SHAREHOLDERS? AGREEMENT

SHAREHOLDERS’ AGREEMENT

by and among

EDN SOVINTEL LLC

and

SFMT CIS INC.

and

INURE ENTERPRISES LTD.

and

ZAO CORTEC

Dated as of February 22, 2007

1

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

Exhibit A: List of Entities used in Business

Exhibit B: Business Plan

Exhibit C: Fair Value Determination Procedure

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SHAREHOLDERS’ AGREEMENT

THIS SHAREHOLDERS’ AGREEMENT (this “ Agreement ” or this “ Shareholders’ Agreement ”) is entered into as of February 22 , 2007 and shall become effective (the “ Effective Date ”) on the Closing Date, as defined below, by and among

(i) EDN SOVINTEL LLC, a limited liability company organized and existing under the laws of the Russian Federation, with its principal offices at 1, Kozhevnichesky Proezd, 2nd floor, Moscow, 115114, Russia (“ Buyer ”);

(ii) SFMT CIS INC., a company organized and existing under the laws of the state of Delaware, with its principal offices at 2831 29 ^th Street, NW Washington, D.C. 20008, USA (“ SFMT ”) and wholly owned by Golden Telecom, Inc., a company organized and existing under the laws of Delaware, with its principal offices at 2831 29 ^th Street, NW Washington, D.C. 20008, USA (“ Parent ”);

(iii) INURE ENTERPRISES, Ltd., a company organized and existing under the laws of the Republic of Cyprus (“ Inure ”), with its principal offices at Diagoru 4, Kermia Building, 6 ^th floor, office 601 Nicosia P.C. 1097, Cyprus;

(iv) ZAO CORTEC, a closed joint stock company organized and existing under the laws of the Russian Federation (the “ Company ”), with its principal offices at 30/15 Ryazansky Prospect, Moscow, 109428, Russian Federation; and

Buyer, Inure, SFMT and the Company are referred to collectively as the “ Parties ” and Buyer, Inure and their permitted transferees who become party to this Shareholders’ Agreement are referred to collectively as the “ Shareholders .”

RECITALS

A. Immediately prior to the consummation of the Acquisition (as defined below), Inure was the legal, record, and beneficial owner of 99 (ninety-nine) ordinary registered shares, with a nominal value of 75.9 (seventy-five decimal nine) Rubles per share of the Company representing 99% (ninety-nine percent) of all issued and outstanding shares of capital stock of the Company and Rambert Management Limited, a company organized and existing under the laws of the British Virgin Islands (“ RML ”), was the legal, record and beneficial owner of 1 (one) such share of the Company.

B. Dawn Key Limited, a company organized and existing under the laws of the British Virgin Islands (“ DKL ”), is the legal, record and beneficial owner of 21,682,830 (twenty one million sixty hundred eighty two thousand eight hundred thirty) shares, representing on the Closing Date 71.11% (seventy-one decimal eleven percent) of all issued and outstanding shares of capital stock of Inure;

C. Ansley Financial Holdings Ltd., a company organized and validly existing under the laws of the British Virgin Islands (“ Ansley ”), is the legal, record and beneficial owner of 8,808,621 (eight million eighty hundred eight thousand and six hundred twenty one) shares of the issued and outstanding capital stock of Inure, representing on the Closing Date 28.89% (twenty-eight decimal eighty-nine percent) of all of the issued and outstanding shares of capital stock of Inure.

D. Pursuant to a Stock Purchase Agreement, dated as of February 22, 2007, among Buyer, Parent, Inure and RML (the “ Stock Purchase Agreement ”), Inure and RML (the “ Sellers ”), are selling to Buyer and Buyer is purchasing the Transferred Shares (as defined in the Stock Purchase Agreement) from the Sellers, all upon the terms and subject to the conditions set forth in the Stock Purchase Agreement (the “ Acquisition ”).

E. Upon consummation of the Acquisition, Inure shall own 49% (forty-nine percent) of the issued and outstanding shares of the Company and Buyer shall own 51% (fifty-one percent) of the issued and outstanding shares of the Company.

F. The Company fully owns directly or indirectly all of the legal entities involved in the Business (as defined below) listed on Exhibit A .

G. The Parties have determined that it is in their respective best interests to enter into this Shareholders’ Agreement with respect to the operation and management of the Company and the acquisition and disposition of all and any shares or other equity interest in the Company (the " Shares ”).

H. The Parties wish to establish: (i) certain rights and obligations of Buyer and Inure in respect of their ownership of the Shares; and (ii) certain agreements with respect to the management, control, funding, operation and ownership of the Company, the Subsidiaries (as defined below), their Affiliates (as defined below), the Business and related matters.

NOW, THEREFORE , in consideration of the foregoing and the mutual terms, covenants and conditions set forth below, the Parties agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

1.1. Definitions.

For the purposes of this Agreement and in addition to the terms defined in the Recitals and Preamble hereof, the following terms shall have the following meanings:

" Acquisition ” has the meaning set forth in Recital D.

" Advisor ” has the meaning set forth in Section 6.2(d).

" Affiliate ” means with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.

" Agreement ” has the meaning set forth in the Preamble.

" Ansley ” has the meaning set forth in Recital C.

" Auditor ” has the meaning set forth in Section 4.6(b).

" Board ” means the Board of Directors of the Company.

" Business ” means the business of the Company and its Subsidiaries as carried out at the date of this Agreement.

" Business Plan ” means the indicative annual business plans for the years 2007 and 2008 attached as Exhibit B .

" Buyer ” has the meaning set forth in the Preamble.

" Buyer Director ” has the meaning set forth in Section 4.4(a).

" Capital Expenditures ” means payments made, or obligations to make future payments, for long-term assets, including property, plant and equipment and intangible assets delivered to a Person or any of its subsidiaries, or pre-payments for such long-term assets less internal labor and material costs associated with developing plant and equipment.

" Chairman ” has the meaning set forth in Section 4.4(b).

" Charter ” has the meaning set forth in Section 2.1.

" Closing Date ” has the meaning set forth in the Stock Purchase Agreement.

" Company ” has the meaning set forth in the Preamble.

" Confidential Information ” has the meaning set forth in Section 11.2(e).

" Consolidation ” has the meaning set forth in Section 4.3(c).

" Directors ” has the meaning set forth in Section 4.4(a).

" Disclosing Party ” has the meaning set forth in Section 11.2(e).

" DKL ” has the meaning set forth in Recital B.

" EBITDA ” means operating earnings before implementation of the adjustment described in Financial Accounting Standards Board Staff Accounting Bulletin 101 and before interest, taxes, depreciation and amortization, based upon the results of a Person prepared in accordance with US GAAP and, in any case, after deducting any amounts resulting from capitalization of internal labor and material costs associated with developing plant and equipment.

" Effective Date ” has the meaning set forth in the Preamble.

" Fair Value ” means the fair value of the Shares of which the fair value is to be determined in the events provided for in this Agreement and in accordance with the procedure set forth in Exhibit C .

" IFRS ” means international financial reporting standards.

" Initial Period ” has the meaning set forth in Section 1 of Exhibit C .

" Inure ” has the meaning set forth in the Preamble.

" Inure Director ” has the meaning set forth in Section 4.4(a).

" Inure Listing Shares ” has the meaning set forth in Section 6.2(f).

" JSC Law ” means the Russian Federation Law ¹ 208-FZ “On Joint Stock Companies,” dated December 26, 1995, as the same is amended from time to time.

" Lien ” means any charge or claim, community property interest, condition, equitable interest, lien (statutory or otherwise), encumbrance, option, proxy, pledge, security interest, mortgage, right of first refusal, right of first offer, retention of title agreement, or restriction of any kind or nature, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

" Listing ” has the meaning set forth in Section 6.2(a).

" Listing Notice ” has the meaning set forth in Section 6.2(f).

" Offer Notice ” has the meaning set forth in Section 5.1(b)(i).

" Offer Terms ” has the meaning set forth in Section 5.1(b)(i)(5).

" Offeree Shareholders ” has the meaning set forth in Section 5.1(a).

" Offering Shareholder ” has the meaning set forth in Section 5.1(a).

" Offering Price ” has the meaning set forth in Section 5.1(b)(i)(4).

" Ongoing Funding ” means all funding requirements in respect of the Company and the Subsidiaries.

" Organizational Documents ” has the meaning set forth in Section 2.2.

" Panel ” has the meaning set forth in Section 6.2(d).

" Parent ” has the meaning set forth in the Preamble.

" Permitted Transferee ” has the meaning set forth in Section 5.1(e).

" Person ” means any individual, firm, partnership, joint venture, trust, corporation, limited liability entity, unincorporated organization, estate or other entity (including any governmental entity).

" Proposed Purchaser ” has the meaning set forth in Section 5.1(b)(i)(2).

" Pro Rata Portion ” has the meaning set forth in Section 5.2(a).

" RAS ” has the meaning set forth in Section 4.6(a).

" Receiving Party ” has the meaning set forth in Section 11.2(e).

" Recipient ” has the meaning set forth in Section 11.2(b).

" Reserved Matters ” has the meaning set forth in Section 4.3(a).

" Right of First Refusal ” has the meaning set forth in Section 5.1(a).

" RML ” has the meaning set forth in Recital A.

" SEC ” means United States Securities and Exchange Commission.

" SFMT ” has the meaning set forth in the Preamble.

" Shareholder Loan ” has the meaning set forth in Section 3.4(b).

" Shareholders’ Agreement ” has the meaning set forth in the Preamble.

" Stock Purchase Agreement ” has the meaning set forth in Recital D.

" Shares ” has the meaning set forth in Recital G.

" Subsidiaries ” means the companies listed in Exhibit A and such other entities of which more than fifty percent (50%) of the shares or interests are acquired by the Company after the Effective Date.

" Surviving Provisions ” means Article 1 and Sections 11.1 through 11.4 (inclusive), 11.10 and 11.15 through 11.18 (inclusive).

" Tag-Along Notice ” has the meaning set forth in Section 5.2(a).

" Termination ” has the meaning set forth in Section 10.2.

" Transfer ” means any direct or indirect sale, exchange, transfer (including, without limitation, any transfer by gift or operation of law, or any transfer of an economic interest in any derivative security of any Share), assignment, distribution or other disposition, or issuance or creation of any option or any voting proxy, voting trust or other voting agreement in respect of any Person or instrument (including, without limitation, any of the Shares), whether in a single transaction or a series of related transactions, including, without limitation, the direct or indirect enforcement or foreclosure of any Lien, pledge, security interest or similar encumbrance.

" Trigger Date ” means the date on which a decision to issue new Shares shall have been made by the Company.

" US GAAP ” means accounting principles generally accepted in the United States, consistently applied.

" VTB ” means OAO Vneshtorgbank, a commercial bank organized and existing as a open joint stock company under Russian law.

1.2. Interpretation.

In this Shareholders’ Agreement:

(a) The masculine, feminine and neuter genders and the singular and the plural shall be deemed to include one another, as appropriate;

(b) a reference to an amount in US Dollars shall also mean a reference to an equivalent thereof in any other currency;

(c) “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise;

(d) the captions used are for convenience of reference only and are not a part of this Shareholders’ Agreement and do not in any way limit or amplify the terms and provisions hereof; and

(e) any references herein to a particular Section, Exhibit or Schedule means a Section of, or an Exhibit or Schedule to, this Shareholders’ Agreement unless another agreement is specified.

ARTICLE II

GENERAL PROVISIONS

2.1. Status of the Company.

The Parties agree that the Company shall operate the Business, and shall be governed by (a) the provisions of its charter, which shall be amended to reflect this Shareholders’ Agreement (the " Charter ”) as such may be amended from time to time in accordance with the provisions thereof and hereof and (b) this Shareholders’ Agreement. Subject to compliance with applicable law, the Shareholders shall cause the Company to take any and all actions necessary to effectuate the terms and conditions of this Shareholders’ Agreement.

2.2. Subsidiaries.

(a) The Parties agree that the terms and conditions of this Shareholders’ Agreement, where relevant, shall apply to the Subsidiaries and that no decision, corporate action or any transaction shall be made, taken or entered into by any Subsidiary in breach of the terms of this Shareholders’ Agreement. The Parties acting through the Company and the relevant Subsidiaries shall procure that the relevant changes or modifications are made to the articles of association, charters, foundation or partnership agreements and any other organizational documents (“ Organizational Documents ”) of the Company and the Subsidiaries to give full effect to the provisions and spirit of this Shareholders’ Agreement.

(b) The voting and other rights attributable to the shares in the Subsidiaries shall be exercised pursuant to the Board’s decision approved in accordance with its normal procedures.

ARTICLE III

BUSINESS AND MANAGEMENT OF BUSINESS

3.1. Management of Business.

The Parties agree to manage and finance the Business and the Company and the Subsidiaries as reflected in the Business Plan. Any business plan or financing plan for any period after expiration of the Business Plan or any modifications to the Business Plan shall be approved by the Board in accordance with its standard procedures.

3.2. Agreement Concerning Provision of Services.

The Parties agree that the services purchased by (a) the Company and its Subsidiaries and (b) Buyer and its Affiliates following the Effective Date from one another shall:

(a) be provided on an arm’s length basis on commercial terms; and

(b) be at the rates specified for each such type of service in the relevant interconnect agreement(s) (subject to adjustments from time to time to take into account the then current market prices and applicable rules and regulations).

Nothing in this Section 3.2 or in the Business Plan is intended to constitute any price fixing or any restriction on competition in the relevant market.

3.3. Forecast.

The Parties agree that the expansion of the operation of the business of the Company following the Effective Date shall include the matters set forth in the Business Plan and the Parties agree to use their respective reasonable efforts to cause the Company to achieve the objectives set forth in the Business Plan.

3.4. Financing.

(a) The Shareholders shall procure that the Company shall, and the Company shall, apply any contributions made by the Shareholders in connection with Ongoing Funding solely for the benefit of the business of the Company and each Subsidiary and in accordance with the provisions of the Business Plan to achieve financial objectives.

(b) Shareholders are not obliged to provide any Ongoing Funding (by means of equity contributions, or loans provided by the Shareholder (each, a “ Shareholder Loan ”), or security with respect to third parties’ financing) unless such Ongoing Funding is agreed by the Shareholders according to the relevant corporate governance rules or provided for in the Business Plan.

(c) Ongoing Funding shall be met as follows:

(i) first , from the Company and relevant Subsidiary’s available cash in the relevant calendar year;

(ii) second , if funds obtained under clause (i) are insufficient to cover Ongoing Funding as provided in the Business Plan, then from unsecured third-party debt, provided that in the event any third-party unsecured debt is offered to the Company as contemplated in this Section 3.4(c)(ii), then upon receiving from a potential lender a termsheet or similar description of the terms of the proposed debt financing and prior to the Company entering into any binding agreement with respect to such debt, each Shareholder shall have the right (exercisable within five (5) Business Days after notice of the proposed unsecured borrowing by the Company is provided by the Company to each Shareholder) to extend all or a portion of such debt to the Company on substantially the same terms. In the event more than one Shareholder desires to extend such debt to the Company, such debt shall be allocated pro rata between the Shareholders based on their holdings in the Company;

(iii) third , if funds obtained under clauses (i) and (ii) are insufficient to cover Ongoing Funding as provided in the Business Plan, then from Shareholder Loans, provided that (A) the Buyer and Inure shall have the option to participate pro rata (based on their holdings in the Company) in such Shareholder Loans to the extent necessary to meet the Ongoing Funding of the Company set out in the Business Plan, and any Shareholder Loans in excess of such amount shall be at the sole discretion of the relevant Shareholder; (B) the terms of the Shareholder Loans shall be substantially similar to the terms of the latest unsecured debt obtained by the Company from a third party on an arm’s length basis, and (C) the terms and conditions for each such Shareholder Loan entered into in connection with the same Ongoing Funding shall be on the same commercial terms; and

(iv) fourth , if funds obtained under clauses (i), (ii) and (iii) are insufficient to cover the amount of Ongoing Funding (but only when Ongoing Funding exceeds the amount provided for in the Business Plan), then through equity contributions by the Shareholders pro rata to their shareholdings in the Company, provided , however , that both Buyer and Inure shall have extended Shareholder Loans under clause (iii) above.

(d) If it is agreed by the Shareholders that Ongoing Funding is to be provided by equity contributions, and a Shareholder fails to subscribe or pay for the newly issued Shares prior to the expiration of the relevant subscription period subject to applicable Russian company laws, such unsubscribed or unpaid for Shares (or any part thereof) may be acquired by the other Shareholder, failing which, the Board, in accordance with its standard procedures, may authorize the sale of such Shares to a third Person, approved by a non-defaulting Shareholder. The defaulting Shareholder shall have no rights under Sections 5.1 or 6.1 in respect of the Shares it shall have failed to subscribe or pay for.

(e) Other than in accordance with Section 5.3, no Shareholder shall be entitled to establish any Lien on the subscribed Shares.

ARTICLE IV

CORPORATE GOVERNANCE

4.1. Shareholders’ Meetings; Board’s Meetings.

Meetings of the Shareholders and the Board shall be held as necessary but not less frequently than required by Russian company laws. The matters related to the convocation, notice and agenda of such meetings shall be as provided for in the Charter, provided that to the extent consistent with Russian company laws, the participation of at least one Inure Director and one Buyer Director shall be required for any meeting of the Board to be quorate and if any such Director has been duly notified of the meeting but fails to participate for any reason, the meeting shall be deemed quorate when reconvened with or without the participation of at least one Inure Director.

4.2. Voting.

Except as set forth in Section 4.3, the decisions of the Board shall be taken by majority vote of Directors present at any duly convened meeting having a quorum.

4.3. Reserved Matters.

(a) Subject to any mandatory provisions of Russian law, the following decisions (“ Reserved Matters ”) shall require either (i) the affirmative vote of holders of seventy percent (70%) of the Shares entitled to vote on the matter at a general or extraordinary meeting of shareholders at which a quorum is represented or (ii) the affirmative vote of at least five (5) Directors:

(i) changes to the Charter or other Organizational Documents of the Company or the Subsidiaries (except where the equity contributions are required to be provided by operation of Section 3.4(c)(iv), in which case the necessary changes to the Charter should not qualify as a Reserved Matter and each Shareholder shall vote its shares to authorize such change (to the extent required));

(ii) any proposal to wind up the Company or any Subsidiary or initiation of any other voluntary proceeding seeking liquidation or reorganization thereof;

(iii) any material change in the nature or scope of the Business;

(iv) any “major transaction” of the Company or any Subsidiary as this term is defined under the JSC Law;

(v) any issuance of shares or securities convertible into shares, creation of any options to subscribe for or acquire such shares or redemption of shares, any increase or decrease of the charter capital or other change in the capital structure in each case relating to the Company or the Subsidiaries, including in each case the terms of each such change;

(vi) any distribution of dividends by the Company;

(vii) the merger or any corporate reorganization or restructuring of the Company or the Subsidiaries, any joint venture or partnership or acquisition of a material part of the assets of the Company or the Subsidiaries or any transaction for the acquisition of equity interest in another company; and

(viii) any transaction by the Company or any Subsidiary with any Shareholder or any Affiliate (other than the Company and its Subsidiaries) of any of the Shareholders and any “interested party transaction” of the Company or any Subsidiary as this term is defined under the JSC Law.

(b) In determining whether any of the Reserved Matters described above requires the approval of the Shareholders as aforesaid, a series of related transactions that, when aggregated, exceed the figure specified in the relevant paragraph above shall be construed as a single transaction requiring such Shareholder approval.

(c) The Parties agree that in no event shall Reserved Matters include any matter that would disallow Parent from fully consolidating the Company and its Subsidiaries in Parent’s financial statements in accordance with US GAAP and/or SEC rules (the " Consolidation ”).

4.4. Board of Directors.

(a)  Board Composition . The Board shall be comprised of seven (7) directors (“ Directors ”). The Directors shall be elected by cumulative vote, and removed by the Shareholders in accordance with Russian company laws. For so long as their shareholding remain unchanged from the closing of the Acquisition, each Shareholder agrees to take all actions necessary from time to time (including, without limitation, the voting of Shares, the execution of written consents, the calling of special meetings, the removal of Directors, the filling of vacancies on the Board, the waiving of notice of and attendance at meetings, the amendment of the Charter and the like) to procure that four (4) Directors are elected from the candidates nominated by the Buyer (each Director so nominated and elected, a “ Buyer Director ”) and three (3) Directors are elected from the candidates nominated by Inure (each Director so nominated and elected, an “ Inure Director ”).

(b)  Chairman of the Board . The Parties shall procure that the first chairman of the Board (the “ Chairman ”) shall for the first year be Mr. Alexander Mamut.

(c)  Shareholder Information . Each Director shall be permitted to pass any information it obtains in its capacity as a Director to its nominating Shareholder. Each Shareholder shall be required to keep such information confidential.

4.5. Executive Officers.

The Company, its Subsidiaries and the Business shall be run by respective executive officers, including a president and a general director. The nomination, election, removal and authorities of the executive officers shall be in accordance with the Charter and, where applicable, the Organizational Documents and applicable Russian company laws.

4.6. Books and Records.

(a) The books and records of the Company and the Subsidiaries shall be maintained, and the financial statements of the Company shall be prepared, in accordance with (1) generally accepted accounting principles in the Russian Federation (“ RAS ”) and (2) US GAAP, consistently applied.

(b) The Board or its audit committee shall appoint an independent licensed public accounting firm (the “ Auditor ”) to perform an annual audit of the Company and its Subsidiaries’ consolidated financial statements and quarterly reviews of the Company and its Subsidiaries’ consolidated financial statements in accordance with US GAAP. If required by the Board, the Auditor will perform an audit and/or quarterly reviews of the financial statements prepared in accordance with RAS.

(c) Buyer shall procure that the Company shall, and the Company shall, provide Inure (at no expense to Inure) and Inure’s Permitted Transferees (provided that Inure or such Permitted Transferee owns more than twenty