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7. Equipment FinancingEricsson VimpelCom has entered into eight equipment supply agreements with Ericsson Radio Systems AB ("Ericsson") with respect to equipment purchases and expansion of the AMPS network with a maximum total value of US$193,600. The Ericsson agreements have either related supplier credit facilities or sale and lease arrangements with options to purchase the equipment. Six shareholders entered into pledge agreements dated January 27, 1998. Under these pledge agreements, 13.5% of VimpelCom's outstanding shares of common stock held by these shareholders has been pledged as security against the supplier credit facility and capital lease obligations. The two phases of the first expansion agreement were financed by supplier credit facilities which accrued interest at a rate of 12.63% per annum. In connection with the subsequent agreements, VimpelCom entered into supply agreement assignments whereby VimpelCom assigned all its rights, title, and interest to the equipment acquired under the second, third, and fourth expansions to AB LM Ericsson Finans, and its rights, title, and interest to the equipment acquired under the fifth, sixth, seventh and eighth expansions to Ericsson Project Finance AB. In addition, VimpelCom entered into agreements with AB LM Ericsson Finans to lease this equipment. The second, fifth, sixth, seventh and eighth expansion agreements are denominated in US dollars and the outstanding principal accrues interest at LIBOR plus 4.5%. The third and fourth expansion agreements are denominated in Swedish krona and the outstanding principal accrues interest at the Stockholm Interbank Offered Rate ("STIBOR") plus 4.5%. As of December 31, 1998, the three month LIBOR and three month STIBOR were 4.076% and 3.563%, respectively. Under these agreements, VimpelCom has various options at specified dates to purchase the leased equipment. Equipment supplied under these agreements has been accounted for as capital leases. In January 1998, agreements between Ericsson Project Finance AB, AB LM Ericsson Finans, (collectively, "Ericsson Finance") and ING Bank N.V., a Dutch bank serving as a facility agent for a syndicate of banks, transferred ultimate collection rights under the Ericsson equipment supply agreements from Ericsson Finance to ING Bank N.V. While VimpelCom continues to make payments to Ericsson Finance, VimpelCom is subject to certain defined debt covenant restrictions, including several related to financial condition. In addition, certain of VimpelCom's assets, including cash, trade accounts receivable, and telephone line capacity, have been pledged to Ericsson Finance as collateral to the extent needed to fulfill VimpelCom's scheduled obligations in the event of default. As of December 31, 1998, the aggregate carrying value of assets pledged amounted to US$91,460. Alcatel KBI entered into an agreement with Alcatel SEL AG ("Alcatel") for the purchase and installation in four phases of mobile telecommunications network equipment with a total contract value of US$135,000. In order to finance the transaction, KBI and Alcatel entered into a deferred payment agreement in the aggregate principal amount of US$113,242 plus interest (the "Alcatel Agreement"). In addition, Alcatel received shares of KBI's common stock representing the remaining 12% of the outstanding capital stock of KBI after giving effect to such issuance. These shares were valued at US$21,758 in accordance with the market value of the equipment and services to be provided, adjusted for put and call options attached to the issuance. The put and call options represent 50% of the shares and have been recorded as an equipment financing obligation in the accompanying consolidated balance sheets. VimpelCom has an option to purchase from Alcatel 50% of the newly issued KBI shares at any time before April 2001 for US$10,879 plus interest at the US dollar LIBOR rate. Furthermore, in certain circumstances, VimpelCom has a right of first refusal with respect to Alcatel's transfer of these shares. In addition, at any time upon occurrence of certain events of default, Alcatel has the option to sell up to 100% of the KBI shares to VimpelCom for an amount up to US$21,758 plus interest at the US dollar LIBOR rate (the "Put Price"). In the event that Alcatel elects to sell less than 100% of these shares to VimpelCom, the Put Price will be reduced proportionately. Furthermore, after April 2001, Alcatel has the option to sell 50% of the KBI shares to VimpelCom for 50% of the Put Price. The Alcatel Agreement requires interest to be paid at the US dollar LIBOR rate plus 4.0% over a period to be determined by the timing of the initiation of the four different phases of the Alcatel Agreement. Financing of the contract by Alcatel provides for repayment of Phase 1 and Phase 2 to commence no later than four years from the date of the contract. For the first phase, initiated in 1996, two annexes have been signed. The first annex related to equipment valued at US$21,758 which was contributed in kind to the charter capital of KBI. The second annex related to a delivery of equipment valued at US$21,511 under the equipment financing agreement. For the second phase, initiated in 1997, one annex was signed for equipment valued at US$47,598. For the third phase, initiated in 1998, one annex was signed for equipment valued at US$22,233 and to be acquired in 1999. Repayments of amounts due under the Alcatel Agreement for the first and second phases are to begin after a grace period of three years from the date of acceptance of the related equipment and services, however, this grace period expires no later than May 26, 2000. The grace periods for the third and fourth phases expire two years and one year, respectively, after the date of acceptance of the phases. Principal and interest repayments are to be made in eight semi-annual installments beginning May 27, 2000. The supply agreement for the first and second phases is financed by a supplier credit facility in the amount of US$69,109, which accrues interest at the US dollar LIBOR rate plus 4.0% per annum. During 1998 and 1997, interest of US$2,455 and US$2,186, respectively, was capitalized and interest of US$4,382 and US$1,378, respectively, was accrued under these phases. No interest was capitalized in 1996. Amounts outstanding in connection with VimpelCom's equipment financing consisted of the following at December 31:
Future minimum payments under capital lease obligations and supplier credit facilities are as follows:
  
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