Exhibit 4.2


 


Execution
Copy


 


 




 





 


PARTICIPATION
INTEREST PURCHASE AGREEMENT


 


BY AND BETWEEN


 


KPN TELECOM
B.V.


 


AS “SELLER,”


 


AND


 


MOBILE
TELESYSTEMS OJSC


 


AS “PURCHASER”


 


 


DATED AS OF NOVEMBER 5, 2002


 




 





 

















 


TABLE OF CONTENTS


 


	
  Article
  I. Definitions

  
	
   

  
	
  Section 1.1

  	
  Defined
  Terms

  
	
   

  	
   

  
	
  Article
  II. Purchase and Sale of Participation Interest

  
	
   

  
	
  Section 2.1

  	
  Basic
  Transaction

  
	
  Section 2.2

  	
  Purchase
  Price

  
	
  Section 2.3

  	
  The
  Closing

  
	
  Section 2.4

  	
  Transfer
  of the Participation Interest

  
	
  Section 2.5

  	
  Deliveries
  at the Closing

  
	
  Section 2.6

  	
  Escrow
  Agreement

  
	
  Section 2.7

  	
  Return
  of Purchase Price

  
	
   

  	
   

  
	
  Article
  III. Warranties Concerning the Transaction

  
	
   

  
	
  Section 3.1

  	
  Warranties
  of the Seller

  
	
  Section 3.2

  	
  Warranties
  of the Purchaser

  
	
   

  	
   

  
	
  Article
  IV. Warranties Concerning the Company

  
	
   

  
	
  Section 4.1

  	
  Organization,
  Qualification, and Corporate Power

  
	
  Section 4.2

  	
  Capitalization

  
	
  Section 4.3

  	
  Noncontravention

  
	
  Section 4.4

  	
  Licenses,
  Permits, and Authorizations

  
	
  Section 4.5

  	
  Directors
  and Officers

  
	
  Section 4.6

  	
  Brokers’
  Fees

  
	
  Section 4.7

  	
  Title
  to Assets

  
	
  Section 4.8

  	
  No
  Subsidiaries

  
	
  Section 4.9

  	
  Financial
  Statements

  
	
  Section 4.10

  	
  Recent
  Events

  
	
  Section 4.11

  	
  Undisclosed
  Liabilities

  
	
  Section 4.12

  	
  Legal
  Compliance

  
	
  Section 4.13

  	
  Tax
  Matters

  
	
  Section 4.14

  	
  Real
  Property

  
	
  Section 4.15

  	
  Intellectual
  Property

  
	
  Section 4.16

  	
  Company
  Licenses

  
	
  Section 4.17

  	
  Networks

  
	
  Section 4.18

  	
  Contracts

  
	
  Section 4.19

  	
  Powers
  of Attorney

  
	
  Section 4.20

  	
  Insurance

  
	
  Section 4.21

  	
  Litigation

  
	
  Section 4.22

  	
  Employees

  



 


i

















 


	
  Section 4.23

  	
  Employee
  Benefits

  
	
  Section 4.24

  	
  Guaranties

  
	
  Section 4.25

  	
  Environment,
  Health, and Safety

  
	
  Section 4.26

  	
  Certain
  Business Relationships with the Company

  
	
  Section 4.27

  	
  Unlawful
  Contributions

  
	
  Section 4.28

  	
  Antitrust

  
	
  Section 4.29

  	
  Money
  Laundering and Unlawful Financial Activities

  
	
   

  	
   

  
	
  Article
  V. Pre-Closing Covenants

  
	
   

  
	
  Section 5.1

  	
  General

  
	
  Section 5.2

  	
  Notices
  and Consents

  
	
  Section 5.3

  	
  Operation
  of Business

  
	
  Section 5.4

  	
  Participants
  Meeting; Amendments to Foundation Documents

  
	
  Section 5.5

  	
  Preservation
  of Business

  
	
  Section 5.6

  	
  Full
  Access

  
	
  Section 5.7

  	
  Notice
  of Developments

  
	
  Section 5.8

  	
  Exclusivity

  
	
  Section 5.9

  	
  Governmental
  Approval

  
	
  Section 5.10

  	
  Resignation
  from Corporate Bodies

  
	
  Section 5.11

  	
  Waiver
  of Pre-Emptive Rights

  
	
  Section 5.12

  	
  No
  Acceleration, No Payments

  
	
  Section 5.13

  	
  Retention
  of General Director

  
	
   

  	
   

  
	
  Article
  VI. Post-Closing Covenants

  
	
   

  
	
  Section 6.1

  	
  General

  
	
  Section 6.2

  	
  Litigation
  Support

  
	
  Section 6.3

  	
  Transition

  
	
  Section 6.4

  	
  Confidentiality

  
	
  Section 6.5

  	
  Covenant
  Not to Compete

  
	
   

  	
   

  
	
  Article
  VII. Conditions to Obligations

  
	
   

  
	
  Section 7.1

  	
  Conditions
  to Obligation of the Purchaser to Close

  
	
  Section 7.2

  	
  Conditions
  to Obligation of the Seller to Close

  
	
   

  	
   

  
	
  Article
  VIII. Remedies for Breaches of This Agreement

  
	
   

  
	
  Section 8.1

  	
  Survival
  of Warranties

  
	
  Section 8.2

  	
  Indemnification
  Provisions for Benefit of the Purchaser

  
	
  Section 8.3

  	
  Indemnification
  Provisions for Benefit of the Seller

  
	
  Section 8.4

  	
  Matters
  Involving Third Parties

  
	
  Section 8.5

  	
  Determination
  of Adverse Consequences

  
	
  Section 8.6

  	
  Exclusive
  Remedies

  
	
  Section 8.7

  	
  Miscellaneous

  
	
   

  	
   

  
	
  Article
  IX. Effectiveness and Termination

  
	
   

  
	
  Section 9.1

  	
  Effectiveness
  of Agreement

  
	
  Section 9.2

  	
  Termination
  of Agreement

  



ii

















 


	
  Section 9.3

  	
  Effect
  of Termination

  
	
   

  	
   

  
	
  Article
  X. Miscellaneous

  
	
   

  
	
  Section 10.1

  	
  Press
  Releases and Public Announcements

  
	
  Section 10.2

  	
  Entire
  Agreement

  
	
  Section 10.3

  	
  Succession
  and Assignment

  
	
  Section 10.4

  	
  Counterparts

  
	
  Section 10.5

  	
  Headings

  
	
  Section 10.6

  	
  Notices

  
	
  Section 10.7

  	
  Dispute
  Resolution

  
	
  Section 10.8

  	
  Governing
  Law

  
	
  Section 10.9

  	
  Judgment
  Currency

  
	
  Section 10.10

  	
  Third
  Party Beneficiaries

  
	
  Section 10.11

  	
  Amendments
  and Waivers

  
	
  Section 10.12

  	
  Remedies
  Cumulative

  
	
  Section 10.13

  	
  Severability

  
	
  Section 10.14

  	
  Expenses

  
	
  Section 10.15

  	
  Construction

  
	
  Section 10.16

  	
  Payment
  of Taxes

  
	
  Section 10.17

  	
  Incorporation
  of Exhibits, Annexes, and Schedules

  
	
  Section 10.18

  	
  Specific
  Performance

  



 


iii

















 


EXHIBIT INDEX


 


	
  Exhibit A

  	
  Escrow Agreement

  
	
   

  	
   

  
	
  Exhibit B-1

  	
  Form of Founding Agreement

  
	
   

  	
   

  
	
  Exhibit B-2

  	
  Form of Charter

  
	
   

  	
   

  
	
  Exhibit C

  	
  Company Participants’ Meeting Agenda

  
	
   

  	
   

  
	
  Exhibit D

  	
  Historical Financial Statements

  
	
   

  	
   

  
	
  Exhibit F

  	
  Form of Waiver

  
	
   

  	
   

  
	
  Exhibit G-1

  	
  Form of Seller’s Certificate

  
	
   

  	
   

  
	
  Exhibit G-2

  	
  Form of Purchaser’s Certificate

  
	
   

  	
   

  
	
  Exhibit H

  	
  List of Management

  
	
   

  	
   

  
	
  Disclosure Schedule

  	
  Exceptions to Warranties Concerning the Company

  



 


iv

















 


PARTICIPATION INTEREST PURCHASE AGREEMENT


 


This
PARTICIPATION INTEREST PURCHASE AGREEMENT (the “Agreement”) entered into
as of November 5, 2002, by and among Mobile TeleSystems OJSC, an open joint
stock company organized under the laws of the Russian Federation (the “Purchaser”);
and KPN Telecom B.V., a company organized under the laws of the Netherlands
(the “Seller”).  The Purchaser
and the Seller are referred to collectively herein as the “Parties.”


 


RECITALS


 


WHEREAS, the
Seller is currently one of the participants in the
Ukrainian-German-Dutch-Danish Joint Venture “Ukrainian Mobile Communications,”
(the “Company”), a company organized under the laws of Ukraine in the
form of a limited liability company, with its registered address at 21,
Moskovska Street, Kyiv, Ukraine, identification code #14333937 according to the
Uniform State Register of Enterprises and Organizations of Ukraine, whose
business includes, without limitation, the establishment and operation of
public cellular communications networks in Ukraine, as well as provision of
interregional and international communications services (the “Business”).
The Seller holds a participation interest equivalent to 15.33% of the
registered charter capital of the Company. The other participants of the
Company and their respective participation interests therein are as follows:
Open Joint Stock Company Ukrtelecom (51%), TDC Mobile International A/S
(16.33%), Cetel B.V. (16.33%) and PTT Telecom Kyiv (1.0%);


 


WHEREAS, concurrently with the entering into of this Agreement, (i) the
Purchaser will enter into a participation interest purchase agreement with the
Seller and PTT Telecom Kyiv for the purchase of a 100% participation interest
in PTT Telecom Kyiv (the “PTT Purchase Agreement”); (ii) the Purchaser
will enter into a participation interest purchase agreement with Cetel B.V. for
the purchase of a 16.33% participation interest in the Company (the “Cetel
Purchase Agreement”) and (iii) Cetel B.V. will enter into a participation
interest purchase agreement with Open Joint Stock Company Ukrtelecom for the
purchase of a 25% participation interest in the Company (the “Ukrtelecom
Purchase Agreement”), which Cetel B.V. will subsequently assign to the
Purchaser (collectively, the “Concurrent Purchase Agreements”);


 


WHEREAS, concurrently with the entering into of this Agreement, (i)
Cetel B.V. will enter into a put and call option agreement with Open Joint
Stock Company Ukrtelecom with regard to a 26% participation interest in the
Company (the “Ukrtelecom Option Agreement”), which Cetel B.V. will
subsequently assign to the Purchaser and (ii) the Purchaser will enter into a
put and call option agreement with TDC Mobile International A/S with regard to
a 16.33% participation interest in the Company (the “TDC Option Agreement”)
(collectively, the “Option Agreements”);


 


WHEREAS, concurrently with the entering into of this Agreement and the
Concurrent Purchase Agreements, (i) the Company and the Telki Holding Company
B.V. will enter into an amendment to the Credit Facility Agreement No.
CO1-97/UA, dated January 5, 1997; (ii) the Company and Telki Holding Company
B.V. will enter into an amendment to the Equipment and Service Credit Facility
Agreement No. W01-95/UA, dated November 1, 1995; (iii) the Company and Deutsche
Telekom AG will enter into an amendment to the Credit Facility Agreement No.
C02-97/UA, dated January 5, 1997; (iv) the Company and Deutsche Telekom AG will
enter into an amendment to the Equipment and


 


1

















 


Service Credit Facility Agreement No. W02-95/UA, dated November 1,
1995; (v) the Company and TDC Mobile International A/S will enter into an
amendment to the Credit Facility Agreement No. C03-97/UA, dated January 5,
1997; and (vi) the Company and TDC Mobile International A/S will enter into an
amendment to the Equipment and Service Credit Facility Agreement No. W03-95/UA,
dated November 1, 1995 (collectively, the “Debt Restructuring Agreements”),
each such amendment to become effective upon the Escrow Release;


 


WHEREAS, upon the completion of the transactions contemplated by this
Agreement and each Concurrent Purchase Agreement, the Purchaser will hold a
57.67% participation interest in the Company and a call option with regard to
the remaining 42.33% participation interest; and


 


WHEREAS, concurrent with the transactions described above, the Seller
desires to sell, assign and deliver to the Purchaser, and the Purchaser desires
to purchase and accept from the Seller, its 15.33% participation interest in
the Company (the “Participation Interest”) on the terms and subject to
the conditions set forth herein (the “Acquisition”).


 


AGREEMENT


 


NOW THEREFORE, in consideration of the foregoing and the respective
warranties covenants and agreements of the Parties contained herein, and for
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the Parties, intending to be legally bound, hereby agree
as follows:


 


ARTICLE I.

DEFINITIONS.


 


Section 1.1                                   Defined
Terms.  As used herein, the terms set forth below
shall have the following meanings.  Any
of such terms, unless the context otherwise requires, may be used in the
singular or plural, depending upon the reference.


 


“Acquisition” has the meaning given in the Recitals.


 


“Adverse Consequences” means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys’ fees and expenses.


 


“Affiliate” means any person that, directly, or indirectly
through one or more intermediaries, Controls, or is Controlled by, or is under
common Control with, the Person specified.


 


“Agreement” has the meaning given in the Preamble.


 


“Amended Organizational Documents” has the meaning given in
Section 2.4(ii).


 


“Amended Target Organizational Documents” means the founding
agreement and the charter of PTT approved at a participants’ meeting of PTT on
the Closing Date,


 


2

















 


amended in accordance with the
PTT Purchase Agreement such that the Purchaser becomes the sole participant in
PTT.


 


“Applicable Rate” means three (3) month US$ LIBOR.


 


“Basis” means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.


 


“Building” has the meaning given in Section 4.14.


 


“Business” has the meaning given in the Recitals.


 


“Business Day” means any day other than a Saturday or Sunday on
which banks in Moscow, Russia, are open for business and are not required or
authorized to close.


 


“Cetel Purchase Agreement” has the meaning given in the
Recitals.


 


“Charter” means the Charter of the Company, as it may be amended
from time to time and which is incorporated in the Founding Agreement and
constitutes an integral part thereof.


 


“Closing” has the meaning given in Section 2.3.


 


“Closing Date” has the meaning given in Section 2.3.


 


“Closing Participants’ Meeting” has the meaning given in Section
2.4(iii).


 


“Company” has the meaning given in the Recitals.


 


“Company Licenses” means, collectively, the licenses set forth
on Annex III attached hereto.


 


“Concurrent Purchase Agreements” has the meaning given in the
Recitals.


 


“Confidential Information” means any information concerning the
businesses and affairs of the Company or any of the transactions contemplated
by the Transaction Documents that is not already generally available to the
public.


 


“Control” means the power to direct the management or policies
of an entity, directly or indirectly, whether through the ownership of
securities, by contract or otherwise (which power shall be deemed to be held by
a Person with the direct or indirect ownership of (i) twenty-five percent (25%)
or more of the share capital of an entity with respect to the definition of
Control and/or Affiliate as used in Article IV hereof, and (ii) fifty percent
(50%) or more of the share capital of an entity with respect to the definition
of Control and/or Affiliate as used in this Agreement other than in Article
IV), and “Controlling” and “Controlled” have the corresponding meanings.


 


“Debt Restructuring Agreements” has the meaning given in the
Recitals.


 


“Disclosure Schedule” has the meaning given in the introductory
paragraph to Article IV.


 


3

















 


“Employee Benefit Plan” means any deferred compensation or
retirement plan or arrangement, contribution retirement plan or arrangement,
benefit retirement plan or arrangement, or any employee welfare benefit plan or
material fringe benefit plan or program.


 


“Environmental, Health, and Safety Laws” means all Ukrainian
Laws concerning pollution or protection of the environment, public health and
safety, or employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.


 


“Equipment” means all of the operating fixtures and equipment of
the Company, including, without limitation, any hardware or software component,
base stations, base station controllers, mobile switching centers, radio and
fiber optic transmission equipment, 
antennas, prepaid system, voicemail and short message service, and
support equipment for: activation and network management and network
activation, monitoring, security, performance management and billing equipment.


 


“Essential Equipment” has the meaning given in Section 4.17(i).


 


“Escrow Agent” means the Person jointly selected by the Seller
and the Purchaser who is or will be a party to the Escrow Agreement and will
serve such function and perform such services as provided therein.


 


“Escrow Agreement” has the meaning given in Section 2.6.


 


“Escrow Release” has the meaning given in Section 2.6.


 


“Financial Statements” has the meaning given in Section 4.9.


 


“Foundation Documents” means the Founding Agreement and the
Charter of the Company.


 


“Founding Agreement” means the Founding Agreement of the
Company, as it may be amended from time to time.


 


“Handsets” means the terminals sold or otherwise provided by the
Company to subscribers for using the Services.


 


“IFRS” means International Financial Reporting Standards,
consistently applied throughout the periods indicated.


 


“Indemnified Party” has the meaning given in Section 8.4.


 


“Indemnifying Party” has the meaning given in Section 8.4.


 


“Intellectual Property” means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all


 


4

















 


trademarks, service marks,
trade dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (d)
all mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all computer
software (including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form
or medium).


 


“Knowledge” means actual knowledge after reasonable
investigation and due inquiry.  For the
purposes of this definition, “due inquiry” shall be inquiry of the officers and
employees of the Company set for in Exhibit H.


 


“Leased Real Property” has the meaning given in Section 4.14.


 


“Liability” means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.


 


“Licensed IP Rights” has the meaning given in Section 4.15.


 


“Licenses” means each Company License and (a) any concession,
license, permit or franchise for the provision of, or acquisition,
construction, ownership, operation or other use of facilities relating to, (i)
public mobile telecommunications services or (ii) the interconnection of )
public mobile telecommunications services facilities with other
telecommunications facilities by microwave frequencies, fiber optic cable or
other means and (b) any material consent, certificate of compliance, approval
or authorization with respect to any such concession, license, permit or
franchise that, in the case of either clause (a) or (b) above, has been granted
or issued by the Ministry of Telecommunications of Ukraine, the State Committee
of Ukraine on Telecommunications and Information or any other governmental
entity.


 


“Most Recent Balance Sheet” means the balance sheet contained
within the Most Recent Financial Statements.


 


“Most Recent Financial Statements” has the meaning given in
Section 4.9.


 


“Most Recent Fiscal Month End” has the meaning given in Section
4.9.


 


“Most Recent Fiscal Year End” has the meaning given in Section
4.9.


 


“Network” means the Equipment and Software and, to the extent
used in the provision of the Services, the Owned Real Property, Sites and
Leased Real Property together with all interconnections between such components
or any such components and any other telecommunications system (whether by
microwave frequencies, fiber optic cable or other means, but excluding such as
used solely for the Company’s NMT 450i standard network)


 


5

















 


and any other interconnection
with other public telecom networks, to the extent such interconnections have
been configured, installed and operated by the Company.


 


“Obligation Currency” has the meaning given in Section 10.9.


 


“Ordinary Course of Business” means in the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).


 


“Owned IP Rights” has the meaning given in Section 4.15.


 


“Owned Real Property” has the meaning given in Section 4.14.


 


“Participation Interest” has the meaning given in the Recitals.


 


“Parties” has the meaning given in the Preamble.


 


“Person” means an individual, a partnership, a joint venture, a
corporation, a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).


 


“PTT” means PTT Telecom Kyiv, a limited liability company
organized under the laws of Ukraine.


 


“PTT Purchase Agreement” has the meaning given in the Recitals.


 


“Purchase Price” has the meaning given in Section 2.2.


 


“Purchaser” has the meaning given in the Preamble.


 


“Rules” has the meaning given in Section 10.7.


 


“Security Interest” means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic’s,
materialmen’s, and similar liens, (b) liens for Taxes not yet due and payable
or for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.


 


“Seller” has the meaning given in the Preamble.


 


“Services” has the meaning given in Section 4.17.


 


“Sites” means the places where the Equipment is located, and
related structures owned, leased or used by the Company at that location
including, civil infrastructure, towers, masts, shelters, electrical power,
heating and air conditioning.


 


“Software” means the computer programs and applications utilized
by the Company for the provision of Services including, without limitation, in
connection with the operation of the Network.


 


6

















 


“Subsidiary” means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the equity
interest or has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors.


 


“Tax” means any national, supranational, federal, state, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental, customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.


 


“Tax Return” means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.


 


“TDC Option Agreement” has the meaning given in the Recitals.


 


“Third Party Claim” has the meaning given in Section 8.4.


 


“Transaction Documents” mean, collectively, this Agreement, the
Escrow Agreement, the Concurrent Purchase Agreements, the Option Agreements,
the Debt Restructuring Agreements, and any agreement entered into to effect to
such agreements, and any and all other documents, agreements, instruments,
certificates, consents, waivers entered into or issued or to be entered into or
issued by the Company  or any of its
Participants in relation thereto or in connection with the consummation of the
Acquisition.


 


“UAC” means the Ukrainian Antimonopoly Committee or any
successor governmental entity thereto.


 


“Ukrainian Law” means any statute, law, ordinance, rule, code,
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, ruling, decree or other requirement of any Ukrainian governmental
authority.


 


“Ukrtelecom Option Agreement” has the meaning given in the
Recitals.


 


“Ukrtelecom Purchase Agreement” has the meaning given in the
Recitals.


 


ARTICLE II.

PURCHASE AND SALE OF PARTICIPATION INTEREST.


 


Section 2.1                                   Basic Transaction.


 


(i)                                     On and subject to the terms and
conditions of this Agreement, the Purchaser agrees to purchase from the Seller,
and the Seller agrees to sell and transfer to the Purchaser, all of the legal
and beneficial ownership in the Participation Interest for the consideration
specified below in this Article II.


 


(ii)                                  If, within the
three (3) month period immediately following the Closing Date, the Purchaser or
any Controlled Affiliate of the Purchaser sells a participation interest in the
Company, or all or subsantially


 


7

















 


all of the assets of the Company, for a price
based on a valuation higher than the valuation on which the Purchase Price has
been based, then the Purchaser shall pay to the Seller, on a bank account
designated by the Seller, within five (5) Business Days after the receipt of
information regarding such bank account from the Seller, an amount reflecting
the difference between the price that would have been payable had the higher
valuation been applied in determining the Purchase Price and (i) if the
commitment is made within the first month after the Closing Date, the Purchase
Price, (ii) if the commitment is made after the first month, but prior to the
end of the second month after the Closing Date, 105% (one hundred and five percent)
of the Purchase Price, (iii) if the commitment is made after the second month,
but prior to the end of the third month after the Closing Date, 110% (one
hundred and ten percent) of the Purchase Price, (iv) if the commitment is made
after the third month, but prior to the end of the fourth month after the
Closing Date, 115% (one hundred and fifteen percent) of the Purchase Price, (v)
if the commitment is made after the fourth month but prior to the end of the
fifth month after the Closing Date, 120% (one hundred and twenty percent) of
the Purchase Price, and (vi) if the commitment is made after the fifth month
but prior to the end of the sixth month after the Closing Date, 125% (one
hundred and twenty five percent) of the Purchase Price.


 


(iii)                               Within one week
after the three (3) months referred to under (ii) above, the Purchaser shall
give a notice to the Seller stating either that (a) neither the Purchaser nor
any of its Controlled Affiliates sold a participation interest in the Company,
or all or subsantially all of the assets of the Company, or (b) the Purchaser
or a Controlled Affiliate sold a participation interest in the Company, or all
or subsantially all of the assets of the Company, in which case such notice
shall include the valuation with regard to the price of such sale and the date
of the sale, together with all supporting documentation necessary to evidence
the price valuation and date of the sale (the “Transfer Notice”).


 


Section 2.2                                   Purchase Price. 
The purchase price to be paid by the Purchaser to the Seller for the
Participation Interest shall be equal to US$ 51,631,965 (the “Purchase Price”).  The Purchaser agrees, at Closing, to pay the
Purchase Price by delivery of cash in U.S. dollars to the Escrow Agent pursuant
to the Escrow Agreement as provided for in Section 2.6 hereof.  In case Ukrainian Law provides for the
payment in Ukrainian currency, the respective amount of Ukrainian currency
shall be calculated in accordance with the official exchange rate as
established by the Central Bank of the Ukraine on the Business Day such payment
is made.  The Purchaser may at its
option pay the Purchase Price to the Escrow Agent prior to Closing.


 


Section 2.3                                   The Closing. 
Subject to the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself), the closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at the offices of ING Barings
Kiev, located at 28 Kominterna
Street, 5th floor, 252032 Kiev, Ukraine, commencing at 9:00 a.m. local time on the date of the
Closing Participants Meeting (the “Closing Date”).


 


8

















 


Section 2.4                                   Transfer of the Participation
Interest.


 


(i)                                     The Seller hereby undertakes to
sell, transfer and assign to the Purchaser in accordance with the provisions of
this Agreement full legal and beneficial title to all, but not less than all,
of the Participation Interest, together with all rights connected with the
Participation Interest including the right to participate in any undistributed
profits attributable to the Participation Interest and not attributed before
signing this Agreement and all rights and obligations of a participant which
are connected with the ownership in the Participation Interest under Ukrainian
Law and in accordance with the Foundation Documents.


 


(ii)                                  The Purchaser
undertakes (A) to pay the Purchase Price in accordance with Section 2.2 of this
Agreement  and (B) to accept the sale
and assignment of the Participation Interest and of all rights and obligations
connected with the Participation Interest including the right to participate in
any undistributed profits attributable to the Participation Interest and all
rights and obligations of a participant which are connected with the ownership
in the Participation Interest under Ukrainian law and in accordance with the
Foundation Documents.


 


(iii)                               On the Closing Date, the Seller
shall convene and take part in participants’ meeting (the “Closing
Participants Meeting”) of the Company with such agenda as set forth in
Exhibit C, at which such meeting the Seller shall vote in favor of the amended
Founding Agreement and the Charter of the Company in the form of Exhibits B-1
and B-2 attached hereto (the “Amended Organizational Documents”) such
that the Purchaser, taking into consideration its direct and indirect
participation, becomes the majority participant in the Company.


 


(iv)                              The title to the Participation
Interest is transferred to the Purchaser upon registration of, and shall be
confirmed by a notarized copy of, the Amended Organizational Documents, fully
registered as necessary under Ukrainian Law.


 


(v)                                 The Seller shall execute all de facto and legally required actions
and shall submit to the Purchaser all documents necessary for the transfer of
the Participation Interest and the official recording of the Purchaser’s
ownership of the Participation Interest in accordance with Ukrainian Law. The
Seller shall bear all costs associated therewith.


 


(vi)                              The Parties shall cooperate for the
completion of all formalities related to the transfer of the Participation
Interest and agree, that from time to time each Party shall consider and sign
any document necessary in order to support the due and effective execution of
this Agreement.


 


Section 2.5                                   Deliveries at the Closing. 
At the Closing, (i) the Seller will deliver to the Purchaser the various
certificates, instruments, and documents referred to in Section 7.1 hereof,
(ii) the Purchaser will deliver to the Seller the various certificates,
instruments, and documents referred to in Section 7.2 hereof, (iii) the Seller
will deliver to the Purchaser a notarized copy of a protocol of the Closing
Participants’ Meeting approving the Amended Organizational Documents, and (iv)
the Purchaser will deliver to the Seller the consideration specified in Section
2.2 hereof in accordance with Section 2.6 hereof.


 


9

















 


Section 2.6                                   Escrow Agreement. 
The Seller shall enter into an escrow agreement, substantially in the
form of Exhibit A hereto (the “Escrow Agreement”), with the Purchaser
and the Escrow Agent pursuant to which the Purchase Price shall be held in
escrow and, pursuant to Section 2.7, released to the Seller in accordance with
the terms thereof in the event of the registration of the Amended Foundation
Documents, as necessary under Ukrainian Law. 
Such time as the Purchase Price is released to the Seller in accordance
with the terms of the Escrow Agreement shall be referred to herein as the “Escrow
Release.”


 


Section 2.7                                   Return of Purchase Price. 
In the event that the registration of the Amended Organizational
Documents, as necessary under Ukrainian Law, has not occurred within thirty
(30) calendar days of the Closing Date, then (i) the Escrow Agent shall deliver
to the Purchaser the balance of the Purchase Price plus any accrued interest
thereon in accordance with the Escrow Agreement, and the Purchaser’s obligation
to pay the Purchase Price shall terminate; (ii) the Seller’s obligation to
transfer the Participation Interest shall terminate.


 


ARTICLE III.

WARRANTIES CONCERNING THE TRANSACTION.


 


Section 3.1                                   Warranties of the Seller. 
The Seller warrants to the Purchaser that the statements contained in
this Section 3.1 are true, accurate and not misleading as of the date of this
Agreement and will be true, accurate and not misleading as of the Closing Date
(and to that end shall be deemed repeated again at such date, as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3.1).


 


(i)                                     Organization.  The Seller is duly organized, validly
existing, and in good standing under the laws of its respective jurisdiction of
incorporation.


 


(ii)                                  Authorization of
Transaction.  The Seller has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Seller, enforceable against the Seller in
accordance with its terms and conditions. 
The Seller has given all notices and received all authorizations,
consents, or approvals of any government or governmental agency necessary in
order to execute this Agreement and will at the Closing have given or received
such notices, authorizations, consents, or approvals necessary to consummate
the transactions contemplated by this Agreement.


 


(iii)                               Noncontravention.  Neither the execution and the delivery of this
Agreement, nor the consummation of the Acquisition contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or any provision
of their respective foundation, charter or other organizational documents or
(B) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a party or by
which the Seller bound or to which any of its assets is subject to


 


10

















 


the
extent that any of the foregoing events would affect the Seller’s ownership in
the Company or negatively affect consummation of the Acquisition.


 


(iv)                              Brokers’ Fees.  The Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Purchaser or the
Company could become liable or obligated.


 


(v)                                 Ownership of Participation
Interest.  The Seller holds of record
and owns beneficially the Participation Interest, free and clear of any
restrictions on transfer (other than any restrictions under applicable law),
Taxes, security interests, mortgages, pledges, liens, encumbrances, charges, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. The Seller is not a party to any option, warrant, purchase right, or
other contract or commitment that could require the Seller to sell, transfer,
or otherwise dispose of any charter capital of the Company (other than this
Agreement). The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any charter capital of
the Company.


 


(vi)                              Transfer Taxes.  No capital, transfer, stamp duty, stamp duty
reserve or documentary, issuance or transfer taxes or duties are payable by or
on behalf of the Company on (A) the sale, transfer or delivery by the Seller of
the Participation Interest pursuant hereto or the sale thereof, or (B) the
consummation of the transactions contemplated by this Agreement.


 


Section 3.2                                   Warranties of the Purchaser. 
The Purchaser warrants to the Seller that the statements contained in
this Section 3.2 are true, accurate and not misleading as of the date of this
Agreement and will be true, accurate and not misleading as of the Closing Date
(and to that end shall be deemed repeated again at such  date, as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3.2).


 


(i)                                     Organization of the Purchaser.  The Purchaser is an open joint stock company
duly organized and validly existing under the laws of the jurisdiction of its
incorporation.


 


(ii)                                  Authorization of Transaction.  The Purchaser has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the legally valid and binding obligation of the Purchaser, enforceable in
accordance with its terms and conditions. As of the Closing Date only, the
Purchaser need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.


 


(iii)                               Noncontravention.  Neither the execution and the delivery of
this Agreement, nor the consummation of the Acquisition contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Purchaser is


 


11

















 


subject
or any provision of its foundation document, charter, bylaws or other organizational
document or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Purchaser is a party or by which it is bound or to which any of its assets
is subject to the extent that any of the foregoing events would negatively
affect the consummation of the Acquisition.


 


(iv)                              Brokers’ Fees.  The Purchaser has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Seller could become
liable or obligated.


 


ARTICLE IV.

WARRANTIES CONCERNING THE COMPANY.


 


The Seller warrants to the Purchaser that the statements contained in
this Article IV are true and accurate and not misleading as of the date of this
Agreement and will be true and accurate and
not misleading as of the Closing Date (and to that end shall be deemed
repeated again at such date, as though the Closing Date were substituted for
the date of this Agreement throughout this Article IV), except (i) in case the
Closing Date has not occurred until 180 days after the date of this Agreement,
the statements contained in Section 4.4 through Section 4.29 will only be true
and accurate and not misleading
as of the 180th day after the date of this Agreement (and to that
end shall be deemed repeated again on the 180th day, as though the
such 180th day was substituted for the date of this Agreement
throughout this Article IV), (ii) as fairly disclosed and set forth in the
disclosure schedule delivered by the Seller to the Purchaser on the date hereof
and initialed by the Parties (the “Disclosure Schedule”), and (iii) to
the extent such warranty shall be true as of a specific date, in which case
such warranty shall be true as of such specified date. Nothing in the
Disclosure Schedule relating to this Article IV shall be deemed adequate to
disclose any exception to a warranty made herein unless the Disclosure Schedule
identifies the exception with particularity and describes the relevant facts in
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate
to disclose an exception to a warranty made herein (unless the warranty relates
specifically to the existence of the document or other item itself). The
Disclosure Schedule will be arranged in numbered schedules corresponding to the
corresponding sections contained in this Article IV.


 


Section 4.1                                   Organization, Qualification, and
Corporate Power.  The Company is a legal entity duly organized
and validly existing under the Ukrainian Law. The Company is duly authorized to
conduct business under the Ukrainian Law. The Seller has delivered to the
Purchaser correct and complete copies of the Foundation Documents (as amended
to date). The Seller has delivered to the Purchaser complete and correct copies
of the minute books (containing the records of meetings of the participants
(also referred to as the “Board” in the Foundation Documents) and the board of
directors and the management of the Company). The Company is not in default
under or in violation of any provision of its Foundation Documents. The Company
has full corporate power and authority necessary to carry on the Businesses and
to own and use the properties and assets owned and used by it.


 


12

















 


Section 4.2                                   Capitalization. 
The entire registered authorized charter capital of the Company consists
of 781,662,169,174 “Units of Ukrainian Currency,” defined in the Foundation
Documents as “one ruble or the equivalent of any future Ukrainian currency”
(currently 7,816,621.69 Ukrainian hryvnia). The Participation Interest has been
validly registered, fully paid, and is held of record by the Seller, and
neither the Company nor any current or past participant of the Company nor any
third party has the right to demand any further payment or contribution with
respect thereto. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights (other than as
contained in the Debt Restructuring Agreements), exchange rights, or other
contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its charter capital. There are no
outstanding profit participation or similar rights with respect to the Company.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the charter capital of the Company other than provided
for in this Agreement and/or the Foundation Documents.


 


Section 4.3                                   Noncontravention. 
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby (excluding those
transactions contemplated in the agreements, other than this Agreement, listed
in the Recitals hereto and to which the Seller is not a party), will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of its Foundation Documents, or (ii) conflict with, result in a breach of,
constitute a default under, result in the early redemption of, create in any
party the right to redeem early, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Except as contemplated in this Agreement, the
Company need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the consummation of the transactions contemplated by this Agreement
(excluding those transactions contemplated in the agreements, other than this
Agreement, listed in the Recitals hereto and to which the Seller is not a
party).


 


Section 4.4                                   Licenses, Permits, and
Authorizations


 


The Company has all material licenses, permits, and authorizations
necessary to carry on the Business and to own and use the material properties
and assets owned and used by it. As used in this Section 4.4, “material
properties and assets” means any property and/or asset that, either
individually or together with a group of related properties and/or assets, as
applicable, is material to the operation of the Business.


 


Section 4.5                                   Directors and Officers


 


Schedule 4.5 of the Disclosure Schedule lists the directors and
officers of the Company as of the date of this Agreement.


 


Section 4.6                                   Brokers’ Fees. 
The Company has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.


 


13

















 


Section 4.7                                   Title to Assets. 
The Company owns and has the right to possess, use and alienate the
properties and assets used by it, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests,
except for (i) properties and assets disposed of in the Ordinary Course of
Business since the date of the Most Recent Balance Sheet and (ii) properties
and assets encumbered with Security Interests in the Ordinary Course of
Business.


 


Section 4.8                                   No Subsidiaries. 
The Company has established branches (in Russian “Filiatsi”) and territorial divisions (in
Russian “Teritorialnie Upravlenia”) on the territory of Ukraine, and the Company has no
ownership or equity interest whatsoever in any Person, nor any purchase or
other commitments which would result in any such ownership or equity interest.


 


Section 4.9                                   Financial Statements. 
Attached hereto as Exhibit D are the following financial statements
(collectively the “Financial Statements”): (i) audited balance sheets
and statements of income, changes in shareholders’ equity, and cash flow as of
and for the fiscal years ended December 31, 1999, December 31, 2000, and
December 31, 2001 (the “Most Recent Fiscal Year End”) for the Company;
and (ii) unaudited balance sheets and statements of income, changes in
shareholders’ equity, and cash flow (the “Most Recent Financial Statements”)
as of and for the six months ended June 30, 2002 (the “Most Recent Fiscal
Month End”) for the Company. Except as set forth in Schedule 4.9, the
Financial Statements (including the notes thereto) have been prepared in
accordance with IFRS applied on a consistent basis throughout the periods
covered thereby, present fairly the financial condition of the Company as of
such dates and the results of operations of the Company for such periods are
correct and complete.


 


Section 4.10                            Recent Events. 
Since the Most Recent Fiscal Month End until the Closing Date, there has
not been any material adverse change in the business, financial condition,
operations or results of operations of the Company. Without limiting the
generality of the foregoing, during that period:


 


(i)                                     the Company has not sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other than
at arm’s length or in the Ordinary Course of Business;


 


(ii)                                  the Company has not entered into any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) either involving more than US$100,000 or
outside the Ordinary Course of Business;


 


(iii)                               no party (including the Company) has
redeemed early, terminated, modified, or cancelled any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) involving more than US$100,000 to which the Company is a party or by
which it is bound;


 


(iv)                              the Company has not imposed any
Security Interest upon any of its assets, tangible or intangible, other than in
the Ordinary Course of Business;


 


14

















 


(v)                                 the Company has not made any capital
expenditure (or series of related capital expenditures) either involving more
than US$100,000 or outside the Ordinary Course of Business;


 


(vi)                              the Company has not made any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than US$100,000 or outside the Ordinary
Course of Business;


 


(vii)                           the Company has not issued any note,
bond, or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation involving more
than US$100,000 or outside the Ordinary Course of Business;


 


(viii)                        the Company has not delayed or
postponed the payment of accounts payable and other Liabilities with a value
greater than US$100,000 or outside the Ordinary Course of Business;


 


(ix)                                the Company has not cancelled,
compromised, waived, or released any right or claim (or series of related
rights and claims) either involving more than US$100,000 or outside the
Ordinary Course of Business;


 


(x)                                   the Company has not granted any
license or sublicense of any rights under or with respect to any Intellectual
Property, other than at arm’s length or in the Ordinary Course of Business;


 


(xi)                                except as otherwise contemplated by
the Transaction Documents, there has been no change made or authorized in the
Foundation Documents of the Company;


 


(xii)                             the Company has not issued, sold, or
otherwise disposed of any of its charter capital, or granted any options, or
other rights to purchase or obtain (including upon conversion, exchange, or
exercise) any participation interest in respect of its charter capital;


 


(xiii)                          the Company has not declared, set aside,
or paid any dividend or made any distribution with respect to any participation
interests in respect of its charter capital (whether in cash or in kind) or
redeemed, purchased, or otherwise acquired any such participation interest;


 


(xiv)                         except for customary wear and tear,
the Company has not experienced any damage, destruction, or loss (whether or
not covered by insurance) to its property;


 


(xv)                            the Company has not made any loan
to, or entered into any other transaction with, any of its directors, officers,
and employees other than in the Ordinary Course of Business;


 


(xvi)                         the Company has not entered into any
employment contract with an annual base salary in excess of US$50,000 or any
collective bargaining agreement, written or oral, or modified the terms of any
existing


 


15

















 


such
contract or agreement involving a change of more than US$50,000 or outside the
Ordinary Course of Business;


 


(xvii)                      the Company has not granted any
increase in the base compensation of any of its directors, officers, and
employees outside the Ordinary Course of Business;


 


(xviii)                   the Company has not adopted,
amended, modified, or terminated any bonus, profit-sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to
any other Employee Benefit Plan) involving a change of more than US$50,000 or
outside the Ordinary Course of Business;


 


(xix)                           the Company has not made any other
material change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business;


 


(xx)                              the Company has not made or pledged
to make any charitable or other capital contribution outside the Ordinary
Course of Business; and


 


(xxi)                           the Company has not committed to any
of the foregoing.


 


If, during the period between the date of this Agreement and the
Closing Date, an event occurs or might occur that would result in a breach of
one or more warranties set forth in this Section 4.10, then the Seller may
disclose such event to the Purchaser; provided,
however, that any such disclosure
shall not modify any of the warranties given hereunder except to the extent the
Purchaser has given its prior written approval to the specific actions of the
Company and/or the Seller giving rise to such events and specifically waiving
and/or specifically modifying the Purchaser’s rights hereunder.  To that end, the Seller shall have the right
to submit a written request to the Purchaser, in accordance with Section 10.7,
that the Purchaser give its prior written consent to the specific actions of
the Company and/or the Seller that will or may result in the breach of a
warranty set forth in this Section 4.10 and specifically waive and/or
specifically modify the Purchaser’s rights hereunder.  In the event and to the extent that the Purchaser shall grant its
prior written consent and/or waive and/or modify its rights hereunder pursuant
to the Seller’s request, then the Seller and/or the Company, as applicable, may
proceed with the specific actions set forth in the written request; provided, however,
that the Purchaser shall be deemed to have given its prior consent to such
actions if the Purchaser fails to consent or object to such actions within ten
(10) Business Days after the Purchaser receives Seller’s written request
therefor.  In the event that the
Purchaser denies the Seller’s request within ten (10) Business Days after its
receipt thereof, then the Seller and/or the Company, as applicable, shall not
proceed with the specific actions set forth in such request.


 


16

















 


Section 4.11                            Undisclosed Liabilities. 
Except for Liabilities set forth in Schedules 4.9 and 4.13, the Company
does not have any Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against the Company giving rise to any Liability), except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet (rather than
in any notes thereto) and (ii) Liabilities which have arisen after the Most
Recent Fiscal Month End in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law).


 


Section 4.12                            Legal Compliance. 
The Company has complied in all material respects with applicable
Ukrainian Law, and the Company has not received notice of any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
that has been filed or commenced against it alleging any failure to so comply.


 


Section 4.13                            Tax Matters.


 


(i)                                     Since January 1, 1999, the Company
has filed all Tax Returns that it was required to file in Ukraine. All such Tax
Returns were correct and complete in all material respects as required under
Ukrainian Law. Since January 1, 1999, all Taxes due and payable by the Company
(whether or not shown on any Tax Return) have been paid (other than those Taxes
that it is contesting in good faith and by appropriate proceedings). Other than
in the Ordinary Course of Business, the Company currently is not the
beneficiary of any extension of time within which to file any Tax Return in
Ukraine. No claim has ever been made by an authority in a jurisdiction where
the Company does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Security Interests on any of the assets of
the Company that arose in connection with any failure (or alleged failure) to
pay any Tax.


 


(ii)                                  The Company has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, shareholder,
or other third party.


 


(iii)                               Except for those Taxes that it is
contesting in good faith and by appropriate proceedings, the Company does not
expect any Ukrainian authority to assess any additional Taxes for any period
for which Tax Returns have been filed. There is no dispute or claim in Ukraine
concerning any material Tax Liability of the Company claimed or raised by any
Ukrainian authority in writing. Schedule 4.13 of the Disclosure Schedule lists
all Tax Returns filed by the Company for taxable periods ended on or after
December 31, 2000, and indicates those Tax Returns that have been audited, and
those Tax Returns that currently are the subject of audit. The Seller has
delivered to the Purchaser correct and complete copies of all income (profit)
Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Company since December 31, 2000.


 


(iv)                              The Company has not waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.


 


17

















 


(v)                                 The Company is not a party to any
Tax allocation or sharing agreement, nor does it have any Liability for the
Taxes of any Person (other than the Company), as a transferee or successor, by
contract, or otherwise.


 


(vi)                              The unpaid Taxes of the Company in
Ukraine (A) did not, as of the Most Recent Fiscal Month End, exceed the reserve
for Tax Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set out in the Most
Recent Balance Sheet and (B) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns.


 


Section 4.14                            Real Property.


 


(i)                                     Schedule 4.l4(i) of the Disclosure
Schedule lists and briefly describes all of the buildings in which the Company
has an ownership interest and in which the book value as per the Most Recent
Balance Sheet exceeded an equivalent of US$500,000. The buildings listed on
Schedule 4.14(i) (“Buildings”), along with the buildings housing base
stations, switches or other equipment material to the operation of the
Business, taken as a whole, are referred to herein as “Owned Real Property.”
With respect to the Owned Real Property:


 


(A)                              the Company owns and has the right
to possess, use and alienate the Owned Real Property, and the Owned Real
Property is held free and clear of any Security Interest and other restrictions
which would impair the current use;


 


(B)                                there are no pending or, to the
Knowledge of the Seller, threatened, condemnation proceedings, lawsuits, or
administrative actions relating to any of the Owned Real Property or other
matters affecting materially and adversely the current use thereof;


 


(C)                                each Building, and the buildings
housing base stations, switches or other equipment material to the operation of
the Business, taken as a whole, has received all material approvals of
governmental authorities required in connection with the ownership or operation
thereof and has been operated and maintained in accordance with all material
applicable laws, rules, and regulations. In the context of the foregoing, the
term “material” does not include such approvals, licenses or permits that are
of a routine or minor nature and that are customarily granted in due course
after proper application therefor;


 


(D)                               there are no leases, subleases, or
other agreements, written or oral, granting to any party or parties the right
of use or occupancy of any portion of the Buildings, or the buildings housing
base stations, switches or other equipment material to the operation of the
Business, taken as a whole (or a portion thereof as the case may be), to which
the Company has an ownership interest, except to the extent that the


 


18

















 


current
use of the building (or a portions thereof as the case may be) would not be
materially impaired thereby;


 


(E)                                 there are no outstanding options or
rights of first refusal to purchase any Building, or the buildings housing base
stations, switches or other equipment material to the operation of the
Business, taken as a whole, or any portion thereof or interest therein; and


 


(F)                                 there are no parties (other than the
Company) in possession of any Building, or the buildings housing base stations,
switches or other equipment material to the operation of the Business, taken as
a whole, except to the extent that the current use of such Building or
buildings comprising the Owned Real Property would not be materially impaired
thereby.


 


(ii)                                  Schedule 4.l4(ii) of the Disclosure
Schedule lists and briefly describes all of the premises leased or subleased to
the Company and under which the annual lease or sublease payments by the
Company exceed an equivalent of US$50,000. The buildings listed on Schedule
4.14(ii), along with the buildings housing base stations, switches or other
equipment material to the operation of the Business, taken as a whole, are
referred to herein as “Leased Real Property.” With respect to the Leased
Real Property:


 


(A)                              the lease or sublease is legally
valid, binding and enforceable, and in full force and effect;


 


(B)                                the lease or sublease will continue
to be legally valid, binding and enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby;


 


(C)                                the Company is not in breach of, and
the Company has not received any notice that any third party is in breach of,
the lease or sublease, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination, modification,
or acceleration thereunder;


 


(D)                               the Company has not repudiated, nor
has the Company received any notice that any third party has repudiated, any
provision of the lease or sublease;


 


(E)                                 with respect to each sublease, the
Company has not received any notice indicating that any of the warranties set
forth in subsections (A) through (D) above are untrue, inaccurate or misleading
with respect to the underlying lease;


 


(F)                                 all of the Leased Real Property has
received all material approvals of governmental authorities required in
connection with the leasing or operation thereof and has been operated and
maintained in accordance with all material applicable laws, rules, and
regulations. In the context of the foregoing, the term “material” does not
include such approvals, licenses or permits that are of a routine or minor
nature and


 


19

















 


that
are customarily granted in due course after proper application therefor.


 


(iii)                               The Company does not directly or
indirectly own any land.


 


Section 4.15                            Intellectual Property.


 


(i)                                     The Company owns or has the right to
use pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the Business of the Company as
presently conducted. Each item of Intellectual Property owned or used by the
Company immediately prior to the Closing hereunder will be owned or available
for use by the Company on identical terms and conditions immediately subsequent
to the Closing hereunder. Schedule 4.15(iii) of the Disclosure Schedule lists
each such item of Intellectual Property owned by the Company (the “Owned IP
Rights”), and Schedule 4.15(iv) of the Disclosure Schedule lists each such
item of Intellectual Property leased by the Company (the “Licensed IP Rights”).


 


(ii)                                  The Company has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and the Company has never
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of the Seller, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Company.


 


(iii)                               With respect to each item of the
Owned IP Rights:


 


(A)                              the Company has taken all necessary
action to maintain and protect each item of the Owned IP Rights;


 


(B)                                the Company possesses all right,
title, and interest in and to the item, free and clear of any Security
Interest, license or other permission to use, or other restriction;


 


(C)                                the item is not subject to any
outstanding injunction, judgment, order, decree, or ruling;


 


(D)                               no action, suit or proceeding is
pending or, to the Knowledge of the Seller is threatened, which challenges the
legality, validity, enforceability, use, or ownership of the item; and


 


(E)                                 the Company has not agreed to
indemnify any Person for or against any infringement or misappropriation with
respect to the item.


 


(iv)                              With respect to each item of the
Licensed IP Rights:


 


20

















 


(A)                              the Company possesses all right,
title, and interest in and to the item free and clear of any Security Interest,
license, or other restriction;


 


(B)                                the item is not subject to any
outstanding injunction, judgment, order, decree, or ruling;


 


(C)                                no action, suit or proceeding is
pending or, to the Knowledge of the Seller is threatened, which challenges the
legality, validity, enforceability, use, or ownership of the item; and


 


(D)                               the Company has not agreed to
indemnify any Person for or against any infringement or misappropriation with
respect to the item.


 


Section 4.16                            Company Licenses.


 


(i)                                     Schedule 4.16(i) of the Disclosure
Schedule lists all of the licenses necessary to build, own and operate a mobile
cellular communications network and to provide telecommunications services
related thereto (the “Company Licenses”), and with respect to each such
Company License, such Schedule sets forth the following information, as
applicable: the type of Company License, the name, the issuer and number of the
license, the frequency standard, the date of issue and term of the license, the
region and/or city covered by the license, the frequency or frequencies
authorized or reserved and the bandwidth.


 


(ii)                                  The Company (A) has paid all fees
and charges imposed by any Ukrainian governmental entity which have become due
and payable with respect to the Company Licenses and (B) has made appropriate
provision in the Financial Statements as is required by IFRS, as the case may
be, for any such fees and charges which were accrued and unpaid on the
respective dates of such Financial Statements.


 


(iii)                               The Company has filed or otherwise
submitted all registrations, applications or other filings, reports and other
documents required under applicable Ukrainian Law by the Ministry of
Telecommunications of Ukraine and the State Committee of Ukraine on
Telecommunications and Information and any other governmental entity regulating
the operation of telecommunication services related to the Company Licenses.


 


(iv)                              (A) each Company License issued to
the Company is valid and in full force and effect, (B) no event has occurred
and is continuing which could result in the revocation, termination or adverse
modification of any Company License, (C) the Company is not in default under or
in breach of any of the terms and conditions of any Company License, including
without limitation any obligation to exploit any Company License, and (D) the
Seller has no reason to believe that any such breach or default (or any event
which could result in such breach or default) has occurred.


 


(v)                                 The Company has not been subject to
any cancellation of frequencies with respect to any Company License.


 


21

















 


(vi)                              No material (A) License from, (B)
consent of, (C) filing with, (D) authorization or (E) other action of, the
Ministry of Telecommunications of Ukraine, the State Committee of Ukraine on
Telecommunications and Information or any other governmental entity is required
to be received, made or filed by, or taken on behalf of, the Company with
respect to the Network or the operation of the Business or the Company’s
provision of the Services other than those that have already been received,
made or filed by, or taken on behalf of, the Company, or those that the Company
has timely and duly filed for upon a change in Ukrainian Law since the date
hereof, with respect to the Network or the operation of the Business or the
Company’s provision of the Services.


 


(vii)                           The Seller has provided to the
Purchaser correct and complete copies of all of the Company Licenses.


 


Section 4.17                            Networks.


 


(i)                                     The Company operates an analog
network of NMT 450i standard and a digital mobile network of GSM 900/1800
standard which are capable of providing service coverage to areas where
approximately 65% of the population of Ukraine lives, with a dedicated
interface signaling, voice and data backbone network to support hand-off
capabilities. The Network provides the following services to subscribers in
covered areas with telephone interconnect, including basic voice services,
mobile terminated short messaging service, voice mail, call forwarding, call
waiting, call forward unconditional, call forward busy, call forward no answer,
call number identity presentation, call number identity restricted, hot line,
do not disturb, three party calling, direct dial long-distance/international
calling, automatic call delivery, automatic short message delivery with SMPP
Interface, and voice-mail deposit and retrieval. The respective manufacturers
of the Equipment have warranted to the Company that the Equipment has the
capability to provide packet data and asynchronous data. (All of the foregoing,
the “Services”.) The Network includes the essential types of Equipment
listed in Schedule 4.17(i) of the Disclosure Schedule (the “Essential
Equipment”) and is located on appropriate premises.


 


(ii)                                  The Network is in all material
respects in compliance with all material standards imposed by Ukrainian Law to
the extent necessary to provide the services and have passed acceptance tests
under the standards specified in the documents evidencing final acceptance
except where such final acceptance documents indicate otherwise.


 


(iii)                               The Network has been operated and
maintained in all material respects in accordance with the instructions of the
manufacturers/providers of the Equipment and the Software and meets in all
material respects the functionalities and existing specifications. Each piece
of the Essential Equipment and Software in the Network is materially compatible
with each other piece of Essential Equipment and Software in the Network.


 


(iv)                              The Network is designed, deployed,
operated, managed and maintained to provide and is capable of providing outdoor
services in the


 


22

















 


coverage
areas described in the maps set out in Schedule 4.17(iv) of the Disclosure
Schedule that permit a subscriber to maintain communication 90% of the time in
90% of those locations in Ukraine where coverage is indicated in the map.


 


(A)                              In a drive test conducted by the
Company on 15 June 2002, 98% of the measurements as reported in the test data
showed a signal power of at least 90 dbm and 94.4% the measurements showed GSM
quality of at least BER3.


 


(B)                                Access failure rate of the Network
based upon data compiled from the switch and processed by management of the
Company for the last week of June 2002, the overall access failure rate of the
Network averaged 6%, measured by one day’s (Wednesday) average of call
attempts.


 


(C)                                Interconnection blocking rate
(interconnections from base stations to public networks) based upon data compiled
from the switch and processed by the management of the Company for the last
week of June 2002, the overall interconnection blocking rate averaged 1%,
measured by one day’s (Wednesday) average of call attempts.


 


(D)                               Drop calls rate based upon data
compiled from the drive test and processed by the management of the Company for
the last week of June 2002, the overall drop calls rate averaged 2.5%, measured
by the week’s average of connected calls.


 


(v)                                 The Network, as a whole, is designed
to operate properly under a loading of traffic of approximately 1.2 million
subscribers without material service interruptions.  As of the date of this Agreement, Network congestion is
significant.


 


(vi)                              The Network is interconnected,
directly or indirectly, with the public switched fixed and mobile networks set
forth in Schedule 4.17 of the Disclosure Schedule.


 


(vii)                           “Network Management Reports” have
been produced by the Company since October 1997. These reports are used by
management in its evaluation of the Network and set forth the Network’s main
operating parameters reported by the operation and management software and
other report generating tools used by the Company in the Ordinary Course of
Business.


 


(viii)                        The Company has the information
systems necessary to support the provision of Services to customers, including,
without limitation, the initial delivery of Services, tarification (correctly
collecting, computing and transcribing operating data in accordance with
applicable tariffs, including, without limitation, correctly applying the
tarification standards established in Ukraine for the interconnection
agreements with the other public networks in Ukraine), billing, and other
customer services.


 


23

















 


(ix)                                The Network supervisory and
management systems achieve the basic level of functionality required for
monitoring, fault management, configuration, accounting, efficiency and
security with respect to the operation of the Network.


 


(x)                                   The sites for Equipment contain the
power, heating and cooling capabilities and similar improvements necessary for
the proper operation and maintenance of the Network at each such site that is
required for the Network. They are in compliance in all material respects with
the rules and standards generally accepted in the wireless industry in Ukraine.


 


(xi)                                To the Knowledge of the Seller, the
Handsets purchased by the Company and used in the Business are compatible with
the Equipment installed and the Network features. To the Knowledge of the Seller,
the handset stocks are in good working order and proposed to be distributed and
sold under commercial or promotional plans of the Company.


 


Section 4.18                            Contracts. 
Schedule 4.18 of the Disclosure Schedule lists the material contracts
and other agreements to which the Company is a party, including:


 


(i)                                     agreements (or group of related
agreements) for the lease of personal property to or from any Person providing
for lease payments in excess of US$100,000  per
annum;


 


(ii)                                  agreements (or group of related
agreements) for the purchase or sale of raw materials, commodities, supplies,
products, or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one
year from the date of this Agreement, result in a loss to the Company, or
involve consideration in excess of US$150,000;


 


(iii)                               agreements concerning a partnership
or joint venture;


 


(iv)                              agreements (or group of related
agreements) under which the Company has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, in excess of US$200,000 or under which it has imposed a Security
Interest on any of its assets, tangible or intangible in excess of US$200,000;


 


(v)                                  agreements concerning
confidentiality or noncompetition;


 


(vi)                              agreements with the Seller and its
Affiliates (other than the Company);


 


(vii)                           profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation, severance, or other plans
or arrangements for the benefit of its current or former directors, officers,
and employees;


 


(viii)                        collective
bargaining agreements;


 


24

















 


(ix)                                agreements for the employment of any
individual on a full-time, part-time, consulting, or other basis providing
annual compensation in excess of US$50,000 or providing severance benefits;


 


(x)                                   agreements under which it has
advanced or loaned any amount to any of its directors, officers, and employees
outside the Ordinary Course of Business;


 


(xi)                                agreements which prohibit or
restrict the Company from engaging in the Business as it is now being
conducted, including, without limitation, any Contract that imposes any
exclusivity requirements on the Company, that is material to the conduct of the
Business;


 


(xii)                             agreements pursuant to which the
Company may enforce warranty or similar obligations against manufacturers or
other providers of Equipment or Software which Equipment or Software has a
value in excess of US$200,000;


 


(xiii)                          agreements that involve amounts in
excess of US$200,000 where (i) the obligations of the Company have not been
performed or (ii) the performance or other obligations of which, are not
reflected in the Financial Statements of the Company;


 


(xiv)                         human resources software and billing
software agreements;


 


(xv)                            distribution agreements that involve
amounts in excess of US$200,000 per annum or the performance of which will
extend over a period of more than one year from the date of this Agreement;


 


(xvi)                         handset supplier agreements and
other related contracts that involve amounts in excess of US$100,000;


 


(xvii)                      advertising agreements which involve
annual payments which aggregate more than US$100,000;


 


(xviii)                    agreements which guarantee the
performance of obligations of third-parties in excess of US$200,000;


 


(xix)                           interconnection contracts;


 


(xx)                              agreements with governmental
entities regarding frequency clearances involving amounts greater than
US$100,000;


 


(xxi)                           engineering agreements related to
the build-out of systems that involve annual payments that aggregate more than
US$200,000;


 


(xxii)                         agreements that require the Company
to offer goods or services with a “most favored nation” provision;


 


(xxiii)                     agreements under which the
consequences of a default or termination could have a material adverse effect
on the Business;


 


25

















 


(xxiv)                    agreements with (a) a director or
member of the management of the Company (other than standard employment
agreements), (b) an immediate family member of a director or member of the
management, or (c) any Person (other than an individual) Controlled by a
director or member of the management; and


 


(xxv)                       other agreements (or group of
related agreements) the performance of which involves consideration in excess
of US$250,000.


 


With respect to each such agreement, and unless noted otherwise in
Schedule 4.18 of the Disclosure Schedule: (A) the agreement is legally valid,
binding and enforceable against the Company and in full force and effect; (B)
the agreement will continue to be legally valid, binding and enforceable and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) the Company is not in material breach or
default, nor has the Company received any notice that any third party is in
material breach or default, and no material event has occurred which with
notice or lapse of time would constitute a material breach or default, or
permit termination, modification, or early redemption, under the agreement; and
(D) the Company has not repudiated any provision of the agreement, nor has the
Company received any notice that any third party has repudiated any provision
of the agreement.


 


Section 4.19                            Powers of Attorney. 
Except as set forth in Schedule 4.19, there are no outstanding powers of
attorney executed on behalf of the Company and issued (i) with the ability to
generally bind or represent the Company or (ii) to enter into agreements or a
series of related agreements in excess of US$25,000.


 


Section 4.20                            Insurance. 
Schedule 4.20 of the Disclosure Schedule lists all insurance policies to
which the Company is currently a party and sets out:


 


(i)                                     the policy number (where known);


 


(ii)                                  the name of the insurer, the name of
the policyholder, and the name of each covered insured;


 


(iii)                               the type of coverage;


 


(iv)                              the period of coverage; and


 


(v)                                 such other information concerning
the scope and amount of coverage as made available to the Seller by the
Company.


 


With respect to each listed insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding and enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) the Company is not in material breach or default
(including with respect to the payment of premiums or the giving of notices),
nor has the Company received any notice that any third party is in material
breach or default; and (D) the Company has not repudiated any provision
thereof, nor has the Company received any notice that any third party has
repudiated any provision thereof.


 


26

















 


Section 4.21                            Litigation.  Schedule 4.21 of the Disclosure Schedule
sets forth each instance in which the Company (i) is subject to any outstanding
court and arbitration injunction, judgment, order, decree or ruling or (ii) is
a party or, to the Knowledge of the Seller, is threatened to be made a party to
any action, suit, proceeding, prosecution, arbitration, hearing, governmental
audit, or investigation of, in, or before any court or quasi-judicial or
administrative agency of Ukraine or before any arbitrator. None of the actions,
suits, proceedings, prosecutions, arbitrations, hearings, governmental audits,
and investigations set forth in Schedule 4.21 of the Disclosure Schedule could
result in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company. The
Seller has no reason to believe that any such action, suit, proceeding,
hearing, or investigation may be brought or threatened against the Company of
over US$25,000. There is no claim, suit, litigation, proceeding, labor dispute,
action, inquiry or investigation pending, or to the Knowledge of the Seller,
threatened, seeking to delay, limit or enjoin the consummation of this
Agreement and the other transactions contemplated by the Transactional
Documents (excluding those transactions contemplated in the agreements, other
than this Agreement, listed in the Recitals hereto and to which the Seller is
not a party).


 


Section 4.22                            Employees. 
No executive, senior key employee, or material group of employees has to
date given notice of termination of their employment with the Company. Except
as set forth in Schedule 4.22, the Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any material strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. To the Knowledge of the Seller, the Company has not committed any
unfair labor practice. The Seller has no Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Company.


 


Section 4.23                            Employee Benefits. 
Schedule 4.22 of the Disclosure Schedule describes each Employee Benefit
Plan that the Company maintains or to which the Company contributes, and each
complies in form and in operation in all material respects with all material
applicable laws.


 


Section 4.24                            Guaranties. 
The Company is not a guarantor or otherwise liable for any Liability or
obligation (including indebtedness) of any other Person.


 


Section 4.25                            Environment, Health, and Safety.


 


(i)                                     The Company has complied in all
material respects with the material Environmental, Health, and Safety Laws of
Ukraine currently applicable to the Company, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against the Company alleging any failure to so comply.
Without limiting the generality of the preceding sentence, the Company has
obtained and has in all material respects been in compliance with all material
terms and conditions of all material permits, licenses, and other
authorizations which are required under the all Environmental, Health, and
Safety Laws of Ukraine.


 


(ii)                                  The Company has no material
Liability for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under


 


27

















 


the
Environmental, Health, and Safety Laws of Ukraine applicable to the Company.


 


Section 4.26                            Certain
Business Relationships with the Company.  Except for the Debt
Restructuring Agreements, neither the Seller nor its Affiliates has been
involved in any business arrangement or relationship with the Company within
the past twelve (12) months, and neither the Seller nor its Affiliates own any
asset, tangible or intangible, which is used in the Business of the Company.


 


Section 4.27                            Unlawful Contributions. 
To the Knowledge of the Seller, the Company has not (i) used any
corporate funds for any contribution or other expense unlawful under Ukrainian
Law applicable at the time of such contribution or other expense and relating
to political activity, (ii) made any unlawful payment under Ukrainian Law to
any Ukrainian government official or employee from corporate funds, or (iii)
caused the Company to be in violation of any Ukrainian Law regulating the
payments of bribes to government officials or employees.


 


Section 4.28                            Antitrust. 
The Company is not currently or has no reason or notice to believe that
it will be in the future a party to, or directly or indirectly concerned in, an
agreement, arrangement, understanding or practice (whether or not legally
binding) to which the Company is a party and which has been, is or may (i)
contravene any Ukrainian Laws concerning competition; (ii) be registrable,
unenforceable or void or rendering the Company or any of its officers,
directors or employees liable to administrative, civil or criminal proceedings
under any Ukrainian Laws concerning competition, or (iii) be the subject of any
investigation by any competent Ukrainian authority in respect of any provision
of any Ukrainian Laws concerning competition. The Company is not currently
engaged in any conduct which amounts to the abuse of a dominant position in a
market which may violate any Ukrainian Laws concerning competition. Schedule
4.28 of the Disclosure Schedule lists those instances in which the Company has
been defined as a monopolist in Ukraine by a Ukrainian governmental entity.


 


Section 4.29                            Money Laundering and Unlawful
Financial Activities.  The Company is not in
violation of any Ukrainian Laws relating to money-laundering, unlawful
financial activities, or control and prevention of terrorism.


 


ARTICLE V.

PRE-CLOSING COVENANTS.


 


Except as specifically noted below, the Parties agree as follows with
respect to the period between the execution of this Agreement and the Closing.


 


Section 5.1                                   General. 
Each of the Parties will use its best endeavors to take all action and to
do all things necessary, proper or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article
VII hereof).


 


28

















 


Section 5.2                                   Notices
and Consents.  The Seller will use its best endeavors to
cause the Company to give any notices to third parties and to use its best
endeavors to obtain any third party consents that are necessary in connection
with the matters referred to in Section 4.3 hereof. Each of the Parties will
(and the Seller will use its best efforts to cause the Company to) give any
notices to, make any filings with, and use its best endeavors to obtain any
authorizations, consents, and approvals of governments and appropriate
governmental agencies necessary in connection with the matters referred to in
Section 3.1(ii), Section 3.2(ii), and Section 4.3 hereof.


 


Section 5.3                                   Operation of Business. 
The Seller will use its best endeavors not to cause or permit the
Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Seller will not cause, and will use its best
efforts not to permit the Company to, (i) declare, set aside, or pay any
dividend or make any distribution with respect to its equity securities or
redeem, purchase, or otherwise acquire any of its equity securities, (ii)
merge, amalgamate, consolidate with, or acquire any equity securities or all or
substantially all assets of, any other Person, or (iii) otherwise engage in any
practice, take any action, or enter into any transaction of the sort described
in Section 5.8 hereof.  The Seller is
obligated from the date of entry into force of the present Agreement until the
earlier of (i) the completion of the registration of the Amended Organizational
Documents and (ii) the termination of this Agreement to exercise any rights
arising from the Participation Interest, especially voting rights which it has
or will have at the highest governing bodies of the Company as a participant,
as necessary to consummate the transactions contemplated by this Agreement.


 


Section 5.4                                   Participants Meeting; Amendments to
Foundation Documents.  The Seller will use its best
endeavors, as soon as practicable following the date hereof, to cause a
participants meeting of the Company to be convened for the purpose of approving
the Amended Organizational Documents and for such other actions as are set
forth in the form of Company Participants Meeting Agenda attached hereto as
Exhibit C.  The Seller shall vote in
favor of the approval of each of the amended Founding Agreement and the amended
Charter.


 


Section 5.5                                   Preservation of Business. 
Subject to Section 5.3, the Seller will use its best endeavors to cause
the Company to keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.


 


Section 5.6                                   Full Access.  The Seller will permit representatives of
the Purchaser to have reasonable access during business hours to all relevant
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to the Company.  The Seller will use its best efforts to
cause the Company to permit representatives of the Purchaser to have reasonable
access to all relevant premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to the
Company.


 


29

















 


Section 5.7                                   Notice of Developments. 
From the date hereof through the Closing, the Seller shall
give prompt written notice to the Purchaser and the Purchaser shall give prompt
written notice to the Seller of (i) the occurrence, or failure to occur,
of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement or in any exhibit or
schedule hereto to be or become materially incorrect or incomplete, or the
discovery that any representation or warranty contained in this Agreement or in
any exhibit or schedule was materially incorrect or incomplete at the time it was
made, (ii) any failure by a Party to materially comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or any exhibit or schedule hereto, (iii) the occurrence or
non-occurrence of any event which will or may result in the material failure of
any condition, covenant or agreement to be complied with or satisfied by it
under this Agreement or any other Transactional Document, and (iv) any notice or
communication from any Person alleging that the consent of such Person is or
may be required in connection with the transactions contemplated by this
Agreement or any other Transactional Document or that such transactions
otherwise may violate the rights of, or confer remedies upon, such Person.  No such notice provided pursuant to this
Section 5.7  shall be deemed (i) to
have amended the Disclosure Schedule, (ii) to have qualified the
warranties contained in Article III or Article IV hereof, and (iii) to
have cured any breach of warranty that otherwise might have existed hereunder
by reason of such development.


 


Section 5.8                                   Exclusivity. 
Neither the Seller nor its Affiliates will (and the Seller will not
cause or permit any of its representatives, and will use its best efforts not
to permit the Company to), directly or indirectly, (i) solicit, initiate, or
encourage the submission of any inquiry, proposal or offer from any Person
relating to the acquisition of any charter capital or other voting securities,
or any substantial portion of the assets of, the Company (including any
acquisition structured as a merger, consolidation, or share exchange), or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any other
manner any effort or attempt by any Person to do or seek any of the foregoing.
The Seller will not vote its interest in the Company in favor of any such
acquisition structured as a merger, consolidation, or share exchange. The
Seller agrees not to release any third party from, or waive any provision of,
any confidentiality or standstill agreement relating to the Company to which
the Seller is a party.


 


Section 5.9                                   Governmental Approval.


 


(i)                                     Each of the Parties will file (and
the Seller will use its best endeavors to cause the Company to file) any
notification and report forms and related material that it may be required to
file with the UAC, will use its best endeavors to obtain (and the Seller will
use its best endeavors to cause the Company to use its best endeavors to
obtain) termination of any applicable waiting period, and will make (and the
Seller will use its best endeavors to cause the Company to make) any further
filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith.


 


(ii)                                  The Seller is obliged to support the
Purchaser in connection with the preparation of the application for the
approval by the UAC or other relevant governmental authority of the
transactions contemplated by this Agreement and in the course of the entire
clearance procedure.  In the event that
an order prohibiting such transactions is issued by the UAC or other relevant
governmental authority, the Parties shall jointly use their commercially
reasonable best endeavors to remove the reasons for such


 


30

















 


order.  In case the Purchaser decides to appeal
against such order, the Seller is obliged to support the Purchaser with regard
to the preparation of such appeal and in course of the respective proceedings.


 


Section 5.10                            Resignation from Corporate Bodies. 
The Parties will use their best endeavors to cause the removal, not
later than Closing, of the then-current members of the Supervisory Board of the
Company from their position and the election of new members of this body of the
Company in accordance with provisions as set out in the Closing Organizational
Documents.


 


Section 5.11                            Waiver of Pre-Emptive Rights.  The Seller shall waive any right of first refusal for the
purchase of, or any pre-emptive rights with respect to, the sale and transfer
of the any participation interests in the Company as contemplated by the
Transaction Documents, including, but not limited to, waivers with regard to
the Concurrent Purchase Agreements, and shall grant  waivers with regard to the TDC Option Agreement and the
Ukrtelecom Option Agreement, in each case substantially in the form of Exhibit
F hereto.


 


Section 5.12                            No Acceleration, No Payments.  From the date hereof through Escrow Release neither the Seller nor any of the
Seller’s Affiliates shall take, exercise, or receive the benefit of any of its
rights or interests in or with regard to each of the Equipment and Service
Credit Facility Agreement No. W01-95/UA and the Credit Facility Agreement No.
C01-97/UA, and, in each case, shall not institute any legal proceedings
(including any proceedings for bankruptcy or insolvency or otherwise) in any
jurisdiction with regard thereto, nor accelerate the principal amounts or any
accrued interest thereunder, nor cause the Company to make any payments
thereunder.


 


Section 5.13                            Retention of General Director.  From the date of the Closing until the Amended
Organizational Documents have been registered, as necessary under Ukrainian
Law, the Purchaser shall not cause the removal of the then-acting general
director of the Company; provided, however, that the Purchaser shall be under
no such obligation in the event that the general director causes damage to the
Company or its business through dishonesty or fraud; engages in conduct of an
illegal or criminal nature; or fails to perform his duties and/or fulfill his
responsibilities in relation to the Company in a professional manner and with
the skill generally expected of high level executive managers.


 


ARTICLE VI.

POST-CLOSING COVENANTS.


 


The Parties agree as follows with respect to the period following the
Closing.


 


Section 6.1                                   General. 
In case at any time after the Closing any further action is necessary to
carry out the purposes of this Agreement, each of the Parties will take such further
action (including the execution and delivery of such further instruments and
documents) as any other Party reasonably may request, all at the sole cost and
expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Article VIII hereof). The Seller acknowledges
and agrees that from and after the Closing the Purchaser will be entitled to
possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company in the
possession of the Seller in its capacity as a participant in the Company.


 


31

















 


Section 6.2                                   Litigation Support. 
In the event and for so long as any Party actively is contesting or defending
against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving the
Company, the other Party will reasonably cooperate with it and its counsel in
the contest or defense, reasonably make available their personnel, and provide
such testimony and access to their books and records as shall be reasonably
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Article VIII hereof).


 


Section 6.3                                   Transition. 
For a period of two (2) years after the Closing Date, the Seller will
not take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Company from maintaining the same business relationships with
the Company after the Closing as it maintained with the Company prior to the
Closing. The Seller will refer all customer inquiries relating to the
businesses of the Company to the Purchaser from and after the Closing.


 


Section 6.4                                   Confidentiality.  Each Party will treat and hold as such all of the
Confidential Information of the other Parties and/or the Company, and refrain
from using any of the Confidential Information of the other Parties and/or the
Company except in connection with this Agreement; provided, however, such restriction shall not apply if and to the
extent that:


 


(i)                                     the Party proposing to make such
disclosure has been requested or is required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information of the other Party  and/or
the Company; provided, however,
that such Party will notify the other Party/Parties promptly of the request or
requirement so that the other, nondisclosing Party may seek an appropriate
protective order or waive compliance with the provisions of this Section
6.4(i). If, in the absence of a protective order or the receipt of a waiver
hereunder, a Party is, on the advice of counsel, compelled to disclose any
Confidential Information of the other Party and/or the Company to any tribunal
or else stand liable for contempt, such Party may disclose such Confidential
Information to the tribunal; provided, however, that such disclosing
Party shall use its best endeavors to obtain, at the request of the other
Party, an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed as the
other Party shall designate;


 


(ii)                                  such disclosure by a Party is
required by law or by any securities exchange or regulatory or governmental
body having jurisdiction over it and whether or not the requirement has the
force of law; or


 


(iii)                               the Confidential Information of the
other Party and/or the Company has come into the public domain other than
through its fault or


 


32

















 


the
fault of any person to whom such Confidential Information has been disclosed by
that Party.


 


Nothing in this Section 6.4 shall in any way affect the Purchaser’s
ability to disclose Confidential Information relating to the Company to any
third party after the Closing Date.


 


Section 6.5                                   Covenant Not to Compete. 
For a period of two (2) years from and after the Closing Date, neither
the Seller nor any Affiliate of the Seller will, except for entry into roaming
agreements, engage directly or indirectly in the provision of GSM cellular
network services in Ukraine; provided,
however, that no
ownership of less than 3% of the outstanding share capital of any publicly
traded corporation shall be deemed to engage solely by reason thereof in such
services; and further provided that the ownership of any
corporation which after the Closing Date results from a merger or comparable
transaction between (i) the Seller or an Affiliate of the Seller and (ii) a
third party, the annual turnover of which constitutes more than 30% of the
annual turnover of the Seller or of KPN Mobile N.V., and such transaction
results in the ownership by the Seller or an Affiliate of the Seller of a
Person directly or indirectly engaged in the provision of GSM cellular network
services in the Ukraine, shall not be deemed a breach of this Section 6.5. 
The Parties agree that they consider that the restrictions contained in
this Section 6.5 are no greater than is reasonable and necessary to protect the
legitimate business interests of the Purchaser; however, if the final judgment
of a court of competent jurisdiction declares that any term or provision of
this Section 6.5 is invalid or unenforceable, the Parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.


 


ARTICLE VII.

CONDITIONS TO OBLIGATIONS.


 


Section 7.1                                   Conditions to Obligation of the
Purchaser to Close.  The obligation of the
Purchaser to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:


 


(i)                                     the warranties set forth in Section
3.1 and Article IV hereof shall be true, accurate, and not misleading in all
material respects at, and as of, the Closing Date;


 


(ii)                                  the Seller shall have performed and
complied with all of its covenants hereunder in all material respects through
the Closing;


 


(iii)                               the Company shall have procured all
of the third party consents specified in Section 5.2 hereof, all of the
corporate action specified in Section 5.4 hereof, and all of the resignations
specified in Section 5.10 hereof;


 


(iv)                              no action, suit, or proceeding shall
be pending or threatened before any court or quasi-judicial or administrative
agency of any national, supranational, federal, state, local, or foreign
jurisdiction or before 


 


33

















 


any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, (C) affect adversely
the right of the Purchaser to own the Participation Interest, or (D) affect
adversely the right of the Company to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);


 


(v)                                 the Closing Participants Meeting has
been duly convened in accordance with Ukrainian Law;


 


(vi)                              the Parties and the Company shall
have received all authorizations, consents, and approvals of governments and
governmental agencies necessary for the transactions contemplated by the
Transaction Documents (excluding the Option Agreements), including, without
limitation, such authorizations, consents, and approvals referred to in Section
3.1(ii), Section 3.2(ii), and Section 4.3 hereof (including any necessary
approvals contemplated herein by the UAC);


 


(vii)                           the approval by the UAC of the
purchase of Participation Interest under the present Agreement as well as
approvals of the UAC in respect of the acquisition of participatory interests
in the Company as contemplated by this Agreement and the Concurrent Purchase
Agreements;


 


(viii)                        the Escrow Account shall have been
opened in accordance with the Escrow Agreement;


 


(ix)                                each of the Concurrent Purchase
Agreements, the Option Agreements, and the Debt Restructuring Agreements, in
each case, in form and substance satisfactory to the Purchaser, has been
executed and delivered by all parties thereto and, except for the Debt
Restructuring Agreements, are in full force and effect;


 


(x)                                   all waivers of any right of first
refusal for the purchase of, or any pre-emptive rights with respect to, the
sale and transfer of any participatory interest in the Company as contemplated
by the Transaction Documents, including prospective waivers with regard to the
Ukrtelecom Option Agreement and the TDC Option Agreement, in each case
substantially in the form of Exhibit F hereto, have been granted by the
relevant parties;


 


(xi)                                the Seller shall have delivered to
the Purchaser a certificate in the form of Exhibit G-1 to the effect that each
of the conditions specified above in Section 7.1(i)-(x) is satisfied in all
respects;


 


(xii)                             each of the conditions set forth in
Section 7.1 of the PTT Purchase Agreement, Section 7.1 of the Cetel
Purchase Agreement and Section 7.1 of the Ukrtelecom Purchase Agreement  have, in each case, been satisfied in
accordance with the terms thereof;


 


34

















 


(xiii)                          the Purchaser shall have received
the resignations, effective as of the Closing, of each director and officer of
the Company elected or appointed upon the Seller’s proposal other than those
whom the Purchaser shall have specified in writing at least ten (10) Business
Days prior to the Closing; and


 


(xiv)                         the Purchaser shall have obtained on
terms and conditions satisfactory to it all of the financing it needs in order
to consummate the transactions contemplated hereby and fund the working capital
requirements of the Company after the Closing; and


 


(xv)                            all actions to be taken by the
Seller in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in form and
substance to the Purchaser as contemplated in this Agreement.


 


The Purchaser may waive any
condition specified in this Section 7.1 if in writing and executed by a duly
authorized executive officer of the Purchaser at or prior to the Closing.


 


Section 7.2                                   Conditions to Obligation of the
Seller to Close.  The obligation of the Seller to consummate
the transactions to be performed by it in connection with the Closing is
subject to satisfaction of the following conditions:


 


(i)                                     the warranties set forth in Section
3.2(i) - (iv) hereof shall be true, accurate, and not misleading in all
material respects at and as of the Closing Date;


 


(ii)                                  the Purchaser shall have performed
and complied with all of its covenants hereunder in all material respects
through the Closing;


 


(iii)                               no action, suit, or proceeding shall
be pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);


 


(iv)                              the Escrow Account shall have been
opened in accordance with the Escrow Agreement;


 


(v)                                 the Purchaser shall have delivered
to the Seller a certificate in the form of Exhibit G-2 to the effect that each
of the conditions specified above in Section 7.2(i)-(iv) is satisfied in all
respects;


 


(vi)                              the Parties and the Company shall
have received all authorizations, consents, and approvals of governments and
governmental agencies necessary for the transactions contemplated by this
Agreement, including, without limitation, such authorizations, consents, and
approvals


 


35

















 


referred
to in Section 3.1(ii), Section 3.2(ii) and Section 4.3 hereof (including any
necessary approvals of the transactions contemplated herein by the UAC); and


 


(vii)                           the Purchaser shall have received,
if necessary pursuant to Russian legislation, a license
from the Central Bank of the Russian Federation in connection with its issuance
of the Guarantees dated the date hereof between the Purchaser and
Telki Holding Company B.V.


 


The Seller may waive any
condition specified in this Section 7.2 if in writing and executed by a duly
authorized executive officer of the Seller at or prior to the Closing.


 


ARTICLE VIII.

REMEDIES FOR BREACHES OF THIS AGREEMENT.


 


Section 8.1                                   Survival of Warranties. 
All of the warranties of the Parties contained in this Agreement shall
survive the Closing hereunder (even if the damaged Party knew or had reason to
know of any breach of warranty at the time of Closing) and continue in full
force and effect for a period of two (2) years from the Closing Date.


 


Section 8.2                                   Indemnification Provisions for
Benefit of the Purchaser.


 


(i)                                     Subject to Section 8.2(ii), in the
event the Seller breaches any of its warranties contained herein, provided that
the Purchaser makes a written claim for indemnification against the Seller
pursuant to Section 10.7 below within the period set forth in Section 8.1, then
the Seller agrees to indemnify the Purchaser from and against any Adverse
Consequences the Purchaser may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Purchaser may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach).


 


(ii)                                  The Seller’s obligation to indemnify
the Purchaser from and against any Adverse Consequences resulting from, arising
out of, relating to, in the nature of, or caused by the breach of any warranty
of the Seller shall be limited as follows:


 


(A)                              The Seller shall not be liable to
the Purchaser in respect of any warranties given under any agreement to which
the Seller is not a party.


 


(B)                                The Seller shall only be obligated
to indemnify, or be liable for breach of warranty to, the Purchaser on any
other basis after and insofar as the Purchaser has suffered Adverse
Consequences by reason of all such breaches in excess of a $1,500,000 aggregate
threshold (at which point the Seller will be obligated to indemnify, or be
liable for breach warranty to, the Purchaser on any other basis from and
against all such Adverse Consequences, including, for the avoidance of doubt,
Adverse Consequences suffered prior to reaching such threshold); provided, however, that any obligation of
the Seller to indemnify or be


 


36

















 


liable
to the Purchaser with respect to Adverse Consequences that arise as a result
of  any breach of warranty after such
aggregate threshold has been reached shall not arise with regard to Adverse
Consequences of less than $25,000 per specific event giving rise to Adverse Consequences;
and further provided that, to the
extent that such threshold is reached solely by reason of claims related to a
breach of Section 4.13 (to the extent that such breach relates to profits tax),
the Seller shall not be obligated to indemnify the Purchaser for Adverse
Consequences by reason of any other breaches of warranties contained in Article
IV (but shall be obligated to indemnify the Purchase for the Adverse
Consequences arising as a result of a breach of Section 4.13) until such other
breaches result in Adverse Consequences in excess of a $1,500,000 aggregate
threshold (at which point the Seller will be obligated to indemnify the Buyer
from and against all such Adverse Consequences, including, for  the avoidance of doubt, Adverse Consequences
suffered prior to reaching such threshold);


 


(C)                                To the extent that an Adverse
Consequence has arisen as the result of a breach of a warranty contained in
Article IV hereof, the Seller’s obligation to indemnify or be liable to the
Purchaser from and against such Adverse Consequence shall, in the aggregate, be
limited to 15.33% of the total amount of such Adverse Consequence irrespective
of whether any third party that sold a participation interest in the Company to
the Purchaser is liable or not liable for any damages under its respective
participation interest purchase agreement (for the avoidance of doubt, this
limitation shall not apply to the threshold set forth in subparagraph A above);


 


(D)                               Subject to subparagraph (F) below,
the aggregate amount for which the Seller shall have an obligation to indemnify
or be liable to the Purchaser from and against pursuant to this Section 8.2
with regard to breaches of warranties contained in Article IV shall not exceed
50% of the Purchase Price;


 


(E)                                 The aggregate amount for which the
Seller shall have an obligation to indemnify or be liable to the Purchaser from
and against pursuant to this Section 8.2 with regard to breaches of warranties
in contained in Sections 4.1, 4.2, 4.3, 4.13 (to the extent that such breach
relates to profits tax or VAT), and 4.16 (to the extent that such breach
results in the revocation, suspension, or a material change in the terms of a
Company License) shall not exceed 100% of the Purchase Price;


 


(F)                                 There shall be no limit to the
aggregate amount for which the Seller shall have an obligation to indemnify or
be liable to the Purchaser from and against pursuant to this Section 8.2 with
regard to breaches of  warranties set
forth in Article III;


 


(G)                                In the event that a breach of any of
the warranties given by the Seller in Article IV (other than a breach caused by
a direct act or


 


37

















 


omission of the
Seller) prevents consummation of the Acquisition, the Seller shall only be
obliged to indemnify the Purchaser for all Transaction Costs.  For the purpose of this paragraph (G) only,
“Transaction Costs” means any and all costs, fees expenses and liabilities
actually incurred by the Purchaser in negotiating the Transaction Documents to
which the Seller and/or the Seller’s Affiliates is a party.  For the avoidance of doubt and other than as
set forth in this paragraph (G), the Seller shall not be liable to the
Purchaser for any other costs, loss or liability which the Purchaser may suffer
as a result of the Acquisition not being consummated as a result of a breach of
any of the warranties in Article IV.


 


(H)                               For the avoidance of doubt, in no
event shall the aggregate amount for which the Seller shall be liable to the
Purchaser with respect to breaches of any or all warranties contained in Article
IV exceed 100% of the Purchase Price;


 


(I)                                    The Seller shall not be liable to
the Purchaser in respect of any Adverse Consequences unless the Purchaser has
notified the Seller within two (2) years of the Closing Date of the fact,
matter or circumstance giving rise to the Adverse Consequences and, within
twelve (12) months after such notification, the relevant claim has either been
settled by the Parties or an arbitration proceeding has been filed with respect
to such claim;


 


(J)                                   For the avoidance of doubt,
regardless of the number of warranties breached by any one event, matter, fact
or circumstance giving rise to a claim under this Agreement, the Seller shall
not be required to indemnify or be liable to the Purchaser for an amount great
than the Adverse Consequences arising from such event, matter, fact or
circumstance.


 


Section 8.3                                   Indemnification Provisions for
Benefit of the Seller.


 


(i)                                     Subject to Section 8.2(ii)(J)(ii),
in the event the Purchaser breaches (or in the event any third party alleges
facts that, if true, would mean the Purchaser has breached) any of its
warranties contained herein, and, if there is an applicable survival period
pursuant to Section 8.1 hereof, provided that the Seller makes a written claim
for indemnification against the Purchaser pursuant to  Section 10.7 below within such survival period, then the
Purchaser agrees to indemnify the Seller from and against the entirety of any
Adverse Consequences the Seller may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Seller may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach).


 


(ii)                                  The Purchaser shall not be obligated
to indemnify the Seller from and against any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or caused by the breach of
any warranty of the Purchaser until the Seller has suffered Adverse
Consequences by reason of all


 


38

















 


such
breaches in excess of a $1,500,000 aggregate threshold (at which point the
Purchaser will be obligated to indemnify the Seller from and against all such
Adverse Consequences; provided, however,
that any obligation of the Purchaser to indemnify the Seller after such
aggregate threshold has been reached shall not arise with regard to Adverse
Consequences of less than $25,000.


 


(iii)                               For the avoidance of doubt,
regardless of the number of warranties breached by any one event, matter, fact
or circumstance giving rise to a claim under this Agreement, the Purchaser
shall not be required to indemnify the Seller for an amount greater than the
Adverse Consequences arising from such event, matter, fact or circumstance.


 


Section 8.4                                   Matters Involving Third Parties.


 


(i)                                     If any third party shall notify any
Party (the “Indemnified Party”) with respect to any matter (a “Third
Party Claim”) which may give rise to a claim for indemnification against
any other Party (the “Indemnifying Party”) under this Article VIII, then
the Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party thereby
is prejudiced.


 


(ii)                                  Any Indemnifying Party will have the
right to defend the Indemnified Party against the Third Party Claim with
counsel of its choice satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within ten (10)
days after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and against
the entirety of any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party
with evidence acceptable to the Indemnified Party that the Indemnifying Party
will have the financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.


 


(iii)                               So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with Section
8.4(ii) hereof, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party Claim,
(B) the Indemnified Party will not consent to the entry of any judgment or
enter into


 


39

















 


any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party, and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Indemnified
Party.


 


(iv)                              In the event any of the conditions
in Section 8.4(ii) hereof is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any judgment
or enter into any settlement with respect to, the Third Party Claim in any
manner it may deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Parties will reimburse the Indemnified Party
promptly and periodically for the costs of defending against the Third Party
Claim (including reasonable attorneys’ fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the Third Party Claim to the fullest extent
provided in this Article VIII.


 


Section 8.5                                   Determination of Adverse
Consequences.  The Parties shall make appropriate
adjustments for insurance coverage and shall take into account the time cost of
money (using the Applicable Rate as the discount rate) in determining Adverse
Consequences for purposes of this Article VIII. All indemnification payments
under this Article VIII shall be deemed adjustments to the Purchase Price.


 


Section 8.6                                   Exclusive Remedies. 
The foregoing indemnification provisions shall be the Parties’ exclusive
remedy for or arising out of a breach of warranty hereunder.  The indemnification provisions exclude, and
are not in addition to but in derogation of, any statutory, equitable, common
law or other remedy any Party may have for or arising out of a breach of
warranty hereunder and the Parties agree that they shall not seek any other
remedy for or arising out of a breach of warranty hereunder.  The Seller hereby agrees that it will not
make any claim for indemnification against the Company by reason of the fact
that it was an agent of any such entity or was serving at the request of any
such entity as a partner, trustee, director, officer, employee, or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses, or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit, proceeding, complaint, claim, or
demand brought by the Purchaser against the Seller (whether such action, suit,
proceeding, complaint, claim, or demand is pursuant to this Agreement,
applicable law, or otherwise).


 


Section 8.7                                   Miscellaneous.


 


(i)                                     Nothing in this Agreement shall have
the effect of limiting or restricting any liability of the Seller in respect of
a claim under this Agreement arising as a result of any fraud, willful
misconduct or willful concealment.


 


(ii)                                  The Purchaser acknowledges that it
has not relied on or been induced to enter into this Agreement by any
representation, warranty or undertaking that is not expressly set out in this
Agreement.


 


40

















 


The Seller shall not be liable to the Purchaser (in equity, contract,
tort (including negligence) under the Misrepresentation Act 1967 or in any
other way) for a representation or warranty that is not set out in this
Agreement.


 


ARTICLE IX.

EFFECTIVENESS AND TERMINATION.


 


Section 9.1                                   Effectiveness of Agreement. 
This Agreement shall be binding upon its signing and shall become
effective upon the date hereof (subject to termination pursuant to Section 9.2
below).  This Agreement shall remain in
full force and effect until completion of all obligations of the Parties or until
terminated pursuant to Section 9.2 below.


 


Section 9.2                                   Termination of Agreement. 
The Parties may terminate this Agreement as provided below:


 


(i)                                     the Purchaser and the Seller may
terminate this Agreement by mutual written consent at any time prior to the
Closing;


 


(ii)                                  the Purchaser may terminate this
Agreement by giving written notice to the Seller at any time prior to the
Closing (A) in the event the Seller has breached any material warranty, or
covenant contained in this Agreement in any respect, the Purchaser has notified
the Seller of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach, if subject to cure, (B) in the
event of the failure of any condition precedent under Section 7.1 that is incapable
of being satisfied, or (C) if the Closing shall not have occurred on or before
the 180th day after the date hereof by reason of the failure of any
condition precedent under Section 7.1 hereof; and


 


(iii)                               the Seller may terminate this
Agreement by giving written notice to the Purchaser at any time prior to the
Closing (A) in the event the Purchaser has breached any material warranty, or
covenant contained in this Agreement in any material respect, the Seller has
notified the Purchaser of the breach, and the breach, if subject to cure, has
continued without cure for a period of thirty (30) days after the notice of
breach (B) in the event of the failure of any condition precedent under Section
7.2 that is incapable of being satisfied, or (C) if the Closing shall not have
occurred on or before the 180th day after the date hereof by reason
of the failure of any condition precedent under Section 7.2 hereof.


 


Section 9.3                                   Effect of Termination. 
Subject to Section 6.4, if any Party terminates this Agreement pursuant
to Section 9.2 hereof, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).


 


41

















 


ARTICLE X.

MISCELLANEOUS.


 


Section 10.1                            Press Releases and Public
Announcements.  No Party shall issue any press release or
make any public announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of the Purchaser and
the Seller; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the disclosing
Party will use its best endeavors to advise the other Parties prior to making
the disclosure).


 


Section 10.2                            Entire Agreement. 
This Agreement (including the documents referred to herein) constitutes
the entire agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.


 


Section 10.3                            Succession and Assignment. 
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other Party,
such approval not to be unreasonably withheld.


 


Section 10.4                            Counterparts. 
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.


 


Section 10.5                            Headings. 
The table of contents, exhibit index, and article and section headings
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.


 


Section 10.6                            Notices. 
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two (2) Business
Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set
forth below:


 


(i)                                     If
to the Seller:


 


KPN Telecom B.V.


Attn: Mr. A.W. Nauta


Maanplein 5


2516 CK Den Haag


The Netherlands


Telecopy:  +31 70 446 0675


 


with a copy to:


 


Loyens & Loeff

Attn: Mr. W.H. Booysen

Weena 690

3012 CN Rotterdam


The Netherlands


Telecopy:  +31 10 404 75 90


 


42

















 


(ii)                                  If
to the Purchaser:


 


Mobile TeleSystems OJSC


Marksistskaya Street, 4


Moscow 109147 Russian Federation


Telecopy:  +7-095-915-7425


Attention:  Mikhail A. Smirnov,
President


 


with a copy to:


 


Latham & Watkins

Ulitsa Gasheka, 7

Ducat II, Suite 900

Moscow 123056 Russian Federation


Attention:  Anna Goldin, Esq.

Facsimile:  +7-095-785-1235


 


Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.


 


Section 10.7                            Dispute Resolution. 
Upon written notice to all Parties to this Agreement and the Arbitration
Institute of the Stockholm Chamber of Commerce, any dispute, controversy or
claim between any Parties hereto arising out of, relating to or in connection
with this Agreement, including its existence, validity or termination, shall be
referred to and resolved by final and binding arbitration under the Rules of
the Arbitration Institute of the Stockholm Chamber of Commerce in effect on the
date any arbitration commences (the “Rules”), which Rules are deemed to
be incorporated by reference into this clause. 
The place of the arbitration shall be Stockholm, Sweden, and the award
shall be deemed to have been made there. 
The tribunal may hold hearings, meetings, and deliberations at any place
it deems appropriate, having regard to the circumstances of the
arbitration.  The tribunal shall be
comprised of three arbitrators to be appointed by the Arbitration Institute of
the Stockholm Chamber of Commerce in accordance with the Rules.  The tribunal shall neither have nor exercise
any power to act as amiable compositeur
or ex aequo et bono
or to award special, indirect, consequential, or punitive damages.  The language of the arbitration shall be
English.  Judgment upon any arbitral
award may be entered in any court of competent jurisdiction.  Court jurisdiction under Sections 45 and 69
of the United Kingdom’s Arbitration Act of 1996 shall not apply.  Any Party to this Agreement may intervene in
any arbitral proceeding commenced under this Agreement.


 


Section 10.8                            Governing Law. 
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF ENGLAND AND WALES.  NO EFFECT
SHALL BE GIVEN TO ANY CONFLICT OF LAW PROVISION OR RULE OF ANY JURISDICTION
OTHER THAN ENGLAND AND WALES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN ENGLAND AND WALES.


 


43

















 


Section 10.9                            Judgment Currency. 
The obligation of the Parties to make payments under this Agreement is
in U.S. dollars (the “Obligation Currency”) and such obligation shall
not be discharged or satisfied by any tender or recovery pursuant to any
judgment expressed in any currency other than the Obligation Currency or any
other realization in such other currency, whether as proceeds of set-off,
security, guarantee, distributions, or otherwise, except to the extent to which
such tender, recovery or realization shall result in the receipt by the Party
which is to receive such payment of the full amount of the Obligation Currency
expressed to be payable hereunder.  The
Party liable to make such payment agrees to indemnify the Party which is to
receive such payment for the amount (if any) by which such receipt shall fall
short of the full amount of the Obligation Currency expressed to be payable
hereunder and the party which is to receive such payment agrees to pay to the
party liable to make such payment the amount (if any) by which such receipt,
shall exceed the full amount of the Obligation Currency, and, in each case,
such obligation shall not be affected by judgment being obtained for any other
sums due under this Agreement.  The
Parties agree that the rate of exchange which shall be used to determine if
such tender, recovery or realization shall result in the receipt by the party
which is to receive such payment of the full amount of the Obligation Currency
expressed to be payable hereunder shall be the noon buying rate in New York
City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York for the business day preceding
that on which the judgment becomes a final judgment.


 


Section 10.10                     Third
Party Beneficiaries.  This Agreement shall not confer any rights
or remedies on any other Person other than the Parties and their respective
successors and permitted assigns.  For
the avoidance of doubt, a person who is not a Party to this Agreement for the
time being has no right under the English Contracts (Rights of Third Parties)
Act 1999 to enforce any term of this Agreement


 


Section 10.11                     Amendments and Waivers. 
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Purchaser and the Seller. No
waiver by any Party of any default or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such
occurrence.  No failure to exercise and
no delay in exercising any right, power or remedy under this Agreement will
operate as a waiver; nor will any single or partial exercise of any right,
power or remedy preclude any other or further exercise of that or any other
right, power or remedy.


 


Section 10.12                     Remedies Cumulative. 
Subject to Section 8.6, the rights, powers and remedies provided to a
Party in this Agreement are in addition to, and do not exclude or limit, any
right, power or remedy provided by law or equity or any other agreement.


 


Section 10.13                     Severability. 
Any term or provision of this Agreement that is invalid or unenforceable
in any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.


 


44

















 


Section 10.14                     Expenses. 
Each of the Parties and the Company will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Seller agrees that the Company
has not borne and will not bear any of the Seller’s costs and expenses
(including any of its legal fees and expenses) in connection with this Agreement
or any of the transactions contemplated hereby.


 


Section 10.15                     Construction. 
The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement.  Any reference to any
national, supranational, federal, state, local, or foreign statute or law shall
be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word “including” shall mean
including without limitation. The Parties intend that each warranty and
covenant contained herein shall have independent significance. If any Party has
breached any warranty or covenant contained herein in any respect, the fact
that there exists another warranty or covenant relating to the same subject
matter (regardless of the relative levels of specificity) which the Party has
not breached shall not detract from or mitigate the fact that the Party is in
breach of the first warranty or covenant.


 


Section 10.16                     Payment of Taxes. 
Each Party shall be responsible for their respective transfer,
documentary, sales, use, stamp, registration and other such Taxes and fees
(including any penalties and interest) incurred in connection with this
Agreement.  Any such taxes shall be paid
by such Party responsible for such Taxes when due, and such Party will, at its
own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, required by applicable law.


 


Section 10.17                     Incorporation of Exhibits, Annexes,
and Schedules.  The Exhibits, Annexes, and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.


 


Section 10.18                     Specific Performance. 
Each of the Parties acknowledges and agrees that the other Parties would
be damaged irreparably in the event any of the provisions of this Agreement are
not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the Parties agrees that the other Parties shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10.7 hereof), in addition to any other remedy to which they
may be entitled, at law or in equity.


 


(Signature page follows.)


 


45

















 


IN WITNESS WHEREOF, each of the Parties hereto have caused this
Participation Interest Purchase Agreement to be duly executed on their
respective behalf, by their respective officers thereunto duly authorized, as
of the date first above written.


 


 


	
   

  	
  MOBILE TELESYSTEMS OJSC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Mikhail A. Smirnov

  
	
   

  	
  By:

  	
  Mikhail A. Smirnov

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Viktor I. Kondratyev

  
	
   

  	
  By:

  	
  Viktor I. Kondratyev

  
	
   

  	
  Title:

  	
  Chief Accountant

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KPN TELECOM B.V.

  
	
   

  	
   

  
	
   

  	
  /s/ Sebastiaan van Loosdrech

  
	
   

  	
  By:

  	
  Sebastiaan van Loosdrech

  
	
   

  	
  Title:

  	
  Authorized by Power of Attorney

  



 


Signature page to Participation
Interest Purchase Agreement.