LAW OF THE RUSSIAN FEDERATION

ON PLEDGE NO. 2872-1 OF MAY 29, 1992

(with the Amendments and Additions of July 26, 2006, July 19, 2007, December 30, 2008)

This English translation has been generously provided by Internet Securities, Inc.

Important Disclaimer This does not constitute an official translation and the translator cannot be responsible for any inaccuracy or omission in the translation. The text should be used for information purposes only and appropriate legal advice should be sought as and when appropriate.

Section I. General Provisions

Article 1. The Concept of Pledge

A pledge is the security for the fulfilment of an obligation, under which the creditor acquires the right, in case of default by the debtor, to be satisfied out of the property in pledge prior to other creditors, except where otherwise provided for by law.

According to the Merchant Shipping Code of the Russian Federation No. 81-FZ of April 30, 1999 claims secured by maritime mortgage shall be subject to prior satisfaction to the claims following from the liabilities secured by the registered mortgage on the ship

Article 2. The Laws of the Russian Federation concerning Pledge

The present law defines the fundamental provisions concerning pledge.

Pledge relationships which are not subject to this law shall be regulated by other laws of the Russian Federation.

On the pledge of agricultural products, raw materials and foodstuffs see Federal Law No. 100-FZ of July 14, 1997

If an international agreement of the Russian Federation creates provisions concerning pledges, other than those established by laws of the Russian Federation, the provisions of the international agreement shall apply.

Article 3. The Basis for the Existence of a Pledge Relationship

1. A pledge shall be established by a contract or by the law.

2. The law regulating the pledge relationship shall indicate the type of obligation which shall be secured by pledge and shall identify the property which shall be given in pledge.

Article 4. Application for the Pledge

1. The pledge may secure an existing aspiration which arises, in particular, from a loan contract, including from a bank loan, from a sale contract, lease of property, freight and other contracts.

2. Things, securities, other property and property rights may be pledged.

Claims which are of personal nature and other claims which may not be pledged under law may not become a pledge.

3. The pledge may be established in respect of claims which will arise in future, provided the parties are agreed on the size of the pledge securing such claims.

4. The pledge shall hinge on the obligation secured thereby. The rights of the pledgee shall depend on the fulfilment or non-fulfilment of the obligation secured by the pledge.

Article 5. Types of Pledge

The law or the contract may provide that the pledged property shall remain in the pledgor's possession or shall be transferred to the pledgee.

Goods may be pledged by the transfer of the document of title to the pledgee, which shall be a security. The securities pledged may be deposited with a notary's office or a bank.

Article 6. Property as a Pledge

1. Any property which, under the laws of the Russian Federation, may be alienated by the pledgor may be pledged.

2. The right to pledge things shall include their accessories and inseparable fruits, unless otherwise provided for by law or by the contract. The right to pledge things may include separable fruits only in the cases, to the extent and in the manner provided for by law or by the contract.

3. The contract or the law may provide for the extension of the right to pledge things which may be acquired by the pledgor in the future.

Article 7. The Pledging of Common Property

1. Common property may be pledged only by mutual consent of all the owners.

2. An owner may pledge his own share of the common property without the consent of other owners.

3. The owner of an apartment may independently decide whether to pledge it.

Article 8. The Substitution of the Object Matter of the Pledge

The object matter of a pledge may be replaced only by the pledgee's consent. If the property in pledge is goods which are in circulation, the manner of replacement of the pledge shall be regulated by Articles 46 and 47 of this law.

Article 9. Pledge and Insurance

Federal Law No. 197-FZ of July 19, 2007 amended Item 1 of Article 9 of this Law. The amendments shall enter into force from January 1, 2008

See the Item in the previous wording

1. The law or the pledge contract may impose a duty on the pledgee to insure the pledged property which has been placed in his possession.

2. The law or the pledge contract may oblige the pledgor to insure the property in pledge against actions by public bodies and acts adopted by them which will terminate the pledgor's economic activities or hamper them, or unfavorably affect them (confiscation, requisitioning of property), and also against liquidation or insolvency.

3. In the event of the occurrence of those circumstances covered by insurance, the pledgee shall have the preferential right to be satisfied out of the sum insured.

Article 10. The Content and Form of the Pledge Contract

1. The pledge contract shall contain the terms stipulating the kind of pledge, the essence of the claim secured by the pledge, the latter's size, the term for the fulfillment of the obligation, the composition and cost of the property in pledge, and also any other terms requested by one of the parties, which are subject to agreement.

2. The pledge contract shall be concluded in written form.

3. The pledge contract which secures the fulfillment of an obligation arising from the principal contract which, shall be certified by the notary, or which has been certified by the notary by mutual consent of the parties, shall be certified by the body which certified the principal contract.

4. A pledge clause may be included into the contract on the basis of the existence of the obligation secured by the pledge. Such a contract should be drawn up in the form prescribed for the pledge contract.

Federal Law No. 129-FZ of June 26, 2006 amended Item 5 of Article 10 of this Federal Law

See the previous text of the Item

5. The form of the pledge contract shall be determined by the legislation of the territory where it is made. Pledge contracts concluded outside the Russian Federation may not be deemed void because of their non-compliance with the prescribed form, if the requirements stipulated by the laws of the Russian Federation are met.

The form of the contract which pledges buildings, structures, enterprises, pieces of land and other objects on the territory of the Russian Federation, and also of the railway vehicles, civil air, sea and river vessels, and space objects, registered in the Russian Federation, shall be determined by the laws of the Russian Federation, regardless of the territory where the contract was concluded.

6. The rights and duties of the parties to the pledge contract shall be determined under the laws of the country where the pledgor is established, has its/his domicile or the basic place of business, unless otherwise provided for by the contract.

Article 11. State Registration of the Pledge

The pledging of an enterprise as a whole or of other property subject to state registration shall be registered with the body effecting such registration, unless otherwise provided for by this Law.

If the pledging of property is subject to state registration, the pledge contract shall be deemed to be concluded as of the moment of registration.

Article 12. Consequences of Non-Compliance with the Form of the Pledge Contract

Non-compliance with the prescribed form of the pledge contract shall render the contract void, with the consequences of which are provided for by the laws of the Russian Federation.

Article 13. Appeals against Actions in Relation to the Registration of the Pledge

A person concerned shall have the right to appeal against the refusal to register a pledge or against the unlawful registration of the pledge in a court of law in the locality where the registration body which effected the registration is situated.

Article 14. Information about the Registration of the Pledge

The body effecting the registration of the pledge shall be obliged to issue to the pledgor and to the pledgee the registration certificates, and also extracts from the register book at the request of the pledgor, pledgee or at the request of other interested parties.

Article 15. The State Fee for the Registration of the Pledge

The state fee, the amount of which shall be determined by the laws of the Russian Federation, shall be collected for the registration of the pledge, the issue of the registration certificates, and also for extracts taken from the register book. The applicant shall produce the documents proving the payment of the tax (vouchers for payment) to the body which effected the registration. The application shall not be considered until such documents are presented.

Federal Law No. 226-FZ of December 31, 1995 reworded Law on the State Revenue Duty. Concerning the amounts of the state duty for the registration of pledge see Article 4 of the new wording of the Law

Article 16. The Responsibility of the Registration Body

The body effecting the registration of the pledge shall be responsible for the damage done by its officers in violation of the registration rules.

Article 17. The Registration of the Fulfillment of the Obligation Secured by the Pledge

1. The pledgee shall, at the demand of the pledgor, issue to the latter the documents confirming the complete or partial fulfillment of the obligation secured by the pledge in order to enter the corresponding information in the register book.

2. Upon receiving the documents confirming the complete or partial fulfillment of the obligation secured by the pledge, the registration body shall be obliged to immediately enter the corresponding information in the register book.

Article 18. Records on the Pledge Are to Be Kept by the Pledgor

1. The pledgors, both legal and natural persons, registered as entrepreneurs shall have the duty:

1) to keep records on the pledge;

2) to make a record, not later than 10 days after the pledge relationship has arisen, which shall indicate the form and object matter of the property in pledge, and also the extent to which the obligation is secured;

3) to present the records to any interested party for viewing.

2. The pledgor shall be responsible for promptly and correctly keeping records concerning the pledge. The pledgor shall be obliged to compensate in full persons who have suffered losses as a result of the delay in updating the record book, the

incompleteness or inaccuracy of the records, and also due to an evasion of the duty to present the record book.

Article 19. The Pledgor

1. The pledgor may be a person which fully owns the property to be pledged or exercises full economic control over it.

2. The enterprise which exercises full economic control over the property shall pledge the enterprise as a whole, its structural units and subdivisions which are property complexes, and also separate buildings and structures with the consent of the owner of that property or of the authorized body.

Concerning coordination of mortgage deals of state property see Order of the State Property Management Committee of the Russian Federation No. 890-r of April 21, 1994

3. An institution may pledge property in respect of which it has acquired, in accordance with the law, the right to independently dispose of it.

4. The pledgor of rights may be a person who is the owner of the rights.

The leaseholder may transfer his tenant rights as a pledge without the consent of the lessor, unless otherwise provided for by the leasing contract.

Article 20. The Right to Dispose of the Pledged Property

The pledgor shall retain the right to dispose of the property in pledge, unless otherwise provided for by the present Law or by the pledge contract.

The transfer of the right to the property in pledge shall only be possible with the transfer of the principal debt secured by the pledge to the new pledgor.

Article 21. Subsequent Pledging of Property Already in Pledge

Subsequent pledging of the property already in pledge shall be allowed, unless otherwise provided for by the present Law and by the preceding pledge contract.

Article 22. The Right of the Preceding Pledgee

1. If the pledge is the property which has already been pledged as security for another obligation, the pledge right of the preceding pledgee shall remain in force.

The claims of the subsequent pledgee shall be satisfied out of the value of the pledge after the claim of the preceding pledgee has been satisfied.

2. The pledgor shall have the duty to inform each subsequent pledgee about all existing pledges on the given property, and also about the nature and amount of the obligations secured by these pledges. The pledgor shall be obliged to compensate any of the pledgees for the losses incurred as a result of a corresponding default in the fulfillment of this duty.

Article 23. Claims of the Pledgee Are to Be Satisfied Out of the Property in Pledge

The pledgee shall have the right to be satisfied out of the property in pledge, at the full amount as determined at the moment of the actual satisfaction, including interest, losses incurred as a result of default, and in the cases provided for by the law or by the contract, a fine; the costs of safekeeping the pledged property and realizing the claim secured by the pledge shall also be reimbursed.

Article 24. Abrogated.

See the text of Article 24

Federal Law No. 306-FZ of December 30, 2008 supplemented this Law with Article 24.1. The new Article shall be applied to the legal relationships arising from the end point of the bankruptcy proceedings initiated before the date of entering into force of the said Federal Law

Article 24.1. Procedure for Levying Execution upon Pledged Movable Property

1. The satisfaction of a claim of the pledge holder on account of the movable property put in pledge without judicial recourse (in an extrajudicial procedure) shall be allowed where it is provided for by the Civil Code of the Russian Federation, if not otherwise established by a federal law.

2. If execution is levied uponpledged movable property without judicial recourse (in an extrajudicial procedure) the pledge holder is obliged to forward to the pledger a notice of the start of levying execution upon the subject of pledge citing the following:

1) denomination of the movable property put in pledge under a contract of pledge on whose account the claims of the pledge holder are to be allowed;

2) amount to be paid to the pledge holder on the basis of the obligation secured by pledge;

3) method of realisation the movable property put in pledge which is provided for by Article 28.1 of this Law;

4) price (initial selling price) of pledged movable property fixed in compliance with Article 28.1 of this Law.

3. If a longer time period is not established by a law or by an agreement made by the pledge holder and the pledger, it shall not be allowed to realise pledged movable property before the expiry of ten days as of the date of receiving a notice by the pledger or forty five days as of the date of forwarding by the pledge holder or by the sales organizer such notice to the pledger, if this time period expires earlier. Pledged movable property may be realized before the expiry of the said time periods where there is a major risk of destruction or damage of the subject of pledge, as well as a major risk of considerable reduction of the price of the subject of pledge as compared to the price (the initial selling price) cited in the notice.

Article 25. The Pledge in Cases of Partial Fulfillment of the Obligation

If the debtor has fulfilled his obligation, secured by the pledge, only in part, the original pledge shall remain in force in full until the complete fulfillment of the obligation secured thereby, unless otherwise provided for by the law or by the contract.

Article 26. Satisfaction of the Pledgee's Claim Out of the Pledge Which Consists of Several Things (Rights)

If the pledge consists of several things (rights), the pledgee may be satisfied, at his choice, out of all that property or out of any thing (right) and he shall retain the right to be subsequently satisfied out of other things (rights) which constitute the object matter of pledge.

Article 27. The Consequences of the Satisfaction of the Pledgee's Claim by a Third Person

If the pledgee's claim is satisfied by a third person, the latter shall acquire, along with the right to claim, the right to the pledge securing that claim, according to the manner prescribed by the laws of the Russian Federation which regulate the concession of claims.

Article 28. Abrogated.

See the text of Article 28

Federal Law No. 306-FZ of December 30, 2008 supplemented this Law with Article 28.1. The new Article shall be applied to the legal relationships arising from the end point of the bankruptcy proceedings initiated before the date of entering into force of the said Federal Law

Article 28.1. Realisation of Pledged Movable Property

1. The movable property put in pledge upon which execution is levied on the basis of a court decision shall be realized (sold) through public sales held in the procedure established by the legislation of the Russian Federation on execution proceedings.

2. When levying execution uponpledged movable property without judicial recourse (in an extrajudicial procedure), the subject of pledge shall be sold through public sales held in compliance with the rules established by Articles 447 and 448 of the Civil Code of the Russian Federation, by this Law and as agreed by the parties or by way of selling pledged movable property under a contract of commission made by the pledge holder and a commission agent.

Securities circulating in the organized securities market shall be sold through sales arranged by a trade promoter in the securities market.

3. In the contract of pledge made by legal entities and individual businessmen to secure obligations connected with business activities and providing for an extrajudicial procedure for levying execution upon pledged movable property or in the agreement on an extrajudicial procedure for levying execution upon the property put in pledge under such contract the parties thereto are entitled to include the following provisions:

1) the subject of pledge shall become the property of the pledge holder;

2) the pledge holder shall sell the subject of pledge to a third person without holding sales, in particular by way of selling pledged movable property under a contract of commission made by the pledge holder and a commission agent deducting the amount of the obligation secured by its pledge from the sum of money derived from it.

4. When levying execution upon pledged movable property in the procedure provided for by Item 3 of this article, the pledged movable property shall become the property of the pledge holder or shall be sold by the pledge holder to a third person at the price which is equal to the market value thereof. The results of appraisal of pledged movable property may be complained against by persons concerned in the procedure established by the legislation of the Russian Federation.

5. For the purpose of selling pledged movable property by the methods cited in Item 2 of this Article, the pledge holder is entitled to make in his own name all the transactions required for it and corresponding to the legal capacity thereof, in particular with the sales organizer and appraiser, as well as to sign all the documents required for selling the pledged movable property, in particular acceptance certificates and transfer orders.

The amount of remuneration of the sales organizer or commission agent amounting to at most three per cent of the sum of money derived from selling pledged movable property shall be deducted by the pledge holder from the sum derived from selling the pledged movable property. Where the remuneration of the sales organiser or commission agent exceeds three per cent of the sum derived from selling pledged movable property, the difference between the remuneration

provided for by the contract made with the sales organizer pr commission agent and the three per cent of the sum derived from selling the pledged movable property shall not be subject to reimbursement on account of the cost of pledged movable property and shall be paid at the expense of the pledge holder.

6. If not otherwise established by federal laws, the pledge holder is entitled to demand the transfer thereto of the pledged movable property by the pledger, provided that it has been left with the pledger in compliance with Item 1 of Article 338 of the Civil Code of the Russian Federation and the terms of the contract of pledge. The said right of claim shall extend to the cases when the subject of pledge is transferred to a third person for possession or use in compliance with Item 3 of Article 338 of the Civil Code of the Russian Federation or when the subject of pledge is transferred by the pledger to a third person (custodian) for custody.

7. When satisfying the pledge holder's claims on account of pledged movable property on the basis of a court decision, the court is entitled by request of the pledger when the latter has good reasons for it to postpone its sale through public sales for a term of one year. The postponement does not concern the rights and duties of the parties in respect of the obligation secured by this property's pledge and does not relieve the debtor of reimbursement for the creditor's losses and of a forfeit increasing during the period of such postponement.

When fixing the time period for postponement of realisation of pledged movable property, the court shall likewise take into account that the amount of the pledge holder's claim to be satisfied on account of the pledged movable property's cost upon the expiry of the time period of the postponement shall not exceed the cost of pledged movable property according to the estimation cited in the contract of pledge.

The postponement shall not be allowed, if it can entail a major increase of the risk of loss or destruction or the risk of drastic reduction of the price of the subject of pledge, as compared to the initial selling price of the subject of pledge, or a major deterioration of the pledge holder's financial status.

8. Where execution is levied upon pledged movable property without judicial recourse (in an extrajudicial procedure), the parties may fix the time period within which, starting from the date cited in Item 3 of Article 24.1 of this Law, the pledged movable property shall be sold. If the agreement made by the pledge holder and the pledger does not fix such time period, the pledged movable property shall be sold within a reasonable time period.

9. When selling pledged movable property through public sales on the basis of a court decision, a bailiff or, when it is sold through sales in case of levying execution upon such property without judicial recourse (in an extrajudicial procedure), the pledge holder are obliged to forward at latest in ten days before

the date of sales to the pledger and debtor under the principal obligation a notice citing the date, time and place of holding the sales.

10. A contract of pledge providing for the pledge holder's right to satisfy claims on account of pledged movable property without judicial recourse (in an extrajudicial procedure) or the agreement on levying execution upon pledged movable property in an extrajudicial procedure may cite the initial selling price of the pledged movable property (the selling price under a contract of commission) or a procedure for fixing it.

If federal laws provide for obligatory attraction of an appraiser when selling pledged movable property without judicial recourse (in an extrajudicial procedure), the initial selling price of the pledged movable property wherefrom sales start shall be fixed as equal to eighty per cent of the market value of such property cited in the appraiser's report, if not otherwise provided by the agreement of the parties on levying execution upon the pledged movable property in an extrajudicial procedure.

Pledged movable property shall be sold to the person which offer the highest price when holding sales.

11. If not otherwise established by laws, an appraiser shall be attracted without fail when selling the following pledged movable property upon which execution is levied without judicial recourse (in an extrajudicial procedure):

1) securities which do not circulate in the organized securities market, except for investment shares of public and interval unit investment funds, as well as when levying execution upon bills of exchange by way of direct demanding of execution upon the bills of exchange in the procedure established by Federal Law No. 48-FZ of March 11, 1997 on Bill of Exchange and Note;

2) property rights, except for debtor indebtedness not to be sold through sales;

3) precious metals and precious stones, articles made of them, as well as scrap of such articles;

4) collection bills and coins in roubles and in foreign currency;

5) articles of historical and artistic value;

6) things whose value under a contract of pledge exceeds five hundred thousand roubles.

12. When selling pledged movable property through sales the sales organizer shall declare them as frustrated if:

1) less than two purchasers have taken part in them;

2) in the course of sales the initial selling price of the pledged movable property has not increased;

3) the person being the winner of the sales has not paid the selling price in due time.

13. Sales shall be declared as frustrated at latest on the next day after the date when one of the cited circumstances emerged.

Within ten days after declaring sales as frustrated the pledge holder on the basis of the agreement made with the pledger is entitled to acquire the pledged movable property and to set off against the purchasing price the claims thereof secured by the pledge. The rules concerning a contract of purchase and sale shall apply to such agreement.

If the agreement of property acquisition by the pledge holder is not made, repeated sales shall be held at latest in one month after the date when the first sales were held. The initial selling price of pledged movable property at the repeated sales, if they are held for the reasons cited in Subitems 1 and 2 of Item 12 of this article, shall be reduced by fifteen per cent. When selling pledged movable property through sales held in case of levying execution upon such property without judicial recourse (in an extrajudicial procedure), the agreement made by the parties may provide for a procedure for the price reduction, if the repeated sales have been declared as frustrated for the reasons cited in Subitems 1 and 2 of Item 12 of this article.

In the event of declaring repeated sales as frustrated, the pledge holder is entitled to keep the subject of pledge for himself appraising it in the amount which is up to ten per cent lower than the initial selling price thereof at repeated sales, if a higher price is not established by agreement of the parties.

If the pledge holder has not used the right to keep the subject of pledge for himself within one moth as of the date when repeated sales were declared as frustrated, the contract of pledge shall be terminated. The pledge holder shall be deemed as having used the said right, if within one month as of the date of declaring repeated sales as frustrated he forwards an application in writing to the sales organiser and pledger or, if execution is levied in a judicial procedure, to the sales organizer, pledger and bailiff for keeping the property for himself. If by the time of keeping pledged movable property by the pledge holder for himself he does not know the location of the pledger, a notice shall be delivered to the person or body which are charged under laws to take records of and/or register pledges of this kind of pledged movable property or, if federal laws do not provide for taking records and/or registration of pledges of this kind of movable property, to the

notary at the last place of location or residence of the pledger known to the pledge holder.

The ownership of the subject of pledge held by the pledge holder shall pass over thereto at the time of transfer of the subject of pledge or, if the subject of pledge, by the time of forwarding by the pledge holder to the sales organizer an application for keeping the pledged movable property for himself, is kept by the pledge holder, at the time of forwarding the said application, if laws do not establish any other time for the rise of ownership of a given kind of movable property.

If property rights constitute the subject of pledge, these rights shall pass over to the pledge holder at the time of forwarding to the sales organizer the application for keeping the property rights for himself, provided that federal laws do not fix other time for the transfer of rights to the given kind of property.

14. If under the terms of the agreement made by the pledger and the pledge holder on levying execution upon pledged movable property in an extrajudicial procedure it is realized by way of sale thereof to a third person, the pledge holder shall forward to the pledger a copy of the contract of purchase and sale attested by the pledge holder which is made with this person.

15. If, when levying execution upon pledged movable property on the basis of the agreement made by the parties on levying execution upon pledged movable property in an extrajudicial procedure, is was not realized at the time fixed in compliance with Item 8 of this Article, the pledge holder is entitled to demand levying execution upon such property in a judicial procedure.

16. If the amount derived from selling pledged movable property is not sufficient for covering the pledge holder's claim, he is entitled (if not otherwise provided for by a law or agreement) to receive the deficient amount from other debtor's property while not enjoying the privilege based on the pledge.

17. If the amount derived from selling pledged movable property or the price at which the pledge holder has left pledged movable property for himself exceeds the rate of the pledge holder's claim secured by the pledge, the difference shall be returned to the pledger. The said difference shall be returned at the time fixed by the agreement made by the pledger and the pledge holder or, if such time is not fixed, within ten days as of the date when the price of the pledged movable property to be realised has to be paid by the purchaser or as of the date when the pledge holder acquired the ownership of pledged movable property. In the event of levying execution upon pledged movable property without judicial recourse (in an extrajudicial procedure), the pledge holder shall be deemed responsible towards the pledger for return of the said difference.

Federal Law No. 306-FZ of December 30, 2008 supplemented this Law with Article 28.2. The new Article shall be applied to the legal relationships arising from the end point of the bankruptcy proceedings initiated before the date of entering into force of the said Federal Law

Article 28.2. Realisation of Pledged Movable Property under a Contract of Commission

1. A contract of commission may be concluded for the purpose of realization of the pledged movable property on whose account the pledge holder's claims are to be satisfied without judicial recourse (in an extrajudicial procedure). In this case, the pledge holder shall be the consignor.

The consigner may be defined in an agreement on levying execution upon pledged movable property in an extrajudicial procedure. If an agreement on levying execution upon pledged movable property in an extrajudicial procedure does not specify the consignor, the pledge holder shall do it independently.

Where a contract of commission is made for the purpose of forced realisation of the pledged movable property upon which the pledge holder levies execution, the things received by the commission agent from the consignor shall not be the property of the latter.

2. The price of pledged movable property under a contract of commission shall be fixed as equal to the one cited in the appraiser's report on the property's market value.

Article 29. Satisfaction of the Pledgee's Claims in the Event of an Insufficient Sum Being Received from the Sale of the Pledge

If the sum received from the sale of the pledge is not sufficient to satisfy the pledgee's claim in full, he shall have the right, unless otherwise provided for by the present Law or by the contract, to receive the remainder of the sum from other property belonging to the debtor, which may be subject to a lien under the laws of the Russian Federation, without the priority right found in the pledge contract.

Article 30. The Refund of Receipts from the Sale of the Pledge to the Pledgor

If the sum received from sale of the pledge exceeds the amount of the claims secured by this pledge, the excess shall be refunded to the pledgor.

Article 31. The Termination of the Lien on the Pledge by Fulfilling the Obligation

1. The pledgor shall have the right, at any time before the pledge is sold, to terminate the lien on the pledge by fulfilling the obligation secured thereby.

2. If the obligation secured by the pledge may be fulfilled in part, the pledgor shall have the right to terminate the lien on the pledge by fulfilling the overdue part of the obligation.

3. The contract which attempt to restrict the rights of the pledgor under Paras 1 and 2 of the present Article shall be void.

Article 32. The Transfer of the Pledge to a Third Person

The pledge shall remain in force if the title or the right to full economic control over the pledge is conveyed to a third person.

Article 33. The Concession of the Claim or Transfer of the Debt

If, in the manner prescribed by law, the pledgee concedes the claim secured by the pledge to a third person or the pledgor transfers the debt which has arisen from the obligation secured by the pledge to another person, the pledge shall remain in force.

Article 34. The Basis for and the Consequences of Terminating the Pledge Relationship

The right to the pledge shall be terminated:

(1) if the obligation secured by the pledge has ceased;

(2) if the pledged property has been destroyed;

(3) if the term for the operation of the right which is in pledge has expired;

(4) if the rights to the property in pledge have been transferred to the pledgee;

(5) in other cases provided for by law.

Section II. The Pledgor retains possession of the pledge

Chapter 1. General Provisions

Article 35. Pledge Remaining in the Pledgor's Possession

1. Enterprises, buildings, structures, apartments, transport, space objects and other property defined in Article 6 of the present Law, may be pledged with the pledgor retaining possession thereof.

2. Separable fruits may be pledged according to Para 1 of the present Article, unless they become an object subject to the rights of a third person from the moment of their separation.

3. The pledging of the property which has been conveyed by the pledgor for temporary possession or for use by a third person, shall be deemed to be a pledge with the pledgor retaining possession.

Article 36. The Rights of the Pledgee When the Pledgor Retains Possession

If the pledgor retains possession of the pledged property, the pledgee shall have the right, unless otherwise provided for by the contract:

1. to check through documents or to actually check, the existence, size, state and the conditions of the safekeeping the pledge;

2. to demand that the pledgor take the necessary measures for the safekeeping of the pledge;

3. to demand that any person whose actions may cause loss or damage to the property in pledge, ceases to encroach on the property in pledge.

If the pledge is lost not through the fault of the pledgee and the pledgor has not restored it or, by the pledgor's consent, replaced it with other property of equal cost, the pledgee shall have the right to demand that the pledgor fulfill the obligation secured by the pledge prior to the term agreed.

Article 37. The Rights of the Pledgor When He Retains Possession of the Property

Unless otherwise provided for by the contract or law, the pledgor, if he retains possession of the property, shall have the right:

1. to own and to use the object of the pledge according to its designation;

2. to dispose of the property in pledge through its alienation, with the obligation secured by the pledge being transferred to the acquirer, or through the leasing of the property.

Article 38. The Duties of the Pledgor When He Retains Possession of the Pledge

If the pledgor retains possession of the pledge, he shall have the duty, unless otherwise provided for by the contract:

1. to insure the pledge at his own expense and at its full value;

2. to take the necessary measures for the safekeeping of the pledge, including major and routine repairs;

3. to inform the pledgee about the leasing of the pledge.

Article 39. Consequences of the Pledgor's Breach of His Duties When He Retains Possession of the Pledge

If the pledgor breaks the duties under Paras 1 and 2 of Article 38 of this law, the pledgee shall have the right to apply the lien on the pledge before the term for the fulfillment of the obligation secured by the pledge has elapsed.

Article 40. The Form and Registration of the Contract for the Pledging of Transport Facilities and Space Objects

Federal Law No. 129-FZ of July 26, 2006 amended Item 1 of Article 40 of this Federal Law

See the previous text of the Item

1. The contract pledging civil air, sea and river vessels, the railway vehicles and space objects shall be certified at the notary's office.

2. The pledging of transport facilities shall be registered in the registers which are kept by the public organizations which register civil air, sea and river vessels and other transport facilities.

3. The pledging of an object which is situated in outer space, on the Moon or in other celestial bodies is subject for registration in the register which is kept in accordance with the norms of international space law.

Article 41. The Mortgage of Pieces of Land

The mortgaging of pieces of land by persons who have the right of ownership shall be conducted according to the manner prescribed by land legislation or by other laws of the

Russian Federation, if such a mortgage is not encompassed by Chapter 2 of the present Section.

Chapter 2. Mortgage of an Enterprise, Building, Structure or Other Property Directly Connected with Land (Hypothec)

According to Article 79 of Federal Law No. 102-FZ of July 16, 1998, as of the effective date of the Federal Law, the norms of this Law shall be applicable to pledge of real estate (mortgage) to the extent they are consistent with the Federal Law No. 102-FZ of July 16, 1998

Article 42. The Concept of Hypothec

Hypothec shall be the pledging of an enterprise, building, structure or other property directly connected with land, together with the corresponding piece of land or the right to use it.

Article 43. The Form of the Hypothec Contract. The Registration of the Hypothec

1. The hypothec contract shall be certified at the notary's office.

2. The hypothec shall be registered in the land register in the locality where the enterprise, building, structure or other property is situated.

About state registration of mortgage see Federal Law of the Russian Federation No. 122-FZ of July 21, 1997

The transfer of the title to the mortgaged property or the transfer of the right to full economic control over the mortgaged property, from the mortgagor to another person shall be registered in the same land register as that in which the mortgage has been registered.

3. The body effecting the public registration of the mortgage of an enterprise as a whole shall be obliged to provide information about the registration of the mortgage to the bodies keeping the land register, including to those bodies in the localities where the separate divisions of the enterprise are situated.

See Instructions on the Procedure for the State Registration of a Mortgage of Immovables, approved by Order of the Ministry of Justice of the Russian Federation No. 213 of June 15, 2006

Article 44. The Mortgage of an Enterprise

1. The mortgaging of an enterprise shall apply to all its property, including capital assets and current assets, and also other valuables shown in the independent balance sheet, unless otherwise provided for by law or by the contract.

2. The enterprise mortgagor shall be obliged to present to the mortgagee, at the latter's demand, the annual balance sheet.

3. In case of default of the obligation secured by the mortgage, the mortgagee shall have the right to take measures aimed at improving the financial position of the enterprise as provided for by the mortgage contract, including appointing the mortgagee's representatives to the enterprise's governing bodies, restricting the right to dispose of manufactured products and the enterprises other property. If the above measures do not bring the desired effect, the mortgagee shall have the right to apply a lien on the mortgaged enterprise.

4. If the lien is applied on the mortgaged enterprise, the latter shall be sold at auction as a single complex, according to the manner prescribed by the laws of the Russian Federation.

Article 45. The Early Fulfillment of the Obligation Secured by the Hypothec

The mortgagor shall have the right to fulfill the obligation secured by the mortgage in full at any time prior to the expiration of the term for the fulfillment of the obligation if the mortgage contract excludes the possibility of a subsequent mortgaging of the same property.

Chapter 3. The Pledging of Goods which are in circulation or in processing

Article 46. The Peculiarities of Pledging Goods in Circulation or Processing

1. When pledging goods which are in circulation or in processing, a change in composition or natural form of the pledge (stock-in-trade, raw materials, semi-finished products, manufactured products, etc.) shall be allowed provided that their total cost does not become less than that stipulated by the contract.

A diminution of the cost of the pledged goods which are in circulation or processing shall be allowed if it corresponds to a partial fulfillment of the obligation secured by the pledge, unless otherwise provided for by the contract.

2. When pledging goods which are in circulation and processing, the goods sold by the pledgor shall cease to be a pledge as from the moment of the transfer to the purchaser of the title, of full economic control or management and the goods acquired by the pledgor and provided for by the pledge contract shall become a pledge as of the moment when the pledgor acquires the title of ownership or the right of full economic control over them.

Article 47. The Content of the Contract on Pledging Goods Which Are in Circulation or Processing

The contract on pledging goods which are in circulation or processing shall define the kind of the goods pledged, their other properties, total cost of the pledge, the place where it is situated, and also the kinds of goods which may replace those in pledge.

Article 48. The Rights of the Pledgor of Goods Which Are in Circulation and Processing

The pledgor of goods which are in circulation or processing shall retain the right to possess, use and dispose of the goods in pledge in observance with the provisions of the present Chapter.

Section III. The Pledge with the Transfer of Property (Thing)

to the Pledgee (Pawn)

Article 49. The Concept of the Pawn

1. A pawn means a pledge contract under which the property (thing) pawned shall be transferred to the pawnee's possession.

2. The contract may provide that the pawn may be retained by the pawner who shall keep it under the pawnee's lock and seal (fixed pawn). An individually defined definite thing with imposed marks attesting to the pawn may be retained by the pawner.

The provisions of the present Section shall apply to the fixed pawn insofar as their application does not contradict the essence of the relationship between the pawner and the pawnee under the pawn contract.

Article 50. The Duties of the Pawnee

Unless otherwise provided for by the contract, the pawnee shall have the duty:

1. to insure the pawn at its full value at the expense and in behalf of the pawner;

2. to take the necessary measures for the safekeeping of the pawn;

3. to immediately inform the pawner about the threat of loss or of damage to the pawn;

4. to submit regular reports to the pawner about the use of the pawn, if such use corresponds with and is allowed under Para 1 of Article 51 of the present Law;

5. to immediately return the pawn following the fulfillment by the pawner or a third person of the obligation secured by the pawn.

The pawnee shall be obliged to derive an income from the property in pawn on behalf of the pawner, as provided for by the contract.

Article 51. The Rights of the Pawnee

1. The pawnee shall have the right to use the property in pawn in cases directly provided for by the pawn contract. The income derived by the pawnee from the use of the pawn and other profit shall be assigned to cover the expense of

safekeeping the pawn, and shall also be taken into account with regard to the payment of the interest on the debt or of the debt itself.

2. If a real threat of loss of or damage to the property in pawn arises not through the fault of the pawnee, the latter shall have the right to demand a replacement of the pawn, and in the event of the refusal by the pawner to meet that demand, to apply the lien on the pawn before the elapse of the term for the fulfillment of the obligation secured by the pawn.

Article 52. The Possibility of the Early Fulfillment of the Obligation Secured by the Pawn

If the pawnee keeps or uses the pawn in an improper manner, the pawner shall have the right to demand, at any time, that the pawn relationship be terminated or to fulfill the obligation secured by pawn in advance.

Article 53. The Pawnee's Responsibility for the Loss, Deficiency or Damage to the Property in Pawn

Federal Law No. 197-FZ of July 19, 2007 amended Item 1 of Article 53 of this Law. The amendments shall enter into force from January 1, 2008

See the Item in the previous wording

1. The pawnee shall bear the responsibility for the loss, deficiency or damage to the property in pawn, unless he proves that the loss, deficiency or damage have not occurred due to his own fault.

If the granting of loans against the pawning of property is the subject of business activity of a pledgee, then his exemption from responsibility may take place only in the case that the pledgee proves that the loss, shortage or damage of the object of the pawn occurred in consequence of insuperable force or (if the object of the pawn has been left with the pledger) intent or gross negligence of the pledger.

2. The pawnee shall bear the responsibility for the loss or deficiency of the property in pawn for the amount of the value of that property which is lost or deficient, and for the damage of the pawn, for the amount of the diminution in the value of the thing pawned. If the thing was evaluated when being pawned, the responsibility of the pawnee shall not exceed this established value.

If provided for by law or by the contract the pawnee shall be obliged to compensate the pawner, in full, for the losses incurred as a result of the loss, deficiency or damage to the property in pawn.

Section IV. Pledge of Rights

Article 54. Rights as a Pledge

1. The pledgor's rights to possess or to use something, including tenant rights, other rights (claims) arising from obligations and other property rights may be pledged.

2. A right which has a limited term of operation may only be pledged before this operational term has expired.

3. The contract on the pledge of rights, which cannot be evaluated in terms of money shall determine the value of the pledge by mutual agreement of the parties.

Article 55. The Content of the Contract on the Pledge of Rights

The contract on the pledge of rights shall establish, along with the terms provided for by Article 10 of the present Law, the person who is the pledgor's debtor. The pledgor shall be obliged to inform his debtor about the pledge of rights.

Article 56. The Duties of the Pledgor of Rights

The pledgor of rights shall have the duty, unless otherwise provided for by the contract:

1. to perform the actions which are necessary to secure the validity of the right in pledge;

2. not to concede the pledged right;

3. not to perform actions which will result in the termination of the pledged right or which will diminish its value;

4. to take the necessary measures in order to protect the pledged right from encroachments by third persons;

5. to inform the pledgee about changes which have occurred to the pledged right, about breaches of the right by third persons and about claims on the part of third persons in respect of this right.

Article 57. The Rights of the Pledgee of Rights

Unless otherwise provided for by the contract, the pledgee shall have the right:

1. regardless of the term for the fulfillment of the obligation secured by the pledge, to request the court of law or an arbitration court to transfer the pledged right to him, if the pledgor has not fulfilled the duties stipulated by Article 56 of the present Law;

2. to participate as a third person in judicial proceedings which are concerned with the pledged right;

3. if the pledgor has not fulfilled the duties stipulated by Para 4, Article 56, of this law, to independently take the necessary measures in order to protect the pledged right from being breached by a third person.

Article 58. The Consequences of the Fulfillment by the Debtor of His Obligations to the Pledgor

1. If the pledgor's debtor fulfills his obligation before the pledger fulfills his obligation which was secured by the pledge, everything that the pledgor has received from his debtor shall become the pledge, the pledgor has a duty to immediately inform the pledgee of such an occurrence.

2. Upon receiving money as the fulfillment of the obligation by the debtor, the pledgor is obliged to, at the demand of the pledgee, remit the corresponding sum on account of fulfillment of the obligation secured by the pledge, unless otherwise provided for by the pledge contract.

Section V. Guarantees of the Rights of the Parties

Article 59. The Protection of the Pledgee's Interests in the Event of the Termination of His Rights and the Pledgor's Rights to the Pledged Property On the Grounds Provided for by Law

1. If the Russian Federation or a republic within the Russian Federation enacts legislation which terminates the pledge right or the pledgor's right to the property in pledge, the pledgee shall be compensated in full for the losses incurred as a result of the enactment of this legislation by the Russian Federation or by the corresponding republic within the Russian Federation. Disputes concerning the compensation of losses shall be settled in a court of law.

2. In the event of the termination of the title to the pledged property or the termination of pledged rights, resulting from the decision of a governmental body which did not directly intend to withdraw the pledged property or the pledged right, including a decision concerning the withdrawal of a piece of land on which the pledged building, construction or plantation are situated, the pledgee shall be compensated in full for the losses incurred as a result of such a decision by that body from the funds at its disposal. Disputes concerning the compensation of losses shall be settled in a court of law or in an arbitration court.

Article 60. The Invalidity of Acts Which Violate the Pledged Right

1. If the pledgee's rights are violated as a result of the adoption of an act by a body of state administration or by a body of local government body which contradicts the legislation, such an act shall be deemed to be invalid by a court of law or by an arbitration court upon the pledgee's complaint.

2. The pledgee shall be compensated in full for the losses incurred as a result of the adoption of an act under Para 1 of the present Article by the corresponding body of state administration or by the corresponding local government body.