84%. The Company's weighted average interest rate for the note payable is
approximately 8.45%.

  (c) Bank Loan Facility

     In December 1997, PeterStar entered into a $2.0 million, one-year loan
facility with BNP Dresdner Bank for the purchase of telecommunications
equipment. Interest is charged on borrowed amounts at three-month LIBOR plus
2.5% per annum.

     The amount borrowed on the loan facility at December 31, 1997 was $900,000.

                                      F-17
<PAGE>   111
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

(9) LONG-TERM DEBT

     The Company's long-term debt at December 31, 1997 and 1996 consists of the
following:

<TABLE>
<CAPTION>
                                                           1997        1996
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
14% Senior Discount Notes..............................  $ 95,714    $ 81,454
9% Convertible Subordinated Notes......................    26,500      26,500
Supplier financing.....................................    11,302          --
                                                         --------    --------
     Total.............................................  $133,516    $107,954
                                                         ========    ========
</TABLE>

  (a) 14% Senior Discount Notes and 9% Convertible Subordinated Notes.

     On June 12, 1996, the Company completed a $149.5 million private placement
consisting of (i) 123,000 Units consisting of $123.0 million 14% Senior Discount
Notes ("Senior Notes") due 2004 and ten-year Warrants to purchase a total of
4,182,000 shares of common stock at a price of $6.60 per share; and (ii) $26.5
million 9% Convertible Subordinated Notes ("Convertible Notes") due 2006,
convertible into common stock of the Company at a price of $6.90 per share.

     The 123,000 Units were issued at a discount for gross proceeds of $87.7
million, of which $13.6 million was allocated to the Warrants and $74.1 million
was allocated to the Senior Notes for accounting purposes. The Senior Notes have
a zero coupon until December 1, 1998. After such date, the notes require
semi-annual cash interest payments on June 1 and December 1. The difference
between the carrying value and the principal amount of $123.0 million is being
charged to earnings on an effective yield basis which, together with cash
interest payments, results in an effective yield of 16.8%.

     The Convertible Notes require semi-annual cash interest payments on June 1
and December 1.

     The terms of the Senior Notes require the Company to raise additional
equity of at least $20.0 million by May 31, 1998. Failure to raise additional
equity will cause the interest rate on the Senior Notes to increase to 14.5%.

     The Company is party to a Registration Rights Agreement pursuant to which
the Senior Notes were to have been exchanged for registered securities and the
Convertible Notes registered for the shelf by October 1996. Failure to cause the
registration to become effective results in additional interest payable at a
rate of $0.01 per week per $1,000 of accreted value of the Senior Notes and
principal amount of the Convertible Notes, increasing by $0.01 per week for each
90-day period that the securities are not registered. Additional interest ceases
to accrue when the required registration statements become effective.

     All, or a portion, of the Senior Notes are redeemable at the option of the
Company after June 13, 2001 at 108% of the principal amount plus accrued and
unpaid interest, reducing to 104% for the year commencing June 1, 2002 and 100%
on or after June 1, 2003.

     The Convertible Notes are redeemable at the option of the Company on or
after June 1, 2000 under certain conditions at a redemption price equal to the
principal amount plus accrued and unpaid interest.

     The Senior Notes and the Convertible Notes were issued under the terms of
Indentures dated May 31, 1996. Pursuant to the Indentures, the Company has
pledged its investments in NWE Cyprus (which holds the Company's interests in
PeterStar, WTC, and Yellow Pages), WTC (which holds the Company's interest in
BECET), BCL, a wholly-owned special purpose leasing subsidiary incorporated in
Cyprus, and the Company's investment in preferred stock of Technocom. In
addition, each of these subsidiaries (except Technocom) have guaranteed the
Senior Notes and the Convertible Notes.

     A portion of the net proceeds of $105.0 million (after agent's commission
and expenses) was used to meet the Company's $20.0 million commitment to
Technocom (see note 3(c)) and to repay a revolving credit facility in the amount
of $22.5 million. Under the terms of the Indentures, $46.0 million was deposited
into an escrow account which is invested in eligible cash equivalents, as
defined by the Indentures. The escrow funds

                                      F-18
<PAGE>   112
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

are also pledged as security for the Company's obligations under the Indentures.
Escrow funds may be disbursed for purposes of making qualifying investments of
up to $9.0 million in telecommunications companies operating in Russia or
Kazakhstan, or for purposes of investing in telecommunications equipment through
the Company's special purpose leasing subsidiary, which then leases that
equipment to the Company's operating subsidiaries. Investments in leases are
also pledged as security under the Indentures and all payments received under
the terms of the leases are required to be deposited into a separate escrow
account, to be used to purchase additional telecommunications equipment for
lease. On or after November 30, 1998, the Company must also maintain sufficient
funds in the escrow accounts to meet the next interest payment due on both the
Senior Notes and Convertible Notes.

     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.

     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.

     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 85.7% in principal amount at stated maturity of the Convertible Notes
had consented to the amendments. Pursuant to such consents, The Bank of New
York, as trustee under the Indentures, the Company and certain other parties
executed a supplemental indenture bringing the amendments to the Indentures and
certain related documents into effect.

     At December 31, 1997 and 1996, the fair value of the Convertible Notes and
Senior Notes approximates their carrying value.

  (b) Supplier Financing

     Amounts payable under the terms of the long-term installment purchase
agreements are as follows (see notes 4 and 7):

<TABLE>
<CAPTION>
             YEAR                    AMOUNT
             ----                --------------
                                 (IN THOUSANDS)
<S>                              <C>
1999...........................     $ 4,616
2000...........................       3,864
2001...........................       2,795
2002...........................       2,361
Thereafter.....................          --
                                    -------
                                    $13,636
Less: amounts representing
  interest.....................       2,334
                                    -------
                                    $11,302
                                    =======
</TABLE>

     The above amounts have been calculated using interest rates of 8.0% to
8.5%.

                                      F-19
<PAGE>   113
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

(10) SHAREHOLDERS' EQUITY

  (a) Common Stock

     On February 28, 1997, as a result of the Company's continuance as a
Delaware corporation, the authorized capital stock was changed from an unlimited
number of common shares without nominal or par value to 100,000,000 common
shares with a par value of $.01 per share. As a result of the change in the par
value, the Common Stock was decreased by $180.6 million and additional paid-in
capital was increased by the same amount.

  (b) Preferred Stock

     The Company had the following preferred shares issued and outstanding at
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                    NUMBER OF
                                                     SHARES      1997      1996
                                                    ---------    ----      ----
                                                                 (IN THOUSANDS)
<S>                                                 <C>          <C>       <C>
Series II.........................................   405,217     $ 4       $--
Series III........................................    41,667      --        31
                                                                 ---       ---
                                                                 $ 4       $31
                                                                 ===       ===
</TABLE>

     In addition, the capital stock was also changed from an unlimited number of
preferred shares issuable in series to 100,000,000 preferred shares with par
value of $.01 per share issuable in series. As a result of the change in par
value, the preferred stock has been reflected at its par value in the 1997
consolidated financial statements.

     The Series II and III preferred shares, issued at a price of Cdn.$1 (US
$0.74) per share, are redeemable at the option of the Company at Cdn.$1 per
share. The shares do not pay dividends and holders thereof do not have voting
rights.

  (c) Shares Reserved

     In addition to stock options outstanding (see note 12), the Company has
reserved 4,182,000 common shares for issuance on exercise of outstanding
Warrants and 3,840,580 common shares on conversion of outstanding Convertible
Notes (see note 9). In addition, at December 31, 1997, the Company has 500,000
Warrants outstanding to purchase common shares of the Company at a
weighted-average exercise price of $8.11, of which 250,000 Warrants at an
exercise price of Cdn.$11.31 were granted to Cable & Wireless in 1994 and
100,000 Warrants at an exercise price of US$4.70 were granted in 1996 to the
agent in relation to the debt financing described in note 9. Warrants expire
five years after the date of grant.

     In connection with the issuance of the Series A and Series B Notes (see
note 8(a)), the Company 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
and may become obligated to issue additional warrants to the Travelers Parties
in the event that certain amortization payments are not made, or if the Series A
or Series B Notes are not paid in full at their maturity.

     At the end of March of 1998, in connection with the Consent Solicitation
(see note 9(a)), the Company will 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.

                                      F-20
<PAGE>   114
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

(11) INCOME TAXES

     The geographic components of loss before income taxes and minority interest
are as follows:

<TABLE>
<CAPTION>
                                               1997        1996        1995
                                             --------    --------    --------
                                                      (IN THOUSANDS)
<S>                                          <C>         <C>         <C>
United States..............................  $(35,163)   $     --    $     --
Canada.....................................        --     (20,829)    (16,747)
Russia and Kazakhstan......................    31,735      14,558       3,307
                                             --------    --------    --------
                                             $ (3,428)   $ (6,271)   $(13,440)
                                             ========    ========    ========
</TABLE>

     The provision for income taxes, which relates substantially to current
income taxes in the Company's Russian and Kazak businesses, differs from the
United States (34% -- February 28, 1997 onwards) and Canadian (44% -- January 1,
1995 to February 27, 1997) Federal and state/provincial statutory tax rates as
follows:

<TABLE>
<CAPTION>
                                                 1997       1996       1995
                                                -------    -------    -------
                                                       (IN THOUSANDS)
<S>                                             <C>        <C>        <C>
Provision for income taxes at statutory
  rates.......................................  $(1,166)   $(2,760)   $(5,913)
Add/(deduct) the tax effect of:
  Non-deductible amortization of licenses and
     goodwill.................................    2,561      3,238      2,720
  Other non-deductible expenses...............    2,273      1,753      1,010
  Concessions on capital expenditures.........   (3,854)    (1,000)        --
  Differences in Russian and Kazak statutory
     tax rates................................     (210)    (1,696)      (350)
  Change in valuation allowance related to
     deferred tax assets......................    8,135      4,134      4,023
                                                -------    -------    -------
          Provision for income tax............  $ 7,739    $ 3,669    $ 1,490
                                                =======    =======    =======
</TABLE>

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1996 are as follows:

<TABLE>
<CAPTION>
                                                           1997        1996
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Deferred tax assets:
  Share issue costs....................................  $     --    $  2,150
  Operating loss carryforwards.........................     8,929      16,200
  Capital loss carryforwards...........................        --       8,400
  Expenses not yet deducted for Russian and
     Kazak tax purposes................................    18,646       3,760
                                                         --------    --------
                                                           27,575      30,510
Less: valuation allowance..............................    (8,246)    (29,350)
                                                         --------    --------
          Net deferred tax assets......................    19,329       1,160
Deferred tax liabilities:
          Debt issue costs.............................    (1,160)     (1,160)
          Expenses not currently deducted for book
            purposes...................................      (705)         --
          Tax on revenues not yet realized for Russian
            tax purposes...............................   (17,464)         --
                                                         --------    --------
Deferred tax liabilities...............................   (19,329)     (1,160)
                                                         --------    --------
                                                         $     --    $     --
                                                         ========    ========
</TABLE>

     At December 31, 1997, the Company had operating loss carryforwards for
United States (U.S.) federal income tax purposes of approximately $26.3 million.
In assessing the realizability of the deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will

                                      F-21
<PAGE>   115
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

not be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning in making these assessments.

     At December 31, 1996, the Company had operating loss carryforwards for
Canadian income tax purposes of approximately $36.0 million and allowable
capital loss carryforwards of approximately $19.0 million. Upon the Company's
emigration to the United States in February 1997, the Company was deemed to
dispose of all its assets at fair value. As a result, a substantial portion of
the operating and capital loss carryforwards were utilized. Remaining losses do
not carry over for U.S. tax purposes.

(12) EQUITY COMPENSATION PLAN

     The Company has an Equity Compensation Plan (the "Plan"), which was
approved by the shareholders at the Annual Meeting in June of 1997. The Plan
amends and supersedes in its entirety the PLD Telekom Inc. Stock Option Plan
(the "Prior Plan"). No further grants will be made under the Prior Plan
following the adoption of the Plan and grantees under the Prior Plan have the
option of continuing to have existing grants covered by the terms of the Prior
Plan, or having these grants instead covered by the terms of the Plan.

     Pursuant to the Plan, the Company's Board of Directors may grant stock
options, stock appreciation rights, restricted stock and performance units to
directors, officers and key employees of, and certain consultants and advisors
to, the Company and its subsidiaries. The Plan is administered by a committee of
the Board of Directors of the Company consisting solely of "outside directors"
and to date awards under the Plan have been limited to stock options.

     The exercise price of each option is generally equal to the fair market
value of the shares of PLD's common stock on the date of grant. The maximum term
for which options are exercisable is ten years. Options shall become exercisable
in accordance with such terms and conditions, consistent with the Plan, as may
be determined by the committee. However, stock options granted to Non-Employee
Directors are immediately exercisable.

     The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $2.51, $2.11 and $2.31, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1997 -- risk-free interest rate of 6.5%, expected
life of six years and expected volatility of 40%; 1996 -- risk-free interest
rate of 6.5%, expected life of five years and expected volatility of 30%;
1995 -- risk-free interest rate of 6.3%, expected life of five years and
expected volatility of 30%.

     The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the date of grant for its stock options under SFAS 123, the
Company's loss would have been increased to $22.9 million ($0.71 per share),
$13.6 million ($0.43 per share) and $16.0 million ($0.51 per share) for the
years ended December 31, 1997, 1996 and 1995, respectively. The pro forma loss
for the year reflects only options granted in 1997, 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma loss for the year because compensation
cost is reflected over the options' vesting period and compensation cost for
options granted prior to January 1, 1995 is not considered.

                                      F-22
<PAGE>   116
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

     Changes in stock options outstanding are as follows:

<TABLE>
<CAPTION>
                                                                   WEIGHTED AVERAGE
                                               NUMBER OF SHARES    EXERCISE PRICES
                                               ----------------    ----------------
<S>                                            <C>                 <C>
Outstanding at December 31, 1994.............       774,500             $7.83
Granted......................................       610,000             $5.96
Exercised....................................       (16,000)            $4.07
Canceled.....................................      (387,000)            $8.57
                                                  ---------             -----
Outstanding at December 31, 1995.............       981,500             $6.61
Granted......................................     1,010,000             $7.38
Exercised....................................      (189,000)            $5.25
Canceled.....................................      (120,000)            $5.93
                                                  ---------             -----
Outstanding at December 31, 1996.............     1,682,500             $7.25
Granted......................................     1,405,000             $5.27
Exercised....................................      (302,166)            $5.68
Canceled.....................................       (15,000)            $5.25
                                                  ---------             -----
Outstanding at December 31, 1997.............     2,770,334             $6.41
                                                  =========             =====
</TABLE>

     At December 31, 1996 and 1995, the number of options exercisable was
382,500 and 371,500 and the weighted-average exercise price of those options was
$7.92 and $7.55, respectively.

     The following table summarizes information about the stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                  ---------------------------------------    ------------------------
                                  WEIGHTED-
                    NUMBER         AVERAGE      WEIGHTED       NUMBER       WEIGHTED-
   RANGE OF       OUTSTANDING     REMAINING      AVERAGE     EXERCISABLE     AVERAGE
   EXERCISE           AT         CONTRACTUAL    EXERCISE         AT         EXERCISE
    PRICES         12/31/97         LIFE          PRICE       12/31/97        PRICE
   --------       -----------    -----------    ---------    -----------    ---------
<C>               <C>            <S>            <C>          <C>            <C>
$ 5.06 -  6.00     1,453,334      8.4 years      $ 5.30         688,332      $ 5.45
  6.10 -  6.69       526,500      3.3              6.28         308,499        6.27
  7.77 -  8.02       643,000      3.3              7.99         251,000        7.99
 10.12 - 11.38       147,500      1.0             10.92         147,500       10.92
                   ---------                                  ---------
                   2,770,334                                  1,395,331
                   =========                                  =========
</TABLE>

(13) RELATED PARTY TRANSACTIONS

     (a) PeterStar has entered into a barter agreement with an indirect minority
shareholder under which the two parties have exchanged services valued at $3.4
million and $3.0 million during 1997 and 1996, respectively. The amounts are
recorded in the consolidated statements of operations as telecommunications
revenues and direct costs.

     (b) Direct costs for the years ended December 31, 1997, 1996 and 1995
include $4.2 million, $3.3 million and $1.8 million, respectively, paid to the
other shareholder of BECET in relation to the carriage of traffic over the
public telephone network.

     (c) Amounts due from related parties at December 31, 1997 include $2.5
million principal and interest due from MTR-Sviaz in relation to a finance lease
(see note 5(c)), $1.6 million and $3.0 million due from a minority shareholder
of PeterStar under short-term and long-term loans, respectively, and $2.2
million due from a company controlled by a minority shareholder of Technocom for
telecommunications services.

     Amounts due from related parties at December 31, 1996 include $1.1 million
principal and interest due from MTR-Sviaz in relation to a finance lease (see
note 5(c)), $600,000 due from a minority shareholder of PeterStar under a
short-term loan and $2.5 million due from a company controlled by a minority
shareholder of Technocom for telecommunications services.

                                      F-23
<PAGE>   117
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

     (d) Amounts due to related parties at December 31, 1997 include a loan due
to the minority shareholder of Teleport-TP in the amount of $477,000, trade
payables of Teleport-TP in the amount of $3.2 million due to a company
controlled by one of the minority shareholders of Technocom, carrier charges of
$817,000 due to the other shareholder of BECET, a loan due to a company
controlled by a minority shareholder of Technocom in the amount of $336,000, due
to MTR-Sviaz for telephone services and connection charges in the amount of
$292,000, and an amount due to a company controlled by one of the minority
shareholders of Technocom for equipment received from them in the amount of
$204,000.

     Amounts due to related parties at December 31, 1996 include a loan due to
the minority shareholder of Teleport-TP in the amount of $477,000, trade
payables of Teleport-TP in the amount of $2.9 million due to a company
controlled by one of the minority shareholders of Technocom, carrier charges of
$234,000 due to the other shareholder of BECET and a loan due to a company
controlled by a minority shareholder of Technocom in the amount of $336,000.

     (e) The Company has guaranteed telephone billing system lease payments of a
shareholder of PeterStar totaling $2.5 million. Lease payments of $124,000 are
due quarterly until July 1998. At December 31, 1995, full provision was made for
all amounts paid to date under the guarantee and for all future amounts. The
balances of $373,000 and $871,000 remaining under the lease as of December 31,
1997 and 1996 are included in other current liabilities.

     (f) General and administrative expenses for the years ended December 31,
1997 and 1996 include consulting fees of $1.7 million and $300,000,
respectively, charged by a minority shareholder of PeterStar.

     (g) See also notes 3(c), (d), (e) and 5(c).

(14) COMMITMENTS AND CONTINGENCIES

  (a) Intercompany

     The Company paid certain costs on behalf of, and made certain loans to,
PeterStar, resulting in an intercompany balance of approximately $27.0 million
at December 31, 1996. During 1997, an agreement was reached with the minority
shareholders to recapitalize PeterStar. The recapitalization of PeterStar in an
amount of $13.8 million was completed during September 1997, with such funds
being used to repay an equal amount of these advances. Negotiations with the
minority shareholders of PeterStar as to the repayment of the remaining
intercompany balance due to the Company were concluded in March 1998 and
resulted in a further reduction of approximately $5.3 million in PeterStar's
liability. The effect of this settlement was to increase minority interest
expense by approximately $2.1 million in 1997.

  (b) Currency Licenses

     Under applicable Russian currency control regulations, the Company's
Russian subsidiaries are required to have certain licenses from the Central Bank
of Russia to enable them to make payments of and accept receipts of hard
currency. While PeterStar and BCL have or have applied for all the necessary
licenses, failure to receive the remaining licenses could result in fines and
penalties, which the Company does not believe will be material.

  (c) Russian Taxation

     Certain of the Company's Russian subsidiaries have accrued profits and
other taxes based on interpretations of the law which may ultimately be disputed
by the Russian taxation authorities. The exposure to additional profits and
other taxes, fines and penalties is not determinable. However, the Company does
not believe this would have a material adverse effect on the financial position
or results of operations of the Company.

                                      F-24
<PAGE>   118
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

  (d) Purchase Commitments

     At December 31, 1997, Technocom and PeterStar have commitments of
approximately $943,000 and $11.4 million, respectively, related to the
acquisition of telecommunications equipment. The PeterStar supply contract
provides for financing of the entire amount over approximately five years.

  (e) Line Rental

     While it has not had to do so historically, PeterStar anticipates that it
will have to begin paying local line rental charges to the Petersburg Telephone
System in 1998. The exact fee, and the date from which charges will be levied,
have yet to be determined, but the Company does not believe that such payments
will have a material adverse effect on the Company's financial position or
results of operations.

  (f) Transponder Capacity

     Teleport-TP currently utilizes capacity on three Intelsat satellites for
the provision of its international and domestic long distance services, pursuant
to a fifteen year contract signed with Intelsat in January 1993. The agreement
requires quarterly payments of $616,500 for the remainder of its term.

(15) CANADIAN ACCOUNTING PRINCIPLES

     These consolidated financial statements have been prepared in accordance
with U.S. GAAP which, in the case of the Company, conform with Canadian GAAP,
except as follows:

     (a) Net loss for the years ended December 31:

<TABLE>
<CAPTION>
                                               1997        1996        1995
                                             --------    --------    --------
                                                      (IN THOUSANDS)
<S>                                          <C>         <C>         <C>
Net loss for the year, as reported.........  $(20,566)   $(12,461)   $(15,481)
Noncash interest on Convertible Notes......      (508)       (252)         --
                                             --------    --------    --------
Net loss for the year under Canadian
  GAAP.....................................  $(21,074)   $(12,713)   $(15,481)
                                             ========    ========    ========
</TABLE>

     Under Canadian GAAP, the Convertible Notes are a compound financial
instrument and the debt and equity elements of the instrument are separately
accounted for. For Canadian GAAP purposes, $13.9 million of the Convertible
Notes were classified as equity and $12.6 million were classified as debt on
issuance. Additional interest expense is charged to the consolidated statements
of operations to accrete the debt portion to the principal amount of $26.5
million at maturity which, together with cash interest payments, results in an
effective yield of 22.3%. Accordingly, long-term debt at December 31, 1997 and
1996 would amount to $120.3 million and $94.3 million, respectively, and
shareholders' equity would amount to $140.4 million and $151.6 million,
respectively, under Canadian GAAP.

     Effective December 31, 1996, the Company changed its Canadian GAAP policy
with respect to pre-operating costs. Such costs may not be capitalized under
U.S. GAAP and, therefore, all such costs have been retroactively expensed for
Canadian GAAP purposes. The change in accounting policy decreased the Canadian
GAAP loss in 1995 by $636,000. The deficit at December 31, 1995 was increased by
$2.2 million.

                                      F-25
<PAGE>   119
                                PLD TELEKOM INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1996

     (b) The following non-cash investing and financing activities would be
included in the consolidated statements of cash flows under Canadian GAAP.

<TABLE>
<CAPTION>
                                                    1997      1996     1995
                                                  --------    ----    -------
                                                        (IN THOUSANDS)
<S>                                               <C>         <C>     <C>
Investing:
  Investment in Yellow Pages....................  $     --    --       (1,900)
  Investment in BECET...........................        --    --           --
  Capital expenditures..........................   (11,302)   --           --
  Investments in Technocom......................    (7,681)   --           --
Financing:
  Issue of common shares........................     7,681    --        6,786
  Conversion of preferred shares................        --    --       (4,886)
  Supplier financing............................    11,302    --           --
  Recapitalization of PeterStar.................     4,012    --           --
  Due from related party........................    (4,012)   --           --
</TABLE>

(16) CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of selected quarterly financial data for the
years ended December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                               1997 QUARTERS ENDED
                                                --------------------------------------------------
                                                MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
                                                --------    -------    ------------    -----------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>         <C>        <C>             <C>
Operating revenues............................  $23,891     $26,389      $29,534         $34,610
Operating income..............................    2,481       2,634        2,872           4,031
Interest and other income.....................    1,394       1,260          625             335
Interest expense..............................   (4,269)     (4,120)      (4,457)         (5,000)
Income taxes..................................    1,074       2,366        2,048           2,251
Minority interest.............................    1,766       1,457        1,391           4,785
Net loss for the period.......................   (4,342)     (3,725)      (5,377)         (7,122)
                                                =======     =======      =======         =======
Net loss per common share.....................  $ (0.14)    $ (0.12)     $ (0.17)        $ (0.22)
                                                =======     =======      =======         =======
</TABLE>

     Minority interest for the fourth quarter of 1997 includes $2.1 million in
connection with the settlement reached with the minority shareholders of
PeterStar (see note 14(a)).

<TABLE>
<CAPTION>
                                                               1996 QUARTERS ENDED
                                                --------------------------------------------------
                                                MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
                                                --------    -------    ------------    -----------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>         <C>        <C>             <C>
Operating revenues............................  $10,184     $13,478      $17,011         $21,293
Operating income (loss).......................     (987)      1,897        1,782             175
Interest and other income.....................      855       1,075        1,263           1,666
Interest expense..............................     (296)     (1,683)      (3,861)         (4,133)
Income taxes..................................      828         526        1,764             551
Minority interest.............................       97         434        1,118             872
Net loss for the period.......................   (1,623)       (808)      (4,758)         (5,272)
                                                =======     =======      =======         =======
Net loss per common share.....................  $ (0.05)    $ (0.03)     $ (0.15)        $ (0.16)
                                                =======     =======      =======         =======
</TABLE>

     Operating revenues and direct costs in the fourth quarter of 1996 include
$3.0 million in connection with a barter agreement with an indirect minority
shareholder of PeterStar (see note 13(a)).

                                      F-26
<PAGE>   120

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in New York, New York
on March 31, 1998.

                                          PLD TELEKOM INC.

                                          By:     /s/ JAMES R. S. HATT
                                            ------------------------------------
                                            James R. S. Hatt
                                            President and
                                            Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report been signed by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                     TITLE                     DATE
                     ---------                                     -----                     ----
<C>                                                  <S>                                <C>

                /s/ BORIS ANTONIUK                   Director                           March 31, 1998
---------------------------------------------------
                  Boris Antoniuk

             /s/ EDWARD CHARLES DILLEY               Director                           March 31, 1998
---------------------------------------------------
               Edward Charles Dilley

                 /s/ SIMON EDWARDS                   Director and Chief Financial       March 31, 1998
---------------------------------------------------    Officer (Principal Financial
                   Simon Edwards                       Officer)

                /s/ JAMES R.S. HATT                  Director, President and Chief      March 31, 1998
---------------------------------------------------    Executive Officer (Principal
                  James R.S. Hatt                      Executive Officer)

                /s/ GORDON HUMPHREY                  Director                           March 31, 1998
---------------------------------------------------
                  Gordon Humphrey

              /s/ GENNADY KUDRIATSEV                 Director                           March 31, 1998
---------------------------------------------------
                Gennady Kudriatsev

                /s/ VLADIMIR KVINT                   Director                           March 31, 1998
---------------------------------------------------
                  Vladimir Kvint

                 /s/ JULIAN RAWLE                    Director                           March 31, 1998
---------------------------------------------------
                   Julian Rawle

                 /s/ ROBERT SMITH                    Director                           March 31, 1998
---------------------------------------------------
                   Robert Smith

                 /s/ DAVID STOVEL                    Director                           March 31, 1998
---------------------------------------------------
                   David Stovel
</TABLE>
<PAGE>   121
                                 EXHIBIT INDEX



4.3              First Supplemental Indenture, Amendment Agreement, Consent and
                 Waiver, dated as of March 20, 1998.

4.21             Revolving Credit Agreement, dated as of November 26, 1997,
                 between the Registrant, The Travelers Insurance Company and
                 The Travelers Indemnity Company.

4.22             Form of 12% Series A Senior Secured Revolving Credit Note
                 (included as Exhibit A-1 to the Revolving Credit Agreement).

4.23             Form of 12% Series B Senior Secured Revolving Credit Note
                 (included as Exhibit A-2 to the Revolving Credit Agreement).

4.24             Warrant Agreement, dated as of November 26, 1997, between the
                 Registrant and The Bank of New York, as Warrant Agent.

4.25             Form of Series A Warrant Certificate (included as Exhibit A-1
                 to the Warrant Agreement).

4.26             Form of Series B Warrant Certificate (included as Exhibit A-2
                 to the Warrant Agreement).

4.27             Registration Rights Agreement, dated as of November 26, 1997,
                 between the Registrant, The Travelers Insurance Company and
                 The Travelers Indemnity Company.

4.28             Guaranty Agreement, dated as of November 26, 1997, made and
                 given by Wireless Technology Corporations Limited and Baltic
                 Communications Limited in favor of The Travelers Insurance
                 Company and The Travelers Indemnity Company.

4.29             Trust Agreement, dated as of November 26, 1997, between the
                 Registrant and The Bank of New York, as Trustee.

4.30             Security Agreement (Inventory and Receivables), dated as of
                 November 26, 1997, between the Registrant and The Bank of New
                 York, as Trustee.

4.31             Pledge Agreement, dated as of November 26, 1997, between the
                 Registrant and The Bank of New York, as Trustee.

10.1             PLD Telekom Inc. 1997 Equity Compensation Plan.

10.2             Service Agreement, dated August 1, 1997, between the
                 Registrant and James R.S. Hatt.
<PAGE>   122
10.3             Employment Letter, effective June 1, 1997, between the
                 Registrant and John G. Davies.

10.4             Amendment, dated July 30, 1997, to Employment Letter between
                 the Registrant and John G. Davies.

10.5             Service Agreement, dated July 1, 1997, between the Registrant
                 and Simon Edwards.

10.7             Amended and Restated Service Agreement, dated August 1, 1997,
                 between the Registrant and Conor Carroll.

10.8             Service Agreement, dated November 26, 1997, between the
                 Registrant and Boris Antoniuk.

10.9             Consultancy Agreement, dated December 28, 1994, between
                 Technocom Limited and Elite International Limited.

10.10            Amendment, dated November 26, 1997, to the Consultancy
                 Agreement between Technocom Limited and Elite International
                 Limited.

10.28            Amendment, dated February 28, 1996, to the Interconnection
                 Agreement between Kazakhtelekom and BECET International.

10.42            Amendment, dated November 26, 1997, to Subscription and
                 Shareholder Agreement between the Registrant, Plicom Limited,
                 Elite International Limited and Plicom Limited.

10.46            Amendment, dated November 26, 1997, to Put and Call Option
                 Agreement between the Registrant and Plicom Limited.

10.47            Amended and Restated Put and Call Option Agreement, dated
                 November 26, 1997, between the Registrant and Elite
                 International Limited

10.48            Share Purchase Agreement, dated November 26, 1997, among the
                 Registrant, Technocom Limited, Plicom Limited and Mark Klabin.

10.49            Share Purchase Agreement, dated November 26, 1997, among the
                 Registrant, Technocom Limited and Elite International Limited.

10.50            Securities Sale and Purchase Agreement between the Registrant
                 and Redford Limited relating to SPMMTS.

10.52            Sublease, dated June 4, 1997, between the Registrant and The
                 Seiko Corporation of America.
<PAGE>   123
21               List of Subsidiaries.

23.1             Consent of KPMG Peat Marwick LLP.

23.2             Consent of KPMG.