<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, 1996
      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)

                Delaware                               Applied for
     (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)

   c/o PLD Management Services Limited
             43 Dover Street                           W1X 3RE
             London, ENGLAND                         (Zip Code)
(Address of principal executive offices)

              Registrant's telephone number, including area code:
                         Country Code 44 (171) 629-3217

           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. / /
<PAGE>   2
As of March 5 , 1997, the aggregate market value of the Common Stock held by
non-affiliates of the registrant was $108,006,272. 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 directors and beneficial owners of more than five
percent of the Common Stock of the Company.

As of March 5, 1997, there were 31,708,534 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 is incorporated herein by
reference.

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

          OMISSION OF CERTAIN DISCLOSURE ITEMS PURSUANT TO RULE 12b-25

Pursuant to Rule 12b-25 under the Securities Exchange Act of 1934, the exhibits
to this annual report on Form 10-K to be filed pursuant to Item 14 have been
omitted and will be filed at a later date in accordance with such Rule.
<PAGE>   3
                                PLD TELEKOM INC.

                             FORM 10-K ANNUAL REPORT
                     For Fiscal year Ended December 31, 1996

                                TABLE OF CONTENTS

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<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                              <C>
PART I

Item 1.  Business.................................................................................................1

Item 2.  Properties..............................................................................................53

Item 3.  Legal proceedings.......................................................................................54

Item 4.  Submission of Matters to a Vote of Security Holders.....................................................54


PART II

Item 5.  Market for registrant's common equity and related stockholder matters...................................54

Item 6.  Selected financial data.................................................................................55

Item 7.  Management's discussion and analysis of financial condition and results of operations...................57

Item 8.  Financial statements and supplementary data.............................................................75

Item 9.  Changes in and disagreements with accountants on accounting and financial disclosures...................75


PART III

Item 10. Directors and executive officers of the registrant .....................................................75

Item 11. Executive compensation .................................................................................75

Item 12. Security ownership of certain beneficial owners and management .........................................75

Item 13. Certain relationships and related transactions .........................................................75


PART IV

Item 14. Exhibits, financial statement schedules, and reports on forms 8-K .....................................76

</TABLE>
<PAGE>   4
                                     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 Kazakstan. The
Company's four principal operating subsidiaries are: (i) PeterStar Company
Limited ("PeterStar"), which provides integrated local, long distance and
international telecommunications services in St. Petersburg through a fully
digital fiber optic network; (ii) Baltic Communications Limited ("BCL"), which
provides dedicated international telecommunications over fiber optic cable from
St. Petersburg; (iii) Technocom Limited ("Technocom"), which, through
Teleport-TP, a Moscow-based long distance and international operator, currently
provides dedicated international telecommunications services to Russian and
foreign businesses and has commenced the operation of a satellite-based
pan-Russian long distance network; and (iv) BECET International ("BECET"), which
currently provides the only national cellular service in Kazakstan. Since 1994,
Cable and Wireless plc ("Cable & Wireless"), a company incorporated in England
and listed on the London and New York Stock Exchanges, has invested
approximately $85 million for an approximately 32% stake in the Company's Common
Shares.

         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 Company anticipates transferring executive office functions,
currently spread among a number of locations, to the United States during the
second quarter of 1997.

         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".

         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
<PAGE>   5
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 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 a 14% interest in
PeterStar; Kazaktelekom, the state-owned national telecommunications operator in
Kazakstan 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.

         The Company has several potential sources of cash flows, including fees
from management services, dividends from its equity interests and lease
payments. The Company currently generates fees from its management services
provided to certain of its operating subsidiaries. Although its ability to
generate dividend income in the near future is limited due to the cash flow
requirements of its businesses, the Company expects to receive dividends from
its equity interests in the future. Following the private placement in June 1996
(the "June 1996 Placement") of debt and equity securities which generated net
proceeds to the Company of approximately $105 million, the Company implemented,
as contemplated by the terms of the notes issued by the Company as part of the
June 1996 Placement, a leased-based financing structure with its operating
businesses intended to generate regular cash flows to the Company. See "--June
1996 Placement." In order to utilize such a structure, the Company has formed a
wholly owned subsidiary, PLD Asset Leasing Limited, a Cyprus Company ("PLD
Leasing"), to implement the leasing arrangements between the Company and its
operating businesses. The Company also leases equipment to its operating
businesses through Technocom. The Company is currently reviewing the foregoing
structures in the light of current licensing and other regulatory issues in
Russia, and anticipates that some revision thereto may be required in the near
future.

                                        2
<PAGE>   6
CORPORATE STRUCTURE

         The following chart shows the corporate structure of the Company and
its material interests (but excludes intermediate holding companies such as NWE
Capital (Cyprus) Ltd. ("NWE Cyprus")), together with the percentage of equity
ownership of the Company and Technocom in each operating subsidiary and other
significant investments.



                              PLD TELEKOM INC. (1)
                                   (Delaware)




               BALTIC COMMUNICATIONS                          SPMMTS (2)
                      LIMITED                                  (Russia)
                      (Russia)                                  10.4%
                        100%




   PETERSTAR                       TECHNOCOM                        BECET
    COMPANY                       LIMITED (4)                 INTERNATIONAL (5)
  LIMITED (3)                      (Ireland)                     (Kazakstan)
    (Russia)                        50.75%                           50%
      60%




            TELEPORT-TP (6)                        MTR-SVIAZ (7)
                (Russia)                             (Russia)
                 49.33%                                 49%



----------

(1)  The Company holds its interests in a number of its subsidiaries through NWE
     Cyprus to take advantage of the double taxation treaty between Cyprus and
     the Russian Federation. The Company is considering transferring such
     interests to a wholly-owned Delaware subsidiary.

(2)  SPMMTS is the gateway for nationl and international long distance calls
     to and from St. Petersburg. As a result of its privatization plan, the
     shares of SPMMTS are held by managers and employees of SPMMTS, Russian
     individuals and companies who acquired SPMMTS shares in the voucher
     auction, the State Property Fund of the Russian Federation, and others,
     including the Company, who acquired SPMMTS shares subsequent to the
     voucher auction.

                                        3
<PAGE>   7
(3)  During 1996, the other shareholders of PeterStar were Telecominvest (20%)
     and Complus Enterprises Holding, S.A., a Luxembourg company ("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. Complus was indirectly
     owned by Cable & Wireless (55%) and an affiliate of Commerzbank AG
     ("Commerzbank") (45%). In 1996, the Commerzbank affiliate acquired a 51%
     interest in Telecominvest. As a result of the settlement of certain
     disputes among the shareholders of Complus and Telecominvest, the Company
     believes that the other shareholdings of PeterStar, upon consummation of
     such settlement, will be as follows: Complus (11%), which will become
     wholly owned by Cable & Wireless, and Telecominvest (29%), which will be
     owned 51% by the Commerzbank affiliate, 25% by PTS and 24% by SPMMTS.

(4)  The remaining interests are beneficially owned by Plicom Limited (29.65%),
     an Irish company beneficially owned by the family interests of Mr. Mark
     Klabin ("Plicom"), and Elite International Limited (19.6%), an Irish
     company beneficially owned by a trust advised by Dr. Boris Antoniuk
     ("Elite"). The Company understands that Dr. Antoniuk has the power to
     exercise the voting rights of the shares of Technocom owned by Elite. Dr.
     Antoniuk is also a member of the board of directors of Technocom,
     Teleport-TP and Technopark, a Russian company which holds a 7.5% interest
     in Teleport-TP and in which the Company recently acquired a 55.51%
     interest.

     Technocom also holds a 75% interest in Space Communications 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 100% interest in Rosh
     Communication ("Rosh") which it uses to manage and support its activities
     in the Russian Federation and other countries of the former Soviet Union.

(5)  The Company holds its 50% interest in BECET through its wholly-owned
     subsidiary, Wireless Technology Corporations Limited, a corporation
     organized under the laws of the British Virgin Islands ("WTC"), which in
     turn is wholly owned by NWE Cyprus. The other 50% interest in BECET is
     currently held by Kazaktelekom, a Kazak joint stock company which is owned
     by the government of Kazakstan and which operates the public telephone
     network in that country. It is believed that the Kazak government intends
     to privatize Kazaktelekom and may sell a stake in Kazaktelekom to a
     strategic investor, but at this time it is not clear if, or how, the
     privatization will be implemented.

     BECET does business under the name "ALTEL."

(6)  Technocom holds a 49.33% beneficial interest (56% voting interest) in
     Teleport-TP. Technocom holds 38.5% of its beneficial interest directly,
     6.67% through its 66.67% beneficial interest in Roscomm Limited, a Guernsey
     company ("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 shareholder of Teleport-TP is Rostelecom (44%).

(7)  Technocom holds a 49% beneficial interest in MTR-Sviaz, a wireline
     telecommunications operator in Moscow. Technocom holds 9% of this interest
     directly and 40% through its wholly owned subsidiary Rosh. The remaining
     51% interest is held by AO Mosenergo, the Moscow city power utility
     ("Mosenergo").

RELATIONSHIP WITH CABLE AND WIRELESS PLC

         Since 1994, the Company has enjoyed a close working relationship with
Cable & Wireless, a leading global telecommunications company, which has been
investigating investment opportunities in the Russian Federation since the
market began to liberalize nine years ago. The relationship has allowed the
Company to draw upon Cable & Wireless' commercial and technical expertise and
has provided the Company with access to (i) expatriate management; (ii) Cable &
Wireless training

                                        4
<PAGE>   8
facilities; and (iii) technical and project management staff at Cable & Wireless
to assist in evaluating and implementing new investment opportunities and vendor
contract negotiation. Cable & Wireless currently holds two of the nine 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. The Company expects to be able to
continue to draw upon such support from Cable & Wireless for such time as Cable
& Wireless is a significant shareholder.

ACQUISITION OF 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.

JUNE 1996 PLACEMENT

         In June 1996, the Company issued the following securities pursuant to
the June 1996 Placement to a limited number of U.S. institutional investors: (i)
$123,000,000 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 and (iii) $26,500,000
aggregate principal amount of 9% Convertible Subordinated Notes due 2006 (the
"Convertible Notes"). The net proceeds of the June 1996 Placement have been, and
will be, used by the Company to, among other things, purchase telecommunications
equipment to be made available to the operating companies, make investments in
telecommunications businesses, repay certain indebtedness and for working
capital. The Company's obligations under the Senior Notes rank senior to the
Convertible Notes. The Company's obligations under the Senior Notes and the
Convertible Notes have been guaranteed by certain of the Company's subsidiaries
and have been secured by, among other things, pledges of the stock of certain of
the Company's subsidiaries. The terms of the Indentures pursuant to which the
Senior Notes and the Convertible Notes were issued impose significant
restrictions upon the Company's activities, including restrictions upon the
incurring of additional indebtedness, payment of dividends or other
distributions, mergers, sales of assets and other corporate transactions and the
uses to which the proceeds of the June 1996 placement may be put, as well as
provisions requiring repayment in the event of a change of control.

ESTABLISHMENT OF REPRESENTATIVE OFFICE IN ST. PETERSBURG

         Following approval by the Company's Board of Directors in November
1996, the Company began the process of establishing a representative office of
the Company in St. Petersburg. The office is located at the premises of BCL and
is staffed by a Representative Director (Peter Owen-Edmunds, formerly with
PeterStar) and two administrative staff members.

CONTINUANCE OF THE COMPANY IN DELAWARE

GENERAL

         On February 27, 1997, shareholders of the Company at a special meeting
of shareholders (the "Special Meeting") approved a special resolution
authorizing the Company to, among other things, continue the Company as a
Delaware corporation under the Delaware General Corporation Law ("DGCL") and
simultaneously discontinue the Company's existence in Ontario under the Business
Corporations Act (Ontario) (the "OBCA") (the "Continuance"). At the Special
Meeting, the shareholders also adopted a new Certificate of Incorporation of the
Company under the DGCL. On February 28, 1997, after obtaining the necessary
authorizations from Ontario authorities under the OBCA and making the necessary
filings under the DGCL with the Delaware authorities, the Company discontinued
its existence in Canada and continued as a Delaware corporation organized under
the DGCL.

         Effect on Securities. 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 either the directors or officers of the Company.
As of February 28, 1997, holders of Common Shares of the Company continued to
hold one share of Common Stock for each Common Share held and holders of Series
II Convertible Preferred Shares and Series III Convertible Preferred Shares of
the Company continued to hold one share of Series II Preferred Stock or Series
III Preferred Stock, as the case may be, for each Series II Convertible

                                        5
<PAGE>   9
Preferred Share or Series III Convertible Preferred Share held. The existing
share certificates representing shares of the Company's stock have not been and
will not be canceled. Holders of options to purchase the Company's Common Shares
as of February 28, 1997 continued to hold options to purchase an identical
number of shares of the Company's Common Stock on substantially the same terms.
Similarly, holders of warrants to purchase the Company's Common Shares continued
to hold warrants to purchase an identical number of shares of the Company's
Common Stock on substantially the same terms.

         Transfer of Executive Offices to the United States. The Company
anticipates transferring executive office functions to New York City during the
second quarter of 1997. These functions had been carried out from a number of
locations, including Toronto and London. The Company closed its Toronto office
effective February 27, 1997. While the Company anticipates maintaining a
facility in England, it is expected to be used for operational support purposes
only.

         Exchange Listings. Prior to the Continuance, the Common Shares were
listed and traded, among other places, on the Nasdaq National Market under the
symbol "PLDIF" and the Toronto Stock Exchange under the symbol "PLD".  The
Company has maintained both listings following the Continuance. Effective March
6, 1997, the Company's trading symbol on the Nasdaq National Market was changed
to "PLDI".

         Changes in Reporting Obligations. As a result of the Continuance, the
Company is now subject to the reporting obligations and proxy solicitation rules
of domestic U.S. issuers under the U.S. securities laws, and is no longer a
"foreign private issuer" as defined thereunder. Since the Company has maintained
its listing on The Toronto Stock Exchange, the Company remains a "reporting
issuer" in each Province of Canada.

PRINCIPAL REASONS FOR THE CONTINUANCE

          The Company continued its corporate existence under the DGCL for the
following reasons:

         Cost of Capital. The Company's principal sources of capital are located
outside Canada, principally in the U.S. The need to pay, or to structure the
Company's financing arrangements or operations to avoid or minimize the impact
of, Canadian withholding taxes imposed additional costs and administrative
burdens on the Company which are not applicable to U.S.
corporations.

         Improved Market Access. The Company believes that the Continuance will
facilitate access to the capital markets in the U.S., currently the Company's
principal source of debt and equity financing, and to investors currently not
permitted or not interested in investing in the Company because its securities
are treated as foreign securities.

         Access to U.S. Government Financing. The Company further believes that
continuation as a U.S. corporation will assist the Company in accessing various
financing programs administered by agencies of the United States Government for
the benefit of U.S. companies, such as the Overseas Private Investment
Corporation.

         Impact of United States Income Tax Code on Company's Financing
Activities. Pursuant to the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), the Company, prior to the Continuance, was classified as a "passive
foreign investment company" ("PFIC") and expected to continue to be so
classified as long as it was engaging in the financing activities needed to grow
its businesses. This classification had certain adverse impacts upon its U.S.
shareholders who, under certain circumstances, could have been required at worst
to pay increased taxes in the U.S., either currently or on any future
disposition (or deemed disposition) of the Company's shares, and at best to
submit to filing and other administrative burdens to minimize such additional
taxes. By becoming a U.S. corporation, PFIC status, and the associated problems
for U.S. shareholders, are avoided.

                                        6
<PAGE>   10
         Increasingly Limited Contact with Canada. While the Company's
operations at one time were located in, or closely associated with Canada, as
the Company's business has focused increasingly upon the telecommunications
business in the former Soviet Union, its connections with Canada became
increasingly tenuous. In addition to the fact that the principal trading market
for the Company's stock is now the U.S., the Company had no business operations
in Canada, all but two of its employees were located outside of Canada, and, as
of January 21, 1997, more than 90% of its outstanding common shares were held by
shareholders of record who were Canadian non-residents.

         Director Residency Requirements. The OBCA requires that a majority of
the directors, and a majority of any committee of the directors, be Canadian
residents, a requirement that substantially inhibited the Company's ability to
diversify the composition of its board of directors.

POTENTIAL ADVERSE CONSEQUENCES OF THE CONTINUANCE

         The Company does not believe that the Continuance will result in any
material adverse consequences to the Company or its Canadian or United States
shareholders. The management of the Company, in consultation with certain of its
advisors, reviewed the Company's assets, liabilities and paid-up capital at a
point in time as near as reasonably practicable prior to the Continuance and has
concluded that no Canadian federal taxes should be due and payable by the
Company under the Income Tax Act (Canada) (the "Act") as a result of the
Continuance. In reaching its conclusions, the Company made certain assumptions
regarding the Canadian federal tax treatment of certain amounts, the treatment
of which is subject to some doubt. There can be no assurance that the Canadian
federal tax authorities will accept the valuations or the positions that the
Company has adopted with respect to the Canadian federal tax treatment of such
amounts. Accordingly, there can be no assurance that the Canadian federal tax
authorities will conclude that no Canadian federal taxes are due under the Act
as a result of the Continuance or that the amount of Canadian federal taxes
claimed or found to be due will not be significant.

TELECOMMUNICATIONS IN THE FORMER SOVIET UNION

         In the Soviet era, telecommunications in the Russian Federation and
other republics of the former Soviet Union was viewed as existing 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.

                                        7
<PAGE>   11
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 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 Russian State Committee of Communications (which, prior
to March 17, 1997 was known as the Ministry of Communications of the Russian
Federation) (the "RSCC") to these new service providers. Most joint ventures
involve a Russian and a foreign partner. Many of these joint ventures have not
yet begun operations; however, where they have, 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 RSCC 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 regional telephone companies.

         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. Until 1991, Rostelecom was the monopoly provider
of national and international long distance service. Since then, the RSCC 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 RSCC 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, in June 1995,
as part of its plan to set up a nationwide competitor to Rostelecom, the
government of the Russian Federation announced the establishment of Sviazinvest
as a second long distance and international carrier, and work on  the "50 X 50"
project ceased.

         Sviazinvest, which is 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. The significant exceptions to their
majority interests are in Moscow and St. Petersburg, where their interests are
46% and 44% respectively. 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.

         The media reported in December 1996 that the Russian government planned
to consolidate its holdings in Sviazinvest and Rostelecom by transferring its
shareholding in Sviazinvest (100%) and Rostelecom (38% of the common stock, and
51% of the voting stock) to a new holding company, yet to be formed. The balance
of the shares in Rostelecom will remain in the hands of private investors. The
government will then seek to sell 49% of this new holding company to domestic
and foreign investors, split 25% foreign and 24% domestic ownership. Although
it is understood that two Russian banks were subsequently appointed as advisors
to the government for this transaction, the Russian government announced in
February 1997 that it had indefinitely postponed the consummation of the
proposed consolidation. Therefore, the schedule for the creation of this new
holding company and subsequent partial sale to investors remains undetermined.
While it is not yet clear what the proceeds of this sale will be used for, it
is understood that the government wishes to have some of the proceeds allocated
to its current budget deficit. At this time, it is unclear what impact the
formation of this new company and the sale of an equity stake in the company
will have on the Russian telecommunications market in general and the Company
in particular.

         St. Petersburg

         The telecommunications market in St. Petersburg, a city with a
population of approximately 5 million, is characterized by low activated
penetration rates, substantial bottlenecks on the public network and outdated
switching technology. The

                                        8
<PAGE>   12
Company believes St. Petersburg is an attractive market for the provision of
integrated telecommunications services due to the current inadequacies of the
public network as well as the rapid development of Russian and foreign
businesses in the city. Approximately 75% of the existing lines are analog, many
of which are served by outdated cross-bar or step by step switching technology.
The Company believes that PTS does not currently have the financial resources to
develop the network infrastructure required to accommodate market demand. A 1994
EBRD report on telecommunications development in St. Petersburg estimated that
the market for lines would grow at approximately 7% per annum until the year
2000. The growth rate is limited, in large part, by the current financial
constraints of PTS and, to a lesser extent, the Company. The number of cellular
subscribers in St. Petersburg has grown from approximately 6,400 at December 31,
1994 to approximately 55,000 at December 31, 1996, as St. Petersburg has become
one of the fastest growing cellular markets in the Russian Federation.

         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 PTS network is outdated and overloaded, producing
congestion, interference, "crossed lines" and poor transmission quality. Only
17% of PTS's exchanges are digital/electronic, and some of its equipment is over
40 years old. PTS has indicated that it plans to start charging for local calls
in 1997, although initially it will charge only its business customers. PTS has
entered into a number of other, primarily wireless, telecommunications joint
ventures. However, PeterStar is the only wireline operator which is fully
integrated with the PTS network.

         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 owns a 10.4% equity interest in SPMMTS.

         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 a direct satellite connection
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 may route its long
distance and international traffic through SPMMTS and dedicated network
operators such as BCL. To date, this traffic has been routed only through
SPMMTS.

         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 20% of PeterStar, 34% 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 its interests in Delta
Telecom (57.5%) and Neva Page (51%) to Telecominvest. 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 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.

         Moscow

         Local public fixed-line telephone service in Moscow is provided by the
Moscow City Telephone System ("MGTS"), a recently privatized company which
operates the telephone network in Moscow. MGTS currently serves 3,800,000
subscribers, of which 79% are residential. Less than 6% of the switches on the
MGTS network are digital and digital service generally is available to only 8.7%
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.

                                        9
<PAGE>   13
         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 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.

         Russian Long Distance Market

         The Russian long distance market remains relatively underdeveloped,
with poor network infrastructure resulting in limited network capacity. The size
of the Russian long distance market was estimated by Barings Securities to be
approximately $2 billion as of September 1995 and is expected to grow to $7
billion by the end of the decade, reflecting a compounded annual growth rate of
approximately 29%. In contrast, according to the FCC, the size of the United
States long distance market was approximately $67 billion in 1994. The Russian
long distance market is projected by Barings Securities to grow from around 10
billion long distance minutes in 1995 to nearly 50 billion by the year 2000,
representing a compounded annual growth rate of approximately 38%. To date,
growth in the Russian long distance market has been limited by the lack of
capital available for network infrastructure development.

TELECOMMUNICATIONS IN KAZAKSTAN

         The Company believes that Kazakstan is an attractive market for
cellular services because the Kazak telecommunications market is significantly
underserved by existing wireline operators. At the time of Kazakstan's
independence in 1991, the Kazak telephone system consisted of the same outdated
network equipment as the other telephone systems in the former Soviet republics.
Currently, only 14% of Kazakstan's population of approximately 17,000,000 has
telephone lines. The existing national telephone network consists of 1,960,000
lines, of which 350,000 are in Almaty. Due to the outdated condition of much of
the telecommunications infrastructure in Kazakstan, 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 is becoming an
increasingly important aspect of telecommunications in Kazakstan.

         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 Kazakstan. 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. Kazaktelekom has formed a joint venture with Deutsche Telekom to
develop a fiber optic network linking Almaty to the future capital city of
Akmola and other regional centers.

         All local exchange switching in Kazakstan 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 five years before there is a significant increase in
modern digital local exchange capacity and growth in network capacity.

                                       10
<PAGE>   14
         Until 1992, the sole means of international access to and from
Kazakstan was through a central switch located in Moscow. Kazakstan acquired its
own international gateway in August 1992 when a new AT&T 5ESS switch was
installed in Almaty. It now has direct international connections via satellite
to the United States, Japan, Australia, Germany, France, Israel and Turkey and
via analog cables to Moscow. Kazakstan has also announced plans to participate
in projects to install fiber optic cable links between China, the countries of
Central Asia and Europe, although these plans have been delayed due to a lack of
financing.

         Actual operation of the public telephone network is carried out by
Kazaktelekom, 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 Kazak government in
international telecommunications matters and the planning and development of the
network in Kazakstan, have been transferred to Kazaktelekom. Kazaktelekom
carries out its functions under the oversight and direction of the Kazak
Ministry of Communications (the "KMOC"). It is understood that the government
may seek to sell an interest in Kazaktelekom to a strategic investor. However,
there is currently no clear timetable as to when such a sale would be completed.
See "Ownership and Management of Operating Subsidiaries--BECET
International--Relationship with Joint Venture Partners."

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 seeking an
alternative to the outdated, primarily analog PTS network, which suffers from
significant capacity constraints, which are unlikely to be eliminated in the
near term due to internal funding constraints at PTS. PeterStar is the only
wireline operator with full access to the local, long distance and international
networks serving the city. As a result, PeterStar is able to provide integrated
telecommunications services to business customers, including bandwidth intensive
users of voice, data and video communications. PeterStar's network is designed
to support a wide range of telecommunication 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. PeterStar also provides an alternative,
reliable transmission route for incoming and outgoing traffic between the SPMMTS
long distance and international gateway and the PTS public network, thereby
avoiding the bottlenecks on the public network.

         See "--Telecommunications Licenses--PeterStar Company Limited" for a
description of the telecommunications licenses held by PeterStar.

STRATEGY

         As of December 31, 1996, PeterStar had an installed capacity of 30,000
fixed lines. 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 allocated by the RSCC of 100,000 lines to a
total of approximately 200,000 lines by 2001. PeterStar is currently adding
incremental transmission capacity and upgrading the transmission network from
STM-4 to STM-16, as well as working on the introduction of new service features
such as interservices digital network ("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 effort to upgrade and modernize its
network. See "--Products and Services--Potential Expansion of Direct Dial
Services." 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 will
continue to market its services from sales offices at the five primary PTS node
sites, giving PeterStar considerable exposure in the marketplace.

                                       11
<PAGE>   15
         PeterStar will expand, on a targeted basis, its local network
infrastructure by connecting, where economically feasible, additional business
and residential subscribers. As part of this program, PeterStar has agreed to
redevelop certain parts of the analog PTS network, further strengthening its
relationship with PTS. 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.

PRODUCTS AND SERVICES

         PeterStar currently provides (i) direct dial voice services to business
and residential customers, (ii) transit services for cellular operators, (iii)
transit services for SPMMTS, the only licensed gateway in St. Petersburg to the
public long distance and international networks, and (iv) value-added services.
PeterStar markets its products and services through its own direct sales force
which targets mainly Russian and foreign corporate accounts.

         PeterStar's customer base currently consists of three general
categories: (i) business customers, (ii) cellular operators, and (iii)
residential customers. In addition, PeterStar acts as one of the transmission
mechanisms for incoming and outgoing traffic between the SPMMTS long distance
and international gateway and the PTS public network. PeterStar's primary focus
has been the provision of telephony products and services to business customers,
including those which generate large amounts of outgoing international traffic.

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



<TABLE>
<CAPTION>
                              No. of Lines                     No. of Lines                    No. of Lines
                                  as of            % of           as of            % of           as of           % of
                                Dec. 31,           1996          Dec. 31,          1995          Dec. 31,         1994
                                  1996            Total            1995            Total           1994           Total
                                  ----            -----            ----            -----           ----           -----
<S>                               <C>              <C>             <C>              <C>             <C>            <C>
TYPE OF CUSTOMER
Direct dial--business             12,482            24%             4,840            23%            1,500           36%
Direct dial--residential           2,310             4%             2,029             9%              214            5%
Cellular operators                37,213            72%            14,659            68%            2,386           59%
                                  ------            ---            ------            ---            -----           ---
         Total                    52,005           100%            21,528           100%            4,100          100%
                                  ======           ====            ======           ====            -----          ----
</TABLE>

         The following shows the breakdown of call load on the PeterStar network
for the years ended December 31, 1994, 1995 and 1996 (including incoming traffic
from SPMMTS routed on the PeterStar network pursuant to a separate transit
agreement between PeterStar and SPMMTS. See "--Transit Service to SPMMTS.").


<TABLE>
<CAPTION>
                                No. of             % of           No. of           % of           No. of          % of
                                Minutes            1996          Minutes           1995          Minutes          1994
                                in 1996           Total          in 1995           Total         in 1994          Total
                                -------           -----          -------           -----         -------          -----
<S>                            <C>                 <C>         <C>                   <C>        <C>                <C>
CALL TYPE
Local                          114,236,000          89%        32,127,600            85%        5,898,200           72%
Long distance                    9,283,000           7%         3,326,100             9%        1,098,300           14%
International                    5,327,000           4%         2,371,400             6%        1,116,900           14%
                                 ---------           --       -----------           ----        ---------          ----
         Total                 128,846,000         100%        37,825,100           100%        8,158,400          100%
                               ===========         ====        ==========           ====        =========          ====
</TABLE>

                                       12
<PAGE>   16
         Direct Dial Voice Services

         PeterStar provides 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 the traditional copper connections
or fiber optics. PeterStar's digital overlay network provides improved long
distance and international connectivity and offers a package of exchange
services such as call waiting, call forwarding and three way conferencing.
PeterStar is the only operator with full access to the local, long distance and
international networks serving St. Petersburg.

         For domestic long distance connections, PeterStar offers, through
SPMMTS, 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.

         For international connections, PeterStar provides international access
through SPI. International calls are then routed on the BT international digital
network to their final destination.

         Call revenues and total minutes in this segment amount to $12.8
million, $6.2 million and $4.4 million, and 71,128,000, 19,995,000, and
6,153,000, in 1996, 1995 and 1994, respectively. The 1996 amounts include
delivery of incoming and outgoing traffic from and to the SPMMTS gateway. See
"--Transit Service to SPMMTS."

         Direct Dial--Business Customers. PeterStar's primary focus has been the
provision of telecommunication products and services to business customers,
including those which generate large amounts of outgoing international 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, 1996, foreign businesses, such
as ABB, Rothmans Inc., Unilever N.V., Littlewoods, Coopers and Lybrand, Global
One and Cadbury, represented approximately 14% of PeterStar's 1,885 business
customers and Russian businesses, such as Baltika Brewery and LenEnergo,
represented the balance. Russian businesses accounted for 80% of PeterStar's
total directly connected revenues in 1996.

         The following table shows the call usage breakdown for business
customers for 1994, 1995 and 1996:


<TABLE>
<CAPTION>
                          % of total         % of total         % of total      % of total      % of total     % of total
                              1996              1996               1995            1995            1994           1994
                          call revenue         minutes         call revenue       minutes      call revenue      minutes
                          ------------         -------         ------------       -------      ------------      -------
<S>                           <C>                <C>               <C>              <C>            <C>            <C>
CALL TYPE
Local                         10%                78%                7%              76%             4%             65%
Long distance                 44%                15%               34%              15%            20%             17%
International                 46%                 7%               59%               9%            76%             18%
</TABLE>

         Direct Dial--Residential Customers. As of December 31, 1996, PeterStar
had connected 2,310 residential customers to its network. Revenue from direct
dial residential customers totaled $144,000 in 1996 and amounted to 0.4% of
total PeterStar revenue for the year. At present, PeterStar does not directly
receive any call revenue from its residential customers. See "-- Billing,
Tariffs and Interconnection Charges--Tariffs--Residential Customers."

         Potential Expansion of Direct Dial 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. This project will require the conversion of 30,000
business and residential lines that are currently operated by PTS, after which
such lines become a part of the PeterStar network. 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 is not

                                       13
<PAGE>   17
expected to be substantial. As of December 31, 1996, contracts totaling
approximately $15.0 million have been signed with Lucent to provide the
telecommunications infrastructure. Of this amount, approximately $3.0 million
will be utilized for the purchase of equipment to upgrade the PeterStar
transmission network. PeterStar also anticipates that it will be responsible for
a portion of the civil works costs associated with the Vassilievski Island
project, which PeterStar anticipates will cost between $3.0 million and $7.0
million. The total costs of the project will be partly financed by a long-term
vendor financing agreement with Lucent, through an equipment leasing arrangement
between the Company and PeterStar and internally generated cashflow.

         PeterStar plans to further enhance its transit links between PTS and
the SPMMTS gateway exchanges, generating revenues by acting as a conduit between
these exchanges for long distance and international traffic on the public
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 anticipates that Novgorod will be the first city
to be connected under this strategy. PeterStar believes that its new
telecommunications licenses allow it to interconnect with both public and
private operators in Northwest Russia and, accordingly, anticipates 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.

         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 55,000 at December 31,
1996, as St. Petersburg has become one of the fastest growing cellular markets
in Russia. Subscribers are primarily business customers who use cellular service
as a means for mobility 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
Russian Telecommunications Development Corporation, an affiliate of U.S. West
Media Group, Inc. ("US West"), has over 20,000 subscribers on its network, of
which 6,400 were connected as of December 31, 1996 to the PeterStar network for
local access and overflow long distance and international access, with the
balance connected via PTS. PeterStar has commenced negotiations, but has not yet
reached agreement, with Delta to transfer the remaining subscribers to its
network. Delta offers its subscribers automatic roaming capability with Moscow
Cellular Communications, a venture in Moscow in which US West also has an equity
interest, and a number of other NMT-450 networks in Northwest Russia.

         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,
1996, all of NW GSM's 22,210 subscribers were connected to the PeterStar
network. NW GSM is a joint venture between PTS, Telecom Finland, Telia,
Norwegian Telecom and Lensvyaz. NW GSM currently offers its subscribers a wide
range of international roaming including Scandinavia and a number of countries
in Western Europe. PeterStar provides NW GSM with local, long distance and
international digital access.

         Fora Communications (formerly known as St. Petersburg Telecom). Fora, a
joint venture between Motorola, Inc. ("Motorola") and the City of St.
Petersburg, is an AMPS 800 cellular system that has been connected to the
PeterStar system since July 1994. At December 31, 1996, all of Fora's 8,603
subscribers were connected to the PeterStar network. Fora offers its subscribers
a roaming capability with other AMPS operators in Moscow, the Leningrad Oblast
(the region around St.

                                       14
<PAGE>   18
Petersburg) and selected cities along the St. Petersburg-Moscow corridor. Fora
has begun discussions with BECET to offering roaming service to its subscribers
in Kazakstan. PeterStar provides Fora with local, long distance and
international digital access.

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


<TABLE>
<CAPTION>
                                   Lines connected at            Lines connected at            Lines connected at
Cellular Operator                     Dec. 31, 1996                 Dec. 31, 1995                 Dec. 31, 1994
-----------------                     -------------                 -------------                 -------------
<S>                                          <C>                            <C>                           <C>
Fora Communications                           8,603                         3,410                         1,896
Northwest GSM                                22,210                         7,049                           490
Delta Telecom                                 6,400                         4,200                            --
</TABLE>

         Call revenues and total minutes in this segment amount to $5.2 million,
$2.2 million and $0.2 million, and 57,729,000, 17,830,000, and 2,005,000, in
1996, 1995 and 1994, respectively.

         The following table illustrates the call usage breakdown for 1994, 1995
and 1996:

<TABLE>
<CAPTION>
                             % of total       % of total        % of total      % of total      % of total     % of total
                                1996             1996              1995            1995            1994           1994
                            call revenue        minutes        call revenue       minutes      call revenue      minutes
                            ------------        -------        ------------       -------      ------------      -------
<S>                             <C>               <C>              <C>              <C>            <C>             <C>
CALL TYPE
Local                           45%               93%              47%              94%            56%             96%
Long distance                   15%                3%               9%               2%            11%              2%
International                   30%                4%              44%               4%            33%              2%
</TABLE>

         Transit Service to SPMMTS

         PeterStar acts as one of the transmission mechanisms for incoming and
outgoing traffic between the SPMMTS long distance and international gateway and
the PTS public network, thereby avoiding the bottlenecks on the public network.
For incoming traffic, SPMMTS delivers to PeterStar a portion of the traffic to
be delivered to the public network customers of PTS. PeterStar takes this
traffic and routes it on its network to the most appropriate point on the PTS
network for local delivery by PTS. For outgoing traffic, PTS delivers onto the
PeterStar network a certain portion of the total traffic to be directed outside
of St. Petersburg (either long distance or international), thus bypassing its
congested network. PeterStar then routes the traffic to SPMMTS for onward
delivery. Pursuant to the contract between SPMMTS and PeterStar, SPMMTS has
agreed to deliver a certain amount of traffic through PeterStar.

         In both instances, PeterStar receives a per-minute fee based on the
level of traffic passing through its network. This service became fully
operational in December 1995. In 1996, PeterStar routed 22,202,322 minutes on
its network, resulting in revenues of $1.0 million.

         Value-Added Services

         PeterStar also provides, or plans to introduce, a number of value-added
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:

                                       15
<PAGE>   19
         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 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. As of December 31, 1996, PeterStar had 1,424 64 Kb/s
channels in service, which generated $1.8 million in revenues in 1996, or 6% of
total PeterStar revenue for the period.

         Operator services. PeterStar has provided operator assistance service
since the third quarter of 1995 pursuant to a 1995 agreement between PeterStar
and SPMMTS to provide to PeterStar 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.
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.

         Calling Card Services. In November 1995, PeterStar launched a direct
dial calling card service, enabling subscribers to dial directly through the
PeterStar network if using a tone dial telephone. The service is also available
via the PeterStar operator service for pulse and rotary dial telephones. The
service is directed at visiting business travelers and users who want access to
PeterStar facilities when away from their offices.

         Audiotext. PeterStar plans to launch audiotext (i.e., "1-900") services
in the second quarter of 1997, offering a combination of recorded information
and live entertainment. Recorded information will include information on
cultural events, weather, traffic and horoscopes. Entertainment services will
include "chat line" services.

         Equipment Sales. PeterStar offers customers a wide range of
telecommunications equipment as a means of enhancing its service. PeterStar is
the exclusive distributor of Lucent equipment in St. Petersburg. 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.

         ISDN. PeterStar is planning to offer ISDN services over its local
network beginning in the second quarter of 1997 following the completion of new
network facilities from Lucent which are currently being installed. PeterStar
will also offer international ISDN services once the standard for CIT-7
signaling has been agreed and the upgrade of the SPMMTS gateway has been
completed.

         Internet. Since August 1996, PeterStar has provided its subscribers
access to the Internet via WEBplus. Pursuant to an agreement between PeterStar
and WEBplus, access to three new WEBplus services, "Direct", "Subscribe" and
"Connect" has been provided. The first two services provide access to the
Internet by means of modem over PeterStar telephone lines and differ from each
other only in the method of charging for it. The tariff for the "WEBplus Direct"
service is $0.04 per minute including the payment for local communication over
the PeterStar network. The amount specified is added to the common invoice as a
separate direction of telephone communication. WEBplus does not collect the
subscribers' fee for the "Direct" service. The "WEBplus Subscribe" service
provides unlimited access to the Internet at a fixed monthly charge of $40
(invoices are issued by WEBplus). Telephone communication with WEBplus is paid
at the usual PeterStar tariff ($0.03 per minute at the day time, $0.02 per
minute at night). The "WEBplus Connect" service differs from the other services
in providing permanent access to the Internet node of WEBplus via PeterStar's
dedicated circuit. WEBplus collects a fixed monthly charge for the "Connect"
service depending on the data speed required. The PeterStar dedicated circuit is
paid for by a subscriber at a special reduced tariff. All of these Internet
services are available for the subscribers of the PeterStar network only.

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 analog network, will be unable
to provide in the near term due to internal funding constraints at PTS. The
PeterStar network consists of modern computer-controlled 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

                                       16
<PAGE>   20
damaged. The network is fully interconnected with the PTS network, with
connections via 320 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 SPMMTS switch, providing PeterStar with long distance and international
access.

         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 premises
equipment. Contracts concluded in 1996 include those with Promstroibank, DHL,
Motorola, ABB and the AT&T branch office in St. Petersburg.

         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 traffic to and
from the PTS network to other network operators, such as cellular operators,
and to provide high quality links for long distance and international calls.
PeterStar is currently adding incremental transmission capacity and upgrading
the transmission network from STM-4 to STM-16, as well as working on the
provision of new service features such as ISDN. 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
"--Products and Services--Potential Expansion of Direct Dial Services."

         During 1995, PeterStar commenced the installation of a data network to
provide customers with high capacity circuits across the city. General Data
Corporation ("GDC") is supplying multiplexing equipment to support the provision
of such services on the existing fiber network. This equipment has now been
installed at 23 of the PTS exchanges connected to the PeterStar network and is
connected by 22 2 Mb/s trunks on the PeterStar network. The installed capacity
of the data network is 870 standard 64 Kb/s digital trunks. Customers, primarily
banks, other financial institutions and government agencies, use the service
primarily for connecting their local area networks (LANs) between branches.

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 and depend upon the residency status of the customer. 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 American Express and other major credit cards. Late fees
are assessed on all invoices after 30 days, at the rate of 10% 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.

         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 PTS national and
international call tariffs. As PeterStar has widened its customer base, it has
reduced its national and

                                       17
<PAGE>   21
international call tariffs. At the same time, SPMMTS, as the public network in
St. Petersburg for national and international access, has increased its tariffs
for long distance access. There is now less than a 10% differential between the
peak-hour PeterStar and SPMMTS tariffs to business customers. While PTS has yet
to introduce local call metering to its customers, PeterStar management believes
that this will take place within the next 12 months.

         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 $0.59 to $0.90 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 $0.85 to $3.24 per minute. The tariffs for peak time
calls to Europe and North America are $1.30 and $2.67 per minute, respectively.

         The installation charge for PeterStar telephone lines is $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. 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.

         Cellular Service Providers. 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. While the current agreements with the cellular operators were each
separately negotiated, there have been recent moves to create a uniform tariff
structure.

         Residential Customers. PeterStar 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.

         SPMMTS. PeterStar generates a call-related, per minute fee for both the
incoming and outgoing traffic passing on its network as part of its interconnect
services provided to SPMMTS.

         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 1997, 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.

SUPPLIERS

         Lucent is PeterStar's main network equipment supplier. The Company 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. See
"--Description of Agreements -- PeterStar Company Limited." In addition to the
network supply agreements, PeterStar acts as Lucent's distributor of
telecommunications equipment in St. Petersburg. PeterStar also has supplier
relationships with ECI for SDH transmission equipment and GDC for the supply of
certain elements of its data network.

                                       18
<PAGE>   22
BALTIC COMMUNICATIONS LIMITED

         The Company acquired a 100% interest in BCL, a provider of
international direct dial, international payphone and private line services for
Russian and foreign businesses in St. Petersburg, in April 1996. BCL also offers
a number of advanced broadband services, such as "carrier's carrier" service to
other telecommunications operators. Agreements have been reached with Telia of
Sweden and Comstar of Moscow which guarantee 100,000 and 115,000 transit
minutes, respectively, to BCL per month. BCL has its own international
facilities providing fiber access.

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

         BCL had approximately 407 subscribers and 857 lines as of December 31,
1996. BCL generated approximately 3.7 million minutes of traffic (representing
$5.1 million in revenues) for the nine months ended December 31, 1996 of which
the bulk were international. BCL is currently investigating means to increase
the capacity on its network and to provide additional capacity for "carrier's
carrier" services.

         The Company intends to cross-sell the distinct service offerings
provided by PeterStar and BCL to their respective customer bases. For example,
PeterStar's marketing representatives will now also be able to market BCL's
international private line services to PeterStar's customers. In addition, the
acquisition provides the Company with the opportunity to (i) 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.

TECHNOCOM LIMITED

OVERVIEW

         Technocom is the primary mechanism through which the Company intends to
participate in the provision of high quality long distance telecommunications
services in the Russian Federation. Technocom's principal asset is its equity
interest in Teleport-TP, a Moscow-based long distance and international operator
targeting the developing Russian business sector with its satellite-based
telecommunications services. Technocom also holds a 49% interest in MTR-Sviaz, a
venture between Technocom and Mosenergo formed to modernize and commercialize a
portion of Mosenergo's internal telecommunications network. Other interests of
Technocom include: a 50% interest in Rosh Telecom, a telecommunications
equipment distributor; a 75% interest in SCS, a marketing company selling
television broadcasting services; and a 41% interest in ZAO Cardlink
("Cardlink"), a proposed wireless data venture in Moscow.

         Currently, Technocom generates its primary income by leasing
telecommunications equipment to Teleport-TP and MTR-Sviaz and providing
marketing services to Teleport-TP.

         See "-Telecommunications Licenses--Technocom Limited" for a description
of the telecommunications licenses held by Teleport-TP and MTR-Sviaz.

STRATEGY

         Technocom, through Teleport-TP, is expanding its existing operations--
the provision of dedicated international telecommunications services--to the
provision of long distance telecommunications services in the Russian Federation
utilizing Western satellite capacity and technology. Technocom 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. Installation of the first phase
of the long distance network program commenced in the second half of 1996, with
16 sites finished as of December 31, 1996. Technocom has contracted with the
telecommunications equipment supplier Scientific-Atlanta to supply equipment for
a total of 45 sites which will, based on current plans, be introduced by mid to
late 1997.

                                       19
<PAGE>   23
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 1996, Teleport-TP commenced 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.

Dedicated International Network Services

         Products and Services.

         Teleport-TP provides dedicated 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
significant competitive advantage over carriers using less reliable Russian-made
satellite systems. As of December 31, 1996, Teleport-TP provided access to over
1,100 international digital circuits to 29 operators in 22 countries, making it
one of the largest international carriers in the Russian Federation.

         Intelsat Arrangements. Teleport-TP currently routes international
traffic through two Intelsat satellites at 342(0) and 63(0) pursuant to a
fifteen year contract with Intelsat signed in January 1993. Since January 1993,
Teleport-TP has been the only private Intelsat operator in the Russian
Federation, the only other operator being the Russian Space Communications
Corporation, the state-owned satellite organization, which, like Teleport-TP,
provides services to private non-governmental entities. Teleport-TP currently
has access to over 1,100 Intelsat circuits for its dedicated international
network services, and estimates that at the present time it supplies the
majority of the total digital international satellite circuits to the Russian
Federation. (In addition, Teleport-TP began using transponder capacity on a
third Intelsat satellite in connection with the development of its long distance
network program. See "--Long Distance Network Services--Network and
Facilities.")

         The list below sets forth the countries currently served by Teleport-TP
through its Intelsat circuits:


<TABLE>
<CAPTION>
<S>                            <C>                            <C>
Australia                      Israel                         South Korea
China                          Japan                          Sri Lanka
Germany                        Kuwait                         Taiwan
Greece                         Lebanon                        United Arab Emirates
Hong Kong                      Pakistan                       United Kingdom
Hungary                        Saudi Arabia                   United States
India                          Singapore
Iran                           South Africa
</TABLE>

         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 the same accounting rate and equal
division of revenue from DT, AT&T and KDD as has been negotiated between the
Russian Space Communications Corporation and the German, United States and
Japanese governments.

                                       20
<PAGE>   24
         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.

         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. Consulting services provided by Intelsat have been important
to Teleport-TP in developing the specifications for the pan-Russian long
distance satellite network. 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 is the only private
registered Eutelsat operator in the Russian Federation.

         Teleport-TP, through its Eutelsat circuits, currently serves Cyprus,
Denmark, Switzerland, Poland and Serbia.

         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 satellite facility capability, Eutelsat satellites now carry large
quantities of telecommunications traffic. Most of the signatories to the
Eutelsat agreement are national telephone companies, often with a right to
exclusive use or monopoly control of operations of users within their home
territory. Teleport-TP, although not an investor in Eutelsat, will benefit from
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 will
be provided free to Teleport-TP for the first three years.

         Access to the Eutelsat system provides Teleport-TP with the opportunity
to connect, at advantageous rates, to other European entities, offering voice,
data, television and satellite news gathering services, as well as bandwidth.
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 provider of Eutelsat services in the Russian
Federation will provide it with a considerable strategic advantage with respect
to intra-European telecommunications.

         TV 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 $0.75 million in 1996,
accounting for approximately 6% of Teleport-TP's revenues for the year.

         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 its principal customer for dedicated international network
services. Teleport-TP leases 873 Intelsat circuits and 30 Eutelsat circuits to
Rostelecom, at a fixed rate per type of circuit, pursuant to a five-year
contract signed on December 1, 1992. Currently, these fixed rate payments total
approximately $330,000 per month, generating $3.96 million in revenue in 1996.
The contract 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

                                       21
<PAGE>   25
or terrestrial carriers. Teleport-TP provides Rostelecom a means of accessing
international capacity via satellite since Rostelecom has no direct access to
its own satellite facilities.

         Carrier Relationships. Teleport-TP, through its direct carrier
relationships with AT&T of the United States and KDD of Japan, generates revenue
from the carriage of incoming traffic to the Russian Federation. Teleport-TP
carried 2.4 million incoming minutes during 1996, generating approximately $3.5
million in revenues which accounted for approximately 31% of Teleport-TP's total
revenue for the year.

         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
U.S. Sprint, which leases 60 international circuits. Other private network
customers include MTR-Sviaz, Technopark, the Intourist Computer Center and the
Oil House Business Center.

         Network and Facilities

         Teleport-TP's dedicated international telecommunications network
consists of an earth station, an international switch and fiber optic cable.
These network facilities are owned by Technocom and leased to Teleport-TP. See
"--Description of Agreements--Technocom Limited--Equipment Leases" and
"--Eutelsat." The earth station consists of two Standard-A 18.3 meter antennas
linked to two Intelsat satellites, the first of which serves Western Europe and
the United States and the second of which serves the Far East, and a 13 meter
antenna linked to a Eutelsat satellite.

         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 and state-owned
utilities located in Moscow and the Moscow region. The cable, which is owned by
Technocom, utilizes the underground 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, 1997.

         Billing and Tariffs.

         Teleport-TP bills the operators of the networks it serves, who in turn
are responsible for billing the subscribers to those networks, and the
individual subscribers. Teleport-TP seeks to establish automatic payment of
accounts through bank guarantees provided by the customers' banks.

         Teleport-TP's bills are denominated in U.S. Dollars. Installation and
initiation charges and line rental 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 and depend upon the residency status of the customer.
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.

         There are no specific regulations affecting tariffs charged by
Teleport-TP. 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 and for 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 $3.00 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.

                                       22
<PAGE>   26
         The basic charge for use of Teleport-TP facilities for television
broadcasting is $1,025 for the first ten minutes of broadcast time, and $31.50
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.

         Suppliers.

         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. More recently, Technocom has been
awarding contracts using a competitive bid process.

         Lucent supplied the two initial Intelsat Standard-A earth stations and
the associated 5ESS exchange, 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.

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 directly between cities and regions, without going
through Teleport-TP's Moscow hub. These services are being developed in
cooperation with Rostelecom, to offer a complementary network service to that
currently provided by the Rostelecom terrestrial network. 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 the outdated
Rostelecom network structure, calls are still routed via Moscow even if the
destination of the call is near the city where the call originated. While the
equipment for the initial phase of this network is largely in place, due to
various startup problems, it is not expected that this first phase will become
fully operational until the second quarter of 1997.

         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 public telephone
companies ("Electrosviaz"), (ii) local public telephone companies, (iii) private
cellular, wireline, data and other network operators and (iv) corporate users.
As of December 31, 1996, contracts had been signed with 19 customers. Of these,
eight are with regional and local public telephone companies, five are with
cellular and wireline operators and the balance are with corporate users.

         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 offering voice and data network services to corporate users,
Teleport-TP will focus initially on its existing customers, such as Mosenergo,
to provide improved connections between their Moscow central stations and
regional operations. It will also focus on other entities, such as other
state-owned public utilities, as well as banks and other businesses who wish to
link or improve the links among their branch offices located in different cities
and regions of the Russian Federation.

         Network and Facilities

         The Teleport-TP long distance network is the first private digital
satellite network in the Russian Federation to provide long distance services on
demand as well as by leased lines. The network uses Scientific-Atlanta
Skylinx.DDS(TM) Digital

                                       23
<PAGE>   27
PAMA/SCPC and IDR satellite telephony systems, utilizing an 18-meter Standard-A
Intelsat satellite master antenna at the hub site in Moscow. Teleport-TP
believes that using this digital capacity from Intelsat represents a significant
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, 1996, 16 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, Rejz,
Yakutsk, Mirny, Neriungry, Nizhny Novgorod and Saratov, providing digital voice
and data services. It is anticipated that a further 28 medium and small
antennas will be installed by the end of the third quarter of 1997, building
up, as demand is identified, to a network of 125 sites. 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 satellite-based systems. Agreements are in place
with Intelsat for access to 72 Mhz of transponder capacity on a third Intelsat
satellite, in addition to the two Intelsat satellites used in connection with
Teleport-TP's international operations. Should Teleport-TP have a requirement
for further capacity, it has retained an option on a new Intelsat satellite to
be launched in the near future.

         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 is to be supplied with one master earth station
and seven medium and 23 small remote earth stations. A further contract made in
November 1996 provides for the supply of 11 medium and three small earth
stations, in addition to upgrades to seven existing network facilities. See
"--Description of Agreements-- Technocom Limited--Satellite-Based Network." The
master earth station is located, together with Teleport-TP's international
network facilities, on the grounds of VVC, the All-Russian Exhibition Center, a
business park in Moscow ("VVC"). The equipment is owned by Technocom and leased
to Teleport-TP. See "--Description of Agreements--Technocom Limited-- Equipment
Leases."

         Billing and Tariffs

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

         Tariffs for the satellite-based long distance network services range
between $0.20 and $1.50 per minute, depending on the call's destination. The
tariffs for PAMA and IDR circuits will be determined by the distance to the
operator and will range between $20,000 and $40,000 per month per channel.

         Suppliers

         The master antenna and all remote antennas, together with other
operating equipment and software has been supplied by Scientific-Atlanta.

OTHER ACTIVITIES

         MTR-Sviaz. MTR-Sviaz is a venture between Mosenergo and Technocom
organized to modernize and commercialize a portion of Mosenergo's internal
telecommunications network. Mosenergo owns a 51% interest, and Technocom owns,
directly and indirectly, a 49% interest in MTR-Sviaz. 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

                                       24
<PAGE>   28
the Mosenergo network direct access to the digital long distance and
international 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 financing for MTR-Sviaz's acquisition of 4,000 Moscow city lines.
The switch is owned by Technocom and leased by Technocom to MTR-Sviaz. See
"--Description of Agreements--Technocom Limited--Equipment Leases" and
"--MTR-Sviaz."

         Card Validation and Funds Transfer Services. As the retail and banking
industries in Russia continue to develop, the use of debit and credit cards is
expected to grow. Therefore, the Company believes that an opportunity exists to
develop a wireless funds transfer and card validation system. The Company has
formed, together with Technocom, Teleport-TP and Ultrapass Ltd. ("Ultrapass"),
Cardlink, to provide wireless links between retail outlets and the banking
system to provide card validation and funds transfer services. Ultrapass is an
organization specializing in the delivery of electronic transactions from the
initiation point to the central processing location. Cardlink will act as a
network and terminal provider for banks, which in turn will sell the service to
retail outlets. The terminals will access the network concentrators via wireless
delivery with the result that installation of both the network and customer
terminals will be simplified.

         Cardlink's shareholders are the Company (27.5%), Technocom (27.5%),
Teleport-TP (30%) and Ultrapass (15%). The funding requirement for the first
year of Cardlink's operations is approximately $5 million and it is anticipated
that Technocom and the Company will provide funding through leasing and other
arrangements. Subsequent funding requirements will be determined by demand for
the services in Moscow. Teleport-TP is the local partner in Cardlink and will
assist in gaining access to frequencies and obtaining licenses. Cardlink was
recently formally registered with the Moscow authorities and applications for
the necessary licenses have been made.

         Internet. Teleport-TP anticipates opening an Internet gateway during
1997. Plans are underway to install the necessary telecommunications equipment
in order to provide high-speed data satellite access to the gateway for regional
Internet service providers.

BECET INTERNATIONAL

OVERVIEW

         BECET, in which the Company owns a 50% interest, currently operates the
only national cellular network in Kazakstan. The other 50% of BECET is held by
Kazaktelekom, the operator of the national telephone network in Kazakstan. The
Company's primary objectives 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 Kazakstan. BECET's cellular
telecommunications network in Kazakstan currently consists of separate systems
in Almaty, Chimkent, Karaganda, Pavlodar, Akmola, Aktyubinsk, Kustanai,
Ust-Kamenogorsk, Atyrau, Jambyl and Petrapavlosk. As of December 31, 1996,
BECET's cellular telecommunications network covered a geographic area of
approximately 4,200,000 "POPS", or heads of population, or 24% of the total
population, in 11 cities. BECET commenced cellular service in September 1994 and
has since experienced significant subscriber and revenue growth. During 1996,
BECET's subscribers generated average monthly recurring revenue of $242 per
subscriber. All BECET systems are connected to the local telephone network and
to the regional switch in the cities where they are located. Long distance and
international calls are completed using the national and international network
of Kazaktelekom. International calls are switched through a digital exchange in
Almaty.

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

                                       25
<PAGE>   29
STRATEGY

         The Company believes the development of a market economy in Kazakstan
is likely to increase demand for modern telecommunications services, including
wireless communications, as demonstrated by the strong subscriber growth
experienced to date by BECET. While the Kazak 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 business customers in Kazakstan with a viable,
high quality alternative to wireline telephone service over the period it will
take to modernize this basic system.

NETWORK AND FACILITIES

         As of December 31, 1996, BECET's cellular telecommunications network in
Kazakstan consisted of separate systems in Almaty, Chimkent, Karaganda,
Pavlodar, Akmola, Aktyubinsk, Kustanai, Ust-Kamenogorsk, Atyrau, Jambyl and
Petrapavlosk, thereby meeting the second (and final) "coverage" condition of its
license from KMOC by having 11 systems in place by December 31, 1996. The
precise timetable for further installations remains dependent upon many factors
including the availability of suitable personnel, the successful testing of
equipment under consideration, the successful location of additional cell sites
and the results of marketing and other studies. As of December 31, 1996,
investment in BECET's cellular network infrastructure and support facilities
totaled $24 million. BECET anticipates that its capital expenditure program in
1997 will be approximately $8 million and will be used to expand network
capacity in the existing cities. The Company believes that these funding needs
will be met through internally generated cashflow.

         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 Kazaktelekom. International calls are switched through
a digital exchange in Almaty.

         BECET is also experimenting with the installation and operation of
"mini-systems" which may be suitable for smaller urban centers or remote
locations such as mines or oil fields. Such systems are quickly and easily
constructed, made operational and maintained.

         Space for most BECET switches, cell sites and associated equipment in
Kazakstan is provided by Kazaktelekom. BECET also uses space in a Kazaktelekom
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. Space for customer service centers and
equipment not provided by Kazaktelekom is leased.

PRODUCTS AND SERVICES

         BECET customers may choose from three types of cellular service:
service within a single city, service within Kazakstan 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,
1996, BECET had established three roaming agreements with other cellular
operators: (i) Katel in Kyrgyzstan; (ii) Uzdunrobita in Uzbekistan and (iii) SCC
in the Russian city of Omsk. BECET is negotiating additional agreements with
other C.I.S. cellular ventures, including BEELINE in Moscow, Fora Communications
in St. Petersburg and an operator in Ukraine.

         BECET markets its cellular services through its own direct sales force,
which targets corporate and government accounts and high volume consumers. In
addition, BECET has entered into discussions with a consumer electronics
distributor, which has a presence in Almaty and a number of regional centers, to
act as an agent for BECET, giving BECET further exposure in the marketplace.
BECET anticipates completing these discussions during the second quarter of
1997. Although subscribers

                                       26
<PAGE>   30
to BECET's services include individuals, BECET anticipates that for the
foreseeable future its services will appeal principally to businesses. While all
categories are growing, BECET is experiencing the most significant growth in the
area of Kazak businesses and individuals.

         As of December 31, 1996, BECET had the following subscribers in the
following locations:


<TABLE>
<CAPTION>
                  CITY                             NUMBER
                  ----                             ------
<S>                                                 <C>
           Almaty                                   5,045
           South Kazakstan (Chimkent)                 370
           Karaganda                                  383
           Pavlodar                                   406
           Akmola                                     311
           Aktyubinsk                                 188
           Kustanai                                   126
           East Kazakstan (Ust-Kamenogorsk)           121
           Taraz                                        7
                                                    -----
           TOTAL                                    6,957
</TABLE>

         BECET does business under the 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 and billboards. Prior to entering a new market, BECET engages in a
marketing campaign involving, in addition to advertising, direct mailings and
promotional 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.

BILLING, TARIFFS AND INTERCONNECTION CHARGES

         Subscribers are billed monthly in U.S. Dollars for access charges,
airtime charges, and toll charges and optional services. Government regulations
govern the currency in which invoices may be paid and depend 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. If the payment is
made in Tenge, the subscriber is required to convert the invoice amount to Tenge
at the exchange rate effective on the date of payment.

         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 currently employs one pricing structure for all of its
customers, but Kazak government agencies are offered a 30% discount on
activation and monthly access fees and airtime charges. Currently, BECET has 187
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 $395 and
makes a security advance of $500, $250, or $100 to cover monthly fees and usage
charges depending on whether the subscriber has international, inter-city or
local access, respectively. Monthly access fees are $40 for domestic service
alone and $65 for domestic and international service. Usage charges are $0.40
per minute plus the rates charged by Kazaktelekom. In addition, there is a
monthly fee of $5.00 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.

                                       27
<PAGE>   31
         BECET is dependent on its interconnection to networks operated by
Kazaktelekom 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 6% of its after-tax profit as calculated by
the Kazak statutory audit. BECET pays Kazaktelekom a tariff in respect of local
calls, and enjoys a preferential tariff in respect of long distance and
international calls which provides BECET with a margin of at least 25% on such
calls.

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." For its development of "mini-systems,"
BECET has installed in Atyrau telecommunications equipment from Tadiran, an
Israeli telecommunications equipment supplier ("Tadiran"). BECET is continuing
to investigate telecommunications equipment having the same specifications from
other suppliers, including Motorola.

                                       28
<PAGE>   32
OTHER OPERATIONS

ST. PETERSBURG INTERCITY & INTERNATIONAL TELEPHONE

         The Company owns a 10.4% equity interest and a 13.8% voting interest in
SPMMTS, currently the only licensed gateway for public long distance and
international traffic in St. Petersburg. The Company believes that this interest
will serve to strengthen the relationship between SPMMTS and PeterStar, which is
obligated under the terms of its license to complete all of its long distance
and international calls through the public network. PeterStar also provides
transit traffic services to SPMMTS. See "--PeterStar Company Limited--Products
and Services--Transit Service to SPMMTS."

         The SPMMTS telecommunications facilities consist of a gateway switching
exchange, through which SPMMTS handles long distance and international telephone
traffic to and from St. Petersburg, and a special services exchange. SPMMTS
interconnects with other long distance telephone operators via the long distance
transmission network owned and operated by Rostelecom, the primary national and
international long distance carrier of the Russian Federation. International
calls are connected, through the facilities of Rostelecom, via the fiber optic
cable from St. Petersburg to Copenhagen, analog cables to Moscow or a teleport
in St. Petersburg operated by SPI.

C.P.Y. YELLOW PAGES LIMITED

         C.P.Y. 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 15 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 Norway 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, particularly in more effective target marketing and in operator
services.

THE MARITIME LEE/OSTROVO SHIPPING COMPANY

         In March 1995, the Company lent Maritime Investors Limited, a Bermuda
Company ("Maritime Investors") $3 million to enable it to purchase shares in The
Baltic Shipping Company ("Baltic Shipping"), which is based in St. Petersburg.
The loan was for six months duration and the principal rationale behind its
grant was to secure for PeterStar all the telephone traffic of Baltic Shipping,
which effort was unsuccessful. In December 1995, it was determined that the
advance would not be repaid and the Company obtained 100% of the outstanding
shares of Inter Communications Limited ("ICL") in exchange for releasing
Maritime Investors from its obligations in relation to the loan. ICL's sole
asset -- held through a wholly owned subsidiary, Ostrovo Shipping Company
Limited -- is the Maritime Lee, a cargo ship registered in Cyprus. It is the
Company's intention to sell the shares of ICL or the ship in the near future.

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, new business development,
corporate finance and accounting services for and on behalf of the Company. As a
result of the Continuance, the Company expects to transfer most of these
functions to New York City. PLDMS charged the costs it incurs in providing these
services, principally salaries, travel and office costs, to both the Company and
its subsidiaries.

                                       29
<PAGE>   33
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
telecommunication 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 currently appears to support continued 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 PeterStar,
notwithstanding the lower transmission quality and call completion rates of the
PTS network. Although PeterStar believes that PTS would require substantial
additional capital to 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 future disputes
between the partners will not occur and/or that PTS will not seek another
partner. See "Ownership and Management of Operating Subsidiaries--PeterStar
Company Limited."

         Other competitors to PeterStar include: (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; (ii) 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; (iii) JS Leivo, a joint venture of LenEnergo and
Imatran Voima of Finland which provides outgoing international access; (iv) St.
Petersburg Teleport, which offers only outgoing international services and
offers lower priced services; (v) Metrocom, which provides local data access in
St. Petersburg and has additional capacity through Comstar in Moscow, (vi)
Astelit, a joint venture between Telespazio and Italcable from Italy and Astra
from Russia which is engaged in an initial launch of service and (vii) Sovintel,
a joint venture between Rostelecom and Global TeleSystems, which is currently
based in Moscow, but may soon expand operations to 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 a significant degree to deliver
its own 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 into which
it is expanding, 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.

Dedicated 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
operates both to 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.

                                       30
<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 could face 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. The media reported
in December 1996 that the Russian government intended to transfer its
shareholdings in Sviazinvest and Rostelecom to a new telecommunications holding
company to provide long distance services, among other things, although the
Russian government later announced in February 1997 that it had indefinitely
postponed the consummation of the proposed consolidation. It is expected that
the government may in the future seek to sell 49% of this newly formed company
to domestic and foreign investors. At this time, it is unclear what impact the
formation of this new company and the sale of an equity stake in the new company
will have on the Russian telecommunications market in general and Teleport-TP's
efforts to provide long distance services in particular. See "Telecommunications
in the Former Soviet Union--Telecommunications in the Russian Federation."

         Teleport-TP faces satellite-based competition from Teleros, the Russian
subsidiary of Global TeleSystems. Teleport-TP management believes that Teleros
has a small number of regional sites in operation offering connectivity, using
the Russian domestic satellite systems, between regions of the Russian
Federation and Moscow. Teleport-TP also faces competition from a number of
domestic satellite-based operators which focus on providing services in and
between specific regions of the Russian Federation. These operators include,
among others, Crossna, Rustel, Vostok Infocosmos and DAL Telecom.

BECET INTERNATIONAL

         There is currently no other licensed cellular network operating in
Kazakstan. However, a local "pirate" operator named Tolkyn continues to operate
a limited radio-based communications system, which is believed to have no more
than 200 subscribers in the city of Almaty. Also, Kramds Bank, which BECET
believes is the primary financial supporter of Tolkyn, was recently put into
liquidation. Considering the current levels of demand in Kazakstan, in both
Almaty and the regional centers, management believes that it will not be
economically viable for another operator to enter the market unless the number
of subscribers reaches 20,000. Based on current growth rates, this is estimated
to take up to 18 months. Since BECET's network now covers 11 cities as of
December 31, 1996, management believes that, given the underdeveloped level of
the Kazak telecommunications infrastructure, BECET, as the first provider of
cellular services in partnership with Kazaktelekom, will have a significant
competitive advantage over any new entrants. See "--Telecommunications
Licenses--BECET International."

                                       31
<PAGE>   35
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 licenses held 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
at 106,000 in St. Petersburg and the surrounding region, 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 guidance as to the number of
lines to be included on the system. As of December 31, 1996, PeterStar had
52,005 lines, of which 37,213 were provided to cellular operators. PeterStar
does not believe that its license would be terminated if it either exceeded
106,000 lines or failed to have capacity introduced for 74,000 lines by June
1999, but there can be no assurance that the RSCC would not interpret the
license provisions differently.

         PeterStar also holds a license which permits it to operate and 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. The dedicated network license allows
PeterStar to provide international and long distance access to its major clients
via BCL, among other providers, offering potential cost efficiencies and
synergies with other Company operations and 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. Management of PeterStar believes that the maximum and minimum
number of lines are not strict requirements but are instead designed to provide
guidance as to the number of lines to be included on the system. PeterStar does
not believe that this license would be terminated if it either exceeded 30,000
lines or failed to have capacity introduced for 21,000 lines by September 1999,
but there can be no assurance that the RSCC would not interpret the license
provisions differently, which in turn could result in the revocation of a
particular license or its renegotiation on unfavorable terms.

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 they are being actively utilized, all
licenses held will be renewed at the end of their respective terms. BCL is not
required to route its long distance traffic through the facilities of SPMMTS,
and has its own international facilities providing both cable and satellite
access. However, BCL's license does not permit it to interconnect with PTS's
public network. BCL has therefore worked 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 394
subscribers and 890 lines as of December 31, 1996. Management of BCL believes
that the maximum and minimum line numbers are not strict requirements but are
instead designed to provide guidance as to the number of lines to be included on
the system. BCL does not believe that its license would be terminated if it
either exceeded 100,000 lines or failed to have 70,000 lines in place by January
2001, but there can be no assurance that the RSCC would not interpret the
license provisions differently, which in turn could result in the revocation of
a particular license or its renegotiation on unfavorable terms.

                                       32
<PAGE>   36
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 32 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, each of
the licenses will be renewed at the expiration of its respective term.

         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 RSCC. 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 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 32 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 requires 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 guidance as to the number of subscribers to be included on the system.
Teleport-TP does not believe that any of its licenses would be terminated if it
failed to have the minimum number of subscribers in place by the specified date
or if it exceeded the maximum number of subscribers as provided in the licenses,
but there can be no assurance that the RSCC would not interpret the license
provisions differently, which in turn could result in the revocation of a
particular license or its renegotiation on unfavorable terms.

  MTR-Sviaz

         MTR-Sviaz has 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 RSCC. 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 by October 1999.

                                       33
<PAGE>   37
BECET INTERNATIONAL

         BECET holds a 15-year renewable license issued in February 1994 for the
creation and operation of cellular communications networks in Kazakstan for
local, long distance and international calling. The license requires BECET to
provide cellular services to Almaty and ten to twelve additional regional
centers (to be specifically identified after market analysis and approval by the
KMOC) by the end of 1996, a condition which the Company has met. See "--BECET
International--Network and Facilities." The license may not be revoked by the
KMOC, except upon a showing of cause after a hearing. The license may be
transferred by BECET upon the approval of 75% of its shareholders.

         BECET's license authorizes it to use the 800 MHZ frequency band and
equipment meeting the standards promulgated by the Telecommunications Industry
Association for an advanced mobile phone system in the Mobile Station-Land
Station Compatibility Standard and associated interim standards, commonly
referred to as "AMPS" technology. 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 any other technology,
BECET will be entitled to receive a non-exclusive license from the KMOC with
respect to the creation and operation of such a network.

         Under the terms of its license, BECET is to be the exclusive provider
of cellular service in Kazakstan for a period of five years, and the KMOC is to
take appropriate action to prevent others from providing such service during
such period. Notwithstanding this, a local "pirate" operator named Tolkyn
continues to operate a limited radio-based communications system, which supports
no more than 200 subscribers in the city of Almaty. BECET is aware of other
issues having been raised regarding the exclusivity provision of its license,
but to date the exclusivity provision remains in effect. However, there can be
no assurance that some challenge to such provision will not be successful in
whole or in part in the future, or that another cellular license will not be
granted before the end of BECET's period of exclusivity.

DESCRIPTION OF AGREEMENTS

PETERSTAR COMPANY LIMITED

         Equipment. During 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 the Company's
special purpose leasing subsidiary PLD Asset Leasing Limited and leased to
PeterStar for a five year term. PeterStar has the right to purchase the
equipment at the end of the lease period. Additional contracts with Lucent
totaling approximately $15.0 million have been signed with Lucent for the supply
of telecommunications switching and transmission equipment and services to
PeterStar for the improvement of the network and facilities on Vassilievski
Island.

         Cellular 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 payments to be made by each cellular
operator to PeterStar based on 2.048 Mbp/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 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 Mercury Communications of the United Kingdom, Telia of
Sweden, Telenor of Norway, and Comstar and Sovintel of Moscow, for the provision
of transit traffic services through the BCL gateway switch in St. Petersburg.

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<PAGE>   38
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 four 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.

         Teleport-TP - International Network Facilities. 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 May 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.

         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 is being
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 is being financed by a five-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 will make disbursements under the loan directly to Hughes.
Teleport-TP's obligations to Eutelsat have been guaranteed by the RSCC. 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 from Technocom 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, has been
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. All but $0.3 million of the payments due under this
agreement have been made.

         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

                                       35
<PAGE>   39
agreement is $14.0 million. As of December 31, 1996, payments of $6.3 million
have been made under the new agreement, with subsequent payments to be made as
certain benchmarks are achieved.

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

         Technocom has commenced discussions with a number of local telephone
companies to be served by its satellite-based network to identify their
switching requirements. At the same time, discussions have also commenced with
telecommunications equipment suppliers. The Company expects to make any
purchases of switching equipment using international vendor financing and
internally generated cashflow.

         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 provided the financing to
MTR-Sviaz for its acquisition of 4,000 Moscow city lines for $2.4 million.
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 has the
right to purchase the equipment from Technocom at the end of the lease period.

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 Kazakstan. The Motorola Purchase
Agreement prohibits BECET from purchasing cellular equipment from other
suppliers during the five year term unless the delivery by Motorola of any
equipment ordered by BECET is unreasonably delayed. If BECET orders all of the
equipment contemplated by the Motorola Purchase Agreement, the aggregate price
for such equipment will be approximately $26.2 million. The total cost of the
equipment supplied as of December 31, 1996 totaled approximately $9.1 million.

         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 cost of these services for all
sites, assuming orders are placed for such services, will be $5.7 million.

         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
60 days prior to the expiration of the then current five-year term.

         In connection with its proposed "mini-systems", BECET has entered into
an agreement with Tadiran for the purchase, on a trial basis, of
telecommunications equipment. The equipment which has been installed in the city
of Atyrau has cost approximately $300,000.

EMPLOYEES

PLD Telekom Inc.

         As of December 31, 1996, the Company had five employees, three of which
were full time.

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<PAGE>   40
PLD Management Services Limited.

         As of December 31, 1996, PLDMS had five employees, all of which were
full time.

PeterStar Company Limited.

         As of December 31, 1996, PeterStar had 232 employees, all of whom were
full-time. Of these employees, 230 were Russian nationals and two were
expatriate managers. None of its employees is subject to a collective
bargaining agreement.

Technocom Limited.

         As of December 31, 1996, Technocom and Teleport-TP had 70 employees,
all of whom were full-time. All but one of these employees were Russian
nationals. None of Technocom's or Teleport-TP's employees is subject to a
collective bargaining agreement.

BECET International

         As of December 31, 1996, BECET had 307 employees, all of whom were
full-time. Of these employees, 305 were Kazak nationals and two were expatriate
managers. None of its employees is subject to a collective bargaining agreement.

Baltic Communications Limited

         As of December 31, 1996, BCL had 84 employees, all of whom were
full-time. All of these employees were Russian nationals. None of its employees
is subject to a collective bargaining agreement.

OWNERSHIP AND MANAGEMENT OF OPERATING SUBSIDIARIES

PETERSTAR COMPANY LIMITED

         Ownership Structure. The Company holds its 60% interest in PeterStar
through NWE Cyprus. The Company is considering transferring this interest to a
wholly-owned Delaware subsidiary.

         During 1996, the other shareholders of PeterStar were Telecominvest
(20%) and 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. Complus was
indirectly owned by Cable & Wireless (55%) and a Commerzbank affiliate (45%). In
1996, the Commerzbank affiliate acquired a 51% interest in Telecominvest. As a
result of the settlement of certain disputes among the shareholders of Complus
and Telecominvest, the Company believes that the other shareholdings of
PeterStar, upon consummation of such settlement, will be as follows: Complus
(11%), which will become wholly owned by Cable & Wireless, and Telecominvest
(29%), which will be owned 51% by the Commerzbank affiliate, 25% by PTS and 24%
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, if the
reorganization of PeterStar is completed as described above, it will be 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, PeterStar has not paid call charges to PTS or rent to
PTS to house its exchanges in PTS buildings or use its other facilities. As of
April 1, 1995, PTS agreed to waive all line rental charges and to reduce
connection charges. PeterStar currently provides PTS with access, without
charge, to PeterStar's fiber optic network throughout St. Petersburg. Given the
extent of the reliance of PeterStar upon PTS, PTS clearly

                                       37
<PAGE>   41
exercises a high degree of influence over PeterStar's affairs as a practical
matter, even if it may not have the legal power to exercise such influence.

         PeterStar was selected by PTS to be its business partner in 1992, as
part of an overall strategy to upgrade the outdated telecommunications systems
in St. Petersburg in cooperation with a series of Western partners, each of whom
would be given special rights in their particular area of activity. In the case
of PeterStar, this involved becoming the only carrier in St. Petersburg with
full connectivity with the local, national and international wireline networks
serving St. Petersburg. The recent agreement between PeterStar and PTS with
respect to Vassilievski Island suggests that PTS's motivation in continuing to
support this arrangement remains the same as it was in 1992, and the Company
believes that such support will continue because of the following factors:

         First, although its equity stake has been reduced over the years, most
recently as a result of the transactions described above, PTS continues to hold
a 7% indirect interest in PeterStar and, while this equity interest does not
commit PTS to support PeterStar's specific objectives, it does provide PTS with
a disincentive to doing anything which could harm PeterStar.

         Second, a substantial part of the market--namely, the business market
in need of sophisticated communications support--is a market that PTS does not
appear to have the capability to serve in the foreseeable future. Despite
efforts to modernize the PTS network, this is likely to remain the case for the
near future.

         Third, PTS clearly sees PeterStar as an opportunity to deal with the
unanswered demand for additional residential lines in St. Petersburg. Although
the political imperatives to deal with this problem may have diminished somewhat
following the privatization of PTS, given its position in St. Petersburg,
management believes that the political pressures on PTS have not lessened
significantly. Therefore, PTS's continued support for PeterStar's access to the
business market may be based on PeterStar's continuing willingness to develop
the residential market. PeterStar intends to selectively develop a residential
customer base. While the residential market is currently, and is likely to
remain, substantially less profitable than the business market, it is possible
to create economies of scale by linking the two kinds of development in discrete
geographic areas in the city. PeterStar intends to do this initially on
Vassilievski Island, where its administrative headquarters is located. There is
no doubt that increased emphasis on the residential market carries risks for
PeterStar; however, the Company believes that, if properly managed, PeterStar's
position as an essential part of the St. Petersburg telecommunications market
can be safeguarded and strengthened by the development of a residential customer
base.

         Fourth, PTS also appears increasingly to view the PeterStar network as
not just an adjunct, but as an enhancement to its own network. This could lead
to pressure for increased access to that network in lieu of continuing the
upgrading of its own. Planning and construction may become more integrated, and
the ownership of facilities and equipment may become joint, instead of separate.
While such developments may be beneficial in demonstrating the extent to which
PTS relies upon, and thus must support PeterStar, the challenge for both
PeterStar and the Company will be to ensure that PeterStar's economic
contribution is recognized throughout.

         For all of these reasons, although its relationship with PTS is
complex, the Company believes that PTS will continue to support the development
of PeterStar's business as presently planned, and that, other than as described
above, PTS's business objectives are not inconsistent with PeterStar's plans.

         Management. During 1996, 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 is the General Director,
who is a Russian national nominated by the Company but approved by the general
meeting of shareholders. Inasmuch as five of the seven directors must be present
to constitute a quorum, the possibility exists that three directors may be able
from time to time to prevent the creation of a quorum. Even assuming a quorum to
be present, the Company is not assured of a majority of the votes on the board,
although if the settlement referred to above is implemented, the Company and
Complus, which will be wholly-owned by Cable Wireless, the Company's principal
shareholder, will then control four of the seven directors and thus collectively
will constitute a majority of the board. To protect the Company against action
of which the Company does not approve, 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

                                       38
<PAGE>   42
guarantees and pledging assets, require the affirmative vote of at least one of
the three directors appointed by the Company. The person designated as Chairman
of the Board (appointed by the Company) also has a vote in the event of a tie
vote among the board of directors.

         Service Agreement. PeterStar entered into a service agreement, dated
January 1, 1996 (the "NWE Service Agreement"), with NWE Cyprus, pursuant to
which NWE Cyprus provided 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 invoiced
PeterStar quarterly for these services in U.S. Dollars. Although this agreement
has not formally been renewed, both parties are continuing to treat it as in
effect.

         PLD Telekom Inc. Representative Office. Following approval by the
Company's Board of Directors in November 1996, the Company began the process of
establishing a representative office of the Company in St. Petersburg. The
office is located at the premises of BCL and employs a Representative Director
(Peter Owen-Edmunds, formerly with PeterStar) and two administrative staff
members.

TECHNOCOM LIMITED

         Ownership Structure. 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%). Technocom's total
interest in Teleport-TP is 49.33%, as a result of its ownership of a 66.67%
interest in Roscomm and its ownership of 55.51% of Technopark. Each of the
shareholders of Teleport-TP is entitled to designate a director. Because of its
controlling interests in Roscomm and Technopark, as well as its interest as a
shareholder of Teleport-TP, Technocom effectively controls three out of four
voting board positions of Teleport-TP.

         Technocom has a wholly-owned subsidiary, Rosh, which it has used to
manage and support its activities in the Russian Federation and other countries
of the former Soviet Union. Certain activities in the Russian Federation,
including the holding of telecommunications licenses, maintaining certain kinds
of bank accounts, and conducting certain currency transactions, cannot be
conducted directly by a non-Russian company but can be conducted only through a
wholly owned Russian subsidiary. In addition, many functions involved in the
management of enterprises, such as the hiring of employees, are more easily
carried out through a Russian subsidiary. Finally, many Russian entities prefer
to deal with a Russian rather than a non-Russian company.

         Technocom also owns a 49% beneficial interest (9% directly and 40%
indirectly through Rosh) 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 "Business--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 owns 75% 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. The Company has entered into
put and call option agreements with Plicom and Elite, whereby each has the right
to require the Company to acquire its holdings of Technocom, and the Company has
the right to require each to sell its holdings. The price for the shares that
are subject to this agreement will be agreed by the parties or, in the absence
of such agreement, determined by an investment bank assuming that 100% of
Technocom was being offered to the general public and such investment bank was
fully underwriting the offering, disregarding any majority or minority interest.

                                       39
<PAGE>   43
         The option period in respect of Plicom's and Elite's holdings commences
on the earlier of (i) publication of Technocom's audited financial statements
for the year ending December 31, 1998 or (ii) March 31, 1999, and expires 90
days thereafter. However, in the case of Elite, if Elite does not exercise its
option and its consulting agreement with Technocom remains in effect, then the
Company is prohibited from exercising its call option with respect to the shares
of Elite during the option period described above, and a second option period
will commence on the earlier of (i) publication of Technocom's audited financial
statements for the year ending December 31, 2001 or (ii) March 31, 2002, and
expires 90 days thereafter.

         Both Plicom and Elite, however, are entitled to exercise their
respective options in any event if, prior to the expiration of the first option
period, (1) any person should acquire more than 50% voting control of the
Company, or (2) the Company determines to issue for cash new Common Stock to a
competitor in the former Soviet Union (other than Cable & Wireless or any of its
subsidiaries) and after such issuance such competitor would have 20% or more of
the Common Stock of the Company and the right to nominate or appoint a director
to the Company's Board of Directors.

         Rostelecom holds a 44% interest in Teleport-TP. Mr. Oleg Belov, the
general director of Rostelecom, is the representative on the Teleport-TP board
of directors. All plans relating to the expansion of the Teleport-TP network are
discussed and approved by the Teleport-TP board, and thus input is taken from
the Rostelecom representative. Thus far, all of the network plans have received
approval and, furthermore, Rostelecom has supported all license applications of
Teleport-TP.

         Currently, Rostelecom is Teleport-TP's largest customer for its
international network services, accounting for approximately 41% of total
revenue in 1996, a reduction from approximately 74% in 1995. Teleport-TP leases
Intelsat circuits to Rostelecom pursuant to a five-year contract commenced in
December 1992 and Eutelsat circuits pursuant to a ten year contract which
commenced in September 1995. The Intelsat contract 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 carriers. Teleport-TP
provides Rostelecom a means of accessing international capacity via satellite
since Rostelecom has no direct access to its own satellite facilities. See
"Technocom Limited--Teleport-TP--Customers and Marketing."

         While there is no guarantee that Rostelecom will continue to support
the expansion of Teleport-TP, the Company believes that the nature of its
support to date and the benefit it receives from the provision of international,
and, potentially, domestic capacity, suggests that this relationship will
continue in the near term at least.

         Management. Technocom is managed by a board of directors consisting of
five members, three of whom are designated by the Company. The day-to-day
management of Technocom is the responsibility of Boris Antoniuk, who is the
principal executive officer of Technocom. The Company has provided, and will
continue to provide, project management support to the development of the
satellite-based long distance network. The costs associated with this resource
is borne by Technocom.

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 Kazaktelekom, a joint stock
company which is owned by the government of Kazakstan and which operates the
public telephone network in that country. It is understood that the government
may seek to sell an interest in Kazaktelekom to a strategic investor. However,
there is currently no clear timetable as to when such a sale would be completed.
See "--Relationship with Other Equity Holders."

         Relationship with Other Equity Holders. The relationship between WTC
and Kazaktelekom 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 Kazak 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

                                       40
<PAGE>   44
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 Kazaktelekom.

         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. The Company is aware that, in connection with the
announced privatization of Kazaktelekom, consideration is being given to
transferring certain of Kazaktelekom's equity holdings (including its equity
interest in BECET) to the State Property Committee, and that a regulation
concerning such transfer was issued, although management believes that it was
subsequently rescinded. However, there have been no formal discussions among the
parties regarding the legal and business implications for BECET of
Kazaktelekom's privatization.

         BECET and Kazaktelekom entered into an interconnection agreement
pursuant to which Kazaktelekom provided BECET with access to the public switched
telephone network in Kazakstan for the fifteen year term of BECET's license.
While there is no reason to suppose that Kazaktelekom 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
Kazaktelekom to the business of BECET, that any significant initiatives would be
undertaken by WTC without the consent of Kazaktelekom. To date, Kazaktelekom 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 proposed sale of a stake in
Kazaktelekom to a strategic investor will also present new uncertainties and
challenges to BECET.

         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 Kazakstan Telecommunications
Development Corporation Limited ("KTDC"). KTDC has agreed in principle with the
government of Kazakstan to assist the government in connection with the
privatization of Kazaktelekom. While the Company believes that this arrangement
satisfies a commitment given by WTC to the KMOC in connection with the grant of
its telecommunications license in 1994 to lend the KMOC up to $3 million on
commercial terms for use for various KMOC projects, there can be no assurance
that the KMOC will not 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 Kazaktelekom 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 Kazaktelekom.

         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 Kazak financial officer
("CKFO") who reports directly to the CFO and who is responsible for accounting
matters under Kazak law as well as serving as a liaison between BECET and the
Kazak tax authorities. One of the Co-CEOs and the CKFO are appointed by the
directors who were

                                       41
<PAGE>   45
designees of Kazaktelekom 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.

         BECET has entered into a Consulting and Information Services Agreement
with WTC, dated January 30, 1995 (the "WTC Services Agreement"), pursuant to
which WTC provides certain consulting, information, management services and
personnel expertise to BECET. In consideration for these services, BECET pays
WTC a fee of $25,000 per month plus 3% of BECET's monthly gross revenues, plus
certain out-of-pocket expenses. The term of the WTC Services Agreement runs to
December 31, 1997 and thereafter is automatically renewed for successive one
year periods unless terminated by either party.

                                       42
<PAGE>   46
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
Kazakstan, 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

         Foreign companies conducting operations through affiliates in Russia
and Kazakstan 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 Russia listed the following
general difficulties affecting trade and investment in Russia, most of which are
also encountered in Kazakstan and some or all of which could affect the ability
of the Company or its operating subsidiaries 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 Russia and Kazakstan has been characterized by uncertainty and
instability.

         In Russia, the political situation has been characterized by tension
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 has been the conflict
in Chechnya). Communist and pro-nationalist parties wield strong influence in
the lower house of Parliament (the Duma) and have recently made gains in
regional governorships which could result in a slow down or reversal of the
development of a free market economy. There may be a resurgence in nationalism,
particularly if proposals to expand NATO are implemented, which could result in
pressures for the reduction or even elimination of non-Russian ownership of
Russian businesses. A bill to restrict foreign ownership in the
telecommunications industry was recently passed by the lower house of the Duma
and, while it is not expected to become law, is symptomatic of these
increasingly nationalistic attitudes. Although Boris Yeltsin has been reelected
as president of the Russian Federation, his death or incapacity while in office
could lead to a political struggle for succession. Any resulting change in
leadership could result in political instability and substantial changes in
government policies.

         The political situation in Kazakstan 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 arbitrary decision-making
and significant policy changes in the event of succession. In addition, Russia
has substantial political and economic influence in Kazakstan and may seek to
use such influence to further its own goals, which may be inconsistent with the
national interests of Kazakstan.

         Economic Risks. Until recently, the economies of both Russia and
Kazakstan 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 Russia and Kazakstan 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 Russia and Kazakstan 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. While there is evidence of economic improvement in Russia (not hitherto
matched in Kazakstan) and recent ministerial appointments by Mr. Yeltsin suggest
a continuing

                                       43
<PAGE>   47
commitment to a reform program, Russia 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 Russia or Kazakstan, that these countries
will remain receptive to foreign investment or that the economies of Russia or
Kazakstan will stabilize. The failure of any of these to occur could have a
material adverse effect on the Company.

         Currency Risks. The Russian Rouble and the Kazak Tenge are not
convertible outside Russia and Kazakstan, 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 recent history of trading in the Russian
Rouble as against the U.S. Dollar has been characterized by significant declines
in value and considerable volatility. Although the Russian Rouble and the Kazak
Tenge experienced relative stability against the U.S. Dollar during 1996, there
is a risk of further declines in value and continued volatility in the future.
The Company has largely been able to limit its exposure to declines in the value
of the Rouble and the Tenge because its businesses bill their customers in U.S.
Dollars. Under current laws and regulations in both Russia and Kazakstan, the
Company's businesses are permitted to bill certain of their customers in U.S.
Dollars and the remainder in local currencies in amounts determined by reference
to the value of the U.S. Dollar. The Company's businesses have experienced
certain costs in exchanging local currencies for U.S. Dollars, but these have
not been material. Nonetheless, no assurance can be given that the Company's
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. 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.

         Legal Risks. Both Russia and Kazakstan lack fully developed legal
systems. Russian and Kazak 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 Kazak courts in respect of a breach of law and regulation, or in an
ownership dispute, may be difficult to obtain.

         Risks associated with the Russian and Kazak 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 Russia or Kazakstan will not have a material
adverse effect on the Company.

         Furthermore, the relative infancy of business and legal cultures in
Russia and Kazakstan are reflected in the inadequate commitment of local
business people, government officials and 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.

         Social Risks. The political and economic changes in both Russia and
Kazakstan since the break up of the former Soviet Union have resulted in
significant social dislocations, as existing structures of authority have
collapsed and new ones are only beginning to take shape. The resulting broad
decline in the standard of living has resulted in substantial political pressure
on the government to slow or even reverse the economic policies currently being
pursued.

         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. In
addition, a substantial increase in property crime in large cities has been
reported.

                                       44
<PAGE>   48
Finally, the local and international press have reported high levels of official
corruption in the locations where the Company's businesses operate. No assurance
can be given that organized or other crime or claims that the Company or any of
its businesses has been involved in official corruption will not in the future
have a material adverse effect on the Company.

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.

         Significant Capital Requirements; Need for Additional Capital.
Management believes that the funds available from the June 1996 Placement will
be sufficient to provide for the Company's capital expenditures and working
capital needs in 1997, but thereafter the Company will need to raise additional
debt or equity financing to support the needs of its businesses until such time
as they become self-sustaining, and to meet its own working capital
requirements. There can be no assurance that the Company's businesses will
become self-sustaining or that the Company will be able to generate the working
capital which it needs from those businesses. Nor can there be any assurance
that the Company will be successful in raising sufficient additional debt or
equity capital on acceptable terms. Failure to generate sufficient funds in the
future, whether from operations or additional debt or equity financing, may
require the Company to delay or abandon some or all of its anticipated
expenditures and expansions, which could have a material adverse effect upon the
growth of the affected businesses and on the Company.

         Substantial Leverage. As of December 31, 1996 the Company had
approximately $108 million of consolidated long-term debt and shareholders'
equity of approximately $138 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.

         In addition, the overall level of indebtedness of the Company's
subsidiaries may make it more difficult for such subsidiaries to make
distributions and other payments to the Company, on which the Company relies
heavily for its cash flow. See "--Holding Company Structure; Barriers to
Realizing Cash from Subsidiaries."

         Holding Company Structure; Barriers to Realizing Cash from
Subsidiaries. As a holding company that conducts virtually all of its business
through subsidiaries, PLD has essentially no source of cash other than
distributions and other payments from its subsidiaries. There may be a number of
legal and other hurdles to be overcome in connection with obtaining 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, (iii)
exchange controls and repatriation restrictions in effect in the jurisdictions
in which they operate, and (iv) legal or practical constraints imposed by the
other investors in the Company's subsidiaries.

         In the absence of sufficient cash from its subsidiaries, the Company
may be required to refinance its indebtedness, raise funds in a public or
private equity or debt offering, or sell some or all of its or its subsidiaries'
assets. If the Company is required

                                       45
<PAGE>   49
to conduct an offering of its capital stock or to refinance its indebtedness,
its ability to do so on acceptable terms, if at all, will be affected by several
factors, including financial market conditions and the value and performance of
the Company at the time of such offering or refinancing, which in turn may be
affected by many factors, including economic and industry cycles. There can be
no assurance that an offering of the Company's capital stock or a refinancing of
its indebtedness can or will be completed on satisfactory terms.

         Potential Adverse Consequences of the Continuance. While the Company
does not believe that the Continuance will result in any material adverse
consequences to the Company or its Canadian or United States shareholders, and
in particular that no Canadian federal taxes should be due and payable by the
Company under the Act as a result of the Continuance. There can be no assurance
that the Canadian federal tax authorities will accept the positions that the
Company has adopted with respect to the Canadian federal tax treatment of the
Continuance. Accordingly, there can be no assurance that the Canadian federal
tax authorities will conclude that no Canadian federal taxes are due under the
Act as a result of the Continuance or that the amount of Canadian federal taxes
claimed or found to be due will not be significant.

         Taxation. Taxes payable by Russian and Kazak companies are substantial
and include value-added taxes ("VAT"), excise taxes, export taxes and income
taxes. The tax risks of investing in Russia and Kazakstan can be substantial.
Obtaining the benefits of any relevant tax treaties can be extremely difficult
due to the documentary requirements imposed by the Russian and Kazak
authorities. 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 comply with these provisions 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
Russia and Kazakstan 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.

         As of January 1, 1997, an exemption from the 20% Russian import VAT for
technological equipment (including telecommunications equipment) on which the
Company had hitherto relied has been repealed. Since no regulations have been
published to date, it is currently unclear whether such VAT payments will be
recoverable by the Company or its subsidiaries. Therefore, the consequences for
the Company and its subsidiaries of the repeal of the exemption are uncertain as
this time.

         Technocom established a representative office in Moscow in October 1995
and registered this office with the relevant Russian tax authorities. The
Company understands that, while the tax implications of establishing such an
office are not totally clear, this could result 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 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 the
Republic of Kazakstan 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 Russia and
Kazakstan, while there do not appear to be additional administrative
requirements for the payment of dividends or interest on debt, specific licenses
from both the Russian Central Bank (the "Central Bank") and the National Bank of
Kazakstan 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 Kazakstan to issue
such licenses can be several months. In the case

                                       46
<PAGE>   50
of the Central Bank, delays of up to one year or more in the issuance of
licenses have been common and may even becoming the norm. Inasmuch as the
indentures governing certain of the Company's indebtedness prohibit the Company
from shipping telecommunications assets to be leased pursuant to
telecommunications asset leases to Russia or Kazakstan until all necessary
licenses are received, 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.

         Finally, the Company's ability to repatriate distributions and other
payments in hard currency will be dependent upon the 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."

         Accordingly, there can be no assurance that, because of various local
currency regulations, the Company will be able fully and/or timely to realize
benefits from its operations in Russia and Kazakstan through the receipt of hard
currency payments.

         Until 1995, the Central Bank had apparently not exercised its
discretion under Russian currency control legislation to establish clear
guidelines governing direct foreign hard currency investment in Russian
companies. Thus most, if not all direct foreign investment prior to 1995 appears
to have been made without licenses from the Central Bank. However, in 1995 the
Central Bank indicated that such licenses were required and that upon
application it would issue licenses specifically authorizing direct foreign
investments in Russian companies. In response to private inquiries, the Central
Bank also expressed a willingness to license retroactively previously made
direct foreign hard currency investments. The Company is actively reviewing with
the managements of its operating subsidiaries its obligations to comply with
these licensing requirements, particularly the retroactive element. If the
Central Bank was to determine that the Company did not hold the required
licenses, this could give rise to fines and penalties which could be
substantial.

         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 leasing
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 the
leasing arrangements through which the Company delivers telecommunications
equipment into Russia. These entities would therefore need to obtain such
consent before leasing any telecommunications equipment to the Company's
operating businesses. 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.

         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 currently has a 51% interest in Technocom, which in turn
currently has a 49.33% direct and indirect beneficial economic interest (56.0%
voting interest and ability to nominate three of the four seats on the board) in
Teleport-TP and a 49% interest in MTR-Sviaz. In addition, the Company has a
10.4% equity (13.8% voting) interest in SPMMTS. 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 other shareholders may, as a
practical matter, be able to impede the Company's ability to exercise effective
control. In addition, the enforceability of some of the Company's rights is
uncertain. See "--Country Risks--Legal Risks." Further, the Company would be
unlikely to take significant initiatives without the approval, in the case of
PeterStar, PTS, SPMMTS and Commerzbank, in the case of BECET, Kazaktelekom and,
in the case of Teleport-TP, Rostelecom. Certain of the Company's operating
subsidiaries are dependent on continued access, on favorable terms, to the
facilities of certain of the Company's partners, and this may adversely affect
the Company's ability to rely on its legal rights to influence the conduct of
the business of its operating subsidiaries. Accordingly, the absence of complete

                                       47
<PAGE>   51
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.

         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 or instrumentality is not supportive, but the Company may be
forced to take action to support policies or agendas of the government which are
not in its commercial or other interests. In addition, in order to maintain good
working relationships with its partners, the Company may need to take certain
actions which may not necessarily be in its commercial or business interests.

         Dependence on Key Management. The Company's various businesses are
managed by a small number of key management personnel, both expatriate and
local. See "Ownership and Management of Operating Subsidiaries." PeterStar is
dependent upon its general director, Vladimir Akulich, and upon its expatriate
managers. The Company also relies heavily on the experience of Yan Dribinsky and
Ian Cowley for the technical guidance and 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. While a number of these
key individuals have interests in the Company's operating subsidiaries, and Dr.
Antoniuk is also under contract to Technocom, no assurance can be given that
their services 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, Simon Edwards, Alan Brooks and Conor Carroll. 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
Kazakstan 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 businesses in certain areas of their operations. The
Company and Cable & Wireless have entered into a support services agreement
which sets out the terms under which the Company and its subsidiaries have
access to Cable & Wireless' resources. The Company expects to be able to
continue to draw upon such support from Cable & Wireless for such time as Cable
& Wireless is a significant shareholder.

         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. In addition, at this time it is unclear what impact
the proposed formation by the Russian government of the new telecommunications
holding company for its holdings in Sviazinvest and Rostelecom and the sale of
an equity stake in the new company will have on the Russian telecommunications
market in general and the Company in particular.

         Regulatory Uncertainties. The Company's businesses operate in uncertain
regulatory environments. The Russian telecommunications system is currently
regulated by the RSCC, and the Kazak 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 Kazakstan, although a number of
laws, decrees and regulations govern or affect the telecommunications sector.
Further, the proposed privatization of Kazaktelekom, the Kazak national
telephone company and the Company's partner in BECET, likely could lead to
restructuring of the telecommunications sector in Kazakstan, the effects of
which are difficult to predict at the present time. See "--Risks Involving BECET
International--Proposed Sale of Stake in Kazaktelekom."

         The absence of 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. At
the same

                                       48
<PAGE>   52
time, the absence of regulation has also provided the Company with considerable
flexibility in setting its tariffs and establishing its pricing free from
governmental control. The introduction of regulation of tariffs, or any other
type of regulation, could have far-reaching, and potentially materially adverse
effects on the Company.

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

         Upon the anticipated consummation of a settlement among the
shareholders of PeterStar, Cable & Wireless will hold an 11% interest in
PeterStar, and Commerzbank will hold a 14.8% interest in PeterStar. Both Cable &
Wireless and Commerzbank have other investments in Russia and the other
countries of the C.I.S. which may compete with the Company's ventures. PTS, a
shareholder in PeterStar through Telecominvest and 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. Kazaktelekom, the
public switched telephone network operator and the Company's partner in BECET,
may compete with BECET's cellular operations when it improves the telephony
services it provides in Kazakstan by upgrading its fixed wire telecommunications
network. Rostelecom, the Russian telecommunications company that is Technocom's
principal partner in the Teleport-TP venture, competes with Teleport-TP, both
directly and indirectly through joint ventures with other international
companies in the provision of telephony and related services. Finally, certain
directors of the Company's operating subsidiaries also act as directors or
officers of its partners in Russia and Kazakstan.  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 law. Moreover, such
persons are not obliged (except for such obligations as they may have under law)
to allocate to the Company and its 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.
Kazak 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.

         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 interest in other future investment 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 minority 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 Shareholder's Put Option. The Company has
entered into put and call agreements with Plicom and Elite, whereby each of
Plicom and Elite have the right to sell its equity interest in Technocom to the
Company and the Company has the right to require each to sell its holdings.
These put and call options may be exercised during the 90-day period commencing
on the earlier of (i) the publication of Technocom's audited financial
statements for the year ending December 31, 1998 or (ii) March 31, 1999. In the
case of Elite, there will be a second option period if Elite's consulting
agreement with Technocom is still in effect during the first option period. The
second option period is for a 90-day period commencing on the earlier of (i) the
publication of Technocom's audited financial statements for the year ending
December 31, 2001 or (ii) March 31, 2002. In addition, Elite may exercise its
put option should any person acquire more than 50% of the voting control of the
Company or the Company issues more than 20% of its Common Shares to a competitor
who is also permitted to nominate a person to the Company's Board of Directors.
See "Ownership and Management of Operating

                                       49
<PAGE>   53
Subsidiaries--Technocom Limited--Relationship with Other Equity Holders." The
existence of this agreement could adversely affect the Company's ability to
dispose of its shares of Technocom. Furthermore, if Plicom or Elite elects to
exercise its put option, the Company may be obligated to pay a significant
amount of consideration to acquire such equity interest, which could have a
material adverse effect on the Company.

         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 and Technocom and
its other 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 have 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 only 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 year ended December 31, 1996, 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). These licenses contain certain
maximum numbers of lines and deadlines for the introduction of certain minimum
capacity levels. PeterStar has no reason to believe that those licenses would be
terminated if it either exceeded the maximum number of lines or failed to
install the required capacity in the required timeframes. Management of
PeterStar believes that the maximum and minimum number of lines are not strict
requirements but are instead designed to provide guidance as to the number of
lines to be included on the system. There can be no assurance that the RSCC
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 holds a license which permits it to operate, and 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. 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 guidance as to the
number of lines to be included on the system. BCL has no reason to believe that
its license would be terminated if it either exceeded 100,000 lines or failed to
have 70,000 lines in place by January 2001, but there can be no assurance that
the RSCC 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 and
SPMMTS 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.

                                       50
<PAGE>   54
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 1997,
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's
buildings, ducts and tunnels in order to house its exchanges and to reach its
customers. To date, PeterStar has not been required to pay rent to PTS to house
its exchanges in PTS buildings, nor has it paid rentals for ducts or tunnels.
Although PTS is required to provide these facilities under the terms of
PeterStar's charter, 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. Further, the increasingly closer integration of
the PeterStar and PTS facilities may eventually give rise to questions as to the
ownership of individual items of equipment and infrastructure.

         PTS clearly sees PeterStar as an opportunity to deal with the
unanswered demand for additional residential lines in St. Petersburg. Although
the political imperatives to deal with this problem may have diminished somewhat
now that PTS has been privatized, given its dominant position in St. Petersburg,
management believes it is doubtful that the political pressures on PTS have
lessened significantly. Therefore, PTS's continued support for PeterStar's
access to the business market may be based on PeterStar's continuing commitment
to develop the residential market in St. Petersburg which is currently, and is
likely to remain, substantially less profitable than the business market.

RISKS INVOLVING TECHNOCOM LIMITED

         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
RSCC with respect to its operations. Two licenses expire in 2004, one in 2002
and one in 2001. These licenses contain certain maximum numbers of subscribers
and deadlines for the introduction of certain minimum capacity levels and, in
some cases, certain minimum numbers of actual subscribers. Management of
Teleport-TP believes that the subscriber numbers are not strict requirements but
are instead designed to provide guidance as to the number of subscribers to be
included on the system. Teleport-TP has no reason to believe that any of its
licenses would be terminated if it failed to have the minimum number of
subscribers in place by the specified date or if it exceeded the maximum number
of subscribers as provided in the licenses, but there can be no assurance that
the RSCC would not interpret the license provisions differently, which in turn
could result in the revocation of its licenses or their 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.

         Dependence on Rostelecom as Customer; Necessity to Further Develop
Customer Base. Rostelecom accounted for 41% of Teleport-TP's total revenues for
the year ended December 31, 1996 as compared to 74% for the year ended December
31, 1995. Teleport-TP will seek, through the installation of its long distance
network facilities, to develop a substantial alternative customer base in order
to reduce its dependance on Rostelecom; however, there can be no assurance that
it will be able to do so successfully. Thus, for the foreseeable future
Rostelecom will likely remain Teleport-TP's single largest customer for
international services. While the risk of Rostelecom taking action which could
harm Teleport-TP should be ameliorated

                                       51
<PAGE>   55
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."

         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 Technocom 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, 1997.
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.

         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 16 sites finished as of December 31, 1996. The
Company currently plans to provide service to as many as 125 cities by the
middle 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.

         Further expansion of the network program will be defined by customer
demand and, therefore, has yet to be fully determined. The ability of the
Company to expand such a program will be dependent on its ability to raise
additional debt or equity financing on favorable terms or through the use of
internally generated cash. There can be no assurance that the Company will be
able to do so.

         For the program to be successful, Teleport-TP will have to identify
commercially viable markets for its services in each of the locations which it
intends to serve, and in all likelihood will 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.

         Furthermore, because of the huge distances involved, Technocom
anticipates difficulties in hiring, training and supervising its employees, and
controlling the actions of its local partners at each of the locations to which
it provides service. Technocom also anticipates that lack of developed banking
facilities and access to legal, accounting and other professional help in some
of the more remote locations will impede efforts to develop commercially viable
businesses in these locations. Failure on the part of Technocom to manage the
development of this network successfully could have a material adverse effect on
the Company.

         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, if any, the proposed formation by the Russian government of
the new telecommunications holding company for its holdings in Sviazinvest and
Rostelecom and the sale of an equity stake in such new company would have on the
Russian telecommunications market in general and the Company in particular.

RISKS INVOLVING BECET INTERNATIONAL

         Limited Operating History. BECET was formed in January 1994, commenced
commercial operations in September 1994 and has completed two full years of
operations to date. Although BECET generated profits for the year ended December
31, 1996, 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
maintenance of its telecommunications license, which permits it to operate a
cellular network in Kazakstan using analog AMPS technology. BECET believes that
it has a valid

                                       52
<PAGE>   56
right to operate its network for a fifteen-year period commencing February 4,
1994, with the first five years being on an exclusive basis. BECET is aware of
issues having been raised regarding the exclusivity provision of its license,
but to date this provision remains in effect. While loss of exclusivity in all
or any part of Kazakstan prior to February 1999, the scheduled date for its
expiration, could have an adverse effect upon BECET's operations, BECET expects
to be able to minimize such effect by aggressively establishing and
consolidating its market penetration to the maximum extent possible in the
interim.

         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 11
cities throughout Kazakstan as of December 31, 1996, as required under the terms
of its license. However, it has only engaged in limited market research to
determine what level of demand for cellular service exists, and accordingly
there can be no assurance that the establishment of cellular service in any
location 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 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. Failure to manage the expansion of the BECET
network successfully could have a material adverse effect upon the Company.

         Dependence on Interconnect Parties. BECET is entitled to
interconnection free of charge to networks operated by Kazaktelekom, 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.
See "--Proposed Sale of Stake in Kazaktelekom."

         Proposed Sale of Stake in Kazaktelekom. Since its formation, BECET has
been 50% owned, directly or indirectly, by the government of Kazakstan. 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 Kazaktelekom, which the government owns. It is understood
that the government may seek to sell an interest in Kazaktelekom to a strategic
investor. However, there is currently no clear timetable as to when such a sale
would be completed. There can be no assurance that the government's favorable
attitude towards BECET will continue after any sale of a stake in Kazaktelekom
to a strategic investor. A significant change in the government's attitude
toward BECET could have a material adverse effect on the Company.

         In addition, the sale of a stake in Kazaktelekom to a strategic
investor could result in changes in the organizational structure of that
company. At present, Kazaktelekom holds relatively undisputed control over the
wireline system throughout, and the international gateways into, Kazakstan. The
loosening of its links with the government could result in the separate regions
in Kazakstan attempting to gain greater autonomy and the ability to control
telecommunications in their respective areas. If this were to occur, it could
also result in the separate regions attempting to renegotiate, or simply
refusing to honor, the arrangements regarding tariffs and interconnections
previously agreed to between BECET and Kazaktelekom, or taking other actions
which are inconsistent with the joint venture between the Company and
Kazaktelekom. Any such development would have a material adverse affect upon
BECET's operations.


ITEM 2.           PROPERTIES

         Executive Offices. 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 intends to consolidate these offices and other management functions in
the United States during the second quarter of 1997.

         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 intends to
move many of the functions performed by this office to the United States during
the second quarter of 1997, although the Company anticipates continuing to have
an operational support facility in England for the foreseeable future.

                                       53
<PAGE>   57
         PeterStar Company Limited. PeterStar's principal office, which it
leases from PTS, is located on Vassilievski Island, St. Petersburg, Russia. Its
principal switch is 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 network, comprising the
switching facilities and the Intelsat and Eutelsat earth stations, are also
located at VVC.

         BECET International. BECET leases space for its administrative offices
in a Kazaktelekom exchange building located in Almaty. It also leases space from
Kazaktelekom for its switches, cell sites and associated equipment in Kazakstan,
and leases other space in cities in Kazakstan where it has operations for
customer service centers.

         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 1996.


                                     PART II


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

         The Company's Common Stock is quoted on the NASDAQ National Market
System 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 System on February 18, 1993. The Company's principal market,
based on the percentage of trading volume, is the NASDAQ National Market
System.

         The following table sets forth the high and low closing prices for the
Company's Common Shares, 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>
1995
1st Quarter                        $6.750                      $4.375
2nd Quarter                        $6.750                      $4.625
</TABLE>

                                       54
<PAGE>   58
<TABLE>
<CAPTION>
<S>                                <C>                         <C>
3rd Quarter                        $7.500                      $5.688
4th Quarter                        $6.875                      $4.625
1996
1st Quarter                        $6.375                      $4.625
2nd Quarter                        $9.000                      $4.500
3rd Quarter                        $8.500                      $6.125
4th Quarter                        $8.125                      $5.500
</TABLE>

         The following table sets forth the high and low closing prices of the
Company's Common Shares (in Canadian dollars), as reported by The Toronto Stock
Exchange, for each full quarterly period within the two most recent fiscal
years.

<TABLE>
<CAPTION>
                                   CLOSING PRICES
                                   --------------
                                       HIGH                         LOW
                                       ----                         ---
<S>                                <C>                          <C>
1995
1st Quarter                         Cdn$9.125                   Cdn$6.375
2nd Quarter                         Cdn$9.125                   Cdn$6.000
3rd Quarter                        Cdn$10.375                   Cdn$7.875
4th Quarter                         Cdn$9.125                   Cdn$6.250
1996
1st Quarter                         Cdn$8.500                   Cdn$6.375
2nd Quarter                        Cdn$12.000                   Cdn$6.200
3rd Quarter                        Cdn$11.500                   Cdn$8.400
4th Quarter                        Cdn$10.800                   Cdn$7.250
</TABLE>

         On March 5, 1997, the closing sale price for a share of Common Stock as
reported by NASDAQ was $5.625. As of March 5, 1997, there were 499 holders of
record of the Company's Common Stock.

         The Company did not declare dividends on its Common Stock in 1996 and
does not intend to declare dividends on its Common Stock in the foreseeable
future.

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, 1993 and 1992 has been restated in accordance with U.S. GAAP.

                                       55
<PAGE>   59
<TABLE>
<CAPTION>
                                                          FISCAL YEAR ENDED DECEMBER 31,
                                                          ------------------------------
                                           1996         1995           1994         1993         1992
                                                                  (IN THOUSANDS)
<S>                                      <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
  Operating revenues: ..............     $ 61,966      $ 29,120      $  8,526      $  2,308      $   --
  Operating expenses ...............       59,099        38,266        17,248         7,606        3,642
                                         --------      --------      --------      --------      -------
  Operating income (loss) ..........        2,867        (9,146)       (8,722)       (5,298)      (3,642)
  Loss from continuing operations
    before income taxes and minority
    interest .......................       (6,271)      (13,440)       (9,491)       (5,264)      (2,531)
  Income taxes .....................        3,669         1,490            --            --           --
  Loss from continuing operations
    before minority interest .......       (9,940)      (14,930)       (9,491)       (5,264)      (2,531)
  Minority interest ................        2,521          (551)           --            --           --
                                         --------      --------      --------      --------      -------
  Loss from continuing operations ..      (12,461)      (15,481)       (9,491)       (5,264)      (2,531)
  Discontinued operations ..........           --            --            --        (5,138)      (2,395)
                                         --------      --------      --------      --------      -------
  Loss for the year/period .........     $(12,461)     $(15,481)     $ (9,941)     $(10,402)     $(4,926)
                                         ========      ========      ========      ========      =======
  Loss per common share(1) .........     $  (0.39)     $  (0.49)     $  (0.78)     $  (1.33)     $ (0.94)
                                         ========      ========      ========      ========      =======
  Weighted average number
    of shares outstanding
     (in thousands) ................       31,579        31,315        12,663         8,155        5,338
</TABLE>


<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                   ------------
                                         1996            1995          1994           1993          1992
<S>                                   <C>            <C>            <C>            <C>           <C>
BALANCE SHEET DATA:
  Cash and term deposits(2) .....     $  40,674      $  15,676      $  56,710      $    948      $  6,695
  Non-cash working capital
    (deficiency) ................       (26,440)       (22,001)       (17,706)       (5,121)         (414)
  Escrow funds ..................        40,984             --             --            --            --
  Property and equipment, net ...        93,039         45,357         21,718         6,306         4,715
  Telecommunications licenses ...        72,310         49,583         54,099        18,337        19,789
  Investments and other assets ..        39,052         29,293         18,925         2,223         5,827
  Investment in Teleport-TP .....            --         23,564         15,699            --            --
  Total assets ..................       306,357        178,092        171,760        28,700        38,017
  Shareholders' equity (deficiency)     137,954        135,832        147,470        11,448        18,793
</TABLE>
-------------
(1) In 1993 and 1992, loss per common share includes a loss from discontinued
operations of $(0.63) and $(0.45) respectively.

                                       56
<PAGE>   60
(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.

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

         Except as otherwise indicated, all references to 1994, 1995 and 1996
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 and as a result the 1996 consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP). The audited
consolidated financial statements for prior years were prepared in accordance
with Canadian GAAP, with a reconciliation to U.S. GAAP. As a consequence of the
continuance to Delaware, the 1995 and 1994 financial statements have been
restated in accordance with U.S. GAAP.

           Principal Operations and Future Activities The Company's key
interests at December 31, 1996 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 a
51% equity interest in Technocom which, through its 49% 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, 1996. 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'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 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 comparitives 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 separatly accounted for. Under
U.S GAAP, the Convertible Notesare accounted for as a single debt instrument
under the "Long-term dept" 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 Compnay changed its Canadian GAAP
policy with respect to pre-operating costs bring it in line with U.S. GAAP. As
a result all such costs were retroactively expensed.





                                       57

<PAGE>   61
RESULTS OF OPERATIONS

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

PLD TELEKOM INC. - CONSOLIDATED

        In 1996, the Company reported a 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 compares with a 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 incorporates 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 is 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. General and administrative costs in
1996 include the day-to-day expenses in all five subsidiary operations (four
subsidiaries in 1995) as well as corporate expenses. Consolidated general and

                                       59
<PAGE>   62
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 the
operating businesses and the acquisition of BCL. As a percentage of operating
revenues these costs continued 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. 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 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 are accounted for on an equity
basis, includes 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 14% senior discount
notes together with Warrants to purchase a total of 4,182,000 Common Shares;
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 Common Share.

         These debt instruments represent 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

         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 14,658 lines at December 31,
1995.

         Revenue from line rentals increased by 298%, reflecting the increase in
installed lines, both fixed and cellular. Conversely, installation fee grew only
at a rate of 29% over the year ended December 31, 1995, 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 revenue accounted for 66% of operating revenue for the year ended
December 31, 1996 compared to 58% in 1995, installation fees accounted for 17%
of total revenue for the year ended December 31, 1996 compared to 28% in 1995
and line rentals accounted for 17% of total revenue for the year ended December
31, 1996 compared to 9% in 1995. (In addition, in 1995 other income represented
a further 5% of total revenue.)

         PeterStar is experiencing 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%

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<PAGE>   63
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. These changing
traffic patterns are having the effect of reducing revenues per line; 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. The Company expects these
trends 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 telecommunication
service, although continuing competition is expected to put pressure on margins.
PeterStar believes that its focus on the introduction of data services such as
frame relay and ATM services which hitherto have not had any significant impact
upon its financial results will start to contribute to revenues and improve its
competitive positioning.

         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% is
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. The
Company expects these conditions to continue in 1997. At the same time the local
St Petersburg operators, PTS and SPMMTS, have been raising rates to the point
that there is now relatively little difference for business customers between
the price of PeterStar's service and the inferior service provided by these
operators. If, as anticipated, PTS introduces local call charges in 1997, this
will enhance PeterStar's ability to compete for local customers. This will
permit PeterStar to offset the impact of lower tariffs by increasing its
customer base.

         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. The Company expects PeterStar's staff costs to
increase at a faster rate in 1997 as it develops its customer service and sales
functions. Depreciation will also increase as the effects of the investment in
1996 plus further capital investments in 1997 of approximately $22 million are
taken into account. Both of these developments will impact the level of the
Company's operating expenses in 1997.

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 revenue accounted for 62% of operating revenue for the year ended
December 31, 1996 compared to 56% in 1995, subscription fees accounted for 13%
of total revenue for the year ended December 31, 1996 compared to 10% in 1995,

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<PAGE>   64
connection fees accounted for 8% of total revenue for the year ended December
31, 1996 compared with 13% in 1995, while equipment sales represented 17% of
revenues, as against 22% in 1995.

         BECET has seen changes in the calling patterns of subscribers between
1995 and 1996. 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 accounted for only 9% of total traffic compared with 12%
during 1995. These changes reflect the fact that 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, 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. However 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 40% 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.

         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 volume and reduced dependence on revenues from equipment sales.

         Operating Expenses. Operating expenses increased 19% 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 during 1995 and 1996. The Company expects BECET's operating
expenses to increase at a faster rate in 1997 as it develops its customer
service and sales functions in those locations where service started in 1996.
Depreciation is also likely to increase as Becet deploys the additional $8
million of capital investment which it has planned for 1997.

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.


         Historically, Technocom's primary revenue stream has been from the
leasing of telecommunications equipment to Teleport-TP and MTR-Sviaz, which
generated lease revenues of $1.4 million during 1996. 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 in 1996.
Direct costs of $2.1 million in 1996 also relate 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, compared with
$0.9 million in 1995.

         Effective December 31, 1996, Technocom acquired an additional interest
in Teleport which gives Tchnocom effective control over Teleport-TP. Commencing
January 1, 1997 Teleport-TP's results of operations will be consolidated with
those of Technocom. As a result, lease revenues earned from Teleport-TP will be
eliminated against Teleport-TP's lease expense. Marketing services revenue
recorded by Technocom will likewise be eliminated. The following is a
discussion of Teleport's results of operations in 1996 when Teleport-TP was
accounted for using the equity method.

         Technocom's principal asset, Teleport, 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,

                                       62
<PAGE>   65
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 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. Revenue
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. Revenue
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. In this instance total circuits leased at the
end of 1996 were 1,023 compared to 1,008 at December 31, 1995. Revenue from the
provision of international television broadcasting services amounted to $0.75
million or 6% of total revenue, down from $1.l million (15% of total revenue)
in 1995. Other international direct dial services generated $5.7 million or 52%
of total Teleport revenue. The Company had anticipated that Teleport-TP's long
distance services would be a contributor to revenues in 1996 but delays in
installing remote earth stations caused by weather and other logistical
difficulties delayed the start up of many sites until very late in 1996. The
Company expects, however, that these services will provide steady revenue
growth during 1997 and beyond as the various sites planned become operational.

         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 than from the higher margin leased circuit revenues.

         Operating Expenses. Operating expenses increased 50% 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 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, and is expected to
increase further in 1997 as Teleport-TP acquires more equipment under lease
from Technocom for the long distance network. The Company expects Teleport-TP to
increase its operating expenses in 1997 as it further develops its long distance
services. Further expenditure will be focused on further developments of the
customer service and marketing resources.

         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. Lease interest expenses in
1997 will eliminate as Teleport-TP results will be consolidated.

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 revenue accounted for 81% of total revenue for the year
ended December 31, 1996, primarily driven by international call minutes.
Installation fees accounted for 7% of total revenue with line rentals accounting
for the balance. The Company expects that BCL will continue to derive most of
its revenue 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

                                       63
<PAGE>   66
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.

ST. PETERSBURG 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.

YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994

Note that all figures included in this comparative analysis between 1995 and
1994 are presented in accordance with U.S. GAAP, rather than Canadian GAAP in
which they were originally reported.

PLD TELEKOM INC. -- CONSOLIDATED

    In 1995, the Company reported a loss of $15.5 million, or $0.49 per share,
on total revenues of $31.2 million, including operating revenues of $29.1
million. This compares with a loss in 1994 of $9.5 million, or $0.78 per share,
on total revenues of $8.7 million (operating revenues of $8.5 million).

    The loss of $15.5 million in 1995 includes a net loss from $1.0 million
(after profits tax of $0.8 million), a net loss from BECET of $0.2 million
(after profits tax of $0.2 million), a contribution from Technocom of $1.1
million (after profits tax of $0.4 million) and corporate interest income
of $0.4 million, offset by corporate general and administrative costs of $5.1
million, interest on corporate bank indebtedness of $0.5 million, amortization
charges of $4.7 million, a share of the loss of Teleport-TP of $1.6 million
(including amortization of licenses of $1.5 million), minority interest charges
of $0.5 million relating to Technocom and other charges of $3.4 million. Other
charges include a write-off of the Company's interest in North West Estates of
$0.6 million and a provision of $2.5 million for amounts due from a shareholder
of PeterStar.

    Operating revenue. Consolidated operating revenues increased by 242% from
$8.5 million in 1994 to $29.1 million in 1995, as a result of strong growth in
PeterStar and BECET and the acquisition of Technocom in December 1994. Operating
revenue from PeterStar grew 104% in 1995, to $14.9 million from $7.3 million in
1994, due primarily to the increase in line penetration from 4,100 lines at
December 31, 1994 to 21,528 lines at December 31, 1995 and the provision of
transit services to the three cellular operators in St. Petersburg. BECET,
during its first full year of operations, contributed operating revenues of $9.3
million, as compared to $1.2 million in 1994. This was due primarily to the
growth in BECET's subscriber base from 506 at December 31, 1994 to 2,882
subscribers at December 31, 1995. Technocom contributed revenue of $4.4 million
in 1995 including revenue of $1.4 million derived from lease agreements between
Technocom and Teleport-TP and sales revenue of $2.3 million from a non-recurring
project. Yellow Pages, which was acquired during 1995, contributed operating
revenue of $0.5 million.

    Direct costs. Direct costs were 36% of operating revenues in 1995 compared
to 37% of operating revenues in 1994, and include the direct costs of sales of
PeterStar, BECET and Technocom.

    General and administrative costs. General and administrative costs include
the day-to-day expenses of the subsidiary operations as well as corporate
expenses. Consolidated general and administrative expenses increased 100% from
$9.0 million in 1994 to $18.2 million in 1995, reflecting the growth of the
businesses. At the corporate level, general and administrative overhead
increased 70% in 1995, to $5.1 million from $3.0 million in 1994. This increase
was due primarily to higher expenses related to the operations of the management
office in London and the executive office in Toronto.

    Depreciation. Depreciation increased 211% from $1.2 million in 1994 to $3.8
million in 1995, reflecting total capital expenditures of $27.8 million as the
build-out of the PeterStar and BECET networks progressed.

    Amortization. In 1995, the Company incurred total non-cash amortization
charges of $4.7 million including $2.4 million relating to the
telecommunications licenses of PeterStar, $2.1 million relating to the
telecommunications license of BECET, and

                                       64
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$0.1 million relating to goodwill associated with the acquisition of Yellow
Pages. In addition to the $4.7 million in amortization noted above, the
Company's share of the loss of Teleport-TP, which is accounted for on an equity
basis, includes amortization charges of $1.5 million. Amortization charges in
1994 were $3.8 million, related to the PeterStar and BECET telecommunications
licenses.

    Interest expense. The Company's interest charges were $1.0 million in each
of 1995 and 1994. Interest charges in 1995 related to a $22.5 million bank
facility with a Canadian chartered bank (CIBC) which was guaranteed by Cable &
Wireless and to certain indebtedness of Technocom. The bank facility was repaid
from the proceeds of the June 1996 Placement. The Company's interest expense in
1994 related to the Company's indebtedness with its two largest shareholders,
Cable & Wireless and Dominion Capital Inc. ("Dominion") and a prior bank
facility with CIBC. The Company's indebtedness to Cable & Wireless and Dominion
was repaid in August 1994 and the prior CIBC facility was repaid in full on
December 28, 1994 out of the proceeds of the Company's December 1994 public
offering.

    Loss on disposition of investments and property and equipment. Consistent
with its desire to focus on telecommunications as its core business, the Company
discontinued its real estate development business, conducted through North West
Estates plc, in 1993. In April 1996, the Company completed the disposition of
its entire interest in North West Estates. As consideration received was
nominal, the 1995 financial statements therefore reflect a write-off of $0.6
million in respect of the Company's investment in North West Estates . The
consequences of the settlement of certain liabilities -- principally in
connection with the buy-out of a lease (due to expire in 2015) on vacant office
space previously occupied by North West Estates -- approximated the amounts
already accrued in this regard and so no additional provisions were required.

    Provision for amounts due from shareholder of PeterStar. The Company has
guaranteed telephone billing system lease payments of a shareholder of PeterStar
totalling $2.5 million. Lease payments of approximately $124,000 are due
quarterly until July 1998. To December 31, 1995, the Company had paid $1.1
million on account of this guarantee. At December 31, 1995, full provision was
made for all amounts paid to date under the guarantee and for all future
amounts.

PETERSTAR COMPANY LIMITED

    PeterStar recorded an operating profit of $0.1 million on revenues of $14.9
million in 1995, compared to an operating loss of $1.0 million on revenues of
$7.3 million in 1994. EBITDA increased to $2.4 million from $0.1 million in
1994.

    Revenues. Call revenues grew 96% in 1995, to $8.6 million from $4.4 million
in 1994, due to the increase in installed subscriber lines. Total lines
installed increased by 425% in 1995, to 21,528 at December 31, 1995 from 4,100
at December 31, 1994. Directly connected customers (i.e. business and
residential lines) increased 291% in 1995, to 6,869 at December 31, 1995 from
1,753 at December 31, 1994. Call revenues did not increase in the same
proportion reflecting the changing mix of customers, in particular the
installation of 1,815 lines for the residential community. Call revenues
relating to the transit service provided to cellular operators, whereby
PeterStar acts as an access mechanism for the city's three cellular operators,
increased to $2.2 million in 1995 from $0.2 million in 1994, due to the
increased subscriber penetration of the cellular operators and the signing on of
the third operator, Delta Telecom, in the third quarter of 1995.

    Revenue from line rentals increased 187% in 1995, to $1.4 million from $0.5
million in 1994, due to the increase in installed lines offset by a reduction in
rental tariffs effective May 1995. Installation fees grew 189% in 1995, due to
increased line penetration and the sale of a number of Definity PABXs in the
second quarter.

    Finally, PeterStar signed a contract with SPMMTS to carry transit traffic
across the city into the PTS network. This was a new revenue stream in 1995 and
had little overall impact on PeterStar's total revenues.

                                       65
<PAGE>   68
    Average revenue per line for the six months ended December 31, 1995
decreased to $521, as compared to $1,751 for the same period in 1994, primarily
due to the changed mix in the product base being offered by PeterStar, partially
offset by value added services, data services and transit services further
contributing to PeterStar's total revenue.

    Direct dial business customers provided the largest call revenue stream for
PeterStar in 1995 with 63% of total call revenue, compared with 93% in 1994, due
primarily to higher cellular traffic, which grew to 28% of total revenue in 1995
from 7% in 1994. Revenue from data services accounted for 5% of total PeterStar
revenue in 1995.

    Tariffs. The 40% reduction in monthly rental tariffs in mid-1995 reflected a
marketing policy to widen the business customer base of PeterStar. The general
reduction in international calling rates at this time was as a result of
competitive pressures. PeterStar's margins on long distance and international
calls changed during the year as outpayment rates were restructured following a
renegotiation by PeterStar management. Average international outpayments were
reduced, thereby improving the margins on such calls from 48% in 1994 to 64% in
1995.

    Gross profit. Gross profit increased 112% in 1995, to $9.6 million from $4.5
million in 1994. The increase in gross margin in 1995 to 65% from 62% in 1994
was due primarily to the higher margin revenues associated with the provision of
transit services to SPMMTS and the three cellular operators.

    Operating expenses. Operating expenses, including depreciation, increased
80% in 1995, to $9.6 million from $5.4 million in 1994. Operating costs
represented 64% of revenues in 1995 compared to 74% in 1994. Staff costs (which
include Russian payroll taxes amounting to approximately 40% of salaries)
accounted for 45% of total operating costs for 1995, compared to 47% for 1994,
reflecting PeterStar's increased staffing from 151 full time staff at December
31, 1994 to 226 full time staff at December 31, 1995.

    Depreciation. Depreciation increased 144% in 1995, to $2.7 million from $1.1
million in 1994, due to PeterStar's purchase of $11.0 million of capital
equipment, primarily switching, transmission, and cabling equipment.

BECET INTERNATIONAL

    BECET recorded a net loss of $0.2 million and an operating loss of $0.5
million on operating revenues of $9.3 million in 1995. This compares with a net
loss and an operating loss of $0.6 million on revenues of $1.2 million in 1994,
but since BECET only commenced cellular service in September 1994, year-end
results for 1994 and 1995 are not comparable.

    Revenues. Call revenues in 1995 ($5.0 million) were 1288% higher than in
1994 ($0.4 million), due to the fact that the business was only in operation
for four months in 1994. Total subscribers connected increased to 2,882 at
December 31, 1995 from 506 at December 31, 1994.

    Revenue per subscriber. Recurring revenue per subscriber per quarter
averaged $1,005 throughout 1995 as compared with $840 during the final quarter
of 1994.

    Subscriber analysis. Foreign joint ventures accounted for 13% of the total
BECET subscribers at December 31, 1995, compared with 17% at December 31, 1994.
In 1995, the largest growth sector was Kazak businesses which accounted for
1,493 subscribers at the end of 1995 from 550 at March 31. This reflects the
fact that the target customer for BECET is the

                                       66
<PAGE>   69
business-to-business basic telecommunications customer who considers cellular
service as an alternative to the underdeveloped basic telephone network.

    Gross profit. Gross profit for 1995 was $6.2 million compared to $0.8
million in 1994. The decrease in gross margin from 80% to 66% reflects the fact
that in the early period of operations BECET charged higher activation fees and
achieved very high margins on customer terminals, which were then reduced as
terminal prices were reduced to improve penetration.

    Operating expenses. Operating expenses in 1995, including depreciation
increased 385% in 1995, to $6.7 million from $1.4 million in 1994, due to an
increase in staffing from 101 to 220, overhead costs associated with the
expansion of the network and a full year of operations in 1995.

    Depreciation and amortization. Depreciation and amortization charges
increased to $1.1 million from $0.2 million in 1994, reflecting the further
capital investment of $12.0 million in the network during 1995.

TECHNOCOM LIMITED

    The Company acquired its 51% interest in Technocom in December 1994, and so
its results were consolidated by the Company for the first time in 1995.
Technocom was formed in 1992, but until 1995 its operations consisted almost
solely of holding its 42% equity interest in Teleport-TP.

    In 1995, Technocom generated EBITDA and operating income of $1.1 million on
operating and total revenues of $4.4 million and $5.3 million respectively. This
compares with revenues of $0.2 million and an EBITDA loss of $0.3 million
respectively in 1994.

    Technocom's primary recurring revenue stream is derived from the leasing of
telecommunications equipment to Teleport- TP, which resulted in 1995 revenues of
$1.4 million. Technocom also earned sales revenue of $2.3 million from a
non-recurring project and services revenues of $0.6 million which mainly relate
to the marketing of Teleport-TP's services. Direct costs of $1.7 million in 1995
relate primarily to the non-recurring project, which was completed during the
year. Operating expenses of $1.5 million included $0.9 million of general and
administrative costs.

    Revenues in Technocom's principal asset, Teleport-TP, in which Technocom
had a 42% equity interest in 1995, increased 78% to $7.1 million in 1995 from
$4.0 million in 1994. EBITDA was $3.4 million in 1995, as compared to $1.7
million in 1994.

    Revenues. In 1995, Teleport-TP generated revenues from three sources:
international leased circuits (primarily to Rostelecom), TV broadcasting and
international direct dial services. The main reason for the significant rise in
revenues was the increase in the number of circuits leased to telecommunications
carriers from 713 at December 31, 1994 to 1,018 at December 31, 1995. Revenues
from the provision of international television broadcasting services totaled
$1.1 million in 1995, while international direct dial and bandwidth services
accounted for $1.9 million of revenues.

    Gross profit. Teleport-TP's gross profit increased 88% in 1995, to $5.0
million from $2.6 million in 1994.

    Teleport-TP Operating expenses. Teleport-TP's operating expenses increased
68% in 1995, to $2.9 million from $1.7 million in 1994 and due to Teleport-TP's
increased staffing and overhead costs associated with the expansion of the
network.

    Interest. Teleport-TP incurred lease interest of $1.4 million paid to
Technocom under capital leases which commenced during 1995.




                                       67
<PAGE>   70
    Depreciation. Depreciation in Teleport-TP increased 68% in 1995, to $1.3
million from $0.8 million in 1994, due to Technocom's purchase of capital
equipment which is leased to Teleport-TP under a capital lease.


LIQUIDITY AND CAPITAL RESOURCES

         In recent years, the Company has changed its business activities from
those of a diversified company with health care and real estate interests to a
company focused on emerging telecommunications markets in the Russian Federation
and Kazakstan. This has involved significant investment in telecommunication
assets, licenses, 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, will be moving 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. The costs of the continuance,
including the costs of changing the jurisdiction of incorporation of the Company
and those involved in setting up executive offices in the United States, are not
expected to exceed $1 million. In addition, upon the change of jurisdiction, the
Company is potentially subject to two distinct tax charges as a consequence of
ceasing to be an Ontario corporation: (i) it will be deemed to have disposed of
all of its assets at their fair market value as of the date of continuance and
Revenue Canada will assess tax on any income and net taxable capital gains
arising thereby; and (ii) it will be subject to an additional tax on the amount
by which the fair market value of the Company's assets, net of liabilities,
exceeds the paid-up capital of the Company's issued and outstanding shares at a
rate (based on certain factual assumptions) of 5%. Based on management's
analysis and advice received to date, the Company believes that no tax will be
due.


PETERSTAR COMPANY LIMITED

         By December 31, 1994, PeterStar had invested a total of $18.0 million
in property and equipment, primarily switching and exchange equipment. Of this
amount, $4.6 million was acquired from GEC Plessey Telecommunications ("GPT")
and was financed through a revenue sharing agreement. During 1995, the Company
terminated its agreement with this supplier and settled all amounts owing. Of
the remaining amounts, approximately $9.6 million in equipment was acquired from
AT&T on deferred payment terms, of which $4.2 million remained outstanding at
December 1994. This liability was satisfied in 1995.

         PeterStar capital expenditures in 1995 amounted to approximately $11.0
million, relating to expenditures associated with completion of a fiber optic
ring around central St. Petersburg and the construction of a new digital
exchange on Vassilievski Island, which has been connected to other nodes in the
PTS network.

         PeterStar had capital expenditures of approximately $14.0 million in
1996 and anticipates an additional approximately $22.0 million in 1997,
including expenditure on new switching equipment to increase the capacity of the
network for business subscribers and cellular operators, increasing transmission
capacity, and improving access to the long distance and international gateway
between PeterStar and SPMMTS. In 1996 the Company used approximately $7 million
of the proceeds from the June 1996 Placement to purchase telecommunications
equipment and make it available to PeterStar. PeterStar expects to fund its
1997 capital expenditures from a combination of such proceeds, bank and
supplier financing and its own internal cash flow.



                                       68
<PAGE>   71
         Total investment in the cellular telecommunications network and related
support infrastructure, such as customer service centers and administration
facilities, totaled $13.8 million by December 1995.

         BECET had capital expenditures of approximately $10.8 million in 1996
and anticipates an additional approximately $8.0 million in 1997 in connection
with further investment in cities where the network currently operates. This
continued expansion in 1997 will be financed through a combination of cash
balances existing at the beginning of 1996, BECET's own internally generated
cashflow and, if necessary, bank or supplier financing.

TECHNOCOM LIMITED

         Technocom is pursuing a number of new telecommunications opportunities
throughout the Russian Federation. It is a party to a 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 of a satellite-based long distance network. During 1996, Technocom
had capital expenditures of approximately $11.0 million related to the Teleport
project. Part of the funding has been derived from the $20.0 million
contributed to Technocom by the Company out of the proceeds of the June 1996
Placement. The Company estimates that additional funding in the amount of $20
million will be required in 1997 and anticipates providing this from a
combination of supplier financing, Technocom's own internally generated
cashflow, and proceeds from the June 1996 Placement and possible additional
sales of securities by the Company.

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. It is the Company's intention to establish its executive
offices in New York, USA in the second quarter of 1997 and at the same time to
reduce 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
$7.5 million in 1997 and expects to fund these by a combination of cash on
hand and management fees to be paid by the Company's operating subsidiaries.

PLD MANAGEMENT SERVICES LIMITED

         PLDMS is a wholly owned subsidiary of the Company based in England that
hitherto has performed certain management, commercial and technical consulting,
new business development, corporate finance and accounting services for and on
behalf of the Company. A substantial part of these functions are expected to be
transferred to New York when the Company establishes its executive offices there
during the second quarter of 1997. PLDMS charged, and will continue to charge
all costs it incurs in providing its services to the Company or, if applicable,
its operating subsidiaries.

WORKING CAPITAL AND OTHER BALANCE SHEET ITEMS

         In December 1994, the Company completed a public offering of 15,750,000
Common Shares from treasury at a price of $6.25 per share. Proceeds from the
$98.4 million offering were used to repay corporate debt, acquire a 51% interest
in Technocom and develop the telecommunications networks.

         On June 12, 1996, the Company completed a $149.5 million private
placement. The proceeds which amounted to $105.0 million (after commissions and
expenses), were used to pay off the Bank Facility and to meet the Company's
outstanding $20.0 million commitment to Technocom, with the remainder being
targeted for capital investments

                                       69
<PAGE>   72
in the existing operating units, to fund the development of additional products
and services to be delivered over the Company's networks and for general
corporate purposes.

         The Company's consolidated balance sheet at December 31, 1996 reflects
total assets of $306.4 million, as compared to $178.1 million at December 31,
1995. Total assets at December 31, 1996 were comprised of $61.0 million in
current assets (including $40.7 million of cash and term deposits), $93.0
million in property and equipment, $72.3 million in telecommunications licenses
related to PeterStar, BECET and Teleport-TP, other assets and investments of
$39.1 million and escrow funds of $41.0 million. The funds in escrow were raised
from the June 1996 Placement and are to be disbursed principally for
telecommunications equipment to be used in PeterStar, BECET and BCL and for the
development of new value-added services. Total indebtedness of $123.8 million,
as a percentage of total assets, was 40.4% at December 31, 1996. The
corresponding figures at December 31, 1995 were $22.4 million and 12.6%.

         Shareholders' equity of $138.0 million at December 31, 1996 consisted
of $180.9 million in Common Shares and $13.6 million ascribed to the Placement
Warrants offset by the Company's deficit of $56.5 million. The Company's ratio
of total indebtedness to equity at December 31, 1996 was 89.7% compared with
16.5% at December 31, 1995.

         At December 31, 1996, the Company had a working capital surplus of
$14.2 million reflecting the unexpended portion of the net proceeds of the June
1996 Placement which were not escrowed. This compares to a working capital
deficit of $6.3 million at December 31, 1995 when there was also an outstanding
commitment to contribute $20 million to Technocom; as discussed above, this was
fulfilled out of the proceeds of the June 1996 Placement. The cash on hand and
escrow funds, which totaled in excess of $65 million (after subtracting bank
indebtedness as of December 31, 1996), are to be used to implement the business
plans of the operating subsidiaries into 1998, although 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.

         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 networks exceed current estimates, the
Company may be required to seek additional debt or equity financing.

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 Kazakstan (including
withholding taxes) and income taxes payable by the Company in Canada and,
following its continuance to Delaware, in the United States. Withholding taxes
could apply to distributions by the Company's businesses in Russia and Kazakstan
and to distributions by intermediate level companies in jurisdictions outside
Russia, Kazakstan and Canada. The Company has attempted to mitigate the
potential for withholding tax liabilities by structuring its investments through
a Cypriot holding company, thereby taking advantage of the double taxation
treaty between the Russian Federation and Cyprus.

         In general, the Company's Russian and Kazak 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 30%,
respectively. The tax systems in Russia and Kazakstan have changed rapidly in
recent years and may undergo additional changes, which may have a material
adverse effect on the Company. As of January 1, 1997, the exemption from the 20%
Russian import VAT for technological equipment (including telecommunications
equipment) has been repealed. Since no regulations have been published to date,
it is currently unclear whether such VAT payments will be recoverable by the
Company or its subsidiaries. Therefore, the consequences for the Company and its
subsidiaries of the repeal of the exemption are uncertain as this time. See
"Risk Factors--Risks Involving the Company--Taxation."


                                       70
<PAGE>   73
         Technocom established a representative office in Moscow in October 1995
and registered this office with the relevant Russian tax authorities. The
Company understands that, while the tax implications of establishing such an
office are not totally clear, this could result 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, 1996, the Company has operating loss carryforwards for
Canadian income tax purposes of approximately Cdn. $50 million (US$36 million)
which are available to offset future taxable income through 2004. In addition,
the Company has allowable capital loss carryforwards of approximately Cdn. $26
million (US $19 million) which are available to offset future taxable capital
gains. Upon the Company's emigration to the United States in February 1997, the
Company is deemed to dispose of all its assets at fair value. As a result, a
substantial portion of the operating and capital loss carryforwards will be
utilized.

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.

         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.

         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 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.

                                       71
<PAGE>   74
KAZAKSTAN

         Exchange Controls. Kazakstan currently has in place relatively liberal
policies governing hard currency transfers by Kazak residents to non-residents.
Residents (which generally includes all Kazak companies and citizens resident in
Kazakstan) can use hard currency to pay non-residents (which generally includes
all non-Kazak companies and their branch offices and representative offices in
Kazakstan) 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 Kazakstan.

         Payments between Kazak residents must generally be made in Tenge. Kazak
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 Kazakstan does not currently require the
conversion of hard currency earnings into Tenge. Tenge may not be lawfully
exported from Kazakstan or converted into other currencies outside of Kazakstan.

         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 Kazak currency markets. Although there is
an existing market within Kazakstan 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. Kazakstan'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 Kazakstan may materially affect an investor's ability
to do so and may increase the cost of such repatriation.

INFLATION

         Since the break-up of the Soviet Union, both the Russian and Kazak
economies have been characterized by high rates of inflation. Although in 1996,
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 businesses are unable to
increase prices in line with inflation, due to competitive pressures or
otherwise, the results of operations of the Company's businesses may be
adversely affected.

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:

                                       72
<PAGE>   75
                        ROUBLE/U.S. DOLLAR EXCHANGE RATES

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

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

                        TENGE/U.S. DOLLAR EXCHANGE RATES

<TABLE>
<CAPTION>
MONTH                                                                        1994(1)       1995(1)       1996(1)
-----                                                                        -------       -------       -------
<S>                                                                            <C>            <C>           <C>
January                                                                                       55.6          65.5
February                                                                                      60.1          65.3
March                                                                                         60.8          66.0
April                                                                                         63.5          67.1
May                                                                                           64.3          66.9
June                                                                                          64.3          67.2
July                                                                                          63.2          67.5
August                                                                                        59.0          68.1
September                                                                                     60.9          68.8
October                                                                        50.0           61.7          69.5
November                                                                       50.0           63.9          70.4
December                                                                       50.0           59.6          73.1
</TABLE>

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

         For a discussion of the impact of exchange rate fluctuations on the
Company, see "Risk Factors--Country Risks-- Currency Risks."

RECONCILIATION TO CANADIAN GAAP

         The Company's financial statements have been prepared in accordance
with United States generally accepted accounting principles (US GAAP) which, in
the case of the Company, conform with Canadian GAAP, except as outlined in Note
15 to the Consolidated Financial Statements included herein.

                                       73
<PAGE>   76
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.


                                    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 1997 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.

                                      75
<PAGE>   77
                                     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 and Financial
                   Statement Schedules 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 and 6-K.

                   The Company did not file a report on Form 8-K during the
quarter ended December 31, 1996, since the Company was domiciled in Canada and a
foreign private issuer at that time.

                   The Company filed a Report of a Foreign Private Issuer on
Form 6-K with the Commission on December 2, 1996, containing financial results
for the quarter ended September 30, 1996 and quarterly financial statements
prepared in accordance with Canadian Generally Accepted Accounting Principles.

          (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
        --------------         -----------
<S>     <C>                    <C>
        2+                     Certificate of Domestication.

        3.1+                   Certificate of Incorporation.

        3.2+                   By-Laws.

        4.1                    Indenture dated as of May 31, 1996 among
                               Petersburg Long Distance Inc., 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).

        4.2                    Indenture dated as of May 31, 1996 among
                               Petersburg Long Distance Inc. 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).

        4.3                    Global Note representing 14% Senior Discounted
                               Notes due 2004.

        4.4                    Global Note representing 9% Convertible
                               Subordinated Notes due 2006.

        4.5                    Warrant Certificate of Petersburg Long Distance
                               Inc. for 123,000 Warrants exercisable on or after
                               December 10, 1996 and on or before June 12, 2006.
</TABLE>

                                      76
<PAGE>   78
<TABLE>
<CAPTION>
<S>     <C>                    <C>
        4.6                    Smith Barney Warrant Certificate of Petersburg
                               Long Distance Inc. 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.

        4.7                    Registration Rights Agreement dated as of May 31,
                               1996 between Petersburg Long Distance Inc. and
                               Smith Barney Inc.

        4.8                    Purchase Agreement dated May 24, 1996 between
                               Petersburg Long Distance Inc. and Smith Barney
                               Inc.

        4.9                    Warrant Agreement between Petersburg Long
                               Distance Inc. and The Bank of New York.

        4.10                   Smith Barney Warrant Agreement between Petersburg
                               Long Distance Inc. and The Bank of New York.

        4.11                   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 Petersburg Long Distance Inc.

        4.12                   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 Petersburg Long Distance Inc.

        4.13                   Leasing Company Escrow Account Agreement (PLD
                               Asset Leasing Limited) 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.

        4.14                   Leasing Company Escrow Account Agreement (PLD
                               Capital Limited) 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.

        4.15                   Company Senior Note Security and Pledge Agreement
                               by Petersburg Long Distance Inc. 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.

        4.16                   Company Convertible Note Security and Pledge
                               Agreement by Petersburg Long Distance Inc. 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.

        4.17                   Leasing Company Security and Pledge Agreement
                               (PLD Asset Leasing Limited) 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.
</TABLE>

                                      77
<PAGE>   79
<TABLE>
<CAPTION>
<S>     <C>                    <C>
        4.18                   Leasing Company Security and Pledge Agreement
                               (PLD Capital Limited) 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.

        4.19                   NWE Cyprus Senior Note Security and Pledge
                               Agreement 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.

        10.1                   PLD Telekom Inc. Stock Option Plan.

        10.2                   Service Agreement between Petersburg Long
                               Distance Inc. and Newmark Capital Limited dated
                               as of January 1, 1995 (Exhibit 2(o) to the
                               Company's Annual Report on Form 20-F for the year
                               ended December 31, 1995).

        10.3                   License issued by the RSCC to PeterStar Company
                               Limited for the provision of local, national and
                               international telecommunications services within
                               St. Petersburg and the surrounding region.

        10.4                   License No. N4199 issued by the RSCC to
                               Teleport-TP for the provision of local and long
                               distance telecommunications services.

        10.5                   License No. N4207 issued by the RSCC to
                               Teleport-TP for the provision of long distance
                               and international telecommunication services.

        10.6                   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.

        21                     List of Subsidiaries.
</TABLE>

-----------------

+ Incorporated by reference to the Company's interim report on Form 8-K, filed
  with the Securities and Exchange Commission on March 7, 1997.

                                      78
<PAGE>   80
                                   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 London,
England on March 31, 1997.

                                      PLD TELEKOM INC.


                                              By:   /s/ James R. S. Hatt
                                                   --------------------------
                                                   James R. S. Hatt
                                                   President and
                                                   Chief Executive Officer

         Pursuant to the requirements of the Securities 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
         ---------                          -----                               ----
<S>                                         <C>                                 <C>
 /s/ Ronald R. Cripps                       Director                            March 31, 1997
---------------------------
Ronald R. Cripps

 /s/ Simon Edwards                          Chief Financial Officer             March 31, 1997
---------------------------                 (Principal Financial Officer)
Simon Edwards

 /s/ James R. S. Hatt                       Director, President and             March 31, 1997
---------------------------                 Chief Executive Officer
James R. S. Hatt                            (Principal Executive Officer)

 /s/ David L. Heavenridge                   Director                            March 31, 1997
---------------------------
David L. Heavenridge

 /s/ Timothy P. Lowry                       Director                            March 31, 1997
---------------------------
Timothy P. Lowry

 /s/ Robert Smith                           Director                            March 31, 1997
---------------------------
Robert Smith

 /s/ David M. Stovel                        Director and Vice Chairman          March 31, 1997
---------------------------
David M. Stovel

 /s/ Richard Wainright-Lee                  Director                            March 31, 1997
---------------------------
Richard Wainright-Lee

 /s/ Clayton A. Waite                       Director                            March 31, 1997
---------------------------
Clayton A. Waite

 /s/ Douglas T. Waite                       Director                            March 31, 1997
---------------------------
Douglas T. Waite
</TABLE>

                                       74
<PAGE>   81

AUDITORS' REPORT TO THE SHAREHOLDERS


We have audited the consolidated balance sheets of PLD Telekom Inc. (formerly
Petersburg Long Distance Inc.) as at December 31, 1996 and 1995 and the
consolidated statements of operations, deficit and cash flows for each of the
years in the three year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and 1995 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1996
in accordance with United States generally accepted accounting principles.



/s/  KPMG

Chartered Accountants

Toronto, Canada
March 21, 1997



                                     F-1
<PAGE>   82
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Balance Sheets

As at December 31
(Thousands of United States Dollars)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                         1996           1995
------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
Assets

Current assets:
     Cash and term deposits (note 7)                                  $  40,674       $  15,676
     Trade receivables, net of allowance of $1,986 (1995 - $587)         10,528           3,171
     Other receivables and prepaids                                       3,522           4,347
     Inventory                                                            1,840           1,289
     Due from related parties (note 13(c))                                4,408           2,499
     Current portion of lease receivable                                   --             3,313
------------------------------------------------------------------------------------------------
                                                                         60,972          30,295

Escrow funds (note 8)                                                    40,984            --
Property and equipment (note 4)                                          93,039          45,357
Telecommunications licenses (note 3)                                     72,310          49,583
Investment in Teleport (note 3(e))                                         --            23,564
Other investments (note 5)                                               24,094          19,079
Other assets (note 6)                                                    14,958          10,214
------------------------------------------------------------------------------------------------
                                                                      $ 306,357       $ 178,092
------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity

Current liabilities:
     Bank indebtedness (note 7)                                       $  15,829       $  22,379
     Accounts payable                                                    22,666           8,516
     Accrued liabilities                                                  3,126           1,924
     Due to related parties (note 13(d))                                  4,039           1,843
     Deferred revenue                                                     1,078           1,958
------------------------------------------------------------------------------------------------
                                                                         46,738          36,620

Long-term debt (note 8)                                                 107,954            --

Minority interest                                                        13,711           5,640

Shareholders' equity:
     Capital stock:
         Preferred shares (note 9)                                           31              31
         Common shares (note 9)                                         180,878         179,887
         Warrants (note 8)                                               13,592            --
------------------------------------------------------------------------------------------------
                                                                        194,501         179,918
     Deficit                                                            (56,547)        (44,086)
------------------------------------------------------------------------------------------------
Future activities (note 1)                                              137,954         135,832
Commitments and contingencies (note 14)
------------------------------------------------------------------------------------------------
                                                                      $ 306,357       $ 178,092
------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>   83
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Statements of Operations

<TABLE>
<CAPTION>
Years ended December 31
(Thousands of United States Dollars, except per share amounts)
-------------------------------------------------------------------------------------------------------------
                                                                     1996           1995             1994
-------------------------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>               <C>
Revenue:
     Telecommunications (note 13(a) and (c))                      $ 60,562       $ 27,686          $ 8,526
     Finance lease income                                            1,404          1,434             --
-------------------------------------------------------------------------------------------------------------
                                                                    61,966         29,120            8,526
Direct costs                                                        21,709         10,382            3,172
-------------------------------------------------------------------------------------------------------------
Gross profit                                                        40,257         18,738            5,354

Operating expenses:
     General and administrative                                     24,791         18,168            9,042
     Depreciation                                                    5,226          3,837            1,232
     Amortization of telecommunications licenses
       and goodwill                                                  4,883          4,659             3,802
     Other taxes                                                     2,490          1,220             --
-------------------------------------------------------------------------------------------------------------
                                                                    37,390         27,884            14,076
-------------------------------------------------------------------------------------------------------------
Operating income/(loss)                                              2,867         (9,146)          (8,722)

Share of income/(loss) from equity investments,
   after amortization of licenses of
   $2,477(1995 - $1,528)                                            (2,692)        (1,555)            --
Interest and other income                                            4,859          2,066              235
Interest on bank indebtedness                                       (1,233)          (957)          (1,004)
Interest on long-term debt                                          (8,740)          --               --
Amortization of deferred financing costs                              (684)          --               --
Foreign exchange loss                                                 (648)          (443)            --
Loss on disposal of investments and property
   and equipment                                                      --             (915)            --
Provision for amounts due from a shareholder
   of PeterStar (note 13(e))                                          --           (2,490)            --
-------------------------------------------------------------------------------------------------------------
Loss before income taxes and minority interest                      (6,271)       (13,440)          (9,491)

Income taxes (note 10)                                               3,669          1,490             --
-------------------------------------------------------------------------------------------------------------
Loss before minority interest                                       (9,940)       (14,930)          (9,491)

Minority interest                                                    2,521            551             --
-------------------------------------------------------------------------------------------------------------
Net loss                                                          $(12,461)      $(15,481)         $(9,491)
-------------------------------------------------------------------------------------------------------------
Net loss per common share (note 11)                               $  (0.39)      $  (0.49)         $ (0.78)
-------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements

                                      F-3
<PAGE>   84
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Statements of Deficit

Years ended December 31
(Thousands of United States Dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                   1996           1995           1994
----------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>
Balance, beginning of year                      $(44,086)      $(28,605)      $(18,736)

Loss for the year                                (12,461)       (15,481)        (9,491)

Accrual of excess of redemption price over
   dividends paid on Series VIII and IX
   preferred shares                                 --             --             (378)
----------------------------------------------------------------------------------------------
Balance, end of year                            $(56,547)      $(44,086)      $(28,605)
----------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   85
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
Years ended December 31
(Thousands of United States Dollars)
------------------------------------------------------------------------------------------------------
                                                            1996           1995             1994
------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>             <C>
Cash provided by/(used in):
Operations:
     Loss for the year                                   $(12,461)      $ (15,481)      $  (9,491)
     Non-cash items:
         Depreciation and amortization                     10,793           8,496           5,034
         Share of loss of equity investments                2,692           1,555            --
         Non-cash interest on long-term debt                7,349            --              --
         Minority interest                                  2,521             551            --
         Other                                                300           1,543            --
     Deferred revenue                                        (898)          1,958            --
     Changes in non-cash working capital
       related to operations (note 12)                      5,322          (5,346)          1,142
------------------------------------------------------------------------------------------------------
     Cash from continuing operations                       15,618          (6,724)         (3,315)
     Cash from discontinued operations                       --              --              (331)
------------------------------------------------------------------------------------------------------
                                                           15,618          (6,724)         (3,646)

Financing:
     Change in bank indebtedness                           (6,550)         22,379            --
     Issue of 14% Senior Discount Notes                    87,697            --              --
     Issue of 9% Convertible Subordinated Notes            26,500            --              --
     Deferred financing costs                              (9,224)           --              --
     Issue of common shares                                   991              67         110,799
     Changes in non-cash working capital
       related to financing (note 12)                        --            (2,869)          2,869
     Loans from shareholders                               (1,843)            405            (143)
     Related company advances                                --              (815)           --
     Due to equipment supplier                               --            (4,384)             87
------------------------------------------------------------------------------------------------------
                                                           97,571          14,783         113,612

Investments:
     Property and equipment                               (43,201)        (27,763)        (16,536)
     Changes in non-cash working capital
       related to investments (note 12)                      --            (3,775)          3,775
     Escrow funds                                         (40,984)           --              --
     Investment in BCL, net of cash acquired               (2,516)           --              --
     Teleport finance lease and advances                    3,916          (7,733)           --
     Investment in Technopark, net of cash acquired        (2,866)           --              --
     Investment in Teleport, net of cash acquired          (2,133)           --              --
     Other investments                                       (140)         (3,000)           --
     Other assets                                            (267)         (6,822)           (895)
     Investment in PeterStar                                 --              --            (8,166)
     Investment in BECET                                     --              --            (1,398)
     Investment in Technocom, net of cash acquired           --              --           (14,905)
     Investment in SPMMTS                                    --              --           (16,079)
------------------------------------------------------------------------------------------------------
                                                          (88,191)        (49,093)        (54,204)
------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash and term deposits              24,998         (41,034)         55,762

Cash and term deposits, beginning of year                  15,676          56,710             948
------------------------------------------------------------------------------------------------------
Cash and term deposits, end of year                      $ 40,674       $  15,676       $  56,710
------------------------------------------------------------------------------------------------------
   Supplementary disclosures:
     Interest paid                                       $  2,425       $     380       $     916
     Income taxes paid                                      3,678             809             --
------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5


<PAGE>   86
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements

Year ended December 31, 1996
(Tabular amounts in thousands of United States Dollars)



1.   INCORPORATION, PRINCIPAL OPERATIONS AND FUTURE ACTIVITIES:

     Effective February 28, 1997 PLD Telekom Inc. was continued as a Delaware
     corporation. The Company was previously incorporated under the laws of
     Ontario, Canada. On August 1, 1996, the Company changed its name from
     Petersburg Long Distance Inc. to PLD Telekom Inc. Through its subsidiaries,
     the Company is a provider of local, long distance and international
     telecommunications services in the former Soviet Union. The Company's key
     interests at December 31, 1996 include a 60% equity interest in PeterStar
     Company Limited ("PeterStar") which provides telecommunications services in
     St. Petersburg, Russia; a 50% equity interest in BECET International
     ("BECET") which provides cellular services in Kazakstan; and a 51% equity
     interest in Technocom Limited ("Technocom") which, through its 49% equity
     interest in Teleport-TP ("Teleport"), operates an international teleport in
     Moscow, fiber optic networks in Moscow and its environs and a
     satellite-based long distance network across Russia. Cable and Wireless plc
     ("Cable & Wireless"), a United Kingdom telecommunications company, is the
     Company's principal shareholder at 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's satellite-based long distance
     network is at an early stage of its development and operation.

     Ultimate recoverability of the Company's investments in PeterStar, BECET,
     and Teleport 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.


2.   SIGNIFICANT ACCOUNTING POLICIES:

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

     The Company's significant accounting policies are as follows:

                                       F-6
<PAGE>   87
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 2

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (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). Audited consolidated financial statements for the
         years ended December 31, 1995 and 1994 were prepared in accordance with
         Canadian GAAP, with a reconciliation to U.S. GAAP, for distribution to
         shareholders. As a result of the Company's emigration to the United
         States on February 28, 1997, the 1995 and 1994 comparative figures have
         been restated in accordance with U.S. GAAP. The effect of this
         restatement is described in Note 15.

     (b) Basis of consolidation:

         The consolidated financial statements include the accounts of the
         Company and its subsidiaries, including PeterStar, BECET, Technocom
         and, effective December 31, 1996, Teleport, which the Company
         effectively controls. All significant intercompany transactions and
         balances have been eliminated on consolidation.

     (c) Reporting currency and foreign currency translation:

         During the fourth quarter of 1994 the Company changed its reporting
         currency from the Canadian dollar to the U.S. dollar. This change was
         made due to the significant increase in the Company's business
         operations in Russia and Kazakstan, which use the U.S. dollar as the
         unit of measure. In addition, the Company completed a major public
         offering of common shares in the United States in December 1994. As a
         result of this transaction, the Company's Canadian and U.K. activities
         also adopted the U.S. dollar as the unit of measure and are now
         classified as integrated operations for purposes of applying
         translation procedures.

         Foreign currency denominated monetary items are translated at the rate
         of exchange in effect at the balance sheet date and non-monetary items
         are translated at rates of exchange in effect when the assets are
         acquired or obligations incurred. Revenues and expenses are translated
         at rates in effect at the time of the transactions. Foreign exchange
         gains and losses are included in earnings.

     (d) Inventory:

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

                                      F-7
<PAGE>   88
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 3

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (e) Property and equipment:

         Property and equipment are stated at cost less accumulated
         depreciation. Costs directly related to the installation of
         telecommunications equipment are included in the cost of the equipment.
         Depreciation is provided using the straight-line method and the
         following annual rates over the estimated useful lives of the assets:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
         Asset                                                 Rate
--------------------------------------------------------------------------------
<S>                                                        <C>
         Telecommunications equipment                           10%
         Buildings                                             3.5%
         Leasehold improvements                                 10%
         Office furniture and equipment                    20 - 33%
--------------------------------------------------------------------------------
</TABLE>

     (f) Telecommunications licenses:

         PeterStar has a number of telecommunications licenses, the principal of
         which is a ten year license to operate an international, national and
         local telecommunications system in St. Petersburg; this expires in
         November 2004. BECET has a 15 year license to operate a cellular and
         mobile telephone system in Kazakstan which expires in February 2009.
         Teleport's main operating licenses expire in 2004. The terms of
         certain of the licenses held by the Company's subsidiaries require
         minimum number of lines and /or subscribers by specified dates in the
         future. Telecommunications licenses are amortized on a straight line
         basis over the terms of the licenses.

         Annually, or more frequently as circumstances require, management
         reviews the carrying value of telecommunications licenses. If it is
         determined that the net recoverable amount is less than the carrying
         value, a write down to fair value is made with a charge to earnings.
         The net recoverable amount of each of PeterStar's, BECET's and
         Teleport's licenses is calculated based upon the estimated undiscounted
         future net cash flow expected to be generated by PeterStar, BECET and
         Teleport, respectively.

     (g) Investment in SPMMTS:

         The Company's investment in SPMMTS is accounted for on the cost basis.
         The Company regularly evaluates the value of the investment to
         determine if it is less than carrying value. Any declines in value
         below the carrying amount of the investment, which are other than
         temporary, are recognized in earnings.

     (h) Equity investments:

         The Company acquired an approximate 42% interest in Teleport through
         its acquisition of Technocom (note 3(c)). The investment in Teleport
         was accounted for using the equity method until December 31, 1996, on
         which date Teleport became a subsidiary.

         The Company, through Technocom, has a 49% interest in MTR-Sviaz and a
         50% investment in Rosh Telecom, both of which are accounted for using
         the equity method.


                                       F-8
<PAGE>   89
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 4

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (i) Goodwill:

         Goodwill represents the excess of the purchase price over the fair
         values of the net assets acquired of C.P.Y. Yellow Pages, and is being
         amortized on a straight-line basis over 10 years. The value of goodwill
         is regularly evaluated by reviewing the returns of C.P.Y. Yellow Pages,
         taking into account the risk associated with the investment. Any
         permanent impairment in the value of the goodwill is written-off
         against earnings.

     (j) Deferred financing costs:

         Deferred financing costs are capitalized and amortized over the term of
         the related debt.

     (k) Cash and term deposits:

         The Company's term deposits consist of term deposits with an initial
         term of less than three months and, accordingly, they are considered
         cash equivalents for purposes of the consolidated statements of cash
         flows.

     (l) Fair value of financial instruments:

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

     (m) Stock options:

         On January 1, 1996, the Company adopted SFAS No. 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 No. 123 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 defined in SFAS No. 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
         provisions of SFAS No. 123.


3.   TELECOMMUNICATIONS LICENSES AND ACQUISITIONS:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
                                Accumulated       Net book
 1996               Cost        amortization       value
-----------------------------------------------------------------
<S>               <C>             <C>             <C>
PeterStar         $29,755         $ 8,840         $20,915
BECET              31,595           5,795          25,800
Teleport           29,600           4,005          25,595
-----------------------------------------------------------------
                  $90,950         $18,640         $72,310
-----------------------------------------------------------------
</TABLE>


                                      F-9
<PAGE>   90
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 5

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



3.   TELECOMMUNICATIONS LICENSES AND ACQUISITIONS (CONTINUED):
<TABLE>
<CAPTION>
-----------------------------------------------------------------
                               Accumulated       Net book
 1995               Cost       amortization        value
-----------------------------------------------------------------
<S>               <C>             <C>             <C>
PeterStar         $27,955         $ 6,278         $21,677
BECET              31,595           3,689          27,906
-----------------------------------------------------------------
                  $59,550         $ 9,967         $49,583
-----------------------------------------------------------------
</TABLE>


     (a) PeterStar:

         In October 1992, the Company acquired a 50% interest in PeterStar for
         consideration of $19,789,000. An additional 9% interest was acquired in
         March 1994 for consideration of $8,166,000 and an additional 1%
         interest was acquired in April 1996 for $1,800,000. All of the
         consideration has been allocated to telecommunications licenses.

         PeterStar is a joint stock company registered in 1992 under the laws of
         the Russian Federation to provide international and domestic
         telecommunications services to 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
         number of lines which PeterStar may have at 106,000 and requires that
         74,200 lines be introduced by June 1999. At December 31, 1996
         PeterStar had 52,005 lines in place.

     (b) BECET:

         In March 1994, the Company acquired all the outstanding shares of
         Wireless Technology Corporations Limited ("WTC") for consideration of
         $30 million, which was satisfied by the issuance of 2,500,000 common
         shares of the Company. WTC is incorporated in the territory of the
         British Virgin Islands and is a 50% participant in BECET, a joint stock
         company in Kazakstan. BECET has been granted a license to operate a
         cellular and mobile telephone system in Kazakstan for a period of 15
         years.

         The acquisition was accounted for by the purchase method. As of the
         date of acquisition, BECET had not commenced operations and did not
         have any tangible assets or liabilities. Therefore, the entire purchase
         price, including acquisition costs of $1,595,000, was allocated to
         telecommunications licenses. BECET commenced commercial operations in
         September 1994.

         In connection with the acquisition of BECET, the Company was committed
         to provide financing of up to $3 million to fund a number of special
         telecommunications projects undertaken by the Ministry of
         Communications in Kazakstan. In 1995 the Company provided such
         financing in the form of a convertible note (see note 5(b)).


                                       F-10


<PAGE>   91
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 6

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



3.   TELECOMMUNICATIONS LICENSES AND ACQUISITIONS (CONTINUED):

     (c) Technocom:

         On December 28, 1994, the Company acquired 51% of the ordinary share
         capital of Technocom, a company incorporated in the Republic of
         Ireland, for consideration of $15 million cash plus acquisition costs
         of $159,000. Technocom's principal asset at the date of acquisition was
         a 42% equity interest in Teleport, a Russian joint stock company which
         holds four operating licenses. The first license expires in November
         2004 and authorizes Teleport to provide long distance and international
         telecommunications services to private networks within Moscow and, to a
         limited extent, elsewhere in the Russian Federation. Teleport is
         required by the terms of the license to have at least 10,500
         subscribers (which is 70% of the maximum number of subscribers
         permitted under the license) in place by October 1999. 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 permits the provision
         of data services, with interconnection to the public network. This
         expires in January 2002 and requires capacity for 70,000 subscribers
         by December 2000. The fourth license is an overlay license which
         permits Teleport to offer local, long distance and international
         voice and data services which are interconnected to the public
         telephone network in 32 regions across Russia. The overlay license
         expires in May 2001.

         The acquisition of Technocom has been accounted for by the purchase
         method effective December 31, 1994 as follows:
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------
<S>                                                                                <C>
         Net assets acquired:
           Cash                                                                    $     253
           Other current assets                                                        1,140
           Current liabilities                                                        (1,617)
-------------------------------------------------------------------------------------------------
                                                                                        (224)

           Investment in and advances to Teleport, including allocation
              of excess purchase price of $15,078,000                                 15,699
           Plant and equipment                                                           109
           Due to shareholders                                                          (336)
           Minority interest                                                             (89)
-------------------------------------------------------------------------------------------------
         Total consideration                                                       $  15,159
-------------------------------------------------------------------------------------------------
</TABLE>

         The carrying value of the investment in Teleport at December 31, 1994
         exceeded the Company's share of the underlying net book value of
         Teleport by $15,078,000. This excess purchase consideration, which
         arose on the purchase of Technocom, is attributed to the
         telecommunications licenses held by Teleport and is being amortized
         over the terms of those licenses.


                                      F-11
<PAGE>   92
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 7

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



3.   TELECOMMUNICATIONS LICENSES AND ACQUISITIONS (CONTINUED):

     (c) Technocom (continued):

         The Company was committed to subscribe for preferred shares of
         Technocom in the amount of $40 million, of which $20 million was
         subscribed for on December 28, 1994 and the remaining $20 million was
         subscribed for in June 1996 from the proceeds of the financing
         described in note 8. The preferred shares entitle the Company to the
         first $20 million of Technocom's dividend distributions. After receipt
         of such preference dividends, all the preferred shares will be
         converted into a single ordinary share of Technocom. The carrying value
         of the Company's investment in Teleport and minority interest have each
         been increased by $10 million to reflect the minority interest's
         ultimate share in preferred equity.

         In addition, the Company has the option to acquire the remaining
         ordinary shares of Technocom from the other shareholders and those
         shareholders have the option to require the Company to acquire their
         interest. The price of the shares is to be agreed by the parties or, in
         the absence of such an agreement, determined by one of five leading
         investment banks. The first option period commences the date the
         audited results of Technocom for the year ended December 31, 1998 are
         released and ends 90 days later.

     (d) Technopark:

         On December 20, 1996 Technocom acquired 55.51% of the outstanding
         shares of J.V. Technopark Limited, a company incorporated in Russia
         which holds a 7.5% equity interest in Teleport and owns office space in
         Moscow, for cash consideration of $3 million. The vendors were the
         minority shareholders of Technocom. The acquisition of Technopark has
         been accounted for using the purchase method as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
<S>                                                   <C>
         Net assets acquired:
              Cash                                    $    134
              Non-cash working capital                    (316)
              Buildings                                  1,000
              Investment in Teleport                     2,320
              Minority interest                           (138)
----------------------------------------------------------------------
                                                      $  3,000
----------------------------------------------------------------------
</TABLE>


                                      F-12
<PAGE>   93
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 8

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



3.   TELECOMMUNICATIONS LICENSES AND ACQUISITIONS (CONTINUED):

     (e) Teleport:

         At the date of acquisition of Technocom by the Company, Technocom held
         a direct and indirect 42% interest in Teleport (note 3(c)). In May
         1996, Technocom acquired an additional 3.3% indirect equity interest in
         Teleport for cash consideration of $2 million, substantially all of
         which has been allocated to Teleport's telecommunications licenses. The
         additional interest was acquired through a company controlled by a
         minority shareholder of Technocom. The acquisition of Technopark (note
         3(d)) increases Technocom's equity interest in Teleport to 49.3% and
         its voting interest to 56%. Accordingly, the balance sheet of Teleport
         is included in the Company's consolidated balance sheet as at December
         31, 1996. The results of operations of Teleport will be included in the
         consolidated statement of operations from January 1, 1997. The
         consolidation of Teleport's balance sheet is summarized as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<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 $4,005,000                                              25,595
--------------------------------------------------------------------------------
Carrying value of investment in Teleport prior to consolidation         $ 25,780
--------------------------------------------------------------------------------
</TABLE>

         Prior to December 31, 1996, the Company's investment in Teleport was
         accounted for using the equity method. At December 31, 1995 the
         Company's investment in Teleport was comprised of the following:

<TABLE>
<CAPTION>
-----------------------------------------------------------------
<S>                                                 <C>
Investment in Teleport                              $ 20,363
Advances and loans to Teleport                           336
Finance lease receivable, long term portion            4,420
-----------------------------------------------------------------
                                                      25,119
Share of Teleport loss                                (1,555)
-----------------------------------------------------------------
                                                    $ 23,564
-----------------------------------------------------------------
</TABLE>

                                      F-13

<PAGE>   94
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 9

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



3.   TELECOMMUNICATIONS LICENSES AND ACQUISITIONS (CONTINUED):

     (e) Teleport (continued):

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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S>                                                                                    <C>
Current assets                                                                         $  2,668
Current liabilities                                                                      (1,951)
Equipment under capital lease, net                                                        8,431
Other property, plant and equipment, net                                                    345
Other assets                                                                                665
Capital lease obligation to Technocom                                                    (7,733)
Due to Technocom                                                                         (1,693)
---------------------------------------------------------------------------------------------------
Shareholders' equity                                                                   $    732
---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                           1996             1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Revenue                                                                                $ 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            1,049
     Interest on capital lease                                                              531            1,434
     Other interest and financing charges, net                                             (251)             343

Income/(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 loss                                                                 $ (2,552)         $(1,555)
------------------------------------------------------------------------------------------------------------------
</TABLE>

         Teleport's revenue includes sales to its minority shareholder of
         $4,635,000 (1995 - $4,995,000) making Teleport to some extent
         economically dependent on its minority shareholder.

                               F-14
<PAGE>   95
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 10

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



3.   TELECOMMUNICATIONS LICENSES AND ACQUISITIONS (CONTINUED):

     (e) Teleport (continued):

         Teleport's cost of sales for the year ended December 31, 1996 includes
         costs of $2,921,000 charged by a company controlled by one of the
         minority shareholders of Technocom.

         General and administrative expenses includes costs of $576,000 (1995 -
         $232,000) related to marketing services provided by a company
         controlled by one of the minority shareholders of Technocom.

     (f) Baltic Communications Limited:

         Effective April 1, 1996, the Company acquired all of the outstanding
         shares of Baltic Communications Limited ("BCL") from Cable & Wireless
         and its Russian partners for cash consideration of $3 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,
         Russia.

         The acquisition has been accounted for using the purchase method as
         follows:
<TABLE>
<CAPTION>
---------------------------------------------------
<S>                                   <C>
Net assets acquired:
     Cash                             $   737
     Non-cash working capital            (766)
     Property and equipment             3,282
---------------------------------------------------
Total consideration                   $ 3,253
---------------------------------------------------
</TABLE>

     (g) C.P.Y. Yellow Pages:

         On April 26, 1995 the Company acquired all the outstanding shares of
         C.P.Y. Yellow Pages Limited, a company incorporated in the Republic of
         Cyprus, for consideration of 368,820 common shares of the Company at an
         ascribed value of $1,900,000, plus acquisition costs of $244,000.
         Yellow Pages publishes a Yellow Pages directory and owns a database of
         Russian and foreign businesses in St. Petersburg.

         The acquisition has been accounted for by the purchase method effective
         April 30, 1995. Substantially all of the consideration was allocated to
         goodwill.


                                       F-15
<PAGE>   96
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 11

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



4.   PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                                             Accumulated      Net book
     1996                                         Cost       depreciation       value
-------------------------------------------------------------------------------------------
<S>                                            <C>              <C>             <C>
Telecommunications equipment:
    Installed                                  $ 80,291         $ 9,625         $70,666
    Uninstalled                                   3,677            --             3,677
Buildings                                         3,194             206           2,988
Office furniture and equipment                    6,538           2,030           4,508
Leasehold improvements                            4,443           1,242           3,201
Advances to equipment suppliers                   7,999            --             7,999
-------------------------------------------------------------------------------------------
                                               $106,142         $13,103         $93,039
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                                                 Accumulated        Net book
     1995                                            Cost        depreciation        value
-------------------------------------------------------------------------------------------
<S>                                                <C>              <C>             <C>
Telecommunications equipment:
    Installed                                      $ 29,283         $ 3,462         $25,821
    Uninstalled                                       7,720            --             7,720
Buildings                                               459              88             371
Office furniture and equipment                        3,667             986           2,681
Leasehold improvements                                2,680             369           2,311
Advances to equipment suppliers                       6,453            --             6,453
-------------------------------------------------------------------------------------------
                                                   $ 50,262         $ 4,905         $45,357
-------------------------------------------------------------------------------------------
</TABLE>

     Advances to equipment suppliers at December 31, 1995 includes an amount of
     $3,527,000 which bears interest at 6.5% per annum.



5.   OTHER INVESTMENTS:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                      1996            1995
-------------------------------------------------------------------------------
<S>                                                  <C>             <C>
Investment in SPMMTS, at cost                        $16,179         $16,079
Investment in Monogram Finance Group Limited           3,000           3,000
Equity investment in MTR-Sviaz                         4,588            --
Equity investment in Rosh Telecom                        327            --
-------------------------------------------------------------------------------
Total                                                $24,094         $19,079
-------------------------------------------------------------------------------
</TABLE>


                                       F-16
<PAGE>   97
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 12

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



5.   OTHER INVESTMENTS (CONTINUED):

     (a) Investment in SPMMTS:

         In July 1994, the Company acquired a 10.4% equity interest (13.9%
         voting interest) in St. Petersburg Intercity & International Telephone
         ("SPMMTS"), a recently privatized Russian company which operates the
         long distance and international gateway in St. Petersburg, Russia, for
         consideration of $16 million, plus costs of acquisition. The
         acquisition of the SPMMTS shares was financed by the issuance of
         1,650,832 common shares of the Company at an ascribed value of $9.09
         each (for a total subscription of $15,006,062) and a note in the
         principal amount of $993,938 convertible into 109,344 common shares of
         the Company. The note was converted into common shares in October 1994.

         Shares in SPMMTS trade in a very limited over-the-counter market in
         Russia. Quoted market values are not available. However, actual trades
         occurred during December 1996 and January 1997 at average prices
         ranging from $1.70 to $3.40 per share. The Company holds 6,872,000
         shares of SPMMTS.

     (b) Investment in Monogram Finance Group Limited:

         During the year ended December 31, 1995, the Company advanced $3
         million to Monogram Finance Group Limited ("Monogram") in exchange for
         a convertible promissory note due on February 20, 2000. The note is
         convertible into common shares of Monogram at any time prior to
         February 20, 2000 at the then current fair market price of the shares.

         Monogram is incorporated in the British Virgin Islands and intends to
         enter into a joint venture with the Government of Kazakstan and another
         third party for the development of telecommunications projects in
         Kazakstan.

     (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 is licensed to provided
         local and long distance leased line services within the city and region
         of Moscow and commenced operations in late 1996. During 1996, Technocom
         leased telecommunications equipment and access rights with a net book
         value of $5,205,000 to MTR-Sviaz under finance leases. For the year
         ended December 31, 1996, the Company recorded finance lease income of
         $872,000 related to these leases. At December 31, 1996, the investment
         in MTR-Sviaz is comprised of a finance lease receivable of $5,015,000,
         offset by the Company's share of losses of MTR-Sviaz of $427,000.


                                      F-17
<PAGE>   98
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 13

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



5.   OTHER INVESTMENTS (CONTINUED):

     (c) Equity investment in MTR-Sviaz (continued):

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

<TABLE>
--------------------------------------------------------------------------------
<S>                                                               <C>
         1997                                                     $  2,530
         1998                                                        2,530
         1999                                                        2,530
         2000                                                        1,707
         2001                                                          547
         Thereafter                                                  2,503
--------------------------------------------------------------------------------
         Total minimum lease payments                               12,347
         Amounts representing interest                               7,332
--------------------------------------------------------------------------------
         Present value of minimum lease payments                  $  5,015
--------------------------------------------------------------------------------
</TABLE>

6.   OTHER ASSETS:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                          1996             1995
--------------------------------------------------------------------------------
<S>                                                     <C>             <C>
     Deferred financing costs, net of accumulated
       amortization of $684,000                         $  8,540        $      -
     Goodwill, net of accumulated amortization
       of $359,000 (1995 - $144,000)                       1,796            2,011
     Deferred charges                                        700            1,000
     Telecommunications access rights                       -               2,403
     Other                                                 3,922            4,800
--------------------------------------------------------------------------------
                                                        $ 14,958        $  10,214
--------------------------------------------------------------------------------
</TABLE>

7.   CASH AND TERM DEPOSITS AND BANK INDEBTEDNESS:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                               1996            1995
--------------------------------------------------------------------------------------------------------
<S>                                                                         <C>             <C>
     Cash on deposit:
       In Russia and Kazakstan                                              $   5,210       $  2,898
       Outside Russia and Kazakstan                                            10,935          4,557
     Term deposit, bearing interest at 5.3125% (1995 - 5.625%),
       restricted to secure bank loan of Technocom                              9,000          6,115
     Term deposits, bearing interest at 5.3125% (1995 - 5.625%),
       restricted to secure overdraft balances and accounts
       payable of Technocom                                               15,529          2,106
--------------------------------------------------------------------------------------------------------
                                                                            $  40,674       $ 15,676
--------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-18
<PAGE>   99
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 14

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



7.   CASH AND TERM DEPOSITS AND BANK INDEBTEDNESS (CONTINUED):

     As at December 31, 1996, Technocom has overdraft balances of $6,829,000
     (1995 - $1,764,000) and demand bank loans of $9,000,000 (1995 - $6,115,000)
     bearing interest at 5.8125% (1995 - 6.125%). The demand bank loans are
     secured by term deposits in the same amount held at the same bank.

     Bank indebtedness at December 31, 1995 also included $14,500,000 owing to a
     Canadian chartered bank under the terms of a revolving credit facility in
     the maximum amount of $22,500,000. Advances under the facility bore
     interest at LIBOR plus 1/2% or U.S. base rate on U.S. dollar loans. The
     facility was guaranteed by Cable & Wireless. The weighted average interest
     rate on the loans was 6.54% at December 31, 1995. The facility was repaid
     in June 1996 from the proceeds of the financing described in note 8.


8.   LONG-TERM DEBT:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                   1996           1995
--------------------------------------------------------------------------------
<S>                                             <C>              <C>
     14% Senior Discount Notes                  $  81,454        $   -
     9% Convertible Subordinated Notes             26,500            -
--------------------------------------------------------------------------------
     Total                                      $ 107,954        $   -
--------------------------------------------------------------------------------
</TABLE>

     On June 12, 1996 the Company completed a $149.5 million private placement
     consisting of (i) 123,000 Units consisting of $123,000,000 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) $26,500,000 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
     $87,697,000 of which $13,592,000 was allocated to the Warrants and
     $74,105,000 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 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 million by May 1998. Failure to raise additional
     equity will cause the interest rate on the Senior Notes to increase to
     14.5%.


                                      F-19
<PAGE>   100
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 15

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



8.   LONG-TERM DEBT (CONTINUED):

     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 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 Capital (Cyprus) Ltd. (a wholly-owned
     subsidiary which holds the Company's interests in PeterStar and WTC (which
     holds the Company's interest in BECET)), BCL, a wholly-owned special
     purpose leasing subsidiary incorporated in Cyprus, a wholly-owned special
     purpose investment 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 million commitment to
     Technocom (note 3(c)) and to repay a revolving credit facility (note 7).
     Under the terms of the Indentures, $46 million was deposited into an escrow
     account which is invested in eligible cash equivalents, as defined by the
     Indentures. The escrow funds 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 million in
     telecommunications companies operating in Russia or Kazakstan, 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.


                                      F-20
<PAGE>   101
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 16

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



8.   LONG-TERM DEBT (CONTINUED):

     Escrow funds that have yet to be disbursed in relation to qualifying
     investments or leases, have been invested throughout the period in
     short-term reverse repurchase agreements secured by U.S. treasury bonds.
     At December 31, 1996, a reverse repurchase agreement for $40,984,000
     earning interest at 5.37% per annum and maturing January 15, 1997, was
     collateralized by U.S. treasury bonds with a fair market value of
     $40,735,000.

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


9.   CAPITAL STOCK:

     (a) Authorized:

         At December 31, 1996, the authorized capital stock of the Company
         consists of an unlimited number of common shares without nominal or par
         value and an unlimited number of preferred shares issuable in series.

         On February 28, 1997, as a result of the Company's continuance as a
         Delaware corporation, the authorized capital stock was changed to
         100,000,000 common shares with par value of $0.01 per share and
         100,000,000 preferred shares with par value of $0.01 per share issuable
         in series.

     (b) Issued preferred shares:

         The Company had the following preferred shares issued and outstanding
         at the end of each fiscal year:
<TABLE>
<CAPTION>
--------------------------------------------------------------
                   Number of
                     shares        1996         1995
--------------------------------------------------------------
<S>                 <C>             <C>         <C>
Series II           405,217         $--         $--
Series III           41,667          31          31
--------------------------------------------------------------
                                    $31         $31
--------------------------------------------------------------
</TABLE>

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

         During 1995, 5,000,000 Series VIII convertible redeemable preferred
         shares, which were issued at a price of $1 per share, were converted to
         1,110,000 common shares.

         During 1994, 2,000,000 Series IX convertible redeemable preferred
         shares, which were issued at a price of $1 per share, were converted to
         400,000 common shares.


                                      F-21
<PAGE>   102
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 17

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



9.   CAPITAL STOCK (CONTINUED):

     (c) Issued common shares:

         Changes in issued common shares of the Company are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                             Number of shares       Amount
----------------------------------------------------------------------------------------------
<S>                                                            <C>                <C>
Balance at December 31, 1993                                    8,561,954         $ 30,095

Shares issued:
     For cash pursuant to public offering, net of
       share issue costs of $12,220,000                        15,750,000           86,217
     Acquisition of BECET (note 3(b))                           2,500,000           30,000
     For cash pursuant to private placements                    2,530,916           23,006
     On conversion of Series IX preferred shares                  400,000            2,140
     On conversion of convertible note (note 5(a))                109,344              994
     On exercise of warrants                                       40,000              260
     On exercise of stock options                                 120,000              322
----------------------------------------------------------------------------------------------
Balance at December 31, 1994                                   30,012,214          173,034

Shares issued:
     On conversion of Series VIII preferred shares              1,110,000            4,886
     On acquisition of C.P.Y. Yellow Pages (note 3(g))            368,820            1,900
     On exercise of warrants and options                           16,000               67
----------------------------------------------------------------------------------------------
Balance at December 31, 1995                                   31,507,034          179,887

Shares issued:
     On exercise of options                                       189,000              991
----------------------------------------------------------------------------------------------
Balance at December 31, 1996                                   31,696,034         $180,878
----------------------------------------------------------------------------------------------
</TABLE>

     (d) Stock option plan:

         The Company has a stock option plan ("Plan") pursuant to which the
         Company's Board of Directors may grant stock options to directors,
         officers and key employees of the Company and its subsidiaries.
         Exercise prices are set not lower than the closing share price of the
         Company's common shares on the Toronto Stock Exchange or NASDAQ on the
         day prior to the effective day of the granting of the options. Options
         generally vest over three years and expire five years after the date of
         grant.

         The per share weighted-average fair value of stock options granted
         during 1996 and 1995 was $2.11 and $2.31 on the date of grant using the
         Black Scholes option-pricing model with the following weighted-average
         assumptions: 1996 - risk-free interest rate of 6.5%, expected life of 5
         years and expected volatility of 30%; 1995 - risk-free interest rate of
         6.3%, expected life of 5 years and expected volatility of 30%.


                                      F-22
<PAGE>   103
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 18

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



9.   CAPITAL STOCK (CONTINUED):

     (d) Stock option plan (continued):

         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 No. 123, the Company's loss would have been
         increased to $13,635,000 ($0.43 per share) and $15,951,000 ($0.51 per
         share) for the years ended December 31, 1996 and 1995, respectively.
         The pro forma loss for the year reflects only options granted in 1996
         and 1995. Therefore, the full impact of calculating compensation cost
         for stock options under SFAS No. 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.

         Changes in stock options outstanding are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                                Weighted average
                                       Number of shares         exercise prices
--------------------------------------------------------------------------------
<S>                                       <C>                     <C>
Outstanding at December 31, 1993            637,000                 Cdn$9.35
Granted                                     257,500                Cdn$11.58
Exercised                                  (120,000)                Cdn$3.62
Cancelled                                      --                       --
--------------------------------------------------------------------------------
Outstanding at December 31, 1994            774,500                Cdn$10.98
Granted                                     610,000                 Cdn$8.24
Exercised                                   (16,000)                Cdn$5.63
Cancelled                                  (387,000)               Cdn$11.85
--------------------------------------------------------------------------------
Outstanding at December 31, 1995            981,500                 Cdn$9.02
Granted                                   1,010,000               $     7.38
Exercised                                  (189,000)              $     5.25
Cancelled                                  (120,000)              $     5.93
--------------------------------------------------------------------------------
Outstanding at December 31, 1996          1,682,500               $     7.25
--------------------------------------------------------------------------------
</TABLE>


         At December 31, 1996, the range of exercise prices and the
         weighted-average remaining contractual life of outstanding options was
         Cdn$3.50 (US$2.55) to Cdn$15.75 (US$11.49) and 3.8 years, respectively.

         At December 31, 1996 and 1995, the number of options exercisable was
         382,500 and 371,500, respectively, and the weighted-average exercise
         price of those options was $7.92 and Cdn$10.30, respectively.


                                      F-23
<PAGE>   104
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 19

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



9.   CAPITAL STOCK (CONTINUED):

     (e)  Shares reserved:

         In addition to stock options outstanding, 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 8). In addition, at December 31, 1996 the
         Company has 580,000 warrants outstanding to purchase common shares of
         the Company at a weighted-average exercise price of $7.86, of which
         250,000 warrants at an exercise price of Cdn.$11.31 were granted to
         Cable & Wireless in 1994 and 100,000 options at an exercise price of
         US$4.70 were granted in 1996 to the agent in relation to the debt
         financing described in note 8. Warrants expire five years after the
         date of grant.



10.      INCOME TAXES:

     The geographic components of loss before income taxes and minority interest
is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                1996           1995           1994
-------------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>
Canada                                        $(20,829)      $(16,747)      $(7,911)
Russia and Kazakstan                            14,558          3,307        (1,580)
-------------------------------------------------------------------------------------
                                              $ (6,271)      $(13,440)      $(9,491)
-------------------------------------------------------------------------------------
</TABLE>

The provision for income taxes, which relates substantially to current
     income taxes in the Company's Russian and Kazak businesses, differs from
     the Canadian federal and provincial statutory tax rates as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                        1996             1995             1994
--------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>
Provision for income taxes at statutory rates         $(2,760)         $(5,913)         $(4,176)
Add/(deduct) the tax effect of:
  Non-deductible amortization of licenses
      and goodwill                                      3,238            2,720            1,673
  Other non-deductible expenses                         1,753            1,010             --
  Concessions on capital expenditures                  (1,000)            --               --
  Differences in Russian and Kazak statutory
      tax rates                                        (1,696)            (350)            --
  Change in valuation allowance related
      to deferred tax assets                            4,134            4,023            2,503
--------------------------------------------------------------------------------------------------
Provision for income tax                              $ 3,669          $ 1,490          $  --
--------------------------------------------------------------------------------------------------
</TABLE>


                                       F-24
<PAGE>   105
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 20

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



10.      INCOME TAXES (CONTINUED):

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and liabilities at December 31, 1996
     and 1995 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
                                                      1996              1995
---------------------------------------------------------------------------------
<S>                                                 <C>               <C>
Deferred tax assets:
  Share issue costs                                 $  2,150          $  4,320
  Operating loss carryforwards                        16,200             7,500
  Capital loss carryforwards                          11,560            11,710
  Expenses not yet deducted for Russian and
     Kazak tax purposes                                3,760             4,846
---------------------------------------------------------------------------------
                                                      33,670            28,376

Less valuation allowance                             (32,510)          (28,376)
---------------------------------------------------------------------------------
Net deferred tax assets                                1,160              --

Deferred tax liabilities:
  Debt issue costs                                    (1,160)             --
---------------------------------------------------------------------------------
                                                   $       -          $      -
---------------------------------------------------------------------------------
</TABLE>

     At December 31, 1996, the Company has operating loss carryforwards for
     Canadian income tax purposes of approximately Cdn.$50 million (US$36
     million) which are available to offset future taxable income through 2004.
     In addition, the Company has allowable capital loss carryforwards of
     approximately Cdn.$26 million (US$19 million) which are available to offset
     future taxable capital gains. Upon the Company's emigration to the United
     States in February 1997, the Company is deemed to dispose of all its assets
     at fair value. As a result, a substantial portion of the operating and
     capital loss carryforwards will be utilized.



11.      LOSS PER COMMON SHARE:

     The weighted average number of common shares outstanding for the years
     ended December 31, 1996, 1995 and 1994 are 31,579,201, 31,314,662, and
     12,663,030, respectively. Fully diluted loss per common share is not
     presented because all outstanding options and convertible securities are
     anti-dilutive.

                                      F-25
<PAGE>   106
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 21

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



12.      CHANGES IN NON-CASH WORKING CAPITAL:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                         1996              1995              1994
------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>               <C>
Increase in trade receivables                         $ (2,478)         $ (1,681)         $   (699)
Decrease/(increase) in other
   receivables and prepaids                              1,827            (1,909)           (1,218)
Increase in inventory                                     (392)             (608)             (681)
Change in amounts due from/to related parties           (4,743)           (2,499)             --
Increase/(decrease) in accounts payable
  and accrued liabilities                               11,108            (5,293)           10,384
------------------------------------------------------------------------------------------------------
                                                      $  5,322          $(11,990)         $  7,786
------------------------------------------------------------------------------------------------------
</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 $3.0 million during 1996. The amounts are recorded in the
         consolidated statement of operations as telecommunications revenue and
         direct costs.

     (b) Direct costs for the year ended December 31, 1996 include $3,291,000
         (1995 - $1,788,000; 1994 - $112,000) paid to the other shareholder of
         BECET in relation to carriage of traffic over the public telephone
         network.

     (c) Amounts due from related parties at December 31, 1996 include
         $1,096,000 principal and interest due from MTR-Sviaz in relation to a
         finance lease (note 5(c)), $600,000 due from a minority shareholder of
         PeterStar under a short-term loan and $2,476,000 due from a company
         controlled by a minority shareholder of Technocom in relation to
         telecommunications services.

         The balance at December 31, 1995 includes $1,693,000 due from Teleport
         in relation to a finance lease (see note 3(e)) and $651,000 due from
         the other shareholder of BECET.

     (d) Amounts due to related parties at December 31, 1996 include a loan due
         to the minority shareholder of Teleport in the amount of $477,000,
         trade payables of Teleport in the amount of $2,921,000 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.

         During 1994 and 1995, Cable & Wireless provided services to and met
         certain liabilities of the Company. At December 31, 1995 the aggregate
         amount owed to Cable & Wireless under these arrangements was
         $1,843,000. These amounts were repaid in 1996.


                                       F-26
<PAGE>   107
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 22

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



13.      RELATED PARTY TRANSACTIONS (CONTINUED):

     (e) The Company has guaranteed telephone billing system lease payments of a
         shareholder of PeterStar totalling $2,490,000. Lease payments of
         $124,000 are due quarterly until July 1998. At December 31, 1995 full
         provision was made for all amounts paid to date under the guarantee and
         for all future amounts. The balance of $871,000 remaining under the
         lease as at December 31, 1996 is included in accounts payable.

     (f) General and administrative expenses for the year ended December 31,
         1996 includes consulting fees of $300,000 charged by a minority
         shareholder of PeterStar.

     (g) See also notes 3(d) (e) and (f), 5(c) and 7.


14.      COMMITMENTS AND CONTINGENCIES:

     (a) The Company has 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. The Company is negotiating with the
         minority shareholders of PeterStar to determine the manner in which the
         Company will be reimbursed for these costs. Failure of the minority
         shareholders to fully participate in these costs would result in
         additional charges to minority interest and additional deferred tax
         provisions. To date agreement has been reached with the minority
         shareholders to recapitalize PeterStar in an amount of $14.5 million,
         such funds to be used to repay an equal amount of the advances. A
         further $5.0 million of the balance is covered by short-term loan
         agreements and negotations continue as to the mechanism of repayment of
         the remaining approximately $7.5 million.

     (b) Under applicable Russian currency control regulations, the Company's
         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 applied for all the
         necessary licenses, some have been received and others are outstanding.
         Failure to receive the necessary licenses could result in significant
         fines and penalties.

     (c) 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.

     (d) At December 31, 1996, Technocom and PeterStar have commitments of
         approximately $11.3 million and $13.5 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) In 1994, BECET entered into a five year agreement with its principal
         equipment supplier to purchase cellular equipment totaling $26.2
         million and related installation services totaling $5.7 million. As at
         December 31, 1996, BECET has purchased equipment totaling approximately
         $12.2 million and installation services of $2.3 million under the
         agreement.


                                      F-27
<PAGE>   108
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 23

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



15.      CANADIAN ACCOUNTING PRINCIPLES:

     These 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)         Loss for the years ended December 31:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                  1996             1995              1994
----------------------------------------------------------------------------------------------
<S>                                            <C>               <C>               <C>
Loss for the year, as reported                 $(12,461)         $(15,481)         $(9,491)
Non-cash interest on Convertible Notes             (252)             --               --
----------------------------------------------------------------------------------------------
Loss for the year under Canadian GAAP          $(12,713)         $(15,481)         $(9,491)
----------------------------------------------------------------------------------------------
</TABLE>

         Under Canadian GAAP, the Convertible Notes are a compound financial
         instrument and the debt and equity elements of the instruments are
         separately accounted for. For Canadian GAAP purposes, $13,900,000 of
         the Convertible Notes has been classified as equity and $12,600,000 has
         been classified as debt. Additional interest expense is charged to the
         consolidated statement of operations to accrete the debt portion to the
         principal amount of $26,500,000 at maturity which, together with cash
         interest payments, results in an effective yield of 22.3%. Accordingly,
         long-term debt at December 31, 1996, would amount to $94,306,000 and
         shareholders' equity would amount to $151,602,000 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 US 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
         and in 1994 by $1,401,000. The deficit at December 31, 1995 was
         increased by $2,166,000 (1994 - $2,802,000).

     (b) The following non-cash financing and investing activities would be
         included in the consolidated statement of cash flows under Canadian
         GAAP.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                         1996             1995             1994
-----------------------------------------------------------------------------------------
<S>                                      <C>            <C>              <C>
Financing:
  Issue of common shares                 $ --           $ 6,786          $ 32,140
  Conversion of preferred shares           --            (4,886)           (2,140)
Investments:
  Investment in C.P.Y Yellow Pages         --            (1,900)             --
  Investment in BECET                      --              --             (30,000)
-----------------------------------------------------------------------------------------
</TABLE>

                                      F-28
<PAGE>   109
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 24

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)



16.      CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED):

     The following unaudited quarterly financial data has been restated in
     accordance with accounting principles generally accepted in the United
     States.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                               Quarters Ended
                                     ------------------------------------------------------------------
     1996                               Mar 31            Jun 30            Sep 30           Dec 31
-------------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>               <C>               <C>
Operating revenues                    $ 10,184          $ 13,478          $ 17,011          $ 21,293
Direct costs                             3,096             4,111             5,581             8,921

Gross profit                             7,088             9,367            11,430            12,372
Operating expenses                       8,075             7,470             9,648            12,197
-------------------------------------------------------------------------------------------------------
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)
Other expenses                            (270)           (1,137)           (1,060)           (1,557)
-------------------------------------------------------------------------------------------------------
Loss before income taxes and
  minority interest                       (698)              152            (1,876)           (3,849)
Income taxes                               828               526             1,764               551
-------------------------------------------------------------------------------------------------------
Loss before minority interest           (1,526)             (374)           (3,640)           (4,400)
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)).
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                           Quarters Ended
                                     ------------------------------------------------------------------
     1995                              Mar 31           Jun 30           Sep 30           Dec 31
-------------------------------------------------------------------------------------------------------
<S>                                   <C>              <C>              <C>              <C>
Operating revenues                    $ 3,982          $ 9,621          $ 7,230          $  8,287
Direct costs                            1,198            4,001            2,938             2,245
-------------------------------------------------------------------------------------------------------
Gross profit                            2,784            5,620            4,292             6,042
Operating expenses                      4,420            6,399            5,844            11,221
-------------------------------------------------------------------------------------------------------
Operating loss                         (1,636)            (779)          (1,552)           (5,179)
Interest and other income                 658              561              518               329
Interest expense                           (4)            (109)            (170)             (674)
Other expenses                           (377)            (417)            (268)           (4,341)
-------------------------------------------------------------------------------------------------------
Loss before income taxes and
  minority interest                    (1,359)            (744)          (1,472)           (9,865)
Income taxes (recovery)                  --                583              985               (78)
-------------------------------------------------------------------------------------------------------
Loss before minority interest          (1,359)          (1,327)          (2,457)           (9,787)
Minority interest                          99              251              589              (388)
-------------------------------------------------------------------------------------------------------
Net loss for the period               $(1,458)         $(1,578)         $(3,046)         $ (9,399)
-------------------------------------------------------------------------------------------------------
Net loss per common share             $ (0.05)         $ (0.05)         $ (0.10)         $  (0.29)
-------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-29
<PAGE>   110
PLD TELEKOM INC.
(formerly Petersburg Long Distance Inc.)
Notes to Consolidated Financial Statements,  page 25

Year ended December 31, 1996
(Tabular amounts in thousands of United States dollars)


16.  CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED):

     Other expenses in the fourth quarter of 1995 include losses on disposal of
     investments and property and equipment in the amount of $915,000 and a
     provision for amounts due from an indirect minority shareholder of
     PeterStar in the amount of $2,490,000.


                                      F-30